Abbott Laboratories — 2023 Q2
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, and thank you for standing by. Welcome to Abbott's Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott.
Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we'll take your questions.
Thanks, Mike. Good morning, everyone, and thank you for joining us. Today, we reported second quarter adjusted earnings per share of $1.08, which reflects an acceleration in the contribution from the underlying base business. Organic sales, excluding COVID testing, increased low double digits for the second quarter in a row and was led by mid-teens growth in Medical Devices, along with double-digit growth in Established Pharmaceuticals and Nutrition.
Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis.
[Operator Instructions] And our first question will come from Joshua Jennings from TD Cowen.
Congratulations on another strong quarter. The core business is generating nice momentum. Organic sales growth accelerating, earnings power increasing.
Sure, Josh. Yes, it was a very strong quarter, broad-based growth. And -- but listen, I still think that we could do better, and I know my team feels that also. If you go back a little bit in terms of a couple of years when COVID was happening, we always said that there was a great hedge share for us, right? And when COVID would subside, we would have a strong base business and making investments.
U.S. Europe, Asia. Obviously, China reopening was really positive, too. But it wasn't like this over-indexing in our growth rate with China opening. I mean if you look at our growth rate, excluding China, it was -- it only added about 1 point of growth to that 11.5%. So it's pretty broad-based across the market.
And our next question will come from Larry Biegelsen from Wells Fargo.
Congrats on the nice quarter here. Just one for me. Robert, I'd like to hear your thoughts on the med tech top five and the pipeline, specifically how you're thinking about Aveir and the dual chamber approval and TriClip you mentioned earlier, and just the sustainability of that 11% cardio neuromod growth we saw this quarter.
Sure. Well, that group of products, they did pretty well in the quarter. Combined, those products, they grew about 40%, Larry. If you take the Q2 run rate and annualize it, it's annualizing to about a little over $650 million. I expect to do better than that in the year as the next quarters progress.
Our next question comes from Danielle Antalffy from UBS.
Robert, I do have 2 product-specific questions, but you totally stole my thunder with that very thorough answer there. But if I could follow up on specifically Libre and MitraClip. So did see U.S. deceleration in the quarter for Libre. Just wondering what you're seeing out there. You have a competitor launching a new product, but you guys are launching Libre 3. And you do have the basal coverage for Medicare now, but how you see basal ramping? That's the first product question.
Okay. Thanks. So on your Libre question, we had a really strong quarter there, Danielle. We grew 25%, yes, 30% in the U.S. I think it's pretty strong growth still. And internationally, we're up 22%. So that's very positive now that we've kind of put behind us some of the upgrading activities that we are doing towards the second half of last year, so you're seeing the impact there.
Our next question will come from Vijay Kumar from Evercore ISI.
Congrats on a solid print here. Robert, I had a 2-part question. One, you did mention double-digit organic sort of base. Is that -- like should we worry about the comp issue for fiscal '24? Because I'm thinking about Lingo, which I think is just launching, is that enough to sort of maintain some of the strength we're seeing? So any comment on Lingo launch, update on Lingo would be helpful.
So yes, I'll take the Lingo question, and then I'll ask Bob to fill in on the gross margin. On the Lingo piece, listen, this has been part of our strategy, Vijay. It wasn't -- it was an afterthought as we were building Lingo platform. We knew it would be in this situation where can we expand beyond diabetes. We've been very thoughtful about it and very intentional about it.
Okay. So Vijay, on the gross margin question. So back in January, we guided a gross margin profile of 56% of sales for the full year. And through the first half of the year, the base business, so excluding COVID testing, is right in line with that. We are, however, seeing lower gross margins on our COVID test do -- really due to the significant decline in volumes that we've seen compared to our assumptions at the beginning of the year. And so that's really what's being reflected in a little bit lower gross margin that you've seen.
Our next question will come from Joanne Wuensch from Citi.
Briefly, can you sort of tear apart the Electrophysiology growth rate of 17%? How much of that is in the U.S.? How much of that is oUS? And what do you think is driving that? And then I'll just jump in with my second question, which is, if you have reclaimed about 75% of the Pediatric Nutritional business, can you get to 100%? Or do you think you're more or less where you can get to?
