J&J's Profit Nearly Wiped Out by a Talc Charge, Yet It Raises Its Outlook: What Shareholders Should Know

A one-time legal charge overshadowed solid growth in the health care giant's drug business.

Johnson & Johnson, one of the most widely held stocks in America, reported third-quarter results on Tuesday, Oct. 13, that looked alarming at first glance. Reported net earnings fell 96% from a year earlier. But the drop came mostly from a one-time charge tied to the company's long-running talc lawsuits, while the underlying business kept growing. J&J even raised its forecast for the full year. Investors still sold the stock, which closed down about 5.7%.

A charge for the talc lawsuits

For years, J&J has faced thousands of lawsuits claiming its talc-based baby powder caused cancer, including ovarian cancer. The company has denied that its talc products cause cancer, but it has tried several times to settle the cases.

In the third quarter, J&J recorded a special charge related to a proposed resolution of the ovarian cancer talc lawsuits. That charge, along with costs from an acquisition and a research partnership, pushed reported net earnings down to $210 million from $5.15 billion a year earlier. Earnings per share were just 9 cents, compared with $2.12 a year ago.

Companies often report "adjusted" earnings that strip out one-time items like legal charges. On that basis, J&J earned $2.59 a share, down 7.5% from $2.80 a year earlier.

The business underneath is growing

Sales rose 5.9% to $25.4 billion, roughly in line with expectations. J&J's Innovative Medicine business, which sells prescription drugs, grew 7.7% to $16.8 billion. MedTech, which makes surgical tools, heart devices and other medical equipment, grew 2.5% to $8.6 billion.

Thanks to that momentum, J&J raised its 2026 outlook. It now expects sales of $101.0 billion to $101.4 billion and adjusted earnings of $11.05 to $11.15 a share, up slightly from its earlier forecast. CEO Joaquin Duato credited the "accelerating momentum" of the company's portfolio and said it has a clearer line of sight to double-digit growth by the end of the decade.

Why the stock still fell

Even with the raised outlook, shares closed at $248.61, down 5.73% on the day. When a company announces a large legal settlement, investors have to weigh the cost against the benefit of putting the lawsuits behind it. Uncertainty about whether the proposed settlement will win approval, and how much it will ultimately cost, can weigh on a stock.

J&J is also a popular dividend stock, meaning it pays shareholders a regular cash payout. Many retirees and income investors own it directly or through funds, so its moves matter beyond Wall Street.

What this means for your wallet

If you own J&J shares or a fund that holds them, it helps to look past the headline profit drop. One-time charges can make a single quarter look much worse than the ongoing business. The more useful questions for a long-term investor are whether sales keep growing, whether the company can keep paying its dividend and how much the legal issues may cost over time.

This is also a good example of why diversification matters. Even large, stable companies can fall sharply on news like a legal settlement. Holding many companies across different industries means one stock's bad day has a smaller effect on your overall savings.

If you're investing for income, consider looking at a company's payout ratio, the share of earnings paid out as dividends, and its history of dividend increases, rather than only the dividend yield.

This article is for education only and is not financial advice. Everyone's situation is different.