Johnson & Johnson reported sales in its medical devices business on Tuesday that fell short of Wall Street expectations, citing geopolitical issues including the Middle East conflict, and its shares fell more than six per cent.
The results marked the second successive quarter that its MedTech unit missed analysts’ estimates.
Chief Financial Officer Joe Wolk, in an interview, said the Mideast conflict, austerity measures in Europe and pricing in China continued to weigh on results internationally in the third quarter, “but maybe in a little bit more pronounced way.”
The Mideast conflict, which has led to soaring fuel costs, has yet to impact the company’s costs, he said, but has hurt sales in the region.
“These are countries that still value and actually want premium healthcare systems, think Kuwait, UAE, Saudi Arabia. They pride themselves on having solid healthcare, very good healthcare,” Wolk said. “But their budgets now are being resourced and allocated towards defense.”
Medtech soft spot
Medical technology division sales rose 2.5 per cent to US$8.6 billion overall, missing analysts’ estimates of US$8.71 billion, according to LSEG data. Outside the US, sales in the division were basically flat.
“Our performance is below the standard we have set internally and below the expectations we previously communicated to investors,” said Tim Schmid, J&J’s medical technology chief.
“Simply put, we can do better,” he said, adding that the company was focused on improving fourth-quarter performance. He said the environment for medical procedures remains stable in key markets.
Shares of other medical device makers were also off, with Boston Scientific down nearly three per cent and Intuitive Surgical shares off about two per cent.
But J.P. Morgan analyst Robbie Marcus said it’s hard to generalize J&J’s results to the rest of the medtech sector, given the level of company-specific disruption stemming from China supply, the pending orthopedics unit spin-off, and likely greater exposure to disruption in the Middle East.
Hips and knees spinoff
The company late last year said it intended to separate its orthopedics unit, DePuy Synthes, into a standalone company, marking its second major spinoff as it sharpens focus on higher-growth healthcare segments.
Wolk on a conference call to discuss company results said J&J remains on track for a mid-2027 separation.
“Given the way DePuy Synthes is performing... we are leaning towards a spin as being the best option to create long-term value for Johnson & Johnson shareholders. That has always been our base plan, and we are confident that it can be successfully executed,” he said.
Daniel Barasa, portfolio manager at Gabelli Funds, said depressed medtech valuations “probably made it harder to complete a sale of the orthopedic business, which may also be weighing on the stock.”
J&J raised its full-year forecast for reported sales to about US$101.2 billion at the midpoint, from US$101.1 billion previously. It increased its adjusted earnings forecast range with a new midpoint of US$11.10 per share, up from US$11.04.
Quarterly pharmaceutical sales jumped 7.7 per cent to US$16.76 billion.
Sales of Tremfya for Crohn’s disease and other autoimmune conditions rose 68 per cent to US$2.4 billion, exceeding analyst estimates of about US$2.2 billion, while sales of Stelara, which is facing generic competition, fell 54 per cent to US$716 million, still well above diminished Wall Street expectations of US$591 million. Tremfya has increasingly replaced lost Stelara revenue following recent approvals in inflammatory bowel diseases.
Sales of blood cancer treatment Darzalex rose about 16 per cent to US$4.24 billion, short of analyst expectations of US$4.4 billion.
J&J posted third-quarter revenue of US$25.4 billion, above estimates of US$25.28 billion, and adjusted earnings of US$2.59 per share, topping Wall Street expectations by 5 cents.
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Reporting by Michael Erman in New York and Sriparna Roy in Bengaluru; Editing by Bill Berkrot
