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 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.”

ICU Medical Hospira Acquisition Call

Vivek Jain

Small companies have to get bigger or get consolidated in maturing markets

“ICU went through a pretty public sales process in 2013, and I believe the concentration issues was one of the key reasons it didn’t reach completion, and I think that concerned has been an issue in all strategic discussion and is the number one investor concern. Small companies either have to get bigger or get consolidated, and it’s incredibly hard for small companies to get bigger in maturing markets.”

Pfizer took $400m in stock

“Pfizer’s participation detailed on Slide 13 was a really important part of the deal to us. Pfizer accepted 3.2 million shares at approximately $125 a share as consideration and will become our largest shareholder. They will receive a board seat and have signed a voting agreement to support the Board’s decision. Doug Giordano, Senior Vice President of Worldwide Business Development for Pfizer will join our Board. Pfizer will be subject to an 18-month lock up which is correlated to successful carve-out of the business and ICU has provided incentive for an orderly disposition of the shares through an underwritten offering.”

Unusual for small supplier to buy their customer

“We like this structure because it aligns incentives and we are deeply honored to have Pfizer as a holder of ICU. We recognize the situation of a small supplier buying their customer is unusual and their willingness to believe in our team and the opportunity with these assets made this happen. From a shareholder perspective between them and our founder over 25% of our ownership is represented on the board which is a good thing.”

2017 will be bumpy

“2017 will be bumpy. There are a number of reasons and drivers for that. Timing is a huge variable; adjustments related to the transaction will be a large driver, including shorting the supply chain by net reduction of ICU sales into Hospira. The focus of 2017 will be on a more efficient use of working capital et cetera. Because all these adjustments over the first few quarters will not allow us to be as sequentially predictable as we’ve been. It will not be like ICU in the last 10 quarters.”

Predictability will be difficult to repeat

“In closing, we believe that this was a logical evolution for both businesses. We feel we’ve been able to put together a transaction that didn’t risk the enterprise and still there is real room for value creation for investors. If you are an investor that wants the predictability that ICU has offered in recent years; that will be difficult to repeat over the near-term and into the medium term.”

We may hit some bumps

“As always, I’d like to close with things are moving fast. We are trying to improve the Company with urgency and we’re trying to take responsible action and break some of the inertia that many companies in our position face. We may hit some bumps as we take on some of this action and we will overcome and emerge stronger. I really appreciate the efforts of all ICU employees and our soon to be colleagues from Hospira Infusion Systems to adapt, move forward and focus on improving results, and our company appreciates the support we received from both our customers and our shareholders.’

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.”

Johnson & Johnson (JNJ) Q2 2016 Earnings Call

Alex Gorsky, Chairman & CEO and Dominic J. Caruso, Executive Vice President, Chief Financial Officer  

An overall positive medium term outlook in line with growth expectations in global healthcare

“We expect global healthcare to grow at 3% to 5% over the next five years, and we have an objective to grow our sales organically at a faster rate than the market.We also intend to grow our earnings faster than sales. When we combine these objectives with our plans of continue creating value through strategic acquisitions and partnerships as well as our strong dividend yield, we believe the result to be a basis for compelling, long-term total shareholder returns. And that is our focus. We invest for the long-term success of our business.”

Their capital allocation framework focuses on shareholder returns and value creating acquisitions

“Our capital allocation framework starts with paying dividends to our shareholders, which is why we have increased our dividend every year for the last 54 years. Next, we seek value-creating strategic acquisitions and partnership opportunities. And finally, we consider other prudent ways to return value to shareholders such as repurchase programs.”

Strong underlying sales growth in the first half of 2016

“…we continued to deliver strong underlying operational sales growth of approximately 7.9% for the second quarter and our sales results are above analyst estimates. Our second quarter earnings were also above analyst estimates, driven by strong sales performance and operating margin improvement…our operational sales growth this quarter was 5.3% and excluding the impact of acquisitions and divestitures, hepatitis C sales and also the impact of the devaluation that occurred in Venezuela last year, it was strong at more than 8%.”

