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Abbott Labs (ABT) Beats on Q3 Earnings, Narrows 2016 View


Abbott Laboratories ABT reported third-quarter 2016 earnings of 59 cents per share, higher than both the Zacks Consensus Estimate of 58 cents and the year-ago figure of 54 cents.

Quarterly sales came in at $5.3 billion, up 2.9% year over year on a reported basis, and in line with the Zacks Consensus Estimate. The top line was, however, impacted by unfavorable foreign exchange movement of 1.1%.

Quarter in Detail

Abbott Labs operates through four segments – Established Pharmaceuticals Division (EPD), Medical Devices, Nutrition and Diagnostics.

EPD sales were up 5.3% to $1.01 billion, including a negative impact of 3.7% due to currency fluctuations. Sales in key emerging markets increased 7% on a reported basis driven by solid growth in India as well as strong demand in several countries of Latin America due to commercial initiatives and locally relevant portfolio expansion.

The Medical Devices business generated sales of $1.3 billion, up 6.4% year over year. Vascular product sales were up 5.2% on the back of double-digit growth in MitraClip. Diabetes Care sales increased 11.5% driven by continued consumer uptake of FreeStyle Libre. Sales of Medical Optics were up 4.4% backed by continued market uptake of cataract products in the premium intraocular lens segment. During the quarter, Abbott received FDA approval for Tecnis Symfony intraocular lenses.

Nutrition sales were decreased 2% year over year to $1.8 billion. Pediatric Nutrition sales decreased 4% on a reported basis. Adult Nutrition sales increased 1.4% on an operational basis led by a strong performance of Ensure.

Diagnostics sales increased 5% year over year to $1.2 billion. Core Laboratory sales and Point-of-Care Diagnostics sales were each up 5.6%. Molecular Diagnostics sales were down 0.8% as growth in the infectious disease testing business was partially offset by the planned scale-down of the genetics business.

2016 Outlook

Abbott Labs has raised the mid-point and narrowed its guidance for earnings. The company now expects earnings in the range of to $2.19 – $2.21 per share. The current Zacks Consensus Estimate stands at $2.20.



Our Take

Abbott Labs’ third-quarter results were better than expected due to strong performance of the EPD and Medical Devices segments. Going ahead, the FDA approval of Absorb, the only fully dissolving heart stent, and Tecnis Symfony intraocular lenses for the treatment of cataracts should fuel the company’s topline.

The company also stands to benefit from its upcoming acquisition of St. Jude Medical Inc. STJ, which will offer it an industry leading pipeline across cardiovascular, neuromodulation, diabetes and vision care. Abbott Labs entered into a definitive agreement to acquire St. Jude Medical, Inc. for $25 billion in Apr 2016. The transaction is expected to close in the fourth quarter of 2016.

Recently, the companies have agreed to sell certain products to Terumo Corporation in an all-cash transaction of approximately $1.12 billion. The products include St. Jude Medical's Angio-Seal and Femoseal vascular closure products, and Abbott's Vado Steerable Sheath. Abbott will, however, retain its vascular closure products.

Moreover, the sale of Abbott Medical Optics to Johnson & Johnson JNJ will help Abbott reshaping its portfolio in order to focus on gaining leadership positions in cardiovascular devices and expanding diagnostics.

Abbott Labs currently carries a Zacks Rank #4 (Sell).

A Stock to Consider

A better-ranked stock in the health care sector is Incyte Corporation INCY with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Incyte’s earnings estimates for 2016 and 2017 were up a respective 22.2% and 6.6% over the last 60 days. The company has beaten earnings estimates thrice in the last four quarters, with an average surprise of 335.16%.

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