Abbott 2Q17 Earnings Call Notes

Miles White – Chairman and CEO

China is actually much more stable

“China for example is actually much more stable than the last 12 to 18 months. I like what I’m seeing in China right now. We still have the government regulation continue and it’s impacted competitors, there is a lot of reaction to the shrinkage of the number of SKUs in the market and so forth. And we’ve talked about that. But as far as what we’re seeing in 2017 here, we’re performing according to our expectations. I think the comps obviously get better here in the second half; we will see.”

Abbott Labs at Barclays Conference Notes

Brian Yoor – Senior Vice President, Finance and Chief Financial Officer

First priority is to pay down our debt

“I think right now in the short-term, our big focus is debt repayment. I think the audience absolutely got it right. We come out of the gates this year, and doing the St. Jude acquisition with about $28 billion; so it’s going to be in our best interest to pay down as much as we can as quickly as possible. As part of our deleveraging plans, we feel very comfortable about what we’re doing. We’ve enacted several cash flow initiatives that span, what you’d call, the cash conversion cycle of days on hand, day sales outstanding and even days payable, where there’s opportunities for us to unlock a little bit of otherwise the cash that’s not productive to us today. We’ve sharpened what was already very disciplined capital expenditure process as well. And so, bringing down debt has many advantages. It brings back the flexibility that we want longer-term to do the capital allocation that you’ve been accustom to; we’ll continue to growing the dividend; looking at the tuck-in acquisitions, as you mentioned. But the first priority is to pay down the debt and bring back our strategic flexibility, lower our interest expense and bring more of the enterprise value back to our shareholders.”

Abbott Labs 4Q16 Earnings Call Notes

Abbott Laboratories’ (ABT) CEO, Miles White on Q4 2016 Results

Key policies for us to watch are tax and currency

“You know, it’s hard to speculate. I’d say in general I’m optimistic, and I’d say for a number of reasons. Some of the things that have been talked about won’t necessarily directly affect us. They may affect a number of multinationals. Obviously our new administration is pro-business, but there’s a lot of moving parts in that, as you know. The things I look for that might affect us, I think early on, I think we’re all waiting to see if there’s a tax reform package that would allow us the ability to access overseas cash and repatriate cash, et cetera. I think that would make a big difference for a lot of multinationals. I don’t really expect to see any changes in the Affordable Care Act directly affect us as much as I think they’ll affect other segments of the healthcare industry or business, and I think a lot of the effort will be pointed at other segments more than the spaces we’re in. At least as far as that is impacted, we’re primarily a diagnostic device company in the United States, so I think that to some degree, some of that impact could be favorable for us.

The other things that I watch going forward is policies that affect strong dollar-weak dollar – you know, strength of currencies and so on, because we’re so geographically diverse internationally. I mean, I think one of the benefits – it’s not the primary benefit – but one of the benefits of the St. Jude acquisition is it does spread and balance us into developed market currencies a little more than we have been, and in general I’d like to see stability in the currency markets for us relative to the dollar, which has been a headwind for us for at least four years now. I think that will affect all multinationals.

So you know, while there’s a lot of uncertainty around the various things that this administration appears to be making priorities out of, I’d say that there are relatively few that would impact us early on, and I think the impact is likely to be favorable, that being primarily tax and/or cash access.”

Going to be conservative on M&A for a bit

‘ Obviously for the next little while, we’re not going to be putting a lot of emphasis into M&A. We’re going to hold back on magnitude of share repurchase, et cetera. We’re maintaining our dividend, growing it a bit, and a lot of emphasis will be put on, I’d say, rapid pay down or reduction of debt. I think that’s kind of a prudent place to be for the nearest term, so we’re being very, very prudent about cash use, cash flow, et cetera internally. I think we can do that for a while here and put ourselves back in a range where I think a conservative financial company like us would be, and get back to kind of the normal balance.

Abbott Laboratories (ABT) at JPMorgan Healthcare Brokers Conference

Brian Yoor – SVP and CFO

By 2050, 17% of the global population will be over 65

All of our businesses are well-positioned to address the most relevant needs and to build on attractive healthcare and demographic trends such as improving social economic conditions in emerging markets, in a rapidly aging global population that are driving increasing demand for healthcare. In 2015 people above the age of 65 comprise 8.5% of the global population. In just 15 years this will increase to 12% and by 2050 is projected that people over the age of 65 will comprise nearly 17% of the global population.

