10-QPeriod: Q1 FY2013

ABBOTT LABORATORIES Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 8, 2013For Securities:ABT

Summary

Abbott Laboratories reported first-quarter 2013 results reflecting a significant operational shift due to the separation of its research-based proprietary pharmaceuticals business into AbbVie Inc. For the quarter ended March 31, 2013, Abbott's continuing operations generated net sales of $5.38 billion, a modest increase from $5.28 billion in the prior year, while operating earnings saw a notable increase to $615 million from $509 million. This performance was driven by growth in Nutritional and Diagnostic Products, partially offset by declines in Established Pharmaceuticals and Vascular Products, with foreign exchange headwinds impacting international sales. The separation of AbbVie, completed on January 1, 2013, resulted in a substantial decrease in reported net earnings to $545 million ($0.34 diluted EPS) compared to $1.24 billion ($0.78 diluted EPS) in the prior year, which included significant contributions from the divested pharmaceutical business as discontinued operations. Post-separation, Abbott's focus shifts to its diversified portfolio in established pharmaceuticals, nutritionals, diagnostics, and medical devices. The company also repurchased shares and paid dividends, though the dividend amount was adjusted following the AbbVie spin-off.

Financial Highlights

52 data points
Beta

Revenue

$4.85B

51.1% Gross Margin

Net Income

$545.00M

11.2% Net Margin

EPS (Diluted)

$0.34

Total Assets

$42.69B

Cash & Equivalents

$4.37B

Free Cash Flow

$186.00M

Financial Statements
Beta
Revenue$4.85B
Cost of Revenue$2.43B
Gross Profit$2.48B
SG&A Expenses$1.79B
Operating Expenses$4.76B
Operating Income$615.00M
Interest Expense$41.00M
Net Income$545.00M
EPS (Basic)$0.35
EPS (Diluted)$0.34
Shares Outstanding (Basic)1.57B
Shares Outstanding (Diluted)1.59B

Key Highlights

  • 1Net sales from continuing operations increased by 1.8% to $5.38 billion in Q1 2013 from $5.28 billion in Q1 2012, with international sales showing a 3.9% increase.
  • 2Operating earnings from continuing operations rose significantly by 20.7% to $614.8 million in Q1 2013, up from $509.2 million in Q1 2012, indicating improved operational efficiency post-AbbVie separation.
  • 3The separation of AbbVie Inc. on January 1, 2013, led to the presentation of the pharmaceutical business as 'discontinued operations' in the financial statements, significantly impacting reported net earnings.
  • 4Net earnings from continuing operations were $544.7 million ($0.34 diluted EPS) in Q1 2013, compared to $351.2 million ($0.22 diluted EPS) in Q1 2012, showing substantial year-over-year growth excluding discontinued operations.
  • 5Cash and cash equivalents decreased significantly from $10.8 billion at year-end 2012 to $4.4 billion at the end of Q1 2013, primarily due to the $5.9 billion transfer of cash to AbbVie during the separation.
  • 6The company repurchased approximately $850 million of its common shares in Q1 2013 under its existing share repurchase program.
  • 7The dividend per common share was reduced to $0.14 in Q1 2013 from $0.51 in Q1 2012, reflecting the impact of the AbbVie separation on capital allocation.

Frequently Asked Questions

The separation of AbbVie Inc. on January 1, 2013, led to the presentation of the former proprietary pharmaceutical business as 'discontinued operations'. This significantly reduced reported net earnings and diluted earnings per share compared to the prior year period, which included the results of this business. However, it allowed for a clearer focus on Abbott's core businesses: Established Pharmaceutical Products (outside the U.S.), Nutritional Products, Diagnostic Products, and Vascular Products.

Nutritional Products and Diagnostic Products showed solid sales growth of 8.7% and 4.4% respectively. Established Pharmaceutical Products saw a slight decline of 1.9%, largely due to pricing pressures in developed markets and unfavorable exchange rates, while Vascular Products decreased by 7.7%, impacted by winding down royalty agreements and market competition.

Abbott's cash and cash equivalents significantly decreased due to the transfer of $5.9 billion to AbbVie. Despite this, the company reported a strong operating cash flow and expects it to continue exceeding capital expenditures and dividends. Abbott also continued its share repurchase program, buying back $850 million in the quarter, and adjusted its dividend per share to reflect the post-separation capital structure.

Abbott disclosed ongoing involvement in various legal proceedings and environmental matters, estimating potential losses between $70 million to $90 million, with an accrued balance of $75 million. Management believes the ultimate disposition of these matters will not have a material adverse effect on the company's financial position. The company also mentioned the ongoing impact of U.S. healthcare reform legislation, including a 2.3% excise tax on certain medical devices.