Johnson & Johnson shares dropped Tuesday despite a second-quarter earnings report that exceeded expectations and an upward revision to its full-year guidance.
Earnings exceeded expectations, yet shares declined
Revenue for the quarter climbed 6.6% year over year to $25.31 billion, surpassing the $25.05 billion consensus estimate. Adjusted earnings per share reached $2.90, above the $2.85 forecast. The stock still fell more than 2% in afternoon trading.
Going back to the third quarter of 2021, J&J shares have reacted to earnings with a less than 1% move on average. This is not a stock that makes its move on the back of earnings announcements. It’s a stock that gains on consistent execution over time.
Management increased its full-year outlook, and the magnitude of the full-year earnings raise is greater than the size of the second-quarter beat. That indicates the strength is not a one-quarter phenomenon, and that management expects the momentum to continue in future quarters.
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Medical-device unit lagged, though growth persisted
The medical-device business, especially its cardiovascular unit, fell short. Sales of Abiomed’s heart pumps slumped, with cardio revenue at $2.4 billion against expectations of $2.55 billion. The miss followed a warning from HCA Healthcare about a decline in surgical procedure volume.
The MedTech segment still grew year over year, with worldwide sales rising 3.6% on an operational basis, which includes foreign-exchange benefits, and 4.5% on a reported basis. The miss was partially offset by better-than-expected performance in the rest of the MedTech portfolio.
The roughly $150 million miss for cardio is certainly not nothing, but the company did just report over $25 billion in total sales for the quarter. It also remains on track to deliver over $100 billion in sales for the first time in its 140-year history this year.
Pipeline and market shifts support long-term confidence
Johnson & Johnson has a robust pipeline and a strong line-up of drugs on the market. That includes Icotyde, an oral IL-23 inhibitor for the treatment of moderate-to-severe plaque psoriasis. Approved in March, Icotyde has the potential to be a major growth driver in the coming years.
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Throughout the spring, healthcare stocks like J&J fell out of favor as the market was dominated by the AI trade. Then, as that trade wobbled during June, there was a rotation into left-behind defensive stocks, which included J&J. Those rotation winners lost a bit of steam in recent days.
In a diversified equity portfolio, J&J is a stock worth owning.
A single underperforming unit can draw attention, but the broader context matters more. The overall MedTech unit still grew year over year, and the company increased revenue and raised guidance. The next few quarters will show whether the cardiovascular business recovers, but the company’s consistent execution supports confidence.
