Johnson & Johnson reported stronger-than-expected quarterly earnings, fueled by higher prescription drug sales and stabilizing performance of its consumer products business that has been plagued by recalls.

Shares of the diversified healthcare company rose 3.2 percent as it also lifted its 2011 profit forecast, citing foreign exchange factors that also bolstered first-quarter results.

J&J reported solid first quarter results, said JP Morgan analyst Mike Weinstein, although he noted that surprisingly strong sales were due partly to the weakening dollar -- which boosts the value of sales in overseas markets.

The company said on Tuesday it earned $3.48 billion, or $1.25 per share. That compared with $4.53 billion, or $1.62 per share, in the year-earlier period, when J&J had substantial tax gains.

Excluding special items, including litigation expenses and the cost of recalling hip replacement products, J&J earned $1.35 per share. That topped the average forecast of $1.26 per share among analysts polled by Thomson Reuters I/B/E/S.

Revenue rose 3.5 percent to $16.17 billion, above Wall Street expectations of $15.84 billion.

The company has recalled more than 300 million packages of Tylenol and other consumer medicines in the past 16 months after regulators cited grime, faulty procedures and other quality-control lapses at a plant in Fort Washington, Pennsylvania, and other factories. It is fixing the quality control problems under close supervision from the U.S. government.

J&J said it now expects earnings of $4.90 to $5.00 per share for the full year, from its earlier view of $4.80 to $4.90 per share.

Chief Financial Officer Dominic Caruso told investors in a conference call that most of the boost is due to the weakening dollar.

He said the forecast would have been higher if not for plant upgrades and related factors, which weighed down the outlook by 12 cents a share -- twice its earlier estimate.

Shipments from the facilities will be slowed, or slowed down as we implement the quality procedures, Caruso said.

Global sales of consumer products fell 2.2 percent to $3.68 billion in the first quarter, with U.S. revenue tumbling 14 percent to $1.35 billion. But that was an improvement from a 29 percent decline in U.S. sales seen in the prior quarter.

I think we're seeing an inflection point in the consumer group, said Morningstar analyst Damien Conover. You're beginning to get to where the company has had more time to fix some of the problems.

In its earnings report, J&J did not make any reference to reports that it is negotiating to acquire Swiss medical device maker Synthes Inc for about $20 billion, which would make it the biggest deal in J&J's history.

Synthes on Monday had confirmed it was in merger talks with J&J, whose medical devices are one of its three main businesses, along with prescription drugs and consumer products. J&J has declined to comment on the potential deal.

Sales of J&J's medical devices rose 3.3 percent in the quarter to $6.43 billion. Their growth was overshadowed by prescription drugs, whose sales rose 7.5 percent to $6.1 billion in the quarter.

Conover said the consumer products and pharmaceuticals groups performed better than expected, while the medical device segment came in roughly in line with expectations.

Company shares rose $1.97 to $62.43 in morning trading on the New York Stock Exchange.

(Reporting by Ransdell Pierson and Toni Clarke, editing by Matthew Lewis, Dave Zimmerman)

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