Q4 2024 Abbott Laboratories Earnings Call
Speaker Change: Good morning and thank you for standing by. Welcome to Abbott's fourth quarter 2024 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star one one keys on your touchtone phone.
This call is being recorded by Abbott.
Speaker Change: With the exception of any participants questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott Express written permission.
Mike Comilla: I would now like to introduce Mr. Mike Comilla, Vice President, Investor Relations.
Speaker Change: Good morning and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Phil Boudreau, Executive Vice President, Finance and Chief Financial Officer.
Mike Comilla: Robert and Phil will provide opening remarks. Following their comments, we'll take your questions.
Mike Comilla: 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 2025.
Mike Comilla: Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements.
Mike Comilla: 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 31st, 2023.
Mike Comilla: 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.
Mike Comilla: On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance.
Mike Comilla: 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 abbott.com.
Mike Comilla: Note that Abbott has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which the company is providing guidance because the company is unable to predict
Mike Comilla: with reasonable certainty and without unreasonable effort the timing and impact of certain items which could significantly impact Abbott's results in accordance with GAP.
Mike Comilla: Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in the press release issued earlier today. With that, I will now turn the call over to Robert.
Robert Ford: Thanks, Mike. Good morning, everyone, and thank you for joining us.
Robert Ford: First, I want to express gratitude to my Abbott colleagues around the world whose hard work and passion are the driving forces of Abbott's continued success.
Robert Ford: Abbott's commitment to innovation, operational excellence, and serving the needs of our customers resulted in another year of exceptional performance, which included achieving sales growth of 9.5% excluded COVID testing.
delivering 70 basis points of gross margin profile improvement.
Robert Ford: driving acceleration in the growth of our earnings per share throughout the year.
in developing and advancing new products through our rich pipeline.
the strong performance
Robert Ford: resulted in generating 8.5 billion dollars of operating cash flow which was used to reinvest in the business.
Robert Ford: fund capacity expansions, repay debt, and return $5 billion to shareholders in the form of dividends and share repurchases.
Robert Ford: These accomplishments played a key role in continuing our well-established track record for delivering on our financial commitments, which included achieving results that finished at the high end of our initial guidance ranges we provided for 2024.
Robert Ford: These results included exiting the year with a very strong momentum as fourth quarter sales grew 10 percent, excluding COVID testing sales, and adjusted earnings per share increased 13 percent versus the prior year.
Robert Ford: For 2025, we're well positioned to deliver another year of strong growth.
Robert Ford: As we announced this morning, we forecast organic sales growth to be in the range of 7.5% to 8.5%, and adjusted earnings per share to be in the range of $5.05 to $5.25, which reflects double-digit growth at the midpoint.
Phil Boudreau: I'll now summarize our fourth quarter results in more detail before turning the call over to Phil.
I'll start with nutrition.
Our sales increased 7% in the quarter.
Phil Boudreau: Growth in the Quarter was driven by double-digit growth in adult nutrition.
led by our market leading Ensure and Glucerna brands.
Phil Boudreau: We achieved a significant milestone last year with annual sales of insurers surpassing $3 billion.
Phil Boudreau: This achievement helped deliver another year of strong performance in adult nutrition with annual sales of adult nutrition products growing 9% last year.
Phil Boudreau: The five-year compound annual growth rate in adult nutrition is nine percent, which reflects the impact of our well-known and respected brands.
Phil Boudreau: favorable demographic trends and the significant investments we've made to expand manufacturing capacity to serve the growing global demand for our products.
moving to diagnostics.
where sales increased 6%, excluded COVID testing sales.
Growth in the quarter was led by rapid diagnostics.
where excluded COVID testing sales increased 16% in the quarter.
Phil Boudreau: This was driven by strong demand for our portfolio of respiratory disease tests used to help diagnose influenza, strep throat, and RSV.
Phil Boudreau: In core laboratory diagnostics, growth of 4% was driven by continued strong demand for a market-leading immunoassay clinical chemistry, hematology, and blood screening testing panels.
Phil Boudreau: excluding the impact of challenging market dynamics in China, the combined growth in all other markets was double digits in the quarter.
Turning to EPD, where sales increased 8.5% in the quarter.
Phil Boudreau: Growth was well balanced across market and therapeutic areas that we participate in, including gastroenterology, women's health, CNS, and pain management.
Phil Boudreau: EPD also delivered broad-based growth across the markets we serve, including double-digit growth in several countries across Latin America, Southeast Asia, and the Middle East.
Phil Boudreau: By focusing on the therapies most needed in these faster-growing markets, we continue to sustain our long track record of delivering strong growth, which includes a five-year compound annual growth rate for EPD of 8 percent.
Phil Boudreau: And I'll wrap up with medical devices, where sales grew 14%.
