Q4 2021 Abbott Laboratories Earnings Call

Please standby your conference call will begin momentarily once again, please remain on the line in your conference call will begin momentarily.

[music].

Good morning, and thank you for attending by welcome to <unk> fourth quarter 2021 earnings Conference call. All participants will be able to listen only until the question and answer portion of this call.

During the question and answer session, you'll be able to ask your question hi, putting the star one key on your Touchtone phone.

Should you become disconnected throughout this conference call. Please redial the number provided to you in reference to Abbott earnings call.

This call is being recorded by Abbott.

With the exception of any participants questions during the question and answer session.

Tire call, including the question and answer session is material copyrighted by Abbott.

And not be recorded or rebroadcast without abbott's expressed written permission.

Now I'd like to introduce Mr. Scott line of weather.

Resident Investor relations licensing and acquisitions.

Good morning, and thank you for joining US with me today are Robert Ford, Chairman and Chief Executive Officer.

And Bob Funck, Executive Vice President Finance, and Chief Financial Officer.

Robert and Bob will provide opening remarks following their comments, we will take your questions.

Before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of $19 95, including the expected financial results for 2022.

Abbott cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements economic.

Economic competitive governmental technological and other factors that may affect abbott's operations are discussed in item <unk> risk factors to our annual report on Form 10-K for the year ended December 31 2020.

Abbott undertakes no obligation to release publicly any revisions to forward looking statements as a result of subsequent events or developments, except as required by law.

On today's conference call as in the past non-GAAP financial measures will be used to help investors understand abbott's ongoing business performance. These.

non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at Abbott Dot com.

Unless otherwise noted our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange.

With that I will now turn the call over to Robert.

Thanks Scott.

Morning, everyone and thank you for joining us.

Today, we reported another strong quarter and highly successful year for Abbott.

For the year, we reported organic sales growth of 23%.

And ongoing earnings per share of $5 21.

Which reflects more than 40% growth compared to the prior year and exceeded the original EPS guidance, we set last January .

These last couple of years have truly been unique on many levels. The challenge throughout the pandemic has been the sheer breadth of its impacts.

For Abbott.

Reinforced the value of our diversified business model, which is uniquely balanced across multiple dimensions, including our business mix.

Customer and payer types innovation cycles across our businesses and geographic footprint.

We've always said that our business model allows us more opportunities to win during the good times.

It makes us more resilient during the tough times.

Never has this been put to the test more so than over the past couple of years.

Its been tested by a major global pandemic.

<unk> proven to be highly resilient delivering.

Delivering strong growth and returns for our shareholders.

Covid testing there has been a big part of this of course, we.

We delivered a 1 billion test last year, approximately $300 million in the fourth quarter alone and continue to play a significant role in the world's response to the pandemic.

But just as importantly, we demonstrated abbott strength across our company delivering strong growth across our businesses, while continue to expand our portfolio with innovations that will fuel our success for years to come regardless of the pandemic situation.

Turning to our outlook for 2022, as we announced this morning, we forecast ongoing earnings per share of at least $4 70.

Which reflects nearly 50% growth compared to our pre pandemic baseline in 2019.

We forecast organic sales growth for our base business, excluding COVID-19 tests in the high single digits.

And our guidance includes at initial Covid testing sales forecast of $2 5 billion.

We're seeing very strong demand for testing to start the year with the recent emergence of the <unk> variant.

As you know forecasting COVID-19 testing demand for more than a few months at a time has been challenging.

Therefore, our initial forecast compromise of sales that we expect to occur in the early part of the year.

And we will update this forecast one quarter at a time over the remainder of the year.

I'll provide more details on our 2021 results before turning the call over to Bob.

And I'll start with nutrition.

Where sales grew nearly 6% in the fourth quarter at over seven 5% for the year.

Adult nutrition delivered 9% growth for the quarter and double digit growth for the year led once again by ensure our market, leading complete and balanced nutrition brand and Concerta are leading diabetes nutrition brand.

In pediatric nutrition.

U S sales growth of more than 10% for the year was led by strong growth of Pedialyte, our oral rehydration brand.

And market share gains for Similac, our market, leading infant formula brand.

During the past year, we continued to expand our nutrition portfolio with several new products and line extensions, including the launch of simple Act 360 total care in the U S.

Continued global expansion of our Peter shortly Cerner and <unk> brands with line extensions, such as plant based or sugar and high protein products.

Turning to medical devices, where continued recovery from the impacts of the pandemic and strong growth in diabetes care drove sales growth of 16% in the quarter and nearly 20% for the year.

In diabetes care sales growth of nearly 30% for both the fourth quarter and full year was led by freestyle Libre, our market, leading continuous glucose monitoring system.

Rebased Libre sales grew over 35%, which translates to year over year growth of $1 billion to.

So a total of $3 7 billion in 2021.

This past year, we continued to strengthen our medical device portfolio with several pipeline advancements of launches.

In the U S expanded Medicare reimbursement coverage for Mitraclip will make it possible for more people to benefit from this life changing technology.

We launched <unk> virtual clinic first of its client technology that lets patients communicate with physicians and received new treatment settings remotely.

We received U S FDA approval for and Placer amulet heart device, which treats people people with atrial fibrillation.

Risk of it.

<unk> stroke.

And we received U S FDA approval of our political heart valve replacement system for people with severe aortic stenosis and CE Mark for <unk>, our latest generation Transcatheter aortic valve replacement system.

Moving to established pharmaceuticals, or <unk>, where sales increased nearly 6% in the fourth quarter and over 10% for the full year.

Strong performance was broad based across several countries led by India, Russia and China.

<unk> has performed well throughout the pandemic fueled by strong execution and a steady flow of new product introductions in our core therapeutic areas.

Now I'll wrap up with diagnostics, where COVID-19 testing was a big part of the story, but far from all of it.

Covid testing sales were $2 3 billion in the fourth quarter.

With rapid testing platforms, including <unk> now in the U S. <unk> internationally and IV now globally compromising approximately 90% of those sales.

Demand for testing continues to remain strong and we remain committed to help ensure broad access.

Since the start of the pandemic, we've invested significantly to build both U S and international manufacturing supply chains, and we're working to expand our capacity further to meet global demand.

Excluding COVID-19 testing sales worldwide diagnostic sales grew over 8% in the fourth quarter and 13% for the year.

Continue to rollout <unk>, our innovative suite of diagnostic instruments and expand test menus across our platforms.

During the year, we placed more than 3000 of Liberty instruments for immunoassay and clinical chemistry testing with approximately two thirds of those placements coming from share capture.

And then molecular diagnostics, excluding COVID-19 testing sales grew double digits in both U S and internationally as we continue the rollout of our Liberty M instrument for molecular testing.

So in summary.

2021 was another highly successful year for Abbott.

We continue to play a vital role in combating COVID-19, as a result of our massive scale, we built in rapid testing capacity.

All four of our major businesses delivered strong performance. This past year and are well positioned for continued success going forward.

And we continue to strengthen our overall strategic position with a steady cadence of important new products from our pipeline and several attractive growth areas.

I will now turn over the call to Bob Bob.

Thanks Robert.

As Scott mentioned earlier. Please note that all references to sales growth rates unless otherwise noted are on an organic basis, which excludes the impact of foreign exchange.

Turning to our results.

Sales for the fourth quarter increased seven 7% on an organic basis, which was led by strong performance across all of our businesses along with global Covid testing related sales of $2 3 billion in the quarter.

Excluding COVID-19 testing sales.

Organic sales growth was 10, 3%.

Versus the fourth quarter of 2020, and 10, 8% compared to our pre pandemic baseline in the fourth quarter of 2019.

Foreign exchange had an unfavorable year over year impact of <unk>, 5% on fourth quarter sales.

<unk> in total reported sales growth of seven 2% in the quarter.

Regarding other aspects of the P&L for the quarter.

Adjusted gross margin ratio was 57, 7% of sales adjusted R&D investment was six 3% of sales and adjusted SG&A expense was 26, 2% of sales.

Our fourth quarter adjusted tax rate was 16, 9%, which reflects an adjustment to align our tax rate for the first three quarters of last year with our revised full year effective tax rate of 15, 5%, which is modestly higher than the estimate we provided in October .

To a shift in the mix of our business and geographic income.

Turning to our outlook for the full year 2022.

Today, we issued guidance for the full year adjusted earnings per share of at least $4 70.

For the year, we forecast organic sales growth, excluding the impact of Covid testing related sales.

Not to be in the high single digits.

We forecast Covid testing related sales.

Approximately $2 5 billion.

With a significant portion of these sales expected to occur in the early part of the year.

We will update our.

Covid testing sales forecast one quarter at a time throughout the year.

Based on current rates, we would expect exchange to have an unfavorable impact of approximately 2% on a reported sales.

We forecast an adjusted gross margin ratio of approximately 58, 5% of sales for the year, which reflects our forecasted business mix.

Underlying gross margin improvement initiatives across our businesses.

One with the impact of inflation on certain manufacturing and distribution cost.

For the year, we forecast R&D investment of around $2 7 billion.

And SG&A expense of around $10 8 billion.

Which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives.

We forecast net interest expense of around $500 million.

Non non operating income of around $375 million.

On a full year adjusted tax rate of approximately 14, 5% for the year.

Turning to our outlook for the first quarter.

