Abbott’s Mixed Q1 Earnings Beat Estimates

+12.89%
Upside
112
Market
127
Trefis
ABT: Abbott Laboratories logo
ABT
Abbott Laboratories

Healthcare giant Abbott Laboratories (NYSE:ABT) reported a mixed set of first quarter 2014 results on Wednesday. The company’s sales saw a decline of about 2.5% year-over-year (y-o-y) to $5.24 billion, including an unfavorable foreign exchange impact of about 3%. The company reported net earnings of $641 million or $0.41 per share, beating Reuters’ consensus estimate of $0.35 by $0.06. These earnings exclude charges for certain specified items such as amortization, cost-cutting measures and “one-time repatriation of 2014 ex-U.S. earnings”, amounting to $302 million or $0.19 per share. Including the charges for those, Abbott’s net earnings were $375 million or $0.24 per share, down over 31% y-o-y. [1]

The Diagnostics division was again the star performer for Abbott, as its operational sales increased almost 5% y-o-y to $1.12 billion driven by double-digit growth of Core Laboratory sales in the U.S. and Molecular Diagnostics sales in international markets. Nutritionals, the company’s largest segment, continued to be impacted by the supplier recall that was initiated in international markets in August of last year. It reported a 1.7% y-o-y decline in operational sales, excluding a 2.3% negative impact of foreign exchange. Vascular and Medical Optics reported operational sales growth of 1% and 10%, respectively, while Diabetes Care sales declined about 10%. On the cost side, Abbott’s adjusted gross margin ratio declined to 54%, in line with company expectations. It was impacted by increasing competition, foreign exchange rates and the supplier recall in Nutritionals.

Going forward, the company expects to return to operational sales growth and forecasts earnings to grow in double-digits for the remainder year. It reiterated its earnings per share guidance of $2.16-$2.26 for full-year 2014. We have a price estimate of $40 for Abbott Labs, which is slightly above the current market price.

Relevant Articles
  1. What’s Next For Abbott Stock After A 6% Rise This Year?
  2. Is Abbott Stock Undervalued At $95?
  3. Which Is A Better Pick – Abbott Stock Or Amgen?
  4. Is Abbott Stock A Better Healthcare Pick Over Thermo Fisher Scientific?
  5. Lower Testing Demand To Weigh On Abbott’s Q2?
  6. Will Abbott Stock Rebound To Its 2022 Highs?

See our full analysis for Abbott Labs

Diagnostics Drives Sales

Diagnostics has been Abbott’s most consistent growth driver, delivering high single-digit operational sales growth for the past three years. Worldwide sales in this segment grew by 5.1% in Q1 on an operational basis, driven by Core Laboratory (5.3%) and Molecular Diagnostics (5.6%). In the Core Laboratory diagnostic business, sales in the U.S. market grew by 11% y-o-y driven primarily by large institutional customers. International sales grew by 4% on the back of strong demand in emerging markets. In Point-of-Care diagnostics, international sales grew 12.6% y-o-y because of continued growth in infectious disease testing, especially in emerging markets such as India, Russia, Brazil and China.

We expect Abbott’s Diagnostics sales to continue increasing over the next few years as it launches innovative Diagnostic products. In the Core laboratory diagnostics, Abbott plans to broaden its ARCHITECT assay menu and expand its presence in both developed as well as emerging markets. [2]

Nutritionals Struggles Continue But Abbott Remains Optimistic

In August 2013, Abbott was asked by regulators in China, Vietnam and Saudi Arabia to recall some of its baby formula products on concerns that they contained bacteria that cause food poisoning. [3] Although no health issues were detected during later investigations, the recalls caused significant disruption to the company’s sales in these countries. The sales disruption is estimated to have impacted international pediatric sales by $75 million in Q1 2014.

Another factor for weak growth in Nutritionals revenue was a decline in U.S. sales. This was because of Abbott’s exit from certain non-core business lines in the country to improve margins in the segment and a weak retail sentiment due to a harsh winter. Although international adult nutrition sales increased 12.4% on an operational basis, the 2.7% decline in the U.S. markets offset most of those gains.

Going forward, the company plans to introduce new products in the affected markets to regain its lost share. For instance, it launched a baby product, Eleva, in China last week and also plans to launch a new adult brand in Japan in the next couple of months.

    See More at TrefisView Interactive Institutional Research (Powered by Trefis)

    Notes:
    1. Abbott’s CEO Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, April 16 2014 []
    2. Abbott Reports First-Quarter 2014 Results, Abbott Labs, April 16, 2014 []
    3. China Asks Abbott to Recall Some Formula Products, WSJ, August 5, 2013 []