Business context and reporting period
Johnson & Johnson’s unaudited fiscal third quarter ended October 1, 2023; comparisons are with the quarter ended October 2, 2022. Following the August 23 separation of Kenvue, continuing operations comprise Innovative Medicine and MedTech. Prior-period segment and continuing-operations figures were recast; discontinued-operations results include Consumer Health through the separation date.
Financial performance and position
| Metric | Fiscal Q3 2023 | Fiscal Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Sales to customers | $21.35B | $20.00B | $63.76B | $60.05B |
| Net earnings from continuing operations | $4.31B | $4.31B | $9.19B | $13.14B |
| Diluted EPS from continuing operations | $1.69 | $1.62 | $3.53 | $4.93 |
| Gross margin | 69.1% | 69.1% | 69.0% | 69.2% |
| Income before tax as a percentage of sales | 24.4% | 25.9% | 16.1% | 25.8% |
- Q3 sales increased 6.8% (6.4% operational growth and 0.4% favorable currency). Nine-month sales rose 6.2%, including 7.5% operational growth and a 1.3% negative currency impact.
- Q3 continuing-operations net earnings were essentially flat year over year; nine-month earnings declined, primarily reflecting a roughly $7B talc-related charge and an unfavorable fair-value change in retained Kenvue shares.
- Total net earnings were $26.03B in Q3 and $31.10B for the first nine months, substantially including the one-time $20.98B non-cash gain on the Kenvue exchange offer. Total earnings and EPS therefore are not directly indicative of recurring performance.
- Q3 segment sales: Innovative Medicine $13.89B, up 5.1%; MedTech $7.46B, up 10.0%. Segment pretax margins were 34.5% and 15.9%, respectively.
- Operating cash flow was $14.93B for the first nine months, versus $15.84B a year earlier; capital expenditures were $2.95B. Cash and cash equivalents were $19.73B, with $3.78B of marketable securities. Debt was approximately $29.9B, for net debt of $6.4B; the prior-year comparison was a $1.1B net cash position.
- Cash dividends paid were $8.91B in the first nine months. The board declared a $1.19-per-share quarterly dividend payable in December 2023.
Material changes, outlook and key risks
- Kenvue separation: J&J exchanged 80.1% of Kenvue for 190.96M J&J shares, deconsolidated the business, and retained a 9.5% Kenvue stake. The exchange generated the one-time gain noted above. Separation costs were $912M for the first nine months.
- Product mix was uneven. Growth in STELARA, TREMFYA, DARZALEX, ERLEADA and MedTech was offset by declines in products including REMICADE, the COVID-19 vaccine, IMBRUVICA and ZYTIGA. J&J does not anticipate U.S. STELARA biosimilar launch before January 1, 2025, following settlements and other agreements.
- Restructuring: R&D program exits, primarily in infectious diseases and vaccines, are expected to cost $500–$600M and be completed in fiscal 2024. The Orthopaedics restructuring is estimated at $700–$800M through fiscal 2025.
- Talc litigation remains a major contingency. J&J’s approximately $9B reserve remains its best estimate of probable loss after dismissal of the second LTL bankruptcy; about one-third is current. The proposed resolution has not been reached, and J&J cannot estimate losses beyond the accrual. The filing reports 52,220 U.S. plaintiffs with direct pending talc claims.
- J&J reports an opioid settlement of up to $5B; approximately 60% had been paid by Q3 2023, with about $0.6B of payments expected by the end of Q3 2024. Certain government and private claims remain unresolved.
- Other risks include patent and biosimilar competition, pricing and reimbursement pressure, product liability and regulatory matters, supply constraints, currency and inflation exposure, and tax uncertainty. The filing notes a new $10B 364-day credit facility expiring September 5, 2024, and states that operating cash flow, borrowing capacity and external funding are expected to support operating needs and disclosed obligations.
- The filing provides no specific numerical full-year earnings or sales guidance in the supplied text.
Important facts for investors to verify
- Separate recurring continuing-operations results from the Kenvue gain and discontinued-operations earnings when assessing reported net income and EPS.
- Monitor developments in the talc proceedings, the status and adequacy of the approximately $9B reserve, and related payment timing.
- Track product-level growth and competitive exposure, especially the expected STELARA biosimilar timing and declines in other established products.
- Assess cash generation, net debt, litigation and restructuring cash requirements, and the timing of debt maturities.
- Review subsequent filings for updated guidance, legal outcomes, and changes in the value of J&J’s retained Kenvue investment.