Abbott Labs reported some pretty uneventful fourth-quarter results this week. Management has been very clear about future expectations in anticipation of the spinoff of AbbVie, which is part of the reason we saw little market reaction to the numbers. Also, the absence of last year's quarterly financial statements for the "new" Abbott makes some forms of financial analysis tough because of the lack of comparable results. Bean counters are still hard at work dealing with the exciting job of historical cost attribution between AbbVie and Abbott , and management expects those historical quarterly financials to hit during or before it reports first-quarter results.
While looking at corporate-level performance is a bit muddy at this point, analyzing individual segments is a bit easier given that the company's broken out these results in past quarters. Below are a few highlights, and items to watch going forward.
- Established Pharmaceuticals: Pressure in developed markets, largely caused by European austerity measures, is diluting strong emerging markets performance. The company expects nearly two-thirds of sales to come from emerging economies in 2013, and these key markets continue to show strength, with sales growing in the mid-teens percentage range in 2012. While full-year sales growth should be uninspiring because of European and foreign exchange headwinds, watching emerging market growth rates is key for investors following this division.
- Medical Devices: This segment faced major revenue headwinds in 2012 that led to sales declines later in the year, but is expected to grow at a low to mid-single-digit rate in 2013. It's heavily reliant on its vascular products franchise, so watching the performance of recently introduced products like the Xience Xpedition and Absorb stents, as well as structural heart product MitraClip, will be important going forward.
- Diagnostics: Abbott's diagnostics division posted solid growth in 2012 in this business, which is very heavily concentrated outside of the United States. Growth in Brazil, Russia, and China continues to be robust and should continue to support top-line growth. The other side to this story is margins, and management has been very clear lately that it expects to easily exceed its 20% goals.
- Nutrition: CEO Miles White summed up this segment's importance well on the fourth-quarter call. He said, "Nutrition is the fastest-growing business in our portfolio and has the most opportunity for margin expansion." Investors will scrutinize this division more than any other at Abbott, and with the conversion from third-party to in-house distribution now complete, following international sales growth and margin performance will be paramount.
While there weren't many surprises on this quarter's call, we did receive more specifics on full-year and quarterly expectations in 2013 for Abbott as a whole. Initial full-year earnings per share expectations fell between $1.98 and $2.04, meaning the stock currently trades at about 16 times this year's expected bottom line. That's a 10% to 15% premium to its peer group, which appears reasonable given the strong international growth opportunities and margin upside that exists over the next few years.
