Abbott Laboratories (ABT) Earnings Report: Q1 2015...
Transcript of Abbott Laboratories (ABT) Earnings Report: Q1 2015...
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
EventDescription:Q12015EarningsCallMarketCapasofEventDate:70.36BPriceasofEventDate:47.95
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AbbottLaboratories(ABT)EarningsReport:Q12015ConferenceCallTranscriptThefollowingAbbottLaboratoriesconferencecalltookplaceonApril22,2015,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
BrianYoor;AbbottLaboratories;VP-IRMilesWhite;AbbottLaboratories;Chairman,CEOTomFreyman;AbbottLaboratories;EVPFinance,CFO
OtherPart icipants
KristenStewart;DeutscheBank;Analyst.MikeWeinstein;JPMorgan;AnalystDavidRoman;GoldmanSachs;AnalystDavidLewis;MorganStanley;AnalystBobHopkins;BankofAmericaMerrillLynch;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodmorningandthankyouforstandingby.WelcometoAbbott'sfirst-quarter2015earningsconferencecall.(OperatorInstructions)
ThiscallisbeingrecordedbyAbbott.Withtheexceptionofanyparticipants'questionsaskedduringthequestion-and-answersession,theentirecall,includingthequestion-and-answersessionismaterialcopyrightedbyAbbott.ItcannotberecordedorrebroadcastwithoutAbbott'sexpressedwrittenpermission.
IwouldnowliketointroduceMr.BrianYoor,VicePresident,InvestorRelations.
BrianYoor (VP-IR):
Okay.Goodmorningandthankyouforjoiningus.WithmetodayareMilesWhite,ChairmanoftheBoardandChiefExecutiveOfficer,andTomFreyman,ExecutiveVicePresident,Finance,andChiefFinancialOfficer.
Mileswillprovideopeningremarks,andTomandIwilldiscussourperformanceinmoredetail.FollowingourcommentsMiles,Tom,andIwilltakeyourquestions.
Beforewegetstarted,somestatementsmadetodaymaybeforward-lookingforpurposesofthePrivateSecuritiesLitigationReformActof1995,includingtheexpectedfinancialresultsfor2015.Abbottcautionsthattheseforward-lookingstatementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthoseindicatedintheforward-lookingstatements.
Economic,competitive,governmental,technological,andotherfactorsthatmayaffectAbbott'soperationsarediscussedinItem1A,RiskFactors,toourannualreportonSecuritiesandExchangeCommissionForm10-KfortheyearendedDecember31,2014.Abbottundertakesnoobligationtorelease
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
EventDescription:Q12015EarningsCallMarketCapasofEventDate:70.36BPriceasofEventDate:47.95
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publiclyanyrevisionstoforward-lookingstatementsasaresultofsubsequenteventsordevelopments,exceptasrequiredbylaw.
Pleasenotethatfirst-quarterfinancialresultsandguidanceprovidedtodayonthecallforsales,earningspershare,andlineitemsoftheP&Lwillbeforcontinuingoperationsonly.Intoday'sconferencecall,asinthepast,non-GAAPfinancialmeasureswillbeusedtohelpinvestorsunderstandAbbott'songoingbusinessperformance.Thesenon-GAAPfinancialmeasuresarereconciledwiththecomparableGAAPfinancialmeasuresinourearningsnewsreleaseandregulatoryfilingsfromtoday,whichwillbeavailableonourwebsiteatAbbott.com.
Ourcommentaryonsalesgrowthreferstooperationalsalesgrowth,whichexcludestheimpactofforeignexchangeunlessotherwisenoted.
Withthat,IwillnowturnthecallovertoMiles.
MilesWhite (Chairman,CEO):
Okay,thanks,Brian.Goodmorning,everybody.I'llbebriefthismorningandleavesometimeforquestions.
Ourfirst-quarterperformanceexceededexpectationsonboththetopandbottomlines.Wereporteddouble-digitoperationalsalesgrowth,exceededbothourgrossandoperatingmargintargetsinthequarter,closedonthesaleofourEPDdevelopedmarketsbusinesstoMylan,andlaunchedanumberofnewproductsacrossourportfolio.
I'llsummarizeourfirst-quarterresultsbeforeturningthecallovertoTomandBrianforsomefurtherdetail.Operationalsalesincreased10%inthequarterwithparticularlystrongperformanceinourbrandedgenerics,internationalnutrition,andglobaldiagnosticsbusinesses,aswellasdouble-digitgrowthinemergingmarkets.AndthatdidincludetheadditionsofCFRandVeropharm.
Whilecurrencywasafactor,includinga7%negativeimpactonthetopline,wecontinuetomanagethroughitseffectonthebottomline.Ourfirst-quarteradjustedearningspershareof$0.47exceedsourpreviousguidancerangeandreflectsgrowthof38%;butagain,asIsaid,thatincludestheadditionofCFRandVeropharminthecomparisons.
Ourfull-year2015adjustedearningspershareguidanceof$2.10to$2.20remainsunchangedandreflectsdouble-digitunderlyinggrowth,excludingtheimpactofcurrency.
Inthequarter,startingwithNutrition,salesincreasedmorethan6%withcontinueddouble-digitgrowthoutsideoftheUnitedStates.Thenewpediatricproductsthatwe'velaunchedintoChinaandotherfast-growinggeographiesarecontinuingtoperformwell,productslikeSimilacQINTIandEleva;andwe'vehadstrongperformanceintheonlinesegment.Thesenewproductsdriveshareexpansionandcontributetoourgrowthinthemarket.
Theinternationaladultnutritionbusinesshasconsistentlydeliveredhigh-singledigits,double-digitsalesgrowth.OuradultnutritionalEnsureisroughlya$2billionbrandgloballytoday,andwelauncheditintotheretailsegmentinChinaearlythisyear.
InMarch,wealsoopenedanutritionpilotplantinSingapore.Thisfacility,inadditiontotheothersthere,allowsustocustomizemoreofourproductstomeetconsumerpreferencesacrossAsia.
Inmedicaldevices,diabetescarereturnedtogrowththisquarter,asweexpected.We'vehadaverypositiveearlyresponsetothelaunchofournewFreeStyleLibredevice.
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
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AsImentionedlastquarter,we'realreadyexpandingcapacitytomeetthisdemand.Libreisahighlydifferentiatedtechnologythathelpspeopleself-managetheirdiabeteswithouttheneedforroutinefingersticks.Wearealsobuildingaportfolioofproductsbasedonoursensortechnology,andFreeStyleLibreProisourfirstprofessional-usedevicethatwaslaunchedinIndiaearlierthismonth.
OurVascularbusinessalsoperformedinlinewithourexpectations.Operationalsalesgrowthinthequarterwasdrivenbyhigh-single-digitperformanceofourendovascularproductsaswellasdouble-digitgrowthofourstructuralheartproduct,MitraClip.Themarketopportunityformitralregurgitationissignificantbutstillinitsearlystages,andMitraClipistheonlyproductonthemarkettodatethatcantreatthisdiseaseinaminimallyinvasiveway.
ThemedicalopticssaleswereimpactedbymarketdynamicsinourcataractandLASIKbusinesses.Werecentlylaunchedtwonewcataractlensesandsawapickupinourcataractlensgrowthasthequarterprogressed.
InDiagnosticswedelivered6%growthinthequarter.ThecontinuedsuccessofourcommercialstrategieswithcorelaboratorycustomersaredrivingsharegainsintheUSandemergingmarkets.Wecontinuetoinvestinthedevelopmentofnext-generationsystemplatformsacrossallthreeofourDiagnosticsbusinesses.
Inpoint-of-carediagnostics,salesincreaseddoubledigits.IntheUS,we'vehadsuccesswithlargehealthcarenetworks,standardizingtheirpoint-of-caretestingwithouri-STATsystem.OutsidetheUS,ourexpansioneffortscontinueinbothdevelopedandemerginggeographies.
InEstablishedPharmaceuticalswe'reexecutingbettercommercially.That'ssomethingI'vegivenafairamountofattentiontoonpastcallswithyou.
WeareexpandingourproductportfoliosinourtherapeuticareasoffocusanddrivingmoreawarenessofourAbbottbrandwithconsumers,physicians,andpharmacists.ExcludingthebenefitfromourrecentacquisitionsofCFRPharmaceuticalsandVeropharm,salesinourkeyemergingmarketsincreasedinthelowdoubledigits,withabove-marketgrowthinIndia,Brazil,China,Russia,andColombia.
WiththesaleofthedevelopedmarketsbusinesstoMylancompletedinFebruary,EPDisnowfocusedsolelyonemergingmarkets.Wereceived110millionsharesofMylanstockforthedevelopedmarketsbusinessandrecentlysoldroughlyathirdofourposition.ThenetproceedsfromthesaleofMylansharesandourstrongbalancesheetprovideuswithadditionalflexibilitytoinvestinstrategicgrowthopportunitiestocontinuetoshapeAbbottforlong-termgrowth.
