Q2 2022 Abbott Laboratories Earnings Call
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Speaker 1: I would now like to introduce Mr. Scott Linenweber, Vice President, Investor Relations, Licensing, and Acquisition. Mr. Scott Linenweber, Vice President, Investor Relations, Licensing, Licensing.
Speaker 2: Good morning and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Bob Funk, Executive Vice President of Finance and Chief Financial Officer.
Speaker 2: Robert and Bob will provide opening remarks. Following their comments, we will take your questions.
Speaker 2: Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995.
Speaker 2: including the expected financial results for 2022.
Speaker 2: Abbott cautions that these forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements.
Speaker 2: economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in item 1A, risk factors, to our annual report on Form 10-K for the year ended December 31, 2021.
Speaker 2: 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.
Speaker 2: on today's conference call, as in the past.
Speaker 2: Non- GAAP financial measures will be used to help investors understand how to have it's ongoing business performance.
Speaker 2: 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.com.
Speaker 2: Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward-looking basis.
Speaker 2: because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth.
Speaker 2: Unless otherwise noted, our commentary on sales growth refers to organic sales growth. The
Speaker 2: which excludes the impact of foreign exchange.
Speaker 2: With that, I will now turn the call over to Robert.
Speaker 3: Thanks Scott.
Speaker 4: Good morning everyone and thank you for joining us.
Speaker 4: Today we reported results of another strong quarter.
Speaker 4: Earnings per share were $1.73.
Speaker 4: reflecting more than 30% growth compared to the prior year.
Speaker 4: Sales increased 17.5% on an organic basis in the quarter.
Speaker 4: Led by double-digit growth and medical devices.
Speaker 4: established pharmaceuticals, as well as diagnostics, both with and without COVID testing-related cells.
Speaker 4: In addition to these strong results during the quarter, we continue to strengthen our strategic position at long-term growth opportunities with regulatory approvals of new products and expanded indications of use.
Speaker 4: along with continued market uptake of several recently launched products in the attractive growth areas.
Speaker 4: Now summarize our first quarter results in more detail before turning the call over to Bob.
Speaker 4: start with established pharmaceuticals or EPD.
Speaker 4: where sales increased 13.5% in the quarter.
Speaker 4: EPD has now achieved double digit organic sales growth in three of the last four quarters.
Speaker 4: Strong performance this quarter was led by double digit growth across several countries and core therapeutic areas, including gastroenterology, respiratory and CNS pain management.
Speaker 4: Turning to nutrition where our performance was mixed.
Speaker 4: Our adult nutrition business continues to perform at a high level with global organic sales growth of 11.5% led by our insure and lucernabrands. We have now arrived at a high level with global organic sales growth of 11.5% led by our parents. We have now arrived at a high level with global organic sales growth of 11.5%
Speaker 4: And we also achieved double digit growth globally in our combined toddler nutrition products, which includes our market leading Pediasure and Pedialyte brands.
Speaker 4: As you know, however, we initiated a voluntary recall in February of certain infant formula products manufactured at one of our U.S. facilities.
Speaker 4: It's important to highlight part of our quality system.
Speaker 4: We retain in-house samples of products that we ship to customers.
Speaker 4: Testing of retained samples related to this recall action by both Abbott and the FDA have all come back negative for the presence of the bacteria that caused the reported illnesses.
Speaker 4: Importantly, the FDA and CDC found that there is no genetic match between the strains of the bacteria identified in non-product contact areas of our facility.
Speaker 4: and available samples obtained from customer complaints.
Speaker 4: suggesting a different source of contamination.
Speaker 4: And lastly, no salmonella was found in our factory or product, and therefore the FDA ruled out any link to our facility. And therefore the FDA ruled out any link to our facility.
Speaker 4: We hope these findings get parents, caregivers, and other stakeholders renewed confidence in our products. Another stakeholders renewed confidence in our products.
Speaker 4: We know the situation has further exacerbated industry-wide infant formula supply shortages. Infraum formula supply shortages.
Speaker 4: That's why we're doing everything possible to mitigate supply constraints.
Speaker 4: by bringing in product from our FDA registered facility in Europe .
Speaker 4: ramping up production at our other US plants.
Speaker 4: And of course, we're working very closely with the FDA on corrective actions and enhancements.
Speaker 4: so that we can restart operations at the facility.
Speaker 4: Moving to diagnostics where sales grew 35%.
Speaker 4: COVID test sales were $3.3 billion in the quarter.
Speaker 4: more than 90% of which came from our rapid tests.
Speaker 4: including Binax now in the US.
Speaker 4: PEMbio internationally.
Speaker 5: and ID now globally.
Speaker 4: Excluding COVID-related testing-related sales, our global diagnostic sales grew 12% in the quarter.
Speaker 4: driven by the continued rollout of Alinity, our innovative suite of diagnostic instruments, and expanding menus across our testing platforms.
Speaker 4: And I'll wrap up with medical devices.
Speaker 4: where sales grew 11.5% in the quarter.
Speaker 4: This strong performance was led by double digit growth in diabetes care, structural heart failure and electrophysiology.
Speaker 4: In diabetes care, sales of Freestyle Libre grew more than 25% on an organic basis in the quarter and the user base has now reached approximately 4 million users globally.
Speaker 4: In cardiovascular devices, while procedure volumes were negatively impacted by elevated COVID case rates early in the year, the number of cases that were affected by the COVID-19
Speaker 4: We saw steady improvement in procedure trends as the case rates came down in the second half of the quarter, which is continued into April . We were just continued into April .
Speaker 4: In addition to improving market trends and our strong results,
Speaker 4: This was also another highly productive quarter for our pipeline.
Speaker 4: In the US, we received FDA approval for Aver, our leadless pacemaker to treat patients with slow heart rhythms.
Speaker 4: In Japan, expanded reimbursement for Libre will now cover all people with diabetes who use insulin at least once a day.
Speaker 4: CardioMEMS received an expanded indication in the US to treat more patients suffering from earlier stages of heart failure.
Speaker 4: And we received US FDA clearance for the latest generation of our Encyte X system, which provides a 360 degree view of the heart for improved cardiac mapping.
Speaker 4: So in summary
Speaker 4: We're achieving strong growth overall and across several areas of our business.
Speaker 4: As the first quarter progressed and COVID levels decreased, we saw a steady improvement in hospital-based procedure trends, which has continued into April .
Speaker 4: And we continue to advance our pipeline with new products, indications, and reimbursement coverage in several attractive growth areas.
Speaker 4: I'll now turn over the call to Bob. Bob.
Speaker 4: Thanks Robert. As Scott mentioned earlier, please note that all references to sales growth rates unless otherwise noted are on a organic basis, which excludes the impact before and exchange.
Speaker 6: Turning to our results.
Speaker 6: Sales for the first quarter increased 17.5% on an organic basis.
Speaker 6: which was led by double digit growth and diagnostics.
Speaker 6: Medical devices and established pharmaceuticals, along with global COVID testing-related sales of $3.3 billion in the quarter.
Speaker 6: excluding COVID testing related sales, organic sales growth was 7.7% of the first year.
Speaker 6: For an exchange, had an unfavorable year-over-year impact of 3.7% on first quarter sales.
Speaker 6: During the quarter, we saw the US dollar continue to strengthen versus several currencies, which resulted in a more unfavorable impact on sales.
Speaker 6: compared to exchange rates at the time of our earnings call in January .
Speaker 6: Regarding other aspects of the P&L.
Speaker 6: The adjusted gross margin ratio was 59.1% of sales.
Speaker 6: which reflects higher than normal fall through on COVID testing sales as a result of significant production volumes during the first quarter. The results of the results of significant production volumes are in a very positive way. The results of significant production volumes
Speaker 6: partially offset by the impacts of the nutrition recall and somewhat higher than expected inflation, on certain manufacturing and distribution cost in the quarter. The
Speaker 6: Adjusted research and development investment was 5.6% of sales.
Speaker 6: adjusted SG&A investment was 23.1% of sales in the first quarter.
Speaker 6: Lastly, our first quarter adjusted tax rate was 14.5%.
Speaker 6: Before discussing our outlook for the full year,
Speaker 6: I want to provide an update on our strategic capital deployment initiatives completed in the first quarter.
Speaker 6: which included approximately $2.3 billion of share repurchases.
Speaker 6: $800 million of dividends.
Speaker 6: Schedule debt repayment of $750 million.
Speaker 6: and $300 million of capital expenditures with support for future organic growth opportunities. GOOD
Speaker 6: We continue to generate strong cash flow which provides the flexibility required to execute a well-balanced capital allocation strategy.
Speaker 6: Turning to our outlook for the full year 2022.
Speaker 6: Our adjusted earnings for share guidance of at least $4.70 remains unchanged.
Speaker 6: We now forecast total company organic sales growth.
Speaker 6: excluding the impact of COVID testing related sales, to be in the mid to high single digits, which is somewhat lower than our prior forecast of high single digits due to the recent recall event in nutrition.
Speaker 6: It is important to note, excluding sales impacted by the recall,
Speaker 6: We continue to forecast total organic sales growth in the high single digits for the remainder of our combined businesses.
