Abbott Labs Earnings Preview: Nutritional Segment To Drag Down Overall Growth
Abbott Labs (NYSE: ABT) is set to announce its Q4’16 results on January 25th. The company likely saw a tepid revenue growth in the quarter because of a weaker performance of its pediatric nutrition business in China. Going by the consensus estimates, the company’s sales in Q4 have likely increased in low to mid single digits. In the table below, we can note the key metrics as expected for the Abbott in Q4:
Source: Yahoo Finance
The company appears to be losing nutritional segment market share in China to local label bands. This is primarily because of an oversupply situation caused by local players in the region in the wake of government’s decision to implement new safety regulations. Further, these players are offering significant discounts on their nutritional products to clear their inventory before the new safety regulation is implemented. Another reason for the weak performance is the shift in the sales channel to e-commerce, an area in which Abbott lags. According to the company, the transition to this new sales channel is not likely to be quick, and can weigh on its nutritional sales in the near term.
If the company loses 0.5% market share annually over the next 5 years, it could imply close to 15% downside to our current price estimate. However, we expect that Abbott will be able to stabilize its position over the next fiscal year. Although China is a big market for Abbott, accounting for close to 10% of nutrition segment’s revenue, the company’s business is significantly diversified geographically. This will help it stabilize challenges in China.
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Furthermore, the sales growth from new product launches and the acquisition of St. Jude can help the company realize healthy overall sales growth in 2017. Abbott is seeing strong adoption of its Free Style Libre product in Europe. In addition, Abbott got FDA approval of the Absorb bioresorbable stent and Free Style Libre Pro, a glucose monitoring system for healthcare professionals. So, the impact of these new product launches should be visible in Q4 results and beyond.
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