Johnson & Johnson (JNJ.N) on Tuesday reported higher-than-expected quarterly earnings, helped by cost cuts and lower taxes, and gave a 2016 profit outlook slightly above Wall Street's.
Shares of the diversified healthcare company rose almost 5 percent to $101.18 as investors shrugged off fourth-quarter sales and a 2016 revenue outlook that were both below analysts' estimates.
Edward Jones analyst Ashtyn Evans said investors were cheered by J&J's vow to make more of its medical devices market leaders and to launch 30 new devices this year, including a new insulin pump.
"It's an optimistic outlook, but the market is reacting to that," said Evans, who noted that company devices in recent quarters have been the company's slowest-growing business. Device sales fell 3.3 percent to $6.43 billion in the fourth quarter.
J&J last week said it would cut about 3,000 jobs within the struggling unit over the next two years to generate annual cost savings of up to $1 billion and to focus on priority areas like artificial knees and devices for trauma surgery.
The strong U.S. dollar, which hurts the value of sales outside the United States, weighed heavily on J&J's fourth quarter results, and analysts said J&J would probably rely on more cost cuts in 2016 to meet its profit forecast.
The company said it expects earnings of $6.43 to $6.58 per share for 2016, excluding special items.
Wall Street analysts forecast earnings of $6.38 per share.
J&J forecast 2016 sales at $70.8 billion to $71.5 billion. Analysts on average were expecting $71.88 billion.
In a conference call with analysts, Chief Executive Officer Alex Gorsky said the company was interested in dealmaking within its main consumer, medical device and pharmaceuticals segments to boost longer-term results, although it believes valuations of potential acquisition targets were inflated in 2015.
"We will continue to be very active in the M&A area," Gorsky said, noting that J&J in recent years had derived about half its revenue from acquired products.
The company has pursued fairly small "tuck-in" acquisitions in recent years as some other large healthcare companies struck big deals, most notably Pfizer Inc's (PFE.N) planned $160 billion acquisition of Allergan Inc (AGN.N).
J&J's fourth-quarter sales fell 2.4 percent to $17.81 billion, below the analysts' average estimate of $17.88 billion. But sales would have risen 4.4 percent if not for the stronger dollar.
Prescription drug sales rose 0.8 percent to $8.06 billion, buoyed by demand for arthritis drug Remicade and psoriasis treatment Stelara.
Sales of consumer brands, which include its Tylenol painkiller and Neutrogena skin-care products, were hit especially hard by the stronger dollar, falling 7.9 percent to $3.32 billion.
Fourth-quarter net income rose about 28 percent to $3.22 billion, or $1.15 per share, from a year earlier, when it took special charges of about $1.4 billion.
Excluding restructuring charges and other items, J&J earned $1.44 per share, topping analysts' average estimate of $1.42.
J&J is the first major U.S. drugmaker to announce quarterly earnings.
Investors on Tuesday also focused on comments from Republican presidential front-runner Donald Trump that the U.S. Medicare insurance program for the elderly and disabled could reap huge savings by negotiating with drugmakers.
(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn and Jonathan Oatis)