Johnson & Johnson said on Tuesday its quarterly earnings fell, hurt by generic competition for its Risperdal schizophrenia drug and the strong dollar, but lower costs enabled the company to beat Wall Street expectations

J&J, whose shares were up 1 percent in afternoon trading, bolstered results by cutting spending more than 10 percent on research, and on sales, general and administrative expenses.

They've managed things well, reducing expenses the way they had telegraphed they would, and it's going straight to the bottom line, said Steve Brozak, an analyst with WBB Securities.

This is a game of expectations, and even though sales were weak across all three of J&J's business units, people were expecting far worse numbers, Brozak said.

The diversified health-care company said it earned $3.51 billion, or $1.26 per share, in the first quarter. That compared with $3.6 billion, or $1.26 per share, in the year-earlier period.

Analysts, on average, expected $1.22 per share, according to Reuters Estimates.

J&J reaffirmed its 2009 earnings forecast of $4.45 to $4.55 per share, roughly flat with last year's profit.

Investors focused on J&J's results because it is a component of the Dow Jones industrial average <.DJI> and the first major U.S. healthcare company to report first-quarter earnings.

STRONGER DOLLAR

Global company revenue fell 7.2 percent to $15 billion in the period, well below the $15.43 billion analysts expected, according to Reuters Estimates. Sales would have fallen only about 1 percent if not for the stronger dollar, which depresses the value of overseas sales when converted back into U.S. currency.

Sales of consumer products fell 8.7 percent to $3.7 billion despite strong demand for J&J's Listerine mouthwash and Neutrogena skin-care line, as the strong dollar battered overseas sales.

Global sales of prescription drugs fell 10.1 percent to $5.8 billion, as cheaper generics wrested away two-thirds of Risperdal sales and demand for anemia drugs Procrit and Eprex continued to wither due to safety concerns.

But sales of Concerta, used to treat attention deficit disorder, rose 19 percent to $344 million, while arthritis treatment Remicade edged up 3 percent to $1.03 billion.

Revenue from medical devices and diagnostics slipped 2.9 percent to $5.5 billion, as J&J's Cypher stent faced brutal competition from Abbott Laboratories Inc's newer Xience stent.

Stents are tiny scaffold-like devices used to prop open heart arteries that have been cleared of plaque.

J&J shares were up 50 cents to $51.65 on the New York Stock Exchange, amid a moderate downturn for the drug sector and a broadly lower market.

(Reporting by Ransdell Pierson; Additional reporting by Lewis Krauskopf; Editing by Maureen Bavdek and Brian Moss)