Abbott Laboratories (ABT) Q4 2022 Earnings Call Transcript

Abbott Laboratories (ABT -0.03%)
Q4 2022 Earnings Call
Jan 25, 2023, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and thank you for standing by. Welcome to Abbott's fourth-quarter 2022 earnings conference call. All participants will be able to listen only until the question-and-answer portion of this call. [Operator instructions] This call is being recorded by Abbott.

With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It can not be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, vice president, investor relations, licensing, and acquisitions.

Scott Leinenweber -- Vice President of Investor Relations, Licensing, and Acquisition

Good morning and thank you for joining us. With me today are Robert Ford, chairman and chief executive officer, and Bob Funck, executive vice president, finance, and chief financial officer. Robert and Bob will provide opening remarks. Following their comments, we'll take your questions.

Before we get started, some statements made today may be forward looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2023. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31st, 2021. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law.

On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott has not provided the GAAP financial measure for organic sales growth, excluding COVID testing sales, on a forward-looking basis because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange.

With that, I will now turn the call over to Robert.

Robert Ford -- Chairman and Chief Executive Officer

Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, I'll discuss our 2022 results as well as our outlook for this year. For the full-year 2022, we achieved ongoing earnings per share of $5.34, which is well above the original EPS guidance we set at the beginning of the year.

As you know, macro business conditions have been highly dynamic and challenging for the last few years, particularly for U.S.-based multinational companies. COVID-19 pandemic played a big role in this, of course. We saw the U.S. dollar strengthened significantly and inflation reached new heights last year.

Supply chains continue to face challenges, and our healthcare customers have been navigating staffing challenges that are negatively impacting certain medical device procedure trends and routine diagnostic testing volumes. As we start the new year, however, while these factors remain headwinds, I'm cautiously optimistic that we're starting to see them peak and, in some cases, ease a bit. Over the past few months, the impact of COVID-19 on society has lessened, and economies around the world are increasingly reopening. In the U.S., the U.S.

dollar weakened a bit, and inflation has eased somewhat. And hospital-based procedures and routine testing trends continue to steadily improve in many areas. As you know, COVID testing has been a big part of our story this past couple of years. And I'm proud of what our team has built: a full suite of tests across several platforms and the intentionality and how we established a leading role in the world's response to the pandemic.

In total, we've delivered nearly 3 billion COVID tests globally since the start of the pandemic. Going forward, we expect COVID-19 to transition to more of an endemic seasonal type of respiratory virus. And with that, COVID testing, while still important, is expected to decline significantly. We expect variants will continue to emerge, and, therefore, our tests will remain an important part of our leading respiratory testing portfolio, along with flu, RSV, and strep, which we offer across multiple testing platforms, including lab-based systems in hospitals, small desktop devices in urgent care centers and physician offices, as well as at-home tests.

As we reflect back on the impact of COVID testing efforts over the last few years, it's clear that our success in this area will have a positive, long-lasting impact for the company. It strengthened our strategic position in diagnostics through the expansion of our installed base of instruments, including ID NOW, our rapid, point-of-care molecular testing platform, and through the opening of new testing channels such as physician offices and at-home testing. It enabled us to increase investments in priority growth areas across the company, including R&D and commercial initiatives, in support of several recent and upcoming new product launches while, at the same time, increasing returns to our shareholders in the forms of dividend growth and share repurchase. And lastly, it further strengthened our overall financial health and balance sheet, which will provide significant strategic flexibility as we look to build and grow the company even further.

I'm proud of the role we played in fighting COVID over the last few years. It reinforced our purpose, had a meaningful impact on society, and enhanced our long-term strategic position going forward. Turning now to our outlook for 2023. As we announced this morning, we forecast ongoing earnings per share of $4.30 to $4.50.

We forecast organic sales growth, excluding COVID testing sales, in the high single digits. And we forecast around $2 billion of COVID testing sales for the full-year 2023. And I'll provide more details on our results by business area before turning the call over to Bob. And I'll start with nutrition where sales declined around 6% in both the fourth quarter and full year as a result of manufacturing disruptions at one of our U.S.

infant formula facilities last year. Production at the facility is up and running. And as we've mentioned previously, our initial supply priority was to the WIC, women, infant, and children federal food assistance program, to ensure underserved participants have access to infant formula. As our manufacturing capacity has continued to recover, we've been able to increase production of our non-WIC brands with a focus on serving the broader infant formula market and building back inventory levels on retail shelves.

Turning to diagnostics where, as expected, sales growth in the fourth quarter was negatively impacted by year-over-year decline in COVID-19 test sales. COVID testing sales were $1.1 billion in the fourth quarter with rapid testing platforms, including BinaxNOW in the U.S. Panbio internationally, and ID NOW globally, compromising approximately 95% of the sales. Excluding COVID testing sales, worldwide diagnostics grew over 11% in the fourth quarter.

Growth in the quarter was led by rapid diagnostics where, excluding COVID-19 tests, sales increased 30% compared to the prior year. As I mentioned earlier, during the pandemic, we significantly expanded the install base of ID NOW and opened new testing channels. This expanded footprint drove strong growth and supported testing needs when flu and other respiratory infections surged late last year. During this past year, we continued the rollout of Alinity, our innovative suite of diagnostic instruments, and expand test menus across our platforms for immunoassay, clinical chemistry, and molecular testing.

Moving to established pharmaceuticals, or EPD, where sales increased 8% in the fourth quarter and over 10% for the full year. EPD continues to perform at a high level, having carved out an attractive growth space in the global pharmaceutical market, specifically, our geographic focus on fast-growing emerging markets with a broad portfolio targeting attractive therapeutic areas. Strong performance in the quarter was led by double-digit growth across several geographies, including India, China, Brazil, and Mexico. And I'll wrap up with medical devices where sales grew 7.5% in the fourth quarter and 8% for the full year.

