Can Abbott Earnings Climb Without AbbVie?

Abbott Labs (ABT -1.21%) will release its quarterly report on Wednesday, and investors haven't been entirely comfortable with the company's prospects lately. Even though analysts expect Abbott earnings to grow this quarter, the stock has been under pressure as investors assess the company's future prospects without the branded-pharmaceutical business that got spun off into AbbVie (ABBV 0.69%) at the beginning of this year.

Abbott has hoped that the AbbVie spinoff would allow it to concentrate more on other business lines, which include lucrative opportunities in the nutrition, medical-device, diagnostics, and generic-pharmaceuticals spaces. With tailwinds like the aging demographics for populations in the U.S. and throughout the developed world, as well as greater attention to health-care considerations stemming from adoption of the Affordable Care Act, Abbott has a chance to boost profits if it can take full advantage of those opportunities. Let's take an early look at what's been happening with Abbott Labs over the past quarter and what we're likely to see in its report.

Stats on Abbott Labs

Source: Yahoo! Finance. *Adjusted for AbbVie spinoff by subtracting net earnings and revenue attributed to AbbVie in its S-1 filing.

How will Abbott earnings fare this quarter?
In recent months, analysts have been very modestly pessimistic in their views on Abbott earnings, cutting both third-quarter and full-year estimates by a penny per share. The stock has responded more negatively, though, with a 5% drop since mid-July.

Abbott came into the quarter on a fairly positive note, with a 7% rise in adjusted earnings topping expectations even as revenue gains of 2.5% fell short of what investors had hoped to see. The nutritional side of the business performed best, with 17% growth in international sales producing outpaced gains for the segment as a whole. Nutrition makes up more of Abbott's revenue than any other segment. Even relative weakness from medical devices and generic drugs wasn't enough to hold back Abbott too much.

But later in the quarter, investors started looking more negatively at the company. One big hit came in August, when officials in China fined Abbott and recalled some of its infant-formula products over concerns about botulism. The company also faced questions about its pricing structures in China, with regulators looking at whether the high-demand formula industry is taking advantage of customers in the emerging-market nation.

One interesting opportunity for Abbott could come from a possible purchase of Johnson & Johnson's (JNJ -1.52%) Ortho Clinical Diagnostics division. With J&J looking to cash in on an Ortho sale that could bring in $5 billion, Abbott could boost its own diagnostics emphasis and also improve its cash flow by getting in on a deal. Yet some investors are concerned about whether J&J wants more for Ortho than Abbott should pay, especially as the division's revenue has been flat lately. A buy could also help Abbott keep rivals Siemens and Roche at bay.

In the Abbott earnings report, watch to see how the company bounced back from the China problems and how it expects to move forward strategically. With nearly a year under its belt as a slimmed-down company, Abbott should have a better sense now of whether to keep pushing forward with its nutritional blockbuster products or to aim at greater diversification.

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