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ABBOTT LABORATORIES

(ABT)
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ABBOTT LABORATORIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/05/2021 | 04:04pm EDT

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 of Abbott'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 table details sales by reportable segment for the three months
ended March 31.  Percent changes are versus the prior year and are based on
unrounded numbers.




                                                           Net Sales to External Customers
                                        Three Months     Three Months
                                           Ended             Ended                   Impact of    Total Change
                                         March 31,         March 31,       Total      Foreign     Excl. Foreign
(in millions)                               2021             2020         Change     Exchange       Exchange

Established Pharmaceutical Products $ 1,070 $ 1,044

  2.5 %      (3.7) %            6.2 %
Nutritional Products                            2,036            1,904        6.9          0.5              6.4
Diagnostic Products                             4,014            1,826      119.8          5.0            114.8
Medical Devices                                 3,320            2,937       13.1          4.3              8.8
Total Reportable Segments                      10,440            7,711       35.3          2.4             32.9
Other                                              16               15        7.8          3.6              4.2
Net sales                              $       10,456    $       7,726       35.3          2.4             32.9

Total U.S.                             $        3,838    $       2,856       34.4            -             34.4

Total International                    $        6,618    $       4,870       35.9          3.9             32.0



Note: In order to compute results excluding the impact of  foreign 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.



The 32.9 percent increase in total net sales during the first three months of
2021, excluding the impact of foreign exchange, reflected strong demand for
Abbott's tests to detect COVID-19 as well as other growth across Abbott's
reportable segments.  During the first quarter of 2021, Abbott's COVID-19
testing-related sales totaled approximately $2.2 billion led by combined sales
of approximately $1.8 billion related to Abbott's BinaxNOW, Panbio, and ID NOW
rapid-testing platforms.  Excluding the impact of COVID-19 testing-related
sales, Abbott's total net sales increased 7.6 percent.  Excluding the impacts of
COVID-19 testing-related sales and foreign exchange, Abbott's total net sales
increased 5.7 percent.  Abbott's net sales were favorably impacted by changes in
foreign exchange rates in the first quarter as the relatively weaker U.S. dollar
increased total international sales by 3.9 percent and total sales by
2.4 percent.



Due to the unpredictability of the duration and impact of the current COVID-19
pandemic, the extent to which the COVID-19 pandemic will have a material effect
on Abbott's business, financial condition or results of operations is uncertain.



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  Table of Contents

The table below provides detail by sales category for the three months ended
March 31. Percent changes are versus the prior year and are based on unrounded
numbers.




                                                                                  Impact of    Total Change
                                           March 31,      March 31,     Total      Foreign     Excl. Foreign
(in millions)                                2021           2020        Change    Exchange       Exchange
Established Pharmaceutical Products -
Key Emerging Markets                      $       821    $       813       1.0 %      (5.7) %            6.7 %
Other Emerging Markets                            249            231       7.8          3.6              4.2

Nutritionals -
International Pediatric Nutritionals              558            571     (2.3)          0.8            (3.1)
U.S. Pediatric Nutritionals                       508            518     (1.8)            -            (1.8)
International Adult Nutritionals                  642            521      23.1          1.0             22.1
U.S. Adult Nutritionals                           328            294      11.4            -             11.4

Diagnostics -
Core Laboratory                                 1,182            989      19.6          3.5             16.1
Molecular                                         447            139     220.9          8.9            212.0
Point of Care                                     129            138     (6.6)          1.0            (7.6)
Rapid Diagnostics                               2,256            560     302.8          7.8            295.0

Medical Devices -
Rhythm Management                                 519            474       9.6          3.8              5.8
Electrophysiology                                 431            388      11.0          3.9              7.1
Heart Failure                                     194            203     (4.6)          1.6            (6.2)
Vascular                                          635            625       1.7          3.7            (2.0)
Structural Heart                                  377            318      18.6          4.4             14.2
Neuromodulation                                   184            177       4.4          1.6              2.8
Diabetes Care                                     980            752      30.2          6.6             23.6




Key Emerging Markets for the Established Pharmaceutical Products business
include India, Russia, Brazil and China, along with several other markets that
represent the most attractive long-term growth opportunities for Abbott's
branded generics product portfolio.  Excluding the unfavorable effect of foreign
exchange, sales in the Key Emerging Markets increased 6.7 percent compared to
the first three months of 2020 led by growth across several geographies
including China, India and Brazil.  Other Emerging Markets, excluding the effect
of foreign exchange, increased by 4.2 percent in the first three months of 2021.



