(Adds analyst comments, details on recall of milk formula)
By Ransdell Pierson
Oct 16 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
"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
(Reporting by Ransdell Pierson; Editing by Gerald E. McCormick
and John Wallace)