We forecast adjusted earnings per share of at least $1 50.

And organic sales growth, excluding the impact of Covid testing related sales to be in the high single digits.

Lastly at current rates we.

We would expect exchange to have an unfavorable impact of approximately 3% on our first quarter reported sales.

With that we'll now open the call for questions.

Thank you.

If you have a question at this time. Please press the Star then the number one key on your Touchtone telephone.

Question has been answered or you wish to remove yourself from the queue. Please press the pound key.

For optimal sound quality, we kindly ask that you. Please alicia handset instead of your speaker phone when asking your question and again Thats Star then one to ask a question.

And our first question comes from Larry <unk> from Wells Fargo. Your line is open.

Good morning, Thanks for taking the question and congratulations on a really strong finish to a strong year.

Robert can you talk about how you thought about the 2022 guidance why is $2 5 billion for Covid testing the right starting point.

How are you thinking about reinvesting the upside from Covid testing.

Implied in the $4 $74 70, EPS guidance and I had one follow up thank you.

Sure Larry.

I'd say the beginning of the year.

Coming into the year and Youre trying to find the right balance right Youre trying to find the right balance on your long term growth opportunities.

That that Abbott has which I think are pretty unique.

And balancing that with I'd say, probably some some uncertainty.

And I'd say every year, there's a little bit of uncertain. The beginning of the year, but I would say this year is probably a little bit more than usual.

To find that balance and I'm pretty sure. We will talk about some of the long term growth opportunities, but if you think about some of the challenges.

In forecasting right now there's a lot of.

Dynamics that are existing from a macroeconomic standpoint.

That are out there that quite frankly aren't necessarily unique to abbott.

But that are out there whether it's the whether it's the pandemic.

And the duration of the current surge potential new ways and how long they will last.

Staffing shortages that we've seen.

<unk>.

For the hospital based kind of part of our business.

Quite frankly patients' willingness to go in.

To do a procedure.

During the searches so thats, probably one kind of big bucket to look at.

Another area, obviously on the macro side as supply chain and inflation challenges that every company is facing.

And obviously kind of currency headwinds. So I'd say those are all challenges that are facing a lot of med tech companies companies in healthcare and quite frankly, a lot of companies outside of our sector, probably what's a little bit different for us another factor to consider in our forecast is just COVID-19 testing.

And how is that going to play out throughout throughout the rest of the year given the magnitude.

Of what.

What the testing could look like.

Between.

Completely going away or at staying or increasing at this level. So.

Factoring all of those kind of elements over here I think this was the right starting point for us.

Just to start off like that and I think this initial full year full year guidance is contemplating not only some of those challenges, but also contemplating on the flip side, a very strong underlying kind of Abbott base business.

As I said in my comments high.

High single digit growth so.

Acceleration and a lot of our portfolio versus where we were pre pandemic.

Got investment in this guidance.

To be able to support not only all of our launches that we engaged in.

Towards the end of last year, beginning of this year, we've got launches and opportunities and Thats all been contemplated and fully funded and the initial COVID-19 testing forecast of two five.

I don't I don't expect clothing to simply go to zero, starting starting in the second quarter.

But the challenge of forecasting the magnitude.

I felt it's the right way to quite frankly, I talked about this in October we will be updating as we go along we've got a lot. We've built a lot of capacity you have seen that over this last year and a half.

Especially in rapid testing, so we have that capacity and we will be updating it. So yes. If we had typically done our Tencent range guide here Larry.

Consensus we would've been right in the middle of where you guys are at.

I didn't want to I didn't want to cap the upside.

Which is why we're at which is why we're at.

At least $4 70, so if I kind of sum it up I look at our guidance now and that's okay. We've contemplated as much as we can have some of the challenges that a lot of companies are facing.

Whether it's supply chain duration of pandemic medical device procedures et cetera.

Fully funded our growth platforms that we're very excited about.

And there is potential for for the upside of more COVID-19 testing because I don't think it goes away.

Would then fall, which would then fall through.

At a good clip.

And provide that upside so I think thats I think thats, probably the best way to summarize it is derisked fully funded for long term growth opportunities and we've got potential upside.

As we go into the remainder of the year.

That's super helpful. Robert just for my follow up Libre had another remarkable year. How are you thinking about libre growth in 2022, and what are the drivers of that growth. This year. Thanks for taking the questions.

Sure.

Well, yes, I mean, you saw it it continues to grow at a very strong rate and a very large base.

35 over 35% this year 4 million users now.

We've initiated geographic expansion of Libre, three and that will start in the next couple of weeks.

Moving out of Germany into.

Into UK and France, those are probably kind of key markets that we're expanding.

Over the next couple of weeks.

And if I think about 2022.

Larry I mean, I'm looking at here strong double digit growth, we've been growing about $1 billion of incremental sales per year, and I expect I expect that growth to be at least in that range. So that probably translates into a <unk>.

525.

<unk> growth I think the biggest driver for us is.

It's quite frankly, not just this year, but as we as we as we look forward, it's still very underpenetrated right Im talking about being a leader in terms of patients with 4 million users, where we've talked about numbers between 60 70 to 80 million people around the world that could be benefiting from.

From continuous glucose monitoring sensor based monitoring so I'd say biggest opportunities we've got continued to be international.

The CGM penetration internationally is still much lower than in the U S.

And then moving into <unk>.

More aggressively into patient segments that historically have had been underpenetrated kind of look at the type twos.

Type twos on single injection therapy. So we've got great opportunity there U S. I would say is another good opportunity for us.

We had very good year this year.

Close to like 60% growth I think it's I think that's the number.

Now over 1 billion users.

We've made the investments that we need to make last year in terms of sales force and advertising.

Thats paying that's paying dividends.

<unk> of new users.

We continue to have a high share of new user growth. So I think combined what we're doing internationally.

Expansion of Libre three.

<unk> growth in the U S expanding into pretty.

Pretty underpenetrated population of type twos and.

I think we've still got like I said still in the early innings of the Libre story here.

Thanks, so much Robert.

Thank you.

Our next question comes from Robbie Marcus from Jpmorgan. Your line is open.

Oh, great and I'll also add my congratulations on a nice quarter.

Two from me I'll ask them both upfront.

First question, maybe you could spend a minute on cadence throughout the year first quarter has a lot more COVID-19 testing sales than we had thought.

But also imply somewhat of a different cadence than we had been thinking so just top and bottom line what are the impacts their housing inflation FX hitting.

Throughout and then second question probably tied into it if you could just touch on what Youre seeing in current device and procedure trends as we sit here today and how youre thinking about the evolution of that over the course of 'twenty two.

Well. Your first question has got multiple multiple sub questions. There Robbie So let me take the first one and then I'll go back so I can take the second one and then I'll go back to your first one.

Because it does contemplate some of the challenges on inflation that might be worthwhile spending some time just talk a little bit about also but in terms of the demand dynamics, especially in the more hospital based.

Business here Ravi we saw real nice trajectory of recovery in the beginning of Q4.

We were and I always like to compare versus 2019 at least for 2021.

To avoid some of the comp pieces. So we were improving our growth rates.

Are probably more cardio like businesses, let's use that as a proxy it would be in that kind of 3% to 4% range and improving as the quarters as the quarters progressed and.

In Q4, it was looking like again, a continuation of that progression until probably December where we saw a pretty big pretty big drop because of <unk>.

And most of the and most of the device of our device businesses, probably the only two that we didnt see that drop was heart failure that was probably up in the mid Twenty's in December versus 2019, and obviously libre, which was up probably like in the 70% versus 2009.

So so we did have an impact.

In these parts of the business again is probably driven by omicron impact of not only staffing.

I'd say, but also even just patients.

Basically postponing a little bit.

And not wanting to go into hospital and I think Thats continued a little bit here into January .

I'd say geographically seen a little bit more of that impact in the U S compared to other geographies at least for US Europe and Asia have held up.

A little bit better than the U S.

And then we've contemplated.

As as best as we can what that recovery curve is going to look like.

We'll see some pressure of that I'd say, probably January February going into March we expect it to get better and then Q2 will be better.

If you look at the second half of this year.

We expect.

For these businesses to be more than that at their normal run rate.

So I think.

Yeah.

That's what we're seeing and that's kind of how we're forecasting the rest of the year actually was pretty pleased that some of the new product launches that we had during during the quarter.

We are always cautious about okay do we launch the product.

In this environment than they did pretty well both in Europe and in the U S. Too. So I think that speaks well about still the need for the products and the technologies and the innovation so.

The consumer side of the consumer facing part of our business I mentioned Libre, but you saw it in nutrition and <unk>, they've done pretty well depend NAMIC. They did pretty well in Q4, so didn't didn't necessarily see the impact of omicron to those businesses like we didn't see it in delta either so so we would expect those businesses to be.

Pretty pretty resilient and the key driver there is I talked a bit about libre is this kind of innovation.

On your first question regarding cadence.

I mean part of it is part of it is this combination that I said recovering.

<unk> and core testing procedures that we see going into Q2 and into Q3 and Q4.

And.

And then.

As we have more.

Let's say call it confidence and precision regarding our corporate regarding our Covid testing, we will see that kind of flow through and then we'll be able to update you I think when we're here in April .

We'll have a better sense of what Q2 is going to going to look like not only for the U S. But also internationally.

And as I said.