Sales growing faster in the US than outside the US

“Worldwide sales to customers were $18.5 billion, up 3.9% versus second quarter 2015. On an operational basis, sales were up 5.3%, and currency had a negative impact of 1.4%. In the U.S., sales were up 7.4%. In regions outside the U.S., our operational growth was 3.1% while the effect of currency exchange rates negatively impacted our reported results by 2.7%. “

The impact of the Brexit is indeterminable presently

“We are watching the euro and other currencies closely, as it is uncertain how they will eventually settle out for the year…we’re closely following the situation with the UK’s vote to exit from the EU. We expect this will take time to fully determine what the impact will be, if any. To put it into perspective, though, the UK represents about 3% of our total sales. “

Hospital admissions and surgical procedures have increased, physician visits have declined

“…we are seeing a pick up in terms of hospital admissions and surgical procedures. I think hospital admissions are up around 3%. We think the procedures are probably up around 3.5%. We continue to see some decrease overall in office physician visits, down a couple of a percent. And we think that that’s just due to a more moderated utilization at the front-end due to increased co-pays and a number of other dynamics. But overall, if we look at the core growth rate in the medical hospital device area, we’re encouraged by some of the recent trends that we’re seeing.”

They´re the lookout for strategic, value creating acquisitions

“And as we said for some time, whenever we’re looking at inorganic growth opportunities, we look at, tuck-ins, we look at mid-size deals. We’ll look at large deals. Of course, the tuck-in strategy, particularly in Pharma, actually in all of our segments -Medical Device and Consumer, are those that, where we feel that we can create the most value. But we do think that there’s other opportunities to create value as well in, again, in mid and larger deals. But we’re going to be very disciplined. We’re going to be very decisive about how we do it, and ultimately try to better serve patients and consumers.”

A continuing expectation of consolidation in the market

“Over the past three years or four years, I think we’ve been pretty consistent in our thinking and in our projections about the likely increase in consolidation among providers and hospitals, particularly here in the United States, and just broader healthcare systems. And as systems feel continuing pricing pressure, we think that will manifest itself by them having consolidation. I think we’ve seen those trends. And I think they’re clearly starting an effort to try and be as effective and as efficient as possible. So we do believe that that will be a longer secular trend that’s going to continue.”

A disciplined approach to acquisitions with consideration to valuations

“..We´re very disciplined in our approach to acquisitions. And although we’re actively involved in considering them, valuations come into play, and willingness of the other party to do an acquisition at certain valuations come into play. So that’s regardless of how much money we have available to spend.”

Some valuations of potential acquisitions are prohibitive

“There are some expectations that are still not, in our opinion, normalized for appropriate valuations in the market, so that’s a factor, and that will take time and we’re patient with that. And then we’ll see how the market evolves over time, or as we learn more about the acquisition candidates and their progress in various areas.”

Extra notes

 

  • The Company increased its sales guidance for the full-year 2016 to $71.5 billion to $72.2 billion.  Additionally, the Company increased its adjusted earnings guidance for full-year 2016 to $6.63 – $6.73 per share.
  • The Board of Directors declared a cash dividend for the 3rd quarter of 2016 of $0.80 per share on common stock with the ex-dividend date being August 19, 2016.

 

 

 

 

Medtronic 4Q16 Earnings Call Notes

Medtronic’s (MDT) CEO Omar Ishrak on Q4 2016 Results

Overall healthcare demand in the US is on an upward trajectory

“Well, give that it is consistent with what all the hospitals are reporting, I have got to say that the overall healthcare demand if you like in the U.S. is something that is on an upward trajectory. That’s got to be the fundamental reason and it’s probably some of it is just natural demographics which provides this. The other is probably we are seeing some of the impact of the Affordable Care Act and all of the initial pieces of increased coverage might have been more sort of upstream in nature in diagnostics and so.

I mean some of these will lead to more procedures. Those are the only things that I can sort of intelligently kind of talk about. Other than that just what we experienced. It is not something that’s easy to predict to be fair and we look at all kinds of different factors and do the best, we have leading indicators, we talk to people and we get a sense for it, but everything that I just said was close to conjecture in my part.”

