A month has gone by since the last earnings report for Johnson & Johnson JNJ. Shares have added about 4.4% in the past month, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

J&J Beats on Q1 Earnings, Sales Miss

Johnson & Johnson’s first-quarter 2017 earnings came in at $1.83 per share, beating the Zacks Consensus Estimate of $1.77 and increasing 5.8% from the year-ago period as lower tax rate and operating expenses offset a relatively weaker sales performance.

Including one-time items, J&J reported first-quarter earnings of $1.61 per share, up 1.3% from the year-ago period.

Sales came in at $17.77 billion, missing the Zacks Consensus Estimate of $18.0 billion by 1.3%. Sales increased 1.6% from the year-ago quarter, reflecting an operational increase of 2% and a negative currency impact of 0.4%. Lower sales in the Consumer and U.S. Pharmaceutical segment hurt the top-line in the quarter.

First-quarter sales grew 0.6% in the domestic market to $9.38 billion and 2.8% in international markets to $8.39 billion, reflecting 3.6% operational growth, partially offset by a 0.8% negative currency impact.

Segment Details

Pharmaceuticals segment sales grew only 0.8% year over year to $8.25 billion, reflecting 1.4% operational growth and a 0.6% negative currency impact. Higher sales in international markets offset a weaker performance in the U.S.

Sales in the domestic market declined 1.3% to $4.87 billion, while international sales grew 4.1% (operational increase of 5.6%) to $3.37 billion.

New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Other growth drivers were Stelara, Invega Sustenna and Simponi.

Imbruvica gained eight points of market share in the U.S. across all lines of therapy, while outside U.S., the drug saw strong penetration in the G5 countries. Stelara also gained market share in the quarter backed by approval for the expanded indication of Crohn's disease in the U.S. and the EU last year. Darzalex enjoyed strong adoption in outside U.S. markets following launches last year as well as accelerated adoption in the U.S.

However, tough and increased managed care rebating/discounting for several key products hurt U.S. pharmaceutical sales.

In the cardiovascular metabolic space, pricing pressure and competitive payer dynamics hurt sales of Invokana and Xarelto. Sales of Xarelto declined 9.5% due to the timing of Medicare Part D costs and higher drug access discounts while Invokana/Invokamet sales declined 12.6% due to lower price and increasing discounts for managed care contracting.

Zytiga sales fell 6.3% due to higher utilization of independent patient assistance foundations.

Concerta declined 9.5% due to generic competition.

Sales of Remicade declined 6% in the quarter with U.S. sales declining 2.4% and international sales declining 3% due to biosimilar competition. Pfizer’s launch of Inflectra injection, a biosimilar version of Remicade, launched in the U.S. in late Nov 2016, did not have any significant impact on Remicade sales in the first quarter of 2017.

Medical Devices segment sales picked up in the quarter, coming in at $6.29 billion, up 3% from the year-ago period. It included an operational increase of 3.4% and negative currency movement of 0.4%.

Sales in the domestic market rose 2.2% year over year to $3.09 billion. International market sales inched up 3.8% (operational increase of 4.7%) year over year to $3.2 billion.

Operational growth was driven by endocutters in the Advanced Surgery business; electrophysiology products in the Cardiovascular business and Acuvue contact lenses in the Vision Care business, which made up for a weaker sales performance in the Diabetes Care unit

J&J is evaluating “potential strategic options” for its Consumer and Medical Device, diabetes franchise including LifeScan, Inc., Animas Corporation, and Calibra Medical, Inc. It may form strategic partnerships and joint ventures or sell these businesses either separately or together.

The Consumer segment recorded revenues of $3.23 billion in the reported quarter, up 1% year over year (operational increase of 0.8%). Foreign currency movement positively impacted sales in the segment by 0.2%. Sales in the domestic market grew 4.1% from the year-ago period to $1.41 billion.

Slower growth in Listerine oral care, baby care and wound care products was partially offset by growth in OTC franchise. Sales in the segment were hurt by global consumer category slowdown across many of the company’s markets.

Meanwhile, the international segment recorded a decline of 1.3% to $1.81 billion, reflecting an operational decline of 1.6% and a positive currency impact of 0.3%. Unfavorable macroeconomic conditions hurt sales in Latin America and Asia.

Margins Discussion

Cost of goods sold, as a percentage of sales, decreased 20 basis points, primarily due to manufacturing cost improvements. Selling, marketing and administrative expenses, as a percentage of sales, declined 20 bps year over year to 26.6% of sales due to cost control. Research and Development costs were in line with the prior-year quarter at 11.6%.

2017 Guidance Raised

J&J raised its sales and earnings guidance for 2017 to include the impact of the Actelion deal.

J&J expects adjusted earnings per share in the range of $7.00 - $7.15, including currency impact, for 2017 compared with $6.93 to $7.08 expected previously. The earnings guidance reflects expected operational constant currency growth rate of 6% to 8%.

The revenue guidance is in the range of $75.4 billion to $76.1 billion compared with $74.1 billion to $74.8 billion expected previously. This represents operational constant currency growth rate between 5.8% and 6.8% Organic sales growth, excluding the impact of acquisitions and divestitures, is still expected to be in the range of 3%-3.5%, which is a sharp deceleration from 7.4% in 2016.

Currency fluctuations are expected to impact revenues by about 1% and earnings by $0.12 per share in 2017.

The guidance includes the impact of the Abbott Medical Optics acquisition as well as Remicade biosimilar. However, the company does not expect any biosimilar entrants for Procrit, Zytiga, Prezista Risperdal Consta, or Invega Sustenna in the U.S. in 2017.

The company expects to maintain or slightly raise its adjusted pre-tax operating margins in 2017. Adjusted tax rate is expected to be approximately 19% to 20%

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to six lower.

Johnson & Johnson Price and Consensus

Johnson & Johnson Price and Consensus | Johnson & Johnson Quote

VGM Scores

At this time, Johnson & Johnson's stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting in line return from the stock in the next few months.

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