Nutritional Segment Subdues Abbott’s Q4’16 Growth, But Future Growth Prospects Remain Strong

Abbott Laboratories (NYSE: ABT) reported its results for Q4 2016 on January 25th. The company’s sales in the quarter grew by 2.8 percent on a reported basis and 3.8 percent on an operating basis. Abbott’s results in the quarter were subdued by a 3.7 percent decline in its nutritional segment revenues, which constitute roughly one-third of its overall revenues. This was primarily because of the challenges faced by its pediatric nutrition business in China. However, the company saw healthy growth across all other segments. Furthermore, the company completed the St. Jude acquisition in this quarter, which it anticipates will result in annual pre-tax synergies of $500 million by 2020. Additionally, Abbott launched a couple of products in the diagnostics segment, which is likely to have a positive impact on its top-line in the coming quarters.

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Near-Term Challenges To Continue To Affect Nutritional Segment Growth

At $1.7 billion, Abbott’s worldwide nutritional sales decreased by 3.7 percent in Q1. Nutritional sales in this quarter were negatively impacted by a decline in pediatric nutrition revenues. The nutrition market is witnessing an oversupply situation in China caused by local players in the region in the wake of government’s decision to implement new safety regulations. These players are offering significant discounts on their nutritional products to clear their inventory before the new safety regulation is implemented. For these reasons, the company appears to be losing nutritional segment market share in China to local label bands. 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. Going ahead, we can expect the growth from the sales of PediaSure toddler brand and the first formula in the U.S. with a human milk oligosaccharide to partially offset the decline from China.

New Product Launches In Diagnostics To Drive International Growth

Abbott’s witnessed 2.9 percent growth from its diagnostics sales, which was primarily led by its growth in Point-of-Care diagnostics and Core Laboratory diagnostics. The company saw its Point-of-Care revenues grow by 8.5 percent in the quarter, which was driven by strong adoption of the  i-STAT handheld system in the U.S. and internationally. Furthermore, Abbott obtained CE mark for four new major diagnostics systems, which include “AlinityTM s” for blood and plasma screening, “Alinity i” for immunoassay diagnostics, “Alinity c” for clinical chemistry diagnostics and “i-STAT Alinity” for point of care blood testing. The approval of these products should result in incremental sales for the company in future quarters.

Medical Device Business Growth Driven By FreeStyle Libre; Abbott Now A Market Leader In CRM Market

Abbott’s medical device revenues increased 4.4 percent in the quarter, which was led by its diabetes segment. The diabetes segment witnessed double-digit growth in international sales, primarily led by the strong adoption of FreeStyle Libre, which is continuous glucose monitoring system, eliminating the need for finger-sticks. Furthermore, Abbott completed the acquisition of St. Jude, which marks its entrance into the large cardiac rhythm management market. This acquistion will help Abbott in competing effectively against rivals, Medtronic and Boston Scientific. According to Abbott, the combined company will likely be a market leader in most of the areas of the large cardiac rhythm management market. Furthermore, the company anticipates realizing annual pre-tax synergies of $500 million by 2020, which include both revenue and cost synergies.

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