Johnson & Johnson reported third-quarter revenue of $25.4 billion on Tuesday and adjusted earnings of $2.59 per share, beating Wall Street estimates even as war in the Middle East prompted Gulf governments to shift health spending toward defense.
The results cleared expectations comfortably. LSEG data showed analysts had forecast revenue of $25.28 billion and earnings of $2.54 per share. Pharmaceutical sales climbed 7.7% to $16.76 billion. Medical technology revenue grew 2.5% to $8.6 billion, while sales outside the United States stayed basically flat.
Health Budgets Lose to Defense
Chief Financial Officer Joe Wolk said the Middle East conflict, austerity measures in Europe and pricing pressure in China continued to weigh on international results, “but maybe in a little bit more pronounced way.” The conflict has pushed fuel costs higher at home and abroad. It hasn’t increased J&J’s own costs yet, Wolk said, but it has hurt sales in the region.
His description of the Gulf stood out. “These are countries that still value and actually want premium healthcare systems, think Kuwait, UAE, Saudi Arabia. They pride themselves on having solid healthcare, very good healthcare,” Wolk said. “But their budgets now are being resourced and allocated towards defense.”
The remark points to a trade-off rarely covered in earnings reports. When governments direct money toward weapons, hospitals, equipment and patients that rely on public budgets feel the effects. European austerity tightens the squeeze across the continent, too.
A Drug Windfall and a Safety Question
One product did much of the work behind the profit beat. Sales of Tremfya, J&J’s immune disease treatment, jumped 68% to $2.4 billion, well above analyst estimates of about $2.19 billion. Recent approvals for inflammatory bowel diseases have increasingly helped offset revenue lost on Stelara, which fell 54% to $716 million amid generic competition. Stelara still topped Wall Street’s $591 million forecast.
Generic competition can lower prices over time, and Stelara’s decline shows that mechanism at work. But J&J now depends more on a newer branded drug to deliver fresh revenue.
Some results missed the mark. Darzalex, the blood cancer treatment, rose about 16% to $4.24 billion, below the $4.4 billion analysts expected. Sales at Abiomed’s heart pump business also remained slow after a UK study earlier this year raised questions about using Impella pumps during certain high-risk coronary procedures. The company didn’t elaborate in the report. The episode shows how independent clinical research can reshape demand for a medical device.
Raised Outlook, Rising Shares
J&J raised its full-year reported-sales forecast to about $101.2 billion at the midpoint, up from $101.1 billion. It also lifted its adjusted-earnings range, putting the new midpoint at $11.10 per share, compared with $11.04. Shares closed at $263.73 on Monday. They’re up 27% this year, ahead of the broader market and most healthcare peers.
Why This Matters:
J&J’s strong quarter comes with an uncomfortable detail: Gulf governments are shifting money from healthcare to defense, while European austerity is squeezing medical spending as well. Companies can post record profits as public systems that buy their products tighten their budgets. The Abiomed episode shows why independent clinical research matters, too. A UK study was enough to slow sales of a device used in high-risk heart procedures, reminding readers that patient safety depends on evidence, not marketing. The issue is priorities. When governments set budgets, healthcare competes with other demands, and their choices affect patients, hospitals and the firms that serve them.