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Tickers in this Article: JNJ, MDT, BSX, TEVA, MYL, ELN
Not that long ago, investors could rely on diversified healthcare giant Johnson & Johnson (NYSE:JNJ) for predictable double-digit increases in sales and earnings. These days, a trifecta of patent expirations, overseas exposure and economic malaise have combined to send growth into negative territory, and it may be some time before J&J returns to its heyday. IN PICTURES: How To Make Your First $1 Million

Falling Pharmaceutical Sales
Total sales fell 7.4% to $15.2 billion on mixed results at J&J's three primary operating segments. The largest drag on growth stemmed from the pharmaceutical division, where total sales fell 13.3% to $5.5 billion (36% of total sales) on an 8.5% fall in core sales and a 4.8% hit from currency fluctuations as a strong U.S. dollar reduced overseas sales. U.S. pharma sales plummeted 16.4% as Topamax (for treatment of epilepsy) and Risperdal (an antipsychotic) lost patent protection. Mylan Labs (NYSE:MYL) has sought to market generic forms of Topamax while Teva Pharmaceutical (Nasdaq:TEVA) is the current generic provider for Risperdal. Core international pharma sales grew a respectable 3.3% but were offset by a 12% negative impact from foreign exchange translation.

Currency Concerns
Underlying consumer sales held up quite well and improved 3.1% on solid results from Listerine and Neutrogena, which isn't surprising given these and related products are relatively recession resistant. However, a 13.1% negative currency impact on overseas sales sent total segment growth down 4.5% to $3.8 billion (25% of total sales). The medical device division experienced similar trends, with 2.9% core sales growth falling victim to a negative 10.9% currency hit to overseas sales. The end result was a 3.1% fall to $5.9 billion (39% of total sales). Management cited increased frugality from core hospital clients as patients look to hold off on more elective procedures and find it difficult to maintain health coverage in the face of rising unemployment. This is also adversely affecting rivals such as Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX), both of which reported sizable profit drops in their most recent quarters.

Successful Cost Cutting
Cost cutting helped J&J offset challenging top line trends and minimize a fall in the bottom line. Net earnings ended up falling 1.7% to $1.15 per diluted share. This came in ahead of analyst projections. Management is currently calling for full-year earnings between $4.45 and $4.55 per share.

Bottom Line
J&J has continued to struggle in its flagship pharmaceutical unit. It is hoped that an array of acquisitions, partnerships and internal pipeline prospects improve growth prospects going forward, including an investment in Elan (NYSE:ELN) to participate in the late-stage development of a promising Alzheimer's drug. The company relies on acquisitions to supplement organic growth in every division. Unfortunately, business trends, as they stand currently, aren't expected to boost sales this year - the current analyst consensus projects they will fall in the single digits, and earnings will remain flat at best. A current dividend yield of 3.4% offers some consolation for investors willing to wait for J&J to return to its heyday of double-digit growth, but others may want to look elsewhere for a more compelling healthcare play until tangible signs of improvement become visible. (Learn more about healthcare stocks in our article Investing in the Healthcare Sector.)

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