International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 3.1 percent in the first three months of 2021 versus the comparable 2020 period. U.S. Pediatric Nutritional sales decreased 1.8 percent.

The decrease in Abbott's Pediatric Nutritional sales was primarily due to higher consumer purchases in 2020 in several countries, including the U.S., in advance of shelter-in-place restrictions related to the COVID-19 pandemic, partially offset by higher sales in the Greater China infant category in 2021.

 International Adult Nutritional sales, excluding the effect of foreign
exchange, increased 22.1 percent, and U.S. Adult Nutritional sales increased
11.4 percent, reflecting continued growth of the Ensure® and Glucerna® brands in
several countries including the U.S.



The 114.8 percent increase in Diagnostic Products sales, excluding the impact of
foreign exchange, was driven by strong demand for Abbott's portfolio of COVID-19
tests as described above as well as improvements in the base Core Laboratory and
Molecular businesses.  In Core Laboratory, sales increased 16.1 percent,
excluding the effect of foreign exchange, due to the increased volume of routine
diagnostic testing performed in hospitals and other laboratories as well as
sales of Abbott's laboratory-based tests for the detection of the IgG and IgM
antibodies, which determine if someone was previously infected with the COVID-19
virus.  Core Laboratory IgG and IgM antibody testing-related sales on Abbott's
ARCHITECT and Alinity i platforms were approximately $50 million in the first
three months of 2021.  In March 2021, Abbott received an Emergency Use
Authorization (EUA) in the U.S. for its AdviseDX SARS-CoV-2 IgG II test for the
semi-quantitative detection of IgG antibodies to COVID-19 on its ARCHITECT and
Alinity i platforms.  In the first three months of 2021, Core Laboratory sales
increased 14.1 percent, excluding COVID-19 testing-related sales, and increased
10.7 percent excluding the impact of foreign exchange and COVID-19
testing-related sales.



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The 212.0 percent increase in Molecular Diagnostics sales, excluding the effect
of foreign exchange, was driven by demand for Abbott's laboratory-based
molecular tests for COVID-19 on its m2000 and Alinity m platforms as well as
growth in the base business from the continued roll-out of the Alinity m
platform.  Molecular Diagnostics COVID-19 testing-related sales were
approximately $310 million in the first three months of 2021.  In March 2021,
Abbott received an EUA in the U.S. for its multiplex molecular test on its
Alinity m system to detect COVID-19, influenza A, influenza B, and respiratory
syncytial virus (RSV) in one test.  In the first three months of 2021, Molecular
Diagnostics sales increased 33.9 percent, excluding COVID-19 testing-related
sales, and increased 31.5 percent excluding the impact of foreign exchange and
COVID-19 testing-related sales.



In Rapid Diagnostics, sales increased 295.0 percent, excluding the effect of
foreign exchange, due to strong demand for Abbott's COVID-19 tests on its rapid
testing platforms including the Panbio system, the ID NOW platform, and the
BinaxNOW COVID-19 Ag Card test.  Rapid Diagnostics COVID-19 testing-related
sales were approximately $1.8 billion in the first three months of 2021.  In
January 2021, Abbott received CE Mark for two new uses of its Panbio rapid
antigen test: asymptomatic testing and self-swabbing under the supervision of a
healthcare worker.  On March 31, 2021, Abbott announced that it had received an
EUA in the U.S. for its over-the-counter, non-prescription BinaxNOW COVID-19 Ag
Self Test for individuals with or without symptoms.  In the first quarter of
2021, Abbott also received EUAs that allow the non-prescription use of the
BinaxNOW COVID-19 Ag Card Home Test and the BinaxNOW COVID-19 Ag Card test for
professional use for individuals with or without symptoms.



