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By the numbers
Q3 revenue: $23.79B
1.9% year-over-year increase
Q3 medtech revenue: $6.78B
2.1% year-over-year increase
Q3 net earnings: $4.46B
21.6% year-over-year increase
Q3 trends:
Johnson & Johnson said medtech revenue increased in the third quarter on higher procedure volumes even as soaring inflation and foreign-exchange fluctuations spurred the company to cut its full-year sales forecast.
While rising procedure volumes provided a boost in the quarter, COVID-19 continues to be a “dynamic situation,” CFO Joe Wolk said Tuesday on an earnings call.
J&J continues to grapple with hospital staffing shortages and its medtech business also was affected by lower volume-based pricing in China.
“We expect inflationary pressures and higher input costs to persist, and we are continuing to take actions to offset these challenges,” Wolk said.
Stifel Analyst Rick Wise said J&J’s results were an “encouraging start” to the medtech earnings season, signaling that procedure volumes are recovering both in the U.S. and other countries, in the face of staffing, supply chain and other economic pressures.
Medtech segments benefit from rising procedures:
Each of J&J’s medical device segments grew or remained flat compared to the year-earlier quarter, bolstered by rising procedures worldwide.
J&J Worldwide Chairman of MedTech Ashley McEvoy said the company started to see surgical procedures pick up in the U.S. later in the quarter. Diagnostic procedures, such as colonoscopies, were in the mid-single digits. In Europe, procedures also bounced back even though August was a slower month with the holiday season. In Asia, volumes are “recovering quickly,” while in China surgeries still remain below pre-COVID levels.
“We are very clearly in a dynamic time. We’re going to continue to manage through the macro-economic factors like hospital staffing, like inflation, like supply constraints, and some of the overhang of the pandemic,” McEvoy said. “But we are encouraged with procedure volumes in many parts of the world. They’re recovering quite nicely.”
Reported sales for interventional solutions, which includes treatments for stroke and heart arrhythmias, increased 11% in the third quarter compared to the year-earlier period, “with double-digit growth in all regions and new production adoption,” J.P. Morgan Analyst Chris Schott wrote in a research note.
The company’s vision segment increased 1.8%, while surgery and orthopedic sales were flat compared to the year-earlier period.
Forecast:
J&J lowered its full-year revenue forecast to a range of $93 billion to $93.5 billion from its previous forecast of $93.3 billion to $94.3 billion. At the midpoint, the company lowered its revenue guidance by about $500 million, anticipating a negative effect from foreign-exchange rates, Goldman Sachs Analyst Chris Shibutani wrote in a research note. Without the foreign-currency impact, the revenue forecast would remain the same.
M&A plans:
After J&J CEO Joaquin Duato talked up plans for mergers and acquisitions last quarter, the flow of deals has remained relatively quiet. That’s not for a lack of interest — the company holds $34 billion of cash, which positions it “extremely well” for acquisitions or collaborations going forward, Wolk said.
“Our priorities have not changed. In fact, maybe we’re even a little bit more bullish, and eager to do something,” the CFO said, adding that the company would look for deals that make sense from a strategic fit and a financial perspective.
“The market’s a little bit funny; the volatility actually doesn’t help for a conducive M&A environment right now,” Wolk said. “You have potential sellers holding on to 52-week highs or all-time highs which, quite frankly, aren’t too distant in the rearview mirror.”
Shares of J&J were little changed at $165.66 in morning trading in New York. They have gained 1% in the past year.
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