MW Tariffs won't boost U.S. manufacturing - tax cuts will, Johnson & Johnson CEO says

By James Rogers

J&J raises its full-year sales outlook, even when including the potential negative impact of the Trump administration's tariffs

Johnson & Johnson took a shot at the Trump administration's tariff policy and outlined its plans for how it will absorb the negative impact.

But even with the extra costs, which the medical-technology and drug company $(JNJ)$ estimates to be about $400 million, Johnson & Johnson still raised its outlook for sales in 2025, while keeping its profit guidance intact. The company also reported first-quarter results that beat expectations and raised its dividend by 4.8%.

Regarding tariffs, Chief Financial Officer Joe Wolk said on the post-earnings call with analysts that the company is "working and engaging" with the Trump administration and wants to be "deferential" in the process. And Chief Executive Joaquin Duato added that it was important to "partner" with the administration to address manufacturing capacity issues in the U.S.

That said, Duato did not agree with the administration's plan to impose tariffs on pharmaceuticals made overseas and sold in the U.S., even by America-based companies, as he said tariffs won't have their intended effect of bringing drug manufacturing back to the U.S.

Related: Why drug stocks are no longer a safe haven from the stock market's turmoil.

Duato said the reason there currently are no tariffs on pharmaceuticals is that tariffs can disrupt the drug supply chain and lead to shortages.

"If what you want is to build manufacturing capacity in the U.S., both in med-tech and in pharmaceuticals, the most effective answer is not tariffs but tax policy," Duato said, according to a FactSet transcript. "As a matter of fact, since President [Donald] Trump's 2017 tax reform, the investment in manufacturing, both in med-tech and in pharmaceuticals, has significantly increased."

Duato pointed, in particular, to Johnson & Johnson's recent announcement that it would invest more than $55 billion in the U.S. over the next four years toward manufacturing, research and technology. That represents a 25% increase in investment (from roughly $44 billion) in the U.S. over the previous four years.

"At the completion of this investment plan, essentially all our advanced medicines that are used in the in the U.S. will be manufactured in the U.S.," Duato said.

Basically, that roughly $100 billion investment plan was driven by changes in tax policy, not by tariffs.

For 2025, the company is estimating the cost from tariffs to be $400 million, primarily in its medical-technology business.

CFO Wolk said that estimate is based on the tariffs announced so far, including those on imports from Canada and Mexico, and to a smaller degree tariffs on steel and aluminum imports.

Wolk said it also includes tariffs on Chinese imports, as well as the retaliatory tariffs imposed by China, which he called "substantial."

"So just to maybe clarify for everybody, that is products of U.S. origin being shipped into China, and that's probably the most penalizing factor [of] that $400 million," Wolk said.

But even with that impact, Johnson & Johnson still hiked its 2025 sales guidance to a range of $91 billion to $91.8 billion, from its prior outlook of $89.2 billion to $90 billion. The midpoint of the new guidance range is above the current average analyst estimate compiled by FactSet for 2025 sales of $90.3 billion.

Meanwhile, the company also said it still expects 2025 adjusted earnings per share, which excludes nonrecurring items, of $10.50 to $10.70. That's above the current FactSet EPS consensus of $10.44.

The stock slipped 0.4% in afternoon trading Tuesday after running up 3.8% over the previous two sessions.

Separately, the company reported first-quarter net earnings that climbed to $11 billion, or $4.54 a share, from $3.26 billion, or $1.34 a share, in the same period a year ago.

Adjusted for one-time items, such as the reversal of a $7 billion talc settlement proposal, EPS rose to $2.77 from $2.71 and beat the $2.58 FactSet consensus.

Total sales rose 2.4% to $21.89 billion, above the FactSet consensus of $21.56 billion.

U.S. sales rose 5.9% to $12.3 billion, above the FactSet consensus estimate of $12.1 billion, while international sales declined 1.8% to $9.6 billion, but that figure was still above the FactSet consensus of $9.5 billion.

By segment, Johnson & Johnson's innovative-medicine sales rose 2.3% to $13.873 billion, and med-tech sales rose 2.5% to $8.02 billion.

Edward Jones analyst John Boylan said the company's quarterly results and outlook were "decent," although the earnings beat was helped by income from sources other than its core business.

"Despite what could be an uncertain economic landscape, we continue to believe that EPS guidance may be conservative, due to new products and cost control," Boylan wrote.

In a separate announcement, Johnson & Johnson announced a 4.8% increase in its quarterly dividend, lifting it from $1.24 to $1.30 a share. Shareholders of record on May 27 will be paid the new dividend on June 10.

Based on current share prices, the new annual dividend rate implies a yield of 3.38%, which is more than double the implied dividend yield for the S&P 500 index SPX of 1.42%.

Johnson & Johnson shares have gained 6.3% this year, while the S&P 500 has dropped 8.1%.

-James Rogers

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April 15, 2025 14:07 ET (18:07 GMT)

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