Phil Boudreau: In diabetes care, sales of continuous glucose monitors were $1.8 billion in the quarter and grew 23%.
Phil Boudreau: For the full year 2024, sales of continuous glucose monitors were approximately $6.5 billion and grew 22 percent.
Phil Boudreau: This included growth of 27% in the U.S. where our market share on a revenue basis has increased by more than 10 share points over the last three years.
Phil Boudreau: In electrophysiology, growth of 9% was well balanced across the U.S. and international markets. As expected, growth in the quarter was impacted by a challenging comparison versus the prior year, where we saw a sharp increase in demand for our end-site cardiac mapping systems as customers prepared for the launch of PFA catheters.
Phil Boudreau: Excluding the impact of this prior comparison dynamic, growth would have been double digits globally, in the U.S. and internationally.
Phil Boudreau: In structural heart, growth of 23% was driven by strong performance across our market-leading portfolio of surgical valves, structural interventions, and transcatheter repair and replacement products.
Phil Boudreau: Structural heart represents one of the most attractive areas in the field of medical technologies.
Phil Boudreau: It is an area that we have invested in heavily and we are seeing those investments yield outstanding results.
Phil Boudreau: Our comprehensive portfolio of products drove an acceleration in sales growth in StructuralHeart throughout the year.
Phil Boudreau: In rhythm management, growth of 7% was led by AVERE, our innovative leadless pacemaker, and ASSERT, our newest implantable cardiac monitor, which we launched in the U.S. last year.
Phil Boudreau: With growth of 7% for the full year, our rhythm management business delivered another year of performance that far exceeded the market, and we expect that to continue this year.
Phil Boudreau: Last month, we announced that we completed the first in-human implants of a new version of a VEHR specifically designed to deliver pacing to the left bundle branch area of the heart, activating the heart's natural conduction system.
Phil Boudreau: This highly innovative device currently in development was granted breakthrough designation by the FDA.
Phil Boudreau: In heart failure, growth of 9.5% was driven by our market leading portfolio of heart assist devices, which offer treatment for chronic and temporary conditions.
Phil Boudreau: In vascular, growth of 7% was led by double-digit growth in vessel closure products and growth from esprit are below the knee resorbable stent.
Phil Boudreau: And lastly, in neuromodulation, sales grew 8% driven by strong demand in international markets for our Eterna rechargeable spinal cord stimulation device.
Phil Boudreau: So, in summary, we delivered another quarter of strong growth with sales growing 10% and earnings per share growing 13%.
Phil Boudreau: For the year we achieved the upper end of the initial guidance ranges we provided for 2024
Phil Boudreau: We've made great progress expanding our gross margin profile, and we expect that progress to continue into 2025. The pipeline continues to provide a steady cadence of new growth opportunities, and we're well positioned to deliver another year of strong growth in 2025.
and I'll turn over the call to Phil.
Phil Boudreau: Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis.
Phil Boudreau: Turning to our fourth quarter results, sales increased 8.8% on an organic basis and increased 10.1% when excluding COVID testing sales.
Phil Boudreau: foreign exchange had an unfavorable year-over-year impact of 1.4 percent on fourth quarter sales.
Phil Boudreau: During the quarter, we saw the U.S. dollar strengthen against most currencies.
Phil Boudreau: which resulted in unfavorable impact on sales compared to exchange rates at the time of our earnings call in October.
Phil Boudreau: Regarding other aspects of the P&L, the adjusted gross margin ratio was 56.9% of sales.
Phil Boudreau: Adjusted R&D was 6.3% of sales and adjusted SG&A was 26.3% of sales in the fourth quarter.
Lastly, our fourth quarter adjusted tax rate was 15%.
Phil Boudreau: Turning to our outlook for 2025, today we issued guidance for full year adjusted earnings per share of $5.05 to $5.25.
Phil Boudreau: which reflects double-digit growth at the midpoint of the range and contemplates an adjusted earnings per share forecast of $1.05 to $1.09 for the first quarter.
Phil Boudreau: For the year, we forecast organic sales growth to be in the range of 7.5 to 8.5 percent.
Phil Boudreau: Please note that we are no longer providing separate guidance for the sales growth excluding COVID testing sales, as COVID testing sales represents less than 2% of total company sales in 2024.
Phil Boudreau: Based on current rates, we would expect exchange to have an unfavorable impact of around two and a half percent on full-year reported sales, which includes an expected unfavorable impact of approximately three and a half percent on our first quarter reported sales.
Phil Boudreau: We expect our full year 2025 adjusted gross margin profile to be around 57% of sales, which reflects an improvement of around 80 basis points versus the prior year.
Phil Boudreau: We forecast our full year 2025 adjusted operating margin profile to be in the range of 23.5% to 24% of sales, which reflects an improvement of 150 basis points versus the prior year at the midpoint of the range.
