Johnson & Johnson reported sales in its medical devices business on Tuesday that fell short of Wall Street expectations, citing geopolitical issues, including the Middle East conflict, and its shares fell more than 6%.
The results marked the second successive quarter that its MedTech unit missed analysts’ estimates.
Chief Financial Officer Joe Wolk said in an interview that the Middle East conflict, austerity measures in Europe, and pricing in China continued to weigh on international results in the third quarter, “but maybe in a little bit more pronounced way.”
The Middle East conflict, which has driven up fuel costs, has not yet affected the company’s costs, he said, but it has hurt sales in the region.
“These are countries that still value and actually want premium healthcare systems, think Kuwait, UAE, Saudi Arabia. They pride themselves on having solid healthcare, very good healthcare,” Wolk said. “But their budgets now are being resourced and allocated towards defense.”
MedTech soft spot
Medical technology division sales rose 2.5% to $8.6 billion overall, missing analysts’ estimates of $8.71 billion, according to LSEG data. Outside the U.S., the division’s sales were essentially flat.
“Our performance is below the standard we have set internally and below the expectations we previously communicated to investors,” said Tim Schmid, J&J’s medical technology chief.
“Simply put, we can do better,” he said, adding that the company was focused on improving fourth-quarter performance. He said the environment for medical procedures remains stable in key markets.
Shares of other medical device makers were also lower, with Boston Scientific down nearly 3% and Intuitive Surgical shares off about 2%.
But J.P. Morgan analyst Robbie Marcus said it’s hard to generalize J&J’s results to the rest of the medtech sector, given company-specific disruption from China supply, the pending orthopedics unit spin-off, and likely greater exposure to disruption in the Middle East.
Hips and knee spinoff
The company said late last year it intended to spin off its orthopedics unit, DePuy Synthes, into a standalone company, marking its second major spinoff as it sharpens its focus on higher-growth healthcare segments.
Wolk, on a conference call to discuss company results, said J&J remains on track for a mid-2027 separation.
“Given the way DePuy Synthes is performing… we are leaning towards a spin as being the best option to create long-term value for Johnson & Johnson shareholders. That has always been our base plan, and we are confident that it can be successfully executed,” he said.
Daniel Barasa, portfolio manager at Gabelli Funds, said depressed medtech valuations “probably made it harder to complete a sale of the orthopedic business, which may also be weighing on the stock.”
J&J raised its full-year forecast for reported sales to about $101.2 billion at the midpoint, up from $101.1 billion. It increased its adjusted earnings forecast range with a new midpoint of $11.10 per share, up from $11.04.
Quarterly pharmaceutical sales jumped 7.7% to $16.76 billion.
Sales of Tremfya for Crohn’s disease and other autoimmune conditions rose 68% to $2.4 billion, exceeding analyst estimates of about $2.2 billion, while sales of Stelara, which is facing generic competition, fell 54% to $716 million, still well above diminished Wall Street expectations of $591 million. Tremfya has increasingly replaced lost Stelara revenue following recent approvals in inflammatory bowel diseases.
Sales of blood cancer treatment Darzalex rose about 16% to $4.24 billion, short of analyst expectations of $4.4 billion.
J&J posted third-quarter revenue of $25.4 billion, above estimates of $25.28 billion, and adjusted earnings of $2.
