Abbott Laboratories (ABT) reported third-quarter 2014 earnings of 54 cents per share, up 22.7% from the year-ago quarter.

We note that Abbott Labs agreed to sell its developed markets generics pharmaceutical business to Mylan (MYL) in Jul 2015. Hence, this business has been reported as discontinued operations. The deal is expected to close in the first quarter of 2015.

Including the discontinued operations, earnings came in at 62 cents, up 12.7% year over year. The Zacks Consensus Estimate was 60 cents.

Abbott Labs generated sales of $5.1 billion in the third quarter of 2014, up 5.8% year over year (on a reported basis). Sales were impacted unfavorably by foreign exchange movements to the tune of 0.9% during the quarter. Quarterly sales were below the Zacks Consensus Estimate of $5.6 billion.

Sales from emerging markets, accounting for almost 50% of the total sales, were up 13.8% year over year on a reported basis.

Third Quarter in Detail

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

EPD sales were up 11.5% to $771 million including a negative impact of 1.4% due to currency fluctuations. Sales in key emerging markets climbed 10.2% on an operational basis (excluding foreign currency fluctuations) driven by growth in India, Russia, Mexico and Vietnam. We note that Abbott Labs completed its acquisition of CFR Pharmaceuticals in September 2014, thereby more than doubling its branded generics pharmaceuticals presence in Latin America.

The Medical Devices business generated sales of $1.4 billion, down 1% year over year (0.6% on an operational basis). Diabetes Care sales were down 5.8%. The impact of the implementation of CMS or the competitive bidding for Medicare patients in the U.S moderated during the quarter. The Vascular business was down 2.4%, impacted by a decline in drug-eluting stent sales.

The Medical Optics business was up 8.3%. Cataract sales, accounting for almost 70% of total Medical Optics sales, outpaced the overall market and recorded double-digit growth propelled by multiple new product launches.

The Nutrition business improved 9.3% year over year to $1.8 billion. Pediatric Nutrition sales were up 8% during the quarter fueled by market uptake of recently launched products, including new infant formula products, Eleva and Similac QINTI, which were launched earlier this year in China. Adult Nutrition sales grew 10.8%, driven by solid growth of its key brand Ensure and continued expansion in international markets.

Diagnostics business sales increased 4.9% year over year to $1.2 billion. Key areas of focus in this division include the Core Laboratory Diagnostics, Molecular Diagnostics and Point of Care Diagnostics businesses. Core Laboratory sales increased 5.2% and Point of Care Diagnostics rose 6.7%. Worldwide sales of Molecular Diagnostics were up 0.9%.

2014 Earnings Outlook Updated

Abbott Labs now expects earnings per share in the range of $2.25 to $2.27 in 2014 (old guidance $2.19 to $2.29). The guidance includes the sale of branded generics business to Mylan. The Zacks Consensus Estimate currently stands at $2. 25 per share.

Our Take

Abbott Labs currently carries a Zacks Rank #4 (Sell).

We expect the sale of branded generics business to positively impact the top line and bottom line as Abbott Labs will now focus primarily on the branded generics pharmaceuticals business in emerging markets. The improved performance of the nutrition business should also impact results positively and boost investor confidence.

Some better-ranked stocks in the broader health care sector include Allergan (AGN) and Lannett, Inc (LCI). While Allergan is a Zacks Rank #2 (Buy) stock, Lannett sports a Zacks Rank #1 (Strong Buy) stock.

Read the Full Research Report on ABT
Read the Full Research Report on AGN
Read the Full Research Report on MYL
Read the Full Research Report on LCI


Zacks Investment Research