(Adds analyst comments, details on recall of milk formula)
By Ransdell Pierson
Oct 16 (Reuters) - Abbott Laboratories reported higher-than-expected quarterly earnings on Wednesday, helped by strong demand for its diagnostics, and surprised investors with a dividend increase of more than 50 percent.
Lower taxes and cost-cutting also helped Abbott beat earnings forecasts, analysts said. The company's shares jumped 5 percent in afternoon trading to $35.42.
"The 57 percent dividend hike is the big news," Jefferies analyst Jeffrey Holford said in a research note. Abbott said it would boost its dividend to 22 cents per share from 14 cents, starting with the Feb. 15 payment.
RBC Capital Markets analyst Glenn Novarro said the dividend's annual yield will grow to 2.7 percent and will likely attract investors following recent declines in Abbott shares related to worries about weakness in its nutritional products business.
"The dividend was a double surprise because of its size and because the company had not signaled they would raise it in the near term," Novarro said.
Abbott, which spun off its branded prescription drugs business in January into a separate publicly traded company called AbbVie Inc, reported third-quarter earnings from continuing operations of $773 million, or 49 cents per share. That compared with $339 million, or 21 cents per share, a year earlier, when Abbott incurred big expenses for cost-reduction programs and other initiatives.
Excluding special items, Abbott earned 55 cents per share. Analysts, on average, had expected 51 cents.
Overall revenue rose 2 percent to $5.37 billion, a bit shy of Wall Street forecasts for $5.39 billion. Sales would have risen 4.3 percent if not for the stronger dollar, which lowers the value of sales in overseas markets.
Despite beating earnings forecasts, Abbott left its full-year profit view unchanged at $1.98 to $2.04 per share, excluding special items.
"They're guiding conservatively given the current general macroeconomic situation," said Edward Jones analyst Jeff Windau, who has a "buy" rating on Abbott shares. "The quarter highlights overall strength of the company, including its strong medical device business and its international presence, including growth in emerging markets."
Sales of nutritional products, including Similac infant formula and Ensure beverages for adults, rose 1.9 percent to $1.64 billion in the third quarter. That represents a slowdown from growth of 7.9 percent in the second quarter.
In August Abbott recalled batches of its milk formula brands in China and Vietnam due to fears that protein concentrate, an ingredient provided by an outside supplier, was contaminated.
Although no contamination was ever found, Abbott on Wednesday said the disruption reduced sales of its nutritional products for infants and children by $90 million in the third quarter. It said sales of the products will continue to be hurt through the first half of 2014.
"But Abbott signaled that the nutritional issues will be short-term and that they are investing there (in Asia) to mitigate them," said Tim Nelson, a healthcare analyst with Nuveen Asset Management.
Sales of Abbott diagnostics rose 8 percent to $1.13 billion, while sales of its medical devices climbed 1.9 percent to $1.34 billion. But sales of its generic prescription drugs, which it calls established pharmaceuticals, fell 2.9 percent to $1.24 billion.
(Reporting by Ransdell Pierson; Editing by Gerald E. McCormick and John Wallace)