Growth in both the quarter and full year was led by double-digit growth in electrophysiology, structural heart, and diabetes care in the U.S. Internationally, sales growth was negatively impacted by COVID surges in China during the fourth quarter, as well as lingering supply challenges in a couple of areas. In diabetes care, fourth-quarter sales of FreeStyle Libre, our market-leading continuous glucose monitoring system, grew over 40% in the U.S., and global Libre sales reached $4.3 billion for the full-year 2022. We continue to strengthen our medical device portfolio with numerous pipeline advancements and launches, including recent U.S.

regulatory approvals of Aveir, our highly innovative, leadless pacemakers used to treating people with slow heart rhythms; Eterna, the smallest implantable rechargeable spinal cord stimulation system currently available in the market for the treatment of chronic pain; FreeStyle Libre 3, which provides continuous glucose readings in the world's smallest and most accurate wearable sensor, Libre was recently named the best medical technology of the last 50 years by Galen Foundation; and finally, Navitor, our latest-generation transcatheter aortic heart valve replacement system. So, in summary, 2022 was another highly successful year for Abbott. We're optimistic about the early signs we're seeing of an improving operating environment and excited about the growth opportunities that lie ahead for all of our businesses. And we continue to strengthen our overall strategic position with a steady cadence of innovative technologies that are either in the early stages of launching or expected to launch over the course of this year.

I'll now turn over the call to Bob. Bob.

Bob Funck -- Executive Vice President, Finance, and Chief Financial Officer

Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange. Turning to our results. Sales decreased 6.1% on an organic basis in the quarter.

COVID testing-related sales were $1.1 billion in the quarter, which, while stronger than the forecast we provided back in October, reflect a year-over-year decline versus sales in the fourth quarter of the prior year. Excluding both COVID testing-related sales and U.S. infant formula sales that were impacted by manufacturing disruptions last year in our nutrition business, total Abbott sales increased 7.1% on an organic basis in the fourth quarter and 7.4% for the full-year 2022. Foreign exchange had an unfavorable year-over-year impact of 5.9% on fourth-quarter sales, which resulted in a somewhat favorable impact on sales compared to exchange rates at the time of our earnings call in October as we saw the dollar weakened a bit late last year.

Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 55.6% of sales, which reflects the impact of the nutrition manufacturing disruptions and inflation we've experienced on certain manufacturing and distribution costs across our businesses. Adjusted R&D investment was 6.5% of sales, and adjusted SG&A expense was 28% of sales in the fourth quarter. Turning to our outlook for the full-year 2023. Today, we issued guidance for full-year ongoing earnings per share of $4.30 to $4.50.

For the year, we forecast organic sales growth, excluding the impact of COVID testing-related sales, to be in the high single digits. We forecast COVID testing-related sales around $2 billion with around $750 million forecasted in the first quarter. Based on current rates, we would expect exchange to have an unfavorable impact of approximately 1% on our reported full-year sales, which includes an expected unfavorable impact of approximately 3% on our first-quarter reported sales. We're forecasting adjusted gross margin ratio for the full year of approximately 56% of sales.

Also, for the year, we forecast R&D investment of around $2.5 billion and SG&A investment of around $11 billion, which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives. We forecast net interest expense of around $300 million, nonoperating income of around $450 million, and a full-year adjusted tax rate of approximately 14% for the year. As Robert mentioned, the strength and resiliency of our business, particularly since the start of the pandemic, has allowed us to concurrently invest in our strategic priorities, provide strong return to our shareholders, and further strengthen our financial health, which provides a strong base on which to grow the company going forward. With that, we'll now open the call for questions.

Questions & Answers:

Operator

Thank you. At this time, we will conduct the question-and-answer session. [Operator instructions] And our first question will come from Robbie Marcus from J.P. Morgan.

Your line is open.

Robbie Marcus -- JPMorgan Chase and Company -- Analyst

Oh, great. Thanks. Good morning, everyone. Robert, maybe to kick it off, I appreciate the guidance, but there's there's a lot of moving parts through the different business lines with macro involved with a lot of new product launches involved.

Maybe you could just build up how we should be thinking about, you know, how you came up with the guidance range on both the top and bottom lines, given all the moving parts.

Robert Ford -- Chairman and Chief Executive Officer

Sure. I mean, there's obviously a macro environment here that's been complex and you've mentioned it. And as I said in my -- as I said in my remarks, and I think they've gotten significantly better versus where we were in October when -- on our last earnings call. So, I think that we've factored, you know, some of that improvement and some of that stabilization in there.

I mean, I don't necessarily think that we've got too many moving parts here. I mean, obviously, we run a, you know -- the company's got a lot of different, you know, business and business segments. But, I mean, if you look at really the two areas, I would say, Robbie, that kind of have had this effect of -- you know, maybe sometimes distorting the results a little bit is our COVID testing business and the impact of the recall products last year, right? So, you know, from a COVID perspective, in 2022, we actually sold more tests than we sold in 2021. And then, obviously, the impact of recall products, yeah, that was a negative that -- both of those flip next year.

So, if you take those out of the equation, you kind of go back to what we were growing pre-pandemic, right, which was, you know, top-tier, you know, high single digit, 7% to 8% growth. That's what we grew in 2022, again, excluding COVID and the impact of the recall products. And then, if you take that -- you know, that comp out on the recall product side, you know, this year, as as we return to market and, you know, look at the base business, you know, obviously, without the COVID test piece, we're going to be growing, you know, high single digits, probably at a higher, higher end of that pre-pandemic range, probably 8-plus percent. So, I think it starts with with the top line.