Speaker 6: which includes medical devices, established pharmaceuticals.
Speaker 6: Diagnostics excluding the impact of testing related sales.
Speaker 6: and areas of nutrition not impacted by the recall.
Speaker 6: We forecast COVID testing related sales of approximately $4.5 billion.
Speaker 6: with a significant portion of these sales expected to occur in the first half of the year.
Speaker 6: We will continue to update our COVID testing-related sales forecast one quarter at a time throughout the year as appropriate.
Speaker 6: Lastly, based on current rates, we would now expect exchange to have an unfavorable impact of a little more than 3% on our full year reported sales.
Speaker 6: With that, we'll now open the call for questions.
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Speaker 1: And our first question comes from Robbie Marcus from JP Morgan. Your line is open.
Speaker 7: Hi, good morning. Thanks for taking the question and congrats on a good quarter.
Speaker 7: Maybe to start for Robert or Bob, you guys put up a good first quarter being on a COVID testing sales at double-digit growth and in most of the businesses. I was hoping maybe you can reconcile with a strong one, Q, and the reiterated guidance.
Speaker 7: walk us through some of the puts and takes and how to think about bridging the difference. required
Speaker 4: Sure, Robbie. I think you've been on these calls for a while. We rarely raise in Q1, I would say.
Speaker 4: And despite that, I mean, we've had a great start to the year, as you pointed out. And there's a lot of good things going on at the company.
Speaker 4: Talked a bit about procedure recovery in the comments. We've seen good recovery in our device portfolio, especially in cardiovascular. Seen routine diagnostic testing improving. It'll be a little bit slower than what we've seen in devices, but definitely the trend of recovery is there. EPD execution is going very well, like I said in the comments, you know, three out of four quarters double digit. Strong COVID sales, both in the U.S. and internationally. I think that's an important aspect here is our international presence.
Speaker 4: and that's probably the piece there where the reconciliation that you're looking for is actually happening. You know, first of all, obviously managing through.
Speaker 4: Managing through the recall on the nutrition side, we're working with the FDA. And we've contemplated in that reiterated guidance, various scenarios here in terms of kind of restart dates and share recovery curves, et cetera. So it's difficult to give an exact date right now as to when that restart starts. We're working closely with the FDA. But I see this more as a shorted term challenge.
Speaker 4: environment right now is definitely changed versus where we were in January . And it's gotten a little bit more challenging. So, and I, we expect some of that macro environment with our supply chain, et cetera, that kind of be a little bit more persistent throughout this year. So, that being said, you know, wanted to see how these, probably these two points here play out over the next couple of months. And we'll be in a better position to be able to assess, you know, that and on our
Speaker 4: I mean, if you exclude the COVID piece, which was pretty significant for us, and then just look at the business without, the base business without the impacted nutrition products, our growth rate was about 11%. And I think that reflects the strength of the portfolio, the investments that we've made, and the execution. So in that guidance, that reiteration of 470, we've absorbed, as Bob said, more FX headwinds, absorbed some challenges in supply chain.
Speaker 4: absorbed portions of the nutrition recall. So I think it's the right EPS guide right now in terms of where we are after Q1.
Speaker 7: great uh... really good color and and maybe as it of follow up uh... you know i think a lot of investors are focused on the go forward realizing that January and February weren't the strongest months uh... due to some of the elevated home of crime uh... levels you know so we we heard johnson and johnson yesterday talk about uh... reaching pre-coated volume levels in April it sounds like you exit it and continue to see strong growth
Speaker 7: coming out of the quarter and into second quarter. So maybe you could give us a little more color on just the volume trends you're seeing, particularly in devices and diabetes, which was... particularly in devices and diabetes, which was...
Speaker 7: one that missed the street a little bit in the quarter, and how you're seeing the geographic spread and any differences there. Thanks a lot.
Speaker 7: bit in the quarter and how you're seeing the geographic spread and any differences there. Thanks a lot. Sure.
Speaker 4: I mean, I think the storyline here was very similar, as I said in my comments. I mean, it started off a little bit slower than we'd anticipated in January , obviously, given Omicron and the surges there and the pressure that that put on staff at hospitals. But definitely sequential improvement from a dollar perspective every month as we move along the corridor. F Production
Speaker 4: March was very strong. I've always talked about how we compare our businesses versus pre-pandemic levels to avoid some of the... to avoid some of the comp issues that ultimately do exist. If you look at our Q122 growth rate versus 2019, we were up about 7.3%. So well ahead of where we were in 2019.
Speaker 4: And that was pretty broad-based. Geographically, the US was up 6%, again, versus 2019. And international was up over 8% versus 2019, too. So I think our device businesses performed very well. And we've seen that improvement as we went through the quarter. The cardiovascular side has done very well as I've kind of given those numbers. And March was really strong, too.
Speaker 4: I think it's part of it is recovery, Robbie, that we're seeing. But also, I would also put in those numbers, I made these comments about recently launched products that we started launching last year. It's always a challenge to launch these new technologies in that COVID environment, but it was the right decision to make. And we're seeing good momentum on, whether it's Amulet, Navator, and Europe , Cardio Mems. Whether it's Amulet, Navator, and Europe , Cardio Mems.
Speaker 4: the rollout of Insight X that began in Q4 of last year, our Triclip product. So I think all of that, it's the combination, I would say, of both recovery as the COVID cases subside, but also the new product launches in the pipeline that we put, which is driving this performance where I'd say we're ahead of where we were in 2019 and having good growth rate in our cardio portfolio.
Speaker 7: Appreciate the color. Thanks.
Speaker 1: Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.
Speaker 8: Hey guys, thanks for taking my question. Robert, back in the sat guidance question, right? The testing guidance was raised by two billion, right?
Speaker 8: perhaps 40 cents of upside. In re-creation of this EPS, what is offsetting this up? The incremental tailwind from COVID rates? How much of this is FX versus macro Russia versus the recall or inflationary pressures? I think a little bit more generality will be helpful.
Speaker 4: Sure. Well, I mean, I think you hit on the key points there. I mean, inflation, additional inflation pressures is impacting some of that. We've got a couple hundred million dollars that we contemplated throughout the rest of the year in terms of friction on supply chain costs and put costs right in distribution. The recall, let me take a step back. The FX.
Speaker 4: is probably about a nickel of friction that we're having as we've seen the
Speaker 4: the dollar strengthened. Um, you know, the rest of it is really coming from, you know, coming from nutrition. But it's very difficult right now. Uh, BJ, be able to kind of pinpoint exactly. We've got a couple different scenarios, as I said in the first question in terms of the restart and the curve. So, you know, we are seeing more COVID tests, uh, more COVID sales. Um, and that, like I said, is absorbing some of these, you know, some of these challenges.
Speaker 8: And then one on libre sequentially that needs to climb and I guess my question is, you've been adding I think a couple of hundred thousand new patients towards, is that new patients starts changing at all? How should they think about incremental being birth in Japan and with the seasonality or what drove the sequential libre that new trends?
Speaker 4: Yeah, I mean I think we see some of that from time to time here, especially as you go from Q4 to Q1. VJ, we've seen that a couple times. I'd say internationally the biggest driver of that is actually FX that created that. We've seen good growth internationally from Libre, you know, getting close to 20% on a very large base. And in the U.S., you know, you're going to see some timing patterns there in terms of wholesaler ordering. You know, I like to look at scripts.
Speaker 4: both new to brand scripts and total Rx scripts here in the US and the sequential Q1, Q4, there's definitely growth there. So I think we've done a really good job in the US. We've grown our business in this quarter by 50%. Users now, well over a million users. We've made the investments in the US, whether it's Salesforce, DTC advertising. I think the team is beginning to hit its right over there. But they know that...
Speaker 4: I'm not satisfied. We always want to see more and believe that we can do more. But I think the US is starting to really hit its stride with those investments as the sales force get deployed and establishes the relationships with what is new physicians that are getting introduced to CGM. So I think that's worked out very well. If I take a step back though and move away a little bit from the RXs and sequential, I think one of the key things. I think one of the key things.
Speaker 4: move and expand beyond that. And we're starting to see signs of that. And I think Libre is a big driver. The value proposition of Libre is a big driver, whether it's physicians and payers quite frankly, started to see the value of the sensing technology across the much broader set of patients. If you look at a US base of patients, and we get to see this because we get to see the RX data in terms of what medications the patients are using. And at other 40% of our...
Speaker 4: reimbursement versus patient TAM, you know, we're looking at patient TAM much more than we are on the pricing side. We've got great reimbursement in Japan, but to be able to have access to all insulin users in Japan with our product is a great opportunity for us. And then you're seeing the value proposition again, really strong. There was a study that was published by UK Nice.
Speaker 4: And I think that for me is the ultimate validation of our strategy and the value proposition we offer where it was clearly shown to be extremely cost effective, whether you look at ICERs or Qualis in the UK by NICE and their view here of how this can benefit a lot of patients. So that for me is the real exciting part of Libre is we're really starting to see that evolution from the CGM market to become much more than kind of a niche play and much more a mass market play. And I think we're...