Soinsummary,wereportedfirst-quarterresultsaheadofourexpectations.Wearebuildingonthemomentumwehadexiting2014,andweexpecthigh-single-digitfull-yearoperationalsalesgrowthandcontinuedprogressonmarginexpansion,andwearewellontracktoachieveourfinancialobjectivesin2015.
I'llnowturnthecallovertoTomandBriantodiscussourfirst-quarterresultsinmoredetail.Tom?
T omFreyman (EVPFinance,CFO):
Thanks,Miles.AsMilesindicated,todaywereportedfirst-quarteradjustedearningspersharefromcontinuingoperationsof$0.47,aboveourpreviousguidancerangeandreflectinggrowthof38%.Salesforthequarterincreased10%onanoperationalbasis,excludinganunfavorableimpactof7%fromforeignexchange.Reportedsalesincreased3%inthequarter.
OperationalsalesgrowthwasdrivenbystrongperformanceinNutritionals,Diagnostics,andEstablishedPharmaceuticals,whichincludedtheimpactof2014acquisitions.Salesinemergingmarketsincreased
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
EventDescription:Q12015EarningsCallMarketCapasofEventDate:70.36BPriceasofEventDate:47.95
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strongdoubledigitsinthequarter.
Thefirst-quarteradjustedgrossmarginratiowas58.1%ofsales,somewhataboveourforecastandupnearly500basispointsoverthefirstquarterof2014.Theyear-over-yearcomparisonwasdrivenbygrossmarginimprovementinitiativesacrossourbusinesses,andinpartthecomparisonrelativetoanunusuallylowratioexperiencedinthefirstquarterof2014.
Inthequarter,adjustedR&Dinvestmentwasaround6.5%ofsales,andadjustedSG&Aexpensewasaround34.5%ofsales.
Theoverdeliveryinthefirst-quarterEPScomparedtoourguidancewasinparttheresultofthedynamicsofexchangeonourresults,includingthetimingeffectsofhedgingactivitiesontheexchangegain/losslineoftheP&L.Weexpectthefirst-quarterfavorabilityonthislineoftheP&Ltopartiallyreverseinthesecondquarter,withtheremainingnetgainsfortheyeartobeoffsetontheoperatingincomelineoftheP&Loverthelastthreequarters.
Aswediscussedlastquarter,whiletheweakereuroimpactsourtopline,movementsintheeurohavingminimalimpactonourbottomlineduetooureuro-denominatedcostbase,thereforethefurtherweakeningoftheeurothatwesawinthefirstquarteroftheyeardoesnotimpactour2015EPSforecast.
Turningtoouroutlookforthefull-year2015,ouradjustedearningspershareguidancerangeof$2.10to$2.20fromcontinuingoperationsremainsunchanged.Regardingourfull-year2015outlookfortheP&L,wecontinuetoforecastoperationalsalesgrowthinthehighsingledigits.
Basedoncurrentexchangerates,wenowexpectexchangetohaveanegativeimpactofaround7%onourfull-yearreportedsales,upoverourpreviousprojectioninJanuaryofaround6%.Thiswillresultinreportedsalesgrowthinthelowsingledigitsforthefull-year2015.Brianwillprovidemoredetailsonthe2015outlookbybusinessinafewminutes.
Wenowforecastanadjustedgrossmarginratioofaround57.5%ofsalesforthefullyear,drivenbygrossmarginimprovementinitiativesacrossourbusinesses.WeforecastadjustedR&Dinvestmentofaround6.5%ofsales,andnowforecastanadjustedSG&Aexpenseofaround31.5%ofsales.Overall,wecontinuetoexpecttoexpandourfull-yearadjustedoperatingmarginsbyover100basispointsin2015.
Wenowforecastnetinterestexpenseofaround$120million,reflectingchangesintheinterestrateassumptionsonbothourdebtandsomeofourinvestments.Weforecastanexchangegainofapproximately$35millionontheexchangegain/losslineoftheP&Lforthefullyear,reflectingsomereversalofthefavorabilitywesawonthislineinthefirstquarter,asmentionedpreviously.Andweforecastaround$5millionofnonoperatingexpenseforthefull-year2015.
Turningtotheoutlookforthesecondquarter,weforecastongoingEPSof$0.49to$0.51,reflectingdouble-digitunderlyinggrowth,largelyoffsetbytheimpactofsignificantforeignexchangeheadwindsonoperatingresults,asdiscussedontheJanuarycall,aswellasthepartialreversaloffavorabilityintheexchangegain/losslineoftheP&Lfromthefirstquarter,aspreviouslymentioned.
Weforecastoperationalsalesgrowthinthelowdoubledigitsinthesecondquarter.Atcurrentexchangerates,wewouldexpectanegativeimpactfromexchangeofsomewhatabove8%,resultinginreportedsalesinthelowsingledigits.
Weforecastanadjustedgrossmarginratioofaround57.5%ofsales;adjustedR&Dinvestmentofapproximately6.5%ofsales;andadjustedSG&Aexpenseofsomewhatabove32%ofsalesinthesecondquarter.Weforecastnetinterestexpenseofaround$35million,andapproximately$15millionin
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
EventDescription:Q12015EarningsCallMarketCapasofEventDate:70.36BPriceasofEventDate:47.95
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expenseontheexchangegain/losslineoftheP&L.
Finally,weprojectspecifieditemsat$0.23inthesecondquarter,reflectingthesameitemsasweidentifiedforthefullyearinourearningsrelease.
Soinsummary,ourfull-yearongoingEPSguidanceremainsunchanged.Aswestarttheyear,wearewellpositionedtodeliveranotheryearofstrongEPSgrowthin2015despiteachallengingcurrencyenvironment.AndwiththatI'llturnitovertoBriantoreviewthebusinessoperatinghighlightsandoutlook.Brian?
BrianYoor (VP-IR):
Thanks,Tom.ThismorningI'llreviewourfirst-quarter2015performanceandsecond-quartersalesoutlookbybusiness.AsImentionedearlier,mycommentswillfocusonoperationalsalesgrowth.
I'llstartwithourNutritionbusiness,whereglobalsalesincreasedmorethan6%inthefirstquarter.Inourinternationalpediatricnutritionbusiness,salesincreased11.7%,drivenbydouble-digitgrowthinChinaandLatinAmerica.
Wecontinuedtocapturemarketsharewithnewinfantformulaproductswelaunchedintothefast-growingmarketsegmentsandgeographiesoverthepastyear.ThisincludesSimilacQINTIandEleva,whichwelaunchedintothepremiuminfantformulamarketsegmentinChinain2014.
Internationaladultnutritionsalesincreasednearly11%inthequarter,drivenbystrongdouble-digitgrowthinLatinAmerica.Thisisthesixthconsecutivequarterofdouble-digitsalesgrowthinourinternationaladultnutritionbusiness.
WecontinuetoexpandtheadultnutritioncategoryinternationallyandrecentlylaunchedourEnsurebrandinChinaintotheretailmarketsegment,whichrepresentsasignificantgrowthopportunityforAbbott.Wealsocontinuetoexpandourlocalpresenceinkeymarkets.
AsMilesmentioned,inadditiontothethreemanufacturingplantsweopenedlastyearinChina,India,andtheUS,weannouncedinMarchtheopeningofanewnutritionpilotplantinSingapore.Thisstate-of-the-artfacilitywillserveasasecondglobalR&Dhub.
IntheUS,pediatricnutritionsaleswereup4.5%,drivenbymarketsharegainsinthenon-WICsegmentoftheinfantformulamarketanddouble-digitPedialytegrowthasaresultofastrongfluseason.AdultnutritionsalesintheUSwereimpactedbycompetitiveandmarketdynamics,includingsoftnessintheinstitutionalsegment.WeexpectamodestimprovementintheUSadultnutritionsalesgrowthoverthecourseoftheyearaswelaunchnewproducts.
Forthesecondquarterweareforecastingmidtohighsingle-digitgrowthonanoperationalbasisinourglobalnutritionbusiness,drivenbycontinueddouble-digitoperationalsalesgrowthininternationalnutrition.
InourDiagnosticsbusiness,salesincreased6%inthefirstquarter,withdouble-digitsalesgrowthinemergingmarkets.Corelaboratorydiagnosticsalesincreased4.7%inthequarter.
Thisabove-marketgrowthwasdrivenbystronggrowthinourcorelaboratorysegment,asthisbusinesscontinuestoincreaseitswinrateandgainsharewithitscustomer-focusedsolutions.TheUSgrowthwasimpactedbyacomparisontoastrongfirstquarteroflastyear,whensalesincreaseddoubledigits,drivenbyhigherbloodscreeningsales.
