Johnson & Johnson slips after earnings beat as guidance rises

Johnson & Johnson beat Wall Street’s second-quarter expectations and raised its full-year forecast, yet the stock still traded lower. For everyday investors, the move shows how a company can deliver better numbers while the market zeroes in on weak spots inside the business.

CNBC reported that J&J shares were down more than 2% in afternoon trading after the health-care company posted revenue of $25.31 billion, up 6.6% from a year earlier. That topped the $25.05 billion consensus estimate from LSEG.

Adjusted earnings per share, a profit measure that excludes certain items, came in at $2.90. Analysts tracked by LSEG expected $2.85.

CNBC’s Investing Club said it raised its price target on Johnson & Johnson to $275 from $265 while keeping a buy-equivalent 1 rating. The club said Jim Cramer’s Charitable Trust owns J&J shares.

Guidance moved higher

A “beat-and-raise” quarter means a company exceeded estimates for the period and increased its outlook for future results. J&J did both.

The company now expects operational sales growth of 6.5% to 7.1% for the full year, up from its April forecast of 5.9% to 6.9%, according to CNBC. Reported sales are expected to land between $100.8 billion and $101.4 billion, compared with the prior range of $100.3 billion to $101.3 billion.

J&J also lifted its adjusted earnings forecast to $11.60 to $11.75 per share from $11.45 to $11.65. At the midpoint, CNBC said that implies 8.2% growth, up from 7.1% previously.

The company now expects adjusted pre-tax operating margin to expand by about 75 basis points, versus an earlier forecast for at least 50 basis points. A basis point is one-hundredth of a percentage point, so 75 basis points equals 0.75 percentage point.

Net interest expense is now forecast at $250 million to $300 million, down from $300 million to $400 million. J&J’s expected tax rate also moved lower, to 17% to 18% from 17.5% to 18.5%.

MedTech was the soft spot

The main concern in the report came from J&J’s MedTech business, especially cardiovascular. CNBC said cardiovascular sales were $2.4 billion, below expectations of $2.55 billion, as sales of Abiomed heart pumps declined.

That miss drew extra attention after HCA Healthcare warned about lower surgical procedure volume, according to CNBC. Cardiovascular is also closely watched because it is expected to become more meaningful to MedTech growth after J&J separates its orthopedics business.

Still, the broader MedTech unit grew. CNBC reported worldwide MedTech sales rose 3.6% on an operational basis and 4.5% on a reported basis.

J&J Chief Financial Officer Joe Wolk addressed the issue in a CNBC interview, saying the company “didn’t meet our standards” in cardiovascular and that MedTech chair Tim Schmid’s team was focused on fixing the problem into next year.

Drug portfolio carried momentum

J&J’s Innovative Medicine segment, its pharmaceutical business, posted worldwide sales growth of 6.8% on an operational basis and 7.8% on a reported basis, CNBC reported. Excluding Stelara, which has lost patent protection and faces lower-cost biosimilar competition, the segment grew more than 14%.

The oncology portfolio grew 17.3%, helped by nearly 50% growth in Carvykti, 19% growth in Darzalex and nearly 57% growth in Tecvayli. Lung cancer drug Rybrevant grew more than 61%, and CEO Joaquin Duato said J&J asked the FDA during the quarter to expand the drug’s license to include head and neck tumors.

Neuroscience sales rose 13.9%, including 71% growth for Caplyta and more than 41% growth for Spravato. Duato said Caplyta new patient starts were up 122% from a year earlier after the FDA approved the drug in April for relapse prevention in schizophrenia.

Immunology sales fell just under 4% as Stelara declined, but Tremfya sales rose more than 72%. Duato also cited early momentum for Icotyde, J&J’s once-daily oral treatment for moderate-to-severe plaque psoriasis, saying more than 10,000 patients have started treatment since launch.

This story draws on original reporting from CNBC.