Johnson & Johnson (JNJ) reports earnings

Johnson & Johnson (JNJ) reported sales and profits that topped expectations and reaffirmed its full-year 2009 guidance. The maker of thousands of healthcare products announced sales decreased 7.4% compared to a year ago, hurt by the stronger U.S. dollar (the negative impact of currency was 6%) and patent expirations.

Drug-patent expirations of migraine treatment Topamax, mood-stabilizer Risperdal, and (to a lesser extent) mild Alzheimer’s treatment Razadyne were the main cause for the 8.5% operational sales decline in the Pharmaceutical segment. Excluding the impact of generic competition on these products, the pharmaceutical segment’s operational sales growth was approximately 9%. Despite patent-expirations and less investment in R&D, J&J’s massive pipeline is near the top of the industry in terms of quality and depth, which should give investors reason to be optimistic for the Pharmaceutical segment.

Meanwhile, Consumer segment operational sales grew 3.1% primarily due to strong results from skincare, driven by new product launches, and oral care, driven by strong growth in sales of Listerine mouthwash. Over-the-counter pharmaceuticals and nutritional products struggled as competitive pressures from private labels impacted growth in this category.

The Medical Device and Diagnostics segment posted operational sales growth of 3% as strong sales in the orthopedics and surgery units offset weakness in the drug-eluting stents unit. Also weighing on the segment were the vision and diabetes units, which typically require out-of-pocket expenditure for items like contact lenses and diabetes strips.

COGS was 30 basis points higher due to unfavorable mix in the pharmaceutical business, but SG&A expenses were down 200 basis points driven by leverage across the businesses. Pretax operating margins improved, which was expected for 2009 when J&J provided annual guidance in January.

All and all, the company remains in solid condition. J&J’s ongoing acquisition program, expansion opportunities in emerging markets, and its promising late-stage pharmaceutical pipeline are the three main catalysts for the company’s longer-term earnings growth prospects.

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Peter J. Lazaroff