Johnson & Johnson reported steady third-quarter revenue growth of 5.9% to $25.4 billion and raised its full-year outlook, while signaling a preference to spin off its hip and knee business.
What you need to know
According to Chief Financial Officer Joseph Wolk, Johnson & Johnson (JNJ) is leaning toward spinning off its hip and knee business as a standalone entity. Wolk said in an interview: "We believe that at this stage, the best way to create maximum value for Johnson & Johnson shareholders is to directly spin off this business." It was previously reported that Johnson & Johnson had held talks with private equity firm Apollo Global Management about a sale worth approximately $20 billion.
Wolk's remarks came as Johnson & Johnson released its latest quarterly earnings: revenue grew a steady 5.9% to $25.4 billion, and the company raised its full-year guidance. The quarter was driven primarily by prescription drug sales, while the medical devices business grew at a relatively sluggish pace. Johnson & Johnson acknowledged that the medical devices segment still needs improvement but said full-year revenue is expected to exceed $100 billion.
Johnson & Johnson's product portfolio spans a wide range of categories, making it a bellwether for the healthcare industry. While other industries have been weighed down by factors such as rising oil prices and consumers cutting back on spending, Johnson & Johnson's results reflect the resilience of demand in the healthcare sector. However, the long-running litigation over talc-based baby powder cancer claims dragged on the quarter's performance. Due to one-time charges related to a proposed litigation settlement, Johnson & Johnson's net income fell to $210 million for the quarter, or $0.09 per share, compared with net income of $5.15 billion, or $2.12 per share, in the same period last year. In July, Johnson & Johnson announced it would set aside $5.5 billion to settle the related litigation. The July acquisition of Firefly Bio and a partnership with Sail Biomedicines also generated special one-time expenses in the quarter.
FactSet data showed that excluding one-time gains and losses, Johnson & Johnson's adjusted earnings per share came in at $2.59, above analysts' expectations of $2.52. Overall revenue also beat analyst forecasts. Pharmaceutical segment revenue was $16.76 billion, up 7.7% year over year, better than Wall Street expectations; medical devices revenue was $8.64 billion, up only 2.5% year over year, falling short of market expectations. Wolk said: "The medtech business needs to improve. A growth rate of 2.5% is certainly not something we are satisfied with."
As early as October 2025, Johnson & Johnson announced plans to divest its DePuy Synthes orthopedics business, which primarily makes hip and knee replacement implants and bone repair devices. Wolk said the company has been evaluating multiple options for the business and currently believes a spin-off is the optimal path. "We are not short of money, and we do not need to accept a bad deal just to get a transaction done." The healthcare giant raised its full-year adjusted earnings per share guidance from a previous range of $10.96 to $11.11 to $11.05 to $11.15. It also raised the lower end of its full-year revenue guidance, with the midpoint of its revenue forecast edging up from $101.1 billion to $101.2 billion.