What You Need To Know Ahead of Abbott’s Earnings

Abbott Labs

• Driving Abbott’s success:• Adult nutrition sales.• Diagnostic products.

• Future growth opportunity: • Emerging markets.

Driving Abbott’s revenue

First, let’s consider Abbott’s revenue sources.

Abbott operates 4 segments:1. Established pharmaceutical (generics).

• $1.1 billion in Q1 sales.2. Nutritional products (pediatric & adult).

• $1.6 billion in Q1 revenue.3. Diagnostic products (systems & testing).

• $1.1 billion in Q1 sales.4. Vascular devices/products (stents & other

products).• $1.3 billion in Q1 revenue.

Driving Abbott’s revenue1. Established pharmaceutical.

1. Ex-currency year-over-year sales down 0.7%2. Including currency, YoY sales down 6.6%.

2. Nutritional products (pediatric & adult).• Ex-currency YoY sales down 1.7%.• Including currency, YoY sales down 4%.

• Headwinds from 2013 recall remain, but should lessen.• Pediatric sales fell 8% in Q1.

• Adult sales up 5.2%, ex-currency.

Driving Abbott’s revenue1. Diagnostic products (systems & testing).

• Ex-currency YoY sales up 5.1%.• Including currency, YoY sales up 2.6%.

• Core lab products used for immunoassays up 11% YoY in U.S.

2. Vascular devices/products (stents & other products).• Ex-currency YoY sales up 0.3%.• Including currency, YoY sales down 1.2%.

Earnings outlookAbbott has beat analyst earnings forecasts in all four of the past four quarters, including by 13.9% in Q1.

Estimates for this quarter are unchanged over the past 90 days at $0.51; however, analysts have reduced full year estimates by a penny to $2.19. •Revisions will be coming following its deal with Mylan.

• Abbott retains its emerging market generic business.• A new entity that includes Abbott’s developed country business will be formed.

Earnings outlook•Analysts expect long-term earnings growth will lift EPS to $3.08 in 2017. •Following the Mylan deal, Abbott expects a 2% benefit to net income growth; however, off a lower base.

• Deal reduces Abbott’s 2015 EPS by an estimated $0.22.

Fool-worthy thoughts•Nutrition headwinds should ease over time.•Adult nutrition demand should increase alongside demographics.•Diagnostic demand should climb due to aging boomers and ACA enrollment.•Device demand will remain challenging/highly competitive.

• Opportunity for growth in ophthalmology.•Deal with Mylan removes slow growth developed market business.

• Impact on EPS early, but faster growth rates thereafter.•Emerging market generic business offers faster growth as those economies strengthen.

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