ABBOTT LABORATORIES Financial Review - Results of Operations
Abbott 's revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion ofAbbott 's products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs.Abbott 's primary products are medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals. The following tables detail sales by reportable segment for the three and six months endedJune 30 . Percent changes are versus the prior year and are based on unrounded numbers.
Three Months Three Months Impact of Total Change
Ended Ended Total Foreign Excl. Foreign
(in millions) June 30, 2022 June 30, 2021 Change Exchange Exchange
Established Pharmaceutical Products $ 1,223 $ 1,180 3.7 % (5.5) % 9.2 %
Nutritional Products 1,953 2,108 (7.4) (2.9) (4.5)
Diagnostic Products 4,322 3,247 33.1 (3.8) 36.9
Medical Devices 3,757 3,666 2.5 (5.0) 7.5
Total Reportable Segments 11,255 10,201 10.3 (4.3) 14.6
Other 2 22 n/m n/m n/m
Net Sales $ 11,257 $ 10,223 10.1 (4.2) 14.3
Total U.S. $ 4,892 $ 3,581 36.6 - 36.6
Total International $ 6,365 $ 6,642 (4.2) (6.5) 2.3
Net Sales to External Customers
Six Months
Ended Impact of Total Change
Six Months Ended June 30, Total Foreign Excl. Foreign
(in millions) June 30, 2022 2021 Change Exchange Exchange
Established Pharmaceutical Products $ 2,370 $ 2,250 5.3 % (5.9) % 11.2 %
Nutritional Products 3,847 4,144 (7.2) (2.8) (4.4)
Diagnostic Products 9,608 7,261 32.3 (3.6) 35.9
Medical Devices 7,322 6,986 4.8 (4.6) 9.4
Total Reportable Segments 23,147 20,641 12.1 (4.0) 16.1
Other 5 38 n/m n/m n/m
Net Sales $ 23,152 $ 20,679 12.0 (3.9) 15.9
Total U.S. $ 9,829 $ 7,419 32.5 - 32.5
Total International $ 13,323 $ 13,260 0.5 (6.2) 6.7
Notes:
In order to compute results excluding the impact of exchange rates, current year
U.S. dollar sales are multiplied or divided, as appropriate, by the current year
average foreign exchange rates and then those amounts are multiplied or divided,
as appropriate, by the prior year average foreign exchange rates.
n/m = Percent change is not meaningful
22
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The 14.3 percent increase in total net sales during the second quarter of 2022,
excluding the impact of foreign exchange, reflected demand for Abbott 's rapid
diagnostic tests to detect COVID-19 as well as growth in the Medical Devices and
Established Pharmaceutical Products segments partially offset by lower
Nutritional Products sales. Abbott 's COVID-19 testing-related sales totaled
approximately $2.3 billion during the second quarter of 2022 and approximately
$1.3 billion during the second quarter of 2021. Excluding the impact of COVID-19
testing-related sales, Abbott 's total net sales decreased 0.3 percent. Excluding
the impacts of COVID-19 testing-related sales and foreign exchange, Abbott 's
total net sales increased 4.1 percent. Abbott 's net sales were unfavorably
impacted by changes in foreign exchange rates in the second quarter as the
relatively stronger U.S. dollar decreased total international sales by 6.5
percent and total sales by 4.2 percent.
The 15.9 percent increase in total net sales during the first six months of
2022, excluding the impact of foreign exchange, reflected demand for Abbott 's
rapid diagnostic tests to detect COVID-19 as well as growth in the Medical
Devices and Established Pharmaceutical Products segments partially offset by
lower Nutritional Products sales. Abbott 's COVID-19 testing-related sales
totaled approximately $5.6 billion during the first six months of 2022 and
approximately $3.5 billion during the first six months of 2021. Excluding the
impact of COVID-19 testing-related sales, Abbott 's total net sales increased 1.7
percent. Excluding the impacts of COVID-19 testing-related sales and foreign
exchange, Abbott 's total net sales increased 5.9 percent. Abbott 's net sales
were unfavorably impacted by changes in foreign exchange rates in the first six
months as the relatively stronger U.S. dollar decreased total international
sales by 6.2 percent and total sales by 3.9 percent.
Due to the unpredictability of the duration and impact of the current COVID-19
pandemic, the future extent to which the COVID-19 pandemic will have a material
effect on Abbott 's business, financial condition or results of operations is
uncertain.
The table below provides detail by sales category for the six months ended June
30 . Percent changes are versus the prior year and are based on unrounded
numbers.
