U.S. Markets close in 1 hr 23 mins

Lower COVID-19 Testing Demand to Drag Abbott (ABT) Q2 Earnings

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·6 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Abbott Laboratories ABT is slated to report second-quarter 2021 results on Jul 22, before market open.

In the last reported quarter, the company delivered a negative earnings surprise of 0.75%. Over the trailing four quarters, its earnings have exceeded the Zacks Consensus Estimate on three occasions and missed on one, the average earnings surprise being 11.83%.

Let's see how things have shaped up prior to this announcement.

Factors at Play

In June 2021, Abbott lowered its 2021 guidance due to considerable reduction in recent and projected COVID-19 diagnostic testing demand. According to the company, significant reductions in the number of COVID-19 cases in the United States and other major developed countries, accelerated rollout of COVID-19 vaccines globally and the latest U.S. health authority guidance and restrictions on testing for fully vaccinated individuals hurt sales growth considerably through April and May.

With the vaccination trend and steady decline in new cases through June, we expect the company to have registered significant reduction in COVID-19 sales in the second quarter compared to the past few quarters.

The Zacks Consensus Estimate of $3.02 billion for Diagnostic revenues suggests a 24.8% decline from the last reported quarter.

Apart from COVID-19 test related hiccups, Abbott is also suffering from significant sales decline within its Pediatric Nutrition business.

From the start of the pandemic till the last reported quarter, we saw Abbott gaining in terms of adult nutrition product sales, while the pediatric nutrition business lagged significantly. Pediatric health care took a back seat through these months as the early strains of COVID-19 did not impact child health at all. April-June too had a similar trend in terms of the impact of coronavirus on child health. Accordingly, we anticipate the company to report another dull quarter in terms of pediatric nutrition.

On a positive note, Abbott’s consumer-facing businesses, which include diabetes care, adult nutrition and established pharmaceuticals, have been catching up pace backed by a continued strong cadence of new product introductions. This uptrend is likely to have majorly contributed to the company’s second-quarter performance.

Within Established Pharmaceuticals Division (EPD), despite a tepid sales environment, the company has been witnessing visible signs of a rebound, reflecting sequential improvement based on stable business model. Per the company’s May update, new product launches across key emerging markets boosted the EPD business. Performance in the second quarter is expected to have been led by growth in India and Brazil where there were elevated COVID-19 cases. The business is expected to have grown in these regions where patients are seeking branded generic medicines.

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories Price and EPS Surprise
Abbott Laboratories Price and EPS Surprise

Abbott Laboratories price-eps-surprise | Abbott Laboratories Quote

Overall, the Zacks Consensus Estimate of $1.09 billion for EPD revenues suggests an 8.2% rise from the figure reported in the comparable quarter last year.

We expect revenues to have improved in the company’s Diabetes Care business as it has been on a substantially strong growth trajectory in recent times. Abbott has been in the limelight for developments in its flagship, sensor-based continuous glucose monitoring system, widely known as the FreeStyle Libre System.

In 2020, the company had received U.S. approval for Freestyle Libre 2 (an integrated continuous glucose monitoring or iCGM system for adults and children) and CE Mark for Libre 3 (integrates Libre's accuracy and performance into the world's smallest fitness disposable sensor) and Libre Sense Glucose Sport (which is Abbott’s initial step in a very intentional approach to pursue mass market biosensor opportunities beyond diabetes).

These developments are expected to have led to full-quarter contributions to the Diabetes Care business top line in the second quarter.

The Zacks Consensus Estimate of $1.05 billion for Diabetes care business revenues suggests a 39.1% rise from the figure reported in the comparable quarter last year.

Within the company’s Adult Nutrition business, Abbott is once again expected to have registered strong U.S. and international growth in Ensure (adult complete and balanced nutrition brand) and Glucerna (diabetes nutrition brand).

The Zacks Consensus Estimate of $2 billion for total Nutrition business revenues suggests a 9.3% rise from the figure reported in the comparable quarter last year.

Abbott, in June, projected second-quarter 2021 reported earnings per share from continuing operations of at least 39 cents. Adjusting for certain restructuring and cost reduction initiatives, including expenses to align its COVID-19 testing-related business with current and projected demand, as well as intangible amortization, expenses associated with acquisitions and other net expenses, the company projected adjusted earnings per share from continuing operations to be at least $1.00 for the second quarter.

Estimates

For second-quarter 2021, the Zacks Consensus Estimate for total revenues of $9.72 billion indicates 32.7% rise from the prior-year quarter’s reported figure. The consensus mark for earnings is pegged at $1.01, indicating 77.19% rise year on year.

Earnings Whispers

Per our proven model, a stock with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates. That is not the case here as you can see:

Earnings ESP: Abbott has an Earnings ESP of -0.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

Hill-Rom Holdings, Inc. HRC currently has an Earnings ESP of +0.56% and a Zacks Rank #2. The stock is slated to release its third-quarter fiscal 2021 results on Jul 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Henry Schein, Inc. HSIC has an Earnings ESP of +0.91% and a Zacks Rank of 2, at present. The stock is expected to release its second-quarter 2021 results on Aug 3.

Laboratory Corporation of America Holdings LH has an Earnings ESP of +6.53% and a Zacks Rank of 2, at present. The company is scheduled to release its second-quarter 2021 results on Jul 29.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Abbott Laboratories (ABT) : Free Stock Analysis Report

Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

HillRom Holdings, Inc. (HRC) : Free Stock Analysis Report

To read this article on Zacks.com click here.