Abbott Laboratories (ABT) Earnings & Analysis

Latest quarter

Abbott reported third-quarter revenue of $13.0 billion, up 14.5% from $11.4 billion a year earlier. Revenue exceeded the consensus by 0.30%, although both the reported figure and the estimate rounded to $13.0 billion. Adjusted earnings per share of $1.42 missed the consensus estimate of $1.43.

The filing said the Exact Sciences acquisition and growth in medical devices and established pharmaceuticals drove sales growth excluding foreign exchange. Abbott said the stronger dollar reduced reported international and total sales. CEO Robert Ford said nutrition sales grew across its pediatric and adult categories, while medical-device growth was led by electrophysiology and rhythm management.

Abbott reported diluted earnings per share of $0.53, down from $0.94 a year earlier, and an operating margin of 10.4%, compared with 18.1%. The filing said selling, general and administrative expenses rose, reflecting the addition and integration of Exact Sciences, legal settlement charges, marketing spending and foreign exchange. It also attributed higher interest expense primarily to debt incurred for the acquisition.

The filing said cash and cash equivalents declined as Abbott funded the acquisition and repaid assumed debt, among other payments. It said operating cash flow for the first nine months fell, primarily because of legal settlement payments, higher inventories and payments associated with the acquisition.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Robert Ford said Abbott plans to separate nutrition into an independent company because the market is increasingly shaped by consumer preferences, wellness trends and retail execution. He said the two businesses have different customers, investment requirements and innovation cycles. Daniel Salvadori, who leads established pharmaceuticals and nutrition, will become CEO of the new company, Ford said.

Asked why Abbott chose a separation, Ford said the nutrition business would need to invest in sales and marketing and might pursue acquisitions. He argued it could act “faster and more efficiently and effectively as an independent company.” CFO Phil Boudreau said Abbott plans a tax-free share distribution, with completion expected by the end of next year, subject to approvals.

Boudreau said the new company is expected to raise debt and distribute some proceeds to Abbott, but the amounts will be determined later. He also said the companies’ combined dividends are expected to equal Abbott’s dividend at separation. Ford said Abbott would also review its own cost profile during the process.

On demand, Ford said laboratory testing remained at durable levels, while cancer diagnostics benefited from Cologuard and contributions from precision oncology and international operations. He said nutrition growth included the benefit of US pediatric contract wins, and that electrophysiology growth reflected adoption of the Volt PFA catheter. Ford also said the company expects international diabetes-care pricing actions to temper volume growth as it responds to competition.

Boudreau attributed adjusted gross-margin improvement to business mix, the addition of Exact Sciences and operational improvements. Asked about the product pipeline, Ford said Abbott would continue investing in research and development and planned to increase spending next year. He said more detailed earnings and cash-flow guidance would be left until January.

Guidance

Abbott now expects full-year adjusted earnings per share of $5.50 to $5.55, compared with its previous range of $5.45 to $5.60. The company expects comparable sales growth of approximately 6.00%, having previously forecast 6.50% to 7.50%.