Download - Abbott Laboratories (ABT) Earnings Report: Q1 2015 ...s.t.st/media/xtranscript/2015/Q2/13122402.pdf · as in the past, non-GAAP financial measures will be used to help investors understand

CompanyName:AbbottLaboratoriesCompanyTicker:ABTSector:HealthCareIndustry:HealthServices

EventDescription:Q12015EarningsCallMarketCapasofEventDate:70.36BPriceasofEventDate:47.95

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

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




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.




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




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




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,




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




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?


Thanksforthequestion,Kristen.I'dsaywewanttogrowandwewanttogetbigger,andIthinkthere'sobviouslytwodimensionstothat.Oneisorganic,andorganiccanbeexpansionofproductsorexpansion




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.





Andyou'vebeenreallyreshapingAbbotttobemoreofaconsumer-focusedbusiness.IsthathowweshouldthinkaboutM&Aprioritiesgoingforward,intermsofthingsthatcouldreallyleveragetheAbbottbrandandstaywithinthatstructure?


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.


Perfect.Thenjustaquickfollow-upforTom.Tom,wouldyoubewillingtoprovidejusttheorganicgrowthinthequarterforAbbottoverall,andthenjustcommenton--


Yes.Onthetopline,it'smid-singledigits,adjustedfortheacquisitions.


Perfect.Okay;thankyou.

Operator :

MikeWeinstein,JPMorgan.

MikeWeinstein (Analyst-JPMorgan):

Thanks.Justtocleanthatup,Tom,anythingmoreprecisethanmid-singledigitsontheorganicgrowth?


Rightaround5%,Mike.


Okay.ThenthebeatonthequarterandnotraisingtheEPSguidance,isthatjustthetimingofFXimpactingtheP&Loverthecourseoftheyear?





I'dsayalittlebitofitisthat.Certainlyinthatexchangegain/losslineItalkedabout,thatshouldbeconsideredtobealittleextrainthisquarter,offsetbysomenegativesoverthelastthreequartersinthecurrencyarea.

I'dsayoverall,though,itwasareallygood,high-qualityquarterwhenwelookathowthebusinessesprogressedbothonthetoplineandparticularlyinthegrossmarginarea.Andwearejustpleasedwiththatprogressatthisearlypointintheyear.Ithinkitsetsusupnicelytocontinuetobuildonthatasweprogressthrough2016.


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.




BecauseIthinkingeneralIoughttoseehalftheyearplayedbeforeI'vegotagoodfeelforhowthingsaregoingtolayout.Becausegenerallythesecondhalfoftheyearisdifferentthanthefirsthalfoftheyearforallofus,andit'susuallyaroundcurrencyorsomecatastrophiceventandworldevents.

I'djustliketoseeanotherquarterplayed.Andthenifwe'recrankingalonglikeweseemtobe,thenyouaregoingtobepressuringus,andIamgoingtobenoddingandsayingyoutoldmeso;youwereright.


Okay.Soletmeswitchtostrategy.Miles,dependingonwhatplaysoutwithMylan,Icouldseewhereyouguysendtheyearwithmaybe$12billionto$13billionofcash.ProbablyeverythingexceptforanickelofthatwillbeoutsidetheUS.Youwouldhavestill,callit$5billionofnetdebtpotentially--netcash,excuseme,atthatpoint.

DoesthecashpositionandthefactthatreallyallofitwillendupbeingoutsidetheUS,doesthatreallydriveyoutoanacquisitionofO-USassetsorO-US-domiciledassets?Andgiventheopportunityset,doyouthinkyoucanputthatcashandyourbalancesheettowork?


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.





Miles,lastquestionandI'llletsomeothersjumpin.It'sbeenrelativelyquietoverthelastsixmonthssincetheTreasuryactiononUScorporatesinvertingtooutsidetheUS.IsthatsomethingAbbottmightstillconsider?


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.





Okay,perfect.Thankyou,Miles.


(multiplespeakers)asacommercialforme,butthat'skindofthedeal.


Thankyou.

Operator :

DavidRoman,GoldmanSachs.

DavidRoman (Analyst-GoldmanSachs):

Thankyou.Goodmorning,Miles,Tom,andteam.Iwantedjusttostartwiththebusinessactually,andspecificallyaroundmedicaldevicesactuallywhereIthinktheoverallgrowthrateofthatbusinesslookstobetrendingalittlebitbetterthanwhereithas.SoIwashopingyoucouldjustgointoalittlebitmoredepthontheturnintheVascularbusiness;andthenalsowhatgivesyouconfidencespecificallyonthemedicalopticsside,thatwe'llseeaturninthatfranchisethroughthebalanceof2015.


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




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.


Okay,that'shelpful.MaybeswitchinggearsovertotheNutritionside,IthinkinyourpreparedremarksyousaidthatyouhadenteredtheChinesemarketinadultnutritionwithEnsureinretailstoresthere.Iknowthatthat'sanopportunitythatisinitsinfancyrightnow.

ButwouldyouagreewithanassessmentthatovertimetheChineseadultopportunitycanbealowbilliondollar,$2billion,$3billionopportunity,usingtheVietnamtemplateasanexampleandjustlookingatthedemographicopportunityinChina?Andhowlongwouldittakeyoutorealizesomethinglikethat?


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




longitmighttake.

Youcouldberight.Andwhereverweare,whenyouarerightIwantyoutosendmeanoteandletmeknowyouwereright,becauseIwillbeveryhappyifweare.ButIthinkthereisalotofopportunitytogetbiglikethat.