 

Expanding middle-class in emerging markets is a significant long-term growth opportunity

In emerging markets, rapid growth in healthcare is being driven by an expanding middle-class and improved access to care. Healthcare spending as a percentage of GDP remains low in these geographies compared to the developed world representing a significant long-term growth opportunity as emerging markets continue investing to modernize their healthcare systems.

 

60% of sales are international

In addition to this unique product balance, our nutrition business is also geographically well-balanced with roughly 40% of our sales occurring in the United States and 60% outside of the United States including nearly 50% of our total nutrition sales in emerging markets… We have also built a world-class global supply chain and development organization that spans both the developed and emerging markets including state-of-the-art manufacturing facilities and localized R&D efforts in China and India in order to develop innovative products designed to meet the local adult and pediatric nutritional needs.

 

Diagnostics testing influences up to 70% of healthcare decisions

Moving to our diagnostics business, which remains a reliable growth business consistently achieving above market growth in both developed and emerging markets. Diagnostics testing influences up to 70% of healthcare decisions and lab professionals are under constant pressure to deliver test results of quality, speed and efficiency.

 

ABT enters the arena of med tech with the acquisition of St. Jude

With the recent acquisition of St. Jude represents a major strategic move that establish Abbott with a premier medical device business with leading positions in cardiovascular, neuromodulation and diabetes care markets. Together the combined medical device portfolio will have annual sales of approximately $10 billion… With the acquisition of St. Jude, Abbott will now compete in nearly every area of the $30 billion cardiovascular device market and hold number one or number two positions across several large and high-growth markets

 

New facility in India will act as a hub, shipping products to over 30 countries

Additionally in the fourth quarter of last year, we announced our new Established Pharmaceuticals innovation and development center in India. This center will develop new drug formulations indications, dosing, packaging and other differentiated offerings and will act as a hub shipping products to over 30 countries that will further develop the products to suit their local needs.

Abbott 3Q16 Earnings Call Notes

Abbott Laboratories’ (ABT) CEO Miles White on Q3 2016 Results

China in transition

“I will try to. I would say the market in China has been in a bit of a transition for a number of months, it would appear, maybe other even more. And it depends on who you are and what channels you are in and so forth, depending how it affects you. We expected this year to see 7% to 8% growth in China, slightly above the GDP growth, et cetera and what we are seeing now is flat to low single digits and I think some of our competitors have reported the same. So we have gotten some triangulation on just underlying market growth rate but beyond that, a number of dynamics are at work there.”

Inventories have piled up in traditional channels in China

“There’s some pretty rapid channel shift from traditional channels, like modern trade to various e-commerce channels and so forth. And I don’t think that’s surprised anybody in terms of just overall trends. But the speed and magnitude of it, I think, has hit China differently than what you would see in the U.S. or other countries. And so that’s been a pretty big chunk. In the process of that, what’s happened is, some inventories have piled up in, let’s say, traditional channels while the market’s needs have been satisfied by e-commerce channels. And so the market has got to burn through that, I guess, to some degree.”

US having a better year than we planned

” If you look at the U.S., which I think everybody has become accustomed to sort of ignoring in the numbers, the U.S. is having a better year than planned, better year than in a long time and it’s better than solid. So there’s a lot of thing happening that offset China, to some degree.”

Brian Yoor

Full year EPS guidance $2.19-$2.21

“Turning to our outlook for the full year 2016. We narrowed our adjusted earnings per share guidance range to $2.19 to $2.21. The midpoint of our guidance range reflects double-digit underlying growth offset by the impact of foreign exchange on our operating results.”