Lastweekweannouncedapartnershipagreementwiththenumber-onecoagulationcompanyinJapan,
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
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toprovidecoagulationtestingsolutionstocorelaboratoriesworldwide.ThispartnershipbroadensourDiagnosticsofferingtomeetourcustomers'needsandtodeliverhigh-qualityresultsandefficientworkflowaspartofAbbott'stotalsolution.Coagulationtestingisapproximatelya$2billionmarketsegmentoftheinvitrodiagnosticsmarketthatisgrowinginthemid-singledigits.
Inmoleculardiagnostics,salesincreased7.4%inthequarter,drivenbygrowthofourcorebusinesssegment,infectiousdiseasetesting.Growthwasalsofavorablyimpactedthisquarterbythetimingoftendersinemergingmarkets.
InEurope,we'reearlyintothelaunchofourIRIDICAinfectiousdiseasetestingplatform,whichhelpsidentifyseriousinfectionssuchassepsis.Forthesecondquarterweexpectrelativelyflatgrowthinourmoleculardiagnosticsbusiness,asweprojectgrowthoftheinfectiousdiseasebusinesstobeoffsetbythedeclinesinournon-coreoncologyandgeneticsbusinesses.
Inpoint-of-carediagnostics,worldwidesalesincreased15.5%withdouble-digitgrowthinboththeUSandinternationallyasthisbusinesscontinuestobuildandexpanditspresenceintargeteddevelopedandemergingmarkets.Stronggrowthinthequarterwasdrivenbycontinuedperformanceinthelarge-hospitalsegmentaswellascontinuedadoptioninthephysicianofficelaboratoryandambulatorysetting,wheresmallportablesolutionssuchasAbbott'si-STAThelpimproveefficiencies.Forthesecondquarterweexpectourglobaldiagnosticsbusinesstogeneratemid-single-digitoperationalsalesgrowth.
Inmedicaldevices,salesinourVascularbusinessincreased2%inthequarter.SalesofourMitraClipproductforthetreatmentofmitralregurgitationincreasedstrongdoubledigitsinthequarterbothintheUSandinternationally.LastmonthwepresenteddatathatreinforcesMitraClip'sabilitytoreducemitralregurgitationandimproveaperson'soverallhealthandthatsupportsfurtheradoptionofthisdevice.
Ourendovascularbusinesscontinuestohavemomentum,withsalesgrowinghigh-singledigitsinthequarter,drivenbystronggrowthinourbasebusiness,includingvesselclosure,aswellasourperipheralstent,Supera.
Inourdrug-elutingportfoliointheUS,wehavegainedsequentialmarketsharefollowingtheXIENCEAlpinelaunch.XIENCEAlpineistheonlydrug-elutingstentwithanindicationtotreatchronictotalocclusions.We'vealsorecentlyannouncedthelaunchofXIENCEAlpineinJapan.
ForthesecondquarterweexpectsalesinourglobalVascularbusinesstoincreaselow-singledigitsonanoperationalbasis.
Indiabetescare,globalsalesinthefirstquarterincreasednearly3%,asthisbusinessreturnedtogrowthafterlappingtheimpactofUSreimbursementchanges.OutsideoftheUS,strongconsumerandphysicianadoptionofourrevolutionarynewglucosesensingtechnology,FreeStyleLibre,hasexceededourinitialexpectations,drivenbyasuccessfuldirect-to-consumercampaign.
WecontinuetoexpandFreeStyleLibretonewgeographies.EarlierthismonthweannouncedthelaunchinIndiaofFreeStyleLibreProforprofessionaluse.
LibreProusesthesamesensor-basedtechnologyasourconsumer-focusedFreeStyleLibreproductandhelpsdoctorsobtainthecomprehensivedatatheyneedtomaketreatmentdecisions.IndiaisalogicaltargetmarketforLibrePro,becausethereisalargediabetespopulationbutself-monitoringofbloodglucoseisnotacommonpractice.
IntheUS,wehaveandwillcontinuetosegmentourproductsandourcommercialstrategiestodriveprofitablegrowth.LastweekweannouncedthelaunchofFreeStylePrecisionNeo,anewcompact,easy-to-usebloodglucosemeterthatallowspeoplewithdiabetestoeasilyaccessawell-known,multinational
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
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brandintheover-the-countermarketsegment.Forthesecondquarter,weareforecastinglow-tomid-single-digitoperationalsalesgrowthinourdiabetescarebusiness.
Inmedicaloptics,salesweredown3.4%inthequarter.Whilethisperformancewasbelowourexpectations,weexpecttoimprovesalesgrowthinourmedicalopticsbusinessovertherestoftheyearaswelaunchnewproducts.
EarlierthisyearintheUSwelaunchedTECNISMultifocalLowAdd,whichprovidemorerangeofvisionoptionstopatientandsurgeons.JustlastweekendattheAmericanSocietyofCataractandRefractiveSurgerymeeting,welaunchedourTECNISPreloadedintheUS,whichimprovestheease-of-useforthecataractsurgeonandenhancespredictabilityoftheprocedure.Forthesecondquarter,weexpectourglobalmedicalopticsbusinesstogrowmid-singledigitsonanoperationalbasis.
Lastly,ourEstablishedPharmaceuticalsbusiness,orEPD,wheresalesincreasedstrongdoubledigitsinthequarter,includingtheimpactfromrecentacquisitionsofCFRPharmaceuticalsandVeropharm.InFebruary,wecompletedthesaleofourdevelopedmarketsbrandedgenericspharmaceuticalbusinesstoMylan.Withthisbusinessnowfocusedentirelyonemergingmarkets,wesawlow-double-digitunderlyingsalesgrowthinourkeyemergingmarketswhichincludeIndia,Russia,China,Brazil,andColombia,alongwithseveraladditionalmarkets.
PerformanceacrosstheLatinAmericanregionwasstrongduringthequarteraswearestartingtoseethebenefitsofamorecompleteproductportfolioandsalesinfrastructureduetotheintegrationofCFR.Additionally,Influvacsaleswerestrongandbenefitedfromtheproductioncapacityexpansionwecompletedlastyear.
Forthesecondquarter,weexpectsimilarstrongdouble-digitgrowthinEPDonanoperationalbasis,includingtheimpactoftheacquisitionsImentioned.
Insummary,ourfirst-quarterearningspershareandoperationalsalesgrowthexceededexpectations.Welaunchedseveralnewkeyproductsacrossourportfolioofbusinesses,andouroutlookfortheyearremainsunchangedaswearewellpositionedtodeliveranotheryearofstronggrowth.
Wewillnowopenthecallforquestions.Operator?
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)KristenStewart,DeutscheBank.
KristenStewart (Analyst.-DeutscheBank):
Hi,congratulationsonagoodquarterandthanksfortakingthequestion.Iwaswonderingifyoucouldjustlikecommentfromabig-pictureperspective.You'venowreallydoneagreatjobofre-shiftingtheportfoliowiththedispositionofthedevelopedestablishedpharmaceuticalbusinessandbringinginCFRandVeropharm.
JusthowareyouthinkingaboutjustshapingAbbottgoingforward?Itdoesn'tnecessarilyseemthatyouneedtobeinarushtocertainlydeployanyofthecash,andyouhaveplentyofflexibility;butjusthowareyouthinkingaboutjustmorefromabig-picturestrategicperspectivewhat'snext?
MilesWhite (Chairman,CEO):
Thanksforthequestion,Kristen.I'dsaywewanttogrowandwewanttogetbigger,andIthinkthere'sobviouslytwodimensionstothat.Oneisorganic,andorganiccanbeexpansionofproductsorexpansion
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ofgeography.Andthenthereis--Ithinkourfootprintcouldbenefitfrombeingalotbiggerinanumberofourbusinessesorevenasacorporationinthediversemixofbusinesseswehave.
SothatwouldimplysomeM&Aactivity,etc.Andnobodywouldbesurprisedtohearthatoutofme,Idon'tthink.
SoIthinkbothdimensionsareimportanttous,andweareputtingafairamountofattentiononboth.ThenotionisIthinkwe'vegottherightcore:it'saverysolidcoreofbusinessesthatareperformingwellortheyareinmarketsthatweknowwillcontinuetobehealthyanddrivegoodgrowthandhavegreatopportunityforus.SoIthinkwe'vegotthecoreoftheCompanywellpositionedtodayfortheattractivenessofbothproductmarketsandgeographicmarketsthatwethinkthereisalotofopportunityforinvestorsfor.
Butbeyondthat,Ithinkwecandomore,andIthinkwecandoalotmore,andparticularlyifwearebiggerinanumberofthesespaces.Somyintentionistogetbigger.Ithinkstrategicallythat'showI'mthinkingaboutit.
