Healthcare giant Johnson & Johnson (NYSE: JNJ) said this morning that second-quarter earnings amounted to $1.15 a share. The results, a -4.7% decline from a year ago, beat expectations, despite challenges facing the company’s pharmaceutical unit and a stronger dollar.

The company said earnings were likely to be between $4.45 and $4.55 a share in 2009. JNJ reported earnings of $4.55 a share in 2008.

On an earnings basis, Johnson & Johnson’s shares are a bargain. Priced at 12.5 times earnings, the shares are undervalued relative to their five-year average earnings multiple of 18.

JNJ said sales of fewer new drugs, generic competition and unfavorable exchange rates led to a -7.4% decline in revenue. Sales fell to $3.21 billion, the third straight quarterly decline. The currency conversion was the most significant factor: Overall sales were off only -1.4% before the results were converted into dollars.

Johnson & Johnson’s pharmaceutical unit reported sales of $5.5 billion, down -13.3% from the year-ago quarter. The division, JNJ’s largest, posted the biggest drop in sales in the company. Products such as the migraine treatment drug Topamax saw increased competition from generic drugs in the second quarter.

JNJ lost patent protection for Topamax in March. Risperdal, a mood-stabilizing medication, also had declining sales for the quarter. Risperdal lost its patent in June 2008. Topamax and Risperdal combined to produce $4.86 billion in revenues last year.

Johnson & Johnson’s medical-device unit reported quarterly sales of $5.9 billion, down -3.1% from last year. Consumer products posted sales of $3.9 billion, a -4.5% decline from the previous year. Sales of JNJ’s Listerine and Neutrogena products were strong, posting +0.8% gains. Both the medical-device and consumer sales units posted increases, but reported net losses due to the dollar’s gain against other world currencies.

Johnson & Johnson has been on a hunt for acquisitions during the economic downturn. It recently bought Cougar Biotechnology, a firm with two prostate-cancer drugs nearly ready to be marketed. The company also paid $1 billion for a stake in Elan, which is developing a drug for the treatment of Alzheimer’s. Finding or buying new drugs is vital to the pharmaceutical division as its older drugs lose patent protection and face generic competition.

The Dow component is considered an important, diversified gauge for the economy. JNJ shares had fallen steadily from the $60 range to start the year, sinking as low as $46.60 through mid-March. The shares have since rebounded to the mid-$50s.

The company will likely begin 2010 with a strong outlook from renewed consumer demand and an across-the-board increase in healthcare spending. The company was voted the most respected company in the world in a survey by Barron’s, and an aging population will depend on JNJ for things like its hip-replacement products and Alzheimer’s medications in the years ahead.