3 Key Points from Abbott Labs’s Q2 Earnings You Need to Know

A Bounce Back Quarter for Abbott

• Abbott’s earnings jumped 17.4% en route to topping analyst estimates in Q2

• Sales climbed 1.9% YOY, also beating projections

• Abbott’s diagnostics division posted the quarter’s best result, with revenue climbing nearly 5% Source: Abbott Labs Media

Point #1: Emerging Markets Take Center Stage

• Emerging markets have become Abbott’s brightest hope for strong future growth

• The strong dollar continues to hurt, negatively impacting revenue by 1.1 percentage points

• Abbott’s generics business posted strong results from emerging markets despite unit’s overall flat sales• Key Emerging Markets, including BRIC nations and 10 other markets,

recorded 9.7% generic drug revenue growth in Q2

The Generics Business’s International Flair

• Abbott’s generics business is poised to become an emerging market leader

• Company acquired Russian drugmaker Veropharm and Chilean generics company CFR Pharmaceuticals in Q2, boosting long-term presence in Latin America and Russia

• A huge opportunity at stake: The Latin American pharmaceutical market is projected to grow by 116% between 2008 and 2021, according to CitigroupSource: Wikimedia Commons

Mylan Makes the Difference

• Abbott’s sale of its Developed and Other Markets generics unit to Mylan boosts growth hopes

• Developed market generics revenue declined by 4.4% YOY in Q2, weighing down overall growth

• Abbott’s $5.3 billion sale of the unit to Mylan will allow the company to concentrate on expanding generic footprint in emerging markets• Company already is the largest drugmaker in fast-growing India• Keeping its Indian leadership is paramount: McKinsey projects 14.5% annual

growth in India’s drug market between 2009 and 2020

Point #2: Are Nutritionals Back on Track?

• Nutritionals sales made up more than 31% of Abbott’s overall revenue in Q2

• Unit bounced back from a weak Q1 with 1.6% revenue growth

• Adult nutritional sales, while not the biggest opportunity, posted a strong 4.4% revenue uptick Source: Wikimedia Commons

What’s Ahead for Nutrition?

• Abbott must keep up in Chinese infant nutrition market

• August 2013’s supplier recall cost Abbott $40 million in Q2 – down from $75 million in Q1 - as overall international pediatric nutrition revenue declined by 2.2%

• Abbott’s investments in China in Q2, including a new nutrition factory, will help – but company needs to close the gap with rivals, particularly China market leader Mead Johnson.• Mead Johnson owns roughly 16% of Chinese market share according to

Morningstar analyst estimates, ahead of Abbott’s share of between 10% and 14%

• Too much opportunity to ignore: Zenith International projects China to account for 2/3 of global infant nutrition market growth between now and 2018

Point #3: Medical Devices Still Under Pressure

• Medical device revenue returned to growth in Q2, but U.S. market still under fire

• U.S. device sales slid by 5.4% YOY, continuing an overall 6.1% sales drop through 2014’s first half

• Pricing pressure and stiff competition are likely to continue to weigh on Abbott’s business

Finding Heart in Device Sales

• The cardiac device market has struggled lately, but Vascular Device sales mounted a turnaround overseas

• Vascular device sales account for 55% of Abbott’s overall device revenue• U.S. sales are still under pressure, but international revenue makes up nearly two-

thirds of Vascular Device revenue. • If Abbott can continue to push growth overseas, the device business will be poised

for better days ahead

• Still no luck for stents: Drug-eluting and bioresorbable stent sales fell nearly 5% in quarter.• Keep an eye on Abbott’s Absorb stent: If the Absorb receives FDA approval in the

future, Abbott will have a major innovative product edge on rivals

Looking Ahead

• Abbott slightly boosted its full-year earnings outlook, with guidance of between $2.19 and $2.26 in per-share earnings in line with Wall Street’s expectations

• However, if Abbott can return to growth in international pediatric nutrition sales while retaining strong diagnostics revenue growth, this company could surprise

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