10-QPeriod: Q1 FY2018

ABBOTT LABORATORIES Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 2, 2018For Securities:ABT

Summary

Abbott Laboratories reported solid performance for the first quarter of 2018, with net sales increasing by 16.7% to $7.39 billion, driven by the inclusion of Alere and organic growth across its core segments. The company demonstrated improved profitability, with operating earnings turning positive at $608 million compared to a loss in the prior year period. This turnaround was significantly influenced by the absence of substantial inventory step-up amortization related to the St. Jude Medical acquisition in the prior year and the divestiture of the Abbott Medical Optics (AMO) business. Key growth drivers included strong performance in Diagnostics, bolstered by the Alere acquisition, and continued robust growth in Cardiovascular and Neuromodulation, particularly in Electrophysiology and Neuromodulation segments. The Established Pharmaceutical Products and Nutritional Products segments also showed healthy organic growth. The company's financial position remains strong, with substantial operating cash flow and a focus on debt reduction and shareholder returns, including a dividend increase. Investors should note the significant impact of acquisitions and divestitures on reported figures, making a careful analysis of organic growth crucial.

Financial Highlights

52 data points
Beta

Revenue

$7.39B

50.6% Gross Margin

Net Income

$418.00M

5.7% Net Margin

EPS (Diluted)

$0.23

Total Assets

$70.91B

Cash & Equivalents

$3.86B

Free Cash Flow

$833.00M

Financial Statements
Beta
Revenue$7.39B
Cost of Revenue$3.07B
Gross Profit$3.74B
R&D Expenses$589.00M
SG&A Expenses$2.54B
Operating Expenses$6.78B
Operating Income$608.00M
Interest Expense$227.00M
Net Income$418.00M
EPS (Basic)$0.24
EPS (Diluted)$0.23
Shares Outstanding (Basic)1.75B
Shares Outstanding (Diluted)1.77B

Key Highlights

  • 1Net sales grew 16.7% to $7.39 billion, boosted by the Alere acquisition and organic growth in key segments.
  • 2Operating earnings improved significantly, turning positive to $608 million from a loss in Q1 2017, aided by the absence of acquisition-related amortization and improved gross margins.
  • 3The Diagnostics segment saw substantial growth (58.7%) driven by the full quarter impact of the Alere acquisition.
  • 4Cardiovascular and Neuromodulation Products segment sales increased by 10.5%, with notable double-digit growth in Electrophysiology and Neuromodulation.
  • 5Abbott demonstrated strong operational cash flow of $1.108 billion, an increase of $534 million year-over-year.
  • 6The company declared a dividend of $0.28 per share, an approximate 6% increase over the prior year's first quarter dividend.
  • 7Significant debt repayment activities occurred, including the payoff of a $2.8 billion term loan and the redemption of $947 million and $1.055 billion of notes.

Frequently Asked Questions

Abbott's revenue growth in Q1 2018 was primarily driven by the acquisition of Alere Inc. in the fourth quarter of 2017, which significantly boosted the Diagnostics segment. Additionally, organic growth across all major business segments, excluding foreign exchange impacts, contributed to the overall increase. Notable areas of organic growth included Electrophysiology and Neuromodulation within the Cardiovascular and Neuromodulation Products segment, and continued strength in Established Pharmaceutical Products and Nutritional Products.

Profitability saw a significant improvement. Abbott reported positive operating earnings of $608 million in Q1 2018, a substantial turnaround from an operating loss of $242 million in Q1 2017. This improvement was largely due to the absence of inventory step-up amortization related to the St. Jude Medical acquisition in the prior year, an increase in gross profit margin to 50.6% from 43.4%, and disciplined expense management. The divestiture of the AMO business also played a role in simplifying the prior year's comparison.

Key financial activities included substantial debt repayment, with the payoff of a $2.8 billion term loan and the redemption of over $2 billion in long-term notes. The company also increased its quarterly dividend by 6%. Strategically, the results reflect the integration of the Alere acquisition into the Diagnostics segment and the ongoing integration of St. Jude Medical. Restructuring charges were incurred as part of these integrations.

Abbott adopted several new accounting standards during the quarter, including ASU 2017-07 for compensation-retirement benefits, ASU 2016-18 for restricted cash, ASU 2016-16 for income taxes, and ASU 2016-01 for financial instruments. Most notably, they adopted ASU 2014-09 (Revenue from Contracts with Customers) on January 1, 2018, which had a minor positive impact on retained earnings. The company is also evaluating upcoming standards related to tax effects from AOCI, hedging activities, and leases, which will become effective in 2019.