Speaker 9: Hi, good morning. Thanks for taking the questions and congratulations on a strong start to the year. Robin, I just want to start with just a question on gross margins. The 1Q performance was the highest since 20 quarters in 2019. Just wanted to better understand the sustainability of this profile. 59.1% despite all the challenges in place in 1Q. And then should investors be thinking that return to 2019 gross margin levels and that.
Speaker 9: 59% range plus is achievable in the out years.
Speaker 9: And then follow up is on
Speaker 9: I just wanted to hear and amulet this. What would have you learned in the early days of the AMOLED launch as a number two player in the US that if they show a penicill closure mark that you can apply to your defense strategy starting this year and maybe carrying into next year when you're defending your Mitra Clip Turf as a number one player assuming the US passcode launch occurs in 2023. Thank you.
Speaker 6: Okay, Josh, I'll take the kind of the gross margin question. In the first quarter, our gross margin certainly benefited from the very high COVID testing sales. And as I mentioned in my remarks, actually the fall through on that was higher than we've seen in the past because of the production volumes that we had going through our plant. We're basically running full out on that. So our first quarter definitely benefited from that. As you look at the rest of the year, we're going to have to have the impact of...
Speaker 6: the nutrition recall and the inflation, the increased inflation that Robert mentioned. Obviously, inflation is not unique to us. As we said back in January , we incorporated a sizable amount in our guidance at that point in time. And what we've seen, and I think a lot of other companies have seen, is kind of an increase in some of those headwinds. And so we've captured that in our guidance for the rest of the year. Think out beyond this year and where gross margin goes. I mean, gross margin is something
Speaker 1: So the aspect here is that we are seeing growth and but it a little bit more modest than what we had anticipated back in April . Right, and I think there's really three factors there. Re one of them, as I said in the? U's specifically, I think the staffing challenges were a factor there and, as people tested positive while they didn't have to go to the hospital and they could just stay at home, know that had an impact and some of the procedures that there's a little bit more planning towards. So the good news is we know what those procedures are, we know where they are and you know we've got an opportunity to follow up on them. You know, like we did last year, and following up and all the procedures that got pushed out. So internationally, I think you saw some similar, similar headinds there, but I think the biggest, the biggest headwind for us was China and and the lockdowns that occurred there. And then the third factor for us was, you know we had some backorder and that was really due to the timing of input, material availability. So you know, in terms of when you receive, you know the materials to build, to build the product. Now we are building inventory and I don't anticipate that to be the case going for in the second half. So So those are really are FAC. You know that those really the facts that that you know had our our, our device business a little bit more modest than what we projectted in April . I think those you know get get better. 1: we've got launch activity, So triouble talk about some of those also products that we've launched that will gain in momentum in the second half. In talking to lot of the? U's systems, you know they've just got a figure out better out of staff and to do more.
Speaker 6: Obviously, as we grow the top line in a medical device business, that's accreted to the overall profile of the company. And so, you know, that's kind of where we see gross margin, right now and potentially in the future.
Speaker 4: Yeah, I'll have your question on my trick clip and amulet. So I'll talk a little bit about my trick clip.
Speaker 4: I'd say that the progression of MitraClip in the quarter was very similar to my commentary on our cardiovascular procedure, right? So we obviously had a high COVID case, you know, kind of impacted, but started to really accelerate growth towards, you know, the end of February and into March. So as those cases came down, we saw the improving growth rate. But I'll tell you, I mean, while the growth rate has been strong, and it's been strong for a while, Josh, I don't think we've really been able to benefit yet.
Speaker 4: from the FMR indication, which we got kind of right in the middle of COVID. And as part of that, and I've talked a little bit about this, to be able to benefit from this pretty significant kind of market expansion opportunity that we had with incredible robust data from COAB. You have to really start to work those patient referrals and the referral networks. And we began doing that when COVID took its first break and then that got put on hold again when...
Speaker 4: when Delta and Omicron served. So, I'm really looking forward, and the team is kind of already putting in place, you know, that strategy again to re-engage, you know, the patient referral network so that we can really take advantage of this indication, which is, you know, unique to us and will be unique to us for, you know, for a while.
Speaker 4: relating to competitive movements onto the market, we just gotta stay ahead. We've gotta keep on investing in the product, so we've done that with MitraClip, staying ahead and iterating and improving on the performance of the product. We're investing in new trials. I've talked about our investment that we're making in moderate risk surgery patients. That'll be a great opportunity for us.
Speaker 4: And we have a great team and we have great relationships in a strong, mindful position. So, not discounting the fact that we'll have competition. We've had competition in Europe for a couple of years already. Germany's probably the second largest global market and our position there remains at an 80% market share. So acknowledge that we will have competition, but we do...
Speaker 4: We do have a style that's this might role leadership position and we intend to defend it because of all the investments that we've made to create this market. So that's what I would talk about mightrically. I still think the best is still to come because I don't think we've been able to tap into the opportunity of the FMR indication. Regarding Amulet, listen, I think the team has done a really good job. Again, reiterate the same kind of comments.
Speaker 1: The U's launch is going to be excited for the? U's team. It'll be the only CGM with a subeight percent Mark, and that launch processesis underwaybut it is a little bit more gradual. So we're going to work to get on to pharmacy contracts, P BM contracts, managed are contracts, et cetera. So we're building inventory, we're familiarizing the physicians with the product. But given what I've seen in Europe , I think this is a a great opportunity for our? U's business which.
Speaker 1: Which byolated really well this quarter. Right, even even without lebreaky. 3, we grew fifty 3% in the second quarter and I actually think that we can maintain that 30% to 40% growth rate in the U's even without lebreak 3, So I think that's going to be an important growth driver for us towards the end of the year and as we go into 2020. 3- I do think Larry, that CGM is a little different. I mean we have in devices but but the model, at least in the U's, is the.
Speaker 4: in February and March and the team has definitely had a really strong exit to Q1 caught up in terms of all the contract closes that we had established as part of our plan in Q1. So I think the commercial execution is doing really well and that's supported really by the performance of the product. And we have once physicians have had an opportunity to get a couple of these implants done. It's a little bit of a different technique but they feel comfortable with it.
Speaker 1: Question on vitamin C fix. Yes, we have done the work to be able to address that. We've made very good progress, So I'm going to provide further updates over time, but obviously this relates only to the? U's we're actually to be launching in an AID system in Europe with our partners in Europe in Q4, with with librea 2, So but you'll get more, more updates on that.
Speaker 4: whether they're big leaks or whether they're small leaks. They do matter and even the small leaks were associated with an increase in thromboembolic events. So I think we're in a good position now with Amulet. I'm pleased with the commercial team and what they're doing, the clinical team. And we've got opportunities here to grow. I think momentum is building with Amulet.
Speaker 1: I think that the exciting piece on the pump connectivity though is what we announced in June at the ADA with a with a dual sensor of glucose keone sensor that underdevelopment. It's received breakthrough designation from the F da. The scientific advisices that I've spoken to both in the U's international believe that this is going to become the go to sensor for for pump connectivity and just because of the ability to bring in the keone measurement and perfect.
Speaker 9: Thanks for that trail, that color, appreciate it.
Speaker 1: Thank you. Our next question comes from Larry Beagelson. From Lowe's Cargo, your line is open.
Speaker 8: Good morning, thanks for taking the question. So Robert, two high-level questions for me. One, I'll push my luck a little bit and see if we can get any preliminary thoughts on 2023. You're getting a meaningful testing benefit this year, which may not materialize next year. So how do you feel about your ability to grow margins and earnings next year if testing demand drops? And I had one follow-up.
Speaker 4: Sure. Well, we had a really strong quarter regarding testing, Larry. And I think to answer your question, I think you have to kind of look at what's going on a little bit right now in the US and internationally. In the US, we saw cases decline pretty significantly in February , but I think we all agree that some of those cases that are being reported aren't covering all cases because of the use of the at home testing systems that are currently available. So I think that's part of the process.
Speaker 1: And then there were some FX headwind that impact a lot of our international businesses. So.
Speaker 2: It's. I covered all the ALT.
Speaker 2: That that was very comprehensive, really appreciated. Now, just just for my thought Robert, I know have ve asked this a lot on on recent calls, but you, you're sitting on a lot of cash and you know we have seen a recent- you know- rerating evaluations. So are you starting to see more opportunities, any color on on deal size that you're looking at? And I think some investors you know are saying: you know when COVID-19 testing comes down, you know you might have a, a gap, you know in terms of earnings that.
Speaker 2: You need to faill. So how important is it to find an accretive deal to offset potential decline in incobetestic?
Speaker 1: Well on the COT testing side, I mean, I guess we'll have to kind of see how how things play out right now. I mean, I guess that was the same comment last year and, as I said, we're selling more. We're probably selling more what we sold, ING more in the first six months here versus last year. So regarding your comment, though on the MA side I don't think anything's really changed there. I mean, obviously valuations have obviously come down somewhat and and we've got the capacity.
