Earnings Call Transcript - JNJ Q1 2020

Operator, Operator

Good morning. Welcome to Johnson & Johnson’s First Quarter 2020 Earnings Conference Call. Please note that the conference call will last around 90 minutes. The review is being made available via webcast accessible through the Investor Relations section of the Johnson & Johnson website.

Chris DelOrefice, Vice President of Investor Relations

Good morning. This is Chris DelOrefice, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company’s review of business results for the first quarter of 2020. I hope everyone is healthy and remaining safe during these times. With safety in mind, we are utilizing a more virtual approach in exercising social distancing while conducting this call. Joining me on call today to address Johnson & Johnson’s response to the coronavirus global pandemic along with our first quarter results are Alex Gorsky, Chairman of the Board of Directors and Chief Executive Officer; Dr. Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer; and Joe Wolk, Executive Vice President, Chief Financial Officer. During the Q&A portion of the call, Joaquin Duato will also join us. We appreciate you joining us on the call today. As noted today’s presentation includes forward-looking statements, we encourage you to review the cautionary statement included in today’s presentation, which identifies factors that may cause the company’s actual results to differ materially from those projected.

Alex Gorsky, Chairman and CEO

Thank you, Chris and thanks to all of you for joining us today. I also want to thank Joaquin Duato and Dr. Paul Stoffels for joining our first quarter webcast. COVID-19 is at the forefront of everyone’s mind, which is why we plan to spend a fair amount of time discussing this unprecedented global pandemic and our unwavering commitment to create and deliver value to all of our stakeholders. Johnson & Johnson was built for times like this, and our strong first quarter results are a reflection of our sustainable business model. As we announced this morning, we increased our quarterly dividend by 6.3% to $1.01, marking the 58th consecutive year of dividend increases for Johnson & Johnson. We recognize the challenges that individuals and companies are facing right now, and as we look forward, we are confident that together we will win this fight against COVID-19, maintaining a long-term view of optimism. The first pillar is our longstanding belief in driving both performance and purpose with equal commitment. Across Johnson & Johnson, we operate with the belief that there is a connection between our company’s purpose and our financial performance. We are applying all of our capabilities to support healthcare workers and have increased our commitment for COVID-19 response by an additional $50 million, focusing on supporting frontline healthcare workers. We are also working diligently to convert manufacturing lines for products most in need during the pandemic to provide important medicines to patients.

Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer

Thank you, Alex. I’m pleased to provide an update on our multi-pronged approach to addressing COVID-19, including developing a vaccine and screening of compound libraries to identify potential new treatments. We are accelerating efforts towards the potential COVID-19 vaccine. We have invested heavily to build state-of-the-art vaccine capabilities which we used to develop our Ebola, Zika, RSV and HIV vaccine candidates. Our COVID-19 vaccine program leverages our Adeno viral vector and PER.C6 technologies, capable of developing new vaccine candidates rapidly. Our platform has produced effective immune responses in human trials, and we are committed to bringing an affordable vaccine to the public on a not-for-profit basis. We plan to begin production imminently and are on track to start Phase 1 clinical trials in early September.

Chris DelOrefice, Vice President of Investor Relations

Thank you, Paul. Now, I will provide our Q1 results. Worldwide sales were $20.7 billion for the first quarter of 2020, an increase of 3.3% versus the first quarter of 2019. Operational sales growth increased 4.8% as currency had a negative impact of 1.5 points. In the U.S., sales increased 5.6%. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 5.6% worldwide. These global sales results include an estimated net impact of COVID-19 which negatively impacted worldwide sales by about 80 basis points. The consumer health segment realized a net positive impact associated with consumers ensuring they have access to products during the pandemic. Our pharmaceutical sales grew 10.1%, enabled by double-digit growth in key products. Our strong portfolio has enabled us to continue to deliver global growth at above market levels. However, medical devices experienced a notable decline due to procedures being deferred because of the pandemic.

Joe Wolk, CFO

Thank you, Chris and good morning everyone. The fundamentals of Johnson & Johnson’s business are strong. We are motivated by never stopping when it comes to taking care of our stakeholders. We are well positioned financially, ending the first quarter with cash of $18 billion generating approximately $3 billion of free cash flow. Our capital allocation priorities remain unchanged: investing in our business, increasing dividends, and pursuing value-creating M&A transactions. We are committed to supporting communities and healthcare heroes in this crisis while maintaining our growth trajectory. We have decided to provide updated guidance, aiming to find the right balance between confidence and caution as we navigate the uncertainties ahead. Our revised operational sales guidance reflects a potential negative impact in the Medical Devices sector, while we expect our pharmaceutical business to remain resilient.

Chris DelOrefice, Vice President of Investor Relations

We will now move to the Q&A portion of the webcast. Operator, can you please provide instructions for those on the line wishing to ask a question?

David Lewis, Analyst

Good morning and thanks for all the significant work you are doing on behalf of patients in the system as well as the very significant guidance that Joe just provided. First question is for Paul regarding the vaccine program. By the first quarter of ‘21, where do you think production capacity will be relative to the 1 billion doses?

Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer

Production capacity would be ready to go at 600 million to 900 million in the first quarter, ramping up to 1 billion in the course of the year. We will have four manufacturing sites going live sequentially.

Joe Wolk, CFO

Regarding our cash flow, we still expect to generate strong cash flow into the teens this year. We are well-positioned with cash of $18 billion and access to credit markets if needed. The current crisis does not reduce our desire to pursue M&A transactions or maintain our commitment to shareholders through dividends.

Chris DelOrefice, Vice President of Investor Relations

Thank you, Joe. That concludes the sales and P&L highlights for Johnson & Johnson’s first quarter 2020. I am now pleased to turn the call over to Alex for some final comments.

Alex Gorsky, Chairman and CEO

Thank you for your time today. We acknowledge the significant impact this situation has on individuals and communities. At Johnson & Johnson, we are committed to ensuring healthcare is available and accessible while making a difference for billions of people around the world. Thank you and stay safe.

Operator, Operator

Thank you. This concludes today’s Johnson & Johnson’s first quarter 2020 earnings conference call. You may now disconnect.