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Abbott Beats on EPS, Affirms View

Zacks Equity Research

Abbott Labs (ABT) reported second quarter earnings of $1.23 per share, a couple of cents above the Zacks Consensus Estimate of $1.21 and 9.8% above the year-earlier earnings. Including one-time items, second quarter earnings declined 12.2% to $1.08 per share.

Second quarter revenues increased 2.0% to $9.81 billion, just shy of the Zacks Consensus Estimate of $9.83 billion. Foreign exchange fluctuations negatively impacted sales by 4.7%.

The Quarter in Detail

Several of the business categories reported growth during the quarter despite the negative impact of currency fluctuation. Proprietary Pharmaceutical sales were $4.4 billion, up 4.9%. Humira was a major contributor with sales coming in at $2.3 billion, up 16.5%. Humira recorded sales growth in both the US (27.9%) and international markets (8.4%) during the quarter.

Abbott Labs is looking to get Humira approved for additional indications which would help drive growth further. The company gained EU approval for Humira for ulcerative colitis and received a positive recommendation in the EU for the use of Humira in patients with non-radiographic axial spondyloarthritis. Abbott Labs is currently evaluating Humira’s safety and efficacy in adult patients with moderate to severe hidradenitis suppurativa (:HS).

Androgel and Creon also contributed to Proprietary Pharmaceutical sales growth.

The Nutritionals business grew 6.3% to $1.6 billion. Nutrition sales in the US increased 13.1% to $741 million. The company said that Similac continued to gain share in the US. Outside the US, Nutrition sales grew 1.0% to $843 million. The pediatric and adult segments of the ex-US markets continued to grow.

Other areas that witnessed growth include the Core Laboratory Diagnostics, Molecular Diagnostics, and Point of Care Diagnostics businesses. Established Pharmaceuticals sales, however, continued to decline with sales coming in at $1.2 billion, down 6.0%.

2012 Outlook Maintained

Abbott Labs maintained its earnings guidance for 2012. The company expects 2012 earnings in the range of $5.00 to $5.10 per share. The Zacks Consensus Estimate currently stands at $5.05 per share, the mid-point of the guidance range.

Abbott Labs provided an update on its intention to split into two separate publicly traded companies: the company said that it expects to complete the separation by year end. While one company will deal in diversified medical products, the other (AbbVie) will focus on research-based pharmaceuticals.

The company also declared a quarterly dividend of 51 cents per share.

Pipeline Update

Abbott Labs also provided an update on its pipeline. The company currently has 20 candidates in phase II/phase III development. The acquisition of Facet Biotech has helped strengthen Abbott Labs' early- and mid-stage oncology portfolio.

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), is evaluating daclizumab in a phase III study for the treatment of relapsing-remitting multiple sclerosis (RRMS).

Abbott Labs is also working on levodopa-carbidopa intestinal gel (:LCIG) for advanced Parkinson's disease – positive phase III results were reported on this candidate recently and Abbott Labs expects to file for US approval later this year.

Another promising pipeline candidate is bardoxolone, which is in phase III studies for chronic kidney disease.

We currently have a Neutral recommendation on Abbott Labs, which carries a Zacks #3 Rank (short-term Hold rating).


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