In what can only be described as another excellent quarter of performance and growth, Johnson & Johnson (JNJ) once again beat Wall Street consensus with its earnings.
The company defied the odds and posted genuine business growth—not just domestically, but abroad as well. Similar to its first-quarter performance, the company seems to be on a bit of a roll.
Johnson & Johnson reported revenues of $17.9 billion for the second quarter of 2013, a solid increase of 8.5% over the comparable quarter in 2012. Domestic sales grew eight percent, which was expected; the surprise was in the company’s international sales, which grew 11.8% in total, with a negative currency impact of 2.8% for a net growth of nine percent. This growth measure includes acquisitions and divestitures; excluding those, global operational sales growth was 5.6%.
Global pharmaceutical revenues were $7.0 billion in the second quarter for a net gain of 11.7% comparatively. Domestic pharmaceutical sales grew 9.1%.
Johnson & Johnson’s operational top-line growth really is solid, considering today’s economically challenged global economy. The company appears to be in the right businesses at the right time, at least according to the numbers.
On the stock market, Johnson & Johnson’s shares have soared as the marketplace chases the safest, dividend-paying stocks that are actually able to generate real economic growth.
The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Earnings were $3.8 billion (including a gain on sale and an after-tax gain), and diluted earnings per share (EPS) were $1.33, handedly beating Wall Street estimates.
Not only did Johnson & Johnson’s numbers beat consensus, but the company also increased its full-year 2013 guidance. The company raised its earnings forecast to a range of $5.40–$5.47 a share excluding items. At the beginning of the year, Johnson & Johnson forecast earnings between $5.35 and $5.45 a share.
Speaking of beginnings, Johnson & Johnson’s share price is up a whopping $20.00 a share (not including dividends) since the beginning of the year. The company is now worth a quarter of a trillion dollars, which is truly amazing for such a mature brand.
Johnson & Johnson exemplifies the kind of stock that institutional investors want to own in this kind of market. The company has diversified operations, so there are good prospects for dividend increases going forward, and there’s a lot of safety in what this company is selling.
Revenues and earnings growth, while not robust, were still very impressive for a company of this size. (See “The One Market Sector That’s Consistently Outperforming the Rest.”)
The company really hasn’t done much on the stock market over the last seven years—until recently, when all of a sudden it did. But that is how so many large-cap, blue-chip companies trade: periods of nonperformance are met with increasing dividends followed by a comparatively short breakout representing the majority of the position’s capital gains over a period of time.
The opportunity cost of not being in the position while it is experiencing its breakout capital gains is significant.
Johnson & Johnson serves to illustrate that great businesses tend to remain just that—great—and that long-term ownership with dividend reinvestment is an excellent way to generate meaningful investment returns.
Without question, this company is due for a stock market correction.