Having that ability to then kind of update the forecast with that cobot number.

We will.

We'll let it flow through.

So I think you also had a question about inflation I mean that is a that is another area that we're working on and focused on and probably ask Bob to give you some color on that okay, Yeah Robbie actually.

Ask about currency and inflation I'll cover currency first I mean, we saw the U S dollar.

Kind of strengthened since middle of last year in particular over the last few months.

And so as I said in my opening remarks at current rates, it's about a 2% headwind.

On the top line for the year, we're going to see that a greater impact in the first quarter.

Around 3% and kind of in the second quarter and they don't get the.

The impact will be a little bit less of years. We go kind of go through the course of the year.

Into the back half of the year.

In terms of inflation.

Inflation and supply chain challenges that really kind of linked together.

As supply chains have not been able to catch up to the strong demand thats out there and so we're seeing some impacts here certainly not unique to us or our industry and we're seeing those impacts across transportation cost.

Manufacturing inputs commodities et cetera.

From a pricing standpoint.

We have the flexibility to adjust price a bit in some areas of the business.

And we're doing so that's really more into consumer facing businesses like.

Like nutrition.

In other areas of the business that flexibility doesn't exist. So I would say in aggregate kind of across those headwinds.

We're seeing impacts on gross margin of roughly half a billion dollars.

And that's contemplated in our guidance.

And I think as supply change start to normalize over time, we would expect to see improving cost in some areas for example in commodities for nutrition.

Those costs have kind of moved up and down historically over time.

But currently our kind of outlook doesn't assume any significant.

Changes kind of versus the current dynamics.

That we're seeing in the market.

Great. Thanks for all the answers.

Thank you.

Our next question comes from.

<unk> Kumar from Evercore ISI Your line is open.

No.

Thanks for taking my question good morning problem Alright.

Two questions maybe my first one was on the new product side, Robert you made some comments on.

Perhaps.

Our consumer kind of product at CES Lingo I'm, just curious how do you see the opportunity here.

Slightly different perhaps from our perspective.

But for Abbott's I mean, you guys have played in consumer markets.

How big is this opportunity, perhaps some some sense for when U S launch timing.

Timing could be.

And should we expect more analytes right I think you guys had poor analytes at CES, but.

Curious.

Is there are there other.

Products.

Expect it to come down the pipeline.

Sure Vijay.

So we made a decision.

To put a stake in the ground here.

And start talking about what we've always believed to be another opportunity a sizeable opportunity for Abbott.

And that was really using the libre platform that we had developed to look into other other analytes other areas I talked about this.

Recently quite frankly, we've talked about it.

Several years ago also and and.

You referenced some of the some of the analytes that we have been working on.

Ketones lactate alcohol glucose for people with non diabetes and those are big opportunities.

As I've said the model is a little bit different.

It is probably a much larger.

Tam in terms of people.

But the usage of the sensors.

Is.

It's probably more intermittent then you would kind of get on person for example, diabetes today.

We're very clear, whether you're a type one on a pump or a type one.

Injector type two like we know through the data we've covered here in terms of the usage patterns. So we use is probably a little bit different.

The sample size is significant.

If you think about like a keto sensor and the opportunity to be able to provide real time feedback for somebody who's trying to manage their keto diet.

I think theres, a large amount of people large.

Consumer pool that.

Whether it's.

More disciplined keto diets or kind of more on the on off basis because.

There's a very large amount of people.

And we'll have to just think about how to market it a little bit differently and our go to market strategy will.

We will be a little bit differently, but I'd say, we've always seen this as a big opportunity and we funded it we have a separate team that is obviously leveraging the platform, but they're managed differently.

Completely different organizational structure.

And they're just focused on developing not only the technical side of analytes, but obviously doing all the market development work. So we're really really in the early innings stages here, but I think that I think the numbers can be pretty significant and pretty large.

And why not over over over a good period of time, maybe it's even bigger than maybe it's even bigger than diabetes. Once you line. These up.

The first phase of Analytes, we announced at CES that this is our intention that we're designing these.

Timing, we expect to launch our first products outside of the United States.

Towards the second half of this year.

Added states, we'll obviously be having the conversations with the agency in terms of how that regulatory path is going.

Going to shape up probably a little bit too early right now to talk about that.

But we're very excited about this opportunity because we have seen this opportunity. Many many years back and made the moves on your question about other analytes, yes, I would say part one or phase one I would say is what I would call. These more consumer facing more consumer driven opportunity.

But we are looking.

Looking at other analytes that would probably have I would say more of a medical clinical application, whether it's in the hospital or for discharge is et cetera. So so theres opportunity. There that we're also working on so I think it's very large and we're just in the beginning right now in terms of market creation.

That's helpful Robert and maybe my second question.

<unk> I think.

You guys, probably have over $40 billion of truck capacity right now.

Conservatively with valuations coming down what kind of opportunities do you see in one of the things that always strikes me is.

Abbas.

Very large in diagnostics number one number two in most of your end markets.

If you look at diagnostics liquid biopsy cancer screening diagnostics is so that's a massive opportunity, but I don't see avid.

Having a stake in the ground in that area is that an area that's interesting.

Well.

Answer that specifically I am not going to necessarily show my cards here, but I guess, what I will say regarding the M&A question here is yes.

Yes.

There seems to be some some some dislocation now and I think this.

Could make.

If there is anything out there that look strategic for us and that makes financial sense. Then, yes, we will be we've got plenty of capacity as you said.

We've generated a lot of strong cash flow.

<unk>.

And quite frankly, it's been a meaningful step up in that cash flow over the last couple of year and a half or so.

So, yes strategically financial fits as I've always said.

We're in a great position now to be able to look at that.

<unk> diagnostics I will say all of the areas that we're looking at more carefully.

Scott's team is always looking at everything but he's got a.

More special lens here in devices and diagnostics areas that you reference are areas that are in the list of things that we would be interested in looking at.

Tuck in and medium sized deals probably are more likely.

If again, if those situations present themselves, but again, we're always.

We're always looking at everything so.

I'd say, yes.

Nothing has changed regarding what I've said about M&A, if it's strategic and it makes financial sense.

Deliver value for our shareholders. We are now in a great position.

As a result of all the efforts that we've had quite frankly on cash flow conversion and now with kind of COVID-19 cash.

Also helps.

Understood. Thank you guys.

Thank you. Our next question comes from Josh Jennings from Cowen Your line is open.

Hi, good morning, gentlemen, thanks for taking the questions.

Rob just first wanted to ask a question on 2022 guidance.

I understand you don't want to put a top end of the range there and cap the upside clearly there is potential upside with the increased COVID-19 testing outside of that $2 5 billion.

Revenue.

But youre expecting nearly part of the year, but just in the scenario where.

Covid testing does fall off in that guidance for the for the revenue from that franchise.

It turns into reality.

Refresh us on some of the other levers you have that you can pull to drive EPS growth I think last year in June when Covid testing fell off the team talked about share repurchase accretive M&A some cost cutting reductions, but just wanted to get a refresh there and see if you could help us think through that those levers.

And then second question is just on the diabetes franchise and clearly Libre has a long runway youre looking you just talked about one of your answers about the consumer opportunity, but how should we be thinking about the diabetes franchise and habits desire to kind of leverage the positioning there with other products either insulin delivery device.

This is or where other portfolio.

Ads.

As we move into 2022 and beyond thanks for taking the questions.

Sure on your first one I mean like I said, we de risked we fully funded and we got the potential upside for the Covid testing.

If COVID-19 testing.

In that scenario, which I think is highly unlikely kind of falls off.

Then we'll have to obviously look at kind of the investments, we're making and kind of make the adjustments that we have to make especially as we start to move into 2023 I don't think that is the case I think that COVID-19 testing.

Is.

Is going to be still around I think omicron has catalyzed a pretty significant shift.

Global rapid testing and screening.

And the question here is just going to be how does it how does it.

How does it evolve over over over the over the next kind of nine nine months 12 months here. So.

But that being said to your question on that scenario you'd have to make adjustments.

As I've said, we would.

But right now im.

Managing we're managing the enterprise as a whole and we're obviously got profits that are coming from Covid that we're reinvesting into the business.

If that if that turns out to not be the case. This year. Then then like I said, we're fully funded on our growth platforms.

And then we'd have to kind of make adjustments or look at that.

Look at that investment level as we go into 2023.

Buybacks as another opportunity.

We've got we've got a lot of flexibility here also.

Last year, we bought thinks.

It was about $2 billion.

2021.

And I would anticipate being active in the market again this year since we since we do have since we do have that capacity. So.

And your second question I think was on diabetes right.

And growth growth opportunities is that could you just.

Right absolutely.

Just thinking about.

Anything you can share just in terms of internal development programs outside of.

Advancing libre in diabetes and on the consumer channel on the sensing side any other products within the diabetes device realm.

You could add to the portfolio, where should we be thinking about the diabetes franchise to stick them sticking with the playbook that you have that's been so successful in the last number of years and has a long runway.

Got it.

So listen.

We're in the beginning here, there's still a lot of opportunity still lot of under penetration, whether it's internationally or type twos.

As I've said the key aspect here is to ensure your pipeline is relevant and is advancing well.

We've launched Libre three.

Europe and will be expanding expanding that launch now globally.

I expect to be able to bring libre three here into the U S.

<unk>.