Abbott Laboratories’ (ABT) Management Presents at Wells Fargo Securities Healthcare Broker Conference Notes

China is attractive in the long-term, currently it is difficult to penetrate and adapt to

“What I would classify China, it’s a market in transition, still very attractive long term but there is a lot of also channel dynamics that happen very fast and consumer trends and behaviors that change really fast and that’s what companies right now including ourselves are adapting to making the adjustments around.” Brian Yoor – Senior Vice President and Chief Financial Officer

 

Debt ratios have increased considerably as a result of acquisitions, and ABT will not have any more significant M&A activity until de-leveraging goals are met

“we publicly stated that out of the gates we would be at a 4.5 times ratio of debt to EBITDA that we would implement a de-leveraging plan to bring that down to at least 3.5 by 2018… I think, I could set the expectation, we can set the expectation that there won’t be any significant M&A until we get down to a level that we are comfortable with over the longer term” Brian Yoor – Senior Vice President and Chief Financial Officer

 

In current economic environment, ABT believes its 6% growth is very respectable

When you look at 6% growth to your point of where we have been growing, we are very pleased with that type of growth especially when you look across the world and think about where GDP is at, we are in a low growth environment globally speaking, kind of a low inflationary environment, so I think 6% type of growth is very respectable. We have been in that range, so as a starting point we are very positive without that. Brian Yoor – Senior Vice President and Chief Financial Officer

 

Emerging markets are tailwinds for ABT and will continue to be so

“So we are optimistic that on a tailwind perspective that trend of healthcare and healthcare penetration that is still very below the developed markets is going to continue…  So the emerging markets will continue to be a nice tailwind for us given our presence and scale that we have across all of our businesses in emerging markets.” Brian Yoor – Senior Vice President and Chief Financial Officer

 

ABT’s diverse portfolio has allowed it to navigate international turmoil

“the point is there is always going to be some ebbs and flows in Abbott’s portfolio the way we constructed but that’s constructed with intent because I think what’s good about… there is always an incident but the incidence we have been able to navigate because of our diversity and shots on goal that we have in these growth markets but our portfolio has been pretty resilient when you think about the situations that have been going on in the world whether it’s political turmoil, or unrest in some counties, impeachments or Brexits” Brian Yoor – Senior Vice President and Chief Financial Officer

Abbott Labs 2Q16 Earnings Call Notes

Abbott Laboratories (ABT) Miles D. White on Q2 2016 Results

Acquired St. Jude

” As you know, earlier in the quarter, we took an important strategic step with our announcement to acquire St. Jude Medical. Abbott and St. Jude combined will have a highly competitive medical device portfolio, including an industry-leading new product pipeline across cardiovascular, neuromodulation, diabetes and vision care.”

There’s not a lot of enthusiasm for anything out there right now

“. I mean I think that first of all I’d say, it’s not a skeptical or cautious attitude on the part of investors, with just about everything, not particular to Abbott or specific to Abbott, but I think there is just a lot of caution out there. All that frothy, robust enthusiasm of a year and a half ago is definitely not there now. And yet the market is at a near high, but in our businesses that enthusiasm, or at least that attitude, doesn’t seem to be that lit up”

We think we can improve St. Jude

“I think our track record, which is proven, we know how to integrate it, we know how to manage it, we know how to do well with it, we know how to add value to it, we know what the breadth of offering is, we know the quality of their pipeline and the quality of their people. You don’t just buy it, put it in the portfolio and leave it alone. You buy it and you put the best management you can in place and you run it the best you can. We’ve got really excellent managements in our Medical Device business and I think they’ve got excellent people too. So in spite of the fact that they’ve disappointed investors, I think the investors got to get over last year and look forward here, because I don’t think we bought some challenged property here.”

Analysts are asking about equity issuance to finance the deals

“But I don’t think we’re anywhere close to where we have to make a decision on the equity issuance. At this point we’re planning for it, but we’re only going to do it if it’s in our interest to do it to balance our balance sheet. So full transparency. We’re planning to do it but there is other ways that may well be addressed and we’re nowhere close to a resolution to that. I think that the uncertainty of that for investors just has them cautious, concerns and so on, and I think what I tell most people is, look, by January, this is all going to be pretty clear. ”

Investing in real products, not sentiment

“I’m not investing in sentiment; I’m investing in real products and real company and real business. And I think that what they’re tracking at right now is giving the evidence that what they’ve projected is valid. These businesses, if you look at all the segments of businesses, they’re really doing great.”

