UPDATE 3-J&J profit beats forecast, shares up 2 pct

(Adds analyst quotes, background, orthopedic product sales)

By Ransdell Pierson

NEW YORK, July 15 (Reuters) - Johnson & Johnson (JNJ.N) posted second-quarter earnings that beat Wall Street expectations on Tuesday, as strong demand for its medical devices and consumer products overshadowed negligible growth of prescription drugs.

The diversified health-care company, whose shares rose 2 percent in midday trading, said it earned $3.3 billion, or $1.17 per share, in the quarter. That compared with $3.08 billion, or $1.05 per share, in the year-earlier period.

Excluding special items, the company earned $1.18 per share. Analysts, polled by Reuters Estimates, on average had expected $1.12 per share.

"Revenue and earnings came in well above what we were looking for and what the street was," said Jeff Jonas, portfolio manager with Gabelli Healthcare and Wellness Trust. "The strength really came in the device and the consumer businesses."

Edward Jones analyst Linda Bannister said overall drug sales, however weak, were better than expected, as declines for J&J's Procrit anemia drug and Risperdal schizophrenia treatment were not as extreme as feared.

"Overall, it was a pretty solid quarter for J&J, with a good beat versus earnings expectations despite a challenging environment for the company," Bannister said.

J&J has long been accustomed to double-digit annual earnings growth from its array of drugs, medical devices and consumer products. But it is expecting only single-digit growth this year, largely due to generic U.S. competition that began recently for Risperdal.

The company's longtime biggest product, and an injectable long-acting form of the medicine known as Risperdal Consta, last year had sales of $4.5 billion. Moreover, J&J is girding for expected arrivals next year of generic forms of its $2.5 billion-a-year Topamax epilepsy medicine.

"The pharmaceutical business is going to get weaker in the second half, so that's going to be more challenging," Gabelli's Jonas said. "But if they can keep up the device and consumer momentum they should be able to offset that."

Citing favorable second-quarter trends, J&J raised its 2008 earnings forecast, excluding special items, to between $4.45 and $4.50 per share, from its earlier view of $4.40 to $4.45 per share.

Quarterly sales rose 8.7 percent to $16.45 billion, above the $16 billion Reuters Estimates had forecast. They would have risen only 3.1 percent if not for the weak dollar, which boosts the value of overseas sales when converted back into U.S. currency.

Revenue from medical devices rose 12.1 percent in the quarter to $6.1 billion, with strong growth for the company's DePuy orthopedic products, diabetes care brands, surgical products and diagnostics.

"Devices were the surprise relative to the first quarter," Tim Nelson, an analyst with FAF Advisors said, noting that investors had been concerned patients would postpone elective orthopedic procedures due to the weak economy.

"It turns out the contraction in procedures didn't occur," Nelson said. Continued strong demand for the company's spine, hip and knee devices helped lift shares of orthopedic device makers Zimmer Holdings Inc (ZMH.N) and Stryker Corp (SYK.N), he added.