Speaker 4: about surveillance and screening and checking. So, and I think our product has done really well here. It's maintained, that kind of preferred status here in the U.S. Even with a pretty significant increase in product coming into the country, whether it's its ease of use, its shelf life, the reliability it has, its studies, etc. So I think that that's an important aspect as we go into 2023, is that we have confidence that even in an endemic state.
Speaker 4: does testing continue. And I would say, yeah, it does continue. One portion that doesn't get a lot of attention is our international testing business. 50% of our sales in March of COVID test came from the international markets. And I'd say similar sense there of governments investing in testing and coming to Abbott as one of the preferred suppliers. So I think that to answer your question.
Speaker 1: Its and had have they gone to the right point given given some of these macro environments that re going to be playing out. So I think I think the market needs to stabilize for a period of time here. Larry before I think a lot of management teams and and their boards become more comfortable with the reset of their valuations and their financial outlooks that being said Yeah I'd say the level of the level of study. The level of review. The level of.
Speaker 4: Obviously, there's a certain amount that you can't overcome, right? But I do think that as we go into next year, we'll have a portion of our testing business that will look more like a flu kind of respiratory kind of endemic state. And I think that's going to be important as we continue to grow earnings. And then on top of that, like I said, the focus of our medical device business, the investments we've made in our.
Speaker 1: Analysis on potential targets has definitely increased over over the past four or five months here and I've been clear about the areas that we're looking at and the kind of types of transactions. We would be interested of but it always goes back to does. It make sense strategically and does it make sense financially. So.
Speaker 2: I thanks for that. thankice for yes.
Speaker 2: Thanks for taking the questions.
Speaker 3: Thank you and our next question will come from Joanne onech from City and your line is now open good morning and thank you for taking the questions I'm going to put them on front. Some questions regarding your structural heart franchise could you give a sort of a state of the Union or update on where you are on. Key products micro clip Portico and Amulet and then just as a follow up. The previous question could you remind us where you are on share repurchases and your.
Speaker 4: market. And then our base business is going to do very strongly next year with all the investments we've made, a new product pipeline that we've got.
Speaker 4: That's adorable. Robert, you're in a unique position with your strong balance sheet. I saw you mentioned on the call, you bought back, I think, $2.5 billion in stock this quarter. What are your updated thoughts on an M&A? And if you can't find attractive assets, are you gonna continue to return cash to shareholders like we saw this past quarter? Thank you. Sure, on the M&A side, yeah, I mean, I'll, you know, sound like a broken record here, Larry. I mean, we're always looking, we're always studying, we're always looking at ways to be able to add to the company.
Speaker 1: To the trends that we're hoping for. We've got an expansion of the amount of accounts that are using the product and also an expansion on the amount of implantters that are completing and performing this procedure, and one of the challenges we had in the beginning and was just really to get the implant trained. We needed proctors and and, as you remember, in November , December of January and February , there's a lot of challenge with travel, So that's actually.
Speaker 1: Looking really nice in terms of in terms of the ramp there. What I'm very encouraged about is the traction we're seeing from the early adopters, So some of those that began the training and implanting in Q4 of last year. Their utilization is more than double that of the average- the average users. So So we're seeing both things in terms of driving the sales there, the increase of new accounts.
Speaker 1: And then the increase in productivity and utilization of the existing implters on the on the Portico side or on the taabber side. Sales have been strong, especially in Europe where we've introduced navatory, which is our next generation tabber system. It's competitive device from a clinical profile in higher risk patients. I estimate right now, we estimate right now- that we're about a high.
Speaker 1: andi expect to see an approval- an opportunity for us to launch into the tapper market here in the U's and on micro clip. This was a tough con for us this quarter, last quarter, last year. It was the highest quarter we've ever had in terms of procedures, in terms of sales. So there's no doubt that this one here is probably a little bit more impacted by by cooded.
Speaker 1: And some of the health care staffing challenges and the rescheduling of procedures. So I expect these dynamics to steadily improve over time and, as I said previously, I don't think we've fully benefited yet from the, from the indication expansion that we received for the functional Mr. So the market still remains remains pretty underpenetrated and there's a lot of opportun for growth there. So a lot of activity in our structure, art business, a lot of good performance.
Speaker 1: And I just expect that to get better over the next couple of quarters.
Speaker 1: I just expect that to get better over the next couple of quarters. And then, what was your other question?
Speaker 3: It had a you on share repurchases, use of cash. If you're not using you from a thank you.
Speaker 1: Oh sure well, with thisen, and we've always kind of had a balanced approach for deploying our cash. We're mindful of our cash on hand. We're investing in the dividend and we've been growing that dividend, and that's an important part of it. We're investing in the capacity expansions in severar areas: librea electrophysiology microclip, nutrition and.
Speaker 1: We bought back shares in the first half of the year and something that we'll continue to assess as we go through the second half year. So So the approach towards our capital allocation is pretty balanced and we're committed to the dividend. Some share buybacks in the first half we'll continue to assess in the second half and there is great opportunities for us to continue to invest organically to be able to drive the organic part of the business.
Speaker 4: Thank you.
Speaker 5: Thank you.
Speaker 3: Our next question will come from vj Kumar, from evercorre I. your line is open.
Speaker 2: Hi roberard thanks for taking my question and combat are now on a strong through Q here one up on the South guidance. Here when look at the base AP floor for fiscal 22 four and 90 you guys didared that close to 315 of earnings in first half. So the implied earnings for back half is.
Speaker 2: The floors per dollar 74. that's annualizing for about 350 ASH.
Speaker 2: Is there I guess that 174 for back half that's below the back half of two thousand and nineteen and.
Speaker 6: I'm wondering, between FX inflation, is there something else that's going on here where we still have covert revenues flowing through in the back half? It seems a little light on the EPS guidance.
Speaker 7: May yes, is boti'll take that call question? I think it's. I think using an implied kind of fourth quarter exit rate as an indicator, kind of how we're thinking about 23, probably would be prudent at this point. There's obviously a lot going on in the macro environment that warrants further monitoring and assessment and on top of that there are a couple of swing factors are specific to us: strength of our COVID-19 testing business.
Speaker 7: That's provided us an awful lot of flexibility to reinvest back into our P now the last couple of years.
Speaker 7: But And so as part of our, as Robert kind of talked about, we'll see, kind of, how coa testing plays out. We continue to see very strong demand and so there's some element of that that we fully expect to stick around, and it's it difficult to pinpoint what that level is at this point of the year. As part of our revisiting process for next year, we'll take a close look at the overall cost structure, which Robert touched on, and our investment priorities.
Speaker 7: And as you know, we'll also work through an inuttral recall and making good progress, incrementally investing in. Robert talked about the fact that some of those investments will modulate over time or even go away, and so that, combined with recapturing share, we'll see the earnings power of that business ramp up over time. So and then finally, our pipeline has been highly productive.
Speaker 7: And especially in devices. And as we drive that growth, that's accretive growth overall to the Corporation. So those are big moving parts and as we start to thinkin about 2023, we'll incorporate all those elements ctive.
Speaker 7: And especially in devices, and as we drive that growth- that's accretive growth overall to to the Corporation. So those are big moving parts and as we start to think about 2023, we'll incorporate all those elements in our forecast next year. I guess I'll just add to that vj. So I mean we taltalk about the strength of the? U's dollar and the impact that we're having on a full year basis. It's pretty significant and a big portion of that impact.
Speaker 6: Nutrition at the base business did north of 7%, which is in line with the high single sort of trajectory, that's in less sort bak 10, the back half of midxing of the high sing that. So, like I said, I think we've got opportunity here. On the back half also, we've set a floor and again I'll just reiterate that this is where, contemplating all these puts and takes that we've been discussing, we feel confident in that floor number and we believe that.
Speaker 3: Our next question will come from Travis Steed, from Bank of America, and your line is now open.
Speaker 8: Hi good morning in the inter OK.
Speaker 8: Yes great. Just wanted to to ask a couple more on the the margin puts and put and takes and I know to a revious question. You mentioned a lot of like onetime costs and nutrition with contracts on top of inflation and efx. So just wanted to think about the commitment and ability to grow operating margin. You know, off this year's base margins. You know if the macro environment just remained stable I assume most of those nutrition and onetime investments go away later. This year's nutrition rum spot, the backup.
Speaker 8: But I don't. There's otherle that you pu in the Marin line and also'm not sure about this year's fpex had when how much of those nurally carry over into next year- that some of the J kind of flag for people.
Speaker 1: Yes is T the commitment to grow. The commitment to grow the operating margin is always there've. We always shoot for that growth. You had a big if there and that's the big if right, if the conditions remain the same. So I don't know what currency is going to going to look like next year. Bob can talk about that a little bit. But there are some of these costs. But I mentioned that I don't. I don't anticipate.
Having to fly in the amount forma that we flew in from overseas. I don't anticipate having to kind of pay those wick rebates on competitive, competitive product. We have a what it would call a steady investment profile on our Nutrition business. That I would say a little bit out of profile in the next quarter or so because we want to make sure that as product coming back that we can.
Work to regain our share and we've seen some of that share regain the last couple of months. I mean, from the start of the recall, we lost about half of our IMF share and off that half that we lost over the last couple of months we've ve've regained half of that back. So So some of these costs, like I said, are more onetime in nature. On the FX side, I don't know have a commenton there. Well, I guess I'd say history is tonus.
