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Abbott Labs' Earnings Sink in Q2 but Still Trounce Wall Street Estimates

By Keith Speights – Jul 16, 2020 at 11:43AM

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The COVID-19 pandemic both helped and hurt Abbott in the second quarter.

Abbott Labs (ABT 1.12%) suspended its full-year 2020 guidance in April because of uncertainty about the COVID-19 pandemic. But the company appeared to be in a great position to continue its winning ways after posting solid first-quarter results.

Investors found out whether or not Abbott continued to win on Thursday with the healthcare giant announcing its second-quarter results before the market opened. Here are the highlights from Abbott's Q2 update.

An Abbott Labs office building

Image source: Abbott Labs.

By the numbers

Abbott reported revenue in the second quarter of $7.3 billion. This result was down 8.2% year over year. However, it handily topped the consensus Wall Street estimate of $6.75 billion.

The company announced Q2 net income of $537 million, or $0.30 per share, based on generally accepted accounting principles (GAAP). This represented a marked decline from GAAP earnings of $1 billion, or $0.56 per share, reported in the same quarter of 2019.

On a non-GAAP adjusted basis, Abbott generated net income in the second quarter of $0.57 per share. This reflected a 30% drop from adjusted earnings of $0.82 per share in the prior-year period. But it trounced the average analysts' Q2 adjusted earnings estimate of $0.41 per share.

Behind the numbers

Why did Abbott's revenue and earnings fall so much? Blame it mainly on COVID-19. However, currency fluctuations were also a culprit in the company's revenue decline. While Abbott's revenue slid 8.2% year over year on a reported basis, the decrease was 5.4% on an organic constant-currency basis.

The COVID-19 pandemic especially impacted Abbott's medical device business. The company reported that worldwide medical device sales sank 21.2% year over year in Q2 as procedures were pushed back as a result of the coronavirus outbreak.

Abbott's established pharmaceuticals sales also fell 8.6% year over year primarily due to lower demand in Brazil, Colombia, and Russia due to the COVID-19 pandemic. However, the unit's sales in China jumped by a double-digit percentage.

It wasn't all bad news for Abbott in Q2, though. Worldwide nutrition sales rose 0.4% year over year (and 3.1% on an organic basis). This growth was driven largely by the company's Ensure adult nutrition brand and its Pedialyte oral rehydration products.

Diagnostics sales increased 4.7% year over year on a reported basis and 7.1% on an organic basis. There were several bright spots. Molecular diagnostics sales skyrocketed 233.6% thanks to surging demand for Abbott's COVID-19 tests for the m2000 and Alinity m platforms. Rapid diagnostics sales jumped 9.6%, largely as a result of demand for ID NOW platform COVID-19 tests. And diabetes care revenue soared 36.8% year over year due to continued adoption of Abbott's Freestyle Libre continuous glucose monitoring (CGM) system. 

Looking ahead

Abbott expects full-year 2020 diluted earnings per share (EPS) from continuing operations on a GAAP basis of at least $2.00. It also projects adjusted diluted EPS from continuing operations for the full year of at least $3.25.

Freestyle Libre should become an even bigger winner for Abbott in the second half of the year. The company won U.S. Food and Drug Administration clearance for Freestyle Libre 2 in June.

The main wild card for Abbott throughout the rest of 2020 is the COVID-19 pandemic. As seen in the second quarter, the coronavirus outbreak helps Abbott in some ways but hurts it overall. The healthcare stock could see increased volatility if the COVID-19 pandemic worsens in the fall.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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