Johnson & Johnson — Q1 2024 Form 10-Q
Reporting period: Fiscal first quarter ended March 31, 2024. Comparisons are with the fiscal first quarter ended April 2, 2023; prior-period results were recast to reflect the Kenvue separation as discontinued operations. Johnson & Johnson now reports two segments: Innovative Medicine and MedTech.
Key financial results
| Metric | Q1 2024 | Prior period |
|---|---|---|
| Sales | $21.383 billion | $20.894 billion |
| Gross profit / gross margin | $14.872 billion / 69.6% | $14.207 billion / 68.0% |
| Earnings before tax / margin | $3.714 billion / 17.4% | Loss of $1.287 billion / (6.2%) |
| Net earnings from continuing operations | $3.255 billion | Loss of $491 million |
| Net earnings, including discontinued operations | $3.255 billion | Loss of $68 million |
| Diluted EPS | $1.34 | Loss of $0.03 |
| Operating cash flow | $3.657 billion | $3.257 billion |
Sales grew 2.3% reported, comprising 3.9% operational growth and a 1.6% negative currency impact. The U.S. grew 7.8%; international sales declined 3.4%. Segment sales were $13.562 billion for Innovative Medicine (+1.1%) and $7.821 billion for MedTech (+4.5%). The reported earnings improvement principally reflects a smaller talc-related charge: other expense included $2.7 billion for talc matters versus $6.9 billion a year earlier. The effective tax rate was 12.4%, compared with 61.8%.
Cash, debt and capital: Cash and cash equivalents were $25.473 billion at quarter-end; cash, cash equivalents and marketable securities totaled $26.2 billion. Notes payable and long-term debt totaled approximately $33.6 billion, for net debt of approximately $7.4 billion. Operating cash flow was $3.7 billion; capital spending was $807 million. The company paid $2.9 billion in dividends and repurchased $1.5 billion of stock. A $6.3 billion commercial-paper balance was included in current debt.
Material changes and business drivers
- Innovative Medicine growth was led by oncology (+17.1%), pulmonary hypertension (+20.2%) and immunology (+3.3%). DARZALEX, ERLEADA, TREMFYA, SPRAVATO and pulmonary hypertension products grew; declines included COVID-19 vaccine sales, REMICADE, XARELTO and certain infectious-disease products.
- MedTech growth was strongest in cardiovascular (+20.2%), including electrophysiology (+23.0%) and Abiomed (+14.5%). Orthopaedics grew 4.3%, partly boosted by a one-time U.S. revenue-recognition timing change that added approximately 3.0 percentage points to worldwide franchise growth. Vision declined 3.3%.
- COVID-19 vaccine sales fell to $25 million from $747 million; management expects an insignificant amount of vaccine revenue in fiscal 2024.
- R&D expense was $3.542 billion, up from $3.455 billion. Selling, marketing and administrative expense rose to $5.257 billion from $4.906 billion. Gross margin improved, while management cited increased brand marketing and administrative costs.
Outlook, contingencies and other notable items
- The filing provides no specific full-year revenue or earnings guidance. Management expects operating cash flows, borrowing capacity, committed credit facilities and commercial-paper access to fund operating needs and expected legal payments. It expects to continue regular quarterly dividends; the board declared $1.24 per share for payment in June 2024.
- Talc: The company recorded an incremental $2.7 billion charge and reported a reserve of approximately $11 billion present value, or $13.7 billion nominal, with about one-third current. On May 1, after quarter-end, it began a three-month solicitation for a proposed prepackaged bankruptcy plan covering specified U.S. cosmetic-talc claims, with approximately $6.475 billion present value payable over 25 years. The plan excludes mesothelioma and state consumer-protection claims. Approval, participation and ultimate costs remain uncertain. The company continues other legal strategies; a federal talc trial was expected in early 2025.
- The company reached an agreement in principle with Imerys and Cyprus on talc-related disputes on April 29, 2024. It also reported agreements to resolve certain state matters and an agreement in principle with a multi-state group of Attorneys General, subject to further negotiation.
- Opioid settlement payments: approximately 60% of the up-to-$5.0 billion settlement had been paid by quarter-end; the company expected that to reach approximately 75% by year-end 2024. Other opioid claims remain.
- On March 7, the company acquired Ambrx for approximately $1.8 billion net of cash acquired. After quarter-end, it announced a proposed $13.1 billion enterprise-value acquisition of Shockwave Medical, expected to close by mid-2024.
- Restructuring charges were $171 million in Q1. Management said the Innovative Medicine R&D program exits were mostly complete, with minor further charges expected during the year; the Orthopaedics restructuring is expected to be completed by year-end 2025.
- Key risks include litigation and product liability, patent challenges and biosimilar or generic competition, pricing and reimbursement pressure, clinical and regulatory outcomes, currency and inflation effects, and supply-chain or cybersecurity disruption. Management said the Russia-Ukraine and Middle East conflicts had no material Q1 financial impact.
Investor verification priorities
- Track progress and required approvals for the proposed talc plan, the adequacy of the talc reserve, and developments in remaining talc and other litigation.
- Monitor operating cash flow, net debt, commercial-paper maturities and the funding and timing of legal obligations and acquisitions.
- Assess underlying sales trends excluding currency, vaccine declines and the Orthopaedics timing benefit; monitor the expected U.S. STELARA biosimilar launch from January 1, 2025.
- Verify the closing, financing and integration of Shockwave, and subsequent purchase-accounting adjustments for Ambrx.
- Consider that Q1 earnings comparisons are materially affected by differing talc charges and that the prior-year comparison included Kenvue discontinued operations.