Into next year.
Obviously there's a long way to go, So we need to see how things play out and as part of our planning process, we always look for opportunities to mitigate currency impacts as best we can.
No Thank you for additional color. Helpful, didn't want to make sure. Heard you right. It's some what you're going to launch on aid aid influencesof some in Europe . Would we wrate to I by Q4 and I don't. If you do want to say like who that partner is or what that products might like in any form or fashion.
Yes think we made an announcement about the partnership several, about a month, month and a half ago. So yes, that's with some Ed, a local, a local European manufacturer and another partner. So our target is to. Our target is be able to launch that by the end of the year in Europe .
Ok no, great Thanks a lot to the questions.
We'll take one more question.
Thank you, and our last question will come from adjacason Bedford, from Raymond James, and your line is now open.
Hi good morning and thanks for taking the questions. Just a couple first on the infant nutrition and the manufacturing ramp here: is there any way to frame where you are today and when you feel like you'll be back to full production levels- and obviously I'm just thinking in the context of where you were last year and potential profit recapture in this segment?
Sure as I said we restarted in July first and we began production of the specialty formulas. The production of the similacquity our more base formula I mean where.
We're very close to that Jason what I would say I don't want to necessarily kind of put an exact date here. But we're not talking. We're not talking months. We're not talking weeks. So So we're very close there and we obviously have a team that's ready to go and to ramp up. We know that we're going to have to work hard to shorten time between manufacturer and on shelf availability. So.
I'm assuming from a manufacturing standpoint, you should be pretty clean and twenty-th.ree.
Yes that's our expectation. I think the debate on 23 is predominantly market share, and then there might be a little bit of market also in terms of understanding how much of the growth in today's market is inventory build. We have seen an increase in birth rates, So that that's another opportunity also for to maybe to offset that.
So but yes, I think it's mostly about market share, market share recovery and, like I said in the previous question, I think we've done pretty well about using our network to be able to regain the market share that we had lost in those first couple of months.
So yes it's it's really about looking at our share and share recovery which is why as I said we've made some investments dink over the next three four or five months here to be able to put us in in that right position. In 2023 So.
So I just close the call here. Obviously a lot of good questions, So that there is- there is, I guess, some uncertainty in the environment. It's pretty dynamic and I think that's going to be the same for a lot of companies.for rabbit specifically, our new product launches are performing very well, D pipeline is strong and, as I said, our financial health is also strong. We're making progress.
In nutrition to drive share recovery and our adult business and international growth opportunities still remain still remain very strong. The cardiovaster portfolio device portfoliothere is growth that continues to recover albeit not at the same level that we had forecasted back in April . But I do expect that samerecovery trend it's not as leaner as we would like or is what we've historically had but.
Ultimately, I do believe that the segment will continue to grow and recover. Ed and librea continue to perform very well and in diagnostics I get that coed testing is a big portion of of the equation here, but I just remind ourselves to where we were last year and what we thought was going to happen last year, and and right now all the data shows that testing is still here. Cases are up.
Our test sales are actually up and our test have done very well from a brand and become somewhat of a preferred format over here. So as I look to the second half of the year I anticipatesome of the macro challenges to continue in some cases be tough and in other cases hopefully we will see some easing on there but.
Our diversification is very unique and that's what's held up very well. We're navigating the macro headwinds, we're investing in our growth platforms and we raise our guidance for the full year, and I think that's a rarity in this environment and it speaks to the strength of the portfolio and and the execution in our ability to manage and leverage the portfolio. So with that we will wrap up and thank you for joining us today.
Thank you operator, and thank you for all of your questions.
This now concludes avbot's conference call. A webcast replay of this call will be available after 11 aam central time today on avbot's Investor Relations website at avbot Investor com. Thank you for joining us today.
Thank you. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone. Have a wonderful day.
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I would now like to introduce MR scotline and weaber, Vice President, 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 bunk, Executive Vice President finance and Chief Financial Officer.
Robert and Bob will provide opening remarks.
Following their comments. We'll 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 1995, including the expected financial results for 2020 -two.
abbo 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 competitive governmental, technological and other factors that may affect abbot' operations are discussed in item one -a risk factors to our annual report on Form 10-K for the year ended December thirty-first 2021.
avt 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 evits's ongoing business performance.
These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at EBIT com.
Note that evence has not provided the GAAP financial measure for organic sales growth on a forward-looking basis.
Because the company is unable to predict future changes in foreign exchange rates which could impact reported sales growth.
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 Rock.
Thanks Scot. Good morning everyone and thanks for joining us today. We reported results of another strong quarter.
Earnings per share were dollar and 43 cents.
Reflecting more than 20% growth compared to last year.
Sales increased nearly 14% point a half percent on an organic basis in the quarter.
Led by growth in established Pharmaceuticals, diagnostics and medical devices.
Based on our performance through the first six months.
We increased our earnings per share guidance to at least $4 and 90 cents for the full year.
This speaks of the strength and resilience of our diversified healthcare model, as well as strong execution in this challenging macro environment.
We've continued to advance our RD pipeline and strengthen our long-term growth platforms with several new product approvals.
Our supply chain has remained resilient.
And our financial health remains strong.
I'll now summarize our second quarter results in more detail before turning the call over to Bob.
I'll start with established Pharmaceuticals, or Ed, where sales increased more than 9% in the quarter.
Strong performance. This quarter was led by double-digit growth across several countries, including China Brazil Colombia, Mexico and Vietnam.
Epd continues to execute and perform at a very high level in a dynamic environment.
Achieving double-digit organic sales growth over the past year and a half, including more than 11% organic growth for the first half of this year.
Moving to diagnostics.
Where sales grew over 35% in the quarter.
Cot test sales were $2.3 billion in the quarter, more than 95% of which came from rapid tests, including byyx, now in U's pambio internationally, and ID now globally.
As we had predicted some time ago, rapid testing has become widely accepted and is proven to be a very important tool in combatating the virus, due to its affordability and accessibility, including at-home testing.
And while vaccines have been shown to play an important role in reducing severity of outcomes, with the emergence of new variants that escape immunity, rapidess have become the best tool we have to help people quickly and easily identify new cases in quarantine to help slow and prevent transmission. As you know, forecasting COVID-19 testing demand beyond the near term has been challenging.
As such, our forecast in the next few months contemplates a modest, approaching endemic-like amount of testing sales. We are in regular discussions with governments around the world, including the U's, for surveillance testing needs and to ensure capacity available already if we see another serves this winter.
As such, our forecast for the next few months contemplates a modest, approaching endemic-like amount of testing sales. We are in regular discussions with governments around the world, including the? U's, for surveillance testing needs and to ensure capacities available ready if we see another serves this winter, if that were to happen.
We have a lot of manufacturing capacity in the U's and internationally to help meet testing needs.
I'll now turn to nutrition where, as you know, we initiated a voluntary recall in February of certain infant formula products manufactured at one of our? U's facilities.
Earlier this month we resumed partial production at that facility, starting with our specialty formula eicare, and metabolic formulas.
We are in the final phase of testing to restart simlac production. As a reminder, once we begin production it takes several weeks for product to reach store shelves.
That said, we will do everything possible to accelerate delivery of product to retailers So families can have access to the formula they need as soon as possible.
We've already started to see some share recovery at retail over the past couple of months.
As we leverage our global manufacturing network to increase supply to the? U's, including importing product from our FDA registered plant in Ireland.
We also began importing product from Spain after receiving important discretion from the FDA that expanded the allowance for imports.
As I said in April , it's important to note that the results of the investigation from the FDA, CDC and abboid concluded no evidence linked our formulas to any infant illnesses or debt and there is no new information to suggest otherwise.
We take this matter very seriously and we're making a number of enhancements to our operations at the impacted manufacturing plant.
Very seriously and we're making a number of enhancements to our operations at the impacted manufacturing plan. We're also.
Taking steps across our manufacturing network to expand capacity and redundancy.
We're committed to set the standard in industry on quality and safety and to reearn the trust of families that depend on us.
Across our broader nutrition business. Global sales and adult nutrition increased 5% in quarter, including more than seven point a 5% growth internationally, led by our market-leading enshore and blucerurnant of brandts.
Lastly, I'll wrap up with medical devices.
Where sales grew seven cent point a half percent in the quarter.
In cardiovascular devices. Sales growth was led by structural heart and heart failure.
While cardiovaster procedure trends continued to improve.
Growth in the quarter was somewhat more modest than what we had anticipated back in April due to several factors, most not, ably health care staffing challenges, COVID-19 surges and lockdowns in China that were implemented as part of their efforts to control the spread of the virus.
We expect these dynamics to improve in the second half of the year.
In diabetes care. Sales of FreeStyle libreak grew more than 25% on an organic basis in the quarter and our user base now exceeds four million users globally.
During the quarter, we continued to strengthen our medical device portfolio with innovative new products, most notably U's FDA clearance of our FreeStyle libreakthree continuous glucose monitoring system.