Abbott Labs 1Q16 Earnings Call Notes

Miles D. White – Chairman & Chief Executive Officer

I like what we’re seeing in exchange, but I’m superstitious and in the last two years there have been events in the third and fourth quarters

“look, I like what I’m starting to see is the easing in exchange. But given the last few years, I’m a superstitious person and I think the minute I think this is starting to go well, for some reason we’re going to get smacked down with some change in the market. For the last two years in the third quarter and fourth quarter we’ve seen some events, some economic events of some kind alter the world’s view of economies and then a change in exchange. And more recently, last fall, it was $30 oil.”

All indicators are looking favorable for improvement as the year goes on

“Call it the curve ball discount there, I’m just waiting to see another quarter. And right now, I’d say all indicators are looking favorable for improvement as the year goes on. I actually want to see some of that improvement sustained; meaning, economic conditions and exchange.”

We need to be able to grow by taking share, not just by taking price

” to be truly competitively healthy I think we have to be able to win share, win the shelf space, win the consumer, win the physician, win the recommendation, et cetera; and that’s where we put a lot of our emphasis. So to the extent that we have not put further emphasis on price in the last couple of years, it’s primarily to sharpen our own competitiveness and compete, I’d say, at a pretty effective level on all other dimensions. I think from a business fundamental standpoint that’s important. I want real growth, not just masked growth because we took price.”

The growth rates in China are strong

” The world wrings its hands about slowing growth rates in China; and China was 6.5%. And I think if any other country of the world was growing 6.5%, we’d all be doing cartwheels and investing heavily. We wring our hands when a country as large as China slows to 6.5%. Even if China were at 5%, I’d think it was pretty attractive. So I’d say I think the growth rates, relatively speaking, are strong.”

Everything has slowed some

“I think you have to take into account here that, historically, if one area of the world was struggling, other areas of the world were pretty strong. It’s actually not the case right now. Everything has slowed some, and for all the reasons we know. I think there’s a lot of uncertainties around the world right now and I could run through them, but we’d just be in a bad mood afterwards. And I think everybody’s kind of waiting to see how some things turn out; and whether exchange stays on a certain track, whether some countries kind of recover, I think people are waiting to see what happens with oil and they’re going to wait a while to see that. They’re going to wait to see what happens with the interest rates. There’s a lot of hand wringing, as I said, over negative interest rates.”

Brian B. Yoor – Senior Vice President Finance and Chief Financial Officer

Actual revenues were flat

Okay. Thanks, Miles. First, I’ll provide further details on first quarter results. Sales for the quarter increased 5.1% on an operational basis. Exchange had an unfavorable impact of 5.3% on sales resulting in relatively flat reported sales in the quarter.

Abbott 4Q15 Earnings Call Notes

Abbott Laboratories’ (ABT) CEO Miles White on Q4 2015 Results

Foreign exchange impact on bottom line will be more pronounced in 2016

“foreign exchange will again be a growth headwind in 2016. We’re now entering the fifth year of this dollar bull cycle, while we actively worked to mitigate the impact of currency on our results, the impact of exchange on our bottom line would be more pronounced in 2016 due to the mix of currency movements and certain timing effects.”

Underlying dynamics remain strong in a lot of these emerging markets

“The frustrating thing and I think it’s frustrating for a lot of multinational companies that are U.S. based is the underlying market dynamics remain strong in a lot of places. Every morning we get up, we see CNBC. Everybody brings their hands about China, but whether China is 7% growth or 6% growth, 6% is way bigger than the rest of the world. It’s a fundamentally strong market for us as our practically all of these emerging markets.”

The oil based economies, that’s a little different

“Now, the oil-based economy, the ones we were extremely dependent on oil, take Venezuela – okay, there are different stories. And the volatility, unreliability and sustainable market there is different than just about anywhere in the world. So okay, there was an outlier”

Last year we were almost involved in a deal that went through at a price that was plain un economic

“we’ve watched those valuations over the last year when deal heat turned and I can tell you that there was still one particular one that we were involved in an auction for and the valuation that that property went for, we did not win it. But the valuation that property went for was non economic. I mean just plain non economic. I would challenge the buyer to explain where the economic return was in that particular deal. They obviously have their reasons and they obviously saw something rest of us didn’t appreciate. I’d say is an understatement but the evaluation are at a level in some cases that you have to question prudence.”

