Johnson & Johnson lowered its earnings and revenue forecast for the year as the strengthening dollar hit its heavy mix of international sales.
Adjusted earnings for 2022 will be $10 to $10.10 a share, the New Brunswick, New Jersey-based health conglomerate said Tuesday in a statement, down from an earlier range of $10.15 to $10.35 a share.
Quarterly sales of branded drugs and the company’s Covid-19 vaccine both beat expectations.
It was J&J’s second forecast cut this year due to broader economic forces.
The dollar has been gaining amid speculation that the Federal Reserve will further increase interest rates this summer to try to tamp down inflation as the euro recently sank to near parity with the U.S. currency.
The currency impact was greatest in Europe, where it reduced quarterly sales growth by almost two-thirds to 7.3%.
While higher supply and wage costs are stabilizing, “inflationary pressures are here to stay,” J&J Chief Financial Officer Joseph Wolk said.
“We had a healthy assumption with inflation coming into the year,” he said on a call with investors and analysts. “Some of that will play into next year’s thinking.”
The stock was little changed at 11:14 a.m. in New York. Through Monday’s close, it had gained 1.9% since the start of the year.
Quarterly adjusted earnings were $2.59 a share, beating Wall Street’s average expectation of $2.55, while sales met the average view of $24 billion.
The performance “underscores the underlying strength of its products, diversified business platform, and strong execution by management,” Cantor Fitzgerald analyst Louise Chen said in a note.
The pharmaceutical unit was the highlight, as drug sales rose 6.7% to $13.3 billion, driven by cancer and immunology therapies and the Covid vaccine.
The shot generated $544 million, more than double analysts’ average estimate, with the vast majority of revenue coming from outside the U.S.
After suspending sales guidance for its not-for-profit Covid vaccine last quarter, J&J’s new CEO Joaquin Duato said in an April interview that the company would continue production “as long as the vaccine is needed.”
The company is looking to “right-size manufacturing and R&D efforts” to account for excess supply of coronavirus vaccines, particularly in lower- and-middle income countries, which have been the primary purchasers of the J&J shot, Wolk said in an interview Tuesday.
Asked whether J&J would ultimately discontinue Covid vaccine production, Wolk said: “Let’s hope for all our sakes we can do that.” J&J is aiming to focus on its oncology and immunology portfolios, he said.
Meanwhile, J&J’s med-tech sales fell 1.1% to $6.9 billion, missing the $7.1 billion estimate.
The device unit faced headwinds in China, Wolk said, where an outbreak of Covid had led to a 25% to 30% reduction in procedures from before the pandemic.
Still, he said, surgery numbers in China improved in June, and the second half looks stronger.
“The Covid dynamic is a risk that continues to be out there, but we’re not dependent on one platform or one market,” he said.
J&J is also making headway on the spin-out of its consumer health unit, which is still expected next year, Wolk said.
The division’s sales decreased 1.3% to $3.8 billion, still narrowly beating the average view.
Wolk said the unit would benefit from inflation-related price increases in the back half of the year.
He added that the separation wouldn’t be effected by macro-economic trends.
J&J aims to announce the new consumer company’s name and headquarters this quarter, Wolk said, and will disclose the financial vehicle for the separation before the end of the year.
Among the options is an initial public offering, he said on Bloomberg Television.
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