Which is the world's smallest and thinness worldirable glucose spensor that provides results with the highest level of accuracy in the industry.
And U's approval of a air, our leadless pacemaker for the management of slow heart rhythms.
thereir was specifically designed to be retrieevable if the if the device ever needs to be removed, and expendable to a dual chamber device which is currently under development, if the therapy needs evolve over time.
So in summary, our diversified healthcare model continues to prove highly resilient in a dynamic macro environment.
We're achieving strong growth across several areas of the portfolio and making good progress restarting our nutrition manufacturing facility.
And as a result of our strong performance through the first six months, we're raising our EPS guidance for the year.
I'll now turn over the call to Bob Bob.
Thanks Robert. As Scot 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.
As noted are on an organic basis, which excludes the impact of foreign exchange. Turning to our results.
Sales for the second quarter increased 14% on an organic basis.
Which was led by strong growth in diagnostics.
Established Pharmaceuticals and medical devices, along with global COVID-19 testing-related sales of $2.3 billion in the quarter.
And medical devices, along with global COVID-19 testing related sales of $2.3 billion in the quarterduring the second quarter.
Sales were negatively impacted by a voluntary recall and manumanufacturing shutdown in February of certain infant formula productsmanufactured at one of our U's plants.
Excluding COVID-19 testing related sales.
And the? U's sales associated with the recall products.
avt sales increased 6%.
On an organic basis in the second quarter.
Foreign exchange.
Had an unfavorable year-over-year impact of 4% and.
On second quarter sales.
During the quarter, we saw the U's dollar continue to strengthen versus several currencies, which resulted in a more unfavorable impact on sales.
Compared to exchange rates at the time of our earnings call in April .
Regarding other aspects of the penl, the adjusted gross margin ratio was 57% of sales.
Which reflects the impacts of the recent nutrition recall and incremental inflation we saw in certain manufacturing and distribution cost in the quarter.
Adjusted rmd investment was 6% of sales.
An adjusted SGNA investment was 24% of sales in the second quarter.
Lastly, our second quarter adjust a tax rate was 14% point a half percent.
Turning to our outlook for the full year 2000 and twenty-tune.
We forecast total company organic sales growth.
Excluding the impact of COVID-19 testing-related sales, to be in the mid to high single digits.
It is important to note, excluding products impacted by the nutrition recall.
We forecast total organic sales growth in the high single digits for the remainder of our combined businesses.
Which includes medical devices.
Established Pharmaceuticals.
Diagnostics excluding COVID-19 tesed related sales.
And areas of nutrition not impacted by the recall.
We forecast COVID-19 testing related sales of $6.1 billion.
Which includde year-to-date sales through June of $5.6 billion.
And projected sales of approximately $5 million over the next few months.
We will continue to update our COT testing-related sales forecast one quarter at a time, as appropriate.
Lastly, based on current rates, we would now expect exchange to have an unfavorable impact.
Of approximately 5% on our full year 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 touchstone telephone.
For optimal sound quality. We kindly ask that you please use your handset instead of your speaker phone when asking your question.
And again that start. Then one to ask a question.
Our first question will come from robie Marcus, from JP Morgan.
And your line is now open.
Great thanks for taking the question and congrats on a good quarter.
Robert maybe to start maybe I'll get a little greedy here since we we're only sitting in July and half of 2000. Y two is done but I think the focus for investors is quickly shifting to next year and there's a lot of moving pieces going on in 2000 and Twenty two A lot of assumptions we have to make in the go forward of 2000 and Twenty three where is COVID-19 testing how fast does nutrition come back and.
How steady can the device business be going forward? So you know there. There's a lot of uncertainty out there of where numbers should sit and you know how to start. Think about the business for next year. Any thoughts you have at this point would be really helpful.
Sure well, there is a lot of uncertainty for everybody regarding 2023. I think you've kind of highlighted some, some of the aspects as it relates to our business here, but the macro, the mroacro environment still is pretty challenging and I don't think it's unique to us.
Obviously there's significant inflation and seems like there's a pretty significant call, a kind a commodity supercycle for us. There's health care, staffing challenges- you ither about that- and then obviously a strong U's dollars. All those kind of combinations are the challenges that a lot of companies is going to face. And if you lookat a lot of the financial and consumer indicators- retail housing auto, et cetera- those tend to point to.
Very resilient in this kind of environment. So at a macro level. I think those are the headwinds that know we're all facing and roll be facing. You mentioned COVID-19 as a factor. Here you it's interesting last year. This time we were talking about how COVID-19 would know COVID-19 testing. We move away but we've actually we've actually shipped just as not of test in the first six months of this year. Compared to all of last year so.
I think that OB, we're going to need to see how the cases of all robie, especially during the the winter and fall months, over here, and obious. I don't think it's prudent to forecast a winter surge but, like I said, we've got capacity to be able to deal with that. So those are some of the key factors here that we're looking at. Nutrition that you mentioned, we're.
Recovering pretty nicely, I would say, versus where we originally thought we were going to be back in April - a lot of focus on restart the manufacturing site. We recovered already a good portion of the share that we lost, and obviously we continue to see that moving forward positively. So on the flip side though, what I would say is that we're not going to just sit still over the next couple of months and wait for these macro kind of factors here to play out right.
We're taking a very proactive approach on the elements that we can control and that we can impact. We're taking price where we can and we've seen that in our consumer based businesses. These are businesses, because of the strength of our brands, that we've been able to do that and passed that on. We're also looking at other areas that we can or that historically we haven't necessarily look that in terms of price. We're looking at in our cost truck. I've talked about this.
And previous calls to, and we've got a program in place. Now we're looking at our cost structure. The hurdles in terms of investment have obviously increased given this macro environment. We're not going to put any risk to our long-term growth platforms, but we're definitely looking at our cost structure and see where we can, where we can improve. And inventory is important as we move into this inflationary period here, So we're ensuring that we've got the right amount of inventory. So I put all that together.
robviie, we've got macro headwinds that everybody else has regarding nutrition. I think our performance is well aligned to where we planned and where I see us ending up into the years. It ultimately where our forecast.
The forecast that we laid out, COVID-19 testing is one that to simply assume that there won't be any COVID-19 testing next year. We've never belie that. The question is just your ability to forecast beyond three to six months. That's the challenge. So fundamentally, I think our business is remains very strong. We've got leading positions in attractive long term growth market, strong pipeline and sure we'will talk about some of that today. Also got a lot of ongoing.
Bit and this is something we're hearing from basically everyone that in inflation supply chain ETC you know' you're in this enviable position where you've probably grown operating margins more than anyone else in med techx since the start of COVID-19. A lot of that has been from the benefit of COVID-19 testing sales which are at healthy margins and still healthy reinvestment against that. So you know as we think about your operating margins going forward and you reevaluating your.
I guess I would say on the cost structure piece I don't necessarily fully agree with you that the way you characterize it in terms of COVID-19 being the, you know, the ultimate driver here, I think we made a lot of progress on our gross margins historically, whether it was you- in devices and in Nutrition. So as the TRU, as the device business, continues to grow, that that profile of that business is accretive and you know, you've seen our growth rates in that business over these.
And diagnostic. Yeah, there's there's some, you know there's some, there's some noise that happens here with one supplier or another supplier and we deal with it. But you know, the real challenge we've had, I would say, over the last kind of 6, six months here's been on the on the nutrition side and part of that is, you know, some of it, some of it is commodities. So we're going to have to see how those look like over the next kind of couple of months, seeing some slowing down of sort some commodities. But that's the biggest kind of driver there.
But the other part of the nutrition is, I would say, costs that I don't anticipate to be there next year. So, for example, we're paying weick rebates for competitive products since since April AC, since March when we when we initiated the recall, and as we restart production in the facility. I don't sume, I don't assume that that will continue. I made statements in my open comments about bring product than from overseas. We brought a lot of form of the.
From overseas and that's all airfreight and the story on freight distribution. So once that facility starts up and running I don't anticipate to see those same kind of freight expenses from overseas shipments and we put some money towards brand recovery. And I think that that was an investment that's necessary to get our share back position that we need as we go into next year so.
That being said, as I said, we're going to look at our cost structure, we're going to look at areas that have a higher hurdle now for passing an investment hypothesis or thesis, and we're going to- we'll take action where we need to take action. So let's how to characterize our margin. Great, I appreciate the thoughts. Nice, a lot.
As I said, we're going to look at our cost structure, we're going to look at areas that you know have a higher hurdle now for passing an investment hypothesis or thesis, and we're going to. You know we'll take action where we need to take action. So that's how it characterize our margin. Great, I appreciate the thoughts. Thanks a lot, thanks.
Thank you, and our next question comes from Joshua jnings, from cowan, and your line is now been: sirmorningthanks for taking the questions, and I was hoping to start with a follow up on the raise of the 2022 EPS guidance floor and just better understand the putins and takes and think there are some questions around the 30 cent, two Q and the two Y cent increase, again realizing that it is a floor, but seems like a lot of that.
