The healthcare sector drew a lot of attention from investors in 2018, and as one of the industry's leaders, Johnson & Johnson (JNJ 0.28%) has often been at the forefront of progress. Yet the stock had a somewhat disappointing performance in 2018, in part because its size makes it difficult for J&J to produce meaningful sales growth. That's been especially true in some of the slower-growing segments of Johnson & Johnson's business.

Coming into Tuesday's fourth-quarter financial report, Johnson & Johnson investors weren't expecting much if anything in the way of revenue gains, but they still hoped that the healthcare company would produce bottom-line improvement. That's essentially the way it worked out when J&J's numbers came out, but investors still seem uncertain what to make of its projections for 2019.

Packaging for Band-Aid bandages.

Image source: Johnson & Johnson.

J&J coasts into 2019

Johnson & Johnson's fourth-quarter financial results gave evidence of gradual slowing compared to what the healthcare behemoth has seen in revenue growth recently. Sales were up just 1% to $20.4 billion, which was still better than the break-even expectations that those following the stock had. Adjusted net income came in at $5.37 billion, and that worked out to adjusted earnings of $1.97 per share, up 13% from year-earlier levels and topping the consensus forecast among investors for $1.95 per share.

As we saw last quarter, extraordinary items played a significant role in hurting J&J's top line. The company's operational sales growth came in at 3.3%, but overall sales got weighed down by 2.3 percentage points of negative currency effects. Moreover, the net impact of acquisitions and divestitures over the course of the year also hurt performance, and without it, worldwide sales would have risen 5.5%, with international sales climbing 7.8% and U.S. sales rising by 3.4% on an operational basis.

From a segment basis, Johnson & Johnson's pharmaceutical division remained the leader. Sales for the unit rose by 5.3% despite seeing a nearly two-percentage-point hit from foreign currency impacts, as key treatments like Stelara, Darzalex, and Imbruvica helped to lift overall revenue. Yet weakness in areas like neuroscience and the cardiovascular division offset gains from treatments for pulmonary hypertension, oncology, and immunology.

Elsewhere, J&J's results were mixed. The consumer segment saw an overall sales decline of 0.1%, as sharp growth in the U.S. was outweighed by declines internationally. Revenue in the wound care and baby care areas took the biggest hit, with gains in over-the-counter medications limiting the damage. In medical devices, the divestiture of the diabetes care unit was the biggest contributor to the segment's 4.4% top-line drop, but performance throughout the division was tepid.

Can Johnson & Johnson do better in 2019?

CEO Alex Gorsky tried to focus on the full-year results, which showed greater promise. "Johnson & Johnson delivered another year of strong operational sales growth of 6.3%," Gorsky said, "and achieved our 35th consecutive year of adjusted operational earnings growth at 9.8% in 2018." The CEO attributed the gains to solid sales performance in all of its businesses.

Yet the guidance that Johnson & Johnson delivered raised some questions about where it sees growth opportunities in the future. The company said that sales for 2019 should be between $80.4 billion and $81.2 billion. That represents operational growth of 0% to 1%, and even after making adjustments to those figures, growth could be limited to 2% to 3% for the year. Similarly, adjusted earnings of $8.50 to $8.65 per share would be up 5.7% to 7.6% on an operational basis compared to 2018.

Another concern stems from the legal front. Litigation expense more than doubled during the period compared to the year-earlier quarter, perhaps in connection with allegations that J&J management might have known about recently announced safety issues with the company's talc powder products. Johnson & Johnson has answered those allegations assertively, but some are still nervous about whether consumers will react so favorably in the long run.

Johnson & Johnson investors seemed mildly concerned about that outlook, as the stock fell between 1% and 2% in premarket trading following the announcement. The big question the healthcare giant faces is whether it can continue to have pharmaceuticals lead the way even as its other businesses lag behind. At some point, J&J's strategic emphasis on the pharmaceutical segment could start to run out of gas, and that's what seems to be motivating shareholders' nervousness about the latest results.

Check out the latest Johnson & Johnson earnings call transcript.