I won't necessarily get into the specifics, but I figured you guys would eventually asked this we have filed libre three here in the U S. As an <unk> to the FDA last year.

Don't get into specifics about timing there but.

Review process happens in the same same agency that reviews diagnostic test. So as you can imagine there's a lot of.

Lot of busy work going on with that.

That.

With that area of the agency. So we've obviously seen our data that we've submitted to the agency we've obviously seen.

Now data from a competitive system.

We're feeling.

Feeling pretty good about where we stand so so I think that's a key component there is to expand the portfolio.

I've talked about libre for not necessarily what exactly is that but we do have that as an active program.

Connecting to insulin delivery systems is is also part of that strategy.

And.

We've got active programs with all pumped suppliers and pen delivery systems also to be able to connect libre.

So I think we'll stay focused on.

Making the best making the best sensor sticking to sticking to our strategy.

Of consumer friendly.

Showing outcomes price for access and affordability and continue to innovate with our sensor platform and then look at opportunities to use those sensors to not only expand into other platforms, but also to connect to other devices.

Great. Thanks, a lot.

Thank you our next call.

It can come from Joanne Wuensch from Citibank Your line is open.

Good morning, and thank you for taking my questions.

Big picture wanted to specific one big picture.

One of the themes appear a keynote address at CES. The marriage of checking Med Tech and I am curious if you could highlight how you sort of take that lens in terms of your pipeline and then my specific question has to do with your structural heart franchise.

Portico is out in the market amulet is out in the market.

Just a little bit of an update on how those products are doing thanks.

Sure.

So yes I have.

<unk> talked about this convergence.

And quite frankly, we've seen this convergence occurring probably when we're doing the St Jude acquisition and integration.

And we started to set a lot of our portfolios to be able to connect to.

To weather.

Whether it's consumer electronics or clouds or other elements like that.

Ultimately be able to empower the consumer and.

And just provide better.

Better solutions to ultimately improve outcomes. So I think you saw the device portfolio has been going down that path for quite some time now.

As very pleasantly.

Very pleasant to see that start to look not only at the cardiovascular side also on the Neuromodulation side as I said in my opening comments on our virtual clinic I think Thats got an opportunity to change the business model of that business and at the same time provide better outcomes.

For not only DBS, but also spinal cord stimulation too. So so you've seen that in devices. We then started to see diagnostics.

And you saw over to that thinking as we as we develop <unk>. We wanted to make sure that we are kind of integrating not just our expertise in <unk>.

Developing a.

And accurate test to be able to detect of there to be able to detect COVID-19 , but also integrated into into an app, where you can kind of have your passenger phone et cetera, and working with partners to be able to kind of do that so so I think youre seeing it across all of the portfolio.

In our pharma business, we are using digital tools to be able to ensure that patients are taking their medications so thats pretty.

Say strategic elements going across all of our businesses and how we're thinking about it so.

So it's not I wouldn't say, it's just one part of the portfolio, but I think it's a convergence that.

Is happening and we want to be leaders in that convergence across all of our cost all of our portfolio.

Regarding your question on structural heart.

So I think you mentioned portico and amulet.

Listen amulets, we received approval in Q3 last year moved quickly to launch.

I'd say initial feedback.

It's been very strong, especially in the areas of of superior closure rates.

Need to be able to.

Need to be able to leave the hospital without blood blood Thinners and and also we've heard a lot of broader sizes.

To better fit more anatomies and getting more of that flexibility. So so.

So that's done very well as part of the launch we wanted to make sure that we had good procter and good peer to peer profiteering.

Obviously that became a little bit of a challenge in November and December after Thanksgiving and into December but.

But I think despite all of that I think we've done pretty well I think we did about 500 procedures.

Last year, it mostly happening mostly in Q4.

And if you look at what we did in December that would put us at about a 10% market share, which is which is which I think is pretty good.

We're not satisfied with that given what we know we can do what we've done in Europe , but I think it's very much aligned to where we wanted to be rigs.

Regarding.

Regarding the end of the year and as we enter into 2022, so I think that that's going very well.

Portico.

We're as I've said this is an important area for structural heart, we know that there are two.

Entrenched competitors in there we think we've got great technology also and we're going about it very systematically very methodically to build to build our position.

We launched our generation two product.

In in Europe .

Innovative products and again, that's that's received great feedback also in this.

Pretty competitive.

Clinical profile here for for high risk surgery patients. So we're.

We're making the investments that we know we need to make to be able to expand our position here. So I feel good about our structural heart portfolio I've talked about how this is a big opportunity for us.

We've made the investments.

And I think we're in a great position as we go into 2022.

Thank you.

Thank you. Our next question comes from Matt Taylor from UBS. Your line is open.

Hey, good morning, Thanks for taking the question so.

I just had two margin questions I wanted to ask the first one.

I'll frame. It is if we take the $1 50 from Q1.

That implies about $1 $6 seven for the remaining three quarters of the year. So is that how we should view your base business earnings power.

Or are you still spending more through the year from some of the Covid testing.

Testing profits are being conservative we'd love just any additional color on the base business earnings power ex testing yes.

Yes, Matt I'll take that this is Bob So we don't really think about earnings.

At the bottom line base versus Covid, we manage we manage the whole company.

Obviously, the first quarter is benefiting from the majority of the Covid sales that we've got forecasted at this point in time kind of our starting point, but we funded our growth throughout the rest of the quarter. So what you have is COVID-19 testing initial initial COVID-19 testing sales in that first quarter.

Our investments throughout the entire year and so as we update as we update our COVID-19 testing.

Each quarter kind of as Robert Robert talked about.

That will fall through.

Really at a higher level than our overall margin profile.

I'll just add onto that.

We absolutely expect there to be Covid testing after after the first quarter. The question is at what level and as I said in the beginning to be able to kind of forecast a full year out like that.

Given given the magnitude of how this can shift.

It's just prudent to do it a quarter at a time.

So when we here in April .

We will have a better sense of what Q2 is going to look like in terms of Covid testing and we will be able to kind of update you there.

Okay.

Yes.

One follow up on.

On gross margin you mentioned that.

It was about 500 million headwind from inflation and supply chain and so I guess, if we add that back in to get into gross margins closer to 60%.

I was just wondering if you could talk about expectations for gross margins going forward longer term if things normalize.

And if.

If you could kind of see those levels in 2023, if things improve or just pluses and minuses on gross margins longer term.

I think the add back gets you a little bit below that but.

But the way we think about gross margin every year is looking for ways to expand that.

Every one of our businesses has dedicated teams focused on gross margin initiatives and youre seeing some of that benefit actually in our 2022 forecast helping to offset.

The impact of.

Of the inflation that we're seeing we continue those programs were not a one year program. We do them every year and we'll continue those into into next year.

We're seeing as a benefit of kind of the business mix, so as medical devices and routine diagnostic testing recovers.

That benefits our overall gross margin.

For the business, obviously, Robert talked about a lot of the opportunity some of the opportunities that is even more that we have to drive growth in our medical device business as well as in diagnostics.

And as we grow those businesses that will have a positive impact overall on our gross margin profile.

Okay. Let me let me wrap up here then thanks Bob.

Listen.

I'll finish by saying.

A little bit how I started.

I acknowledge that there is a lot of uncertainties in the macro environment right now.

And the challenges that that creates in terms of.

In terms of forecasting for investors at least in the short term.

Pandemic, how long will it last phases transitioned to endemic.

Recovery curves of procedures.

I get some of the challenges of that forecasting, but if I look at the market here at the start of the year and.

We look at health care sector, specifically med tech and diagnostics.

That's definitely been disproportionately hit by some of those uncertainties and I think if you take a step back.

And it's important to remind ourselves the.

Healthcare still remains a very very important need and a great long term growth area.

I think none of that none of the long term market fundamentals have changed during the pandemic if anything some of them have gotten even better and accelerate it. So I think the demographic trends are still very favorable in procedures and routine testing.

Going to come back whether it's whether it's a month two months et cetera.

It's difficult to predict with that with that perfect degree of precision.

But they will come back and if you look at the innovation pipelines across the entire industry, they've never been stronger and within that context, I think abbott's pretty uniquely positioned here, we're in great markets.

Leading positions in several large fast growing segments diabetes devices diagnostics, including <unk>.

Covid testing nutrition emerging market pharma, we have strong positions brands franchises across all of these so.

So one of the questions I think we are leading in the digital transformation.

That's going to be more patient centric care or whether it's with by Wearables, whether it's connected devices remote monitoring et cetera and.

And then you layer that diversification that I talked about in my opening comments, which I think is very unique and maximizes our growth opportunities and it does provide a natural hedge.

To some of these macro macro environment impacts that we're going to see from time to time and that diversity is not just on the business mix, but customers payer types.

Honestly geographic footprint in a very strong and resilient supply chain. So you translate all that into real strong sustainable strategic financial health, whether it's growing revenues cash flows dividends.

Got a rock solid balance sheet.

I talked about the opportunities that we have with it. So I think we're in a really good position strategically financially and im excited about all the growth opportunities that lie ahead of us so with that I'll wrap it up and I'll. Thank everybody for joining us today.

Thank you operator, and thank you for all of your questions. This now concludes Abbott's conference call.

Webcast replay of this call will be available after 11 am central time today on <unk>.