Phil Boudreau: This improvement is driven by a combination of strong gross margin expansion and operating margin leverage.
Phil Boudreau: We forecast our adjusted tax rate to be in the range of 16 to 17 percent, which reflects an increase compared to last year related to the adoption of the Pillar 2 tax framework.
With that, we'll now open the call for questions.
Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder, to ask a question you will need to press star 1 1 on your telephone. You will then hear an automated message advising you that your hand is raised.
To withdraw your question, please press star 1 1 again.
Speaker Change: For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. And again, that's star 11 to ask a question.
Please stand by while we compile the Q&A roster.
Speaker Change: And our first question will come from Robbie Marcus from J.P. Morgan. Your line is open.
Robbie Marcus: Oh, great. Thanks for taking the question. Congrats on a nice quarter and guide.
and maybe Robert, I could start with the 2025 guide.
Robbie Marcus: Once again guiding to high single-digit organic sales growth Healthy operating margin expansion and nice to see 10% EPS growth back in the algorithm again
Robbie Marcus: Maybe you could just speak to some of the key growth drivers and how we should think about the different business segments on the top line and some of the components of the operating margin expansion down the P&L. Thanks a lot.
Speaker Change: Sure, Robbie. Yeah, it's nice to see kind of the headline print now back to double digit EPS growth. I think that's probably, you know, one of the things that
Thank you. Thank you.
Speaker Change: It's one of the things you'll see now, Robbie, as we go into 2025. I mean, you've got a lot of growth drivers there, but I think one of the big things is that you don't have the COVID sales, you know, decline cloud that's kind of, you know.
Speaker Change: overshadowing all these, you know, real strong growth drivers that we got in the business. And you saw that in Q3 as we showed 13% EPS, sorry, in Q4, as we showed 13% EPS growth. So I think, you know, that's one big aspect is just not having, you know, those sales decline. I mean, we've got COVID sales in 2025, but, you know, it's, as Phil said in his comments,
Speaker Change: increased health and wellness focus from consumers. We get to benefit from that on our nutrition business.
Speaker Change: You know, every treatment requires a diagnostic test. About 70% of them require a diagnostic test. So we're seeing continued growth over there. And then, you know, we've got two areas where we focus on treatments, whether it's pharmaceuticals or medtech. And so all of those markets, they're accelerating. And then within them.
Speaker Change: We've got strong product portfolios that are either keeping up with these very high growth markets or, you know, we're outperforming the markets and taking shares. And if you look at the contributions, we've got, you know, your current drivers, whether it's Libre, Triclip, you know, Avere, Navitor, you know, Amulet.
Speaker Change: All of those products in the cardiovascular space. So the bases are loaded, I would call that. And then you've got nice on-deck circle and a lineup of batteries that are coming up right after that, whether it's biosimilars, Volt.
Speaker Change: innovations in the Libre portfolio, some clinical trial readouts. So I think we feel very good about all of the businesses and you saw all the businesses improve their growth from Q3 to Q4. So I think it starts with the top line and I think we're well positioned in them. To your question on the margin drivers
Speaker Change: I'd say we've got we've done a lot of work on gross margin expansion. We've talked about that Committing to a 70 basis point improvement in 2024. We achieved that we believe that we can achieve another 80 bit Another 80 basis points of improvement in 2025 and that's what's embedded in that guide is continuous Improvement on the gross margin in the tune of 80 basis points will be driven by you know Continued focus on gross margin improvement program
and then mixed.
Speaker Change: As some of the higher gross margin products continue to grow ahead of the company average, you get that mixed effect.
Speaker Change: And then down at P&L, I think you've got an opportunity,
obtained spending leverage.
Speaker Change: I'd say now you've got two, we actually have two, which is our original formula, gross margin expansion and then spending leverage. So you put all that together, you've got about 16% actually underlying growth in the EPS.
Speaker Change: coming from the top line, the gross margin improvement and the spending leverage. And then we've got, obviously, some friction on FX. I think every company is going to face that, as we've seen, the strengthening dollar and increased tax rates, which also aren't a surprise. We've known about that. And so that brings us down to that 10%. So I kind of look at this and say, OK, what you see now for 2025 is the Abbott that we know, the Abbott identity that we built, which is
High single-digit top line, double-digit bottom line, gross margin improvement.
Speaker Change: spending, leverage, and productivity, strong operating cash flow. We know how to deal with FX, so we deal with it every year, and we're dealing with it again this year and still being able to deliver double-digit EPS. Dealing with the higher tax rates, I think I saw some...
some notes about calendarization, about maybe Q1 not
Speaker Change: looked at our Q1 and all of our gating, you know, all of our gating or EPS is very much aligned to what it was in 2024. It's very much aligned to what it was pre-COVID. So, again, all the elements of Abbott and the Abbott identity that we know are there, and we're looking forward to 2025.
