Joseph J. Wolk
Executive Vice President, Chief Financial Officer at Johnson & Johnson
Thank you, Jess. As Joaquin and Jess commented, our results remained solid across our three segments in the second quarter and through the first half of 2022, particularly in light of macroeconomic headwinds, such as inflation, select countries experiencing continuing impact from COVID-19 and geopolitical matters. Our sustainable, resilient business continues to deliver on the robust operational guidance that we set forth at the beginning of the year, while advancing breakthrough innovation and fostering patient access to make a positive impact across many areas of healthcare.
As previously discussed, we did build in a healthy assumption to account for inflation in our January guidance, planning for increased costs in labor, energy and transportation. We noted in April, and are doing so again today, that these pressures will continue to impact margins in the third and fourth quarters and into 2023. As such, we continue to pursue mitigation efforts, including cost improvement initiatives, strategic price increases and contract negotiations with external supply partners.
As for segment performance and key events in the quarter, in MedTech, you may recall that performance in Q2 2021 was the strongest of the year for most of the MedTech peer set, including Johnson & Johnson, making this second quarter our toughest comp. On a sequential, operational basis and in line with our expectations, we did see an acceleration in sales even considering the regional COVID-19-related mobility restrictions this quarter.
As Joaquin noted, we are focused on continuing the strong cadence of innovation in this business, which includes launches such as the next-generation ECHELON 3000 Stapler, a digitally enabled device demonstrating improved patient outcomes based on clinical evidence. It also includes the EMBOGUARD balloon guide catheter, designed to optimize the removal of blood clots and reduce procedure time in the treatment of ischemic stroke.
In Pharmaceuticals, we continued to advance our pipeline and delivered operational sales growth of 8.6%, excluding the COVID-19 vaccine in the second quarter, notably above what we delivered in the first quarter of this year. We continue to outpace the market. During the second quarter, we recorded our first sales in the U.S. of CARVYKTI, a CAR-T therapy for the treatment of multiple myeloma developed together with Legend Biotech and received European Commission approval in May. We also presented new data across our broad oncology portfolio at the American Society of Clinical Oncology and the European Hematology Association in June. If you haven't done so already, I encourage you to listen to the fireside chat with Peter Lee Woods, a global R&D Head of Oncology, about this promising new data, which can be found on our website.
A quick update on our COVID-19 vaccine for which we suspended sales guidance last quarter, recognizing the global progress on vaccine development and distribution against COVID-19 and the amount of existing global supply, we are modifying our COVID-19 vaccine research programs and manufacturing capacity to levels that meet all customer contractual commitments. This will result in incremental costs for the year, which will be reflected as a special item. We are proud of the role our vaccine continues to play in the fight against COVID-19.
In our Consumer Health business, similar to MedTech, Q2 of 2021 was last year's strongest quarter with 10% adjusted operational sales growth. We remain focused on our 2022 performance objectives of delivering above-market growth in our over-the-counter medicines business, while overcoming industry-wide supply constraints and inflationary pressures that are primarily impacting our Skin Health business.
We continue to be excited about the creation of the new Consumer Health company. Great work is being done by our teams to effect this complex transaction. We look forward to sharing the new Consumer Health company's name and branding as well as the headquarter's location in the months ahead. Similarly, we look forward to sharing transaction options and further financial details, adhering to regulatory policies later in 2022. Finally, I would like to offer my congratulations to Thibaut, Paul and the rest of the leadership team regarding their recent appointments.
Turning now to cash and capital allocation. We generated free cash flow of approximately $8 billion in the first half of the year. As of the end of the second quarter, we have approximately $32.6 billion of cash and marketable securities, approximately $32.6 billion of debt for a net neutral cash position. Our capital allocation priorities remain unchanged. Investing in innovation that delivers meaningful products to address unmet needs continues to be our top priority.
In the first half of the year, we increased R&D investment by approximately 9% compared to the first half of 2021. The dividend priority Joaquin referenced translated to us distributing $6 billion to shareholders so far this year. We also continue to vigorously evaluate acquisition opportunities that would enhance the current portfolio, build upon our capabilities and enable us to play in higher-growth markets while yielding solid financial returns.
Moving to full year 2022 guidance and key considerations, the major takeaway is we are maintaining the midpoints of our guidance for adjusted operational sales growth of 7% at $97.8 billion and adjusted operational earnings per share of $10.70 or 9.2% growth for the full year. Given our confidence in delivering full year guidance, based on what we know today, we are tightening the adjusted earnings per share range from $10.65 to $10.75 on a constant currency basis.
Regarding the remainder of the P&L, there are a few updates. Due to the prolonged impact of inflationary pressures, we are updating our operating margins to be flat versus 2021. Regarding interest expense, based on our year-to-date experience, we have reduced the expense to a neutral position. Again, given year-to-date trends, we are increasing and tightening our other income estimate to be a range of $1.4 billion to $1.5 billion to reflect the favorable impact of employee benefit-related items. That may appear light given the current run rate, but we have some one-time items such as real estate sales and Johnson & Johnson Development Corp. gains, which we don't expect to repeat in the second half of this year.
Finally, we are lowering our effective tax rate estimate, which is reflective of current law, to a range of 15.0% to 15.5% based on our year-to-date progression. As we always do, let me give you a sense of the impact currency may have on potential full year reported results, specifically the strengthening U.S. dollar. Utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.0, there is an incremental unfavorable currency impact of $1.5 billion on reported sales and an unfavorable $0.20 impact for the estimated reported adjusted earnings per share versus the projection utilized in April's guidance.
The full year unfavorable impact is now projected to be $4 billion on reported sales and $0.65 on reported adjusted earnings per share. As this chart illustrates, it's not just that the euro and U.S. dollar have reached parity, something we haven't seen in nearly two decades. It's also the rapid pace at which the fluctuations are occurring, a dynamic only experienced a few times over that same period.
In addition, while it's much too early to comment on 2023, we do think it is helpful to point out what the currency impact maybe if current assumptions for our estimate holds, of the current $0.65 unfavorable impact I just referenced, about $0.30 to $0.35 will carry over into 2023's EPS. Certainly, there is a long way to go before we finalize next year's outlook, but wanted to give you a sense of how to think about the foreign currency impact.
Back to the current year, in terms of 2022 quarterly phasing considerations for your models, we continue to estimate that the back half will improve over the first half with a slight bias for higher growth in Q4 over Q3. In Consumer Health, we have seen quarter-over-quarter reduction in supply disruptions that we anticipate will continue. We also expect to see the benefit of recent strategic price increases in the back half of the year. Finally, the fourth quarter of 2021 had lower growth than the third quarter, resulting in an easier comparison.
For MedTech, we expect the second half to be stronger than the first half, driven by market recovery from continued enhancement of our competitive position through commercial execution and uptake from our recently launched products. We expect the fourth quarter 2022 to be slightly stronger than the third quarter. COVID-19 continues to be a dynamic situation regionally, and we continue to monitor any related impacts. For Pharmaceuticals, we anticipate delivering another year of above-market adjusted operational sales growth in our base business, with sales modestly accelerating through the end of the year.
To close out the prepared remarks, Johnson & Johnson has continued to post solid results as our teams navigate a challenging external environment. Our financial performance reinforces our confidence in our ability to grow and deliver near and long-term value. That is only possible because of our employees around the world, who we'd like to thank for remaining focused on delivering our innovative healthcare solutions end results for all of our credo stakeholders.
Joaquin, Jess and I will now turn the discussion to the Q&A portion of the call. Kevin, can you please provide instructions for those participants on the call wishing to ask a question?