<unk> Investor Relations website at avid investor Dot com. Thank you for joining us.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a wonderful day.

[music].

[music].

[music].

Good morning, and thank you for standing by welcome to edit fourth quarter 2021 earnings Conference call.

All participants will be able to listen only until the question and answer portion of this call.

During the question and answer session, you'll be able to ask a question by pressing star one key on your Touchtone phone.

Should you become disconnected throughout this conference call. Please redial the number provided to you in reference to Abbott earnings call.

This call is being recorded by Abbott.

The exception of any participants questions asked during the question and answer session. The entire call, including the question and answer session is material copyrighted by Abbott.

It cannot be recorded or rebroadcast without abbott's expressed written permission.

I would now like to introduce Mr. Scott Leinweber, Vice President Investor Relations licensing and acquisitions.

Good morning, and thank you for joining US with me today are Robert Ward, Chairman and Chief Executive Officer, and Bob Funck, Executive Vice President Finance and Chief Financial Officer.

Robert and Bob will provide opening remarks following their comments, we will take your questions.

Before we get started some statements made today may be forward looking for purposes of the private Securities Litigation Reform Act of $19 95, including the expected financial results for 2022.

Abbott cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements economic.

Economic competitive governmental technological.

And other factors that may affect abbott's operations are discussed in item one a risk factors to our annual report on Form 10-K for the year ended December 31 2020.

Abbott undertakes no obligation to release publicly any revisions to forward looking statements as a result of subsequent events or developments, except as required by law.

On today's conference call as in the past non-GAAP financial measures will be used to help investors understand abbott's ongoing business performance.

These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at Abbott Dot com.

Unless noted our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange.

With that I will now turn the call over to Robert.

Thanks, Scott and good.

Morning, everyone and thank you for joining us.

Today, we reported another strong quarter and highly successful year for Abbott.

For the year, we reported organic sales growth of 23% and ongoing earnings per share of $5 21.

Which reflects more than 40% growth compared to the prior year and exceeded the original EPS guidance, we set last January .

These last couple of years have truly been unique on many levels. The challenged throughout the pandemic has been the sheer breadth of its impacts.

And for Abbott.

It has reinforced the value of our diversified business model, which is uniquely balanced across multiple dimensions, including our business mix customer.

Customer and payer types innovation cycles across our businesses and geographic footprint.

We've always said that our business model allows us more opportunities to win during the good times.

It makes us more resilient during the tough times.

Never has this been put to the test more so than over the past couple of years.

Its been tested by a major global pandemic.

<unk> proven to be highly resilient delivering strong growth and returns for our shareholders.

Covid testing there has been a big part of this of course.

We delivered a 1 billion test last year and approximately $300 million in the fourth quarter alone and continue to play a significant role in the world's response to the pandemic.

But just as importantly, we demonstrated abbott strength across our company delivering strong growth across our businesses, while continue to expand our portfolio with innovations that will fuel our success for years to come regardless of the pandemic situation.

Turning to our outlook for 2022, as we announced this morning, we forecast ongoing earnings per share of at least $4 70.

Which reflects nearly 50% growth compared to our pre pandemic baseline in 2019.

We forecast organic sales growth for our base business, excluding COVID-19 tests in the high single digits.

And our guidance includes at initial Covid testing sales forecast of $2 5 billion.

We're seeing very strong demand for testing to start the year with the recent emergence of the <unk> variant.

As you know forecasting COVID-19 testing demand for more than a few months at a time has been challenging.

Therefore, our initial forecasts compromise of sales that we expect to occur in the early part of the year.

We will update this forecast one quarter at a time over the remainder of the year.

I'll now provide more details on our 2021 results before turning the call over to Bob.

And I'll start with nutrition.

Where sales grew nearly 6% in the fourth quarter at over seven 5% for the year.

Adult nutrition delivered 9% growth for the quarter and double digit growth for the year led once again by ensure our market, leading complete and balanced nutrition brand and Concerta are leading diabetes nutrition brand.

In pediatric nutrition.

U S sales growth of more than 10% for the year was led by strong growth of PD light or oral rehydration brand.

And market share gains for Similac, our market, leading infant formula brand.

During the past year, we continued to expand our nutrition portfolio with several new products and line extensions, including the launch of Similac 360 total care in the U S.

And continued global expansion of our Peter shortly sirna and ensure brands with line extensions such as plant based.

Sugar and high protein products.

Turning to medical devices.

<unk> recovery from the impacts of the pandemic and strong growth in diabetes care drove sales growth of 16% in the quarter and nearly 20% for the year.

In diabetes care sales growth of nearly 30% for both the fourth quarter and full year was led by freestyle Libre, our market, leading continuous glucose monitoring system.

Rebased Libre sales grew over 35%, which translates to year over year growth of $1 billion.

So a total of $3 7 billion in 2021.

This past year, we continued to strengthen our medical device portfolio with several pipeline advancements in launches.

In the U S expanded Medicare reimbursement coverage for Mitraclip will make it possible for more people to benefit from this life changing technology.

We launched neuro sphere virtual clinic first of its client technology, the <unk> patients communicate with physicians and received new treatment settings remotely.

We received U S FDA approval for and Placer amulet heart device, which treats people people with atrial fibrillation who are.

Who are at risk of ischemic stroke.

And we received U S FDA approval of our political heart valve replacement system for people with severe aortic stenosis and CE Mark for <unk>, our latest generation Transcatheter aortic valve replacement system.

Moving to established pharmaceuticals, or <unk>, where sales increased nearly 6% in the fourth quarter and over 10% for the full year.

Strong performance was broad based across several countries led by India, Russia and China.

<unk> has performed well throughout the pandemic fueled by strong execution and a steady flow of new product introductions in our core therapeutic areas.

Now I'll wrap up with diagnostics, where COVID-19 testing was a big part of the story, but far from all of it.

Covid testing sales were $2 3 billion in the fourth quarter.

With rapid testing platforms, including <unk> now in the U S. <unk> internationally and I'd now globally compromising approximately 90% of those sales.

Demand for testing continues to remain strong and we remain committed to help ensure broad access.

Since the start of the pandemic, we've invested significantly to build both U S and international manufacturing supply chains, and we're working to expand our capacity further to meet global demand.

Excluding COVID-19 testing sales worldwide diagnostic sales grew over 8% in the fourth quarter and 13% for the year.

We continue to rollout <unk>, our innovative suite of diagnostic instruments and expand test menus across our platforms.

During the year, we placed more than 3000 of Liberty instruments for immunoassay and clinical chemistry testing with approximately two thirds of those placements coming from share capture.

And then molecular diagnostics, excluding COVID-19 testing sales grew double digits in both U S and internationally as we continue the rollout of our <unk> instrument for molecular testing.

So in summary, 2021 was another highly successful year for Abbott.

We continue to play a vital role in combating COVID-19, as a result of our massive scale, we built in rapid testing capacity.

All four of our major businesses delivered strong performance. This past year and are well positioned for continued success going forward.

And we continue to strengthen our overall strategic position with a steady cadence of important new products from our pipeline and several attractive growth areas.

Now I'll turn over the call to Bob Bob.

Thanks Robert.

As Scott mentioned earlier. Please note that all references to sales growth rates unless otherwise noted are on an organic basis, which excludes the impact of foreign exchange.

Turning to our results.

Sales for the fourth quarter increased seven 7% on an organic basis, which was led by strong performance across all of our businesses along with global Covid testing related sales of $2 $3 billion in the quarter.

Excluding COVID-19 testing sales organic sales growth was 10, 3%.

First is the fourth quarter of 2020, and 10, 8% compared to our pre pandemic baseline in the fourth quarter of 2019.

Foreign exchange had an unfavorable year over year impact of <unk>, 5% on fourth quarter sales, resulting in total reported sales growth of seven 2% in the quarter.

Regarding other aspects of the P&L for the quarter. The adjusted gross margin ratio was 57, 7% of sales.

Adjusted R&D investment was six 3% of sales and adjusted SG&A expense was 26, 2% of sales.

Our fourth quarter adjusted tax rate was 16, 9%, which reflects an adjustment to align our tax rate for the first three quarters of last year.

With our revised full year effective tax rate of 15, 5%, which is modestly higher than the estimate we provided in October due to a shift in the mix of our business and geographic income.

Turning to our outlook for the full year 2022.

Today, we issued guidance for the full year adjusted earnings per share of at least $4 70.

For the year, we forecast organic sales growth, excluding the impact of Covid testing related sales.

To be to be in the high single digits.

We forecast Covid testing related sales.

Of approximately $2 5 billion with a significant portion of these sales expected to occur in the early part of the year.

We will update our COVID-19 testing sales forecast one quarter at a time throughout the year.

Based on current rates, we would expect exchange to have an unfavorable impact of approximately 2% on a reported sales.

We forecast an adjusted gross margin ratio of approximately 58, 5% of sales for the year, which reflects our forecasted business mix.

Underlying gross margin improvement initiatives across our businesses, along with the impact of inflation on certain manufacturing and distribution cost.

For the year, we forecast R&D investment of around $2 7 billion.

And SG&A expense of around 10 8 billion.

Which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives.

We forecast net interest expense of around $500 million.

Non non operating income of around $375 million and our full year adjusted tax rate of approximately 14, 5% for the year.

Turning to our outlook for the first quarter.

We forecast adjusted earnings per share of.

