The parameters of the coronavirus pandemic shift daily, as does the volatility of the stock market and the general wariness of the public. But regardless of the uncertainty, health product manufacturing giant Johnson & Johnson plans to release its 2020 earnings guidance on April 14.
This uncertainty has severely limited finance chiefs' ability to make accurate financial projections. "One thing I know for certain is we’re going to be 100% precisely wrong," Johnson & Johnson CFO Joseph Wolk told The Wall Street Journal Monday.
Companies, including Kohl's, L-Brands, Abercrombie & Fitch, and Nordstrom have decided to either postpone or withdraw their quarterly or full-year guidance, bracing for the yet-unclear impact of reduced foot traffic stemming from federally-ordered lockdowns.
Forecasts represent a company’s educated guess on what lies ahead, but they can never be entirely airtight, especially not in unpredictable years like 2020. But according to Wolk, this is why conveying that variability in the guidance is so important.
"It’s a matter of being directionally correct and [...] transparent about our thought process and assumptions as we look to extrapolate the year," Wolk told the Journal. "If we can’t do that in a very credible manner, then maybe we forego that."
Wolk said in preparing the guidance, New Brunswick, N.J.-based Johnson & Johnson will study its first quarter closely and make projections based on the virus’ geographic path as it relates to business.
Johnson & Johnson manufactures thousands of products of varying demand, including Band-Aids, medical devices, and Tylenol pain reliever, but Wolk said its offerings balance each other out. "Having the breadth of products that we do, some will perform better, some worse," he said.
One analyst told the Journal he expected many companies to pull their guidance from their first-quarter calls entirely. If this proves true, Johnson & Johnson stands to be an exception, likely because of the sharp uptick in demand for over-the-counter medicine amid the spreading respiratory virus.
Johnson & Johnson, an international corporation, is one of the thousands of companies relying on remote work as the pandemic spreads. According to Wolk, the company expects employees in some countries may be unable to physically get to 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.”
According to Johnson & Johnson’s filings, it ended its 2019 fiscal year with more than $17 billion in cash and cash equivalents. This year, it is unlikely to make any short-term changes to its investment strategy, "including with respect to clinical trials—an essential step for rolling out new medicines and medical devices," Wolk told the Journal.
Having a strong balance sheet during the current economic environment could work in the company’s favor, "allowing it to supplement or accelerate its development portfolio and pipeline," Wolk said, adding that the pandemic may bring about a good opportunity for the company "to strike deals that were maybe at an impasse, where now maybe there’s [...] a need on the seller side."
This good fortune is not unique to Johnson & Johnson. Companies who were in a conservative, frugal, and successful place going into 2020 are likely to fare better as the economy fluctuates.
The CFO of Swiss bank UBS said last week the bank had experienced "very few losses" as a result of the growing pandemic, due in large part to its conservative risk profile, high-quality credit portfolio and relatively limited exposure to highly impacted industries.