Abbott Labs Q1 2015 Earnings: Emerging Markets Drive Growth Across Divisions

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ABT: Abbott Laboratories logo
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Abbott Laboratories

Abbott Laboratories (NYSE:ABT) reported another strong quarter on Wednesday, April 22. The company’s worldwide operational sales increased 10% year over year to $4.9 billion with robust growth experienced in emerging markets. The sale of Abbott’s branded generic drug business in developed markets to Mylan (NASDAQ:MYL) and its animal health business to Zoetis was completed in February 2015. The company recorded a $1.7 billion gain on the sale of these two business.

Net earnings, excluding items such as after-tax charges for intangible amortization expense, cost-cutting expenses and acquisition-related expenses, increased by 34.3% year over year to about $719 million, or $0.47 per share. On the cost side, Abbott’s adjusted gross margins improved over the prior year quarter to 58.1%.

The company sales grew across most of its major divisions. Nutritionals, the company’s largest segment, followed last quarter’s high single-digit sales growth with an increase of 6.3% in operational sales (including a 4% negative impact of foreign exchange) after having recovered from product recalls in August 2013. Established Pharmaceuticals, which now focuses entirely on emerging markets after the sale of its developed market business, reported an increase of about 31.8% in operational sales, driven by significant sales contributions from the recently acquired CFR Pharmaceuticals in Chile and Verofarm in Russia. The Diagnostics division maintained its consistent performance, as operational sales increased 6% year over year to around $1.1 billion driven by robust growth in Core Laboratory, Molecular Diagnostics and Point of Care sales in the U.S. as well as in international markets.

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We have a price estimate of $45 for Abbott Labs, which is slightly below the current market price.

See our full analysis for Abbott Labs

Emerging Economies Continue To Drive Nutritionals

Nutritionals is Abbott’s largest division, contributing slightly over 30% of the company’s value, according to our estimates. After a temporary disruption in sales in 2013, when the company had to recall some of its baby products in China, Vietnam and Saudi Arabia, the company has bounced back to growth in this division. [1]

Global Pediatric nutrition sales grew about 8.8%, which included a 3.4% FX impact, to $962 million, with China and Latin America recording double-digit growth. In China, products such as Eleva and Similac Qinti accelerated online sales in the division.

In the adult nutritional business, operational sales increased about 3% year over year globally, including 11% growth in international markets. Sales were driven by strong performance from Ensure and moderate growth in international markets. The Ensure brand was launched in China last quarter, which is likely to drive international sales upwards. Going forward, the company expects sales to continue growing due to new products in existing markets.

Steady Growth In Diagnostics

Diagnostics has been Abbott’s most consistent growth driver, delivering high single-digit operational sales growth for the past three years. This trend continued in the first quarter, where worldwide sales in this segment grew by 6% on a constant currency basis, driven by growth in the Core Laboratory, Molecular and Point of Care businesses. The Core Laboratory diagnostic business was primarily driven by double-digit growth in emerging markets, with total international operational sales growing 5.4% year over year.

Slow Growth in Vascular Division

Operational sales from the Vascular division, which contributes slightly over 10% of the company’s value according to our estimates, grew by 2% year over year globally. Sales were driven by single-digit growth of endovascular products and double-digit growth of MitraClip, a device used to treat heart valve disorders.

Going forward, the company expects its operational sales to grow in low double digits in the second quarter. However, FX headwinds are expected to push this growth to low single digits. The company’s EPS guidance for the full year remains unchanged at $2.10 to $2.20.

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Notes:
  1. Abbott making ‘progress’ repairing Fonterra botulism scare damage, Dairy Reporter []