Why did GAAP earnings fall so sharply in Q3 2024?

Net earnings from continuing operations declined 37.5% to $2.69 billion, primarily because of a $2.4 billion pre-tax litigation charge and acquired in-process R&D tied to recent acquisitions such as V-Wave. These are largely one-time items, which is why adjusted EPS, at $2.42, declined a more modest 9.0%.

What is the difference between reported and adjusted EPS, and which should investors focus on?

GAAP diluted EPS was $1.11, while adjusted EPS was $2.42. The adjusted figure excludes intangible amortization expense and special items such as litigation charges, restructuring, and acquisition-related costs. Management's view is that these items are volatile and not indicative of ongoing operations, but investors should still treat adjusted metrics as non-GAAP and review the reconciliations.

Did J&J change its 2024 outlook?

Yes. Operational sales guidance was raised to 6.3%-6.8% growth (midpoint 6.6%), up from 6.1%-6.6%. Adjusted operational EPS guidance midpoint was reduced to $9.91 from $10.05, as dilution from the V-Wave acquisition of $0.24 per share outweighed an improved underlying outlook of $0.10.

Which products and segments drove growth, and where were the weak spots?

Oncology products such as DARZALEX, ERLEADA, and CARVYKTI led growth, along with TREMFYA, SPRAVATO, and the MedTech electrophysiology and Abiomed businesses. STELARA and SIMPONI declined, and international sales grew only 2.2% reported, with currency weighing on results by about 2.4 points.

What events occurred after the quarter that could matter to investors?

Subsequent events included the completion of the V-Wave acquisition, the announcement that subsidiary Red River Talc LLC filed a voluntary prepackaged Chapter 11 case to resolve ovarian cancer talc claims, and the EU submission for DARZALEX SC-based quadruplet regimen. The talc bankruptcy filing in particular may affect the company's litigation exposure and should be evaluated in subsequent filings.

JNJ 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed October 15, 2024. Cited figures are marked; the original filing is the authoritative source.

Johnson & Johnson reported third-quarter 2024 results (quarter ended September 29, 2024) with reported sales up 5.2% to $22.5 billion^a, operational growth of 6.3%, and adjusted operational growth of 5.4%.

Growth was led by the U.S. (up 7.6%^b reported) and Innovative Medicine (up 4.9% reported, 6.3% operational), with MedTech sales up 5.8% reported. Oncology, DARZALEX, TREMFYA, and SPRAVATO were key drivers, partly offset by STELARA and SIMPONI declines. Growth was partly offset by currency headwinds of about 1.1 points and weakness in international markets, which grew only 2.2% reported.

GAAP profitability fell sharply. Net earnings from continuing operations dropped 37.5% to $2.69 billion^c, and diluted EPS fell 34.3% to $1.11, driven by a $2.4 billion pre-tax litigation charge and roughly $1.8 billion in acquired IPR&D, largely tied to the V-Wave acquisition. Adjusted EPS declined 9.0% to $2.42, with acquired IPR&D reducing results by approximately 1,900 basis points.

Quarterly R&D expense rose 43.7% to $4.95 billion^d, reflecting the acquired IPR&D charges. On guidance, management raised full-year 2024 operational sales growth guidance to a 6.3%-6.8% range (midpoint 6.6%) and raised reported sales guidance to a midpoint of $88.6 billion.

Adjusted operational EPS guidance was revised to a midpoint of $9.91, from $10.05 in July, as the $0.10 improvement in underlying performance was more than offset by a $0.24 dilution from the V-Wave acquisition. Investors should weigh the strong top-line momentum against the one-time charges and the dilution from recent acquisitions.

02—Key points

Key Highlights

Third-quarter reported sales rose 5.2% to $22.5 billion, with operational growth of 6.3% and adjusted operational growth of 5.4%.
GAAP diluted EPS fell 34.3% to $1.11, driven by a $2.4 billion pre-tax litigation charge and acquired IPR&D; adjusted EPS declined 9.0% to $2.42.
Full-year 2024 operational sales guidance was raised to a 6.3%-6.8% growth range (midpoint 6.6%), with reported sales guidance midpoint of $88.6 billion.
Full-year adjusted operational EPS guidance midpoint was lowered slightly to $9.91 from $10.05, as the V-Wave acquisition dilution of $0.24 more than offset a $0.10 operational improvement.
Innovative Medicine grew 6.3% operationally, led by DARZALEX, ERLEADA, CARVYKTI, TREMFYA, and SPRAVATO, while STELARA and SIMPONI declined.
MedTech grew 6.4% operationally, with about 2.7 points from net acquisitions, driven by electrophysiology, Abiomed, and contact lenses.
Regulatory progress included FDA approvals for TREMFYA in ulcerative colitis and RYBREVANT plus LAZCLUZE in first-line EGFR-mutated lung cancer, plus an IDE submission for the OTTAVA surgical robot.

03—Questions

Frequently Asked Questions

Why did GAAP earnings fall so sharply in Q3 2024?
Net earnings from continuing operations declined 37.5% to $2.69 billion, primarily because of a $2.4 billion pre-tax litigation charge and acquired in-process R&D tied to recent acquisitions such as V-Wave. These are largely one-time items, which is why adjusted EPS, at $2.42, declined a more modest 9.0%.
What is the difference between reported and adjusted EPS, and which should investors focus on?
GAAP diluted EPS was $1.11, while adjusted EPS was $2.42. The adjusted figure excludes intangible amortization expense and special items such as litigation charges, restructuring, and acquisition-related costs. Management's view is that these items are volatile and not indicative of ongoing operations, but investors should still treat adjusted metrics as non-GAAP and review the reconciliations.
Did J&J change its 2024 outlook?
Yes. Operational sales guidance was raised to 6.3%-6.8% growth (midpoint 6.6%), up from 6.1%-6.6%. Adjusted operational EPS guidance midpoint was reduced to $9.91 from $10.05, as dilution from the V-Wave acquisition of $0.24 per share outweighed an improved underlying outlook of $0.10.
Which products and segments drove growth, and where were the weak spots?
Oncology products such as DARZALEX, ERLEADA, and CARVYKTI led growth, along with TREMFYA, SPRAVATO, and the MedTech electrophysiology and Abiomed businesses. STELARA and SIMPONI declined, and international sales grew only 2.2% reported, with currency weighing on results by about 2.4 points.
What events occurred after the quarter that could matter to investors?
Subsequent events included the completion of the V-Wave acquisition, the announcement that subsidiary Red River Talc LLC filed a voluntary prepackaged Chapter 11 case to resolve ovarian cancer talc claims, and the EU submission for DARZALEX SC-based quadruplet regimen. The talc bankruptcy filing in particular may affect the company's litigation exposure and should be evaluated in subsequent filings.

04—Continue

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