Great, thank you very much.
Speaker Change: Thank you. Our next question will come from Larry Beagleson from Wells Fargo. Your line is open.
Larry Beagleson: Good morning. Thanks for taking the question. So, Robert, I guess that you talked about, you know, it starts with the top line. You had another really strong year for CTM with over 20% constant currency growth on $6.5 billion in sales.
Speaker Change: We'd love to hear you talk about your expectations for growth in 2025, the status of the Libre 8.3 supply issues, and any color you have on the Lingo launch. Thank you.
Speaker Change: Sure, so let me talk about Libre 3 Supply, and as we spoke about during the last call, Larry, there was a little bit of a mismatch between our manufacturing coming up online and the demand that we were seeing, especially here in the U.S.
Speaker Change: That caused a little bit of friction there, but as I said, we were in the process of getting our new manufacturing site up and running. I was there in November and seeing the team and that's going now at full force. So Libre 3 supply with two manufacturing sites.
Speaker Change: quite often, I guess, you know, those are important metric to look at, Larry, but they're not the only metric to see how the businesses are doing. I mean, I think you saw that in
Speaker Change: in our Q4 were able to grow the U.S. 24%. So there are other elements that aren't measured. I think you also, you guys also saw the impact of relying exclusively on those datas in Q3 as competitors had challenges also. So it's an important metric to look at, but I would say it's not the only ones and I think we've kind of shown that here. So Libre 3 is doing pretty well and it's just gonna get better.
Thank you.
Speaker Change: As I look at 2025, I'd say there's some pretty interesting kind of growth drivers here for us. I'd say, first, as a base case,
Speaker Change: I still think there's underpenetration in the intensive insulin using segment. I mean, if you look at the U.S., there's still 25% of that segment that are not on CGMs. And if you think about that internationally, it's more like 50%. So I still think, as a base case to driving all this growth, there's all this opportunity in this segment. But I think there are three areas in 2025 that I believe accelerates that opportunity for us.
Speaker Change: One of them is obviously basal coverage, and we continue to see, you know, with the, you know, publication of more clinical evidence, you see more and more markets move towards expanding re-embasement.
Speaker Change: Basel coverage, reimbursement coverage. Now we have a couple markets where we're the only ones that do have that coverage, whether it's Japan or Canada. These are large markets. So these are great opportunities for us where we've got this head start and we'll keep on driving that. So I think Basel is a big bucket of growth.
Speaker Change: I think the other area that I've talked about as being an area of growth for us is more a kind of share, ability to take share, and that's through connectivity strategies with insulin delivery systems.
Speaker Change: We've been talking about all the things that we've been doing in regards to partnership with insulin pump companies.
Speaker Change: And I think you'll see throughout this year several announcements on, you know, connectivities and different geographies, and that gives us the opportunity to penetrate, albeit a smaller segment, but be able to penetrate that segment and take share. And I think the third area of growth for us, of acceleration, is just the whole OTC non-diabetes application with the launch of Lingo.
Speaker Change: continue to see very nice trends. We've launched it in a restricted number of U.S. cities, but I think now that we understand what it takes to be able to drive adoption with this completely different consumer segment that we'll probably be expanding this.
Speaker Change: and expanding this more nationally here in the U.S. and potentially looking at other areas internationally to bring this. So I think the lingo...
Speaker Change: Launch is going very well in several areas. I think it's surpassed some of my expectations especially regarding reorder rates
Speaker Change: And I think those continue, and I think that's going to be another kind of leg of the stool, so to say, on this growth. So I think those are really the kind of growth drivers that we've got planned for Libre. I think the intensive insulin segment is still an opportunity, a pretty significant opportunity. And then you've got these three accelerators on top of that.
Thank you very much.
Speaker Change: Thank you. Our next question comes from Travis Steed from B of A Securities. Your line is open.
Speaker Change: Hey, thanks for taking the question. I wanted to ask about EP growth. Still strong high single digits in the quarter, and I think it was even faster than that, excluding the tough mapping comp. There's a lot of things moving around in that market right now. One competitor had a big setback in PFA, and your progress is moving forward with both. So just thinking about how you're thinking about EP growth in 2025 as you bridge to PFA in 2026, and your ability to kind of regain market share once both launches.
Speaker Change: Sure, yeah, I mean, I think this wasn't a surprise for us, and it wasn't really driven by any kind of adoption of PFA regarding our Q4 growth, right? In fact, as I've said in previous calls, I think the net effect for us has actually been very positive. What we did have was an execution of that strategy, Travis, where we said, okay, we're going to bridge ourselves, and one of the ways to do that is through our mapping.
they drove.