Toyourcommentsaboutresourcesandtimingandsoforth,asI'vesaidinthepastIdon'tfeelparticularlycapital-constrainedorresource-constrained.AndyetIdon'tfeellikeIhavetorushouturgentlyeither.
Ithinkwecanaffordtobethoughtfulandprudent;butatthesametimethatdoesn'tmeansitonourhands.SoIthinkthedealmarketortheM&Amarketoutthere--Iwouldlovetosay--weallgoouttherewithaplan:wehavethefollowingpriorities;wehavethefollowingtargets,etc.
Thoseplansarealwaysdeadonarrival.Themarkettellsyoueitherwhoiswillingtotalktoyou,whoiswillingtoengage,whatvaluationsmaybe,whatthecircumstancesinanygivengeographyorindustrymaybe.Thosethingsalwaystendtodeterminethetimingofopportunity.
Ithinkwhatwe'vebeengoodatisbeingreadywhenopportunityalignsandwhenpeople'swillingnesstoengagealignsandsoforth.AndIcan'talwayspredictthetimingofthat.
ButIcantellyou,ifyouarenotreadywhenthethingslineup,thenyouarenotabletotakeadvantageofit.Soweareobviously,Ithink,alwaystracking,alwaysstudying;andwe'vealwaysgotanideaofwhatourprioritieswouldbe.Themarketwilltelluswhatorderwegettoaddressthemin,tosomedegree.
Butyou'reright.Wearesittinginavery,verygoodposition,Ithink,rightnow,intermsofourreadiness,ourabilitytohaveresources,etc.,toinvest,theconditionofourunderlyingbusiness.
We'vegivenafairamountofattentiontoourcoststructure,tooursupplychainstructure,toourback-officestructure,ourG&A,allthosesortsofthingsoverthelastcoupleofyears,reallytoreadyourselvesforbiggerbusinessandgreaterexpansion,particularlygeographically.I'dsaythat'sallfallenverynicelyintoplace.
Youcanseeitintheresults.Youcanseeitinthegrossmargin.YoucanseeitintheG&Aline.Youcanseeitintheefficiencyofthebusiness.Youcanseeitinthegrowthratesofsomeofthebusinessesandsoforth.
IthinkIfeelprettygoodaboutthefoundation,andthat'sthekindoffoundationyouwanttoaddto.Youdon'twanttoaddtoaweakone,withalotofproblemsoralotofthingsyouaretryingtofix.Youwanttoaddtoastrongone.
SoIthinkwe'reinareallygoodpositionrightnow.Ifeelgoodaboutit.
KristenStewart (Analyst.-DeutscheBank):
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Andyou'vebeenreallyreshapingAbbotttobemoreofaconsumer-focusedbusiness.IsthathowweshouldthinkaboutM&Aprioritiesgoingforward,intermsofthingsthatcouldreallyleveragetheAbbottbrandandstaywithinthatstructure?
MilesWhite (Chairman,CEO):
Well,Iwouldn'tsaytoanextremedegree.IthinkawordI'veusedinthelotinthepastisbalance.Ithinkhistorically,particularlyindevelopedmarkets,alotofourbusinesseswerereliantongovernmentreimbursementorsingle-payersystemsandsoforth.Wewantedadifferentbalanceofthat,wheretherewasconsumerchoice,consumerpreference,consumerpay,etc.
Theverynatureofthemixofourbusinessesnowismuchmorelikethat,notjustbecauseofthebusinessesbutbecauseofgeographiesandthestructuresinthosemarkets.SoI'dsaywehave--andforexample,inourpharmaceuticalbusiness,brandedgenericpharmaceuticalbusinessoverseas,thoseareverymuchconsumer-paymarkets.
Economicstructureofthosemarketsisalittledifferent;theyaremoreattractivetous.We'vetargetedthosecountrieswiththatstructureinparticularasopportunity.
SoI'dsaytothedegreethatthatopportunityexistsforus,yes,it'sveryattractive.ButIwouldnotruleoutEurope,theUS,ortraditionalmarketsasopportunitiesforusforsomeofourbusinesses.Ijustwantadifferentoramorebalancedstructure,sowearenotover-reliantonheavyconcentrationsingivengeographieswherethereisanawfullotofdecisioncontrolatacentralpoint.
AndthenalotofEuropeancountriesarelikethat.It'soneofthereasonsEuropehasn'tbeenashighapriorityforusasemergingmarkets.ButIwouldn'trunallthewaytoonesideoftheboateither.
KristenStewart (Analyst.-DeutscheBank):
Perfect.Thenjustaquickfollow-upforTom.Tom,wouldyoubewillingtoprovidejusttheorganicgrowthinthequarterforAbbottoverall,andthenjustcommenton--
T omFreyman (EVPFinance,CFO):
Yes.Onthetopline,it'smid-singledigits,adjustedfortheacquisitions.
KristenStewart (Analyst.-DeutscheBank):
Perfect.Okay;thankyou.
Operator :
MikeWeinstein,JPMorgan.
MikeWeinstein (Analyst-JPMorgan):
Thanks.Justtocleanthatup,Tom,anythingmoreprecisethanmid-singledigitsontheorganicgrowth?
T omFreyman (EVPFinance,CFO):
Rightaround5%,Mike.
MikeWeinstein (Analyst-JPMorgan):
Okay.ThenthebeatonthequarterandnotraisingtheEPSguidance,isthatjustthetimingofFXimpactingtheP&Loverthecourseoftheyear?
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T omFreyman (EVPFinance,CFO):
I'dsayalittlebitofitisthat.Certainlyinthatexchangegain/losslineItalkedabout,thatshouldbeconsideredtobealittleextrainthisquarter,offsetbysomenegativesoverthelastthreequartersinthecurrencyarea.
I'dsayoverall,though,itwasareallygood,high-qualityquarterwhenwelookathowthebusinessesprogressedbothonthetoplineandparticularlyinthegrossmarginarea.Andwearejustpleasedwiththatprogressatthisearlypointintheyear.Ithinkitsetsusupnicelytocontinuetobuildonthatasweprogressthrough2016.
MilesWhite (Chairman,CEO):
Youknow,Mike,Iwouldaddtothat,theanalystsandinvestorswhocoverushaveallpaidalotmoreattentioninthelastcoupleyearstocurrencythanthey'vehadtoinyearspast,andpartlybecausemultinationalshaveexpandedsomuchinalotmorecountries.Imean,weallusedtobesoeuro-focusedandyen-focused,andalotofcompaniesstillare.
ButbecausesomuchofthegrowthformanyofusisAsia,LatinAmerica,otheremergingmarkets,wehaveallhadtopayalotmoreattentiontoalotmorecurrencies.Ithinkthat'smadeithardertoforecastandpredict,particularlythemixandtheshiftsandsoforth.Althoughwhenitallgoesinonedirectionlikeitdidthelastcoupleofquarters,that'sprettyeasy.
Butforus,atleastintermsofthecurrencypiece,Ithinkallofuswerecaughtoffguardsomewhatbythemagnitudeofthecurrencyshiftinthefourthquarterlastyear--althoughmaybeweshouldn'thavebeen,butwewere.
Inourcase,asI'vepointedoutinthepast,we'relessvulnerabletotheeuro--verymuchlessvulnerabletotheeuro--thanalotofcompaniesmightbe,justbecauseofthemixofourbusinessandwhereweproduceandoffsettheexchange.Butthenthatmeanswe'vegotabiggerbasketofcurrenciestolookat.
IlookatthosecurrenciesandIsay:okay;well,therubleimprovedonusinthefirstquarter,thankGod,andquitesubstantially;whiletheBrazilianrealdidnotandwenttheotherway.Chinaisverystable;EMEAisprettystableforusrightnow.
Sothebigcurrenciesthatyouwouldnormallythinkwouldaffectusorcouldaffectus--andknockonwood,andIlookoutandIthink:okay,thisshouldallbeprettystablefortheyear,barringeventsIcan'tpredictintheexternalworld.Withregardtoguidance,whichyouaskedaboutandIamcirclingbackto,Ijustthinkit'searlyintheyeartodoanychangingofguidance.
I'mkindofaMurphy'sLawbeliever,thattheminutewemakeanykindofconfidentmove,somethingisgoingtogowrongwithcurrencyorsomething.Idon'tknow.Ijustthinkit'salittleearlyinthefirstquarter.
Ihavetosay,toechoTom,theunderlyingperformanceoftheCompanyisrealgood.Totheextentthatthismomentumcontinuesandthereisnochangetoearnings--ortocurrencyassumptionsandsoforth,youaregoingtobepressuringusonthispointagaininaquarterhereorso.
Andthat'sallgood.ButIthinkI'djustliketoseemorecardsplayedbeforewemoveinthatdirection.
