Consumer Segment Overview
Johnson & Johnson (NYSE:JNJ)’s consumer segment is its smallest. While the consumer segment may be small in comparison to Johnson & Johnson’s other segments, it generated $13.5 billion in sales in fiscal 2015.
The consumer segment controls many well-known brands. The image below shows a sampling of the company’s consumer brands:
Source: Johnson & Johnson Canada
Johnson & Johnson’s consumer segment generates about 65% of sales internationally, with 35% coming in the US.
Pharmaceutical Segment Overview
The company’s pharmaceutical segment is its largest, generating 45% of total company revenue.
Johnson & Johnson’s top 5 pharmaceuticals based on percent of pharmaceutical sales generated in fiscal 2015 are shown below:
- Remicade generated 21% of total pharmaceutical sales
- Stelara generated 8% of total pharmaceutical sales
- Zytiga generated 7% of total pharmaceutical sales
- Xarleto generated 6% of total pharmaceutical sales
- Invega Sustenna/Explion generated 6% of total pharmaceutical sales
Johnson & Johnson’s top 5 pharmaceutical products make up 48% of its total pharmaceutical revenue. Johnson & Johnson’s pharmaceutical portfolio is well diversified from a product standpoint.
The pharmaceutical segment is also well diversified geographically. The company generates 58% of pharmaceutical revenues in the US and 42% internationally.
Medical Devices Segment Overview
Johnson & Johnson’s medical devices segment is its second largest by revenue.
The segment generates 48% of revenue in the United States and 52% internationally.
The medical devices segment is divided into 5 separate divisions based on product use. Each division is shown below along with percent of total revenue generated for the segment in fiscal 2015:
– Cardiovascular Care generated 8% of total segment revenue
– Diabetes Care generated 8% of total segment revenue
– Orthopaedics generated 37% of total segment revenue
– Surgery generated 37% of total segment revenue
– Vision Care generated 10% of total segment revenue
Like Johnson & Johnson’s other segments, the medical devices segment is well diversified both geographically and across product lines.
Johnson & Johnson’s Competitive Advantage
A stock must have a strong competitive advantage (or several) positive dividend growth for 53 consecutive years and to be the largest business in its sector.
Johnson & Johnson’s has 3 broad competitive advantages that differentiate it from its competitors:
– Size/scale competitive advantage
– Research & development competitive advantage
– Brand competitive advantage
Johnson & Johnson’s size/scale competitive advantage is a result of it being the largest player in the health care industry. The company’s long history gives it excellent connections with suppliers and governments around the world. The company can keep input costs low by buying in far larger quantities than competitors can.
The company’s large size gives it a bigger research and development budget that its peers. Johnson & Johnson’s research and development spending by year is shown below:
– $9 billion in 2015
– $8.5 billion in 2014
– $8 billion in 2013
This spending has produced tangible results. Johnson & Johnson generates about 25% of revenue from products it has developed in the last 5 years. The company’s pharmaceutical portfolio in particular is benefiting from large research and development spending.
Johnson & Johnson commands premium pricing through its well-known brands. The company supports its consumer brands and pharmaceuticals with large advertising spending. The company spends around $2.5 billion every year on advertising.
