Johnson & Johnson Guides Above Expectations for 2023

“While we had inflationary pressures that will persist in 2023, we’ve been pretty diligent and disciplined with respect to prioritizing top investments, and managing some of the costs,” Johnson & Johnson
‘s chief financial officer, Joseph Wolk, told Barron’s early Tuesday morning.

The guidance sets an unexpectedly positive tone for big pharma earnings season and could allay fears that inflationary pressures are catching up with the pharmaceutical industry.

Johnson & Johnson (ticker: JNJ) shares were up 0.4% in premarket trading.

The company reported fourth-quarter sales of $23.7 billion, slightly below the FactSet consensus estimate of $23.9 billion. Adjusted earnings per share were $2.35, above the FactSet consensus estimate of $2.23.

Johnson & Johnson’s chief executive, Joaquin Duato, appeared to suggest at an investor conference earlier this month that the company’s 2023 guidance would be heavily affected by inflation, among other factors, saying he would “have to be cautious about 2023.”

Duato’s warning led some analysts to ratchet down their estimates for the company’s 2023 fiscal year. Last week, SVB Securities analyst David Risinger, who has an Outperform rating on Johnson & Johnson, dropped his estimate for the company’s 2023 earnings per share to $9.88, from $10.57.

On Tuesday, it turned out that Risinger’s original guess was closer to the company’s perspective.

“No industry is immune to some of the inflationary pressures that we saw,” Wolk told Barron’s Tuesday. “We’re not assuming any deflationary impact or any relief, but we don’t think it escalates from here. So we’ll see some incremental impact. But that’s accounted for in the guidance.”

Johnson & Johnson’s earnings often act as a bellwether for the rest of the large-cap biopharma sector, companies in which will announce their own financial results and 2023 guidance in the coming weeks. The relative rosiness of Johnson & Johnson’s 2023 guidance could breathe some life back into the thesis that big pharma represents a defensive haven in the current market environment.

While the S&P 500 Pharmaceuticals industry group dramatically outperformed the broader index in 2022, it has stumbled in the early weeks of this year, dropping more than 3%, while the S&P 500 is up more than 5%.

In a note out early Tuesday, Cantor Fitzgerald analyst Louise Chen wrote that “2022 results and the company’s 2023 outlook reflect the strength and stability of JNJ’s three business segments, despite macroeconomic challenges.”

Johnson & Johnson disclosed no new information on Tuesday on the planned separation of its consumer health division, planned to be completed this year. The 2023 guidance reflects the entire business, including the consumer health division.

“We are still very much on plan for a 2023 separation,” Wolk said.

Johnson & Johnson reported pharmaceutical sales of $13.2 billion for the fourth quarter of 2022, up 6.8% from the same quarter last year. The company said the increase was driven by its multiple myeloma treatment Darzalex, its inflammatory disease treatment Stelara, and others.

Sales of its medical devices business were up 6.1%, while sales in its consumer health business were up 3.9%.

“I look at some of the stocks that have performed well, over years, decades of time,” Wolk said. “Those are ones that generate strong cash flow and pay dividends. That is our wheelhouse.”