And that's probably that -- you know, the number one part of our guidance is obviously making sure that we feel that our top line is taking advantage of all the good parts, all the good product launches, etc. that we have. And from that perspective, I think a lot of what we're doing kind of supports that ongoing -- you know, that ongoing high single-digit growth rate. You know, if you look at our device portfolio, you know, we'll be looking at high single-digit growth rate, low double-digit growth rate, combination of both kind of recovery -- the steady recovery procedures that we're seeing, combined with all these product launches that we've got lined up, you know, that will ultimately have a full-year impact, whether it's Libre 3, Amulet, Aveir, Navitor, CardioMEMS, you know, Eterna on the neuromodulation side, our mapping system in EP, we're going to launch a new ablation catheter.

So, the device portfolio is well set up to be able to drive those high single-digit, low double-digit growth rate. I mean, I think we're going to continue to see strong performance in EPD. I think as the world continues to reopen, those emerging markets continue to be a great opportunity for us. We've strengthened our position in diagnostics throughout these years, and we'll see continued successful rollout of Alinity in our core and molecular diagnostics and then the recovery in infant formula too.

So, I think you put all that in place, our core business, Abbott, that we knew pre-pandemic is actually stronger than we were pre-pandemic with the investments that we made. And I think that's the other part of -- I guess, in the P&L, if you look at what we've been able to do this year is, because of COVID and the investments that we made during COVID in these growth areas, we're able to drive this high single-digit growth across the company with a fairly flat, you know, investment line, whether it's R&D and SG&A. So, really getting the leverage across the businesses. So, I mean, I think it really starts with our top line and the confidence we have in the products we're launching, the pipeline, the positions we have.

And then, you know, COVID, you know, COVID, we forecast about 2 billion next year. And I think that's the right number right now. Obviously, we see kind of society transitioning here. We've got a strong install base.

We've got manufacturing capacity. We haven't factored in any kind of real surge. But if -- you know, if that happens, we do have the capacity to be able to do that. So, I'd say those are some of the moving pieces there.

But fundamentally, we're in a real strong position in terms of our long-term growth opportunities, leading positions in these attractive growth areas, strong pipeline, which I'm sure we'll get into some of them, and a strong balance sheet. So, that's how this has been constructed, and I think that we're in a good position here.

Robbie Marcus -- JPMorgan Chase and Company -- Analyst

Great. Thanks, Robert. Really helpful. Maybe one for Bob.

You know, you're -- you give us the full-year guide and you give some commentary down the P&L, which is really helpful. But how should we be thinking about some of the quarterly cadence here, how FX flows, what is FX on the bottom line, and how did that compare to '22? And any just things we should be thinking about first half or second half on the P&L? Thanks a lot.

Bob Funck -- Executive Vice President, Finance, and Chief Financial Officer

Yeah. So, if you think about the kind of the cadence of our business for 2023, it really starts with the top line and some of the things that Robert kind of talked about. You know, first, we have a lot of new product launch activity, especially in our medical device businesses. You've got, you know, products that either launched last year or will be launching this year.

And I'm sure we'll talk about some of those on the call today. So, you'll see the impact of those launches kind of grow over the course of year, kind of feather into that top line. Secondly, you know, we are seeing a steady improvement in procedure trends in the U.S. and Europe.

And we've been seeing that. And we -- you know, we expect to continue to see kind of a steady improvement there on procedure trends over the course of the year. In our nutrition business, we will see improvement as we continue to continue to supply the market, in particular, the non-WIC segment of the infant formula market in the U.S. And so, we will recover share there.

And so, we'll have the impact of that over the course of the year. For China, Robbie, I'd say, you know, we've assumed to start -- a softer start in Q1, given some of the dynamics there at the start of this year. But we anticipate that will improve over the course of the year. And so, all those changes, all those impacts in the top line that builds over the course of the year, will flow through to earnings.

As Robert talked about, we're going to get leverage in the middle here. And so, you know, for the first quarter, we're -- you know, we think, you know, earnings will be approximately $1. And then, we'll build from there. On your question on foreign exchange, you know, rates have improved a bit recently, but exchange is still a headwind, particularly on earnings.

You know, current rates, as I said in my opening remarks, exchange is approximately 1% headwind on sales. EPS, you know, it's a little bit more than $0.30 headwind for us in 2023. The fall-through impact when currencies move, like we have seen over the last year, is always complex. You know, translation is just a piece of the impact.

And while that has improved from where we were a few months ago, it still remains a headwind. One of the biggest drivers that we're seeing is the impact from our hedging program. We realized pretty significant hedging gains last year that won't repeat this year. And you can really see the impact of those hedging gains on our 2022 results.

Last year, there was a pretty significant exchange headwind on sales, you know, a little over 5%, or $2.1 billion, but a fairly modest impact on earnings. It was less than a dime. And that was really the benefit we realized last year on those hedging gains that won't repeat in 2023. You know, that's not a unique dynamic that we're seeing.

We're seeing that -- we're seeing that from some other multinationals as well.

Robbie Marcus -- JPMorgan Chase and Company -- Analyst

Thanks a lot.

Operator

Thank you. One moment for our next question, please. And our next question will come from Larry Biegelsen from Wells Fargo. Your line is open.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Good morning. Thanks for taking the question. Robert, I feel compelled to ask about Libre again, just given how important it is. So, maybe I'd love to hear from you, you know, the outlook for 2023, you know.