Impact of Total Change
June 30, June 30, Total Foreign Excl. Foreign
(in millions) 2022 2021 Change Exchange Exchange
Established Pharmaceutical Products -
Key Emerging Markets $ 1,833 $ 1,736 5.6 % (6.2) % 11.8 %
Other Emerging Markets 537 514 4.5 (4.7) 9.2
Nutritionals -
International Pediatric Nutritionals 1,021 1,123 (9.1) (3.5) (5.6)
U.S. Pediatric Nutritionals 751 1,036 (27.5) - (27.5)
International Adult Nutritionals 1,388 1,312 5.8 (5.7) 11.5
U.S. Adult Nutritionals 687 673 2.1 - 2.1
Diagnostics -
Core Laboratory 2,405 2,488 (3.4) (4.7) 1.3
Molecular 632 737 (14.2) (2.9) (11.3)
Point of Care 267 266 0.4 (1.0) 1.4
Rapid Diagnostics 6,304 3,770 67.2 (3.2) 70.4
Medical Devices -
Rhythm Management 1,072 1,086 (1.3) (3.8) 2.5
Electrophysiology 971 918 5.8 (4.7) 10.5
Heart Failure 462 421 9.7 (2.2) 11.9
Vascular 1,272 1,332 (4.5) (4.1) (0.4)
Structural Heart 851 799 6.5 (5.2) 11.7
Neuromodulation 376 394 (4.6) (1.7) (2.9)
Diabetes Care 2,318 2,036 13.8 (6.0) 19.8
23-------------------------------------------------------------------------------- Table of Contents Excluding the unfavorable effect of foreign exchange, sales in the Key Emerging Markets forEstablished Pharmaceutical Products increased 11.8 percent in the first six months of 2022, led by double-digit growth in several countries and therapeutic areas, including gastroenterology, central nervous system/pain management, and respiratory products. Other Emerging Markets, excluding the effect of foreign exchange, increased by 9.2 percent in the first six months of 2022. International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 5.6 percent in the first six months of 2022 versus the comparable 2021 period and the decrease reflects lower sales due to challenging market dynamics in the infant category inGreater China partially offset by higher volumes sold in various countries inSoutheast Asia ,Latin America and theMiddle East . International Adult Nutritional sales, excluding the effect of foreign exchange, increased 11.5 percent, reflecting double digit growth of the Ensure® and Glucerna® brands in several countries inSoutheast Asia andChina . In the first six months of 2022,U.S. Adult Nutritional sales increased 2.1 percent. InU.S. Pediatric Nutritionals,Abbott initiated a voluntary recall inFebruary 2022 of certain infant powder formula products manufactured at its facility inSturgis, Michigan and stopped production at the facility. The 27.5 percent decrease inU.S. Pediatric Nutritional sales in the first six months of 2022 reflects the impact of the recall and production stoppage partially offset by increased demand forAbbott 's Pedialyte® products.U.S. sales of certain infant powder formulas associated with the recall were$175 million in the first six months of 2022 and$568 million in the first six months of 2021. OnMay 16, 2022 ,Abbott entered into a consent decree with theU.S. Food and Drug Administration (FDA) on the steps necessary to resume production and maintain theSturgis facility and operations. OnJuly 1 ,Abbott restarted partial production at the facility starting with its specialty formula EleCare® and metabolic formulas. Subsequently,Abbott restarted Similac® production. The consent decree does not affect any otherAbbott plant or operation.Abbott has taken various actions to mitigate the impact of the recall on the supply of formula in theU.S. These actions have included the shipment of infant formula powder into theU.S. fromAbbott 's FDA-registered facility inIreland , prioritization of infant formula production at itsColumbus, Ohio facility, conversion of other liquid manufacturing lines into manufacturing Similac liquid ready-to-feed product, and increased production of powder infant formula at itsCasa Grande, Arizona manufacturing site. The 35.9 percent increase in Diagnostic Products sales in the first six months of 2022, excluding the impact of foreign exchange, was driven by demand forAbbott 's portfolio of COVID-19 tests inRapid Diagnostics and growth in routine diagnostic testing inMolecular Diagnostics . InCore Laboratory Diagnostics , sales increased 1.3 percent in the first six months of 2022, excluding the effect of foreign exchange, due to the higher volume of routine diagnostic testing from the continued roll-out of the Alinity® platform and an expanded menu of tests. These increases were partially offset by lower sales ofAbbott 's laboratory-based tests for the detection of COVID-19 IgG and IgM antibodies, which determine if someone was previously infected with the COVID-19 virus, as well as market disruptions inChina due to COVID-19 quarantine restrictions in various cities during the second quarter of 2022. In the first six months of 2022 and 2021, Core Laboratory Diagnostics IgG and IgM antibody testing-related sales onAbbott 's ARCHITECT and Alinity i platforms were$40 million and$112 million , respectively. In the first six months of 2022,Core Laboratory Diagnostics sales decreased 0.5 percent, excluding COVID-19 testing-related sales, and increased 4.3 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. The 11.3 percent decrease inMolecular Diagnostics sales in the first six months of 2022, excluding the effect of foreign exchange, was driven by lower demand forAbbott 's laboratory-based molecular tests for COVID-19 partially offset by growth in the base business from increased routine molecular testing and an expanded menu of tests. In the first six months of 2022 and 2021, Molecular Diagnostics COVID-19 testing-related sales were$321 million and$480 million , respectively. In the first six months of 2022,Molecular Diagnostics sales increased 21.7 percent, excluding COVID-19 testing-related sales, and increased 26.0 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. InRapid Diagnostics , sales increased 70.4 percent in the first six months of 2022, excluding the effect of foreign exchange, due to the demand forAbbott 's COVID-19 tests on its rapid testing platforms, including the Panbio® system, the ID NOW® platform, and the BinaxNOW® COVID-19Ag Card test. In the first six months of 2022 and 2021, Rapid Diagnostics COVID-19 testing-related sales were$5.3 billion and$2.8 billion , respectively. In the first six months of 2022,Rapid Diagnostics sales increased 14.0 percent, excluding COVID-19 testing-related sales, and increased 16.1 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. These increases reflect higher sales of ID NOW tests for flu, strep, and respiratory syncytial virus (RSV) as well as growth in various otherRapid Diagnostics products. 