Excluding the effect of foreign exchange, total Medical Devices sales grew 8.8
percent driven by double-digit growth in Diabetes Care and Structural Heart as
well as growth in Electrophysiology and Rhythm Management.  Growth in Diabetes
Care sales was driven by continued growth of FreeStyle Libre®, Abbott's
continuous glucose monitoring system, internationally and in the U.S.  FreeStyle
Libre and Libre Sense™ sales totaled $829 million in the first quarter of 2021,
which reflected a 29.8 percent increase, excluding the effect of foreign
exchange, over the first three months of 2020 when Libre sales totaled $604
million.  Libre Sense, which received CE Mark in the third quarter of 2020, is
Abbott's glucose sport biosensor specifically designed for athletes.



While procedure volumes across Abbott's cardiovascular and neuromodulation
businesses were negatively impacted early in 2021 by elevated COVID-19 case
rates in certain countries, including the U.S., volumes improved over the course
of the quarter for many products.  Growth in Structural Heart was broad-based
across several areas of the business, including TriClip®, the world's first
minimally invasive, clip-based device for repair of a leaky tricuspid heart
valve which was launched in Europe in May 2020, and MitraClip®, Abbott's
market-leading device for the minimally invasive treatment of mitral
regurgitation (MR), a leaky heart valve.  In January 2021, the U.S. Centers for
Medicare & Medicaid Services expanded reimbursement coverage eligibility for
MitraClip.


Excluding the effect of foreign exchange, the 6.2 percent decline in Heart
Failure sales reflects fewer left ventricular assist device (LVAD) procedures as
such procedures, which require a stay in the hospital's intensive care unit,
continued to be negatively impacted by the COVID-19 pandemic during the first
quarter of 2021.  The sales decline also reflects the initial spread of the
pandemic driving higher demand in the first quarter of 2020 for Abbott's
CentriMag™ circulatory support systems which are used in acute hospital care.
 Excluding the effect of foreign exchange, the 2.0 percent decline in Vascular
sales reflects price reductions on drug-eluting stents across various
geographies and lower sales in China due to a new national tender program
instituted in the fourth quarter of 2020, partially offset by the improvement in
procedure volume trends in various countries.



The gross profit margin percentage was 53.0 percent for the first quarter of
2021 compared to 50.3 percent for the first quarter of 2020.  The increase
primarily reflects higher sales volume in various businesses, higher utilization
at various manufacturing sites, and a decrease in intangible amortization
expense in 2021.



Research and development expenses increased $76 million, or 13.3 percent, in the
first quarter of 2021.  The 2021 increase in R&D expense was primarily driven by
higher spending on various projects to advance products in development.  For the
three months ended March 31, 2021, research and development expenditures totaled
$317 million for the Medical Devices segment, $168 million for the Diagnostic
Products segment, $45 million for the Nutritional Products segment and $50
million for the Established Pharmaceutical Products segment.



Selling, general and administrative (SG&A) expenses for the first quarter of
2021 increased $235 million, or 9.2 percent, due primarily to charges related to
certain litigation and higher selling and marketing spending to drive growth
across various businesses.



                                       20

  Table of Contents

Other (Income) Expense, net

Other income, net increased from $1 million in the first quarter of 2020 to $61
million in the first quarter of 2021. The increase was primarily due to an
impairment of an equity investment of approximately $50 million in 2020 as well
as higher income in the first quarter of 2021 related to the non-service cost
components of net pension and post-retirement medical benefit costs.



Interest Expense, net


Interest expense, net increased $3 million in the first quarter of 2021 as lower
interest rates resulted in a decline in interest income that exceeded the
reduction in interest expense.  The net impact of lower interest rates was
partially offset by the effect of higher cash and short-term investment balances
on interest income.



Taxes on Earnings



Taxes on earnings from continuing operations reflect the estimated annual
effective rates and include charges for interest and penalties.  In the first
three months of 2021 and 2020, taxes on earnings from continuing operations
include approximately $80 million and $47 million, respectively, in excess tax
benefits associated with share-based compensation.  Earnings from discontinued
operations, net of tax, in the first three months of 2020 reflect the
recognition of $20 million of net tax benefits primarily as a result of the
resolution of various tax positions related to prior years.



