At some point, companies get so large that growing sales and earnings becomes increasingly difficult. Warren Buffett has always bemoaned the difficulties of increasing earnings at his conglomerate, Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb), now that any positive deal he makes for the company has a much smaller (percentage-wise) impact on earnings. This also seems to be happening this year to diversified health-care conglomerate Johnson & Johnson (NYSE:JNJ), now that it has grown to be a nearly $200 billion company.

On Tuesday, Johnson & Johnson announced third-quarter results, and the slowing growth continues. Sales grew 8% compared to the third quarter of last year, to $13.3 billion. Earnings came in at $2.8 billion and $0.94 per share, representing growth of 10.6% over 2005.

Exclude the $115 million earnings hit from acquired in-process research and development charges, though, and earnings would have come out close to $0.98 a share, a 15% increase over 2005. For large, diversified conglomerates like Johnson & Johnson, it would be easy to massage earnings numbers, what with the plethora of non-cash charges that the company takes every quarter. But excluding R&D charges from acquired companies appears valid for year-over-year comparison's sake.

Revenue growth was sluggish across Johnson & Johnson's three main divisions: consumer, medical devices, and pharmaceutical sales. Only international consumer product sales showed any sort of increases to get excited about, with 14% growth.

Y-O-Y Sales Growth*

Percent of Total Sales

Consumer Products



Medical Devices






*Operational growth, excluding impact of currency fluctuations; data from company's earnings press release

Margins have been fairly steady for Johnson & Johnson at 72.5% gross margins and 20.8% net margins. While the company was able to shave 150 basis points off its selling, general, and administrative spending, these savings were offset because R&D expenses (including the acquired R&D ones) increased by 190 basis points.

Johnson & Johnson management did say that 2006 profits would probably come in at $3.72 to $3.74 per share. That would be an increase of about 9% over the $3.42 a share the company earned in 2005, but with the stock trading at a forward P/E of nearly 18, it's hard to get excited about this sort of earnings growth, even with the 2.3% dividend yield. There are just too many smaller and faster-growing pharmaceutical companies for my investing dollars.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.