On 19 April 2023, Abbott Labs (stock symbol ABT) did what most analysts had considered impossible – delivered core organic growth that looks set to replace the short-term boost to sales that Covid delivered to the company.
Do the results give credence to the stock’s growing reputation as a safe haven for income investors?
In this article, we take a closer look at the results through the lens of the Q1 2023 Earnings Call.
Stripping out covid sales, revenue rocketed
The decline in Covid testing was always going to rattle ABT’s top and bottom lines. And it has proved to be. Sales of $9.75 billion were 18.1% lower than Q1 2022, but comfortably above then analysts’ consensus forecast of $9.67 billion.
Sales of ABT’s rapid Covid test crashed from $3.3 billion in Q1 2022 to just $730 million in Q1 2023. That kind of fall was always going to hurt its revenue, but the company has done well to increase sales in other areas of its business.
Organic sales growth excluding Covid testing (and accounting for impact of foreign exchange) increased by 10%. This growth included:
- Medical devices – sales of $3.9 billion, up 12.4% from Q1 2022
- Established pharmaceuticals – sales of $1.2 billion, up 11.1% from Q1 2022
- Nutrition – sales of $1.97 billion, up 10.3% from Q1 2022
In its Diagnostics division, ABT posted sales of $2.7 billion – 48.9% below Q1 2022. However, when Covid test sales are excluded, organic growth of 4.4% was achieved.
Chairman and CEO Robert B. Ford noted a shift in people’s priorities toward health. On the earnings call, he discussed his optimism about the Covid related headwinds the company expects to be (and is) experiencing – with the effects peaking and beginning to ease.
“As we move through the first part of the year, that’s exactly what we continue to see. Most notably, the impact of Covid has rapidly and significantly lessened. As part of this transition, certain behavioral shifts have been evident across society,” he said.
“A much more relevant and important behavioral shift that we’re seeing in health care globally has been the increased priority people are putting on getting healthy and staying healthy. And for our businesses, the impacts have seen increased routine diagnostic testing volumes, improved medical device procedure trends and strong demand for consumer-based health products. The net results this past quarter was strong, broad-based growth across our portfolio.”
Structural health business is the heart of the matter
Dipping a little deeper into ABT’s sales, it’s clear that the medical devices division starred, helped by sales of recently launched products such as Amplatzer® Amulet®, Navitor, TriClip, Aveir® and CardioMEMS®. Indeed, innovative products have helped to drive sales in key offerings, including:
- MitraClip, a device used to stop leaking in the heart’s mitral valve, grew 10%.
- Revenue from transcatheter aortic heart-valve replacements (TAVR) soared 64%.
- Sales of ABT’s Libre body-worn glucose monitor increased by 50% to $1.2 billion (and there are now 4.8 million Libre users in the U.S.).
ABT’s nutrition business, a soft underbelly for several quarters, saw stunning growth. Organic pediatric nutrition sales pumped up by 18.4% ─ and in the U.S. by 36.1%.
EPS of $1.03 and a 397th consecutive quarterly dividend
ABT is a Dividend King, and while diluted quarterly EPS declined by more than 40% year-on-year to $1.03, the company also confirmed the 397th consecutive quarterly dividend. It has increased the dividend payout for 51 years running – one of only 37 companies that has done so.
A strong outlook and a safe haven for income investors
“In summary, we’re off to a very good start to the year, exceeding financial expectations on both top and bottom lines,” Ford told analysts attending the earnings call. “The strong performance we’re achieving is broad-based and fueled by strong execution, new products, and improving market conditions. And our core foundational growth platforms have strong momentum and are achieving exceptional results, positioning us well for top-tier growth going forward.”
CFO Robert E. Funck gave guidance for the year:
- Covid testing sales down to $1.5 billion, lower than the previous expectation of $2 billion
- Unchanged full-year EPS guidance of $4.30 to $4.50, including the $0.10 lower earnings contribution from Covid testing sales
ABT’s optimism demonstrates its confidence in delivering strong sales across its business divisions. Organic sales growth is likely to remain in high-single to low-double digits. The company has a strong underlying financial footing, and is positioned to extract further growth from its product pipeline as well as take advantage of M&A opportunities.
With a dividend yield of around 2%, a payout ratio of below 50%, and shares trading on a PE of around 28, ABT is a safe haven for income investors who desire a quality pharma in a diversified portfolio.