How should we think about worldwide growth, and it can exceed 20% this year? And can you talk about, you know, international, we've been negatively impacted by the supply issues and the transition to Libre 3 in Germany. When do you expect those issues to be resolved? And, you know, just the growth drivers, you know, like, basal and the vitamin C resolution, you know, what are some of the growth drivers to look forward to this year for Libre? And I had one follow-up. Thank you.

Robert Ford -- Chairman and Chief Executive Officer

Sure, Larry. Well, I think Libre had another great -- a great year, full-year growth of over 21% strong growth, in the U.S., over 42%. And international, you know, kind of grew in this mid-teens number. We were impacted a little bit by back orders, as you said, on the international side.

And I'd say, you know, probably a little bit more on our early generation products. So, kind of Libre 1 was that -- you know, we had a significant improvement in that situation in Q4. I expect, you know, one or two more months of -- you know, until we can completely resolve that, but a significant improvement over there on our international performance. I think one of the key things on the international side is, you know, it was a little bit of this supply chain on chips that we had.

Like I said, it's mostly behind us. The other part of it is, you know, the upgrade cycle, right? And when you go with an accelerated upgrade cycle versus, you know, with Libre 3 that we did from Libre 2 in some of our key markets. And when we went from Libre 1 to Libre 2, we left that upgrade kind of somewhat happened naturally. And that takes, you know, about a year and a half, two years to actually complete.

For Libra 3, we wanted to go more aggressively in some of these markets. So, you know, that takes our sales force away from new demand generation to making sure that we can get the scripts and do all the behind-the-scenes work for those upgrades. So, that's -- I would say that's still ongoing, but I'd call it about 80% to 85% complete. So, then, that allows us, starting now, in 2023 on the international side to start kind of driving new additions here.

So, I'd say I expect a continued growth in the U.S. in terms of, you know, market expansion. You know, basal opportunity, I think, is a great opportunity. And I think it'll start in the U.S., but I think we're seeing that also internationally.

And now that we've got, you know, the supply chain issue largely behind us and, you know, the upgrade cycle, again, largely behind us, we can forecast our demand generation activities on new users. So, I think that that's, you know, one key driver of growth for us. You know, can we see path for a 20 -- another 20% growth in 2023? Yeah, I can. And I think there's a lot of opportunities of growth.

I think one of them that you mentioned being the basal expansion, you know, is a significant opportunity. I think we've been leading the charge over here, Larry, in terms of generating the clinical data that's required to be able to support reimbursement. It'll start, I think, in the U.S., but I don't think it will be a U.S.-only phenomenon. But in the U.S., we'll probably start -- first, you've got about 4 million type 2 basal patients in the U.S.

About a third of them are Medicare. And, you know, even if you assume a reasonable market penetration, you also have to assume, you know, a difference in annual utilization rates versus, you know, a type 1 and an MDI or a pumper. But even if you take all that in consideration, the opportunity, you know, starts with a one -- you know, 1 billion. And it can range, you know, depending on the speed and the uptake of that.

So, I think this is a great growth opportunity. And like I said, I don't think it's a U.S.-only situation. I think this is going to start to expand across the world, given the clinical data that you see with Libre and the impacts that it has. So, I think this is another great opportunity for us.

You know, the vitamin C issue that you asked, you know, we've submitted, you know, our response. You know, we're working with the FDA on this. And, you know, I'm not going to try and forecast that approval. But what I will say is that, you know, as soon as that gets approved, then we'll start to see, you know, the product with a couple quarters connect to AID pump systems.

We have already launched a connected AID system -- AID system in Europe. Initial -- you know, initial results of the receptivity of that product -- of that combined product in Europe is being very favorable. So, I think that's another key growth driver for us in 2023. And then, finally, I would say on the pipeline perspective, I don't think it's a 2023 milestone for sales, but I think it's an important development activity for us is going to be, you know, the running our trial for the combined glucose-ketone sensor with the FDA and generating the data to support a dual sensor.

Because I think, again, as I've mentioned, it seems to be the go-to sensor for pumpers will be this ability to measure glucose and ketones and factoring that into the algorithms. So, that's going to be -- that's obviously having a lot of focus of us, you know, in terms of running that trial. And then, finally, I would say outside of Libre, the Lingo platform is another kind of key growth driver for us. You know, I've talked about, you know, expanding Libre -- the Libre platform outside of diabetes and using this more broadly for a much more broader target.

You know, we have a separate team that's been working on that development, Larry. We will be launching two Lingo products this year. In Europe., I'd say the first one will probably be in the first half of this year and the second one in the second half. So, I've talked about Libre being a $10 billion product by 2028.

You know, that implies a 15%, you know, annual growth rate. We'll do better than that this year. And I think the opportunities we have to be able to drive to that kind of revenue for this product are very real. And I think we've been executing very strongly on all of these areas.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's super helpful. Just one brief follow-up. You talked about being excited about the TriClip opportunity at J.P. Morgan.

I think it was just this month. I know, you know, it's limited in what you can say, you know, because you're presenting the TRILUMINATE data at HCC. But how are you thinking about that opportunity relative to mitral? You know, do you still -- and do you still expect to -- you know, do you still expect approval in the U.S. by year-end '23? Thanks for taking the questions.

Robert Ford -- Chairman and Chief Executive Officer

I think it's a great opportunity for us. And, you know, I think that we've shown that we're definitely here, one of the leaders when it comes to, you know, clip-based heart valve repair market. And, you know, do I think it's a -- it could be bigger than mitral? I'm not sure I would go that far yet, but I would say that the uptake of the tricuspid repair market, I think, will be faster than the uptake for the mitral just because I think when mitral was launched it was the first repair system. And now, you have a large group of implanting physicians that, you know, are familiar with the clip technology, are familiar with mapping that clip technology and procedure.