Kind of 10 cent Delta is driven by the move by the? U's dollar in July . But just wanted to understand the puts and takes and how you guys arrived at the increase that you did at one fall sho yes, I think you'll cease. I mean, we've seen a lot of companies kind of beat there Q2 and either maintain their guidance for the full year or actually reduce it. And we looked at, we looked at our numbers very carefully.
And we basically looked at the strength of our base business. So to exclude an our nutrition, the parts of the nutrition business that was recallvers. We're growing high single digits and we continue to see that kind of growth rate going forward. So between the strength of the base business and the COVID-19 sales, we then felt that we had enough power here to navigate and pushed through some of these macro headwinds that are pretty significant. Inflation is a big element there.
We had some costs when we gave initial guidance in January . We increased that in our April call and we've assumed another couple hundred million dollars of inflation since that, since that number that we provided in April . So so that's one element that we're we're absorbing, I guessthe, but I would call health care staffing challenges: COVID-19 cancellations.
The lockdown issues that we saw in Q2 especially, I'd say, on our core lab business and nep in China, for example, those are, those are being absorbed also. And then currency, as you referenced pretty, pretty dramatic strengthening here of the? U's dollar. So we've assumed all of that and, as I said also to robie, we we've had to factor in some additional costs.
On the nutrition side, where the wiick rebate, the freight and distribution, some of the investments we're making to support share recovery. So you put those two together, those two elements together on the macro on the nutrition side and then you offset that with our base business and COVID-19 sales and those. That's really the element there Josh, and as you said, since the beginning of the pandemic we've gone to a at least floor like guidance here.
And that's what 490 is. It's a floor right now. Could that be better? Yes, could. There could be elements that could make that number be better. But on top of absorbing all these incremental headwinds here- inflation, currency- making some of the investments we need on nutrition, we're still able to raise our raise, our full year guidance.
Thanks for Robert and just one follow-up on the medical devices business and it's encouraging to hear you talk about improvement in the back half and did have that tough comp two -q. but are you able to share any high-level color? Just on electric procedure trends.
Throughout the quarter into Q, just month over month improvement that you see and then anything you can share on color in July . And just wondering, caut out a couple of hevens you just saw to Q for hospitals and the challenges that they're facing to accelerate electic procedure volumes in the second half. But what do you think the biggest challenges is and do you think the hospitals are well equipped to overcome those? Thanks, thank again for takingant questions.
sureort I think you mentioned there I mean Q2 Q2. Last year was a pretty significant revenue for a lot in medtech. So there is that comp aspect there but second quarter procedures and volumes. If I look at abbot procedure volumes and sales. They're actually higher than prepandemic levels and there was sequential growth from Q2 to Q1 over 7% in the U's and and a little bit lower internationally. So.
So the aspect here is that we are seeing growth and but it was a little bit more modest than what we had anticipated back in April . Right, and I think there's really three factors, that one of them, as I said in the U's specifically, I think the staffing challenges were a factor there and as people tested positive while they didn't have to go to the hospital and they could just stay at home, that had an impact in some of the procedures that there's a little bit more planning towards. So the good news, as we know.
The third factor for us was, you know, we had some back order and that was really due to the timing of input material availability. So you know, in terms of when you receive the of the materials to build, to build the product, now we are building inventory and I don't anticipate that to be the case going for in the second half. So So those are really our fact. Know those really the facts that that you know, had our device business a little bit more modest than what we?
Will happen, So I think that that will get better, also as the hospitals understand these dynamics. So I'm excited about the device portfolio in terms of the second half, not only because of some of these issues which I think will get better, but also because of our pipeline and the products we're launching and the execution.
krect, thanks go.
Thanks again, Thank you.
And our next question will come from Larry baggelson.
From Wells Fargo, and your line is now open. Good morning guys. Robert, can you okay?
Yeah Yeah, it's got out a little bit, So so too for me. I wanted to, and thanks for taking the question. I wanted to start with lerea Robert. Just a multi part question here on Libre, another nice quarter any, you know what. How should we think about the librea three launch in the U's, who we expected to be kind of a gradual rollout like we saw with librea to, and how are you feeling about, you know, resolving the vitamin C interaction issue? It sounds like you guys have made some good progress there.
Then just lastly, international was a little softer than we expected. Is this just kind of a law of large numbers or is is just a timing issue in terms of the full rollout of leap breakthree? And I did have one follow-up?
Sure I think Li break 3- we're very excited. We've had very good success in Germany in terms of upgrading the base and then, with the benefits of libera 3, actually seeing some conversions from competitive systems. So the? U's launch is going to be excited for the? U's team. It'll be the only CGM with a sub 8% marred and that lackch processesis underway but it is a little bit more gradual. So we're going to work to get.
On to pharmacy contracts PBM contracts managed care contracts et cetera. So we're building inventory. We're familiarizing the physici with a product but given what I've seen in Europe . I think this is a a great opportunity for our U's business which which by atedited really well this quarter right. Even even without Le break three we grew fifty 3% in the second quarter and I actually think that we can maintain that 30% to 40% growth rate in the U's even without Le break three So I think that's going to be an important growth driver for us towards the.
Consumers are going to be looking more closely at managing their expenses, I think the value proposition of Le BRE ates's going to be even stronger. Regarding your question on vitamin C fix yes, we have done the work to be able to address that. We've made very good progress. I'm going to provide further updates over time but obviously this relates only to the? U's. We're actuallygoing to be launching in a ID system in Europe with our partners in Europe in Q4 with would lebreate to.
For pump connectivity and just because of the ability to bring in the keone measurement and perfect even more those algorithms. So I think this is going to be an ideal sensor for existing pump companies and even for and even for new pump manufacturers. Regarding a question on international, there's a little bit of timing there, I would say with two parts, a little bit of timing from in Germany as we convert to lebreak through.
And the mechanisms in place there and then there were some FX headwind that impacted a lot of our international businesses. So.
That's a co that was very comprehensive, really appreciated. Just just for my thought Robert, I know have've asked this a lot on on recent calls, but you you're sitting on a lot of cash and you know we have seen a recent- you know- rerating evaluations. So are you starting to see more opportunities, any color on deal size that you're looking at? And I think some investors you know saying you know when COVID-19 testing comes down, you know you might have a a gap, you know in terms of earnings that.
You need to faill. So how important is it to find an accretive deal to offset potential decline in cobotestic?
Well on the COT testing side. I mean, I guess we'll have to kind of see how how things play out right now. I mean, I guess that was the same comment last year and, as I said, we're selling more. We're probably selling more what we sold, ING more in the first six months here versus last year. So regarding your comment on the MA side, I don't think anything's really changed there. I mean obviously, valuations have obviously come down somewhat and and we've got the capacity, as you said, in our balance.
And had had they ggotten to the right point given given some of these macro environments that didn'to be playing out. So I think I think the market needs to stabilize for a period of time here, Larry before I think a lot of management teams and and their boards become more comfortable with with the reset of their valuations and their financial outlooks. That being said Yeah, I'd say the level of the level of study, the level of review, the level of analysis on potential targets has definitely increased over over the past.
Line is now open. Good morning and thank you for taking the questions. I'm going to put them on front. Some questions regarding your structural heart franchise. Could you give a set of the state of the Union or update on where you are on some key products- micro clip, Portico and amulet- and then, just as a ffollow up to the previous question, could you remind us where you are on share repurchases and your view towards, if you're not using the cash for M a, what you will be using the cash for? Thank you, your on the structural heart side.
Talked about out. This is such an important division for us in the focus that we've had there. So I'd say, on Amulet, we've had a very good quarter in amlett, aligned to the aligned to the trends that we're hoping for. We've got an expansion of the amount of accounts that are using the product and also an expansion on the amount of implantters.
That are completing and performing this procedure. one of the challenges we had in the beginning an was just really to get the implant train. We needed proctors and and, as you remember, in November December , January and February there's a lot of challenge with travel, So that's actually looking really nice in terms of in terms of the ramp there. What I what I'm very encouraged about is the traction we're seeing from the early adopctorters. So some of those that began.
The training and implanting in Q4 of last year. Their utilization is more than double that of the average of the average users. So So we're seeing both things in terms of driving the sales there: the increase of new accounts and then the increase in productivity and utilization of the existing implters. On the on the Portico side or on the tabber side, sales have been strong.
Especially in euro where we introduce navator, which is our next generation tiber system. It's a competitive device from a clinical profile in high risk patientsi estimate right now. We estimate right now that we're about a high single digit. But when we look at the centers that are using navator and it navorors, probably about 40 40, five percent of the centers in EU shares in the mid-teens.
And that's very encouraging, also because navator, being our second product, has really been an improvement for porticgo and, as you know, we filed that in the U's in October of last year at the PMA. Expect that to be the case. I expect to see an approval, an opportunity for us to launch into the taabper market here in the U's at on Mitro clip this a this was a tough con ceus this this quarter, last quarter last year.
There was the highest quarter we've ever had in terms of procedures, in terms of sales. So there's no doubt that this one here is probably a little bit more impacted by by COVID-19 and some of the health care staffing challenges and the rescheding of procedures. So I expect these dynamics to steadily improve over time and, as I said previously, I don't think we've fully benefited yet from the, from the indication expansion that we received for the functional MR.
