Abbott Reports Strong Second Quarter Results; Confirms Double-Digit Ongoing Earnings Growth Outlook for 2010
"Abbott's diverse sources of earnings growth led to strong financial results again this quarter, continuing Abbott's record of steady, reliable performance," said Miles D. White, chairman and chief executive officer, Abbott. "We also strengthened our emerging markets presence with the announced acquisition of Piramal Healthcare Solutions, giving Abbott the number-one position in the fast-growing Indian pharmaceutical market. This follows several other strategic actions that provide Abbott critical mass to capture the significant growth expected in emerging markets."
Abbott confirms double-digit earnings-per-share growth outlook for 2010
Abbott is confirming previously issued earnings-per-share guidance for the full-year 2010 of $4.13 to $4.18, excluding specified items. The midpoint of this guidance range reflects growth of approximately 12 percent over 2009.
Abbott forecasts specified items for the full-year 2010 of approximately $0.55 per share, primarily associated with the impact of health care reform on deferred tax assets, acquisition integration, previously announced cost reduction initiatives, a litigation reserve, in-process research and development related to the Neurocrine collaboration, and the one-time impact of the devaluation of the Venezuelan bolivar on balance sheet translation. Including these specified items, projected earnings per share under Generally Accepted Accounting Principles (GAAP) would be $3.58 to $3.63 for the full-year 2010. As previously indicated, this forecast excludes additional integration costs associated with the Solvay Pharmaceuticals acquisition that are expected to be quantified in the third quarter.
Abbott declares quarterly dividend
On June 11, 2010, the board of directors of Abbott declared the company's quarterly common dividend of 44 cents per share, an increase of 10 percent over the prior period. The cash dividend is payable Aug. 15, 2010, to shareholders of record at the close of business on July 15, 2010. This marks the 346th consecutive dividend paid by Abbott since 1924.
Abbott is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The company employs approximately 83,000 people and markets its products in more than 130 countries.
Abbott's news releases and other information are available on the company's Web site at www.abbott.com. Abbott will webcast its live second-quarter earnings conference call through its Investor Relations Web site at www.abbottinvestor.com at 8 a.m. Central time today. An archived edition of the call will be available after 11 a.m. Central time.
-- Private Securities Litigation Reform Act of 1995 --
A Caution Concerning Forward-Looking Statements
Some statements in this news release may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, "Risk Factors," to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended Dec. 31, 2009, in Item 1A, "Risk Factors," to our quarterly report on Securities and Exchange Commission Form 10-Q for the quarter ended March 31, 2010, and are incorporated by reference. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.
Questions & Answers
Q1) What drove the growth of Worldwide Pharmaceutical sales?
A1) Worldwide Pharmaceutical sales increased 24.5 percent, including a favorable 2.8 percent effect of exchange rates, driven by strong international pharmaceutical sales growth of more than 40 percent. Sales included the first full-quarter contribution from the Solvay acquisition, which closed in February 2010.
Growth in the quarter was driven by HUMIRA global sales growth of 21.5 percent, with reported international growth of 32.7 percent. International anti-TNF market growth trends remain strong, and HUMIRA maintains a market-leading position in many of the international markets. U.S. HUMIRA sales increased approximately 10 percent, in-line with underlying prescription trends for the product. Global lipid franchise sales growth was 10.3 percent, including the international TriCor sales contribution from the Solvay acquisition.
Q2) What drove the strong performance in Worldwide Vascular, Worldwide Nutritional and Worldwide Diagnostics sales?
A2) Double-digit growth in Worldwide Vascular sales were driven by international vascular sales growth of more than 50 percent. Abbott holds the number-one global position in drug-eluting stents, metallic stents and guidewires. Abbott's drug-eluting stent franchise, which includes XIENCE V and XIENCE PRIME, continues to perform well, including strong international performance in Europe and Japan.
Worldwide nutritional products sales increased 10.1 percent, including a favorable 2.8 percent impact from exchange and driven by more than 19 percent growth internationally. Both pediatric and adult international nutritional sales were up double-digits in the quarter. Abbott continues to perform well in key emerging markets, including China, Southeast Asia and Latin America. In the United States, Abbott continues to hold its leadership position in infant formula and adult nutritionals.
High single-digit growth in Worldwide Diagnostics reflects continued double-digit growth in Abbott's Molecular and Point of Care diagnostics businesses as well as strong growth in its international Core Laboratory Diagnostics business.
Q3) What was the second-quarter gross margin ratio?
A3) The gross margin ratio before and after specified items is shown below (dollars in millions):
The adjusted gross margin ratio of 60.6 percent, above Abbott's previous forecast, was driven by strong performance across several businesses, including vascular, diagnostics, diabetes and nutrition, as well as a favorable impact from foreign exchange.
Q4) What drove SG&A and R&D investment in the quarter?
A4) In the second quarter, both SG&A and R&D investment increased strong double-digits, reflecting Abbott's continued investment in programs to drive future growth, as well as increases associated with the addition of Solvay Pharmaceuticals. R&D expense reflected continued investment in Abbott's broad-based pipeline, including programs in vascular devices, immunology, neuroscience, oncology and HCV.
Q5) What was the tax rate for the second-quarter 2010?
A5) The ongoing tax rate this quarter was 16.3 percent, in line with Abbott's previous forecast. The reported second-quarter tax rate is reconciled to the ongoing rate below (dollars in millions):
Q6) How did specified items affect reported results?
A6) Specified items impacted second-quarter results as follows:
Acquired in-process research and development is related to the agreement with Neurocrine Biosciences to develop and commercialize elagolix for the treatment of endometriosis. Litigation reserve relates to a settlement reached in principle for which a reserve was established during the quarter. Acquisition related is associated with closing and integration costs related to the Solvay Pharmaceuticals and other recent acquisitions. Cost reduction initiatives include actions to improve efficiencies, including the previously announced efforts in the core laboratory diagnostic business.
The impact of specified items by Consolidated Statement of Earnings line item is as follows (dollars in millions):
Q7) What are the key areas of focus in Abbott's broad-based pipeline?
A7) Abbott is conducting leading-edge research across the company and is focused on competing in attractive growth markets where R&D-based product differentiation drives success. Today, across its businesses, Abbott has more than 350 clinical trials underway and expects to deliver more than 75 new products or indications over the next five years. This includes a drug-eluting stent in the United States for small vessels; many new diagnostic assays; advances in the vision care portfolio; improvements across the global nutritional product line; several new pharmaceutical products in late-stage development; and a new heart-valve technology called MitraClip. Following are select highlights from breakthrough research across both pharmaceuticals and medical products pipelines:
-- Diluted earnings per share, excluding specified items, were $1.01, reflecting 13.5 percent growth, exceeding Abbott's previously issued guidance range of $0.98 to $1.00. Diluted earnings per share under Generally Accepted Accounting Principles (GAAP) were $0.83. -- Worldwide sales increased 17.8 percent to $8.8 billion, including a favorable 2.7 percent effect of exchange rates. -- Worldwide pharmaceutical sales increased 24.5 percent, including a favorable 2.8 percent effect of exchange rates and a full quarter of sales contribution from the Solvay Pharmaceuticals acquisition. -- Worldwide vascular products sales increased 26.9 percent, including a favorable 2.3 percent effect of exchange rates, driven by strong international growth. -- Worldwide diagnostics sales increased 8.0 percent, including a favorable 3.5 percent effect of exchange rates. -- Worldwide nutritional sales increased 10.1 percent, including a favorable 2.8 percent effect of exchange rates, driven by strong double-digit growth in international nutritionals.
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