We did make some changes to the delivery device for the clip. It's a little different anatomy, a little bit more challenging to get there with the clip in the tricuspid area. But I think that it's a great opportunity. I mean, I think there's 3 million people today that suffer from tricuspid regurgitation.

There's not a lot of really good options available for treatment, which is why we invested in the trial here in the U.S. to bring product to the trial. Like you said, we're going to be presenting that in a couple of months. And I think it's a great opportunity for us.

We've already seen real nice traction of that in Europe. You know, we launched that in 2021. You know, the team wanted to launch it right in COVID. And, you know, I must say, at the beginning, I was somewhat against that.

But, you know, they proved me wrong and the products done really well in Europe. So, I think this is another great opportunity for us here in the U.S. too. So, you know, we're not, you know, ignoring MitraClip.

It's part of our entire portfolio. And I think the combination of those two products in the implanting physician will be very powerful for Abbott.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

All right. Thanks so much.

Operator

Thank you. One moment for our next question, please. And our next question will come from Josh Jennings from Cowen. Your line is open.

Josh Jennings -- Cowen and Company -- Analyst

Hi. Thanks for taking the questions. Good morning. Robert, I was hoping just to follow up on Larry's question just on Libre, just thinking more kind of in the out-years and this $10 billion target that you've set.

I think maybe -- just I think you outlined everything for 2023 probably holds true for you over the next five years. But just if you could reiterate your confidence, or not, in that $10 billion out-year target. And do you expect consolidation between pump and CGM companies? And maybe it'd be just great to hear strategic rationale of whether a combined pump CGM offering under one roof would be advantageous for either Abbott or another company. And then, the second question is just on the Abbott tour and the launch here in the United States.

And what would represent a win for Abbott from a U.S. share gain perspective? And in what segment is the low-hanging fruit considering the current label? Is it the elderly patients that don't have a long life expectancy that are high risk or even intermediate risk? And how do you expect and have a tour and launch play out and add to the medical device growth in 2023? Thanks for taking the questions.

Robert Ford -- Chairman and Chief Executive Officer

Sure. Well, I mean, I guess on Libre, you know, to your question on, you know, how to get to 10 billion by 2028, I mean, you know, the math will say 15%, right? How do you get to that 15%? I mean, there are real three key areas, and I talked a little bit about them. But, you know, I'd say, first of all, it's to continue to have a dominant share in the heavy insulin user segment. We have that today with the non-pumpers, you know, with the MDI, both in the U.S.

and globally and internationally. So, the real focus there becomes, OK, how do we focus now on the pumpers segment and the connectivity over there? And like I said, I think we'll do that with a little bit of a catch-up of Libre 2 in terms of what is currently offered in the market. But then, to leapfrog that, I think the combined sensor, or glucose-ketone sensor, is ultimately the -- you know, the way we'll play. And we'll see what pump company, you know, is going to want to line up, you know, to be first, you know, on that connectivity, you know, if and once we get that approval because, again, I continue to hear from KOLs the importance of that product for the pumpers segment.

So, the second part is the basal expansion. And, you know, like I said, you can look at the basal population globally, assume a certain penetration rate globally, a certain utilization rate, and that adds a significant amount of growth to that number. And then, the third piece of that is really expanding Libre beyond just diabetes and looking at the Lingo platform. So, the adding up and the execution of those strategies are what ultimately gives us confidence that we can get there and we can sustain that 15% growth rate over the next kind of five years.

Regarding questions on pumps. Listen, I think that it's an important segment. It's one that benefits quite significantly from a combined system. We're now -- you know, we're focusing more aggressively on that.

As it relates to a all in one, you know, I think the market has spoken in terms of -- you know, the pumper's one choice. They want to be able to, you know, choose what is the best sensor-pump combination. And I -- so, I think right now, you know, my view on that is, you know, the consumers have spoken, the market has spoken, the regulator has spoken. They want that interchangeability.

And I think that our focus will be on providing the best sensor for the, you know, pump systems that are out there. So, that's -- I think I got -- I covered your Libre questions. I think you had a question on Navitor. Listen, we're excited about this.

It's a large market. It's a large segment here in the U.S. It's about $3 billion. Our label is about 50% -- sorry, about 50% of the market, because we're only approved right now for the high-risk patients.

But it's got a strength -- it's got a strong clinical profile. I mean, we'll be sharing data at CRT specifically to this. But I mean, we've already released some data on it last year, comparing it to other valve systems. So, I think that, you know, we've been very intentional about, you know, wanting to enter this market and to do it in a way that is sustainable.

Expectations, I mean, I talked a little bit about this. You know, there's obviously two pretty well-entrenched players in the U.S. market. You know, do I think that we can be a leader in, you know, three or four or five years, I think that might be difficult.

But I think that we can come into this market and offer another choice, another opportunity that provides additional benefits or differentiated benefits versus other systems that allow us to pick up share. You know, if I look at where we are in Europe, we launched this in Europe. And, you know, we have high single-digit share in Europe, and we're not in all -- but we're not in all centers. We're in about half of the market.

In the centers that we are implanted and available, you know, our share is in the mid-teens. So, you put that together, we're a high single. But where we're competing, we're in the mid-teens. So, I think this will be a ramp.

I think we've got the sales force in place. We want to roll this out in a way that, you know, allows us to be sustainable in that strategy and be able to be a double-digit share gain over the next couple of years.

Josh Jennings -- Cowen and Company -- Analyst

Appreciate it. Thank you.

Operator

Thank you. One moment for our next question, please. And our next question will come from Joanne Wuensch from Citibank. Your line is open.