At least $1 50.

And organic sales growth, excluding the impact of Covid testing related sales to be in the high single digits.

Lastly at current rates.

We would expect exchange to have an unfavorable impact of approximately 3% on our first quarter reported sales.

With that we'll now open the call for questions.

Thank you.

Have a question at this time. Please press the Star then the number one key on your Touchtone telephone.

Just a question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Lasalle quality, we kindly ask that you please be sure and instead of your speaker phone when asking a question.

Again, sorry.

And then one to ask a question.

And our first question comes from Larry <unk> from Wells Fargo. Your line is open.

Good morning, Thanks for taking the question and congratulations on a really strong finish to a strong year.

Robert can you talk about how you thought about the 2022 guidance why is $2 5 billion for Covid testing the right starting point and how are you thinking about reinvesting the upside from Covid testing.

Implied in the $4 $74 70, EPS guidance and I had one follow up thank you.

Sure Larry.

I'd say, the beginning of the year youre coming into the year and Youre trying to find the right balance right trying to find the right balance on your long term growth opportunities.

That that Abbott has which I think are pretty unique.

And balancing that with I'd say, probably some some uncertainty.

And I'd say every year, there's a little bit of uncertain. The beginning of the year, but I would say this year is probably a little bit more than usual.

Are you trying to find that balance and I'm pretty sure. We'll talk about some of the long term growth opportunities, but if you think about some of the challenges.

In forecasting right now and Theres a lot of dynamics that are existing from a macroeconomic standpoint that are out there that quite frankly aren't necessarily unique to abbott.

But that are out there whether it's the whether it's the pandemic.

And the duration of the current surge potential new ways and how long they will last staffing shortages that we've seen.

For the hospital based kind of part of our business.

Quite frankly patients' willingness to go in.

To do a procedure.

During the surges, so thats, probably one kind of big bucket to look at.

Another area, obviously on the macro side as supply chain and inflation challenges that every company is facing.

And obviously kind of currency headwinds. So I'd say those are all challenges that are facing a lot of med tech companies companies in healthcare and quite frankly, a lot of companies outside of our sector, probably what's a little bit different for us another factor to consider in our forecast is just COVID-19 testing.

And how is that going to play out throughout throughout the rest of the year given the magnitude.

Of what.

What the testing could look like.

Between.

Completely going away or at staying or increasing at this level. So.

Factoring all of those kind of elements over here I think this was the right starting point for us.

Just to start off like that and I think this initial full year full year guidance is contemplating not only some of those challenges, but also contemplating on the flip side, a very strong underlying kind of Abbott base business.

As I said in my comments.

High single digit growth. So they are definitely acceleration and a lot of our portfolio versus where we were pre pandemic.

We've got investment in this guidance.

To be able to support not only all of our launches that we engaged in.

Towards the end of last year, beginning of this year, we've got launches and opportunities and Thats all been contemplated and fully funded and the initial COVID-19 testing forecast of two five.

Yes, I don't I don't expect clothing to simply go to zero, starting starting in the second quarter.

But the challenge of forecasting the magnitude.

I felt this is the right way to and quite frankly I talked about this in October we will be updating as we go along we've got a lot. We've built a lot of capacity you have seen that over this last year and a half.

Especially in rapid testing, so we have that capacity and we will be updating it. So yes. If we had typically done our Tencent range guide here, Larry our consensus we would've been right in the middle of where you guys are at.

I didn't want to I didn't want to cap the upside.

Which is why we're at which is why we're at.

At least $4 70, so if I had kind of sum it up I look at our guidance now and that's okay. We've contemplated as much as we can have some of the challenges that a lot of companies are facing.

Whether it's supply chain duration of pandemic medical device procedures et cetera.

Fully funded our growth platforms that we're very excited about.

And there is potential for for the upside of more COVID-19 testing because I don't think it goes away.

Would then fall, which would then fall through.

At a good clip.

And provide that upside so I think thats I think thats, probably the best way to summarize it is derisked fully funded for long term growth opportunities and we've got potential upside.

As we go into the remainder of the year.

That's super helpful. Robert just for my follow up Libre had another remarkable year. How are you thinking about libre growth in 2022, and what are the drivers of that growth. This year. Thanks for taking the questions.

Sure.

Well, yes, I mean, you saw it it continues to grow at a very strong rate and a very large base.

35 over 35% this year 4 million users now.

We've initiated geographic expansion of Libre, three and that will start in the next couple of weeks.

Moving out of Germany into.

Into UK and France, those are probably kind of key markets that we're expanding.

Over the over the next couple of weeks.

And if I think about 2022.

Larry I mean, I'm looking at here strong double digit growth, we've been growing about $1 billion of incremental sales per year, and I expect I expect that growth to be at least in that range. So that probably translates into a <unk>.

25.

5% growth.

The biggest driver.

For us is.

It's quite frankly, not just this year, but as we as we as we look forward. It is still very underpenetrated.

Talking about being a leader in terms of patients with 4 million users, where we've talked about numbers between 60 70 to 80 million people around the world that could be benefiting from.

From continuous glucose monitoring sensor based monitoring so I'd say biggest opportunities we've got continued to be international.

The CGM penetration internationally is still much lower than in the U S.

And then moving into <unk>.

More aggressively into to patient segments that historically have had been underpenetrated kind of look at the type twos type twos on single injection therapy. So we've got great opportunity. There U S. I would say is another good opportunity for us.

We had very good year this year close to like 60% growth I think it's I think that's the number.

Now over 1 billion users.

We've made the investments that we need to make last year in terms of sales force and advertising.

And thats paying that's paying dividends.

In terms of new users.

We continue to have a high share of new user growth. So as a combined what we're doing internationally.

Spansion of Libre three.

Continued growth in the U S.

Banding.

<unk>.

Underpenetrated population of type twos.

I think we've still got like I said still in early innings of the Libre story here.

Thanks, so much Robert.

Thank you.

Our next question comes from Robbie Marcus from Jpmorgan. Your line is open.

Oh, great and I'll also add my congratulations on a nice quarter.

Two from me I'll ask them both upfront first.

First question, maybe you could spend a minute on cadence throughout the year first quarter has a lot more COVID-19 testing sales than we had thought.

But also implies somewhat of a different cadence than we had been thinking so just top and bottom line what are the impacts their housing inflation FX hitting.

Throughout and then second question probably tied into it if you could just touch on what Youre seeing in current device and procedure trends.

As we sit here today, and how youre thinking about the evolution of that over the course of 2002. Thanks.

Well. Your first question has got multiple multiple sub questions. There Robbie So let me take the first one and then I'll go back. So let me take the second one and then I'll go back to your first one.

Because it does contemplate some of the challenges on inflation that might be worthwhile spending some time just talk a little bit about also but in terms of demand dynamics, especially in the more hospital based.

Business here Ravi we saw real nice trajectory of recovery in the beginning of Q4.

We were and I always like to compare versus 2019 at least for 2021.

To avoid some of the comp pieces. So we were improving our growth rates.

Are probably more cardio like businesses, let's use that as a proxy and it would be in that kind of 3% to 4% range and improving as the quarters as the quarters progressed in Q4 was looking like again, a continuation of that progression until probably December where we saw a pretty big pretty big drop.

Because of <unk>.

And most of the and most of the device.

Of our device businesses, probably the only two that we didnt see that drop was heart failure that was probably up in the mid Twenty's in December versus 2019, and obviously libre, which was up probably like in the 70% versus 2019. So so we did have an impact.

In these parts of the business again is probably driven by omicron impact of not only staffing.

Say, but also even just patients.

Basically postponing a little bit.

Wanted to go into hospital, and I think Thats continued a little bit here into January .

I'd say geographically seen a little bit more of that impact in the U S compared to other geographies at least for us.

Europe , and Asia have held up a little bit better than the U S.

And then we've contemplated.

As as is <unk>.

Vessels, we can what that recovery curve is going to look like.

We'll see some pressure of that I'd say, probably January February going into March we expect it to get better and then Q2 will be better.

If you look at the second half of this year, we expect.

For these businesses to be more than that at their normal run rate.

So I think I would say that's that's that's what we're seeing and that's kind of how we're forecasting the rest of the year actually was pretty pleased that some of the new product launches that we had during during the quarter.

We are always cautious about okay do we launch the product.

In this environment than they did pretty well both in Europe and in the U S. II.

That speaks well about still the need for the products and the technologies and the innovation so.

On the consumer side of the consumer facing part of our business I mentioned Libre, but you saw it in nutrition and NPD.

Done pretty well depend NAMIC, they did pretty well in Q4, so didn't didn't necessarily see the impact of omicron to those businesses like we didn't see it in delta either so.

We expect those businesses to be pretty pretty resilient and the key driver. There is I talked a bit about libre is is kind of innovation.

On your first question regarding cadence.

I mean part of it is part of it is this combination that I said recovering device and core testing procedures that we see going into Q2 and into Q3 and Q4.

And and.

Then as as we have more.

Let's say call it confidence and precision regarding our corporate regarding our Covid testing, we'll see that kind of flow through and then we'll be able to update you I think when we're here in April .

We'll have a better sense of what Q2 is going to look like not only for the U S. But also internationally.

And as I said.

Having that ability to then kind of update the forecast with that Covid number.

We will.

We'll let it flow through.