Ilookedbackoverourlastsevenoreightyearstoseehowmanytimeswehadadjustedguidanceinthefirstquarter.AndIthink,God,wejustgaveittoyouacouplemonthsago;sotochangeittwomonthslater,doesthatmakesense?IthinkI'veonlychangedguidanceacoupleoftimesinthefirstquarterinthelasteightyears--andI'mnotevensurewhyIdiditthen.
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BecauseIthinkingeneralIoughttoseehalftheyearplayedbeforeI'vegotagoodfeelforhowthingsaregoingtolayout.Becausegenerallythesecondhalfoftheyearisdifferentthanthefirsthalfoftheyearforallofus,andit'susuallyaroundcurrencyorsomecatastrophiceventandworldevents.
I'djustliketoseeanotherquarterplayed.Andthenifwe'recrankingalonglikeweseemtobe,thenyouaregoingtobepressuringus,andIamgoingtobenoddingandsayingyoutoldmeso;youwereright.
MikeWeinstein (Analyst-JPMorgan):
Okay.Soletmeswitchtostrategy.Miles,dependingonwhatplaysoutwithMylan,Icouldseewhereyouguysendtheyearwithmaybe$12billionto$13billionofcash.ProbablyeverythingexceptforanickelofthatwillbeoutsidetheUS.Youwouldhavestill,callit$5billionofnetdebtpotentially--netcash,excuseme,atthatpoint.
DoesthecashpositionandthefactthatreallyallofitwillendupbeingoutsidetheUS,doesthatreallydriveyoutoanacquisitionofO-USassetsorO-US-domiciledassets?Andgiventheopportunityset,doyouthinkyoucanputthatcashandyourbalancesheettowork?
MilesWhite (Chairman,CEO):
Letmegoinreverseorder.DoIthinkIcanputthecashonthebalancesheettowork?Yes.
ThetimingofwhenIcanputittoworkisthequestion,whichIaddressedtoKristenherealittlebitago.Ican'tpredicttimingverywell,Mike.
Icanpredictintent.Andmyintentisyes,Iwillputittowork.
Ithinkwe'vealwaysfoundagoodbalancehere.Weareprettystable,reliable,predictableintermsofdividendandpayoutandsoforth;andwe'vebeenprettysolidaboutbalanceofsharebuybackandcapitaldeployment.
Butwe'vealsobeenprettygoodaboutdeployingtohigher-returninvestmentsandsoforth,andIthinkourdealrecordspeaksforitself.SoIwouldsayyes,theintentisthere;thetimingisalittlehardertopredict.ButI'mnotsittingonmyhands,asIsaidearlier.
Nowhavingaddressedthat,gee,amIstuckwithonlyopportunitiesoverseasbecauseofthestructuraltaxsystemintheworld?No,Idon'tthinkso.
IamnotrulingouttheUS.Iamnotrulingitoutatall.
Ithinkthat--let'sjustsaywe'vegotgreattaxguysandgreatmanagementofourcashflowsandaccesstoourcashifwehaveto.AndIthinkwe'vegotgoodborrowingcapacityifwewanttoandsoforth.IthinkI'vegotenoughflexibilitythatIdon'thavetostayinanexternalworld.
Ithinkthere'salotofreasonsthatoverseasis,say,economicallymoreattractive.Weallknowwhatthoseare.ButIthinkthoseareallsortoffinancial--tax,cashrelated.
Atthesametime,Ithinkthere'sopportunitiesthatareattractivetousstrategicallyforourbusinessthataren'toverseas,andIdon'tthinkIcanrulethoseout.SoIdon'tfeelconstrainedtobeingoverseas.Idon'tfeellikeourabilitytofinancewhatwemaybeinterestedinisconstrainedthatway.
SowhileIamalwayslookinginothergeographiesoftheworldforopportunitiestoexpandourfootprint,IwouldtellyouIhavenotfailedtofishatmyowndockhereintheUSandlookatopportunitiesintheUS.
MikeWeinstein (Analyst-JPMorgan):
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Miles,lastquestionandI'llletsomeothersjumpin.It'sbeenrelativelyquietoverthelastsixmonthssincetheTreasuryactiononUScorporatesinvertingtooutsidetheUS.IsthatsomethingAbbottmightstillconsider?
MilesWhite (Chairman,CEO):
I'mnotlookingatit,letmeputitthatway.ImaynaivelythinkthatWashingtonwillcometoitssenseseventuallyhereandmakeadjustmentstothetaxcodetomakeUS-basedmultinationalsmorecompetitivegloballywithallthecompaniesthatwecompetewith.
Alothasbeenwrittenaboutthisandmypositiononithasbeenclear.ThistaxcodedisadvantagesUScompaniesandputsafor-salesignonthemforEuropeanandothercompaniestobuyusandarbitragetaxrates.
AndIstrenuouslyobjecttothephilosophyoftheUSgovernmentonthatline,becauseIthinkitinnowayenhancesjobgrowthorcreation,orbusinesscreation,oreconomicrecoveryintheUnitedStateswhenyouadvantageeverybodyelsetobuyourcompanies.SoIhopeatsomepointthatbothpartiesinWashingtonwilladdressthat;andIthinkso.
Again,I'maMurphy'sLawguy.Ithinktheminutewedidsomethingaroundinversionorotherwise,CongresssurelywouldchangethetaxcodeandIwouldwonderwhyIbothered.
SoI'mnotevensureI'menoughofataxtechniciantotellyouwhetherthereisapathtodothatanymore.IthinkrightnowthewaythingshavebeenstructuredandthewaytheTreasuryaddressedinaffectingthetrendtowardsomecompanieslookingatinversion,Ithinkit'sclearlyadvantagedadifferentM&Aenvironmentfornon-UScompaniestolookatUScompanies.Ithinkthat'sabsolutelyclear,andyouwouldhavetobeblindnottoseeit.
SoIdon't--it'snotonmyradarscreen,Mike.I'mlookingatthingsmorestrategicallyandmoretraditionally,meaningIlookatthestrategicfittothebusiness,orwhatwecandowithit,whatwecanexpanditandsoforth;andIlookatwhetherthoseeconomicswork.AndIamnottryingtosubsidizeourM&Aanalysiswithtaxarbitrage.
Now,Ithinkalotofothercompaniesex-USaredefinitelysubsidizingtheiranalysiswithtaxarbitragebecausetheycan.Butwearenot.
Thatsaid,Idon't--I'mnotseeingtheexpectationofataxinversionpremiuminvalues.Ithinkvaluesarehigh;Ialwaysthinktheyarehigh.
Ithinktheyarehigharoundtheworldforalotofreasons.Alotofdealsaregettingdoneatexpensivepricesandexpensivemultiples.Theyarenotbecauseofinversionortax;theyarejustexpensive.
Andthat'sdrivenexpectationsinalotofplacesup.ButIalwaysthinkthatit'sexpensiveoutthere.MyjobistomakethebestdealIcanfortheCompany,butit'sprettyhardtogetarealdealinsomecasesunlessyou'vegotaplanforwhatyouaregoingtodowiththebusinessandhowit'sgoingtooperateinyourhands.
SoIguesstosummarizeallthat,theshortansweris:I'mnotfocusedoninversionforthebenefitoftax.Doingthosethingsistemporarilyprettydisruptivetoacompany.Andifthereisalong-termbeliefthatyouneedtodothat,assomecompanieshavedone,thenitmustfitthemstrategically.
Inourcase,Idon'tknowthatweneedtodothat.AndIwouldratherhopeherethatourgovernmentwillfixthetaxcodeinthenextcoupleofyears;andiftheydoIthinkit'sgoingtodramaticallyenhancethecompetitivenessofcompanieslikeus.
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MikeWeinstein (Analyst-JPMorgan):
Okay,perfect.Thankyou,Miles.
MilesWhite (Chairman,CEO):
(multiplespeakers)asacommercialforme,butthat'skindofthedeal.
MikeWeinstein (Analyst-JPMorgan):
Thankyou.
Operator :
DavidRoman,GoldmanSachs.
DavidRoman (Analyst-GoldmanSachs):
Thankyou.Goodmorning,Miles,Tom,andteam.Iwantedjusttostartwiththebusinessactually,andspecificallyaroundmedicaldevicesactuallywhereIthinktheoverallgrowthrateofthatbusinesslookstobetrendingalittlebitbetterthanwhereithas.SoIwashopingyoucouldjustgointoalittlebitmoredepthontheturnintheVascularbusiness;andthenalsowhatgivesyouconfidencespecificallyonthemedicalopticsside,thatwe'llseeaturninthatfranchisethroughthebalanceof2015.
MilesWhite (Chairman,CEO):
Okay,letmestartwiththeVascularside.Ithinkwhatwe'veseenoccurhereoverthelastfewyears--inthecorestentbusinessinparticular,becauseeverythingkindofrevolvesaroundthestentbusiness--isacertainamountofstabilityoutinthemarketplace.Thereisalwayspricepressure;therestillis.
