Johnson and Johnson's Report For The Fourth Quarter Of 2014

A couple of days ago the pharmaceutical giant released its report for the fourth quarter and also the full year. In this post I will present some key data from the report and my own reflections. The figures below are excluding items affecting comparability.

Results For The Fourth Quarter Compared With The Same Quarter In 2013.

- Sales decreased by 0.6% to 18.25 billion dollars (18,35).

- Net profit was 3.6 billion for the period, an increase of 1.2% (3.5).

- Earnings per share (EPS) increased by 2.4% to 1.27 dollars (1.24).

Results For The Financial Year 2014.

- Sales increased by 4.2% to 74.3 billion (71.1).

- Net income was 16.3 billion for the period, an increase of 8% (13.8).

- Earnings per share (EPS) increased by 8% to 5.97 dollars (5.52).

Factors That Influenced The Results.

• The main reason for the improved results was that total sales increased by approximately 16.5% for the pharmaceutical segment. It was mainly the US market that contributed to the growth in sales with a growth rate of 25% over the previous year. Drugs such as Olysio / Sovraid, Remicade, Simponi among others have mainly driven the increase in sales.
• The business segment Medical Devices and Diagnostics contributed negatively since sales fell 9% to 6.6 billion dollars during the year.
• Sales of consumer products decreased 3.6% to 3.6 billion. The decline in sales was primarily due to lower sales internationally.
• The strong dollar and other items affecting comparability effected the results negatively.

The report is a testament to Johnson and Johnson's (JNJ) strength, since the company now has managed to raise ernings for 31 years. Forecasted earnings was yet again raised and this time to 6.12 - 6.27 dollars per share, from the previous 5.85 - 5.97 dollars.

The focus on new drugs has paid off for Johnson and Johnson, the business segment pharmaceutical has been a growth engine for the company and will continue to be so in the future. I would have preferred to have seen revenue growth across all business segments, but price increases and the strong dollar has made 2014 a challenging year. However, I think the business overal has a bright future ahead. With the worlds population getting older and older, our need for medicines and medical equipment will not subside, but rather increase in the future.

One of the company's main strengths is its defensive operations that are relatively evenly distributed between three strong business segments. This is how revenues are distributed between the different business segments:

There are just a handful of companies in the world that come close to Johnsons and Johnson's defensive qualities and impressive cash flow. The company also has increased dividends for as many as 52 years in a row. The company has an impressive amount of cash at its disposal - over 30 billion dollars.

Valuation
The price I'm willing to pay the most (my Price Cap) for Johnson & Johnson is 84 dollars. My Price Cap is based on the following assumptions:

• I estimate that JNJ will have an average dividend growth rate equivalent to about 9% going forward.
• I deem sustainable EPS to be roughly 5.5 dollars and sustainable P/E-Ratio to be 20 based on the companies defensive qualities.

You can find my valuation data under my watch list in main menu. Unfortunately, I am afraid it will be some time before the company sink to the level of my Price Cap, but he who waits for something good never waits to long.

Have a nice day!