Johnson & Johnson (JNJ) likely to feel the pinch in Q3

Johnson & Johnson (NYSE: JNJ) is slated to release its third-quarter earnings results on Tuesday, October 15, before the market opens. The results will be hurt by currency headwinds, the generic entry in new markets, increased discounts and rebates for certain drugs, as well as mounting pressure from existing and additional competitors.

The pressure is likely to increase for the company’s Medical Devices unit due to the possible continuation of supply disruptions that happened in the last quarter. The bottom line will be hurt by an increase in research and development investments and tax rates.

Also, the company has been fined $8 billion over antipsychotic drug Risperdal that is allegedly linked to the abnormal growth of breast tissue in men. Investors fear that this verdict is just a beginning as other Risperdal cases are still pending. The FDA approved the drug in late 1993 for treating schizophrenia and episodes of bipolar mania.

The fine could make a large hole in the company’s quarterly results but this is expected to be incurred in the next quarter. However, the company plans to appeal the $8 billion judgment. Litigation expenses remained a major concern for Johnson & Johnson.

Analysts expect the company’s earnings to decline by 2.40% to $2.00 per share and revenue will fall by 1.20% to $20.1 billion for the third quarter. In comparison, during the previous year quarter, Johnson & Johnson posted a profit of $2.05 per share on revenue of $20.35 billion. The company has surprised investors by beating analysts’ expectations in all of the past four quarters.

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For the second quarter, Johnson & Johnson reported a 42% jump in earnings driven by lower costs and expenses as well as a gain from the sale of Advanced Sterilization Products business. For the full year 2019, the company expects sales in the range of $80.8 billion to $81.6 billion and adjusted earnings in the range of $8.53 to $8.63 per share.

The company has an edge over the competitors due to its brand recognition but its competitive advantage weakens due to the manufacture of cheaper generic products after patents expire. Also, the increase in e-commerce and direct-to-consumer start-ups are increasing the impact on the company.

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