Johnson & Johnson blames US dollar strength for second cut in profit outlook

Johnson & Johnson trimmed its full-year profit forecast for the second time in consecutive quarters, as a surge in the value of the dollar depresses sales reported outside the US.

The US pharmaceutical group on Tuesday issued the downbeat forecast despite reporting better than expected second-quarter sales, underlining the challenges faced by American multinationals in maintaining earnings guidance in the face of big swings in global currency markets.

J&J said unfavourable foreign exchange moves would cost the company up to an additional $1.5bn in reported sales this year than it had previously estimated in April. The company, which generates almost half its sales outside the US, also revised its 2022 adjusted profit forecast down to between $10 and $10.10 per share, from $10.15 and $10.35.

“It’s not just that the euro and US dollar have reached parity, something we haven’t seen in nearly two decades. It’s also the rapid pace at which the fluctuations are occurring — a dynamic only experienced a few times over that same period,” said Joseph Wolk, J&J’s chief financial officer.

He said the foreign exchange moves would reduce J&J’s full-year reported sales by about $4bn and its adjusted earnings per share by about 65 cents. And, if current assumptions on currency estimates hold up this year, then about 30 to 35 cents of the unfavourable impact on adjusted earnings will carry through to 2023 earnings per share, said Wolk.

Several US multinationals including Microsoft and IBM have cut their reported sales outlooks due to a surging US dollar, which has appreciated by 12 per cent in value this year amid fears of a global recession.

A strong dollar hits revenue for US companies with large international businesses by reducing the value of their overseas earnings and making their products less competitive with local rivals.

J&J also referenced other macroeconomic challenges it faces including the prolonged impact of inflationary pressures, which has prompted the company to consider strategic price increases and review some external contracts.

J&J managed to beat analysts’ estimates in the second quarter despite the challenging economic environment, reporting a 3 per cent jump in sales to $24bn. Strong sales of its cancer treatment Darzalex and other drugs helped to offset a weaker performance by the company’s medical devices division, which has been buffeted by Covid-related disruptions.

The company reported earnings per share of $2.59, exceeding analysts’ expectations of $2.54 per share, according to Refinitiv data.

Ashtyn Evans, analyst at Edward Jones, said J&J had a decent quarter without providing many surprises. “The lowered guidance is not a concern because currency factors are outside the company’s control,” she said.