Abbott Laboratories (ABT, Financial) reported first-quarter earnings results on April 16. The results were as steady as they usually are for one my favorite medical device companies.
Revenue grew 2.5% to $7.7 billion, which was $250 million more than expected. Organic revenue growth was 4.3%, so currency exchange had a sizeable impact on results. Earnings per share improved 3.2% to 65 cents. This was 4 cents higher than the consensus estimates from the analyst community.
Abbott Laboratories has beaten top and bottom-line estimates almost every quarter for more than five years. Only once over this period of time (third-quarter 2019, when revenue and earnings per share were in-line) has the company not delivered a beat of estimates.
The company saw solid results in nearly every segment.
Medical Devices, which contributed 38% of total revenues, grew 1.4% on a reported basis and 2.9% organically. Diabetes Care surged 35.6% organically, paced by the company’s FreeStyle Libre. The long-lasting continuous glucose monitor sales grew 62.5% organically to more than $600 million worldwide. Abbott Laboratories announced that the FreeStyle Libre received approval for expanded reimbursement in Japan to include patients with Type 2 diabetes that inject insulin multiple times per day to manage their condition. Expanded reimbursement will allow the FreeStyle Libre to continue to take market share. This device, which allows patients to monitor glucose levels for up to two weeks without finger sticks, is a great example of the company’s innovation.
Abbott Laboratories’ other medical device categories, such as neuromodulation and cardiovascular businesses other than heart failure, all declined year over year. However, much of this decline can be attributed due to lower volumes of procedures due to the Covid-19 pandemic. With health care workers focusing on stopping the spread of the virus, there weren’t enough resources to perform other procedures. These medical devices remain critical to patients, making it highly likely that demand will return when the availability of health care resources normalizes.
Nutrition sales, which made up 25% of sales in the quarter, were up 6.3% on a reported basis and 7.3% organically. This segment was aided by higher demand in late March as consumers stocked up on products before receiving shelter-in-place orders. Pediatric organic growth in the U.S. was 14.3%. Adult organic growth was essentially flat in the U.S., but up 13.8% in international markets.
Established Pharmaceutical, which contributed 13.5% of sales, gained 5.2% on a reported basis. Organic growth was higher by more than 9%. This segment saw strength in Russia, Southeast Asia and Latin America, most notably Brazil.
Diagnostic was the lone segment to show a decline versus the previous year. Reported sales decreased 0.8%, but organic growth was inched higher by 0.7%. Lower routine testing volumes, again due to Covid-19, was the primary reason for the decline from first-quarter 2019.
But this will likely be a one-off occurrence. Abbott Laboratories launched three new tests for Covid-19 in the quarter, two for use in a laboratory and one for point-of-care testing. The company’s m2000 RealTime system received approval in late March for use in hospital and molecular laboratories. The diagnostic test is the fastest point-of-care system on the market. Health care workers can receive a positive result in as little as five minutes. Abbott Laboratories also has a blood test that detects antibodies that can tell health care workers if the patient was previously infected with the virus. The company plans to ship 4 million tests in April, with peak capacity reaching 20 million tests per month by June. The company’s ability to develop a rapid response test and scale meaningfully in a very short time is an impressive accomplishment.
Abbott Laboratories' ability to produce a system that quickly assesses a person's Covid-19 infection will undoubtedly be in high demand as testing continues to ramp up. Some of this was already seen in the quarter as organic sales for molecular products grew more than 30% worldwide and 61.7% in the U.S. Rapid diagnostics saw 13% growth in the U.S. and point of care was up more than 34% internationally. Results for the entire diagnostic segment would have been higher if not for a 5% drop in core laboratory organic sales, primarily the result of weak demand in international markets.
The company pulled its guidance for 2020 due to uncertainty about the duration of the pandemic and the extent of economic damage Covid-19 will have on the global economy. Abbott had expected to grow earnings by 11% for the year. It did declare its 385th consecutive quarterly dividend as well. Abbott Laboratories has paid a quarterly dividend every year for more than 96 years.
Finally, the company has one of the strongest balance sheets in the medical device sector. Abbott Laboratories has approximately $3.7 billion in cash and equivalents and $5 billion in revolving credit facilities that it could access if it need be at the end of the first quarter. The company hasn’t issued a balance sheet for the most recent quarter, but it had $15.7 billion of total current assets compared to $10.9 billion of total current liabilities at the end of 2019. Abbott Laboratories also generated $4.5 billion in free cash flow last year, with dividends consuming just 50% of the total. The company is in a strong financial position that will likely allow it to weather any economic disruptions that Covid-19 may cause in the coming months.
A company doesn’t approach 100 years of dividend payments without being well-managed. Abbott Laboratories' strong performance in the first quarter combined with incredible demand for its Covid-19 diagnostic tests show that it remains best of breed in its sector. Investors looking for a company performing well and has the potential for future growth should consider adding Abbott Laboratories to their portfolio.
Author disclosure: The author is long Abbott Laboratories.
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