JnJ 1Q 2016 numbers - No split pending

Johnson & Johnson reported numbers for their first quarter of their 2016 financial year, two sessions back. These were released just prior to the market opening in the US. Forgive us, there has been loads going on, we are pretty early, in terms of earnings season reporting thus far. Sales, although flat year on year at 17.5 billion Dollars for the quarter, were a meet, the bottom line was a comfortable beat. Net earnings clocked 4.3 billion Dollars, diluted earnings per share were 1.54 Dollars.

Forward guidance for the year, based on current exchange rates (which have been more favourable) was sales in the region of 71.2 to 71.9 billion Dollars and adjusted diluted earnings range of 6.53 to 6.68 Dollars. At the opening price of 112.67, the stock trades on a forward multiple range of 17.25 to 16.86 times. Whilst that hardly seems like a bargin, it certainly has delivered on the earnings that may have flattered to deceive in the past. The current yield before tax is 2.66 percent, certainly very attractive for the risk profile that you assume. It is one of the most reliable and trusted businesses on the planet.

JNJ have three main divisions, namely their Consumer division (Consumer products like mouthwash, plus over the counter products), their Pharma division (prescription and OTC medicines) and lastly their medical devices business. As a standalone, that medical devices business is bigger than any of the other global business, this is as a result of the combination of Synthes and DePuy. Herewith a wonderful graphic from their investor relations release on what were the specific drivers for each segment.



As you can see, this is a pretty sizeable spread and whilst expectations would be for all divisions boats to be floated, some are pretty robust through the cycles. You are not going to skimp on your medicine now, are you? There are various parties shouting from the rooftops suggesting that the company should unlock value and unbundle some of the businesses. Paul sent us a Bloomberg Gadfly opinion piece two days back, written by an insightful chap by the name of Max Nisen -> Johnson & Johnson's Slow-Motion Shift.

As the article points out, there is lots in the pipeline, 10 blockbusters with billion Dollar sales potential expected to be released within the next three years. The company has more cash than any of their peers, 40 billion Dollars relative to a market cap of 318 billion sounds a little like a tech business, not so? And a bit of a "lazy" balance sheet. The conclusion of the piece is that the shift towards the biggest division, the pharma division, is happening already.

JNJ is a very sound business, even if it lacks excitement that investors often desperately want in equity markets, and that can be a really good thing. The price is about perfect, if you hold this business, continue to do so. Quality at this level is something that is hard (or nigh impossible) to replicate. Whilst upside may be limited for a while, this is a top drawer keeper. The Berkshire favourite holding period of forever applies here.