Johnson & Johnson (JNJ 0.47%) has spent several quarters working toward sharpening its focus on its innovative medicine and medical technology (MedTech) businesses. It took a huge step forward by completing the spin-off of its former consumer healthcare business, Kenvue (KVUE 1.06%), to shareholders during the third quarter. With Kenvue's separation complete, Johnson & Jonhson can put its full attention behind its remaining businesses.
That strategy is already paying dividends for investors. The healthcare behemoth produced strong financial results during Q3 and raised its full-year guidance. Here's a look at the period and what's ahead for the healthcare company.
A healthy quarter
Here's a snapshot of Johnson & Johnson's income statement for the third quarter:
Image source: The Motley Fool.
As that graphic showcases, the healthcare company reported solid revenue growth of 6.8% to nearly $21.4 billion. That was ahead of the analysts' consensus estimate of $21 billion.
The big driver was the strength of its MedTech division where sales surged 10%. A notable catalyst was its $16.6 billion all-cash deal for Abiomed, which closed at the end of last year. That acquisition contributed 4.6% of the revenue growth in its MedTech segment in the quarter.
Abiomed wasn't the only growth driver. Johnson & Johnson reported strong adjusted operational-sales growth (a metric that strips out the impact of acquisitions and asset sales) of 6% in its MedTech business. The company saw sales growth of contact lenses, wound closure products, electrophysiology products, and biosurgery. Meanwhile, adjusted-operating sales in its innovative medicine segment rose 4.4%, driven by growth across several therapies.
Johnson & Johnson's rising revenue helped drive healthy earnings growth. Its adjusted net earnings jumped 14.1% to almost $6.8 billion. Meanwhile, adjusted earnings surged 19.3% on a per-share basis to $2.66. That beat the analysts' consensus estimate of $2.52 per share. The Kenvue separation helped drive the faster per-share growth rate. Johnson & Johnson's outstanding shares declined by 7% as it exchanged Kenvue shares for its stock. The company also repurchased $2.5 billion of its shares earlier this year.
An improved outlook
Johnson & Johnson's strong showing gave it the confidence to boost its full-year outlook. It initially revised its guidance following the spin-off of Kenvue. Here's a look at the changes to its view since then:
|
Metric |
August 2023 (Midpoint) |
October 2023 (Midpoint) |
|---|---|---|
|
Operational Sales |
$84 billion |
$84.6 billion |
|
Adjusted Operational Sales Growth |
6.7% |
7.5% |
|
Adjusted Earnings Per Share (EPS) |
$10.05 |
$10.10 |
|
Adjusted EPS Growth |
12.5% |
13% |
Data source: Johnson & Johnson.
As that table shows, Johnson & Johnson now sees even faster sales and earnings growth for this year following the separation of Kenvue. That's due to the continued strong performance of its MedTech and innovative medicine businesses.
Johnson & Johnson expects those segments to continue performing well in 2024. It provided investors with an early glimpse at the year ahead. The company noted that it's confident it can deliver growth in its key innovative medicine brands while seeing progress from recently launched products. It also sees growth and enhanced competitiveness in its MedTech division, driven by new products and commercial capabilities.
Meanwhile, the company remains a financial fortress following the Kenvue separation. It ended the third quarter with $24 billion in cash against $30 billion in debt. That gives it tremendous financial flexibility to invest in its business, continue paying a growing dividend, and capitalize on merger and acquisition (M&A) opportunities as they arise.
The strategy is working
Johnson & Johnson's decision to focus on its faster-growing innovative medicine and MedTech businesses by spinning off Kenvue is already seeing an early payoff. The company delivered better-than-expected earnings and revenue growth in Q3 and boosted its full-year outlook. It's also in an excellent position to continue producing strong results in 2024. Add in its healthy balance sheet and 3%-yielding dividend, and Johnson & Johnson looks like a compelling investment opportunity, especially given the current economic uncertainty.
