Johnson & Johnson CFO Warns Coronavirus Uncertainty to Make Guidance '100% Precisely Wrong'
March 23 2020 - 8:15PM
Dow Jones News
By Mark Maurer and Dylan Tokar
Economic uncertainty surrounding the coronavirus pandemic has
made financial projections all but impossible for many finance
chiefs.
Just ask Johnson & Johnson. The health-products company is
gearing up to unveil full-year earnings guidance for 2020 on April
14.
"One thing I know for certain is we're going to be 100%
precisely wrong, " Joseph Wolk, J&J's CFO, said in an
interview.
Market volatility and economic uncertainty have prompted
companies to adjust or withdraw quarterly or full-year guidance.
FedEx Corp. and American Eagle Outfitters Inc. were among the
businesses in the past week to withdraw guidance for reasons such
as the unknown impact of store closures, reduced trade and
government-mandated lockdowns.
"It's going to be very, very challenging for companies to
maintain their guidance or revise it," said Josh Jennings, an
analyst at Cowen & Co. "We're assuming a lot of companies will
pull their guidance on the first-quarter call."
Forecasts are, by definition, a best guess. Which is why -- with
so much volatility and uncertainty -- conveying the degree of
variability in the guidance is important, Mr. Wolk said.
"It's a matter of being directionally correct and being very
transparent and clear about our thought process and our assumptions
as we look to extrapolate the year," he said. "If we can't do that
in a very credible manner, then maybe we forego that."
J&J will consider what it has experienced in the first
quarter and make projections based on the geographic path of the
virus relative to its business, Mr. Wolk said.
"Having the breadth of products that we do, some will perform
better, some worse," Mr. Wolk said. "Tends to balance each other
out."
The New Brunswick, N.J.-based company could face uncertainty in
its consumer-products business because it is more sensitive to
economic conditions, said David Kaplan, an analyst at S&P
Global Inc. Also affected: the company's medical-devices business,
which sells products frequently used in elective medical
procedures, he said. Health officials have asked hospitals to delay
those kinds of procedures.
Sales of certain J&J products from brands such as Band-Aid,
Neutrogena and Rogaine likely will soften as consumers prioritize
buying more essential goods, analysts said.
J&J also has had to adapt to executing the financial close
of a quarter with employees working remotely. The company expects
that employees in some territories or small countries may not be
able to get into the office to close on their quarter-end
financials, but it has been working with external auditors to
ensure they have a mutual understanding about materiality, Mr. Wolk
said.
J&J ended its 2019 fiscal year with more than $17 billion in
cash and cash equivalents, according to company filings. It is
unlikely to make any short-term changes to its investment strategy,
Mr. Wolk said, including with respect to clinical trials -- an
essential step for rolling out new medicines and medical
devices.
Given the strength of its balance sheet, the current economic
environment may even work in the company's favor, allowing it to
supplement or accelerate its development portfolio and pipeline,
Mr. Wolk said.
"As this lingers on, that may be a good opportunity for us to
strike deals that were maybe at an impasse, where now maybe there's
less of an impasse because there's a need on the seller side," he
said.
Write to Mark Maurer at mark.maurer@wsj.com and Dylan Tokar at
dylan.tokar@wsj.com
(END) Dow Jones Newswires
March 23, 2020 20:00 ET (00:00 GMT)
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