Johnson & Johnson (J&J) is an American holding company engaged in the research, development, design, manufacture, and sale of a wide range of commodities related to human health and general wellbeing. It operates through the medical devices, pharmaceutical, and consumer segments, making it the largest and most diversified healthcare company globally. J&J has solidified its market position by manufacturing high-quality and innovative products, ultimately translating to comparably favorable financial performance over its competitors. The current financial ratios demonstrate consistent year-on-year growth in consolidated revenues and cost of products sold, while the selling, administrative, and marketing expenses declined marginally in the last two years.
Amongst the main strengths of J&J are its significant market share and global reach in the respective segments, extensive product portfolio, and robust brand image. However, the organization experiences uneven revenue distribution and numerous lawsuits, which threaten the firm’s reputation as the greatest weaknesses and threats. The single-shot vaccine against Covid-19 ranks among the most promising and lucrative opportunities for the company. Although J&J is currently performing desirably, the future financial outlook is promising as driven by the impressive growth in its pharmaceutical segment.
Financial Analysis for the Last Three Years
For the last three years, J&J has registered a consistent growth in its annual consolidated revenue. In 2019, the company’s combined earnings from all trading segments were $82.059 billion, representing a 0.59% increase from the previous year’s $81.581 billion (Johnson & Johnson, 2020). In 2020, J&J’s gross revenues were $82.584 billion, a 0.64% growth from 2019’s sales volumes. These figures illustrate a consistent upward trend in the firm’s consolidated earnings over the last three years.
J&J’s aggregated annual operating expenses have been increasingly year-on-year for the last three accounting periods. According to the financial statements, the business incurred a combined expenditure amounting to $66.087 billion in 2020, a 2.09% increase from 2019’s $64.731 billion (Johnson & Johnson, 2020). 2018’s consolidated operational costs were $63.582 billion, indicating that the subsequent year’s expenditures grew marginally by 1.81% (Johnson & Johnson, 2020). Therefore, J&J’s consolidated operational expenses have been increasing annually for the last three years.
The gross profit margins of J & J for the last three financial years indicate a fluctuation in the company’s earnings relative to its sales revenues. The former, also known as the gross margin ratio, is an analytical metric depicting how the business yields financial gain before charging the operational, marketing, and administrative expenses. For J&J, the gross profit margin for the last three years is as shown below:
- Gross profit margin = (Net sales – cost of goods sold) ÷ Net sales
- 2020: (82,584 – 28,427) ÷ 82,584= 0.656 or 65.6%
- 2019: (82,059 – 27,556) ÷ 82,059 = 0.664 or 66.4%
- 2018: (81,581 – 27,091) ÷ 81,581= 0.668 or 66.8%
An analytical evaluation of J&J’s gross profit margin for the years 2018, 2019, and 2020 indicates that the firm’s profitability is relatively stable and healthy. Ledley et al. (2020) contend that the average profit margin for pharmaceutical companies was 76.5%, suggesting that J&J was still within the industry’s overall profitability range. The significantly high profitability margin in the healthcare and pharmaceutical companies is critical since these firms incur enormous expenditures in research and developed, considerably large firms, and are also susceptible to time trends. Therefore, J&J’s gross profit margin depicts the impression of a healthy and stable organization.
J&J’s stock performance has been relatively stable, recording minimal fluctuations over the three years. Indeed, the company’s stocks have registered a consistent increase in value, a phenomenon attributable to the annual increase in the dividends paid for the 58th consecutive year (Johnson & Johnson, 2020). In 2020, the earnings per share for the company’s stocks was $5.59, representing a negligible decrease of $0.3 from the previous year’s dividends. On January 4, 2021, J&J announced a regular cash dividend of $1.01 per share, with the stocks registering a 2.52% dividend yield and a 29.87 price-earnings ratio (“JNJ Dividend History,” n.d). Therefore, J&J’s overall stock performance has been impressive, as viewed through their annual increase in dividend payouts and price earning ratios for the last three years.