24 -------------------------------------------------------------------------------- Table of Contents Excluding the effect of foreign exchange, total Medical Devices sales grew 9.4 percent in the first six months of 2022, driven by double-digit growth in Diabetes Care, Electrophysiology, Structural Heart and Heart Failure. Growth in Diabetes Care sales was driven by continued growth of FreeStyle Libre®,Abbott 's continuous glucose monitoring system, in theU.S. and internationally. FreeStyle Libre sales totaled$2.1 billion in the first six months of 2022, which reflected a 25.9 percent increase, excluding the effect of foreign exchange, over the first six months of 2021 when FreeStyle Libre sales totaled$1.7 billion . InMay 2022 ,Abbott announced FDA clearance of its Freestyle Libre 3 system, which automatically delivers up-to-the-minute glucose readings and 14-day accuracy in the world's smallest and thinnest wearable sensor. During the first six months of 2022, procedure volumes acrossAbbott 's cardiovascular and neuromodulation businesses were negatively impacted by elevated COVID-19 case rates early in 2022 as well as new surges of COVID-19 in several geographies, healthcare staffing challenges, and quarantine restrictions inChina during the second quarter. Despite such challenges, overall volume trends improved in several businesses versus the first six months of 2021. In Electrophysiology, the 10.5 percent growth, excluding the effect of foreign exchange, reflects the increase in procedure volumes and theU.S. rollout ofAbbott 's EnSite™ X EP System with Ensite Omnipolar Technology (OT), a new cardiac mapping platform available in theU.S. ,Japan and acrossEurope . InJanuary 2022 ,Abbott announced FDA clearance for the EnSite X EP System with EnSite OT. The system leverages the Advisor™ HD Grid Catheter to provide a 360degree view of the heart without regard to the orientation of the catheter in the heart. Growth in Structural Heart during the first six months of 2022, excluding the effect of foreign exchange, was 11.7 percent, driven by growth across several areas of the business, including Amplatzer® Amulet® Left Atrial Appendage Occluder, which offers immediate closure of the left atrial appendage, an area in the heart where blood clots can form and MitraClip®,Abbott 's market-leading device for the minimally invasive treatment of mitral regurgitation, a leaky heart valve. In Vascular, the 0.4 percent decrease in sales, excluding the impact of foreign exchange, during the first six months of 2022 reflects the negative effect of lower average pricing for drug-eluting stents (DES) in theU.S. and a lag in the recovery of percutaneous coronary intervention case rates compared to many other cardiovascular procedures partially offset by higher endovascular sales. In the first six months of 2022, Medical Devices received various other product approvals. InFebruary 2022 ,Abbott received FDA approval for an expanded indication for its CardioMEMS™ HF system, a small implantable sensor and remote monitoring system that can detect early warning signs of worsening heart failure. InApril 2022 ,Abbott announced FDA approval for its Aveir™ single-chamber leadless pacemaker for the treatment of patients in theU.S. with slow heart rhythms. The gross profit margin percentage was 51.7 percent for the second quarter of 2022 compared to 46.7 percent for the second quarter of 2021 and 52.8 percent for the first six months of 2022 compared to 49.9 percent for the first six months of 2021. The increases in the quarter and the first six months of 2022 reflect the nonrecurrence of$499 million of 2021 restructuring charges. The increases in the quarter and the first six months of 2022 also reflect higher sales volume of COVID-19 rapid tests and various other products, the impact of gross margin improvement initiatives, and the favorable impact of foreign exchange on costs. These increases were partially offset by the impact of the voluntary product recall in the Nutritional business, higher manufacturing and supply chain costs, including inflation, commodities and distribution expenses, and lower COVID-19 testing-related sales inCore Laboratory andMolecular Diagnostics . Research and development (R&D) expenses increased$30 million , or 4.8 percent, in the second quarter of 2022 and increased$73 million , or 5.6 percent, in the first six months of 2022 compared to the prior year. The increases in R&D expenses in the second quarter and the first six months of 2022 were primarily driven by higher spending on various projects to advance products in development partially offset by the favorable impact of foreign exchange. Selling, general and administrative expenses increased$31 million , or 1.1 percent, in the second quarter of 2022, and increased$35 million , or 0.6 percent, in the first six months of 2022, due primarily to higher selling and marketing spending to drive growth across various businesses partially offset by the nonrecurrence of certain 2021 litigation costs and the favorable impact of foreign exchange. Other (Income) Expense, net Other income, net increased from$79 million of income in the second quarter of 2021 to$82 million of income in the second quarter of 2022 and from$140 million of income in the first six months of 2021 to$160 million of income in the first six months of 2022. The increases in the second quarter and the first six months of 2022 were primarily due to higher income in 2022 related to the non-service cost components of net pension and post-retirement medical benefit costs 25 -------------------------------------------------------------------------------- Table of Contents partially offset by the nonrecurrence of a gain on the sale of an equity method investment that occurred in the second quarter of 2021.
