Key Highlights

  • Adjusted EPS of USD 1.42 matched the estimate, up 9.2% year over year.
  • Sales of USD 13.01 billion rose 14.5%, or 7.0% on a comparable basis.
  • Abbott plans a tax-free spin-off of its nutrition business, about USD 8.5 billion in sales.
  • Full-year adjusted EPS guidance was tightened to USD 5.50 to USD 5.55.

Abbott (NYSE:ABT) reported third-quarter results on Wednesday, Oct. 21, with adjusted diluted EPS of USD 1.42, matching the estimate of USD 1.42. Sales of USD 13.01 billion edged past the USD 12.99 billion estimate, up 14.5% from a year earlier and 7.0% on a comparable basis.

The company announced on the same day that it intends to separate its nutrition business into an independent, publicly traded company. Shares were down 3.09% at USD 99.28 in Wednesday trading.

Plan to Separate Nutrition

The new company is to be created through a tax-free distribution to Abbott shareholders, with completion targeted by the end of next year, subject to approvals. It would carry about USD 8.5 billion of annual sales, 16,000 employees and 14 manufacturing sites, and brands including Similac, PediaSure, Ensure, Glucerna and Pedialyte. A current group president is to become its chief executive officer.

The new company plans to raise debt and send part of the proceeds to Abbott. The two companies together are planned to pay a combined dividend equal to Abbott's dividend at the time of separation.

Management said that without the nutrition business, Abbott's sales growth would be 50 to 100 basis points faster, gross margin more than 200 basis points higher and operating margin about 100 basis points higher. Chief Executive Officer Robert Ford said nutrition has a better chance to invest and grow as a standalone company. He also said that resolving the litigation over preterm infant formula is not a precondition for the separation.

Segment Results

Diagnostics sales rose 46.7% to USD 3,305 million, or 6.4% on a comparable basis, as Exact Sciences, acquired on March 23, added USD 968 million of Cancer Diagnostics sales. Core Laboratory grew 5.4%.

Medical Devices sales rose 6.9% to USD 5,826 million, or 7.8% comparable. Electrophysiology grew 15.0% to USD 873 million and Rhythm Management 9.7%, while Diabetes Care reached USD 2,185 million, with continuous glucose monitor sales up 7.3%.

Nutrition sales rose 5.1% to USD 2,262 million, with pediatric up 8.8%. Established Pharmaceuticals grew 6.8% to USD 1,614 million, or 8.4% comparable.

The adjusted gross margin was 57.2%, up 140 basis points, and the adjusted operating margin was 23.4%, up 40 basis points.

GAAP Earnings and Guidance

GAAP diluted EPS was USD 0.53, against USD 0.94 a year earlier. Specified items included about USD 670 million of legal settlements and USD 841 million of intangible amortization, double the USD 420 million of last year, and net interest expense rose to USD 297 million from USD 44 million.

Abbott projects full-year comparable sales growth of about 6.0% and adjusted EPS of USD 5.50 to USD 5.55, keeping the midpoint of its earlier range. Fourth-quarter adjusted EPS is guided to USD 1.62 to USD 1.67.

Management tied the sales outlook change to electrophysiology, where the left atrial appendage market has been a drag, and to diabetes. Ford said the full-year figure implies comparable growth just above 8% in the fourth quarter.

The quarterly dividend is USD 0.63 per share, the 411th consecutive payment, and the company has raised its payout for 54 consecutive years.

Markers to Follow

Electrophysiology growth excluding the left atrial appendage category, the U.S. launches of the TactiFlex Duo catheter in the fourth quarter and Libre Duo in December, and fourth-quarter comparable growth against the implied 8% are the near-term markers. The share distribution ratio, the debt to be raised and the separation costs, which are excluded from adjusted earnings, remain to be set.