Joanne Wuensch -- Citi -- Analyst

Good morning and thank you for taking the questions. I have two. The first one has to do with nutrition, and if you could outline where the company is in terms of the recovery and when do you think it will return to growth. And then, the second question has to do with use of cash, what are your thoughts on it and where you are on share repurchases.

Thank you.

Robert Ford -- Chairman and Chief Executive Officer

Sure. Well, on nutrition, as I said in the opening statements, you know, production at Sturgis is up and running. You know, the team is working around the clock nonstop, very hard. Number one focus here, as I said, was, you know, to serve the customers, get product back on shelves.

We started with WIC. The inventory with -- the inventory levels on our WIC contracts are very good as we entered into Q4. And we then started to focus on our not WIC -- non-WIC brands. And that's -- you know, that's progressed very well in the fourth quarter.

And, you know, as we go into this year, you know, looking very good. So, I would say, if you look at our growth rate, obviously, you've got this year of your comp, you're going to see the growth already in Q1, Joanne, right? Because we were impacted last year in February. But I guess the right way to look at this is, OK, to strip away the comp, strip away, you know, where -- you know, this year-over-year effect of coming back on the market, etc. You know, I expect our business -- you know, our overall nutrition business to be growing at that pre-pandemic level between 4% and 6%.

You know, our market shares in WIC have largely recovered, and we're seeing a nice cadence of recovery in the non-WIC share here in the U.S. So, I think you'll start to see that growth rate already on the print in Q1, obviously, in Q2 and Q3. But, you know, the important thing here is we're looking at our share, and the share recovery is very much in line with -- you know, with our forecast that we've set for the full year. I'd like to see our market share get back to, you know, pre-pandemic levels by the end of the year.

And then, sorry, what was your other question?

Joanne Wuensch -- Citi -- Analyst

Thank you. Use of cash and where you stand on share repurchases. Thank you.

Robert Ford -- Chairman and Chief Executive Officer

Sure. Well, use of cash, you know, I've talked about this. We've taken this balanced approach. I'd say if I were to kind of rank it in terms of use of cash, we're committed to growing a dividend, a strong and growing dividend.

So, that's probably the number one use of cash. We announced that increase of about 9% in our dividend last year. So, that's always priority number one. Number two is, obviously, ensuring that all of these new products that we've got launching are properly resourced in terms of manufacturing and a lot of our capex investments.

On the buybacks, we did -- you know, throughout the first nine months of last year, we had about 3 billion of buybacks. And, you know, I'd say we probably did a little bit of catch-up there, Joanne, in terms of catching up to some of the dilution as we were focusing on getting our leverage down post acquisitions. So, we did a little bit of catch-up there. And I'd say, in terms of buybacks going forward, we'll be contemplating them, and they'll be largely focused on offsetting any kind of dilution that we have this year.

I'd say the other kind of key use here for us this year is going to be debt. We have some debt towers coming up. And, you know, we're not going to be renegotiating those just given interest rates. We want to move those off.

So, that's probably the -- you know, where you see the use of cash.

Joanne Wuensch -- Citi -- Analyst

Thank you.

Robert Ford -- Chairman and Chief Executive Officer

On the M&A side, which I know is always a question, so I'll pre-empt anybody over there who's got that on their list. I've talked about it where -- on several calls. We're interested or actively assessing opportunities, whether it's tucking on up. Clearly, the valuations here have come down somewhat, and I think they need to stabilize a little bit.

But we've cast a -- you know, we cast a pretty wide net. You know, diagnostics devices are the areas where we have most interest. And again, if it's -- it financially makes sense for our shareholders and it fits strategically, then we will -- you know, we've got that strategic flexibility in our balance sheet to do that, you know. And, you know, we're going to be looking at businesses where we can bring value, you know, whether it's -- you know, whether we can accelerate sales, whether we can enhance an R&D program, or enhance its probability of success, you know, a growth area that we can build and have a path to building a position, or even if it's just to augment, you know, our own existing pipeline.

I think when we've taken that approach -- our track record shows that when we've taken that approach, it's largely been very successful for our shareholders.

Joanne Wuensch -- Citi -- Analyst

Thank you.

Operator

Thank you. One moment for our next question, please. And our next question will come from Vijay Kumar from Evercore ISI. Your line is open.

Vijay Kumar -- Evercore ISI -- Analyst

Hey, guys. Thanks for taking my question. And good morning to you, Robert. Maybe my first question on your organic growth assumptions here.

I think I heard 8-plus is a reasonable number for '23. What is that assuming for any impact from China supply chain? Any, you know, VBP impact? If you could just give us some assumptions around those macro factors, that would be helpful.

Robert Ford -- Chairman and Chief Executive Officer

Well, I'll let Bob talk a little bit about some of the, you know, potentially out -- other macro factors. But the ones you've just mentioned here, I mean, China, you know, it's an important market for us, Vijay. It's an important growth market, and it's good that it's moved to a more, you know, kind of reopening play. I think that has not only a big impact for us in China, where we've got a strong position.

I mean, we're not overly reliant. I'd say, you know, it's about less than 5% of our total sales. But nonetheless, it's an important kind of growth market for us. And I think that reopening in China is going to have a real, you know, positive spillover effect in other areas of the world, and I would say predominantly in Asia, Southeast Asia, where we've got strong positions, you know, in our EPD and in our nutrition business and in some device areas, too.

So, I think the overall opening in China is good. You know, like Bob said, there's going to be some choppiness in the first quarter because, you know, we're seeing, you know, a lot of cases, hospitalizations, etc. But I think as that moves -- starts to move down, I think we'll see a pretty strong rebound in our growth prospects over there. So, you know, the VBP that you mentioned, yeah, I mean, that does have an impact.

