Johnson & Johnson Beats Earnings Estimates. CFO Says It Can Do Any Deal It Wants.

Johnson & Johnson headquarters in Madrid, Spain. (Cristina Arias / Getty IMages)

The drug and medical device maker Johnson & Johnson kicked off the healthcare earnings season with a better-than-anticipated report early Wednesday, as sales and earnings came in above expectations.

That is a good sign for the healthcare sector, and especially for other pharmaceutical and medical device stocks, after a difficult start to the year.

The stock rose 2.1% in premarket trading.

The company’s chief financial officer, Joe Wolk, told Barron’s that 2025 was panning out better than the company had feared it might.

Early this year, the expiration of the patents protecting the megablockbuster psoriasis drug Stelara, which been responsible for 11.7% of the company’s 2024 revenue, allowed competitors to begin launching biosimilar versions of their own.

“We had 2025 as—it was going to be, I would say, a grind-it-out year,” Wolk said. Johnson & Johnson’s initial 2025 guidance had called for the company’s reported sales to climb by just 1%, as Stelara revenue collapsed.

Now, things are looking rosier.

On Wednesday, the company reported adjusted earnings of $2.77 per share for the second quarter, beating the $2.68 per share Wall Street estimate calculated by FactSet. Sales were $23.7 billion, better than the $22.8 billion estimate.

Johnson & Johnson now expects reported full-year sales of between $93.2 billion and $93.6 billion, an increase of between 5.1% and 5.6% from last year.

Most of the second quarter beat was attributable to the pharmaceutical division, where sales were $15.2 billion, beating the $14.5 billion consensus estimate. Sales of Stelara came in slightly below expectations, at $1.7 billion, but a long list of other drugs beat consensus estimates.

In the medical devices division, sales were $8.5 billion, beating the $8.2 billion consensus estimate.

In an note out early Wednesday, Raymond James analyst Jayson Bedford called the result a “bounce-back quarter” for the medical devices division, after its sales missed expectations in the first three months of the year.

The company also raised its full-year earnings guidance, saying it expects adjusted reported earnings of between $10.80 and $10.90 per share, up from its prior estimate of between $10.50 and $10.70 per share. Analysts had been expecting earnings of $10.64 per share, according to FactSet.

“This was a solid result,” Bedford wrote. “While the threat of pharma tariffs loom, and JNJ is fighting through the Stelara [loss of exclusivity] optics, business trends were better than expected and the guidance raise likely leaves additional cushion.”

On an investor call early Wednesday, Wolk said that the company now expects a 2025 impact from tariffs of roughly $200 million, entirely tied to its medical devices division. That is down from the $400 million estimate the company made earlier this year. It doesn’t include any effects from the drug tariffs that President Donald Trump has discussed but not yet imposed.

One area where the picture hasn’t improved is the lingering litigation brought by people who say they were harmed by the talc body powder products Johnson & Johnson formerly sold. Johnson & Johnson has said the products were safe.

The uncertainty over the legal fight, and the magnitude of any potential payouts, has weighed on the stock for years, and repeated efforts by Johnson & Johnson have failed to do away with the problem. In late March, a federal judge rejected the company’s third attempt to put a business unit that holds its baby powder liabilities into bankruptcy.

Now, the company plans to duke it out in the trial courts. That could be a heavy lift: In a securities filing earlier this year, Johnson & Johnson said it faces claims from 62,850 plaintiffs alleging injury from body powders containing talc.

Asked about the lawsuits, Wolk said that the company had recently won two trials. But he couldn’t offer a timeline for when the litigation might be over. “We’re going to continue to fight these,” he said. He pointed to a hearing scheduled this fall on the evidence that can be used in future trials.

Johnson & Johnson shares are up 7.3% this year, outperforming the healthcare sector at large. The Health Care Select Sector SPDR Fund, which tracks the sector, is down 3.6% this year, while the S&P 500 is up 6.2%.

In April, the company closed the $14.6 billion acquisition of Intra-Cellular Therapies, which sells the depression and schizophrenia drug Caplyta, and had a pipeline of potential treatments for anxiety disorder and Alzheimer’s disease-related psychosis. For biotech and smaller medtech names, Johnson & Johnson’s appetite for more deals is a major question mark.

“We can do just about any deal we want,” Wolk said. “We’ve got the $20 billion in free cash flow we generate on an annual basis, we’ve got the AAA credit rating. But we want to make sure it fits with the business.”

Wolk said that future deals on the pharma side would be focused on oncology, immunology, or neuroscience. “We’re not doing anything out of desperation, or to fill a revenue gap,” he said. “We’ve got the pipeline. We’re going to look at things that strategically fit, and then create further value and elevate growth.”

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com