10-QPeriod: Q3 FY2014

JOHNSON & JOHNSON Quarterly Report for Q3 Ended Sep 28, 2014

Filed October 30, 2014For Securities:JNJ

Summary

Johnson & Johnson reported a significant increase in net earnings for the third quarter and the first nine months of 2014 compared to the prior year. This growth was primarily driven by strong sales performance in the Pharmaceutical segment, particularly from the hepatitis C products OLYSIO®/SOVRIAD® and INCIVO®, along with positive contributions from STELARA® and ZYTIGA®. The company also completed the divestiture of its Ortho-Clinical Diagnostics business, which contributed to a substantial net gain. While the Medical Devices and Diagnostics segment saw a decrease in sales due to this divestiture, operational improvements were noted in other areas. Management highlighted cost containment efforts and a favorable sales mix of higher-margin products as key drivers of profitability. The company also maintained a strong liquidity position, supported by robust operating cash flows and an available credit facility.

Financial Highlights

54 data points
Beta

Revenue

$18.47B

70.8% Gross Margin

Net Income

$4.75B

25.7% Net Margin

EPS (Diluted)

$1.66

Total Assets

$132.10B

Cash & Equivalents

$13.82B

Free Cash Flow

$3.90B

Financial Statements
Beta
Revenue$18.47B
Cost of Revenue$5.40B
Gross Profit$13.07B
SG&A Expenses$5.47B
Operating Income$7.05B
Interest Expense$130.00M
Net Income$4.75B
EPS (Basic)$1.69
EPS (Diluted)$1.66
Shares Outstanding (Basic)2.81B
Shares Outstanding (Diluted)2.86B

Key Highlights

  • 1Worldwide sales increased by 5.1% in Q3 2014 and 5.9% in the first nine months of 2014 compared to the prior year, driven by operational growth.
  • 2Pharmaceutical segment sales showed robust growth, up 18.1% in Q3 and 16.7% year-to-date, boosted by key products like OLYSIO®/SOVRIAD®, STELARA®, and ZYTIGA®.
  • 3The company completed the divestiture of its Ortho-Clinical Diagnostics business for approximately $4.0 billion, resulting in a pre-tax net gain of approximately $1.9 billion.
  • 4Net earnings significantly increased, with Q3 2014 earnings at $4.7 billion ($1.66 per diluted share) compared to $3.0 billion ($1.04 per diluted share) in Q3 2013.
  • 5Cash flow from operations remained strong, totaling $14.1 billion for the first nine months of 2014.
  • 6The company declared a quarterly cash dividend of $0.70 per share.
  • 7Johnson & Johnson announced a definitive agreement to acquire Alios BioPharma, Inc. for approximately $1.75 billion.

Frequently Asked Questions

The significant increase in net earnings was primarily driven by strong sales volume growth, particularly from OLYSIO®/SOVRIAD® (simeprevir), a positive sales mix from higher-margin products in the Pharmaceutical business, and the divestiture of the Ortho-Clinical Diagnostics business, which resulted in a substantial net gain. Cost reduction efforts also contributed to the improved profitability.

The divestiture of the Ortho-Clinical Diagnostics business was completed for approximately $4.0 billion, generating a pre-tax net gain of about $1.9 billion which was recognized in the third quarter of 2014. This significantly boosted the Medical Devices and Diagnostics segment's pre-tax profit and contributed to the overall increase in consolidated earnings. However, it also led to a decrease in the segment's reported sales.

The Pharmaceutical segment demonstrated strong performance with significant sales growth, largely due to products like OLYSIO®/SOVRIAD® (simeprevir) and STELARA®. However, the report notes that the recent approval of a competitive product for OLYSIO®/SOVRIAD® is expected to negatively impact its future sales. Additionally, the patent exclusivity for REMICADE® in several European countries is set to expire in February 2015, which could lead to reduced sales if biosimilar versions are introduced.

Johnson & Johnson maintained a strong liquidity position, with cash and cash equivalents of $13.8 billion at the end of the third quarter of 2014. Operating activities generated $14.1 billion in cash flow. The company has access to a $10.0 billion credit facility and commercial paper markets for funding. A new share repurchase program of up to $5.0 billion was also authorized, to be financed through available cash.