It's more -- it's more restricted for 2023 in our electrophysiology business. So, we'll feel a little bit of an impact there. But I think that the market, you know, opens up for us, you know, because of the strategy we took on the VBP side. So, I think it's a -- net net, it's going to be positive for us, you know, in the long term here, medium, long term in terms of that being an opportunity for us.

We've seen this, Vijay. I mean, this happened to us -- this happened in the market with stents in 2019 in our vascular business. That business is back to, what I would call, pre-VBP levels, you know, this year. So, there's an impact.

In that case, we didn't necessarily, you know, win some of the contracts. In the case of EP, we did win the contract, so -- or a portion of the contract. So, I'd say macro, yeah, we've got some of these headwinds that we've talked about, FX -- I think Bob already talked about it -- inflation. But all those seem to be, you know, easing off a little bit and the recovery of the procedures and the pipeline and the product launches is a key growth driver for us.

Vijay Kumar -- Evercore ISI -- Analyst

Understood. And, Bob, one for you. On the gross margin here, 56%. That's a step-down year on year.

You know, when I look at pre-pandemic, you know, you guys were at 59%. Is there a simple bridge, Bob, on how much of this has been inflation? You know, you just spoke what hedging impact is. Is that all hitting your gross margin line? And why shouldn't inflationary pressures improve? And when can we start seeing gross margins, you know, creep back up to pre-pandemic levels?

Bob Funck -- Executive Vice President, Finance, and Chief Financial Officer

Yeah. So, you know, the -- as I said in my opening remarks, around 56% for the year, this a modest step-up kind of from where we exited last year. As you would expect, Vijay, in this environment, you know, there's a lot of different dynamics that multinationals are facing. We've got some headwinds.

We talked about those inflationary impacts, how that flows through, including the inventory we built last year that will be sold this year. We talked about currency, where we're going to -- you know, we're not going to see a repeat of those hedging gains that we had in '22. So, that's a head -- you know, it's a bit of a headwind there. On the positive side, I'd say, you know, the recovery we're forecasting in the U.S.

infant nutrition business will contribute positively. And as that recovery occurs over the course of the year, that will have a more positive impact. We also have gross margin improvement programs across all of our businesses that, you know, will help to offset some of those headwinds. And we're taking price where we can, I'd say, in our more consumer-facing businesses.

And then, finally, I'd say, just to kind of from a mix standpoint, as we continue to see an acceleration in our medical device business with some of these new product launches, those are higher gross margins than the overall company, and that will positively contribute to our gross margin. If you -- to your question about kind of where we were pre-pandemic and what we're guiding to this year, kind of I'd say the biggest impact, on a cumulative basis, has really been inflation. And that's really the -- I'd say the big difference here in terms of, you know, where we're guiding right now and where we were pre-pandemic. But as we continue to see an acceleration from a mix standpoint and continue to work at some of our costs, you know, we would expect over time to see that gross margin to continue to improve.

Vijay Kumar -- Evercore ISI -- Analyst

Understood. Thank you, guys.

Operator

Thank you. One moment for our next question, please. And our next question will come from Travis Steed from Bank of America. Your line is open.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning and thanks for taking the questions. Just a follow-up to Vijay's question on the inflation piece. Is that still $1 billion baked into the fourth-quarter guidance? So, to make sure I understand what's baked down on the gross margin line.

Then, anything to call out on the 2023 operating margin expansion, some of the moving parts to get the op margin expansion there? it looks like 22% is kind of what's implied by the guide.

Bob Funck -- Executive Vice President, Finance, and Chief Financial Officer

Yeah. So, I'll -- yeah, on the gross on the operating margin, yeah, we're around 22% kind of where we were pre-pandemic. You know, we're getting the high -- you know, the high single-digit growth on the top line kind of in the, you know, excluding the COVID testing. We're getting leverage down to the P&L, which Robert talked about, where we were able to forward invest over the last couple of years.

We're going to get leverage in the expense area, and that gets you to about around 22% of margin. You know, in terms of inflation, you know, we are going to see a carryover impact from last year, still pretty meaningful. But we've been able to mitigate, you know, a good portion of that through both our gross margin improvement programs that we have across our businesses, as well as taking some price where we can.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. A couple of product questions. On EP, I think you mentioned the new EP catheter mapping system and that was new.

Maybe I missed that in the past. And curious how you're thinking about [Inaudible] ablation and the impact on your EP business. And then, the other product question was on Libre. The vitamin C, is that on Libre 2 or Libre 3? So, understanding the pathway to get vitamin C on Libre 3 and the timing there.

Robert Ford -- Chairman and Chief Executive Officer

Sure. On the Libre 3 vit c, I mean, it's going to start off with Libre 2. So, we want to get that done first, and then, we'll progress on to Libre 3. So, focus right now is on Libre 2, and then, we'll move to Libre 3.

On your question on EP, I mean, I think the new catheter that we've launched in Japan and start to launch in Europe toward the end of last year is our TactiFlex, which is really using contact force together with the flexible tip that we had in our flex catheter. So, the feedback we've got on that is really, really positive. So, I think the combination here of, you know, our enhanced new mapping system together with our market-leading mapping catheter and HD Grid, and now bringing TactiFlex, that combination is very powerful. Regarding PFA, you know, it's definitely an area of interest.

We've been investing in it. We've actually -- we actually had two internal programs, had a bake-off, and saw the one that we felt stronger about, taking some of the learnings that we're seeing from the current on -market products. And, you know, there's obviously some trialing that's ongoing right now, but I would say it's a growth opportunity. It's an interesting area.