Latest Market Value
The market value of a company is the general worth of the entity in a financial market. Regarding the valuation of an organization whose shares are already publicly held, its worth is determined by multiplying the outstanding shares with the current price at which the stocks are retailing (Pavone, 2019). As of January 3, 2021, the average outstanding shares for J&J were 3,119,843,000, valued at $414.15 billion (Johnson & Johnson, 2020). From this perspective, J&J is a highly valuable company, as demonstrated by the overall market value.
Debt: Short and Long Term
J&J’s short and long-term debts have been increasing significantly within the last three accounting periods. As of January 3, 2021, the firm’s long-term debt was $32.635 billion, an increase of $6.141 billion from the previous year’s figures (Johnson & Johnson, 2020). The company’s short-term indebtedness increased from $1.202 billion in 2019 to $2.631 billion in 2020 (Johnson & Johnson, 2020). These figures indicate the company’s prevalence of long-term debt obligations over short-term liabilities.
Cash Position for the Last Three Years
A company’s cash position reflects its liquidity levels at a given point relative to the pending liabilities and expenses. In the last three years, J&J’s cash position has been worsening, indicating a decline in the firm’s overall financial strength and liquidity. In 2020, J&J’s cash position was $13.985 billion, a reduction of $3.32 billion from the previous year’s $17.305 billion (Johnson & Johnson, 2020). 2019’s fiscal position was $802 million lower than 2018’s $18.107 billion, indicating an annual reduction over the last three years. Therefore, J&J’s cash position has been continually declining, a pattern driven by the falling net earnings.
Liquidity Measurement Ratios
The current, quick, and cash ratios are fundamental financial indicators providing insights to the external and internal stakeholders regarding how favorably an organization is performing. J&J’s current, quick, and cash ratios are as shown:
The current ratio is a financial metric indicating a company’s ability to utilize its current assets to cover its short-term obligations. For J&J, the current ratio is:
- Current ratio = (Current assets ÷ Current liabilities)
- 2020: = (51,237 ÷ 42,493)= 1.2
- 2019: (45,274 ÷ 35,964) = 1.25
The current ratios for 2020 and 2019 for J&J are 1.2 and 1.25, respectively, suggesting that the company can comfortably offset its pending short-term liabilities once they fall due.
Also known as the acid-test or liquidity ratio, the quick ratio is a financial measurement tool used to calculate a firm’s ability to offset its short-term obligations by utilizing its most liquid assets. It indicates whether a company can use the assets readily convertible into cash to pay current liabilities without obtaining additional funding or selling inventory. J&J’s current ratio for 2019 and 2020 is as shown:
- Quick ratio = (Current assets – inventory) ÷ current liabilities
- 2020: (51,237 – 9,344) ÷ 42,493 = 0.986
- 2019: (45,274 – 9,020) ÷ 35,964 = 1.01
The figures indicate that in 2020, J&J was in a better position to fully pay its short-term obligations more comfortably than in 2019.
The cash ratio is a liquidity metric evaluating a firm’s ability to settle current obligations with its highly liquid assets, such as the cash and cash equivalents. It is obtained by dividing the company’s combined figure of cash and cash equivalents with the current liabilities. J&J’s cash ratio for 2019 and 2020 is as shown below:
- Cash ratio = Cash and cash equivalents ÷ current liabilities
- 2020: (13,985 ÷ 42,493) = 0.33
- 2019: (17,305 ÷ 35,964) = 0.48
The cash ratios for the two years suggest that the company would have experienced challenges in offsetting its short-term financial obligations from its cash and cash equivalents.
J&J operates in the pharmaceutical, medical devices, and consumer market segments, through which it offers a wide range of commodities related to human health and overall wellbeing. The pharmaceutical division focuses on developing, manufacturing, and selling products within five therapeutic areas, including oncology, neuroscience, immunology, infectious diseases, metabolic, and cardiovascular illnesses (Reuters Editorial, n.d). The consumer department encompasses numerous care products for babies, skin, wounds, oral hygiene, and women’s health. The medical devices section manufactures commodities used in surgery, orthopedic, vision, and diabetic care fields. Therefore, J&J’s product offerings are primarily within the medical devices, consumer, and pharmaceutical segments.
