Upcoming Earnings: JNJ and PG to Report Results This Week

Dow components Johnson & Johnson (JNJ) and Procter & Gamble (PG) report earnings before the open on Tuesday, Jan. 23. Here’s a look at what might be expected.

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Healthcare giant Johnson & Johnson (JNJ) and consumer conglomerate Procter & Gamble (PG) are both scheduled to report earnings before market open on Tuesday, Jan. 23.

Johnson & Johnson Earnings and Trading Activity

In the third quarter, JNJ reported that sales increased 10.3% year over year to $19.7 billion, driven by strength in its pharmaceutical segment and its $30 billion acquisition of Actelion that was completed in June 2017. Worldwide pharmaceutical sales increased 15.4% year over year to $9.7 billion and worldwide medical sales increased 7.1% to $6.6 billion, with JNJ’s recent acquisition of Abbott Medical Optics contributing 5.2% of medical sales’ growth, according to the company.

After reporting Q3 results, JNJ management raised its sales guidance for full-year 2017 to a range of $76.1 billion to $76.5 billion, and hiked its adjusted earnings per share (EPS) guidance to a range of $7.25 to $7.30, in line with analyst estimates. For Q4, JNJ is expected to report adjusted EPS of $1.72, up from $1.58 in the prior-year period, on revenue of $20.22 billion, according to third-party consensus analyst estimates.

An area of focus for analysts on the earnings call is typically the company’s pipeline. Earlier in May, JNJ reiterated its goal of developing 11 new blockbuster drugs from 2017 to 2021 and 40 line extensions, 10 of which they are targeting more than $500 million in sales potential. In December, the company announced the FDA had granted priority review to JNJ for apalutamide, a treatment for certain types of prostate cancer.

Options traders have priced in about a 1.8% potential stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. As of this morning, implied volatility sits at the 69th percentile.

In short-term trading at the January 26 weekly expiration, there hasn’t been too much activity, with most of the trading concentrated at the 145 and 147 strike prices for calls. On the put side, the 144 and 145 strikes have been more active.

At the February 16 monthly expirations, trading has been heavier at the 145 and 150 strike prices, with open interest of 8,956 contracts at the 145 strike and 9,715 at the 150 strike at the end of Friday. Trading has been lighter on the put side, with heavier trading at the 140 and 150 strikes, pretty much surrounding the stock.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Stock chart showing the performance of Procter & Gamble (PG) and Johnson & Johnson (JNJ) since 2017

JNJ AND PG PERFORMANCE SINCE 2017.

Johnson & Johnson (JNJ), charted above, has outperformed the S&P 500 (SPX), which is charted as the teal line. The purple line shows Procter & Gamble (PG) performance over the same time frame. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Procter & Gamble Earnings and Trading Activity

PG spent the past few months in a highly publicized proxy battle with activist investor Nelson Peltz, which culminated in PG announcing that it had appointed him to its board of directors effective March 1, 2018.  CFRA analysts view the addition of Peltz to the board as a positive and said it could potentially accelerate the company’s restructuring efforts. 

PG has been in the midst of a multi-year restructuring where it had divested businesses to focus on what it considers its core brands, as well as announcing layoffs and other cost-cutting measures. After spinning off its beauty business in October 2016, it had completed its plan to divest non-strategic brands and focus on 65 core brands.

For fiscal Q1 2018, PG reported sales increased 1% year over year to $16.7 billion. The company reported low to mid-single-digit growth in its beauty, health care, and fabric and home care segments, while sales in the grooming segment declined 5% and sales declined 1% in its baby, feminine and family care segment. After it last reported, management reiterated its guidance for organic sales growth ranging from 2% to 3% for fiscal 2018.

For PG’s fiscal second quarter of 2018, it is expected to report adjusted EPS of $1.15, up from $1.08 compared to last year, on revenue of $17.34 billion, according to third-party consensus analyst estimates.

Options traders have priced in about a 2.2% potential stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. As of this morning, implied volatility was on the high end at the 87th percentile.

In short-term trading at the January 26 weekly expiration, calls have been active at the 91 and the 92 strike prices, while puts have been active at the 90 and 90.5 strikes.

Looking further out at the February 16 monthly expiration, trading has been heavier at the 92.5 strike, with 5,379 contracts trading hands during Friday’s session. Both the 87.5 and 90-strike puts have seen heavier volume in recent trading at the February monthly expiration.

Looking Ahead

This week there are quite a few Dow components scheduled to report earnings. In addition to JNJ and PG, Verizon (VZ) also reports tomorrow morning. General Electric (GE) reports before the opening bell on Wednesday, Jan. 24 and Ford (F) reports the same day after market close. On Thursday, Jan. 25, Caterpillar (CAT) reports before the open and Intel (INTC) reports after the close.

Next week is a tech-heavy one, with Alphabet (GOOGL), Alibaba (BABA), Amazon (AMZN), Apple (AAPL), Facebook (FB) and Microsoft (MSFT), among others, on the docket. And if you have time, check out today’s market update to see what else is going on. 

Good Trading,
JJ
@TDAJJKinahan

Call Us
800-454-9272

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