Interest Expense, net
Interest expense, net declined$17 million in the second quarter of 2022 and$24 million in the first six months of 2022 versus 2021 due to the impact of higher interest rates and cash and short-term investment balances on interest income and the repayment of debt in the first quarter of 2022.
Taxes on Earnings
Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. In the first six months of 2022 and 2021, taxes on earnings include approximately$32 million and$90 million , respectively, in excess tax benefits associated with share-based compensation. In the first six months of 2022, taxes on earnings also include approximately$27 million of tax expense as the result of the resolution of various tax positions related to prior years. Tax authorities in various jurisdictions regularly reviewAbbott 's income tax filings.Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately$90 million to$115 million , including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.
Liquidity and Capital Resources
The decrease in cash and cash equivalents from$9.8 billion atDecember 31, 2021 to$8.9 billion atJune 30, 2022 primarily reflects share repurchases, the payment of dividends, the repayment of debt and capital expenditures partially offset by the cash generated from operations in the first six months of 2022. Working capital was$12.6 billion atJune 30, 2022 and$11.1 billion atDecember 31, 2021 . The increase in working capital in 2022 primarily reflects increases in accounts receivable and inventory and a decrease in the current portion of long-term debt partially offset by a decrease in cash and cash equivalents. In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first six months of 2022 totaled approximately$4.5 billion , a decrease of$290 million from the prior year primarily due to an increased investment in working capital and the timing of pension and postretirement benefit plan contributions partially offset by higher operating earnings and a reduction in cash taxes paid. Net cash from operating activities includes$348 million of pension contributions and the payment of cash taxes of approximately$657 million in 2022. Net cash from operating activities includes$80 million of pension contributions and the payment of cash taxes of approximately$715 million in 2021.
On
InSeptember 2019 , the board of directors authorized the early redemption of up to$5 billion of outstanding long-term notes. As ofJune 30, 2022 ,$2.15 billion of the$5 billion authorization remains available. AtJune 30, 2022 ,Abbott 's long-term debt rating was AA- byStandard & Poor's Corporation and A1 by Moody's Investors Service.Abbott expects to maintain an investment grade rating.Abbott has readily available financial resources, including lines of credit of$5.0 billion which expire in 2025. InDecember 2021 , the board of directors authorized the repurchase of up to$5 billion ofAbbott 's common shares from time to time. The new authorization was in addition to the$1.081 billion portion of the share repurchase program authorized in 2019 that was unused as ofDecember 31, 2021 . In the first quarter of 2022,Abbott repurchased 17.3 million of its common shares for$2.1 billion which fully utilized the authorization remaining under the 2019 share repurchase program and a portion of the 2021 authorization. As ofJune 30, 2022 ,$3.981 billion remains available for repurchase under the 2021 repurchase program. In each of the first two quarters of 2022,Abbott declared a quarterly dividend of$0.47 per share on its common shares, which represents an increase of 4.4 percent over the$0.45 per share dividend declared in each of the first two quarters of 2021. 26 -------------------------------------------------------------------------------- Table of Contents Legislative IssuesAbbott 's primary markets are highly competitive and subject to substantial government regulations throughout the world.Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services. It is not possible to predict the extent to whichAbbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors, in the 2021 Annual Report on Form 10-K.
Private Securities Litigation Reform Act of 1995 - A Caution Concerning Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,Abbott cautions that any forward-looking statements made byAbbott are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affectAbbott 's operations are discussed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and are incorporated herein by reference.Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. 27
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