Johnson & Johnson (NYSE:JNJ) reported quarterly earnings Tuesday morning which topped Wall Street’s estimates as management increased it forecast for the year. But despite that good news, investors pushed shares of JNJ lower as currency headwinds continue to negatively impact the company’s results. 
Johnson & Johnson earnings came in at $1.71 per share — lower than the $1.78 posted last year but above the $1.68 analysts were expecting. On the revenue front, JNJ reported 17.8 billion, lower than the $19.5 billion reported for the same quarter last year but above the $17.75 Wall Street was estimating.
Moving forward, management believes JNJ stock will post earnings within a range from $6.10 per share to $6.20 per share — higher than its previous forecast of $6.04 to $6.19.
JNJ felt the effects of the strong dollar as the company lost almost eight percentage points of revenue due to the currency change.
In most cases, I hate hearing management give excuses as to why they performed poorly and I am not giving JNJ stock a pass on that front. But, if we add the currency exchange back into the company’s results, sales only fell by 0.9%, as opposed to the nearly 8% actual revenue declined this quarter compared to the second quarter last year.
JNJ Stock Performing Well in Key Segments
When we look at JNJ’s three main operating units, consumer products, pharmaceutical and medical devices; all three seem to be performing well. The pharmaceutical unit improved revenue by 1% after that unit increased sales by more than 21% last year.
Furthermore, Remicade, a biologic medication which dominated the market last year, saw international sales decline from $783 million a year ago to just $580 million during the second quarter. So the increase in revenue is more impressive than it looks.
On the consumer products front, JNJ experienced a 2.7% gain in the U.S. market and 2.1% gain internationally, after adjusting for currency. Over-the-counter drugs and feminine protection products were the big drivers on the consumer side of the business.
Lastly, the medical device unit experienced a revenue drop of 12.2%, of which 4.7% was operational decrease and 7.5% was from currency impact. The operational results were likely caused by the recent sale of JNJ’s Ortho Diagnostics business, as opposed to weak overall medical device sales.
Despite the relatively positive quarter, JNJ stock traded lower the day results were posted. Investors seem to be missing the fact that, if currency had not played a role in JNJ’s earnings, the company would have cleanly beaten Wall Street’s expectations and likely would have posted similar figures to last year’s quarter.
Investors must look at each company from a different view. For example, a fast-growing company with a market capitalization of $4 billion and annual revenue of a few hundred should be growing its revenue substantially — much faster than the few percentage points JNJ stock managed last quarter. But Johnson & Johnson is a massive, $275 billion company, so it’s unrealistic to expect those kinds of revenue increases.
Overall, JNJ is still a strong business that consistently makes money and one that currently appears to be firing on all cylinders. Its biggest issue today is the currency impacts, which management can’t control or change. In a few quarters, perhaps years, the currency headwinds will change and instead of hurting JNJ stock, they will boost earnings. But, only those investors who ride out the tough times will truly benefit from the good times.
As of this writing, Matt Thalman was long Johnson & Johnson. Follow him on Twitter at @mthalman5513.
