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Abbott (ABT) Up 7.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Abbott (ABT - Free Report) . Shares have added about 7.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Abbott due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Abbott's Q3 Earnings and Revenues Beat Estimates

Abbott reported third-quarter 2022 adjusted earnings of $1.15 per share, which exceeded the Zacks Consensus Estimate by 26.4%. The adjusted figure however declined from the prior-year quarter’s levels by 17.9%.

The quarter’s adjustments include certain non-recurring intangible amortization expenses.

GAAP earnings per share came in at 81 cents, a 30.8% plunge year on year.

Third-quarter worldwide sales of $10.41 billion were down 4.7% year over year on a reported basis. The top line exceeded the Zacks Consensus Estimate by 8.7%.

On an organic basis (excluding the impact of foreign exchange), sales improved 1.3% year over year in the reported quarter.

Quarter in Detail

Abbott operates through four segments — Established Pharmaceuticals, Medical Devices, Nutrition and Diagnostics.

In the third quarter, Established Pharmaceuticals sales improved 4.9% on a reported basis (up 12.2% on an organic basis) to $1.33 billion. Organic sales in key emerging markets improved 13% year over year. According to Abbott, organic sales improvement was backed by strong growth in several geographies, including India, China, Brazil and Vietnam and several therapeutic areas, including cardiometabolic, gastroenterology and central nervous system/pain management.

Medical Devices business sales dropped 0.5% on a reported basis (up 6.4% on an organic basis) to $3.62 billion. U.S. Sales growth was led by strong double-digit growth in Electrophysiology, Structural Heart and Diabetes Care. Internationally, sales growth was negatively impacted by intermittent COVID-19 lockdown restrictions in China as well as supply constraints in certain areas, most notably Electrophysiology.

Diabetes Care reported organic growth of 12.9% year over year, led by FreeStyle Libre, which contributed $1.0 billion of revenues in the reported quarter. Heart Failure sales improved 2.3% organically. Meanwhile, the Rhythm Management business recorded an organic sales decline of 0.8% in the quarter under review. Electrophysiology and Structural Heart recorded organic growth of 3.8% and 15.1%, respectively, in the quarter under review.

Nutrition sales were down 14.9% year over year on a reported basis (down 10.3% on an organic basis) to $1.79 billion. Pediatric Nutrition sales registered a 22% slump on an organic basis. The downside can be attributed to a manufacturing shutdown in February of certain infant formula products manufactured at Abbott's Sturgis, MI, facility. International Pediatric sales were negatively impacted by challenging market conditions in China.

Adult Nutrition sales improved 2.4% organically. Per the company, Adult Nutrition sales benefited from improved sales performance of Abbott's complete and balanced nutrition brand, Ensure globally.

Diagnostics sales were down 6.2% year over year on a reported basis (down 0.6% on an organic basis) to $3.67 billion. Core Laboratory Diagnostics sales were up 2.2% organically. Meanwhile, Molecular Diagnostics declined 44.3% on an organic basis. Rapid Diagnostics sales rose 4.9% on an organic basis, whereas Point of Care Diagnostics sales fell 4% organically.

Margins

Gross profit for the reported quarter fell 11.1% year over year to $5.78 billion. Gross margin contracted 399 basis points (bps) to 55.5%.

Selling, general and administrative expenses were down 1.3% year over year to $2.73 billion. Research and development expenses rose 16.4% year over year to $782 million.

The company reported an adjusted operating profit of $2.27 billion for the quarter under review, down 26% year over year. Adjusted operating margin, too, contracted 627 bps to 21.8%.

2022 Guidance

Abbott has raised its 2022 EPS guidance.

Full-year adjusted earnings (excluding specified items of $1.42 per share) are expected to be in the range of $5.17 to $5.23 (compared with the earlier guidance of at least $4.90). The current Zacks Consensus Estimate is pegged at $5.00.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -5.5% due to these changes.

VGM Scores

At this time, Abbott has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Abbott has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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