JnJ with a healthy beat

Yesterday evening we received results from our favoured healthcare stock in New York, Johnson and Johnson. It was a healthy beat but let's look at that later, I want to first look at what the share price has done over the last year. In this low interest environment stocks like JNJ with high dividend yields have naturally done very well. So far the stock is up 29% this year. Of course that is not only because it has a strong dividend, the company has shown good growth. The company was flat for the second half of last year so the stock is only up 32% in a full year. You see patience does pay.


Earnings for the second quarter came in at $1.48, expectations were for $1.39. Revenues also beat which is a good sign, $17.88bn of sales versus estimates of $17.71bn. Guidance from management for the full year was raised to $5.47. This is expected to grow to $5.77 in 2014. Trading at 15.6 times 2014 earnings ($90) I wouldn't call that cheap or expensive.


This business is divided into three divisions, let's look at how each one has done over the period.


Pharmaceutical. This division was top of the class growing sales by 11.7% as new blockbuster products enter the pipeline. This can be quite volatile as some products become flyers and others taper off to cheaper competition. This division compromises 39% of sales. To go through the actual details of the products you need a chemistry degree so let's leave it at that.


Medical Devices and Diagnostics. Sales grew 9.6% versus the prior year, mostly on the back of the Synthes acquisition. Without the acquisition, sales were just above flat. The products that did well in the division were from the cardiovascular care division, disposable contact lenses and specialty surgery, just to give you an idea of where people are spending, whether forced or elective. This division compromises 40% of sales.

Consumer. Sales grew 1.1% which is encouraging because this is a division that has slowed somewhat in prior quarters. International sales of Listerine Mouthwash, baby care products and Women sanitary protection were the big drivers. This division compromises the rest of the sales, 19%.


Geographically the company is growing its diversification nicely. The US is now less than half of sales, contributing just less than 44.5%. As you can imagine as populations grow and people get more wealthy, JNJ products will be consumed more and more. These people will inevitably get older and will be even more reliant on JNJ products. It is a great developing market story while still relying on developed markets for its stable sales growth. People are certainly getting older in those countries.


We also like it because of its diversity. A business that is purely a drug maker can be very volatile depending on its pipeline. Having said that the business also poses as a potential value unlock if it were to split up its division which will benefit shareholders in the short term. We continue to add at these levels.