So I think you also had a question about inflation I mean that is a that is.

Another area that we're working on and focused on and probably ask Bob to give you some color on that okay, Yes, Ravi actually.

Ask about currency and inflation I'll cover currency first I mean, we saw the U S dollar.

Cost strengthening since middle of last year in particular over the last few months.

And so as I said in my opening remarks, the current rates, it's about a 2% headwind on the top.

On the top line for the year, we're going to see that a greater impact in the first quarter.

Around 3% and kind of in the second quarter and they don't get.

The impact will be a little bit lesser viewers. We go kind of go through the course of the year into the back half of the year.

In terms of inflation.

Inflation and supply chain challenges, it really kind of linked together.

<unk>.

As supply chains have not been able to catch up to the strong demand thats out there and so we're seeing some impacts here certainly not unique to us or our industry and.

And we're seeing those impacts across transportation cost.

Manufacturing inputs commodities et cetera.

From a pricing standpoint.

We have the flexibility to adjust price a bit in some areas of the business.

And we're doing so that's really more into consumer facing businesses like.

Like nutrition.

In other areas of the business.

Flexibility doesn't exist, so I would say in aggregate kind of across those headwinds.

We're seeing impacts on gross margin of roughly $5 billion.

And that's contemplated in our guidance.

And I think as supply change start to normalize over time, we would expect to see improving cost in some areas for example in commodities for nutrition.

Those costs have kind of moved up and down historically over time.

But currently our kind of outlook doesn't assume any significant.

Changes kind of versus the current dynamics.

That we're seeing in the market.

Great. Thanks for all the answers.

Thank you.

Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.

No.

Thanks for taking my question and good morning, Robert.

Two questions maybe my first one was on the new product side, Robert you made some comments on.

Perhaps.

Our consumer kind of product at CES Lingo I'm, just curious how do you see the opportunity here.

Slightly different perhaps from our perspective.

But for Abbott's I mean, you guys have played in consumer markets.

How big is this opportunity, perhaps some some sense for when U S launch timing.

Timing could be.

And should we expect more analytes right I think you guys had poor analytes at CES, but I'm curious.

Is there a are there other.

Products.

I expect it to come down the pipeline.

Sure Vijay.

So we made a decision.

To put a stake in the ground here.

And start talking about what we've always believed to be another opportunity a sizeable opportunity for Abbott.

And that was really using the libre platform that we had developed to look into other other analytes other areas I talked about this recently quite frankly, we've talked about it.

Several years ago also and and.

You referenced some of the some of the analytes that we have been working on.

<unk> lactate alcohol glucose for not people with non diabetes and those are big opportunities.

As I've said the model is a little bit different.

It is probably a much larger.

Tam in terms of people.

But the usage of the sensors.

Is it.

It's probably more intermittent then you would kind of get on person for example, diabetes today.

We're very clear, whether you're a type one on a pump or a type one.

Injector are type two like we know through the data we've covered here in terms of the usage patterns. So the usage pattern will be different but the.

The sample size is significant.

If you think about like a keto sensor and the opportunity to be able to provide real time feedback for somebody who's trying to manage their keto diet.

I think there is a large amount of people large.

Consumer pool that.

Whether it's.

More disciplined keto diets or kind of more on the on off basis.

Theres, a very large amount of people.

And we'll have to just think about how to market it a little bit differently and our go to market strategy will.

It will be a little bit differently, but I'd say, we've always seen this as a big opportunity and we funded it we have a separate team that is obviously leveraging the platform, but they're managed differently.

Completely different organizational structure.

And they're just focused on developing not only the technical side of analytes, but obviously doing all the market development work. So we're really really in the early innings stages here, but I think that I think the numbers can be pretty significant and pretty large.

And why not over over over a good period of time, maybe it's even bigger than maybe it's even bigger than diabetes. Once you line. These up.

The first phase of Analytes, we announced at CES that this is our intention that we're designing these tiny.

Timing, we expect to launch our first products outside of the United States.

Towards the second half of this year.

United States, we'll obviously be having the conversations with the agency in terms of.

How that regulatory path is.

Going to shape up probably a little bit too early right now to talk about that.

But we're very excited about this opportunity because we've seen this opportunity. Many many years back and made the moves on your question about other analytes, yes, I would say part one or phase one I would say is what I would call. These more consumer facing more consumer driven opportunities.

But we are looking at other analytes that would probably have I would say more of a medical clinical application, whether it's in the hospital or for discharge is et cetera. So so there is opportunity there that we're also working on so I think it's very large and we're just in the beginning right now in terms of market creation.

That's helpful. Robert and maybe my second question balance sheet I think.

You guys, probably have over $40 billion of truck capacity right now.

Conservatively with valuations coming down what kind of opportunities do you see in one of the things that always strikes me is.

Abbas.

Very large in diagnostics number one number two in most of the European markets.

If you look at diagnostics liquid biopsy cancer screening diagnostics is.

That's a massive opportunity, but I don't see Abbott having.

Having a stake in the ground in that area is that an area that's interesting.

Well.

Answer that specifically I am not going to necessarily show all my cards here, but I guess, what I will say regarding the M&A question here is yes.

Yes.

There seems to be some.

Location now and I think this.

Could make.

If there is anything out there that look strategic for us and that makes financial sense. Then, yes, we will be we've got plenty of capacity as you said.

We've generated a lot of strong cash flow.

<unk>.

And quite frankly, it's been a meaningful step up in that cash flow over the last couple of year and a half or so.

Yes, strategically financial fits as I've always said.

We're in a great position now to be able to look at that.

Devices and diagnostics I will say all of the areas that we're looking at more carefully.

Scott's team is always looking at everything but he has got a.

More special lens here in devices and diagnostics areas that you referenced are areas that are in the list of things that we would be interested in looking at.

Tuck in and medium sized deals probably are more likely.

If again, if those situations present themselves, but again, we're always.

We're always looking at everything so.

I would say yes.

Nothing has changed regarding what I've said about M&A, if it's strategic and it makes financial sense.

Deliver value for our shareholders. We are now in a great position.

As a result of all the efforts that we've had quite frankly on cash flow conversion and now with kind of COVID-19 cash.

Also helps.

Understood. Thank you guys.

Thank you. Our next question comes from Josh Jennings from Cowen Your line is open.

Hi, good morning, gentlemen, thanks for taking the questions.

Rob just first wanted to ask a question on 2022 guidance.

I understand you don't want to put a top end of the range there and cap the upside clearly there is potential upside with the increased COVID-19 testing outside of that $2 5 billion.

Revenue stream that you are expecting nearly part of the year, but just in the scenario, where COVID-19 testing does fall off in that guidance for the for the revenue from that franchise.

Turns into reality.

Refresh us on some of the other levers you have that you can pull to drive EPS growth I think last year in June when we took over testing fell off.

<unk> talked about share repurchase accretive M&A, some cost reductions, but just wanted to get a refresh there and see if you could help us think through those levers and then second question is just on the diabetes franchise and clearly Libre has a long runway youre looking you just talked about one of your answers about the consumer.

Unity, but how should we be thinking about the diabetes franchise and habits desire to kind of leverage the positioning there with other products either insulin delivery devices or other.

Other portfolio.

Ads.

As we move into 2022 and beyond thanks for taking the questions.

Sure on your <unk>.

First one I mean like I said, we de risked we fully funded and we got the potential upside for the Covid testing.

If COVID-19 testing.

In that scenario, which I think is highly unlikely kind of falls off.

Then we'll have to obviously look at kind of the investments, we're making and kind of make the adjustments that we have to make especially as we start to move into 2023 I don't think that is the case I think that COVID-19 testing.

As.

Is going to be still around I think omicron has catalyzed a pretty significant shift.

And global rapid testing and screening.

And the question here is just going to be how does it how does it.

How does it evolve over over over the over the next kind of nine nine months 12 months here. So.

But that being said to your question on that scenario you'd have to make adjustments.

As I've said, we would.

But right now im.

Managing we're managing the enterprise as a whole and we're obviously got profits that are coming from Covid that we're reinvesting into the business.

If that turns out to not be the case. This year. Then then like I said, we're fully funded on our growth platforms.

And then we'd have to kind of make adjustments or look at that.

Look at that investment level as we go into 2023.

Buybacks as another opportunity.

We've got we've got a lot of flexibility here also.

Last year, we bought things.

It was about $2 billion.

2021.

And I would anticipate being active in the market again this year since we since we do have since we do have that capacity. So.

And your second question I think was on diabetes right.

And growth growth opportunities is that could you just.

Right absolutely.

Just thinking about anything.

Anything you can share just in terms of internal development programs outside of the.

Advancing libre in diabetes and on the consumer channel on the sensing side any other products within the diabetes device realm.

You could add to the portfolio.

Should we be thinking about the diabetes franchise to stick is sticking with the playbook that you have it's been so successful in the last number of years and has a long runway. Thanks got it got it.

<unk>.

So listen.

We're in the beginning here there is still a lot of opportunity still a lot of under penetration, whether it's internationally or type twos.

As I've said the key aspect here is to ensure your pipeline is relevant and is advancing.

We've launched Libre three and.

Europe and will be expanding expanding that launch now globally.

I expect to.

To be able to bring libre three here into the U S.

I won't necessarily get into the specifics, but I figured you guys would eventually asked this we have filed libre three here in the U S. As in CGM to the FDA last year.

