Johnson & Johnson's ( JNJ ) Earnings report good or bad ?

Johnson & Johnson's (JNJ) second-quarter profit declined nearly 4%, with sales hurt by unfavorable currency rates, generic competition for prescription drugs and tighter consumer spending.

Analysts and investors knew it would be a difficult quarter for the New Brunswick, N.J., maker of Tylenol and Band-Aid, but the results turned out better than Wall Street expected, helped by cost cuts and higher sales of some products. And J&J reiterated its full-year profit forecast despite incurring costs from recent acquisitions.

J&J shares rose 62 cents, or 1%, to $58.34 Tuesday morning.

"This was one of the most challenging quarters for year-over-year comparisons in our history," J&J Chief Financial Officer Dominic Caruso told analysts on a conference call. But he said the company was financially strong and well-positioned for long-term profitable growth.

Analysts said the upside came from cost controls, less harmful currency rates than expected, and higher-than-expected sales of some products, including the blockbuster drug Remicade for arthritis and other conditions. Leerink Swann analyst Rick Wise said results reflected "a very strong operational quarter."

J&J reported second-quarter net income of $3.2 billion, or $1.15 a share, compared with $3.3 billion, or $1.17 a share, a year earlier. Analysts surveyed by Thomson Reuters had expected J&J to post second-quarter earnings of $1.11 a share.

Second-quarter sales declined 7.4% to $15.24 billion from $16.45 billion, but exceeded the Thomson estimate by about $200 million. The relatively stronger U.S. dollar accounted for 6 percentage points of the decline. J&J's U.S. sales dropped 6.7% while non-U.S. sales declined 8%.

J&J's pharmaceutical unit lost its status as the company's biggest, slipping below the medical-device and diagnostics unit for the first time in recent memory. Pharmaceutical sales dropped 13% to $5.5 billion, with U.S. sales declining 16.4% and non-U.S. sales down 8.7%. The pharma division was hurt by J&J's loss of market exclusivity for two of its top sellers, the antipsychotic Risperdal, whose sales dropped 66%, and epilepsy and migraine treatment Topamax, with sales down 73%.

Combined sales of anti-anemia drugs Procrit and Eprex declined 11.5% to $577 million, continuing a two-year trend of weakness sparked by safety concerns.

Another top J&J drug, however, had a rebound. The Remicade treatment for rheumatoid arthritis saw second-quarter sales rise 24% to $1.1 billion. Sales growth had slipped to just 3% for the first quarter, amid signs that high-priced biologics were feeling the pinch of tighter spending by patients. The second quarter's big gain could be a good sign for other biologics such as Abbott Laboratories' (ABT) Humira and Enbrel from Wyeth (WYE) and Amgen Inc. (AMGN). Schering-Plough Corp. (SGP) markets Remicade outside the U.S.

The device unit's sales dropped 3.1% to $5.89 billion. The DePuy division of the device unit, which makes joint-reconstruction and other products, had roughly flat sales of $1.3 billion. The Ethicon surgical-products unit saw sales rise 2.1% to $1.04 billion. Increased competition continued to hurt sales of J&J's drug-eluting stents.

J&J's consumer unit sales fell 4.5% to $3.85 billion. Sales dropped for baby care, oral care and skin-care products. But sales increased for wound care products.

Caruso said the weak economy continued to take a bite out of sales of J&J products that require consumers to pay out of pocket, including contact lenses to diabetes test strips.

J&J hopes an economic recovery and new pharmaceutical products will help it return to solid sales and earnings growth in future years. The company has had a flurry of new drug applications - with some approvals but other applications still pending.

And J&J continues to try to beef up its drug pipeline. This month, J&J has agreed to pay $1.5 billion for a minority stake in Elan Corp. (ELN) and control of Elan's rights to experimental Alzheimer's-disease drugs, and it closed its $1 billion acquisition of Cougar Biotechnology Inc., which is developing cancer drugs.