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Why Johnson & Johnson Is So Optimistic These Days

By Motley Fool Staff - Apr 28, 2016 at 7:00AM

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What’s behind the company's higher-than-expected Q1 profit and raised guidance.

Johnson & Johnson's (JNJ 1.39%) stock recently notched a new high after a glowing Q1 earnings report.

In this segment from the Market Foolery podcast, Chris Hill, Charly Travers, and Jim Mueller talk about how Johnson & Johnson is making its money, and why the company raised its guidance so much.

A transcript follows the video.

This podcast was recorded on April 19, 2016. 

Chris Hill: Johnson & Johnson, more of a household name than Illumina, hitting a new high after first-quarter profits came in higher than expected, and they raised guidance for the entire fiscal year. They're getting pretty bullish up there in New Jersey, at J&J HQ.

Jim Mueller: I think that's more of a reflection of the weakening U.S. dollar than anything else.

Hill: You think so?

Mueller: Yeah. Last year, with the really strong U.S. dollar, it's been hurting a lot of companies that report in U.S. dollars but have international sales. And they were having headwinds on that. And now that the dollar is falling back down a little bit, they say, "Oh, it's not as bad, it's not going to hurt us as badly this year, so let's up the U.S. dollar revenue that we're going to report."

Charly Travers: Yeah, that's part of the earnings story. Johnson & Johnson is a diversified healthcare company. They have over-the-counter products like Tylenol, they have a very big drug business and also medical devices. The highlight for them in the quarter is the drug side of the business. Half the business is prescription drugs, for the most part. And in the U.S., those sales were up close to 13%. This company is very strong in immunology -- so, if you think of like, arthritis and psoriasis, very strong -- and cancer, those two parts of the business are going gangbusters. And it's the international side with the medical devices that's a little bit of a struggle for them right now, relatively speaking.

Mueller: One piece of news that I saw that I liked is, they're bringing back their baby formula shampoo to try to capture the millennials who are going more toward organic, and perceived safer products. So, I saw that on the news this morning.

Hill: (laughs) Wait a minute, Johnson & Johnson is going to market baby shampoo to millennials?

Mueller: Yeah, and that's going to save their banking.

Hill: Not necessarily millennials who have children. Just --

Mueller: No, no not --

Hill: Oh, OK. (laughs) I thought it was --

Mueller: To millennial moms.

Hill: Okay. (laughs) Because I was like, "Wait a minute, I'm trying to connect the dots on this one ... " And, certainly, as you said, Charly, this is a big, diversified business. They have a lot of moving parts. But, I would love to be in the room if someone's pitching that.

Travers: I mean, I don't want tears in my shower either. Why is that just for kids?

Hill: I'm not pro-tears, I'm just saying, that's a little bit of a leap.

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