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Why Is Abbott (ABT) Up 3.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Abbott (ABT). Shares have added about 3.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Abbott due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Abbott Posts Q2 Earnings Beat, Reports Y/Y Decline

Abbott reported second-quarter 2020 adjusted earnings from continuing operations of 57 cents per share, exceeding the Zacks Consensus Estimate by 32.6%. However, the adjusted figure declined 30.5% from the prior-year quarter.

The quarter’s adjustments include certain non-recurring intangible amortization expense and other expense primarily associated with acquisitions and restructuring actions among others.

Reported earnings from continuing operations came in at 30 cents, reflecting 46.4% decline year on year.

Second-quarter worldwide sales of $7.33 billion were down 8.2% year over year on a reported basis. However, the top line surpassed the Zacks Consensus Estimate by 7.2%. The quarter’s reported revenues include $615 million of COVID-19 diagnostic testing-related sales.

On an organic basis (adjusting for the impact of foreign exchange), sales declined 5.4% year over year in the reported quarter.

Quarter in Detail

Abbott operates through four segments — Established Pharmaceuticals Division (EPD), Medical Devices, Nutrition, and Diagnostics.

In the second quarter, EPD sales declined 8.6%, on a reported basis (down 0.7% on an organic basis) to $1.01 billion. Organic sales in key emerging markets dropped 0.4%, year over year. Sales growth in certain countries, including double-digit growth in China, was more than offset by pandemic-led lower demand for products across several emerging market countries, including Russia, Brazil and Colombia.

Medical Devices business sales decreased 21.2% on a reported basis to $2.42 billion. On an organic basis, sales declined 19.9%. Barring Diabetes Care, all other sub segments reported lower revenues in the quarter. According to the company, cardiovascular and neuromodulation procedure volumes declined due to COVID-19.

However, in Diabetes Care, the company registered 31.9% organic growth, banking on solid worldwide adoption of FreeStyle Libre. This device alone registered global sales growth of 39.9% on an organic basis.

Nutrition sales were up 0.4% year over year, on a reported basis (up 3.1% on an organic basis), to $1.88 billion. Pediatric Nutrition sales declined 0.3% on an organic basis. Adult Nutrition sales climbed 7.4% organically. According to the company, Adult Nutrition sales benefited from improved U.S. and international sales performance of Ensure, Abbott's market-leading complete and balanced nutrition brand. In Pediatric Nutrition, however, U.S. growth of Pedialyte and growth in Southeast Asia were offset by challenging conditions in Greater China.

Diagnostics sales were up 4.7%, year over year, on a reported basis (up 7.1% on an organic basis) to $1.99 billion. Core Laboratory Diagnostics sales declined 13.1% on an organic basis. While there was lower routine diagnostics testing due to COVID-19, this was partially offset by sales of Abbott's COVID-19 laboratory-based tests for the detection of the IgG antibody. Molecular Diagnostics surged 241.4% on an organic basis on solid demand for Abbott's laboratory-based molecular tests for COVID-19 on its m2000 and Alinity m platforms. Rapid Diagnostics sales too improved 11% on an organic basis in the June-end quarter. However, Point of Care Diagnostics sales declined 17.6% on an organic basis.

2020 Guidance

The company issued a fresh guidance for 2020 after suspending the previous one on the first-quarter earnings call.

The company now projects adjusted earnings per share from continuing operations to be at least $3.25 for 2020. The current Zacks Consensus Estimate is pegged at $2.84.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 14.88% due to these changes.

VGM Scores

Currently, Abbott has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Abbott has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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