Speaker Change: Our success in 2024 is what we did in Q4 of 2023. We're really taking advantage of our ability to offer the only real open, truly open mapping system. So that created that comp issue.
Speaker Change: It was double digits in Q4, 12% in the U.S., 12% internationally, so still seem very good. And I think, again, I would say these results, I think we outperformed a lot of the expectations that many of you guys had about
about our AP business, and I think...
Speaker Change: The driver of that has been the team, the team in the field has just been spectacular, I think, and I've been close to them last year, and I think what they did was really strong, so I guess I answer your question in 2025, really looking at what we did in 2024, and I expect to continue to benefit in 2025 from just the general increasing procedure trends.
Speaker Change: We've got opportunities to grow with some recently launched products, whether it's our Grid-X, our next generation mapping catheter, our new Agilis introducer sheath. I mean, that's a great opportunity for us also.
Speaker Change: So, yeah, it's going to be a little bit more competitive. It's been pretty competitive in 2024. I expect that intensity to increase.
Speaker Change: when it comes to the ablation catheters, but I'm confident that we can maintain a strong position in the mapping segment and everything that comes with, all the consumables that come with that. On top of that, our pipeline,
Speaker Change: is very strong, will continue to engage KOLs and our customers.
Speaker Change: You know, we've got an ongoing trial right now with a dual energy source catheter in Internationally and in the u.s. We've got integration with ice. We've got you know kind of news sheets to launch So I think the pipeline allows us to continue that
that interaction with the KOLs and with the users. So,
Speaker Change: We should expect, I think you mentioned bridging to PFA in 2026.
Speaker Change: It's more like 2025 on PFA, at least internationally, so I feel good about it. And, you know, maybe you've got a tail of two halves.
Speaker Change: where the second half is going to grow faster than the first half as Volt comes on board. But I'd say for the full year, high single digits seems like a good place to start. Call that our base case.
Speaker Change: And then to the point that you made about, you know, competition and some of the dynamics that have occurred the last couple of weeks, it's still a bit too early to tell, but, you know, that could be an opportunity for us also. So I feel good about the business, not only the pipeline, but more importantly, the team that we've got. They're doing an incredible, real strong job.
Great, thanks a lot.
Speaker Change: Thank you. Our next question will come from Vijay Kumar from Evercore ISI. Your line is open.
Vijay Kumar: Hi, Robert. Thanks for taking my question and congrats on a strong finish to the year. I guess, you know, I had a couple of questions if you don't mind.
Vijay Kumar: You know, really strong operating margins, you know, driven both by gross margins and operating leverage.
Vijay Kumar: but your gross margins are still below pre-pandemic levels. I'm curious, when you look at that margins...
Thank you. It's a pleasure.
Vijay Kumar: How sustainable are these trends? Perhaps not not a triple digits, but should we be thinking about a biotrend margin framework as gross margins normalize? My second part is on balance sheet. I'm curious. There's been some M&A activity picking up in MedTech.
Speaker Change: How are you thinking about devices versus diagnostics? I'm curious, any thoughts on cancer screening, MRD, etc.? I'll let Phil talk to the gross margin, the sustainability of that margin improvement, and then I'll take your balance sheet question.
Speaker Change: resorted back to, I'd call it, normalized inflationary pressures that we're very much accustomed to managing through with our organizations and focus on gross margin expansion. And so what you saw in 2024 was exactly that, the recipe we're accustomed to and the commitment in 2025 to do much of the same. So from an expansion standpoint, we expect this to continue, and it's not a matter of if, but when we get back to kind of the legacy and historical gross margin profiles.
Vijay Kumar: Yeah, I guess on your question on balance sheet, you know, I've always talked about this Vijay. I mean, we do take this kind of balanced approach. I'm not going to give you a formula of how much goes to here, how much goes to there. We do take a balanced approach. And on your M&A question, yeah, there's been an uptake of activity, no doubt.
Vijay Kumar: You know, there are some there are some good opportunities out there and you know whether and I don't think you're going to see a Change in kind of rate environment, but maybe on the regulatory environment. I think that you know creates opportunity I've said that we've got a strong organic pipeline It allows us to be selective allows us to look opportunities that you know make sense strategically, but also Generate an attractive return. I talked about how ROIC is important for us also
Vijay Kumar: not just top line but you know return on that capital so we do take a position here of being stewards of that capital so I'd say yeah we were in a great position we do have some debt to pay down this year which we will I don't don't anticipate rates coming down to the point that we might want to look at refinancing that so we'll we'll pay off that debt it's about 1.5 billion dollars this year but even with that we're in a great position to with our balance sheet
Vijay Kumar: opportunities that we'll see, talked about them, there's opportunities in Med Tech, there's opportunities in Diagnostics, and we're in a great position.
It allows us to be selective
Understood. Thanks, guys.
