J&J Q1: Fierce Cost-Cutting Battle Obscures a Small Amount of Good News

(MoneyWatch)  Johnson & Johnson's sales declined 7.2 percent to $15 billion in Q1 2008; its net income declined 2.5 percent to $3.5 billion. That was not much of a surprise given the recent announcement of 900 layoffs at the company.

The numbers indicate that the company is engaged in a fierce cost-cutting battle as its sales fall. J&J hacked 10.1 percent off its sales and marketing budget. R&D was brought down 11.3 percent -- in a company J&J's size, those are huge declines.

There does appear to be some good news behind the drooping lines. International sales declined faster than U.S. ones, surprising given the level of unreimbursed medical expenses consumers must deal with in America, which has no national health service. And medical device sales performed well, the only segment rising. But the most interesting thing is that the cuts seem to have returned J&J's impressive operating leverage. While the company usually gets a seasonal uptick in the productivity of its sales force, this quarter was exceptional. For every dollar spent on reps and marketing the company got back $3.26 in revenues -- the highest yield since at least 2006. The company averages about $3.02 most quarters.

It's just one quarter, so we can't draw too many conclusions. But it could be that J&J is now poised to be extremely productive as soon as the economy turns round and sales come back.