Abbott Laboratories — 2023 Q3
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 Third 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; Bob Funck, Executive Vice President Finance, and Phil Boudreau, Chief Financial Officer. Robert and Phil 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 third quarter adjusted earnings per share of $1.14. Based on our performance through the first 9 months of the year, we raised the midpoint of our full year adjusted earnings per share guidance and narrowed the range to $4.42 to $4.46. Organic sales growth on the base business, which excludes COVID testing, increased double digits for the third consecutive quarter and was led by double-digit growth in all 4 of our major businesses.
Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our third quarter results. Sales decreased 1.5% on an organic basis due to as expected a year-over-year decline in COVID testing-related sales.
[Operator Instructions] And our first question will come from Josh Jennings from TD Cowen.
Congratulations on another strong quarter. Robert, organic revenue growth nearly touched the mid-teens range for the core business in 3Q, and realize we've recently talked about the sustainability of the momentum generated this year. But I think investors would like to hear about your confidence level in the core business, delivering high single-digit organic revenue growth and solid margin expansion in 2024 off the 2023 comp that's only retire over the course of this year.
Sure, Josh. I mean the confidence level is very high, especially with this kind of momentum that we're seeing. Clearly, there's going to be some macro environment challenges as companies head into 2024. But I'd say our portfolio has really been built to withstand this type of environment, and we tend to do pretty well in this type of environment.
And our next question will come from Larry Biegelsen from JPMorgan (sic) [ Well Fargo ].
Just to be clear, it's Wells Fargo. So Robert, China has been in the news a lot. Love to hear your thoughts on how you're thinking about China, big picture. How is Q3? And what are you expecting from the VBP impact in the EP business and from the anticorruption initiatives we've been hearing about there.
Sure. Well, China has been and will continue to be an important market for us. As it relates to, I think, this theme on this anticorruption discussion points there. Listen, we've been operating in China for 35 years. We follow our compliance standards follow all applicable laws. I didn't see any kind of meaningful impact in Q3. Larry, I was actually there last week and had a chance to meet with the teams and go through the businesses and I didn't really see any meaningful impact. Devices grew 20% in the quarter. So I think that's -- we'll just have to keep on monitoring that situation, but I didn't see any real impact in the quarter.
Our next question will come from Robbie Marcus from JPMorgan.
Congrats on a really nice quarter. Robert, I want to ask you the overwhelming topic of discussion in the past few months has been GLP-1s and the possible impact on the future med tech market growth. You talked about it with respect to diabetes, but I'd love to just get your thoughts on a broader basis on GLP-1s? And do you see it as a negative, neutral or positive to your different end markets you participate in over the next 5, 10 years?
Sure, Robbie. Obviously, this has been a hot topic over the last couple of months. And let me just start off by saying with 20-plus years of experience in diabetes. I think every time new therapies, new technologies come to address this disease in this population, I think it's all great. And these are great new medications that are going to have very positive effect on the treatment of diabetes. There's obviously a lot of investor -- thanks to Robbie, about the potential impact of these drugs and what's going to happen to different industries and different companies.
Really appreciate that, Robert. Maybe if I could sneak 1 more in on CGM, something that I think has really flown under the radar with the GLP-1, noise is you've recently gotten type 2 basal coverage in France. You have it in the U.S. and Japan as well. Just thinking about future opportunities in countries to approve type 2 basal, which could materially expand your reimbursed coverage opportunity around the world. How should we think about that? And how do you size that opportunity over the next few years for Abbott.
Sure. Well, we had a really good quarter, up 28%. International was up 26%. U.S., we continue to do pretty well in the plus 30% range there. And to your point, we saw a nice impact from that basal coverage, especially in the international markets, right? And it's nice to see the international growth accelerate again.
Our next question will come from Danielle Antalffy from UBS.
Robert and Phil just wanted to follow up on Josh's question earlier, and I appreciate you're not going to give 2024 guidance. But just at a high level, there's a few puts and takes I can think of, Robert, I appreciate the momentum in the underlying business, but you will have competition coming on the EP side, which has been a strong double-digit grower looking at MitraClip and a quarter of double-digit growth, that was great to see, like how sustainable is that?
Yes. I mean you're -- not sure we'll do a planned review here. But I mean there's a lot there. I'll try and touch on some of the topics there. I mean I'd just go back to -- we have a growth model and a growth forecast that I'd say, during the last 2 years has been masked a little bit by COVID and the ups and downs of COVID testing, but being able to sustain high single-digit growth, double-digit growth in the bottom line that's what we've been doing this year, a pretty significant double-digit bottom line because we forward invested back in 2022.
Our next question will come from Joanne Wuensch from Citibank.
Nutrition, your comments, if I remember them correctly, are that you are back in a leadership position in the Nutrition business. Are you back at 100%? Are you humming along? Do you feel like there's anything that's lagging or maybe ahead of the game? And I'm going to squeeze in your current thoughts on M&A, particularly given a lot of pullbacks in valuations.