Thank you.
Speaker Change: And our next question will come from Josh Jennings from TD Cowen. Your line is open.
Josh Jennings: Hi, good morning, thanks for taking the questions in. I echo Vijay's congratulations on that strong finish to the year.
Josh Jennings: Another margin question, just because the operating margin guidance for 25 was stronger than expected.
Speaker Change: and I think you've talked about a lot of the drivers, Robert and Phil, but just a continued positive makeshift from strong medical device contributions and the strong top line growth. But I was hoping.
Speaker Change: You may just help us think through just the margin of expression opportunities in EPD, nutrition, and diagnostics.
Speaker Change: just with the outsized expansion in 25. Now, how should we be thinking about sustained upward expansion in 26 and beyond? And should we be thinking about 50 to 100 basis points a year? Appreciate you taking the question.
Speaker Change: Yeah, I mean, I'd like to get to that pre-pandemic gross margin. I mean, I know we talk a lot about this being behind where we were from a pre-pandemic, but our op margin profile, especially after our guidance for 2025, is actually ahead of that. So we've been able to achieve that through our spending and spending efficiencies.
Speaker Change: either because of inflation or because of tariffs or anything like that, it's just we're constantly working to improve gross margins. I'd say on the nutrition side, you know, those gross margins, you know, given what we've encountered over the last two years, you know, those came down, but if you look at them, they've been improving sequentially almost like every quarter. We've got a ways to go to get back to where we were in 2022.
Speaker Change: and even, quite frankly, using some pricing where we felt we had to because of some of the increase in those commodities. So I think the nutrition gross margin is definitely an opportunity that we've got over the next couple of years.
Speaker Change: The pharmaceutical teams have done an incredible job at, you know, maintaining a gross margin under pretty significant effects.
Speaker Change: They do a fantastic job at offsetting FX. If you look at the margin profile in that business, it's actually increased.
Speaker Change: several couple hundred basis points over the last couple of years, so they've been able to do that also through gross margin.
Speaker Change: And I think the other element is just ensuring that we keep on driving the medtech business.
that have accretive gross margins.
Speaker Change: quite frankly, across all of those different business units. And if we can continue to do that, then that's how you get to that.
Speaker Change: model of maybe 50 to 100 basis points, you know, every single year. That's our target. You know, we committed to 70 and we delivered to 70. We're now committing to 80 for 2025.
Speaker Change: getting us closer to where we were pre-pandemic. So I feel good about what we're doing, the strategy we got in place, the discipline that we have as a management team to review these programs and dedicate time. You know, they don't just happen. We gotta make decisions, there's oversight. So I feel good about it.
Thanks a lot. Thanks again.
Thank you.
Speaker Change: Our next question will come from David Roman from Goldman Sachs. Your line is open.
David Roman: Thank you. Good morning, everybody. I was hoping, Robert, you could go into a little bit more detail on the structural heart business. As you kind of break down the pieces of that portfolio, you have a balance of drivers, some more legacy, like MitraClip, and some that are more emerging categories.
Speaker Change: and Michael Boudreau. We're going to be talking about the evolution of the business. Maybe you can help us think about the evolution of that business which did very nicely through 2024 and how we should think about that.
Speaker Change: in China on the diagnostic side, the transient competition in EP. So maybe you could kind of give us some color and structural heart but also help contextualize the growth rate in 2025 as we think about the long term as well.
Sure.
Speaker Change: I think it's interesting, like the sixth question comes on Structural Heart after we posted a 23% growth, so thank you, David. As I said in my opening comments, I think this is one of the most attractive areas in medtech, and it's one that we looked at several years ago and said we're going to build truly a market-leading portfolio of products.
Speaker Change: It's just doing incredibly well and it's really a preferred go-to on the mitral side for surgical repair, but replacement but
Speaker Change: really being a player there that has established now clinical credibility, whether it's through clinical trials, but also actual real world usage of the product. I've been seeing some of Navitore cases here in the U.S.
Speaker Change: Just the feedback has been very, very positive. So building our aortic portfolio there, we're making big investments, whether it's in our clinical trials to build out our indications. We recently talked about, shared that we are developing a balloon expandable TAVR valve, and we want to have a full aortic portfolio. On the tricuspid side, you know, we were one of the leaders there to say, hey, there's
you know, transcatheter opportunity here to...
Speaker Change: to treat TR. And Triclip has done very well, it's done extremely well quite frankly throughout this year. I think the team has done an incredible job getting approved behind the competitor. I would say right now our data says that you know the ratio of repair to replace is about two to one and we're leveraging all of that built-in kind of infrastructure and scale that we already built with MitraClip.
Speaker Change: So, what you see now is a structural heart portfolio, two and a half billion dollars, grown in, you know, grown, let's call it mid-teens because it is much more diversified and quite frankly, very competitive products.