Sure well we've listen. We've always kind of had a balanced approach for deploying our cash. We're mindful of our cash on hand. We're investing in the dividend and we've been growing that dividend and that's an important part of it. We're investing in the capacity expansions in severar areas. Libra electrophysiology microclip nutrition and.
We bought back shares in the first half of the year and something that we'll continue to assess as we go through the second half year. So So the approach towards our capital allocation is pretty balanced and we're committed to the dividend. Some share buybacks in the first half will continue to assess in the second half and there is great opportunities for us to continue to invest organically to be able to drive the organic part of the business.
Thank youthank you. Our next question will come from vj Kumar, from evercorre ISI. Your line is open.
Hi rorowberard, thanks for taking my question and combats on a strong through Q here. one on the South guidance here. When look at the base out floor for fiscal 22, four and nin, you guys didared that close to 315 of earnings in first half. So the implied earnings for back half with the floors a dollar seventyty-four, that's annualizing to about three and 50 years, is there, I guess that one hundred seventy four for back half, that's below.
The back half of 2019. I'm wondering between FX inflation, is there something else that's going on here where we still have covert revenues flowing through in the back half? It seems a little light on the EPS guidance. Maybe you BOI'll take that call question. I think it's.
I think using an implied kind of fourth quarter exit rate as a indicator, kind of how we're thinking about 23- probably wouldn't be prudent at this point is obviously a lot going on in the macro environment that warrants further monitoring and assessment and on top of that there are a couple of swing factors are specific to us: strength of our COVID-19 testing business. That's provided us an awful lot of flexibility to reinvest back into our P now the last couple of years.
And so as part of our and as Robert kind of talked about we'll see kind of how COVID-19 testing plays out we continue to see very strong demand and so there's some element of that that we fully expect to stick around and it's just difficult to pinpoint what that level is at this point the year but as part of our bvisudgetiting process for next year. We'll take a close look at the overall cost structure which Robert touched on and our investment priorities and as you know.
We'll also working through the inical recall and making good progress, incrementally investing in. Robert talked about the fact that some of those investments we will modulate over time or even go away and so back, combined with recapturing share, we'll see the earnings power of that business ramp up over time. So and then finally, our pipeline has been highly productive.
And especially in devices. And as we drive that growth, that's accretive growth overall to the Corporation. So those are big moving parts and as we start to think about 2023, we'll incorporate all those elements ctive.
And especially in devices, and as we drive that growth- that's accretive growth overall to to the Corporation. So those are big moving parts and as we start Thin about 2023, we'll incorporate all those elements in our forecast next year. I guess I'll just add to that vj also. I mean we taltalk about the strength of the? U's dollar and the impact that we're having on a full year basis. It's pretty significant and a big portion of that impact.
Is actually forecasted to happen in the second half of this year. So that also plays a role, together with the inflation aspects that we're facing. So that's really the challenge. That's helpl point maybe one last 1, not the second half- of base business guidance msimulated to high singsimuldits. A look at two Q, ex China and nutrition at the base business did north of 7%, which is in line.
With the high single sort of a trajectory that's in less or bakke in the back half of mixing of the high sing that. So, like I said, I think we've got opportunity here on the back half also, we've set a floor and again I'll just reiterate that this is where contemplating all these puts and take that we've been discussing, we feel confident in that floor number and we believe that there's opportunities here for upside to that.
abjo just says as bobsetting his prepared remarks: excluding nutrition, we expect high single digits for the kind of remainder of the businesses to your points. So the math you're doing there is right, that's helpful. With cost to the guide is, as you're maing, some impact in the back. That's helpful. Thanks, guys.
Thank you, and our next question will come from Travis Steed, from Bank of America, and your line is now open.
Thank you, and our next question will come from Travis Steed, from Bank of America, and your line is now open. Good morning, you interok.
Yes great. Just wanted to to ask a couple more on the, the margin puts and put and takes. And I know to a all these question you mentioned a lot of like onetime costs and nutrition with contracts on top of inflation and efx. So just wanted to think about the commitment and ability to grow operating margin. You know off this year's base margins. You know if the macro environment just remain stable I assume most of those nutrition and onetime investments go away later. This year's nutrition R spock the back up.
But don't there's any other levers that you can pu in the Marin line. And also, I'm not sure about this year's OpEx said when how much of those nurally carried over into next year. But some of the J kind of flagats for peopleyes, the commitment to grow, the commitment to grow the operating margin is always there. We've, we always shoot for that growth. You had a bigg if there and that's the big if right, if the conditions remain the same. So I don't know what currency is going to.
Going to look like next year. Bob can talk about that a little bit. But there are some of these costs. But I mentioned that I don't. I don'don't anticipate having to fly in the amount of former that we flew in from overseas. That don't anticipate having to kind of pay those wick rebates on competitive, competitive product. We have a what it would call a steady investment profile on our Nutrition business. That I would say we re a little bit out of profile in the next quarter or so because we want tomake.
I guess I'd say history is Thomas that rates rarely, if ever, hold for a long period of time.
So trying to pinpoint kind of an accurate projection for next year at this point is pretty challenging. There's an awful lot of moving parts as you know: different central banks taking different rate actions, different strengths of economies, et cetera. That said, at a high level, based on kind of where we're at today, a decent portion of the impact we're seeing this year will carry into next year.
Obviously there's a long way to go, So we need to see how things play out and as part of our planning process, we always look for opportunities to mitigate currency impacts as best we can.
No Thank you for additional color helpful. I didn' want to make sure heard you right. It's some what you're going to launch on aid aid influencesof some in the in Europe would be wrate to. But Q4, and I 't know if'you're willing to say like, who that partner is or what that product might look like in any form passashion.
Yes I think we made an announcement about the partnership several about a month, month and a half ago. So yes, that's some Ed, a local, a local European manufacturer and another partner. So our target is to our tget to be able to launch that by the end of the year in Europe . Okay, no great. Thank for lots of the questions.
Operator will take one more questions. Thank you, and our last question will come from adjason Bedford, from Raymond James, and your line is now open.
Hi good morning and thanks for taking the questions. Just a couple first on the inant nutrition and the manufacturing ramp here: is there any way to frame where you are today and when you feel like you'll be back to full production levels- and obviously I'm just thinking in the context of where you were last year and potential profit recapture in this segment?
Sure as I said, we restarted in July first and we began production of the specialty formulas, the production of the similarac, call our more base formula. I mean where.
We're very close to that Jason what I would say I I don't want to necessarily kind of put an exact date here. But we're not talking. We're not TAL months re not talking weeks. So. So we're very close there and we obviously have a team that's ready to go and to ramp up. We know that we're going to have to work hard to shorten time between manufacturer and on shelf availability. So.
There's a team that's specifically dedicated to working on accelerated that time frame also. So So I like we're at and we'll continue to use our global network to be able to augment those efforts of share recapture.
So Robert, when we look at 23 for U's feed, is it the debate just around market share? And I'm assuming from a manufacturing standpoint it should be pretty clean in twenty-threeyes. That's our expectation. I think the debate on 23 is is predominantly market share, and then there might be a little bit of market also in terms of understanding.
How much of the growth in today's market is inventory build. We have seen an increase in birth rates, So's that's that's another opportunity also for to maybe to offset that. So but Yeah, I think it's mostly about market share, market share recovery and, like I said, the previous question, I think we've done pretty well about using our network to be able to to regain the market share.
So I just close the call here. Obviously a lot of good questions, So that there is- there is, I guess, some uncertainty in the environment. It's pretty dynamic and I think that's going to be the same for a lot of companies. For rabbit specifically, our new product launches are performing very well. Our D pipeline is strong and, as I said, our financial health is also strong. We're making progress in Nutrition to.
To drive share recovery and our adult business and international growth opportunities still remain. Still remain very strong. The cardiovaster portfolio, device portfolio. There is growth that continues to recover, albeit not at the same level that we had forecasted back in April , but I do expect that same recovery trend. It's not as leaner as we would like or is what we've historically had, but ultimately I do believe that.
The segment will continue to grow and recover EPD and Libra continue to perform very well and in diagnostics. I get that coateded testing is a big portion of of the equation here. But I just remind ourselves to where we were last year and what we thought was going to happen last year and and right now all the data shows. That testing is still here cases are up. Our test. Sales are actually up and our test.
Have done very well from a brand and become somewhat of a preferred format over here. So as I look to the second half of the year, I anticipatesome of the macro challenges to continue in some cases be tough and in other cases hope we will see some easing on there. But our diversification is very unique and that's what's held up very well. We're navigating the macro headwinds. We're investing in our growth platforms.
And we raise our guidance for the full year and I think that's the rarity in this environment and speaks to the strength of the portfolio and the execution and our ability to manage and leverage the the portfolio. So with that we'll wrap up and thank you for joining us today. Thank you operator, and thank you for all of your questions.
This now concludes avbot's conference call. A webcast replay of this call will be available after 11 aam central time today on bot's Investor Relations website at avbot Investor com. Thank you for joining us today.
Thank you. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone. Have a wonderful day.