Despite challenges associated with the ongoing COVID-19 pandemic, Abbott Laboratories saw its first-quarter revenue beating expectations, coming in at $7.73 billion vs. an expected $7.44 billion.
Cowen’s Josh Jennings highlighted this result, adding in a note that while there are challenges for nondiabetes medical devices and core diagnostics, areas including diabetes, nutrition, the established pharmaceuticals division and COVID-19 testing shined.
“Our diversified business model is a true strength in times like these,” CEO Robert Ford said during a call on the results. “It's a model that has served our shareholders and the company very well. Under normal circumstances, it provides more opportunities for growth. And in situations like this, it helps to dampen the impact by ensuring we're not overly reliant on a given business, product or geography.” He then noted that the company’s sales jumped roughly 4.5% on an organic basis during the quarter.
Still, as other companies have done as a result of the COVID-19 pandemic, Abbott, of Abbott Park, Ill., suspended its previously reported annual guidance for the year. Wells Fargo analyst Larry Biegelsen wrote that Abbott had guided to organic sales growth of 7% to 8% and adjusted earnings per share of $3.55-$3.65.
Biegelsen added that sales beat in all segments; however, COVID-19 had the most impact on medical devices. With that said, he pointed out that medical device sales came in at $2.94 billion, exceeding the consensus number of $2.84 billion, as well as Wells Fargo’s $2.81 billion estimate on a reported basis.
“Both cardiovascular and neuromodulation businesses faced COVID-19 headwinds as expected, although Heart Failure (more urgent in nature) sales grew 10.6% organic in Q1. In addition, Diabetes sales grew 35.6% organic in Q1, up slightly from +33.7% in Q4, and reflected strong Libre sales of over $600 [million] (vs. our $551 [million] estimate).”
Abbott has been on the forefront of COVID-19 testing, already unveiling three products to help during the pandemic. They are the Abbott ID Now COVID-19 molecular test, the Abbott Realtime SARS-CoV-2 molecular test – which runs on Abbott's m2000 Realtime system – and a serology blood test for the detection of the antibody IgG on its lab-based immunoassay testing platforms.
During an April 16 call on the first-quarter results, Bank of America’s Bob Hopkins asked about shipping capacity related to ID Now and m2000.
“[W]e talked about achieving a manufacturing ramp up here as we come out of the gates with the ID Now platform at about 1.5 million tests, and we're on target to do that definitely throughout the middle of this month here,” Ford replied. He went on to note that the company is looking to develop improvements in the manufacturing process, as well as adding shifts “to be able to expand that to get to 2 million tests by June.”
With the m2000, the company committed to ship 1 million tests in March, a feat that it accomplished. “We talked about shipping 4 million tests in the month of April, and we're on target to do that, to manufacture 4 million tests, and we're on target to do that,” Ford added.
Hopkins followed up with a query on the new serology test, specifically on the sensitivity and specificity data. Ford replied that if the test is performed 14 days post symptoms, the sensitivity is 100% and the specificity is 99.5%. “[A]nd that's over 1,000 samples. So, I think we've got a very, very accurate, reliable test here to be able to work on.”
Vijay Kumar, of Evercore, followed up with a question on how the serology test could open the economy, particularly as it relates to the potential for false positives.
“[W]e have to look at the suite of tests[;] … one test is not the panacea,” Ford responded. “As I said, I think the serology test here is very reliable as we roll this out for the antibodies.” He added that, moving forward, the country might work differently as it reopens. But Abbott’s offering will serve as a tool.
“We need to think about it more in terms of like a factory, an office building, a school. And then running these tests will allow you to, on top of what you are doing, provide another tool to be able to assist companies and schools, et cetera, get people back to work.”
For his part, Morgan Stanley analyst David Lewis noted that the company has appeared less active on growth-oriented M&A over the past couple of years when compared with vs. a few of its peers. He added that the company is poised to emerge from the COVID-19 pandemic “with probably the strongest balance sheet in large-cap device [companies].” To that end, he wondered if the company would be interested in opportunistic M&A.
Ford acknowledged that the company has a strong cash position. “We have access to credit facilities. And we've got businesses that are strong cash flow generators, and that's going to be important as we go forward. We don't have a lot of debt maturing or coming due here in the next couple of years. So, I don't foresee our capital allocation strategy here to kind of really change at this point.”
Despite that, Ford said he was not looking at anything in particular at this time in terms of M&A. “As we talked about it, there's an opportunistic side to it and then there's a strategic side to it. And on the strategic side, I just don't see anything right now that fits what we want to do and where we want to go.” Instead, the company is laser focused on internal execution.