Won't get into specifics about timing there but.

The review process happens in the same same agency that reviews diagnostic test. So as you can imagine there's a lot of.

Lot of busy work going on with that with that.

With that area of the agency. So we've obviously seen our data that we've submitted to the agency we've obviously seen.

Now data from a competitive system and I'd say, we're feeling.

Feeling pretty good about where we stand so so I think that's a key component there is to expand the portfolio.

Talked about libre for not necessarily what exactly is that but we do have that as an active program.

Connecting to insulin delivery systems is also part of that strategy.

And.

We've got active programs with all pumps suppliers and pen delivery systems also to be able to connect libre onto that so I think we will stay focused on.

Making the best making the best sensor sticking to sticking to our strategy.

Of consumer friendly.

Showing outcomes price for access and affordability and continue to innovate with our sensor platform and then look at opportunities to use those sensors to not only expand into other platforms, but also to connect to other devices.

Great. Thanks, a lot.

Thank you. Our next question comes from Joanne Wuensch from Citibank. Your line is open.

Good morning, and thank you for taking my questions.

Big picture wanted to specific one.

Picture one.

One of the themes appear keynote address at CES the mayor.

<unk>.

Checking med Tech and I'm curious if you could highlight how you sort of take that lens in terms of your product pipeline and then my specific question has to do with your structural heart franchise.

Portico is out in the market amulet is out in the market.

Just a little bit of an update on how those products are doing thanks.

Sure.

So I've talked about this convergence.

And quite frankly, we've seen this convergence occurring probably when we were doing the St. Jude acquisition and integration and we started to set a lot of our portfolios to be able to connect to.

Two.

Whether it's consumer electronics or clouds or other elements like that.

To ultimately be able to empower the consumer and.

And just provide better.

Better solutions to ultimately improve outcomes. So I think you saw the device portfolio has been going down that path for quite some time now.

As very pleasantly.

Very pleasant to see that start to look not only in the cardiovascular side also on the Neuromodulation side as I said in my opening comments on our virtual clinic I think Thats got an opportunity to change the business model of that business and at the same time provide better outcomes.

We're not not only DBS, but also spinal cord stimulation to so <unk> seen that in devices. We then started to see diagnostics.

And you saw over to that thinking as we as we develop <unk>. We wanted to make sure that we are kind of integrating not just our expertise in developing a.

And accurate test to be able to detect of there to be able to detect COVID-19 , but also integrated into into an app, where you can kind of have your past and your phone et cetera, and working with partners to be able to kind of do that so so I think youre seeing it across all of the portfolio.

In our pharma business, we are using digital tools to be able to ensure that patients are taking their medications so thats pretty.

I would say strategic elements going across all of our businesses and how we're thinking about it so.

So it's not I wouldn't say, it's just one part of the portfolio, but I think it's a convergence that.

Is happening and we want to be leaders in that convergence across all of our cost all of our portfolio.

Regarding your question on structural heart.

So I think you mentioned portico and amulet.

Listen amulets, we received approval in Q3 last year moved quickly to launch.

I'd say initial feedback.

It's been very strong, especially in the areas of of superior closure rates.

Need to be able to.

Need to be able to leave the hospital without blood blood Thinners and and also we've heard a lot of broader sizes.

To better fit more anatomies and getting more of that flexibility. So so.

So that's done very well as part of our launch we wanted to make sure that we had good procter and good peer to peer profiteering.

Obviously that became a little bit of a challenge in November and December after Thanksgiving and into December but.

But I think despite all of that I think we've done pretty well I think we did about 500 procedures.

Last year, mostly happening mostly in Q4.

And if you look at what we did in December that would put us at about a 10% market share, which is which is which I think is pretty good.

Honestly, we are not satisfied with that given what we know we can do what we've done in Europe , but I think it's very much aligned to where we wanted to be rigs.

Regarding.

Regarding the end of the year and as we enter into 2022, so I think that that's going very well.

Portico.

We're as I've said this is an important area for structural heart, we know that there are two.

Entrenched competitors in there we think we've got great technology also and we're going about it very systematically very methodically to build to build our position.

We launched our generation two product.

In in Europe .

And avatar product and again Thats that's received great feedback also in this.

Pretty competitive.

Clinical profile here for for high risk surgery patients so.

We're making the investments that we know we need to make to be able to expand our position here. So I feel good about our structural heart portfolio I've talked about how this is a big opportunity for us.

We've made the investments.

And I think we're in a great position as we go into 2022.

Thank you.

Thank you. Our next question comes from Matt Taylor from UBS. Your line is open.

Hey, good morning, Thanks for taking the question so I.

I just had two margin questions I wanted to ask the first one.

I'll frame. It is if we take the $1 50 from Q1.

It implies about $1 $6 seven for the remaining three quarters of the year. So is that how we should view your.

Base business earnings power.

Or are you still spending more through the year from some of the Covid testing.

Testing profits are being conservative we'd love just any additional color on the base business earnings power ex testing.

Yes, Matt I'll take that this is Bob So we don't really think about earnings.

At the bottom line base versus Covid, we manage we manage the whole company.

Obviously, the first quarter is benefiting from the majority of the Covid sales that we've got forecasted at this point in time kind of our starting point, but we funded our growth throughout the rest of the quarters. So what you have is COVID-19 testing initial initial COVID-19 testing sales in that first quarter, but.

Our investments throughout the entire year or so.

As we update we update our COVID-19 testing.

Each quarter kind of as Robert Robert talked about.

That will fall through.

Certainly at a higher level than our overall margin profile.

I'll just add onto that.

Absolutely expect there to be Covid testing after after the first quarter. The question is at what level and as I said in the beginning to be able to kind of forecast a full year out like that.

Given given the magnitude of how this can shift.

It's just prudent to do it a quarter at a time.

So when we here in April .

We will have a better sense of what Q2 is going to look like in terms of COVID-19 testing and we'll be able to kind of update you there.

Okay.

Yes.

One follow up on.

On gross margin you mentioned that it was.

About 500 million headwind from inflation supply chain and so I guess, if we add that back in you get into gross margins closer to 60%.

Ex that I was just wondering if you could talk about expectations for gross margins going forward longer term if things normalize.

Yes.

If you could kind of see those levels in 2023, if things improve.

Just pluses and minuses on gross margins longer term.

I think the add back this year, a little bit below that but.

But the way we think about gross margin every year is looking for ways to expand that.

Every one of our businesses has dedicated teams focused on gross margin initiatives and youre seeing some of that benefit actually in our 2020 forecast helping to offset the.

The impact of.

Of the inflation that we're seeing we continue those programs that are not a one year program. We do them every year and we'll continue those into into next year.

The other thing we're seeing is the benefit of kind of the business mix so as medical devices.

And routine diagnostic testing recovers.

And that benefits our overall gross margin.

For the business, obviously, Robert talked about a lot of the opportunity some of the opportunities that is even more that we have to drive growth in our medical device business as well as in diagnostics.

And as we grow those businesses that will have a positive impact overall on our gross margin profile.

Okay. Let me let me wrap up here then thanks Bob.

Listen.

I'll finish by saying.

A little bit how I started.

I acknowledge that there is a lot of uncertainties in the macro environment right now.

And the challenges that that creates in terms of.

In terms of forecasting for investors at least in the short term.

Pandemic, how long will it last phases transitioned to endemic.

Recovery curves of procedures.

I get some of the challenges of that forecast, but if I look at the market here at the start of the year and.

Look at health care sector, specifically med tech and diagnostics.

That's definitely been disproportionately hit by some of those uncertainties and I think if you take a step back.

And it's important to remind ourselves the.

Healthcare still remains a very very important need and a great long term growth area.

I think none of that none of the long term market fundamentals have changed during the pandemic if anything some of them have gotten even better and accelerate it. So I think the demographic trends are still very favorable in procedures and routine testing.

Going to come back whether it's whether it's a month two months et cetera.

It's difficult to predict with that where that perfect degree of precision, but they'll come back and if you look at the innovation pipelines across the entire industry, they've never been stronger and within that context, I think abbott's pretty uniquely positioned here, we're in great markets.

Leading positions in several large fast growing segments diabetes devices diagnostics, including <unk>.

Covid testing nutrition emerging market pharma, we have strong positions brands franchises across all of these so and one of the questions. I think we are leading in the digital transformation.

That's going to be more patient centric care or whether it's with by Wearables, whether it's connected devices remote monitoring et cetera.

And then you layer that diversification that I talked about in my opening comments, which I think is very unique and maximizes our growth opportunities and it does provide a natural hedge.

To some of these macro macro environment impacts that we're going to see from time to time and that diversity is not just on the business mix, but customers payer types.

Honestly geographic footprint in a very strong and resilient supply chain. So you translate all that into real strong sustainable strategic financial health, whether it's growing revenues cash flows dividends.

Got a rock solid balance sheet.

I talked about the opportunities that we have with it. So I think we're in a really good position strategically financially and im excited about all the growth opportunities that lie ahead of us so with that I'll wrap it up and I'll. Thank everybody for joining us today.

Thank you operator, and thank you for all of your questions. This now concludes Abbott's conference call.

Webcast replay of this call will be available after 11 am central time today on <unk>.

<unk> Investor Relations website at avid investor Dot com. Thank you for joining us.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a wonderful day.