How Much Does Abbott Spend On SG&A?

by Trefis Team
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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

Abbott’s Net Income Margin Has Declined Over The Recent Years, Although It Saw Significant Decline In 2017, Due To Higher Taxes. We Discuss Individual Cost Drivers In The Below Sections.

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.

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