Themajorcompetitorsinthemarketareprettycompetitive.Physiciansthatuseourproducts,theyuseallofus,andtheykindofbalanceit.
SoIthinkwhatyou'veseenisthevalueofincrementalinnovationhasdiminishedandthemarkethasstabilized.Onemightevensuggestitiscommoditizingtoadegree;butit'sstabilized.
SoIwouldsaythereisaconstantdrumbeatofpricepressureasgovernmentsorpayersorhospitalsorwhateverthecasemaybearetryingtomanagetheirownbudgets.InsomewaysIthinkitjustforcesusalltobealotmoreinnovativeaboutwhereournextfrontiersare,etc.
Ithinkthatinthemedicaldevicebusinessthereisalotofopportunitiesforinnovation.Ratherthanlookatmuchbroaderfootprintofverymatureproducts,weareputtingourfocusonalotofinnovationataventurelevelandasmallerlevel,wherethereisalotofopportunityforgrowth,expansion,andcontinuedimprovementtohealthcare.
I'mnotpreparedtotalkalotaboutthattoday,butIwouldtellyouthat'swhereI'mheadedwiththat,istogrowandexpandthatdevicebusiness,butperhapsalittledifferentlythanwhatpeoplemightexpect.ButIlikethecoreofwhatwehave.Ithinkwe'regoingtohavetomanageitalittledifferentlygoingforward,butIthinktheexpansionforalotofotherrelatedareasisthere.
Onmedicaloptics,there'stwostorieshere.AmIpleasedwithourperformance?Sometimes.
Wehadthreeorfourverystrongquartersinarow,andthenthebusinesshitawall.Thereareseveralexplanationsforthat.
Partofit'sus;partofitisourowncompetitivenessorresponsiveness;partofitisoneofourmain
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competitorswakingupagainandrespondingtothesharethatwehadtakeninthecataractbusiness.Iwouldattributethattojusttheebbandflowofcompetition,whichisgood.
There'salsosomestructuralthingsgoingonthereintheopticsbusiness.WeareseeingsomecustomerconsolidationintheLASIKmarket;weareseeinglowerutilizationintheLASIKmarket.We'vebeenseeingthatforanumberofyearsnow.
Cataractbusinessremainsstrong.Yes,super.We'vegotagreatdrumbeathereofinnovationcomingsteadily.OurR&Dgrouphasdoneafabulousjob,Ithink,overthelastseveralyearsandtheycontinueto,withjustconstantproductinnovationandlaunch.
SoIthinktherearesometacticalthingswe'vegottodoalotbetter.Ilikethisbusiness;it'soneIwanttoexpandin.Ifyou'vegotthingsyou'vegottoadjustinternally,itmakesitalittlehardertoexpand.
Youliketoaddtoastrongandwell-operatingcore,soweknowwe'vegotsomeimprovementtodoinourownperformance.I'dsayopticsremainsonmyradarscreenasonetoexpand,becauseIthinkthereisalotofopportunitythere.
DavidRoman (Analyst-GoldmanSachs):
Okay,that'shelpful.MaybeswitchinggearsovertotheNutritionside,IthinkinyourpreparedremarksyousaidthatyouhadenteredtheChinesemarketinadultnutritionwithEnsureinretailstoresthere.Iknowthatthat'sanopportunitythatisinitsinfancyrightnow.
ButwouldyouagreewithanassessmentthatovertimetheChineseadultopportunitycanbealowbilliondollar,$2billion,$3billionopportunity,usingtheVietnamtemplateasanexampleandjustlookingatthedemographicopportunityinChina?Andhowlongwouldittakeyoutorealizesomethinglikethat?
MilesWhite (Chairman,CEO):
I'mbreathlessatyourexpectations.Look,IwouldtellyouIhaveanambitionforittobeaprettybigbusiness.I'mnotsureI'dputa2or3infrontofthebillionyet.Iwouldliketogettoafewhundredmillionandgetsomecriticalmassandmomentum.
Idohaveanambitionfortobeaverysubstantialbusiness,alongthelinesyouaredirectionallyheaded.I'mjustcautiousaboutgettingaheadofmyselfhereonthat.
I'vegotacouplebusinesseshereatAbbottthatI'vehadthosesameambitionsherefor,for10years,andtheyarestillaround$0.5billion.SoIdon'twanttoperpetuallybeavisionary,becauseitnevercomestrue.Iwouldlikeforitactuallytohappen.
SointhiscaseI'dsayIbelievethatopportunityisthere.Ibelievethatpotentialisthere.
We'vegottoestablishthecategory.We'vegottoestablishtheuse.We'vegottoestablishthebrand.
AndIthinkwhatwe'veseeninthepastisthateverycountrywe'vedonethatinhasbeenprettysubstantial.Wecreatethecategory;wearethecategory.We'vegottodothatinChina.
ThereisanadultcategoryinChina;it'salittledifferentthanwhatEnsureisordoes.Buttherehasbeensomeregulatorychangetherethathasbeenfavorabletousandthathasallowedustoestablishthiscategoryatamorerapidpace.
Ithinkit'sreallyattractive,andIthinkthereisabigupsidehere.SoyouandIwouldatleastbeconceptuallyaligned.Iamjustafraidtoputthatkindofspecificityaroundsize,becauseIdon'tknowhow
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longitmighttake.
Youcouldberight.Andwhereverweare,whenyouarerightIwantyoutosendmeanoteandletmeknowyouwereright,becauseIwillbeveryhappyifweare.ButIthinkthereisalotofopportunitytogetbiglikethat.
DavidRoman (Analyst-GoldmanSachs):
Okay.Well,Iguessifitmakesyoufeelbetter,weneverputatimelineonit.Soitwasmoreofapeakopportunity.
MilesWhite (Chairman,CEO):
InthatcaseIthinkyou'regoingtoberight.AsIsaid,canwegettoafewhundredmillionfirst?Wewillstopandhaveatemporarycelebrationandkeepmovingon.
ThisislikehavingakidinLittleLeagueandyouwanthimtobeDerekJeter.HewillbeDerekJeter;let'sjusttakeitonestepatatimehere.
DavidRoman (Analyst-GoldmanSachs):
Allright.Ilookforwardtothatcelebration.MaybejustlastlyontheP&L,Tom,asIlookatyourguidancefortheyearonoperatingmargin,you'veobviouslydoneatremendousjobexpandingprofitabilityoverthepastcoupleyears.ButstillasIlookatwhereyourmarginsareversusyourpeers,itlooksliketherestillissomeroomtogoevenafterwhereyouendupthisyear.
Isthat--arewestillinaperiodwhereyouthinkAbbottisunderearningversusthepeergroupincertainsegments,withroomtogoontheprofitabilityside?
T omFreyman (EVPFinance,CFO):
Yes,Idon'tlikethatcharacterizationsomuch.Imean,whenIlookatthesteadyannualprogressofreallyacomplexmultitudeofinitiatives,reallyfromtoptobottomlineacrossallthesebusinesses,Ithinkit'sjustexactlythewaytogoaboutit.
Buttoansweryourquestiondirectly,Idefinitelyseemoremarginexpansionopportunityacrossanumberofthesebusinesses,andthat'spartofourexpectationaswemoveforward.Ithinkyouarealreadyseeingitinthefirstquarterhere,andwehaveobjectivesin2015forthat100basispoints-plus,andthereisnoreasontostopitthere.
Ithinkeachofthesebusinessesismovingforward,andit'sahugepriorityforthemanagementteamhereaswelookatthebusiness.
MilesWhite (Chairman,CEO):
David,letmeaddtothatacoupleofthingsthatunderlieit.Oneis,atleastonthecostside,thereisalotoflow-hangingfruitearlyonthatonecanget.Okay?Gotthat.
Thereisotherstuffthatisstructural,whetheritissupplychainrelatedorplantrelated,wheretheplantis,costoflabor,costofinputs,costofcommodities,distribution,allthosesortsofthings.Right?Thestructuralonestakelonger.
IfIlookattheNutritionbusinessasanexample,wherewe'vebeenatitforfourorfiveyears,therewasasteadydrumbeateveryyear.Butwhatweareseeingthebenefitofnowisthebiggerstructuralinvestmentswehadtomakethattooktwo,threeyearstorealize,evenfouryearsinsomecases,because
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ofplants,plantlocation,supplychain,etc.;andwearenowstartingtoseethebenefitsofthat.Sosometimesyou'vegottoactuallychangeprocesssystem,etc.,togetatit.
Secondpieceofitis,thataffectsyourmargins,isprice.Andweareprotectingprice.
Thisisalittlebitoftwostepsforward,onestepback.Exchangekeepserasingsomeoftheadvantageoffthetopline.