Sure. We never believe that we were going to recover all the share in a quarter, right? So the way this market works and the way we've kind of modeled it out is that we'll showing month-by-month kind of sequential increases in our market share.
M&A, particularly given pullbacks on valuations?
Yes. Well, listen, we've completed 3 transactions over the last 6 months. We acquired CSI and in the process of integrating that business. I think it's going to be a nice addition to our vascular business and start to reposition that business to kind of more higher growth markets. This quarter, we announced the acquisition of Bigfoot and this is just going to be able to allow us to broaden our offerings with Libre and provide a nice opportunity from a global perspective, and then also an announcement on the EPD side to expand access to biosimilars.
Our next question will come from Vijay Kumar from Evercore ISI.
Robert, congrats on the good print here. I had 2 questions. My first one is, could you just elaborate on this China VBP for Diagnostics. How big is Core Lab in China for you guys at this point in time? And I think I heard 20% would be impacted next year? Is the assumption or rest of Core Lab would be impacted in fiscal '25, like how do these contracts flow up? Because my understanding is you will see volume gains or those volumes and the asset price headwinds?
Yes. So the way this is kind of working out, right, this was announced recently, I think proposals are due within the provinces that are going to be bidding, Vijay, I'd say, in the next 30 days, right? And then there's like another 30 days, 30 to 60 days to evaluate all the proposals.
That's helpful, Robert. And my second one, I know you touched upon PFA. I think Abbott's launching their own PFA at some point in fiscal '25, '26. How should we think in the interim, right? I think your peer had pretty robust assumptions for what percentage of procedures would be PFA. Is Abbott concerned about share loss when you think about that medium-term time frame? And are there offsets to it, right? When you haven't touched upon Lingo. I think previously you had said Lingo could be as big as Libre, where will be on Lingo launch?
Yes. So we'll have to see how -- what other companies report to go to see if we're gaining or losing share right now. But I'd say we still have got good, robust growth. I'd say as we look into 2024, I'd expect us to grow generally in line with market, which has historically been double digits. We've got some good innovation that's rolling out on the RF side. And as we've spoken about our EP business, we talk about PFA. That's going to be a product that's going to be really geared towards AF ablations, you still have VT and SVT ablations, where we do have good positions over there. A good portion of our sales are also on the mapping side and the mapping and the diagnostics and those consumables. So I see those being less impacted also.
Our next question will come from Matt Miksic from Barclays.
So maybe follow up on a couple of pipeline opportunities and growth drivers, one being TRILUMINATE and TriClip, sort of if you could maybe walk us through the expected pathway for commercialization in the U.S. on that front? And then back to diabetes, I know the GLP-1s dominated to the discussion there, but with Tandem rolling out integration with their pump and kind of making wider availability here of closed-loop integration in Q4. Just it would be great to hear your thoughts on what that ramp looks like, what additional support or efforts you expect will be required on your end? And just what we can expect over the next 12, 18 months, that's out there and available to patients.
Sure. On your question on TriClip, yes, so we submitted to the FDA for review earlier this year. It's my understanding that CMS is going to review this in parallel also. I think I made a comment to this last time, we'll likely see a panel review here, and I don't think it's unexpected to be quite honest with you. A lot of the novel therapies go through an advisory panel process with TAVR, saw with MitraClip. So I expect that to be the case here for TriClip. Right now, the expectation of that panel is I said the date that we think we have right now is January but we'll have to see how that occurs.
Sure. Closed-loop integration with Tandem and maybe the ramp or expectations for that process?
Yes, it's my understanding here that we'll see a launch sometime by the end of this year with Tandem. And we're excited about that. There's about 150,000 to 200,000 new pump users globally. So I think this is an area that we've historically haven't been a player in, and now we will be a player in. We've launched an AID system in Europe, let's say, more towards the end of last year into this year, and I was reviewing the results of the team.
Operator, we will take one more question, please.
And our last question will come from Jayson Bedford from Raymond James.
Just a couple of quick ones. First, what is the updated expectation for COVID testing revenue here in '23? And then second one, Robert, you alluded to gross margin expansion in '24. Can you just frame the sources of gross margin? I assume nutrition is a key driver there. And then maybe just bigger picture, and I appreciate that everyone in the industry is facing these challenges. But is there visibility into clawing back to pre-COVID gross margin levels.
Sure. Yes, there's visibility. I mean, the visibility is in the first half of 2024, then I'd say no, but we do have a plan to be able to kind of drive gross margin and gross margin expansion. I'd say as you look at it into next year, Jayson, there's really a couple of elements here that will be tailwinds for us. I'd say lower commodity costs, that for sure. And those were pretty big headwinds for us in, I'd say, in 2022 and 2023.
Jayson, relative to 2023 COVID testing sales forecast full year is about $1.5 billion here.
Okay. So I'll just wrap up here with a few comments. It's clear that we're seeing broad-based growth across the entire company. As I said in my comments, we've now delivered double-digit organic sales growth here for the past 3 quarters and forecasting that type of growth again this next quarter EPS contributions and the growth in the base business has increased every quarter, and we've exceeded the expectations we set for the initial guidance of the year.
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.