Key takeaways
- Johnson and Johnson revealed lower earnings and sales numbers than expected in Q4 2022
- Even before Q4 numbers were released, JNJ started falling after a slew of new stories hit the press
- Even though 2022 was a turbulent year for this household name, Johnson and Johnson’s financials are still solid
Johnson and Johnson’s stock has taken a tumble this month. Share prices are down from their peak of $180.25 on January 6, 2023. They hit a one-month low of $168.31 on January 24, 2023, and closed at $168.69 on January 26, 2023.
There are multiple reasons for this slip, from reduced demand for the J&J vaccine to a disappointing reveal of recent earnings numbers for Q4 2022.
It’s a lot of news at once, but for a behemoth company like Johnson and Johnson, putting things in perspective can help. Since the pandemic began, the stock has grown overall. For example, the highest trading price in February 2020 was $151.89, which is well below the $168.69 we saw on January 26, 2023.
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News prior to the earnings call
Johnson and Johnson’s Q4 2022 numbers weren’t released until January 24, 2023, but the stock started falling on January 9, 2023. There were many news stories that precipitated the release of the new earnings report.
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First, the company announced it would be slowing the production of its COVID-19 vaccine. Sales of the vaccine were negatively impacted in 2022, so this news isn’t overly surprising, even if it contributed to a decrease in the stock’s value.
Around this time, news also broke that one of Johnson and Johnson’s vaccine manufacturers, Emergent Biosolutions, might be suing for breach of contract. Emergent is saying that it’s owed $420 million from Johnson and Johnson, even in light of critical manufacturing errors Emergent made in 2020.
More potentially negative news came out this month that Fate Therapeutics, a company that uses immunotherapy to treat cancer, would be discontinuing its relationship with Johnson and Johnson, cutting off a potential $3 billion in future revenue.
Finally, share prices dropped on January 9, 2023, in part because of a company announcement that it was seeking new merger opportunities across the fields of orthopedics, cardiovascular, eye care and surgical robotics.
Johnson and Johnson’s year-over-year earnings and sales fall
Net earnings for Q4 2022 were $3.5 billion, with year-over-year earnings falling 9%. Sales in Q4 2022 were $23.7 billion, a 4.4% decrease year over year.
At the same time, consolidated sales for the entirety of 2022 were $94.9 billion, which was actually up 1.3% compared to 2021.
While it was a rocky year for the pharmaceutical company (and a particularly rocky quarter), the mega-corporation has strategized ways to keep the economic impact limited. There are a few different factors contributing to Johnson and Johnson’s numbers.
Here are the impacting factors that caused the lower numbers.
Reduction in vaccine sales
In early 2021, the J&J COVID vaccine was in high demand. Compared to other vaccines, it was more convenient with just a single dose, though its popularity did start to fade towards the end of the year.
In May 2022, the FDA limited who could get this version of coronavirus protection. Time had revealed that, while rare, it did carry a higher risk of blood clotting than its Pfizer
Now the J&J vaccine is reserved only for those who cannot take the Pfizer or Moderna vaccines, limiting the market.
The impact of limited vaccine sales is the primary thing bringing Johnson and Johnson’s earning numbers down. Revenue from this product dropped more than 57%, and most of the sales that were made in 2022 came from foreign markets. Sales across other products were only down 1%.
Lack of tax credits in 2022
In 2020 and 2021 (albeit to a lesser degree in 2021), Johnson and Johnson benefitted from some unique, one-time tax benefits. These benefits did not repeat in 2022, so the company had a higher tax burden.
These changes, plus increased income for the year, pushed the company’s effective tax rate from 10.4% in 2021 to 16.2% in 2022.
Strength of the U.S. Dollar
While Johnson and Johnson does a lot of business in the U.S., it does a substantial amount of business across the globe as well. Inflation wasn’t great in 2021, but it got dramatically worse throughout the first half of 2022.
Inflation matters because it pushes up the value of the U.S. dollar. That’s problematic if you do business in foreign currencies because you either have to increase prices in foreign markets or lose profits when converting those foreign currencies into U.S. dollars.
If inflation continues its current downward trajectory, that could alleviate some of these issues for Johnson and Johnson. That remains yet to be seen, though, as geopolitical conflict and further impacts of the pandemic could continue to prop up American currency while further devaluing that of other countries.
Upcoming spinoff and what it means for investors
Later this year, likely in November, Johnson and Johnson will be spinning off its consumer products unit. Brands like Tylenol, Listerine, Band-Aid and Neutrogena will go under a new business called Kenvue (KVUE).
Those who hold shares of JNJ when the new business officially launches will receive shares of KVUE to compensate for the loss of these brands currently represented in their JNJ shares.
If you want to invest in big companies that are better resourced during turbulent times, you can check out Q.ai’s Large Cap Kit, which takes a long-short position.
If you're stressing about inflation impacting your investments in companies like J&J, you can also look at Q.ai's Inflation Kits. These include more conservative investments that are better insulated against inflation, like certain treasuries and commodities.
The bottom line
Johnson and Johnson is an international, intergenerational megalith of a company. Even though it's hit some choppy waters over the past year, if there’s any company that can sustain a bit of turbulence, it’s Johnson and Johnson.
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