Abbott Labs’ surprise guidance bump is a major positive for its shareholders
Abbott Laboratories delivered a top and bottom line beat Wednesday and surprised investors by raising its full-year guidance — a show of confidence by the medical device maker not seen in a first quarter since 2016. Revenue for the three months ended March 31 rose slightly more than 2% year over year to $9.96 billion, outpacing expectations of $9.88 billion, according to LSEG. On an organic basis, sales were up 10.8% versus the year-ago period (excluding Covid testing sales), also ahead of expectations of a 9.45% increase. Earnings per share fell slightly less than 5% to 98 cents, which outpaced the Street’s estimate of 95 cents. Abbott Laboratories Why we own it : Abbott is a high-quality medtech company growing at a fast clip. The stock has been dealing with two overhangs: falling Covid testing sales and concerns that GLP-1 adoption will disrupt its leading continuous glucose monitor. As Abbott’s organic sales growth continues to shine, the market will realize both concerns are overblown. Competitors : Dexcom and Edwards Lifesciences Weight in Club portfolio : 2.71% Most recent buy : April 4, 2024 Initiated : Jan. 29, 2024 Bottom line Shares of Abbott fell Wednesday following a solid report, likely attributable to marginal segment misses along with a slightly lower-than-expected guide for current quarter earnings. However, investors are focusing on the wrong thing, and should instead cheer the upward revision on full-year guidance. For a management team that prefers to leave its forecast unchanged in its first-quarter reporters, this was a major positive for investors. We also love that EPS results on Tuesday came in above the range management had forecasted — a classic case of under-promising and over-delivering. ABT YTD mountain Abbott Laboratories YTD Organic growth was very strong, up nearly 11%, marking the fifth consecutive quarter of double-digit increases. Moreover, both the adjusted gross margin and before-tax earnings margin outpaced expectations. Growth for FreeStyle Libre, the company’s popular glucose monitoring system, was impressive and expected to continue as European coverage expands. Despite all these positives, the stock is down about $1 this year, or nearly 1%. We opted to step in and take advantage of the weakness this morning by snapping 100 shares. The Charitable Trust now owns 800 shares of ABT, which is roughly 2.8% of the portfolio. We reiterate our 1 rating on ABT shares and $130 price target. Guidance For the full year, management now sees organic sales (ex-Covid testing) growing in the range of 8.5% to 10%, an increase from the previous range of 8% to 10% range and ahead of the Street’s 8.9% estimate. Management also increased the midpoint of its EPS forecast to between $4.55 and $4.70, up from the previous range of $4.50 to $4.70 and a penny ahead of the Street’s $4.59 at the midpoint. This implies a good amount of visibility into the rest of the year. On the post-earnings call with investors, CEO Robert Ford said growth in many of Abbott’s businesses is accelerating. That more than offsets the miss for the current quarter forecast: Abbott expects second-quarter earnings to fall to $1.08 to $1.12 per share, below the Street’s midpoint estimate of $1.12. Baby formula lawsuit Management reiterated its stance that allegations its baby formula may cause necrotizing enterocolitis (NEC) in infants are without merit. CEO Ford said experts in the medical community “consider these products to be critical, a critical part of the standard of care for feeding premature infants, he said, adding that “the doctors who work in the NICUs, they’ve used our products for decades and they continue to do so today.” In other words, the team stands behind its product. We aren’t making light of the situation. NEC is terrible and we acknowledge the overhang this news has created. However, the pressure on the stock is overdone. First-quarter results As we can see in the chart above, the medical devices segment drove the results in the first quarter, managing to more than offset some weakness in nutrition, diagnostics, and established pharmaceuticals — though the misses were tiny. Notably, all key sub-segments within medical devices (rhythm management, electrophysiology, heart failure, vascular, structural heart, neuromodulation, and diabetes care) also outpaced expectations. Within diabetes care, FreeStyle Libre sales reached $1.5 billion, representing an increase of 23% year over year — growth expected to continue as reimbursement coverage expands in the European market. For the nutrition business, a miss in the adult category more than wiped out the strength in pediatrics. The company, however, has high hopes for Protality, the company’s newest nutrition formula designed for adults taking GLP-1 medications. “As people eat less and lose weight from taking GLP-1 medications, undergoing a weight loss surgery, or following a calorie-restricted diet, a portion of what is lost is lean muscle mass, which plays an important role in overall health, said Ford, adding that Protality can help people preserve muscle while losing weight. In addition, management highlighted the recent FDA clearance for its i-STAT TBI (traumatic brain injury) cartridge, which can help determine if someone suffered a mild traumatic brain injury or concussion in just 15 minutes. It’s an attractive growth opportunity. Nearly 5 million people go to U.S. emergency rooms each year for TBIs and more than half of those suspecting they have a concussion get tested. On an organic basis, medical device sales rose 14.3% followed by established pharmaceuticals (up 13.7%), and nutrition (up 7.7%). In diagnostics, where we see the impact of the decline in Covid testing sales, organic sales increased 5.4% year over year. Within the established pharmaceuticals business, “key emerging markets” sales — which Abbott defines as emerging countries that represent the most attractive long-term growth opportunities — organic sales were up 15.4%. (Jim Cramer’s Charitable Trust is long ABT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Abbott Laboratories delivered a top and bottom line beat Wednesday and surprised investors by raising its full-year guidance — a show of confidence by the medical device maker not seen in a first quarter since 2016.
