10-QPeriod: Q2 FY2013

ABBOTT LABORATORIES Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 6, 2013For Securities:ABT

Summary

Abbott Laboratories (ABT) reported its second quarter and first half 2013 financial results, marked significantly by the separation of its research-based proprietary pharmaceuticals business into AbbVie Inc. on January 1, 2013. For the three months ended June 30, 2013, net sales increased by 2.5% to $5.45 billion, while for the six months ended June 30, 2013, net sales grew by 2.1% to $10.82 billion. This growth was primarily driven by the Nutritional Products and Diagnostic Products segments, which saw increased sales, partially offset by declines in Established Pharmaceutical Products and Vascular Products. The company's operational performance, excluding the impact of discontinued operations, shows a modest revenue increase. However, a key financial takeaway is the significant shift in the balance sheet and cash flow statement due to the AbbVie spin-off. Cash and cash equivalents decreased substantially as a result of the transfer of funds to AbbVie, and working capital also saw a notable reduction. Despite these structural changes, the company maintained its financial strength, with strong liquidity and an A+ credit rating from S&P.

Financial Highlights

52 data points
Beta

Revenue

$4.93B

49.2% Gross Margin

Net Income

$476.00M

9.6% Net Margin

EPS (Diluted)

$0.30

Total Assets

$42.90B

Cash & Equivalents

$5.57B

Free Cash Flow

$426.00M

Financial Statements
Beta
Revenue$4.93B
Cost of Revenue$2.54B
Gross Profit$2.43B
SG&A Expenses$1.71B
Operating Expenses$4.82B
Operating Income$627.00M
Interest Expense$40.00M
Net Income$476.00M
EPS (Basic)$0.30
EPS (Diluted)$0.30
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.58B

Key Highlights

  • 1Net sales for the second quarter of 2013 increased by 2.5% to $5.45 billion, and for the first six months by 2.1% to $10.82 billion.
  • 2The separation of AbbVie Inc. on January 1, 2013, significantly impacted financial statements, with $5.9 billion of cash transferred to AbbVie.
  • 3Nutritional Products and Diagnostic Products segments showed sales growth, while Established Pharmaceutical Products and Vascular Products experienced declines.
  • 4Gross profit margin decreased to 49.7% in Q2 2013 from 51.7% in Q2 2012, attributed to pricing pressures, product mix, and restructuring costs.
  • 5Research and development expenses decreased slightly in Q2 and the first six months of 2013, primarily due to timing of expenditures.
  • 6Selling, general, and administrative expenses decreased due to the AbbVie separation and transitional services agreements.
  • 7Abbott announced subsequent events agreements to acquire IDEV Technologies for $310 million and OptiMedica for $250 million plus potential milestones, expanding its medical device portfolio.

Frequently Asked Questions

The separation of AbbVie on January 1, 2013, had a significant impact. It resulted in the presentation of AbbVie's former business as 'discontinued operations' in the income statement. Financially, Abbott transferred approximately $5.9 billion in cash and $27.1 billion in net assets to AbbVie. This is reflected in the substantial decrease in Abbott's cash and cash equivalents and working capital at June 30, 2013, compared to December 31, 2012.

Sales growth was primarily driven by the Nutritional Products segment, which saw a 7.9% increase in Q2 2013 and an 8.3% increase in the first six months, and the Diagnostic Products segment, which grew by 5.3% in Q2 and 4.9% in the first six months. These segments benefited from strong unit growth in various product lines and geographic regions.

The company is undergoing significant structural changes, notably the AbbVie separation. While this creates short-term impacts and necessitates a focus on its core businesses (Established Pharmaceuticals, Nutritionals, Diagnostics, and Vascular Products), management is strategically acquiring new businesses in the medical device space (IDEV Technologies, OptiMedica). The financial review indicates an ongoing effort to manage costs, with decreases in R&D and SG&A expenses. Investors should monitor the integration of new acquisitions and the performance of core segments against market competition and currency headwinds.

Abbott operates in highly competitive markets subject to substantial government regulations globally. Key risks include pricing pressures in developed markets (especially for vascular products), potential adverse effects from healthcare reform legislation (like the medical device excise tax), and significant foreign currency exchange rate fluctuations. Additionally, the company faces litigation and environmental matters, though management believes their ultimate resolution will not materially affect financial position or results.