Why did GAAP EPS decline while adjusted EPS increased?

GAAP diluted EPS fell to $0.74 from $0.78 because of $0.40 per share in specified items. These mainly consist of $471 million of intangible amortization, plus restructuring, cost reduction, acquisition and divestiture costs, and other net expenses. Adjusted EPS excludes these items and rose 5.6% to $1.14, so the gap largely reflects non-cash amortization and one-time charges.

How much of the sales decline in Diagnostics is due to COVID-19 testing?

Most of it. Diagnostics reported sales fell 5.3%, and organic growth was down 1.5%. COVID-19 testing sales dropped from $263 million to $102 million, which accounts for roughly 7.4 points of the organic decline. Excluding COVID-19 tests, Diagnostics organic sales grew 5.9%, led by Core Laboratory at 8.8%. Rapid Diagnostics was roughly flat excluding COVID tests.

What is driving the raised full-year guidance?

Management pointed to strong momentum in the underlying base business, particularly Medical Devices, along with new product launches such as Esprit BTK, AVEIR DR, Amulet, Navitor, and TriClip. The adjusted EPS range was set at $4.61 to $4.71, and organic growth excluding COVID testing was narrowed to 9.5% to 10.0%. Abbott did not provide a reconciliation to GAAP organic growth because it cannot reliably forecast foreign exchange effects or COVID testing demand.

Is the dividend safe, and how does it compare with earnings?

The $0.55 quarterly dividend was declared, payable August 15, 2024, to holders of record on July 15, 2024. Abbott has raised its dividend for 52 consecutive years and is an S&P 500 Dividend Aristocrat. Based on full-year adjusted EPS guidance of $4.61 to $4.71, the $2.20 annualized dividend implies a payout ratio of roughly 47% to 48%. On GAAP EPS guidance of $3.30 to $3.40, the payout is closer to 65% to 67%.

Did the second quarter show a meaningful change in tax rate or other income?

Yes. The GAAP effective tax rate was 19.0%, compared with 15.9% a year earlier, and the rate excluding specified items was 15.0%. Other income was a $10 million expense, compared with $176 million of income in the prior-year quarter, which reduced pre-tax earnings. Operating earnings rose 8.2% to $1.67 billion, but GAAP net earnings fell 5.3%.

ABT 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 18, 2024. Cited figures are marked; the original filing is the authoritative source.

Abbott Laboratories reported second-quarter 2024 results on July 18, 2024, with sales of $10.4 billion^a (up 4.0% reported, 7.4% organic, and 9.3% organic excluding COVID-19 testing).

Growth was led by Medical Devices, where sales rose 10.2% reported and 12.1% organic, with double-digit gains in Diabetes Care (FreeStyle Libre), Electrophysiology, and Structural Heart. Nutrition grew 7.5% organically, while Diagnostics declined on a reported basis (-5.3%) as COVID-19 testing sales fell to $102 million^b from $263 million a year earlier. Excluding COVID-19 tests, Diagnostics grew 5.9% organically, with Core Laboratory up 8.8%.

GAAP diluted EPS was $0.74^c, down 5.1% from $0.78, reflecting $0.40 per share of specified items, mainly intangible amortization ($471 million), restructuring, and acquisition and divestiture costs. Adjusted diluted EPS was $1.14, up 5.6% from $1.08. Net earnings fell 5.3% on a GAAP basis to $1.30 billion, while adjusted net earnings rose 5.8%.

Operating earnings grew 8.2%, helped by lower amortization and a favorable swing in other income. Management raised full-year 2024 guidance. GAAP diluted EPS is now projected at $3.30 to $3.40^d and adjusted diluted EPS at $4.61 to $4.71.

Organic sales growth excluding COVID-19 testing was narrowed to 9.5% to 10.0%, which raises the midpoint. Third-quarter adjusted EPS is guided to $1.18 to $1.22. The board also declared a $0.55 quarterly dividend, the 402nd consecutive quarterly payment and the 52nd consecutive year of dividend increases.

02—Key points

Key Highlights

Sales of $10.377 billion rose 4.0% reported and 7.4% organic. Excluding COVID-19 testing, organic growth was 9.3%.
Medical Devices sales grew 10.2% reported and 12.1% organic, led by Diabetes Care (+15.8% reported), Electrophysiology (+13.3%), and Structural Heart (+13.2%). FreeStyle Libre sales reached $1.6 billion.
GAAP diluted EPS was $0.74 (down 5.1%). Adjusted diluted EPS was $1.14 (up 5.6%), excluding $0.40 per share of specified items.
Full-year 2024 guidance was raised: GAAP EPS of $3.30 to $3.40 and adjusted EPS of $4.61 to $4.71. Organic growth excluding COVID-19 testing is now projected at 9.5% to 10.0%.
Diagnostics reported sales fell 5.3%, with COVID-19 testing sales down to $102 million from $263 million. Core Laboratory organic sales grew 8.8%.
Nutrition organic sales grew 7.5%, with Adult Nutrition (Ensure) up 9.9% organically and Pediatric Nutrition up 5.0%, supported by U.S. infant formula share gains.
Third-quarter 2024 adjusted EPS is guided to $1.18 to $1.22. The quarterly dividend of $0.55 per share was declared, marking the 402nd consecutive quarterly payment.

03—Questions

Frequently Asked Questions

Why did GAAP EPS decline while adjusted EPS increased?
GAAP diluted EPS fell to $0.74 from $0.78 because of $0.40 per share in specified items. These mainly consist of $471 million of intangible amortization, plus restructuring, cost reduction, acquisition and divestiture costs, and other net expenses. Adjusted EPS excludes these items and rose 5.6% to $1.14, so the gap largely reflects non-cash amortization and one-time charges.
How much of the sales decline in Diagnostics is due to COVID-19 testing?
Most of it. Diagnostics reported sales fell 5.3%, and organic growth was down 1.5%. COVID-19 testing sales dropped from $263 million to $102 million, which accounts for roughly 7.4 points of the organic decline. Excluding COVID-19 tests, Diagnostics organic sales grew 5.9%, led by Core Laboratory at 8.8%. Rapid Diagnostics was roughly flat excluding COVID tests.
What is driving the raised full-year guidance?
Management pointed to strong momentum in the underlying base business, particularly Medical Devices, along with new product launches such as Esprit BTK, AVEIR DR, Amulet, Navitor, and TriClip. The adjusted EPS range was set at $4.61 to $4.71, and organic growth excluding COVID testing was narrowed to 9.5% to 10.0%. Abbott did not provide a reconciliation to GAAP organic growth because it cannot reliably forecast foreign exchange effects or COVID testing demand.
Is the dividend safe, and how does it compare with earnings?
The $0.55 quarterly dividend was declared, payable August 15, 2024, to holders of record on July 15, 2024. Abbott has raised its dividend for 52 consecutive years and is an S&P 500 Dividend Aristocrat. Based on full-year adjusted EPS guidance of $4.61 to $4.71, the $2.20 annualized dividend implies a payout ratio of roughly 47% to 48%. On GAAP EPS guidance of $3.30 to $3.40, the payout is closer to 65% to 67%.
Did the second quarter show a meaningful change in tax rate or other income?
Yes. The GAAP effective tax rate was 19.0%, compared with 15.9% a year earlier, and the rate excluding specified items was 15.0%. Other income was a $10 million expense, compared with $176 million of income in the prior-year quarter, which reduced pre-tax earnings. Operating earnings rose 8.2% to $1.67 billion, but GAAP net earnings fell 5.3%.

04—Continue

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