Johnson & Johnson (NYSE:JNJ) is a name that I continue to be bullish on long-term as a dividend growth name. JNJ will not make you a millionaire overnight, but it grows the dividend and has delivered capital gains since I have been following it. It is a great name to own in a retirement account for decades. It is a name that most of you have products from in your home. On top of that the company continues to grow earnings. As a stock, I feel I can never go wrong recommending it. You just can't lose
I got behind JNJ because it is a stable, slow growing, safe play. For those on the sidelines, you have to pick your spots. The market gives you opportunities to get long the name on dips and when it does, you have to seize the opportunity. Of course, the name has rallied hard in the last 6 months, so it's time to wait for another pullback. The name has pulled back a few points, but when it does pullback further there will be big buys into the name. This is a pattern we have seen for decades. The name is a bit pricey here, but I have said many times that when the stock was $100 it was a buy. Well were up 20% from there but should you be holding? Well, the company just reported Q3 earnings that have caught my attention.
So how did the company do? The company's most recent quarter saw sales of $17.8 billion. This was a slight uptick in sales of 4.2% year-over-year. I was pleased that this figure beat estimates slightly by $110 million. This is especially true when like many other domestic U.S. companies, the changes in currency year-over-year are having a negative impact on the absolute numbers. That fact is that businesses with a lot of international business are hurting from the stronger dollar. Taken independently, operational sales results increased 4.3% and the negative impact of currency was 0.1%.
On an absolute basis, domestic sales increased 6.7%, while international sales were up just 1.5%. Why? Well, this perceived weakness in international sales reflects actual operational growth of 1.7%, which is strong but also a negative currency impact of 0.2%. I have to point out that Johnson & Johnson is one of the harder hit companies by negative currency impacts, but the magnitude of the currency impacts is decreasing each quarter. But the company itself continues to chug along. On an operational basis, worldwide sales increased 5.9%, domestic sales increased 7.3% and international sales increased 5.9%. This excludes the impacts of acquisitions and sales over the last year.
Taking into account the company's operational expenses and sales data, the company saw net earnings come in at $4.3 billion. Taking into account the existing number of shares this translates to net earnings per share of $1.53. After taking into account special items, adjusted net earnings were $4.7 billion and adjusted earnings per share were $1.68. The adjusted earnings per share rose 1.8% over last year. The $1.68 in adjusted earnings represented a year-over-year increase and this beat analyst estimates by $0.03. The company continues to deliver. Alex Gorsky, chairman and CEO, said:
"Our third-quarter results reflect the success of our new product launches and the strength of our core businesses, driven by strong growth in our Pharmaceuticals business. With a number of regulatory approvals, several new drug application submissions and new breakthrough therapy designations from the FDA, we are increasingly confident in our pipeline expectation of filing 10 new pharmaceutical products between 2015 and 2019, each with revenue potential over $1 billion. Our broad-based business model, strategic investments and talented colleagues position us well for continued leadership in health care."
The take home here? It really doesn't matter where the company has been, it matters where it is going, especially when we are considering an investment in the name. The good news here is that the company maintained its recently raised 2016 full-year guidance for sales of $71.5 billion to $72.2 billion. This, of course, reflects expected operational growth in the range of 2.5% to 3.5% and operational sales growth is expected to be in the range of 4.5% to 6.0%. Factoring in expected expenditures, adjusted earnings guidance for full-year 2016 was also revised upward to $6.68 to $6.73 per share, up from $6.63 to $6.73 per share. The company is continuing to invest heavily in its pipeline. I continue to love this stock but I would wait for a further pullback before buying.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.