Youcansay,well,exchangeadvantagesyouonthebottomlinetoo,totheextentthatyoucanputyourcostsintherightplaces;andthat'strue.Butforthelastfewyearswe'vewatchedtremendousadvantagegainedingrossmarginmanagementandcostreductionerasedbyexchange.Andallmultinationalsareseeingthattosomedegree.
Sowelookatitandwesay:okay,we'vejustgottohaveprettyaggressivetargetsheretoimprovethesemarginssteadily.You'vegottotreatexchangealmostlikeacostatthispointeachyearorapricereduction.Soconstantlywelookatthebalanceofthatexchange,howwemanageit,ineffecttreatingitlikeanerosionofprice,becausethatcontributestomargin,too.
Soyougotmultiplefactorsatworkhere,andwe'vebeenveryintentionalabouthowwe'vespreadourbusiness,spreadourcostbase,managedexchange,hedgedexchange,allthosesortsofthings,toprotecttothat.Because,honestly,ithurtstogainitthroughcostandgiveitbackthroughpriceerosionorexchangeeveryyear.
Andwe'veaffectedmix:themarketswechoose,theproductswechoose,andsoforth.Themixinprofitablesegmentsversusunprofitablesegmentsorlessprofitablesegments,allthataffectsit.Someofitjusttakestime.
Nowtogiveyouthebottom-lineanswertoyourquestion,istherestillopportunity?Yes,thereis.
Andit'snotjustalittle.Wekeeppluggingawayatprettybigchunksofopportunityhere.
DavidRoman (Analyst-GoldmanSachs):
Okay,great.Iappreciateallthedetail.Thanks,guys.
Operator :
DavidLewis,MorganStanley.
DavidLewis (Analyst-MorganStanley):
Goodmorning.Miles,justcomingbacktotheMylanstakehere,yourtreatmenthereofthisstakehasbeenmorepatientthanIthinksomeexpected,whichatleastsofarisworkingouttoyouradvantage.Iwonder,whatareyourthoughtsfromherein--
MilesWhite (Chairman,CEO):
It'sworkingoutforusjustfine.(laughter)
DavidLewis (Analyst-MorganStanley):
That'sright.Patienceisperfect.ButIwonderwhatyourthoughtsarehereathowyouarebalancingaccesstocapitalandthepotentialoptionalityofMylan.Thereseemstobethisviewabouttheinvestmentcommunitythatyouarespendingalotoftimethinkingaboutthisstakeandwhatyoudowithit.
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Howmuchtimeareyouspendingonit?Isthisimportanttoyou?Andhowareyoubalancingthesedifferentfactors?
MilesWhite (Chairman,CEO):
Youknow,Ijustlovethevoraciousimpatienceoftheinvestmentcommunity.Wedidn'tevenfinishthisdealtillFebruary;thatwastwomonthsago.
Iknowyoucouldsay:well,youcouldhavebeenthinkingaboutitallaheadofthattime.Yes,Iknow.
Butuntilit'sdone,it'snotdone.Andnowit'sdone,right?
IwouldalsosayIdon'tfeelconstrainedatallbytheformofourcapital,whetherit'sinMylanstockorcashoranythingelse.Thefactis,ithasnobearingonwhatwecanorcan'tdofromastrategicstandpointbecauseif,forwhateverreason,ourcapitalwastiedupinMylanIwouldjustprobablyborrowtillIunlockedit.SoIdon'tfeellikeI'vegotanyconstraintatall.
AndI'mhappytohavebeenpatient.Whenthisdealwasdone,youwillrecalltheoriginalvalueputonthesaleoftheEPDbusinesswas$5.3billion.AsIamwatchingthegreattheaterouttherethatissurroundingMylanandateamIhaverespectfor,thevalueofourpositionhasrisenbecauseinvestorshavevaluedMylan'sstock.Soyoucansaythatislucky--andIwilltakegoodluckanyday.
ButI'mhappythatwe'vebeenpatient,becauseit'sclearlyaccruingvaluetousasanownerandinvestorofMylanstock.IthinkRobCouryhasgotanaggressiveteamthere;he'sgotaggressiveplans.Obviouslyotherpeoplehaveaggressiveinterestinthem.
Andallofthatisinourfavorableinterestfinancially,andit'snotinconsequential.Whatwasa$5billionvalueiswellnorthof$7billionnow;andthat'sjustmoreoptionalityforme,andI'mhappyaboutthat.
SoIdon'tfeellikeIhavetobeinarealbighurrytodoanythingtoresolvethatstanding.Imean,oneofthereasonsthatweonlysoldathirdofthestockisbecausethat'sallwewantedtosell.Wedidn'twanttosellanymorethanthat,norwouldwehave.
Ilikewherewearewithit.Ithinkit'sbeenproventoholdit.It'sproventobeagreatvaluegainerforus,andit'snotaconstraint.
SothereisnohurryonMylanotherthanwedon'tintendtobelong-termholders,buttheredoesn'tneedtobeahurry.IfIputitintocash,IcantellyourightnowIcan'tearnasmuchonthatasIamearningleavingitinMylan.SountilIneedtosellit,Ithinkit'sinaniceplace.
DavidLewis (Analyst-MorganStanley):
Okay,veryclear.IfthiswholeCEOthingdoesn'tworkout,Iguessyoucanalwaysbea[PM],Miles.
TheotherquestionIwantedtogoin,Tom,isgrossmargins.Ithinkthere'sbeenalotofcommentaryonmarginsonthecallhere.
Butspecifically,thisisthestrongestgrossmarginquarterIthinkwe'veseensincethespin--actuallyevengoingbackbeforethespin,atleastthefourquartersbeforethespin.Socanyoujusttalkspecificallyinthisparticularquarteranyspecificdriversofgrossmargins?
Itdoesseemlargelysustainableintothesecondquarter.Butwhat'sreallydrivingthestrongestnumberwe'veseeninthreeyears?
T omFreyman (EVPFinance,CFO):
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Yes.It'sjustbusinessmix,continuingfocusoncostreduction,everyonefocusedonexpanding,andreallyit'sacrosstheboardinthebusinesses.Thereisprobablyaslightamountofthiseurobenefitcomingthroughthereaswell,butitreallyisreallyoperatingfocus,David.
DavidLewis (Analyst-MorganStanley):
Okay.Miles,justonelastquickquestionandI'lljumpbackinqueue.Thereweretwobusinessesyoucalledoutaboutayearagoasareasyouweregoingtoseemoreintensivemanagementfocus.IthinkonewasUSnutritionalsandtheotherobviouslywasEPD.
Betweenthosetwo,itdoesappearthatthereismoresustainablegrowtheffortscomingthroughorfruitfulontheEPDsidethantheUSnutritionalsbusiness.ButIwonderifyoucouldjustupdateusintermsofthatmanagementintensivefocusandwhereyouseethosetwobusinessestoday.Thankyou.
MilesWhite (Chairman,CEO):
Well,theEPDbusinesshasbeenprettytransparenttoallofyou.You'vewatchedwhatwe'vedonethereovertime.Imean,therewasseveralthingsgoingon.
One,wecametotheconclusionthatwewantedtofocusonemergingmarkets,notdevelopedmarkets.AndthedevelopedmarketpartclearlywasstrategicallyabetterfitwithinMylan,inamuchlargerbusinessfocusedinthosedevelopedmarkets.Andsowedidthat.
Nowyou'llnotewealsoacquiredawonderfulcompany,CFRPharmaceuticals,inLatinAmerica,whichgaveusaverystrongpositioninLatinAmericaandenhancedtheonewealreadyhad.AndwemadeafairlysignificantmoveinRussiathatgotdoneduringthecoreofthewholeUkraineissue,whichwasa--again,Murphy'sLaw:ifyoubelievethatifitcangowrong,itwill.Boy,everythingalignedbadlyandwestillgotthatdealdone.
Fortunatelywediditinrubles,soitdidn'thurtuswhentherublecollapsed.So,thatwasreallygoodstrategically.
Ithinkthatwhatwe'vegotnowinourEPDbusiness,whichwasdonefairlytransactionally,isacompleteredirectionofthatbusiness,refocus,re-emphasiswhereIthinkthebiggestopportunitiesfromourstandpointare,forwhatwearefocusedonandinterestedin.Sothat'sbeengood.
Thatrepositioninghasbeengood.It'sbeenveryintentional.Ittookusabout18monthstogetitdone.
Frankly,Ithinkthatwasfasterthanwemighthaveexpected.Thingsalignedverywellforus.
SoIlookattheunderlyinggrowthratesofthecountriesthatwearefocusedin,inEPD.Theyarestrong.
Ilookatourownperformance.It'simproving.Coulditbebetter?Sureitcould;butrightnowit'sdouble-digitandaboveitsmarketratesinitscountries,andIthinkthat'sallgood.
SoIlikethepositioningofthat,andthat'sacorethatIcanaddto.
