Morning Note: Market news and updates from J&J and P&G.

Market News

US equities pushed higher last night – S&P 500 (+0.6%); Nasdaq (+1.3%) – with the advance dominated by mega cap tech. The 10-year Treasury yield held steady at 4.60%, while gold is $2,752 an ounce.

Stocks in Asia rose this morning after Chinese officials reassured investors of the government’s commitment to supporting the market and boosting share prices: Nikkei 225 (+0.8%); Shanghai Composite (+0.5%). The Bank of Japan is expected to raise interest rates by the most in 18 years, adding to signs that the economy is finally getting back to normal.

The FTSE 100 is currently little changed at 8,543. Nearly half of Britons expect economy to worsen, retailers are warning of a tough period ahead, citing sluggish growth and tax increases, and may raise prices and cut jobs. Other surveys, including S&P Global and Deloitte, also show a gloomy outlook. Sterling trades at $1.2295 and €1.1828, while 10-year Gilts yield 4.63%.

US crude inventories rose by 1 million barrels last week, the API is said to have reported. Brent Crude trades at $78.50 a barrel. Mexico’s talks with the EU to reach a trade deal are very advanced but there’s still work to do, President Claudia Sheinbaum said.

Source: Bloomberg

Company News

Yesterday lunchtime, Johnson & Johnson released robust Q4 results and set out its guidance for 2025. In response, the shares were marked down 2% in US trading hours.

J&J is a global healthcare company with leading positions in pharmaceuticals and medical devices. The group has more than 20 products/platforms each with sales of more than $1bn. The group’s strategy is to grow sales faster than the market, and to grow earnings faster than sales. Given its broad spread of businesses, J&J is considered the bellwether of healthcare companies, providing a good read-across for a range of other stocks.

The company’s former Consumer Health unit has been spun off and now trades as a separate listed company (Kenvue). J&J still owns around 9% of the stock, a stake currently worth around $3.7bn.

For the full year, reported sales grew by 4.3% to $88.8bn. On an adjusted operational basis, which excludes the impact of acquisitions and disposals, growth was 5.4%. Operational growth excluding the impact of revenue from Covid-19 vaccine was 7.0%. In the final quarter, reported sales grew by 5.3% to $22.5bn, in line with the market forecast. On an adjusted operational basis, sales grew by 5.7%, with US domestic sales (+8.6%) outpacing international sales (+2.0%).

The group’s performance demonstrates continued strength and resilience across both of its businesses. Innovative Medicine (i.e., Pharmaceuticals, 64% of sales) grew by 5.8% during the year, or 7.5% excluding Covid-19 vaccine. Growth was driven by a broad range of products, partially offset by psoriasis treatment Stelara.

MedTech (i.e., medical devices, 36% of sales) increased by 4.7%, driven primarily by electrophysiology products in Interventional Solutions, wound closure products in General Surgery, and Abiomed in Cardiovascular.

The group made significant pipeline progress including Rybrevant + Lazcluze overall survival data, initiation of TAR-200 submission, and approval of an investigational device exemption for the group’s general surgery robotic system, Ottava

Full-year adjusted EPS grew by 0.6% to $9.98, a touch ahead of the $9.91 guidance. In the final quarter, EPS fell by 10.4% to $2.04, a touch better than the consensus forecast of $2.01.

J&J has a very strong balance sheet and ended the year with net debt of $12bn on the back of free cash flow generation of c. $20bn. The group has consistently invested in organic growth – R&D spend was $17.2bn in the year – and, as a result, around 25% of sales come from products launched in the last five years. J&J has completed its share buyback programme and increased its dividend by 4% to $4.96 per share, equating to a 3.4% yield.

A J&J unit filed for bankruptcy for a third time in September as the company sought to advance a proposed $10bn settlement that would end tens of thousands of lawsuits alleging its baby powder and other talc products caused cancer.

Guidance for 2025 was issued: adjusted operational sales growth of 2.5%-3.5% and adjusted operational EPS growth of 8.7% to $10.75-$10.95. In the Innovative Medicine division, the group expects more pronounced impact from newly-launched products. In MedTech, the group expects normalised procedure volume and seasonality.

Source: Bloomberg

Yesterday lunchtime, Proctor & Gamble released results for the three months to 31 December 2024, the second quarter of its financial year to 30 June 2025. Performance was slightly better than forecast and the company reiterated its guidance for the full year, In response, the shares were marked up 2%.

P&G is a global consumer goods company with annual sales of $84bn across a broad range of iconic brands including Gillette, Crest, Ariel, Head & Shoulders, and Pampers. The focus is on daily use categories. The group generates around half of its sales in North America, a fifth in Europe, and the remainder in emerging markets.

In the three months to 31 December, net sales rose by 2% to $21.9bn, ahead of the market forecast of $21.54bn, against a challenging economic and geopolitical backdrop.

Organic growth, which excludes the impact of acquisitions, disposals, and negative currency movements, was up 3% in the quarter, against a tough year-on-year comparative. Growth was driven by a 2% increase in organic volume and a 1% increase from favourable geographic mix. Pricing had a neutral impact on sales growth for the quarter.

However, growth was broad-based, with 9 of 10 product categories growing organic sales. Global aggregate value share was up on the prior year, with 28 of the group’s top 50 category/country combinations holding or growing share in the quarter.

The group operates across five divisions:

• Fabric & Home Care (35% of full-year sales) grew by 3% in organic terms, driven by home care products.

• Baby, Feminine & Family Care (24% of sales) was up 4%, driven by double-digit growth in family care products.

• Beauty (18% of sales) rose by 2%, driven double-digit growth in personal care, offset in part by a decline in skin care volume.

• Health Care (14% of sales) grew by 3%, driven premium innovation.

• Grooming (8% of sales) grew by 2% as a result of innovation-driven volume growth.

On a currency-neutral basis, the core gross margin fell by 20 basis points in the quarter to 52.5%, driven by gross productivity savings and higher pricing, more than offset by unfavourable commodity costs, unfavourable product mix, and product reinvestments. The operating margin slipped by 50bps to 26.5%. Core EPS grew by 2% at constant currency in the quarter to $1.88, a touch better than the market forecast of $1.86.

Adjusted free cash flow was $3.9bn and adjusted free cash flow productivity was 84%, below the 90% target. The group ended the quarter with net debt of $24.5bn and returned over $4.9bn of cash to shareholders through dividends ($2.4bn) and share repurchases ($2.5bn). The group has increased its dividend for 68 years in a row.

For the financial year to June 2025, the group still expects to deliver organic sales growth (3%-5%), core EPS growth (5%-7%), and free cash flow productivity (90%) – each in-line with its long-term growth algorithm. The company also expects to pay around $10bn in dividends and to repurchase $6bn-$7bn of shares in the year.

Source: Bloomberg