Speaker Change: You're going to see clinical trials readout in this area for label expansion indications in TAVR and in LAA. So this is an area that you know I think what you're seeing now that kind of growth rate coming from the investments and just great execution from the team.
Speaker Change: Yeah, I was trying to think a second one and there was just to contextualize the 25 growth rate given, you know, some one-time-ish headwinds like BBP in China and diagnostics and the dynamics in EP being potentially kind of transient as well.
Speaker Change: Yeah, I mean, listen, every quarter, every year, there's always going to be some headwind. What we're trying to do is here is assemble, David, more tailwinds than headwinds, right? But yeah, I mean, you mentioned one, which is a little bit of a headwind for us in our diagnostic business regarding VBP. That's going to be with us in 2025 as they're rolling out new panels of testing. That's going to go through that.
Speaker Change: The diagnostic business is doing very well, you know, Q4 growth rates in most areas were actually higher than the four-year growth rate in those same areas, U.S.
Speaker Change: Latin America, Europe, even Japan was faster in Q4. So, yeah, we do have a challenge, but most companies are gonna do it. And you know what? We've gone through these, David. Every company goes through a VBP, and what we're trying to do is.
Speaker Change: Okay, we're not going to, you know, define the company by having this one kind of headwind. We've got a lot more tailwinds, you know, to leverage. We still have to deal with it. We're still managing it. It's still an important part of the business.
Speaker Change: But the company is more than just, you know, than just BBP in diagnostics in one, you know, important market, but just one market. So I think the growth rate is very robust. I mean, 8% at the midpoint.
Speaker Change: on a base of 40 plus billion, I think is pretty strong and pretty good.
Perfect, thanks for taking the questions.
Thank you.
Speaker Change: And our next question will come from Joanne Wunsch from Citi. Your line is open.
Joanne Wunsch: Good morning and thank you for taking the question and nice quarter.
Joanne Wunsch: I'm curious if you could just sort of step back and talk about the overall health of the med tech market. I feel like I'm constantly answering questions on things such as volume and price and looking at you delivering mid-teens revenue growth. And I think you're seeing something that maybe not everybody is seeing. So I'd love to get your view on that. Thank you.
Robert Ford: Sure, I mean, I think it does put us, I mean, the way our portfolio is structured, Joanne, is that it does give us a little bit of a perch, a little bit of a bird's eye view into the entire healthcare system and the spectrum, right?
Robert Ford: I think if you're getting questions on medtech and medtech growth, I think all you've got to do is continue to look at what companies are reporting.
Robert Ford: a greater focus from whether consumers or the technologies that are being developed that are attracting more people into these procedures. So I think what we're seeing here is continued continued utilization growth.
Robert Ford: really driven by, whether it's demographics combined with, you know, the innovation. I mean, what the industry is doing in terms of the innovation that we're bringing to the market, it's pretty spectacular. And the procedures are getting faster, they're getting less invasive.
Robert Ford: and you know that's attracting more people to look at to look at you know these procedures as a real viable first-line option versus you know guided medical therapy so so I think that's going to continue as long as we continue to see this this innovation where we are obviously positioning ourselves pretty strongly in this and you've seen sequential improvement in the growth rate across quite frankly a lot of our businesses in medtech so
So I think the utilization is definitely increasing.
Robert Ford: You know, I think there's maybe some questions, okay, what's going to happen with pricing?
Robert Ford: We've historically seen some price erosion in the past, I'd say over the last couple of years it's actually been pretty stable, so I don't know how that's going to play out. We've got a scenario here where we believe that with our portfolio we'll see some pretty stable pricing.
Robert Ford: But I think utilization combined with stable pricing is what's driving this, you know med-tech growth
Robert Ford: and we're seeing it in diagnostics too. A lot of our diagnostic business is actual hospital-based diagnostics.
Robert Ford: So we're seeing those diagnostic tests and those routine diagnostic tests continue to increase.
Robert Ford: you know, high single, double-digit, low double-digit growth rates in terms of utilization. So, I think that MedTech is benefiting from just this increased utilization and focus of consumers wanting to, you know, take care of themselves and looking at these technologies as a viable option for treatment.
Speaker Change: Thank you. Our next question will come from Danielle Ann Toffey from UBS. Your line is open.
Speaker Change: Hey, good morning guys. Thanks so much for, excuse me, taking the question and congrats on a really good quarter strong into the year.
Speaker Change: Robert, we've talked in the past, I mean, obviously, we talk a lot about MedTech and the high growth areas, but some areas where you've excelled are the legacy sort of slower growth businesses. I'm obviously thinking CRM being one of those, you know, mid to high single digits growth. Can you talk about the strategy that you applied in CRM?
