Johnson & Johnson said Tuesday it will spin off its orthopedics business into a new company called DePuy Synthes. The announcement came alongside a third-quarter beat and sales guidance hike.
At the close, Johnson & Johnson stock dipped a small fraction to 190.85, paring back steeper losses in earlier trades. Shares have run up more than 30% this year, enjoying gains alongside the broader pharmaceutical group. J&J stock broke out of a cup base with a buy point at 169.99 in early August, according to MarketSurge.
Once separated, DePuy Synthes will be the largest, most comprehensive orthopedics-focused company in the industry, J&J said. Last year, that division brought in $9.2 billion in sales. After the separation, the remaining Johnson & Johnson will focus on oncology, immunology, neuroscience, cardiovascular, surgery and vision, the company said in a news release.
"Margins for J&J's continuing operations could improve (assuming the spin-off business had lower growth/margin drag)," Brian Mulberry said in an email. Mulberry is a senior client portfolio manager at Zacks Investment Management. "Investment in pipelines (new molecules, devices) will likely absorb capital, so free cash flow growth could be more modest unless operational efficiency is strong."
The company expects the separation to wrap in 18 to 24 months.
Johnson & Johnson Stock: Sales Easily Beat
Across all products, J&J earned an adjusted $2.80 per share, beating expectations for $2.76, according to FactSet. The S&P 500 pharma giant also reported nearly $24 billion in sales, topping the Street's call for $23.76 billion. Earnings grew almost 16% while sales climbed about 7%.
Leerink Partners analyst David Risinger noted J&J's innovative medicines and medtech segments both beat projections by roughly 1%. On a year-over-year basis, both segments grew about 7%.
Sales of immunology drug Stelara beat forecasts by 5%, but tumbled 41% year over year to $1.6 billion due to biosimilar competition. But Tremfya, which also treats inflammatory conditions, brought in $1.4 billion, growing 41% to beat forecasts by 8%.
On the cancer forefront, Darzalex and Carvykti beat expectations at a respective $3.7 billion and $524 million. But Rybrevant fell short at $198 million in sales.
The medtech division brought in $8.4 billion in sales, growing 7% year over year.
Sales Guidance Hike
J&J raised its sales outlook for the year and now expects $93.5 billion to $93.9 billion, up from its prior guidance for $93.2 billion to $93.6 billion. The company retained its view for adjusted profit of $10.80 to $10.90 per share.
Analysts projected earnings of $10.85 a share and $93.48 billion in sales.
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