Health-care giant Johnson & Johnson (NYSE:JNJ) admitted right up front yesterday that its fourth-quarter results looked a bit ugly. Barely a paragraph into the earnings release, the company revealed that its net profit had plunged by 34% year on year.

But not to worry. Profits declined for two primary reasons, neither of which had anything to do with a decline in the efficiency of operations. First and foremost, the IRS took a big bite out of profits (a situation we will all be able to relate to in a few months). Second and less important, Q4 2003 looked better than usual in comparison to Q4 2004, because the former included a favorable arbitration award, which boosted earnings by $142 million. What's more, the surface-ugly Q4 results were rendered pretty insignificant in light of the company's full-year results. For fiscal 2004, revenues rose 13%, and both net profits and profits per diluted share increased 18%.

Pretty impressive, huh? Well, look a bit closer, and you'll see something even more interesting in these numbers -- the secret to J&J's success. In a big company like this one, when you see that sales rose 13% overall, one of the first questions that comes to mind is: Which of the company's divisions did the most to contribute to that result? Where's the growth driver?

J&J breaks its business down into just three major units: consumer, pharmaceutical, and medical devices and diagnostics. So you'd think it wouldn't be too hard to figure out which of the three boosted sales the most, simply by looking for which unit increased its sales by more than the average 13%. Problem is, none of the divisions increased sales by more than 11%! At least not operationally. J&J actually did cross that 13% threshold in both the pharmaceutical division and medical devices and diagnostics division. But it did so with a hefty boost from foreign sales in each category.

In this regard, it wasn't so much the actual sales that made the difference, but the fact that they were paid for in euro, yen, and pesos. With the U.S. dollar in full swoon last year, each of those foreign sales became progressively more valuable as each of those foreign currencies became able to buy more and more dollars.

That shouldn't detract from the company's achievement this past year. It was a good show all around. Still, in the year to come, investors will want to keep one eye on J&J's operational performance, and the other on the U.S. Dollar's exchange rates against foreign currencies. The reason: In terms of next year's quarter-on-quarter comparisons against 2004, how the dollar fares may have a much bigger impact than how well the company actually performs.

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F ool contributor Rich Smith has no position in Johnson & Johnson.