Speaker Change: and other legacy businesses. I'm thinking like heart failure, peripheral, and maybe how you're thinking about elevating those growth profiles in 25, but then also longer term. Thanks so much for taking the question.
Speaker Change: Yeah, so one of our strategies that we looked at a couple years ago, Danielle, was if you looked at our medtech business, it was growing like 8, 9%.
Speaker Change: and that was a combination of probably like high growth areas like EP, structural heart, diabetes, even heart failure and 40% of the portfolio was relatively flat.
Speaker Change: And that was mostly our vascular business and our CRM business.
Speaker Change: And, you know, the way we looked at it is to get our med tech to be best in class, to be able to grow 12, 13, 14 percent, we need to continue the strong growth rate of structural heart, EP, diabetes.
Speaker Change: et cetera, but we had to find a way to accelerate the growth rate of our vascular and CRM businesses. And we said, look, if we can get them, you know, these are historically been flat growth markets. If we can get them to grow five percent.
Speaker Change: The way that would then work out is that we'd be able to elevate our MedTech portfolio to the mid-teens. So that's what we've been doing over the last couple of years, and the team have been executing on that. I think on the vascular space, what you've seen us do is kind of use a little bit of a combination of organic and inorganic to accelerate.
Speaker Change: So, I think you started to see that, you know, we've been growing.
Speaker Change: This quarter was a good quarter. Our target was around 5% for our vascular business by having those, by having.
Speaker Change: Stronger pipelines and portfolios in that more peripheral space and you're seeing that now start to happen on the CRM side, you know, our big strategy here was organic and getting to launch a very comprehensive and be the leadlers, sorry, leaders and leadless
Speaker Change: And I think we can continue to extend that with the strategy that we're doing, which is to really lead in in this area I actually think that AVERE is probably the most
Speaker Change: underappreciated opportunities that we have in our portfolio, you know, look at it right now, you're asking a question towards the end of the call, but I think really what you're seeing is these businesses, the focus...
Speaker Change: The innovation, the execution, and now you're seeing those start to deliver on that strategy to bring these flat businesses up to at least mid-single-digit growth.
Speaker Change: The team doesn't like that I characterize them like that, so that's good. I'm glad that they think that they can do better than that. But we've got a lot of opportunity in those big areas, and we think there's innovation to be had in those, so we feel good about it.
Thank you.
Operator, we'll take one more question please.
Speaker Change: Thank you. And our last question will come from Matt Miksic from Barclays. Your line is open.
Matt Miksic: Hey, thanks so much for squeezing me in. Just maybe a follow-up here given the tech guide you gave for this year and some of the dynamics in the U.S.
Matt Miksic: and overseas tax policy, it would be great to get your perspective on the direction of where those things are going and how we should think about them for AVID. Thanks so much.
Yeah, thanks, Matt.
Speaker Change: You know, let me I want to add in on that one, Matt.
Speaker Change: And if I just take a bigger, bigger picture here, I mean, corporate tax rates tend to get hyper politicized and especially during election years and you know, it's really not a political debate, you know, in the business world, it's just an expense. It's just another form of expense.
Speaker Change: And in our world, when one expense goes up, you've got to manage and other expenses have got to come down, or maybe not increase at the same rate that they were increasing.
Speaker Change: that maybe have a really low tax rate. And then that viewpoint then gets unfairly applied to every large company. And then you get these predictable narratives of companies have got to pay their fair share, et cetera. The reality is most companies pay their fair share and then some. I mean, I could talk about Abbott.
Our cash taxes are over 20%.
Speaker Change: You know, and that's one thing that people never talk about is, you know, we use these kind of gap rates, but what really matters is cash taxes. That's the money that's going to be paid. And but more importantly, you know, U.S. companies, companies like Abbott, you know, we play a key role in making the U.S. economy so successful, you know.
Speaker Change: Over the last couple of years, we increased our workforce by 20%.
Speaker Change: And, you know, when you increase that work force, you're investing hundreds of millions of dollars in employee health care and employee benefits. So...
Speaker Change: So, you know, this Pillar 2 legislation, you know, this Pillar 2 rule here that got adopted, that's added. And we've...
Speaker Change: I think this rate that Phil's kind of quoted, that's an additional $200 million of expense. That's all it is, is $200 million of expense that is not going to investing in other areas. And what's even...
Speaker Change: What's even more challenging is that of those $200 million, two-thirds of it is actually going to be paid taxes to overseas countries.
So, you know, we're
you know, the next 12 months or so.
Speaker Change: great new growth opportunities and I think, you know, to Vijay's question, we've got a balance sheet that's going to provide us a lot of strategic flexibility. So I think we're really well positioned to 2025. So with that I want to thank you for joining us today.
Speaker Change: Thank you, operator. Thank you all for your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you all for joining us today.
Speaker Change: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
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