Abbott Labs (ABT) reported first quarter earnings of 91 cents per share, a penny above the Zacks Consensus Estimate and the higher end of the guidance range provided by the company. Earnings increased 12.3% from the year-earlier period. Higher revenues helped drive results. However, including one-time items, earnings declined 14.1% to 55 cents per share.
First quarter revenues increased 17.4% to $9.0 billion, slightly above the Zacks Consensus Estimate of $8.8 billion.
The Quarter in Detail
All reportable segments performed well during the quarter. While Durable Growth Business sales increased 24.3% to $3.9 billion, Proprietary Pharmaceutical sales increased 11.7% to $3.8 billion. Meanwhile, Innovation-Driven Device Business sales and Emerging Markets sales grew 10.7% and 38.4%, respectively. Foreign exchange (Fx) fluctuations favorably impacted revenues by 1.3%.
Performance of the Durable Growth Business was driven by strong Established Pharmaceuticals sales, including contributions from the Solvay Pharmaceuticals and Piramal Healthcare Solutions acquisitions. International Nutritionals, which grew 15.8%, also contributed to the segment’s performance.
Proprietary Pharmaceutical sales were $3.8 billion, up 11.7%. Strong Humira and lipid franchise sales were offset by the weak performance of Kaletra, which declined 15% to $248 million.
The lipid franchise posted sales of $598 million during the quarter with TriCor/TriLipix sales increasing 27.7%. However, Abbott Labs expects TriCor/TriLipix sales to decline modestly in the US in 2011. Meanwhile, Humira recorded sales growth in both the US (16.2%) and international markets (18.9%) during the quarter. First quarter Humira sales increased 17.8% to $1.6 billion. Abbott Labs is looking to get Humira approved for ulcerative colitis in the US and the EU.
The Nutritional business grew 7.8% to $1,423 million. Nutrition sales in the US continued to be impacted by the September 2010 recall of infant formula product Similac. Pediatric nutritional sales in the US were down 0.1% during the quarter. With Similac production resuming from October 2010, Nutritional business sales should pick up.
Outside the US, Nutrition sales should continue to experience double-digit growth with stronger performance in emerging markets. Abbott Labs reported strong growth in Asia and Latin America, where the company is expanding its presence and gaining share with the introduction of new products.
Meanwhile, the Vascular division continued to perform well, with sales increasing 13.1% to $845 million, thanks to strong growth in international markets. The company reported coronary stent sales of $524 million, up 15.3% year-over-year.
Backs 2011 Outlook
Following the release of first quarter results, Abbott Labs maintained its guidance for 2011. The company expects earnings per share in the range of $4.54 to $4.64. The guidance includes the impact of US health care reform and EU austerity measures. The Zacks Consensus Estimate currently stands at $4.60.
Pipeline Update
Abbott Labs also provided an update on its pipeline. The company expects to have about 20 new compounds in phase II/III development by year end.
Abbott Labs is working on boosting its vascular products portfolio and expects to launch more than 10 technologies in the next five years. These include the potential US launches of MitraClip, XIENCE PRIME and XIENCE 2.25. Abbott Labs expects to launch TREK, its next-generation balloon dilatation catheter, in the US and Japan in early 2011.
Meanwhile, the acquisition of Facet Biotech has helped strengthen Abbott Labs’ early- and mid-stage oncology portfolio. The company recently moved elotuzumab, which is being developed with Bristol-Myers Squibb (BMY), into phase III studies for multiple myeloma.
Abbott Labs is also working on strengthening its neuroscience portfolio and has several candidates in different stages of development for the treatment of diseases like schizophrenia, pain, Parkinson’s Alzheimer’s and multiple sclerosis. Abbott Labs, along with partner Biogen (BIIB), moved daclizumab into a phase III study for the treatment of relapsing-remitting multiple sclerosis (RRMS).
Another promising pipeline candidate in the company’s pipeline is bardoxolone, which is scheduled to enter into phase III studies in 2011 for chronic kidney disease.
Neutral on Abbott Labs
We currently have a Neutral recommendation on Abbott Labs, supported by a Zacks #3 Rank (short-term Hold rating). We believe Abbott Labs is weathering the storm relatively well despite facing challenges like the impact of US healthcare reform, product recalls, foreign exchange headwinds and EU pricing austerity.
Abbott Labs’ strong business segments and contributions from recent acquisitions should help fortify long-term earnings growth. While lead product, Humira, will continue to be a huge growth driver in the next couple of years, we remain concerned about Abbott Labs’ dependence on the product. Moreover, the company’s pharma pipeline needs to deliver in order to drive long-term growth.
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