I think it's still too early to say in terms of, will the market move completely over to this technology or not. I think it's important to have it and, hence, why we're investing in our program and, you know, incorporating into our R&D program all of some of the deficiencies that we've heard from some of the -- you know, the current on-market products are the ones that are being put in development right now. So, important area -- important investment area for us in EP, definitely benefited from kind of, you know, the investments that we made during COVID. And I think it's an important product to have.

Its ability to convert -- you know, I think it'll convert a portion of the market. My sense is cryo was probably the first one. But how much of cryo, you know, still up to see. But definitely an interesting area for investment.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Scott Leinenweber -- Vice President of Investor Relations, Licensing, and Acquisition

We'll take one more question.

Operator

Thank you. One moment for our next question. And our last question will come from Matt Miksic from Barclays. Your line is open.

Matt Miksic -- Barclays -- Analyst

Hey, thanks for your opinion. I figured maybe just if we could wrap it up with an update on a couple of the pipeline products, the five products, Robert, that you've highlighted in the past, Amulet and CardioMEMS. Maybe if you could just talk a little bit about, you know, where you are with these launches in terms of, you know, size, scale, momentum, and maybe what kinds of catalysts we can look for, and metrics we can see for these two products this year. Thanks.

Robert Ford -- Chairman and Chief Executive Officer

Sure. Well, I mean, I think those five products that I discussed on the last call, you know, we talked about them, you know, exiting at an annual run rate of 500. They actually exited at a run rate of 550. And they grew around, you know, 100%.

So, I expect those five products to kind of have, you know, maybe not 100%, but pretty high growth rate in next -- in this year. Regarding Amulet, listen, I think it's -- like I said, it's a great space. You know, we've been rolling out the product last year, building the sales force. Key focus here is, obviously, ensuring, you know, good implanting technique with the physicians.

We're in about 225 accounts right now. I expect that, you know, in terms of growth catalyst, getting more share of those existing accounts as the physicians become more and more accustomed to using our product and see the benefits of using our product versus other systems, I think that'll be a growth catalyst. And then, expanding, we do want to start to expand more as our sales force has increased, the competency of our sales team has increased, and our clinical team has increased. We feel more confident now to be able to kind of expand to more accounts.

And that's what we'll be focused on. You know, another key catalyst of growth here is, obviously, the trial that we've been investing in, in CATALYST, which is to compare Amulet to novel oral anticoagulant. So, that's another opportunity. It's not one in 2023, but, you know, continuing that enrollment in that trial is an important driver for kind of the long-term growth strategy here of Amulet.

CardioMEMS has done very good. We saw an indication expansion last year in the U.S., seen a nice step up in sales. I think it's a great long-term opportunity. I think it's part of, you know, those five products that are driving a lot of growth, and I'd say probably the next kind of big area.

I mean, we've been investing in sales force and rolling this out. Next big area here is working on that NCD. I think that will remove some of the -- you know, maybe some regional hang-ups in terms of reimbursement. So, the NCD is something that we're going to be working on this year with the -- you know, with the data that we've collected as part of all of our trials.

So, I think they look very strong as part of that group of five products.

Matt Miksic -- Barclays -- Analyst

Just on --

Robert Ford -- Chairman and Chief Executive Officer

Like the -- yeah, to close up the call here, just a few remarks. The operating environment still remains challenging, right? But it's not as challenging as we saw back in Q3 of 2022, in October. There are definitely signs here of stability. There are signs of improvement, whether it's in the macroeconomic side or whether it's specifically in the segments that we are competing in.

And Abbott is well positioned, we're well positioned to both capitalize on this improving environment or to navigate if there's any unforeseen volatility over here. That's what our portfolio has been built for. That's what our balance sheet is set up for, it's set up for these kind of situations and these kind of scenarios. We always knew that pandemic-level testing was not a base case.

We knew that, eventually, this would move down to an endemic-like testing. And we're -- you know, our view here is that in 2023, we will start this process of moving to that. And so, as a result of that, we did do this forward investing into our growth areas, whether it's devices, diagnostics, certain areas in EPD, or nutrition. And that's allowed us to grow at the pre-pandemic level, this high single-digit, top-tier growth without having to make the, you know, opex investment that you would expect to be able to sustain that growth.

So, we're getting that flow-through on the P&L and that leverage on our investments. I do recognize the cost pressures. The company recognizes those cost pressures. We talked about this now, you know, to Vijay's question.

You know, we're going to be working relentlessly on getting our gross margin, you know, back to that pre-pandemic level. And it's a combination of, you know, working at our cost profiles and our GMI programs, but also as we accelerate the growth in our device business, that mix shift contributes to that. So -- and finally, our balance sheet is strong and provides us the strategic flexibility we need to navigate. And we take this balanced approach where we can provide returns to our shareholders while, at the same time, investing for the long term.

So, thank you for being on the call. Overall, I think Abbott is very well positioned as we kind of exit this kind of pandemic state and move into more of an endemic state. I think we're well positioned, and now, it's all about execution.

Scott Leinenweber -- Vice President of Investor Relations, Licensing, and Acquisition

Thank you, operator. And thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11 a.m.

Central Time today on Abbott's investor relations website at abbottinvestor.com. Thank you for joining us today.

Operator

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Everyone, have a wonderful day.

Duration: 0 minutes

Call participants:

Scott Leinenweber -- Vice President of Investor Relations, Licensing, and Acquisition

Robert Ford -- Chairman and Chief Executive Officer

Bob Funck -- Executive Vice President, Finance, and Chief Financial Officer

Robbie Marcus -- JPMorgan Chase and Company -- Analyst

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Josh Jennings -- Cowen and Company -- Analyst

Joanne Wuensch -- Citi -- Analyst

Vijay Kumar -- Evercore ISI -- Analyst

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Matt Miksic -- Barclays -- Analyst

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