I think some of the prices that people are offering for sale are not prudent

“I think right now, first of all I don’t see a lot that people are offering up for sale in effect and you know the old maxim; everything is for sale at some price. Well the price of some of these things would be for sale at isn’t prudent, it just isn’t prudent. So I think you have to step back and say we’re not in that zone. We’re not going to be that irrational in some cases and that’s me, I mean I hate that I’m going to see some of this in print later but I think that.”

Not looking to do M&A in our nutrition business

“we are not looking to do anything with regard to M&A in our nutrition business today. I mean if something came along opportunistically we would look at everything but the fact is that business is – that’s an organic business for us and all of our performance objectives and things we want to do in the nutrition business globally are organically driven and we think we’re in a good position for all of that.”

In the med device space there are a bunch of big companies or a bunch of small companies. Not much in the middle

“I think the current medical device space broadly defined today, there is either a bunch of big companies or bunch of little companies. There is not much in the middle. And the couple of things in the middle are extremely highly valued relative to their current performance. And I think there is a lot of speculation or question about whether or not that kind of value will play out.”

Abbott Labs 3Q15 Earnings Call notes

Policy still driving growth in em

“National policies focused on expanding access to care and favorable trends, including increasing birth rates, aging populations and adoption of Western standards and technologies are all driving growth.”

Exuberance in healthcare m&A died down in mid summer

“I’d describe a little bit of macro environment. I’d call it exuberance of activity in this space, meaning healthcare in particular, pharmaceuticals, et cetera. It clearly came to a halt, I’d say, mid-summer. And it doesn’t reflect that there aren’t the same opportunities or the opportunities that we’ve been interested in, but activity slowed. I’d say we didn’t miss anything. We’re still absolutely as active as we wanted to be. I might like to have gotten more done too, but I think sometimes these things take time.””

There’s been a slowing but not much change in valuation expectation

“in general, I think there’s been a slowing, but not so much a change in valuation expectations in some of the businesses out there. We’re still every bit as active and interested.”

Healthcare spend hasn’t slowed as much in China

“I think there’s been a lot of concern about the slowing of various emerging markets, in particular China. And while the overall economies in some of these markets have slowed, it hasn’t been the same in healthcare, and it hasn’t been the same in the businesses we’re in. ”

Try not to rely on topline to drive margin expansion

“We have not been dependent on price to get it. In fact, we’ve been very careful not to rely on that. I think when you rely on price, you don’t get at the underlying fundamentals of how you operate your business. ”

Look for strategic fit first in an acquisition

“So I look at strategic fit first. We’re not financial engineering our growth. We’re not looking to be a rollup that’s got to go find a few more opportunities every year to overcome last year. We’re looking for fundamentals that drive growth and expansion in markets and there’s a lot of healthcare expansion around the world that fits us beautifully and a lot of opportunity for us access. So our primary focus is on businesses that relate to what we’re already in or doing.”

You have to be right about what a business is going to do to succeed at M&A in this environment

“I think we’ve been pretty disciplined dealmakers, hence probably one of the reasons that we haven’t seen as much activity out of us as we wanted to. You can make a lot of deals out there if you have no limit on what you want to pay. And I think in this environment, you got to put the right value on businesses and that means that your forecast about what a business is going to do in the near to long term really matters, and there’s a lot of ways to do deal models to convince yourself that what you’re doing is a fundamentally good return. But let’s face it, at the end of the day, we’re investing our shareholders’ money”

Hedges eventually roll off

“let me generally answer in the following way. Depending on how you hedge, if you hedge your currencies at all, it’s good for one year. It’s not necessarily so great the following year as your hedges expire and so on. ”

We’re not currency traders

“you can be opportunistic, but at the end of the day, we’re not currency traders and we’re not trying to make money necessarily on currency. That’s not our business.”

The best hedge is to have costs in the same place as revenue

“our best natural hedge to exchange is having our costs in the same places where we earn our profits. “