Updated from 8:30 a.m. EDT

WASHINGTON -- Johnson & Johnson ( JNJ) raised its full-year guidance and reported strong third-quarter sales thanks to swelling revenue at its medical devices and consumer segments.

The New Brunswick, N.J., drugs and health-products maker had sales of $12.3 billion, up from $11.6 billion in the year-ago third quarter. The company earned $2.6 billion, or 87 cents a share, compared with $2.3 billion, or 78 cents a share, last year.

Earnings in the 2004 third-quarter included charges of $12 million associated with the acquisition of Scott Lab, the company said Tuesday.

J&J's quarterly profit was a penny ahead of estimates, but sales fell short of Wall Street's consensus forecast. Analysts surveyed by Thomson First Call were looking for earnings of 86 cents on sales of $12.5 billion.

What everyone hoped to hear was something about the Guidant ( GDT) acquisition. As in the past, J&J offered little new information on its thinking, but what executives did say had Guidant shareholders on the run.

During its earnings conference call, J&J said it will "consider alternatives under our merger agreement" with Guidant. That sent shares of the Indianapolis-based medical-devices maker down $7.04, or 9.7%, to $65.34. Guidant had a series of product recalls this year that had some observers wondering if J&J would try to renegotiate the agreement. Thus far, the terms are intact.

The company has a pact in place to buy Guidant for $25.4 billion, or $76 a share.

"We believe these are serious matters, and we are continuing to closely monitor Guidant," said J&J's Chief Financial Officer Robert Darretta. J&J said it still expects clearance for the deal from the Federal Trade Commission in October, but refused to take any questions about the acquisition during the call.

Flagging Pharma

J&J raised its full-year profit guidance to $3.48 to $3.50 a share from its previous forecast of $3.44 to $3.47. For sales, the company projected full-year operating growth at 6.5%, with a fourth-quarter year-over-year change of 3%. J&J's estimates are based on a 52-week sales year, compared with the 53 weeks counted in the last fiscal year.

Shares of J&J were up 89 cents to $63.89.

Worldwide medical devices and diagnostics sales totaled $4.6 billion for the third quarter, up 14.3%. The Cordis division's revenue grew 28%. J&J's Cypher drug-eluting stent made up 46% of the U.S. market, an increase from 35% in the third quarter of 2004, the company said.

Cypher sales, at $347 million for the quarter, were boosted by increased acceptance of drug-eluting stents, which was the key contributor of overall growth outside the U.S., Darretta said.

Addressing previous concerns about the company's ability to supply enough Cypher stents to meet demand, J&J said it can currently serve half of the U.S. market, but it's in the process of adding capacity to eventually cover 75% of the market.

Pharmaceutical sales lagged during the third quarter, slipping 0.5% to $5.5 billion. Domestic pharmaceutical sales fell 4.5%, while international sales increased 7.8%.

Generics and other competitors cut in to sales of pharmaceuticals, J&J said. The company's Procrit and Eprex franchise lost share to Amgen's ( AMGN) competing anemia drugs, and J&J saw a negative impact from new rules regarding over-the-counter sales of the drug pseudoephedrine.

However, the company said it received a refund of $80 million as a result of changes in Medicare reimbursement policies for its schizophrenia drug Risperdal. The popular long-acting injected version of the company's antipsychotic drug, called Risperdal Consta, brought in $161 million in the quarter, growing 16% from last year.

J&J's consumer segment sales climbed 10.2% to $2.2 billion. Sales from its vision-care business were up 12%.

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