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Abbott Laboratories (ABT - Analyst Report) reported second quarter 2013 earnings of 46 cents per share, beating the Zacks Consensus Estimate of 44 cents. Earnings increased 7.0% from the year-ago quarter and beat management’s guidance range of 43-45 cents.

Including one-time items, second quarter earnings decreased 72.2% to 30 cents per share.

Abbott Labs generated revenues of $5.4 billion in the second quarter of 2013, up 2.5% year over year but missed the Zacks Consensus Estimate of $5.5 billion.

The year-over-year increase was primarily driven by the solid performance of the Nutrition and Diagnostics segments.

However, unfavorable movement in foreign exchange rates negatively impacted revenues by 1.7%.

Quarter in Detail

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

EPD sales declined 2.3% year over year to $1.2 billion including a negative impact of 2.5% due to currency fluctuation. This division primarily focuses on 14 key emerging markets where sales grew 2.5%. However, sales in developed markets, including Western Europe and Japan, declined 6.4% primarily due to carry-over effects of austerity measures undertaken in Europe in 2012.

Nevertheless, sales from the EPD segment are expected to improve in the second half of 2013 due to solid growth in Russia, India and Brazil.

The Medical Devices business generated sales of $1.3 billion, down 1.6% mainly due to a decline in the vascular and diabetes care business. The vascular business was down 2.0% due to a decline in US business, which in turn was attributed to pricing pressure and weak market conditions, partially offset by uptake in Xience Xpedition. Diabetes Care sales declined 1.3% while Medical Optics sales declined 1.2%.

The Nutrition business grew 7.9% year over year to $1.7 billion fueled by solid growth in the emerging markets which accounted for 45% of total sales in this division. Pediatric Nutrition sales, accounting for 55% of total nutrition sales, grew 9.6% driven by solid growth in the emerging markets. Adult Nutrition sales grew 5.7% led by solid growth from its key brand Ensure.

Abbott Labs continues to expect sales in the Nutrition business to gain traction as the year progresses primarily driven by geographic expansion in the emerging markets and new product launches.

Diagnostics business sales increased 5.3% year over year to $1.1 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 3.5% and Point of Care Diagnostics surged 15.4%. Worldwide sales of Molecular Diagnostics increased 11.8%.

Total sales from the emerging markets were $2.3 billion in the second quarter, up 12.7% and accounted for 40% of total sales. Emerging markets hold the key for growth in the coming years for Abbott Labs.

2013 Outlook Reiterated

Abbott Labs continues to expect earnings per share in the range of $1.98 to $2.04 in 2013. The Zacks Consensus Estimate currently stands at $2.01 per share, well within the company’s guidance.

We believe that Abbott Labs is extremely diversified with a presence in the nutrition, diagnostics, generic pharmaceuticals and medical devices markets after having separated its proprietary pharmaceutical business into a new company called AbbVie (ABBV - Analyst Report).

We are encouraged by the solid performance of the Nutrition and Diagnostics business, which should boost results in the second half of 2013 as well.

We are also impressed by the company’s recent efforts to further broaden its expansive portfolio. On Jul 15, Abbott Labs announced the acquisition of OptiMedica in a bid to expand its vision care business into the rapidly developing laser-assisted cataract surgery market.

Abbott Labs also announced the acquisition of IDEV Technologies to further broaden its existing portfolio of endovascular products which are designed to treat patients with peripheral artery disease.

The business environment continues to be challenging in 2013 due to austerity measures in developed markets and weak economic conditions elsewhere. Hence, we believe Abbott Labs’ diversification in varied business lines will enable the company to counter the challenging business environment and maintain top-line growth.

Abbott Labs currently carries a Zacks Rank #3 (Hold). Right now, Baxano Surgical (BAXS - Snapshot Report) and LeMaitre Vascular, Inc. (LMAT - Snapshot Report) look attractive with a Zacks Rank #2 (Buy).

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