Abbott Earnings: What to Expect Wednesday

Abbott Labs (ABT 1.24%) will release its quarterly report on Wednesday, and investors have been pleased with the company's success as an independent company, bidding its share price to all-time record highs. Even though the company no longer has its branded-pharmaceutical business, Abbott earnings could continue to grow even as it vies against Mead Johnson Nutrition (MJN +0.00%) in nutritional products and Johnson & Johnson's (JNJ +0.18%) Ortho Clinical unit in diagnostics.

The split-up of Abbott Labs and AbbVie has led to a big change for Abbott, which has had to go without the sales of AbbVie's blockbuster drug Humira. Yet Abbott has done a good job of moving forward with its growth opportunities, benefiting from its ability to focus on promising areas like its nutritional unit, which is its largest business by revenue. Moreover, diagnostics have started to gain traction as well, even as J&J has sought to divest itself of its diagnostics unit to seek faster growth in pharmaceuticals. 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.

Source: Abbott Labs.

Stats on Abbott Labs

Source: Yahoo! Finance. * Adjusted for AbbVie spinoff.

Can Abbott earnings keep growing?
In recent months, analysts have made very slight reductions to their views on Abbott earnings, cutting a penny per share from their fourth-quarter estimates and $0.02 per share from their full-year 2014 projections. The stock, though, has kept moving higher, rising almost 18% since mid-October.

The biggest portion of the gains in Abbott Labs stock came right after its third-quarter earnings report. Abbott's diagnostics business produced double-digit percentage revenue growth, outpacing Johnson & Johnson's Ortho unit with everything from molecular diagnostics and point-of-care services to core lab sales rising steadily. Sales growth in nutrition and medical devices was less encouraging, but higher gross margins helped Abbott make more from the revenue it brought in. Earnings per share beat Abbott's own guidance, and a hefty 57% jump in the company's dividend brought its dividend yield up to 2.5%.

Abbott has made substantial strategic moves to shore up some of its business segments. In the medical-device market, Abbott's purchase Idev last year gave it more exposure to some of the fastest-growing areas among medical devices, with stent technology making Abbott a much stronger competitor against J&J's Cordis unit and other players in the field. Similarly, Abbott's purchase of OptiMedica last summer should help it in the laser-cataract area. Integrating all these strategic combinations will be essential to Abbott's long-term success.

One interesting opportunity that it appears Abbott will pass up is the chance to buy Johnson & Johnson's Ortho diagnostics unit. J&J received a private-equity offer earlier this month for the unit, and while the terms of the offer allow J&J to get rival bids, Abbott seems content to stand pat with its own successful business for the time being.

Also, Abbott needs to pay close attention to quality-control issues in its nutritional segment. Fallout from a product recall in China hasn't kept Abbott's nutritional division from growing, but it has slowed that growth down, and with huge amounts of competition from international giants like Nestle and Danone as well as Mead Johnson Nutrition, Abbott can't afford any further mistakes.

In the Abbott earnings report, watch to see whether revenue from the nutritional business perks back up after its third-quarter sluggishness. Moreover, if diagnostics continue to do well, Abbott could start to see accelerating earnings growth in 2014 and beyond.

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