Over the years, most of J&J’s products have emerged as global leaders in their respective categories. However, such commodities under the pharmaceutical segment as Stelara, Erleada, Imbruvica, Invega, Uptravi, and Symtuza rank prominently among the top revenue-generating items. However, J&J’s main commodities include first aid supplies and medications such as Tylenol, the Band-Aid Bandage brand line, and Johnson’s Baby products. Contact lenses, surgery products such as surgical mesh, and hip, knee, and spine implants are among the core commodities under the medical devices segment.
J&J has expansive and robust distribution networks and channels encompassing its numerous subsidiaries, wholesalers, retailers, and healthcare providers. In recent years, Aniqo (2020) notes that the company has explored and adopted strategic alliances with other organizations such as Cipla Inc. to expand its global reach and exploit foreign market opportunities effectively. Additionally, as online business opportunities experience tremendous growth, J&J diversifies its distribution avenues and embraces e-commerce and online platforms (Choudhuri, 2018). Therefore, J&J adopts a mixed product placement strategy to ensure a wide reach and availability of its commodities to consumers.
J&J organizes its operations into three distinct segments, which have slightly different target audiences consumers, researchers, and individuals in the medical field. For instance, the pharmaceutical and medical devices divisions primarily aim to sell their products directly to healthcare professionals, retailers, wholesalers, and hospitals. Additionally, specialized care clinics, including those operating in general surgery, orthopedics, diabetes care, and cardiovascular diseases, are primary targets of these two divisions. However, the consumer segment targets the general public, with the sector’s products selling directly to end-users, retail outlets, wholesalers, and distributors.
J&J generally operates in imperfect and monopolistic competition markets characterized by many sellers producing similar but differentiated commodities in all three distinct segments. Among the most prominent competitors for the company include Procter & Gamble, Pfizer, Merck, Abbott, Bayer, GlaxoSmithKline, Unilever, Reckitt Benckiser, and Bristol Myers Squibb, among others (Aniqo, 2020). From this perspective, J&J’s ability to charge prices for its products without exploring what the rival firms are levying is considerably limited.
As one of the world’s largest organizations, J&J is a multinational corporation operating in numerous countries across the globe. The company has an estimated 275 operating subsidiaries and approximately 100 manufacturing facilities in over 60 countries in Asia, the Middle East, North America, and Europe. J&J products are sold in over 175 countries in the world, making it one of the business establishments with the most extensive global footprint.
Advertising and Promotional Strategies (Integrated Marketing Communication)
J&J’s impressive performance can be attributed to its highly effective advertising and promotional strategies. Generally, the organization utilizes emotional and mental communication approaches to develop trust and create feelings intended to persuade consumers to buy their products (Otamendi & Martin, 2020). For instance, the Band-Aid was promoted through a catchy phrase, ‘Covering is Caring’, which leveraged consumers’ attitudinal and behavioral responses. Moreover, J&J regularly offers special discount coupons to its consumers on such commodities as contact lenses and baby care products. Therefore, J&J utilizes emotional appeal and mental communication strategies to reach its target audience at a psychological level and influence their buying decisions.
Pricing Method and Strategy
J&J adopts hybrid approach pricing methods and strategies for its various product offerings. For instance, some of its consumer goods, such as baby care products, are charged relatively higher than commodities from competing brands. However, most of the organization’s products are priced while ensuring that they remain affordable to the target audience. A mixed pricing strategy allows an organization to tap the inherent benefits of each approach, especially where the products fall into different categories and target diverse users (Nyaga & Muema, 2017; De Toni et al., 2017). From this perspective, J&J has adopted the economy pricing strategy as the overall price-determination mechanism, which has contributed to expanding the market share and achieving a competitive advantage.