Sure. So really good growth on EP. We're up about 17% total. U.S. was high single digits, around 9%. International was about 24%. In that 24%, Joanne, there's probably about 8 or 9 points of kind of China recovery. So if you look at the growth rate internationally outside of China, that was about 15%. So real strong growth.
The other question had to do with the 75% recovery in Nutrition. Is that sort of your best case or is there more to go?
No, I kind of made my team, and I also kind of said publicly that our target here is to get back to 100% of our market share by the end of the year. A big driver of that is the manufacturing and the manufacturing kind of ramp up. And we started the manufacturing -- reopened the manufacturing process in July for specialty of last year and August and September for non-specialty. So that manufacturing has provided us the supply we need to fulfill the demand. We've got a very strong brand in Similac, and you're seeing that.
Our next question comes from Marie Thibault from BTIG.
I wanted to ask a fairly high-level one here on the Diagnostics business. Now that COVID testing is sort of behind us, Core Lab was really strong this quarter. I just want to kind of get an update on the areas of investment and growth in Diagnostics testing today. The Alinity rollout, how that's progressing? And whatever else, in terms of tests or trends, we should be paying attention to now in Diagnostics?
Sure. I think we had a really, really good recovery here. As the health systems are opening up, you're seeing that routine testing come back. And like I said, it was pretty broad-based, U.S., Europe, Asia, Asia without China. I mean, it was pretty broad-based, Latin America. So that's working well. I've said Alinity is -- it's a multiyear kind of cycle. If you look at these contracts there, 7 to 10 years. So every year, you got 15% that's coming up for renewal.
Our next question comes from Matt Miksic from Barclays.
I have one clarification on some of the topics that came up earlier, and then just hopefully one of the kind of pipeline questions. So one of the things going on in CGM and wearables, as you talked about, Robert, and just to kind of separate these out so we can understand exactly how this will play together maybe over the next 18, 24 months: Libre 3, Lingo and sort of -- and ketone.
Sure. Yes, the Lingo product that was launched yesterday, it was really starting off with a glucose-only component to it. We had a lot of debate about this, and we wanted to start off simple. The opportunity to add ketones to that is definitely in the mix, Matt. There's going to be a lot of learning here for us as we, like I say, market a product to a healthy population. And there's going to be a lot of learnings about that.
Great. And then the -- just on the pipeline. We hadn't heard much about what was happening with CSI post the acquisition, and, obviously, important strategic fit and add around peripheral and their platforms there. But they did have this IVL program that was kind of in process. I'm just wondering if you're ready to comment on where that is or when we might start to hear more about the progress there or your expectations for that?
Yes. Listen, the CSI, it closed this quarter. Thank you for asking that. I think it's going to really have a strong impact as we look at our vascular business and really focus on the growth in the peripheral. You can see that we've strategically been adding, either organically with our below-the-knee stent that we're working on that's currently in trial, and then all the inorganic moves that we've been making. So that's very clear, and we're super excited about having the CSI portfolio at Abbott.
Operator, we'll take one more question, please.
Our final question will come from Jayson Bedford from Raymond James.
Maybe just on margins. It looked like there was a nice lift to base business' up margin. And I'm just wondering, is this all related to the improvement in Infant Nutrition? Or are there other factors at work? And then maybe just as a bit of a related question. You talked about the inflationary impacts on gross margin. I think we all understand that. But I'm wondering if you're seeing input costs actually start to come down now? And if so, when will we start to see that impact the P&L?
Sure. Regarding the op margin profile, we're actually back to our pre-pandemic op margin profile. So that's -- I think that's really positive. Obviously, the mix of how we get there is a little different. We got a little bit less gross margin from some of the points that Bob has raised here. But that op margin profile is really a combination of 2 things. I'd say, we made a lot of investments during COVID. I talked about them. We outlined them over the last couple of years.
Thank you, operator, and thank you all for your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.