Abbott Laboratories (NYSE:ABT) reported third-quarter sales growth of 7% and adjusted earnings-per-share growth of 9%, while announcing plans to separate its nutrition business into an independent publicly traded company through a tax-free distribution to shareholders.
Chairman and Chief Executive Officer Robert Ford said the planned separation follows a strategic review and is intended to give both businesses greater operational focus. The company expects to complete the transaction by the end of next year, subject to required approvals.
Daniel Salvadori, Abbott’s executive vice president and group president of Established Pharmaceuticals and Nutrition Products, is slated to become chief executive officer of the new company.
Nutrition Separation and Financial Structure
Ford said the nutrition market has increasingly been influenced by consumer preferences, wellness trends and retail execution, rather than being shaped primarily by healthcare professionals. He said an independent company could more effectively invest in sales and marketing, innovation, and potentially tuck-in acquisitions as demand for healthier nutrition products grows.
Abbott said it selected a spinoff rather than a sale after determining that the separation offered a better path for shareholder value creation. Ford said a sale could involve tax implications and a timeline less fully within Abbott’s control.
Chief Financial Officer Phil Boudreau said Abbott shareholders will own shares in both Abbott and the new nutrition company following the distribution. The final share distribution ratio will be disclosed before the separation.
The new nutrition business is expected to raise debt, with a portion of proceeds to be distributed to Abbott, although the amount of debt and distribution have not yet been determined. Abbott said both companies are expected to maintain strong investment-grade credit ratings and to pay dividends that, in combination, equal Abbott’s dividend at the time of separation.
Boudreau said separation-related expenses will be treated as specified items and excluded from adjusted earnings. Abbott does not expect the separation process to affect the adjusted earnings guidance it plans to provide in January.
Excluding nutrition from Abbott’s current portfolio, the company expects sales growth to accelerate by 50 to 100 basis points. It also expects gross margin as a percentage of sales to rise by more than 200 basis points and operating margin to increase by approximately 100 basis points.
Addressing litigation related to infant formula, Ford said resolving those matters is not a prerequisite to completing the separation. He said Abbott and the new nutrition company would be well capitalized to pursue their growth plans and defend their legal positions. Abbott settled claims from 2,000 claimants in August, Ford said, while continuing to stand behind the safety and efficacy of its products.
Third-Quarter Performance
Comparable sales increased 7% in the third quarter, while adjusted EPS of $1.42 was in line with Abbott’s guidance and the consensus estimate, according to Boudreau. Foreign exchange had a 0.4% unfavorable year-over-year effect on sales.
Adjusted gross margin was 57.2% of sales, up 140 basis points from a year earlier. Adjusted operating margin expanded 40 basis points to 23.4%. Adjusted research and development spending was 6.9% of sales, while adjusted selling, general and administrative expense was 26.9% of sales.
- Diagnostics: Sales rose 6.5%, supported by 5.5% growth in core laboratory testing and 14% growth in cancer diagnostics. Abbott said it launched its first blood-based colorectal cancer screening test in September, adding to its existing stool-based screening offerings.
- Nutrition: Sales increased 5%, with pediatric nutrition up 9% and U.S. pediatric sales up 11%. Adult nutrition rose 2%, including 3.5% growth in the United States. Abbott cited WIC contract wins and improving retail consumption trends. The company also launched a Similac ready-to-feed liquid infant formula made with whole milk.
- Established Pharmaceuticals: Sales increased 8.5%, with broad-based growth across emerging markets and double-digit growth in several countries in Asia, Latin America and the Middle East.
- Medical Devices: Sales rose 8%, led by double-digit growth in electrophysiology and rhythm management. Continuous glucose monitoring sales rose 8%.
Medical Device Pipeline and Near-Term Pressures
Ford said electrophysiology growth was in the mid-teens to high teens excluding left atrial appendage, or LAA, products. U.S. growth exceeded 20% excluding LAA, aided by adoption of Abbott’s Volt pulsed field ablation catheter after its full U.S. release in mid-August.
The company received FDA approval for its TactiFlex Duo catheter in September and expects to begin a broad U.S. launch in the fourth quarter. Abbott also received CE Mark approval for its Amulet 360 LAA device and said it intends to bring the technology to the U.S. market.
In rhythm management, sales increased 10% as adoption of the AVEIR leadless pacemaker expanded across single- and dual-chamber applications. In diabetes care, Abbott received FDA approval for Libre Duo, a dual glucose and ketone sensor, and expects a U.S. launch in December.
Ford said full-year sales guidance was reduced to approximately 6% growth, implying fourth-quarter growth of slightly more than 8%. He attributed the change primarily to near-term factors in electrophysiology and diabetes care.
In electrophysiology, Abbott expects LAA market conditions and customer ordering patterns ahead of the Amulet 360 launch to pressure growth in the fourth quarter. The company now expects about 20% growth in electrophysiology during the period, compared with a prior expectation of about 25%.
For diabetes care, Ford said Abbott expects low- to mid-single-digit growth over the next several quarters, reflecting challenges penetrating the type 2 population without broader reimbursement and increased international pricing pressure. He said Abbott plans pricing adjustments intended to protect its market share while securing longer-term contracts.
Outlook
Abbott expects foreign exchange to reduce fourth-quarter sales by about 1%. The company forecast fourth-quarter adjusted EPS of $1.62 to $1.67.
Ford said Abbott expects overall sales growth to accelerate in 2027 but plans to take a more conservative initial approach to revenue guidance when it provides formal outlook details in January. He said the company still expects gross-margin expansion, earnings growth, continued R&D investment, strong cash flow and dividend growth.
Abbott also said it has capacity for future acquisitions, though Ford indicated that nearer-term activity would likely focus on tuck-in deals as the company continues integrating Exact Sciences.
About Abbott Laboratories (NYSE:ABT)
Abbott Laboratories is a global healthcare company that develops, manufactures and markets a broad range of medical products and services. Founded in 1888 by Wallace C. Abbott, the company is headquartered in Abbott Park, Illinois, and serves patients, healthcare providers and consumers in markets around the world.
Abbott operates across four principal businesses: medical devices, diagnostics, nutrition and established pharmaceutical products. Its offerings include glucose-monitoring systems such as FreeStyle Libre; cardiovascular devices, including stents and structural heart products; laboratory and point-of-care diagnostic systems; and branded generic medicines in areas such as gastroenterology, women’s health and cardiometabolic care.
The company’s nutrition portfolio includes infant and pediatric products such as Similac and PediaSure, adult nutritional products such as Ensure, and rehydration products such as Pedialyte.
