How Much Does Abbott Spend On SG&A?
Abbott (NYSE:ABT) spent $6.5 billion on selling, general & administrative (SG&A) expense in 2014, and the figure increased to $9.7 billion in 2018, driven by acquisitions, growth in sales, and the launch of new products. As a percentage of revenue, SG&A largely hovered in the range of 32% and 33%. This compares with a 34% figure for Medtronic and 36% for Boston Scientific. Interestingly, all of the above three medical devices companies spend 3x to 4x the money on SG&A as compared to that spent on research and development (R&D). This can partly be attributed to promotional expenses incurred with regard to new product launches. Abbott’s total expenses grew from around $18 billion in 2014 to about $28 billion in 2018. As a percentage of revenues, expenses have remained above 90% over the same period.
The increase in SG&A for Abbott has impacted the net income by $3.6 billion between 2014 and 2019. However, if the company didn’t spend on SG&A, it may have resulted in lower revenues. Looking forward, we forecast SG&A as % of revenue to decline slightly to 31.5% in 2021, as the overall expenses will likely grow at a slower pace when compared to revenues, thus aiding the net income margin higher from 7.6% in 2018 to 8.5% in 2021. The company’s stock price has gained over 25% over the last 12 months, and this can partly be attributed to expected growth in revenues and improvement in margins. Below, we take a look at the key drivers of Abbott’s expenses and net margins. Look at our interactive dashboard analysis ~ ABT Expenses: How Does Abbott Spend Money? ~ for more details.
Breakdown of Abbott’s Total Expenses In 2018
- Total = $28.2 Billion
- COGS = $12.7 Billion
- Operating Expenses = $14.2 Billion
- Provision for income taxes = $0.8 Billion
- Non-operating expenses = $0.5 Billion
- What’s Next For Abbott Stock After A 6% Rise This Year?
- Is Abbott Stock Undervalued At $95?
- Which Is A Better Pick – Abbott Stock Or Amgen?
- Is Abbott Stock A Better Healthcare Pick Over Thermo Fisher Scientific?
- Lower Testing Demand To Weigh On Abbott’s Q2?
- Will Abbott Stock Rebound To Its 2022 Highs?
Abbott’s Total Expenses Stood At $28.2 Billion In 2018, And They Could Grow To North of $30.0 Billion In 2020
- Abbott’s total expenses have grown from $18.5 billion in 2014 to about $28.2 billion in 2018.
- For 2020, we expect total expenses to be around $30.8 billion, which comprises of
- 1) COGS: $14.0 Billion
- 2) Operating Expenses: $15.4 billion
- 3) Non-Operating Expense: $0.8 billion
- 4) Income Taxes: $0.6 billion
- Below, we take a look at how the company’s key expense components have trended and the key reasons for the change.
1. COGS Will Likely Increase At A Steady Pace
- Cost of Goods Sold (COGS) have increased from $9.2 billion in 2014 to $12.7 billion in 2018.
- It could grow to $14.0 billion in 2020, in line with the expected revenue growth.
- The jump in 2017 can be attributed to the company’s acquisition of St. Jude Medical.
2. Operating Expenses Are On A Rise
- Operating Expenses have increased from $8.4 billion in 2014 to $14.2 billion in 2018 driven by:
- (A) $1.0 billion increase in R&D,
- (B) $3.2 billion increase in SG&A, and
- (C) $1.6 billion increase in Amortization of Intangible Assets
(A) R&D Costs Grew From $1.3 Billion In 2014 To $2.3 Billion In 2018
- This was driven by the St. Jude Medical acquisition in 2016.
- As a % of revenues, R&D costs grew from 6.6% to 7.5% over the same period.
- Abbott has been investing into new products to have a pipeline for the coming years.
- The figure is expected to hover around the 7.0% mark in the near term.
(B) SG&A Grew From $6.5 Billion In 2014 To $9.7 Billion In 2018
- The growth in SG&A was primarily due to St. Jude and Alere acquisitions.
- As a % of revenues, SG&A has been in the range of 32.0% and 33.5%.
- This can partly be attributed to promotional expenses for new products.
- The figure is expected to be under 32.0% in the near term.
(C) Amortization of Intangible Assets Jumped Sharply In 2017
- As a % of revenues, Amortization of Intangible Assets grew from 2.7% in 2014 to 7.1% in 2018.
- The figure is expected to remain around the current levels, as seen over the past couple of years.
3. Abbott’s Non-Operating Expenses Primarily Includes Interest & Other Expenses
- Abbott’s Interest & Other Expenses grew from $0.1 billion in 2014 to $0.8 billion in 2018, driven by higher debt.
- As a % of revenue, interest & other expenses grew from 0.4% to 2.5% over the same period.
- The jump in 2016 can be attributed to around $1.5 billion other expenses and currency exchange loss, which compares with close to a $400 million gain in 2015.
4. Abbott’s Income Tax Expense Has Fluctuated In Recent Years
- This was driven by the Tax Cut and Jobs Act.
- Effective Tax Rate declined from 32% in 2014 to 19% in 2018.
- The surge in 2017 can be attributed to TCJA and the company recorded tax of $1.9 billion, as compared to $350 million in taxes in the prior year.
- The figure is expected to decline in 2019, reflecting benefits recorded in the first nine months. It will likely be around the 18% mark in 2020.
What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams | Product, R&D, and Marketing Teams
Like our charts? Explore example interactive dashboards and create your own.