While communicating how they would want the market to perceive, think, and feel about their products, J&J has consistently positioned its commodities as indispensable home and personal care goods. Over the years, the organization has perfected presenting its products as the most ideal in providing customer satisfaction that would help them live vibrantly. For instance, J&J’s range of baby care products is marketed so that they evoke deep emotional sentiments and attachment from the mother to their infants.
J&J has developed a unique and compelling value proposition, which effectively enumerates the various distinct benefits consumers would realize should they opt to buy the product. Companies utilize value propositions as an influential decision-making tool to drive sales and build a customer base (Powell & Hughes, 2016). Succinctly capture in their credo, J&J’s value proposition is arguably the most critical component of its marketing strategy as it persuasively communicates to potential buyers why they should purchase the firm’s goods (Johnson & Johnson, 2020). For instance, their credo asserts that the organization strives to meet the needs of doctors, mothers, nurses, patients, and all those who use their products by ensuring value, quality, and affordability.
J&J uses cost leadership and product differentiation strategies as the two main marketing approaches to encourage consumers to choose their products over competitors. The former entails providing the lowest possible prices through the continuous exploration of potential areas of cost reduction and developing new and innovative systems to support optimal product pricing. Moreover, the organization also pursues a product differentiation strategy through which the firm manufactures significantly distinct and non-standardized commodities. The success and sustainability of these two approaches are supported by the research and development department, which consistently upgrades the differentiated features and ensures that the company is ahead of competitors.
Customer Relationship Management
Customer relationship management (CRM) encompasses the technologies, practices, and strategies used by an organization to enhance interactions and connections with consumers. The primary objective of CRM is to streamline processes and assist in customer retention to drive sales and enhance profitability. J&J has a dedicated Consumer Experience Center exclusively focused on obtaining holistic insights from the millions of customers served by the organization every day. Notably, the acquired information helps the company to innovate and develop products that address consumer needs better and generate cost-effective and desirable outcomes.
Strengths and Weaknesses
J&J enjoys various key strengths, which are distinct attributes and resources contributing to the firm’s overall success. Among such features are a strong brand name, a robust and adequately funded research and development department, relatively stable market performance, and an extensive global reach. Onstein et al. (2018) contend that a well-established and effective distribution network provides organizations with a competitive advantage stemming from the flawless and efficient logistical system. Moreover, the organization has an expansive product portfolio in the three operating segments and enjoys 58 consecutive years of dividend increases. However, J&J has an uneven revenue distribution, relies heavily on the success of the launch products, and has been accused of engaging in unethical practices, which could further hurt the firm’s reputation. The company would realize improved profitability and performance if it resolved these weaknesses and enhanced or leveraged the strengths.
Opportunities and Threats
J&J’s single-shot Covid-19 vaccine is an exciting opportunity for the organization. Additionally, the firm could exploit the potential growth in the robotic surgical systems, broaden its portfolio through mergers and acquisitions, and develop the market for bio-implants. Moreover, J&J can balance the performance of the three operating segments for ideal fiscal performance. However, the company faces the threats of numerous lawsuits, product recalls, competition, corporate espionage, and strategic acquisitions from competitors.
Although J&J has been reporting impressive financial performance over the years, various recommendations are critical in enhancing its overall success. For instance, the company should balance the returns from its three operating segments to minimize reliance on the pharmaceutical division. Further, they should seek alternative pricing strategies and drop cost leadership, which is inherently associated with slim margins (Yi et al., 2019). J&J should also ensure its operations are conducted ethically, guarantee strict monitoring of the production processes to comply with governmental regulations, and consider out-of-court settlements for the pending lawsuits. Finally, the organization should aggressively pursue mergers and acquisitions to mitigate the threat of emerging firms.
J&J is a globally reputable organization involved in developing, producing, and selling medical devices, pharmaceuticals, and numerous consumer commodities. Over the years, the firm has established its market dominance and leadership in its various product markets, with its value proposition playing an integral role in enhancing customer loyalty and driving sales. However, J&J significantly over-relies on its pharmaceutical division for its revenues. Although the company’s future financials are promising, it should seek ways to minimize operating costs to enhance its profitability in the future.
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