OntheNutritionside,we'vegonethroughquiteabitofchange,too.Therehasbeensomemanagementchangeinthebusinesses.
Ilikethemanagementteamwehaveinplacerightnow,alot,intermsofitscapability.Itisjustgettingitsfeetunderit.Mostofourleaderstherehavebeeninplaceforthebetterpartofsixtoninemonths,iftherehasbeenachange.That'sgood.
Someofthatisorganic;someofitisfromoutside.We'vemadesomechangesinhowweareinvestingin
CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices
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thebusinessand,frankly,howwearemarketing.Allofthathasbeenastrongimprovement.
Ithinkthepediatricbusinessiswellpositioned.Wewillseeafairamountofimprovementsinourmarketingcomingforwardhere,newproductlaunchesandotherthingsthatIamprettyexcitedabout,thatIthinkwillbegoodforthatbusiness.
SoI'veactuallygotaprettystrongcomfortablefeelingabouttheUS.
Ithinkouradultnutritionbusinessisweak--orweakrelativetowhatIwouldexpectofit.It'sastrongbusiness;wearelargeinthecategory,asyouknow.
Ithinktherearesomethingsthatweareworkingthroughthere.We'vegotagoodteamthere,andittakesawhiletoseetheresultsofthechangesinmarketingthatwe'veputinplaceandthechangesinproduct,andetc.
SoIthinkwe'vejustgottobe--Ihatetosaythewordforyouguys--alittlepatienttowaitfortheresultstoshow.Buttheactionsthatwe'vetaken,whichwereprettydeliberate,areinplace.
IcanrememberyearsagoinChicago,DaveWannstedt,coachoftheBears,sayingallthepiecesareinplace,we'regoingtowintheSuperBowl;andIdon'tthinkwewereeven500thatyear.Ithinkthepiecesareinplace,therightmanagementisinplace,andIamprettypleasedwithwherewearewiththatbusiness.
Youdon'tseeitasmuchfromyourperspectivebecauseitwasn'tsotransactional,likedivestingoracquiringcompanieswasinEPD.ButIthinktheNutritionbusinessisnowwellpositioned.
WhenIlookattheinternationalpartofitwe'veweatheredanumberofevents,whetherit'srecallsorotherthingsinthatbusiness.IfIcalloutoneexample,IwouldsaytheteaminChinahasdoneawonderfuljobregaininglostmarket,lostshare,lostpositionfromthatrecallacoupleyearsago.Thatbusinessisgoingwell--thepediatricbusinessIamspeakingofnow--andtheshareissomewherebetween8.5%,9%,whatever,thewaywemeasureit,andtrendingwell.Growthratesaretrendingwell.
Ourpositioninanumberofothercountriesimprovingwell,soIliketheunderlyingfundamentalsofwhatIamseeingoutofourNutritionbusiness.I'dliketojustseeacoupleofquartersofevidenceofgoodmomentumhere,andIthinkyouwillseeit.
DavidLewis (Analyst-MorganStanley):
Okay,great.Thankyouverymuch.
BrianYoor (VP-IR):
Okay,we'lltakeonelastquestionfromthequeue,please.
Operator :
BobHopkins,BankofAmerica.
BobHopkins (Analyst-BankofAmericaMerrillLynch):
Hi.Thanksfortakingthequestion.Justtwoquickstrategyquestions,oneondevicesandoneonEPD.
First,Miles,itsoundslikefromyourcommentsthatthestrategyintraditionaldevicesisgoingtobealittlemorefocusedonsmaller,innovation-baseddeals.Iwaswondering,isthattherightwaytolookatit?BecauseIassumeyourcommentsonwantingtobealotbiggerdon'treallyapplytotraditionalnon-consumer-facingmedtech.
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MilesWhite (Chairman,CEO):
Letmeclarify.Iwouldn'tsayexclusively--soIwouldn'twantyoutothinkyouareonlygoingtoseelittleoutofme,becausethat'sprobablynotaccurate.ButIthinkthatyoucan'tjustassemblelargeandmatureeither.Okay?
You'vegottohaveafoundationandapresenceandacore.Butthefutureofanycoreorfoundationalbusinessindevicesalmostalwaysdependsoninnovation,replacement,cannibalizingyourselfwithfutureinnovation,etc.
Sothere'sgottobeabalancethere,andIthinkwe'reatapointwherewe'vegotthisverystrongcorebutprobablynotenoughoftheinnovationthatcomesfromthesmallerkindsofcompanies,etc.
Andyoucan'tdoeverythinginyourownR&Dinthatparticularbusiness.Youcanindiagnostics,butyoucan'tindevices.
SoIwouldsayyoumightseeboth.Youmightseethat--Icantellyouintentionallyyouaregoingtosee--wearegoingtobeinvestinginsmalleropportunitiesthatcouldgetalotbigger,becausewewanttobuildthebreadthofthatbusiness.
Butyouareright;wemaywellhavetopayattentiontothefoundationalbaseaswell.SoIwouldn'truleitout.
ButIdon'twanttogiveyoutheimpressionthatIamjustlookingatacoupleofbigadd-onsorsomethingthere,becauseIamnot.
BobHopkins (Analyst-BankofAmericaMerrillLynch):
Okay.
MilesWhite (Chairman,CEO):
Doesthatmakesense?
BobHopkins (Analyst-BankofAmericaMerrillLynch):
Itdoes.Itdoes,yes,andwe'llfollowupalittlebitmoreoff-line,becauseIwantedtoaskoneotheronejustaboutEPD.Becauseyou'vedoneacoupledealslatelyandIamjustcurious.
ArethereothersoutthereinEPDfromanM&Aperspective?Oristhisanareawhereyou'vefoundwhat'savailable,acquiredthem?IjustcurioushowharditistofindassetsinEPDsinceitlookslikethatisanattractivebusinesslong-term.
MilesWhite (Chairman,CEO):
Itisnothardatalltofindassets.Thatpart'seasy.
Andit'snothardtofindreallygoodassets.Thatpart'seasy.
Andit'snothardtofindassetswithgoodmanagement,goodfit,goodproducts,goodgeographiclocations.Thatpart'sactuallyeasy.
AndIthinkourpeopleandourteamandsomeofourcontactsandstuff,Ithinkwehaveauniqueadvantagetheregeographicallyandinternationally,onthatparticulardimension.IcanthinkofoneortwoothercompaniesthathistoricallyI'vethoughtwe'rethinkingaboutitthesameway,becausewekeepbumpingintothemeverywherewego.
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Andwhenweareouthunting,fishing,whateveryouwanttocallit,lookingatopportunities,wekeeprunningintothesameoneortwocompaniesouttheredoingthesamething.SoIknowthattheythinkalittlebitlikewedo.
ButIwouldtellyouthatpartiseasy.Thehardpartisgettingbeyondtherecognitionofitandgettingtosomethingwhereeithersomebodyisinterestedinatransactionorit'satavaluethatdoesn'tmakeyournosebleed.Andthatissometimesachallenge.
Alotofthethingsthatwewouldbeinterestedin,insomeoftheinternationalmarkets,arefamilysponsored,family-owned,orprivatelyowned,etc.,andsometimesit'sjustmorecomplicated.It'snoteasilytransacted.Ittakes--well,whatIwouldcallalotofrelationaltime,gettingtoknoweachotherandgettingtobecomefamiliarandcomfortable,togetsomewherewithadeal.
IwouldsaythattheCFRtransaction--thisisafabulouscompany.Itwasafamilycompany,eventhoughitwaspublic.Ithada90-yearhistory;itwasanemotionalthingforthemtosellthecompany.
Andthecompanyissuperhighquality;themanagementishighquality.Icouldn'tbemorepleased,andit'sagreathomeifyou'reatAbbottforit;it'sagreatperformer.
Thatdealtookawhiletodevelopcomfortandrelationsandsoforth,andthat'showalotofthemare.That'showalotofthemare.PiramalinIndiawasthesameway,andIthinkitjusttakestime.
Soifyouaskme,doIthinkthereisopportunityoutthere?Thereisalotofopportunity,buttheyarenotfast.
BobHopkins (Analyst-BankofAmericaMerrillLynch):
Terrific.Iappreciatethecomments.Thankssomuch.
BrianYoor (VP-IR):
Okay.Thankyou,operator.Andthankyou,everyone,forallyourquestions.ThatconcludesAbbott'sconferencecall.
Areplayofthiscallwillbeavailableafter11:00a.m.CentralTimetodayonAbbott'sInvestorRelationswebsiteatAbbottinvestor.com,andafter11:00a.m.CentralTimeviatelephoneat402-998-1629.Thepasscodeis1674.Theaudioreplaywillbeavailableuntil4:00p.m.CentralTimeonWednesday,May6.
Thankyouforjoiningustoday.
Operator :
Thankyou.Thisdoesconcludetoday'sconference.
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