Tax authorities in various jurisdictions regularly review Abbott's income tax
filings.  Abbott believes that it is reasonably possible that the recorded
amount of gross unrecognized tax benefits may decrease approximately $50
million, including cash adjustments, within the next twelve months as a result
of concluding various domestic and international tax matters.



Liquidity and Capital Resources March 31, 2021 Compared with December 31, 2020

The increase in cash and cash equivalents from $6.8 billion at December 31, 2020
to $8.1 billion at March 31, 2021 primarily reflects the cash generated from
operations in the first three months of 2021, partially offset by the payment of
dividends and capital expenditures.  Working capital was $9.4 billion at March
31, 2021 and $8.5 billion at December 31, 2020.  The increase in working capital
in 2021 primarily reflects the increase in cash and cash equivalents partially
offset by an increase in the current portion of long-term debt.



In the Condensed Consolidated Statement of Cash Flows, Net cash from operating
activities for the first three months of 2021 totaled $2.6 billion, an increase
of $1.9 billion over the prior year primarily due to higher operating earnings,
higher collections of accounts receivable and the timing of pension
contributions partially offset by higher cash taxes paid.  Other, net in Net
cash from operating activities was a use of $6 million for the first three
months of 2021 and a use of $369 million for the first three months of 2020. The
year-over-year change in Other, net in Net cash from operating activities is
primarily due to the timing of pension contributions as pension contributions
were $16 million in 2021 and $320 million in 2020. Cash taxes paid were
approximately $270 million in 2021 and $125 million in 2020.



In September 2019, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes. As of March 31, 2021, $2.15 billion of the $5 billion authorization remains available.




At March 31, 2021, Abbott's long-term debt rating was A by Standard & Poor's
Corporation and A3 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.



In October 2019, the board of directors authorized the repurchase of up to $3
billion of Abbott's common shares from time to time.  The 2019 authorization is
in addition to the approximately $100 million unused portion of the share
repurchase program authorized in 2014.



On April 27, 2016, the board of directors authorized the issuance and sale for
general corporate purposes of up to 75 million common shares that would result
in proceeds of up to $3 billion.  No shares have been issued under this
authorization.



In the first quarter of 2021, Abbott declared a quarterly dividend of $0.45 per
share on its common shares, which represents an increase of 25 percent over the
$0.36 per share dividend declared in the first quarter of 2020.

                                       21

  Table of Contents


Recently Adopted Accounting Standards




In December 2019, the Financial Accounting Standards Board issued Accounting
Standards Update ASU 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, which among other things, eliminates certain
exceptions in the current rules regarding the approach for intraperiod tax
allocations and the methodology for calculating income taxes in an interim
period, and clarifies the accounting for transactions that result in a step-up
in the tax basis of goodwill.  Abbott adopted the standard on January 1, 2021.

The new standard did not have an impact on its condensed consolidated financial statements.




Legislative Issues



Abbott'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 which Abbott 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 2020 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 by Abbott 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 affect
Abbott's operations are discussed in Item 1A, "Risk Factors" in our Annual
Report on Form 10-K for the year ended December 31, 2020, 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.





                                       22

  Table of Contents

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Financials (USD)
Sales 2021 39 425 M - -
Net income 2021 5 861 M - -
Net Debt 2021 9 307 M - -
P/E ratio 2021 34,0x
Yield 2021 1,53%
Capitalization 198 B 198 B -
EV / Sales 2021 5,26x
EV / Sales 2022 5,18x
Nbr of Employees 109 000
Free-Float 89,0%
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Technical analysis trends ABBOTT LABORATORIES
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Mean consensus OUTPERFORM
Number of Analysts 26
Last Close Price 111,44 $
Average target price 124,86 $
Spread / Average Target 12,0%
EPS Revisions
Managers and Directors
NameTitle
Robert B. Ford President, CEO, Chief Operating Officer & Director
Robert Emmett Funck Chief Financial Officer & Executive Vice President
Miles D. White Executive Chairman
Sabina Ewing Chief Investment Officer, VP-Business & Technology
Roxanne Schuh Austin Independent Director
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