01—Abstract
Summary
Summary of the 8-K filed July 17, 2024. Cited figures are marked; the original filing is the authoritative source.
Johnson & Johnson reported second-quarter 2024 sales of $22.4 billiona, up 4.3% reported and 6.5% on an adjusted operational basis (7.1% excluding the COVID-19 vaccine).
Growth was led by the U.S., where sales rose 7.8%b, and by Innovative Medicine, where worldwide operational sales excluding the vaccine rose 8.8%. Oncology (DARZALEX, ERLEADA, CARVYKTI), TREMFYA, and SPRAVATO drove the gains. MedTech grew 4.4% operationally, led by electrophysiology, Abiomed, and wound closure.
GAAP diluted EPS fell 5.9% to $1.93c, and GAAP net earnings from continuing operations fell 12.8% to $4.7 billion. The decline reflects special items, including $352 million of litigation charges, $431 million of losses on securities, $194 million of IPR&D impairments, and $1.1 billion of intangible amortization. Adjusted diluted EPS rose 10.2% to $2.82.
Full-year 2024 guidance was reshaped by acquisitions rather than by core performance. Management raised its operational sales guidance to $89.2d-89.6 billion (midpoint 6.4% growth) to include Shockwave Medical, while reported sales guidance was unchanged at $88.0-88.4 billion. Pre-M&A adjusted operational EPS was raised by $0.05 to $10.73.
After a $0.68 dilution from Shockwave, Proteologix, and NM26, the adjusted operational EPS midpoint fell to $10.05 from $10.68, and adjusted diluted EPS guidance fell to $9.97-$10.07. Investors should read the EPS cut as acquisition-driven dilution against an improved underlying outlook. The filing also flagged a legal development: LLT Management LLC, a subsidiary, plans a 'prepackaged' reorganization to resolve all current and future ovarian cancer talc claims.
Pipeline and regulatory news was heavy, including the TREMFYA Crohn's disease and ulcerative colitis filings, a subcutaneous amivantamab BLA, and EU approvals for RYBREVANT and CARVYKTI. Gross margin compressed to 69.4% from 70.0%, and R&D spending fell 7.1%.
02—Key points
Key Highlights
- Q2 2024 reported sales of $22.4B (+4.3%); operational growth of 6.6%, adjusted operational growth of 6.5%, and 7.1% excluding the COVID-19 vaccine. U.S. sales grew 7.8%, and international sales grew 0.2% reported (5.1% operational).
- GAAP diluted EPS fell 5.9% to $1.93 and GAAP net earnings fell 12.8% to $4.7B, driven by litigation charges ($352M), securities losses ($431M), IPR&D impairments ($194M), and intangible amortization ($1.1B). Adjusted diluted EPS rose 10.2% to $2.82.
- Innovative Medicine operational sales excluding the COVID-19 vaccine grew 8.8%, led by DARZALEX, ERLEADA, TREMFYA, STELARA, and SPRAVATO. Oncology sales rose 15.7% reported to $5.1B.
- MedTech sales grew 2.2% reported (4.4% operational), with electrophysiology (+13.4% operational), Cardiovascular, and wound closure as key drivers. Orthopaedics grew 2.1% reported.
- 2024 operational sales guidance was raised to $89.2-89.6B to include Shockwave Medical. Reported sales guidance was unchanged at $88.0-88.4B.
- Adjusted operational EPS guidance midpoint fell to $10.05 from $10.68. Pre-M&A it was raised $0.05 to $10.73, but acquisition dilution of $0.68 more than offset the improvement.
- Management announced a plan through subsidiary LLT Management LLC to resolve all current and future ovarian cancer talc claims via a prepackaged reorganization, a material legal and balance-sheet development to monitor.
03—Questions
Frequently Asked Questions
Why did GAAP earnings fall while adjusted earnings rose?
GAAP net earnings from continuing operations fell 12.8% to $4.7B, largely because of special items that adjusted EPS excludes. These include $352M of litigation charges, $431M of losses on securities, $194M of IPR&D impairments, and $1.1B of intangible amortization. Excluding these items, adjusted net earnings rose 1.6% to $6.8B, and adjusted EPS rose 10.2% to $2.82, helped by a lower share count (2.42B diluted shares vs. 2.63B a year earlier).
Did Johnson & Johnson lower its 2024 earnings outlook?
Not on an underlying basis. Pre-acquisition adjusted operational EPS guidance was raised by $0.05 to $10.73. The reported midpoint fell to $10.05 from $10.68 because of $0.68 of dilution from the Shockwave Medical, Proteologix, and NM26 acquisitions. Adjusted diluted EPS guidance was lowered to $9.97-$10.07 from $10.57-$10.72.
What is the significance of the talc-related announcement?
J&J announced that its subsidiary LLT Management LLC plans a 'prepackaged' reorganization to resolve all current and future ovarian cancer talc claims. The filing does not quantify the financial impact here. Investors should review the 10-Q and litigation disclosures for the expected cost, the structure, and the timing, since litigation has been a significant source of special charges (about $3.1B in the first half of 2024 alone).
Which business segments are driving growth, and where are the weak spots?
Oncology (+15.7% reported) and Innovative Medicine U.S. (+8.9%) were the strongest growth areas, with DARZALEX, ERLEADA, TREMFYA, and SPRAVATO leading. Weaker areas included COVID-19 vaccine sales (down 39.7%), Infectious Diseases (down 13.9%), Other Neuroscience (down 23.7%), and REMICADE (down 14.9%). Among MedTech, Orthopaedics grew 2.1% and Surgery declined 4.1%.
Is margin pressure a concern?
Modestly. Gross margin declined to 69.4% from 70.0%, and the GAAP effective tax rate rose to 18.5% from 14.7%. Adjusted net earnings margin fell to 30.5% from 31.3%. Acquisition integration costs and amortization from recent deals are likely to weigh on reported margins through 2024.
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