Okay.Well,Iguessifitmakesyoufeelbetter,weneverputatimelineonit.Soitwasmoreofapeakopportunity.


InthatcaseIthinkyou'regoingtoberight.AsIsaid,canwegettoafewhundredmillionfirst?Wewillstopandhaveatemporarycelebrationandkeepmovingon.

ThisislikehavingakidinLittleLeagueandyouwanthimtobeDerekJeter.HewillbeDerekJeter;let'sjusttakeitonestepatatimehere.


Allright.Ilookforwardtothatcelebration.MaybejustlastlyontheP&L,Tom,asIlookatyourguidancefortheyearonoperatingmargin,you'veobviouslydoneatremendousjobexpandingprofitabilityoverthepastcoupleyears.ButstillasIlookatwhereyourmarginsareversusyourpeers,itlooksliketherestillissomeroomtogoevenafterwhereyouendupthisyear.

Isthat--arewestillinaperiodwhereyouthinkAbbottisunderearningversusthepeergroupincertainsegments,withroomtogoontheprofitabilityside?


Yes,Idon'tlikethatcharacterizationsomuch.Imean,whenIlookatthesteadyannualprogressofreallyacomplexmultitudeofinitiatives,reallyfromtoptobottomlineacrossallthesebusinesses,Ithinkit'sjustexactlythewaytogoaboutit.

Buttoansweryourquestiondirectly,Idefinitelyseemoremarginexpansionopportunityacrossanumberofthesebusinesses,andthat'spartofourexpectationaswemoveforward.Ithinkyouarealreadyseeingitinthefirstquarterhere,andwehaveobjectivesin2015forthat100basispoints-plus,andthereisnoreasontostopitthere.

Ithinkeachofthesebusinessesismovingforward,andit'sahugepriorityforthemanagementteamhereaswelookatthebusiness.


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




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.


Okay,great.Iappreciateallthedetail.Thanks,guys.

Operator :

DavidLewis,MorganStanley.

DavidLewis (Analyst-MorganStanley):

Goodmorning.Miles,justcomingbacktotheMylanstakehere,yourtreatmenthereofthisstakehasbeenmorepatientthanIthinksomeexpected,whichatleastsofarisworkingouttoyouradvantage.Iwonder,whatareyourthoughtsfromherein--


It'sworkingoutforusjustfine.(laughter)


That'sright.Patienceisperfect.ButIwonderwhatyourthoughtsarehereathowyouarebalancingaccesstocapitalandthepotentialoptionalityofMylan.Thereseemstobethisviewabouttheinvestmentcommunitythatyouarespendingalotoftimethinkingaboutthisstakeandwhatyoudowithit.




Howmuchtimeareyouspendingonit?Isthisimportanttoyou?Andhowareyoubalancingthesedifferentfactors?


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.


Okay,veryclear.IfthiswholeCEOthingdoesn'tworkout,Iguessyoucanalwaysbea[PM],Miles.

TheotherquestionIwantedtogoin,Tom,isgrossmargins.Ithinkthere'sbeenalotofcommentaryonmarginsonthecallhere.

Butspecifically,thisisthestrongestgrossmarginquarterIthinkwe'veseensincethespin--actuallyevengoingbackbeforethespin,atleastthefourquartersbeforethespin.Socanyoujusttalkspecificallyinthisparticularquarteranyspecificdriversofgrossmargins?

Itdoesseemlargelysustainableintothesecondquarter.Butwhat'sreallydrivingthestrongestnumberwe'veseeninthreeyears?





Yes.It'sjustbusinessmix,continuingfocusoncostreduction,everyonefocusedonexpanding,andreallyit'sacrosstheboardinthebusinesses.Thereisprobablyaslightamountofthiseurobenefitcomingthroughthereaswell,butitreallyisreallyoperatingfocus,David.


Okay.Miles,justonelastquickquestionandI'lljumpbackinqueue.Thereweretwobusinessesyoucalledoutaboutayearagoasareasyouweregoingtoseemoreintensivemanagementfocus.IthinkonewasUSnutritionalsandtheotherobviouslywasEPD.

Betweenthosetwo,itdoesappearthatthereismoresustainablegrowtheffortscomingthroughorfruitfulontheEPDsidethantheUSnutritionalsbusiness.ButIwonderifyoucouldjustupdateusintermsofthatmanagementintensivefocusandwhereyouseethosetwobusinessestoday.Thankyou.


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




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.


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.





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.


Okay.


Doesthatmakesense?


Itdoes.Itdoes,yes,andwe'llfollowupalittlebitmoreoff-line,becauseIwantedtoaskoneotheronejustaboutEPD.Becauseyou'vedoneacoupledealslatelyandIamjustcurious.

ArethereothersoutthereinEPDfromanM&Aperspective?Oristhisanareawhereyou'vefoundwhat'savailable,acquiredthem?IjustcurioushowharditistofindassetsinEPDsinceitlookslikethatisanattractivebusinesslong-term.


Itisnothardatalltofindassets.Thatpart'seasy.

Andit'snothardtofindreallygoodassets.Thatpart'seasy.

Andit'snothardtofindassetswithgoodmanagement,goodfit,goodproducts,goodgeographiclocations.Thatpart'sactuallyeasy.

AndIthinkourpeopleandourteamandsomeofourcontactsandstuff,Ithinkwehaveauniqueadvantagetheregeographicallyandinternationally,onthatparticulardimension.IcanthinkofoneortwoothercompaniesthathistoricallyI'vethoughtwe'rethinkingaboutitthesameway,becausewekeepbumpingintothemeverywherewego.




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.


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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