Michael Coyle

There is an overall shift to minimally invasive surgery

“The other thing I would reference beyond just the increase in overall volumes, the other thing that we are seeing is a mix shift, a much greater growth in the MIS procedures versus [indiscernible] and this is pretty consistent when I look at other players in the marketplace and I look at their revenue growth in the quarter.

So I’m really happy about that and truthfully that’s probably the bigger opportunity, a smaller uptick in surgical volumes in the U.S. versus a real change in the make shift MIS, although the make shift MIS all day along. And that’s pretty consistent again with what we have seen and what the rest are telling us and what we are seeing from other companies that are playing in the same space. That’s to me is really the story.”

Johnson and Johnson at UBS Conference Notes

Johnson & Johnson (JNJ) Management Presents at UBS Global Healthcare Brokers Conference

Sandra Peterson – EVP, Group Worldwide Chairman

Technology is an enabler but not going to change things by itself

“the way we think about it is that technology as an enabler, in and of itself it’s not going to change things. So I think you need to bring your expertise, which we have, as you all know, years and years of expertise of how you engage with consumers through our consumer portfolio, how you actually impact behavior change, but technology is an enabler for that. So I’ll use the surgery example again. We know that 70% of the cost of a planned surgery, whether it’s a knee or hip replacement, 70% of that cost actually happens post-surgery because the person doesn’t get up and get active and really get to their full productive self again as quickly as they should.”

Seen consolidation in hospitals and more physicians becoming employees of hospitals

“over the last couple years a significant amount of consolidation in hospitals, and that will probably continue. We’ve also seen that the physician, more and more physicians are becoming employees of the hospital than they have been in the past. And obviously given some of the changes with CMS and others, the requirements and demands on hospitals to demonstrate improved outcomes and improve patient satisfaction is also impacting how you go to market with hospitals.”

Have had to change the way we go to market

“And one of the things that we have done over the last 12 months is we’ve really changed the way in which we go to market, particularly in the US, but also globally with hospitals. We’ve consolidated and really created an organization that has clear line of sight working with individual hospitals.”

It’s analogous to what happened in the consumer business already

“It’s a little bit analogous to what happened in the consumer business 10 or 15 years ago, when there was a massive amount of consolidation of retail chains around the – in the United States and now globally, where we as a consumer business used to have four different consumer businesses, we now have one, and we have one point of contact that does strategic account management, joint strategic planning with those accounts. We’re now doing that on the hospital side. And given our breadth and depth in the hospitals today, we believe that we have scale to be able to do that.”

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.”

Medtronic FY 2Q16 Earnings Call Notes

Omar Ishrak

Foreign translation is significant headwind

“we recognize foreign translation is a significant pressure to our bottom-line on a reported basis as it is for most multinationals, but we are attempting to offset this as much as possible by stretching our operations and through our conventional hedging programs.”

Cadence of product innovation has increased significantly

“The cadence of product innovation across the Board has increased significantly and when you sort of combine all of that together it makes quite a difference. That is our goal after all. We are in the end a technology company striving to sort of change outcomes.”

It’s been a good year for medtech in the US

“With respect to the overall medtech market, look we have had a – the medtech industries has actually had a pretty good year and I think a lot of that is you look knowledge is driven by U.S. growth so U.S. has been stronger than I can remember for a long time and that is not only the medtech sort of companies but also hospitals. Now as we going to sort of calendar year ’16, there will be some anniversarying that is happening and also some of the hospitals have reported slightly sort of lower growth rates, so we are watching this carefully.”

US procedure growth may slow down next year

“I do not know to what extent the procedure growth will continue at the same rate of growth. I do not think it will slowdown, per se, but the growth rate might well slowdown. So that is what we are watching very carefully and I think coming after the next couple of months it is pretty crucial to see how procedures go, but again really at the end of the day this is a U.S story”

Gary Ellis

Partnering with IBM Watson

“We also continue to partner with IBM Watson, combining our clinical expertise, close loop algorithm development and CareLink data analytics with IBM’s Watson Cloud and Watson Analytics and machine learning capabilities. In early pilot run, using the database of 100 randomized patients was able to predict some near-term hyperglycemic events, demonstrating the potential possibility of applying cognitive computing to support diabetes management.”