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Abbott Reports First Quarter Results Led by Strong Medical Products Performance- Shows Year-Over-Year and Sequential Improvement in Gross Margin and Continued Strong Cash Flow -
ABBOTT PARK, Ill., April 19 /PRNewswire-FirstCall/ -- Abbott (NYSE: ABT) today announced financial results for the first quarter ended March 31, 2006. -- Abbott's diluted earnings per share for the first quarter were $0.57,
excluding specified items and including, for the first time, the
impact of stock compensation expense -- within the company's previous
guidance range of $0.56 to $0.58. Diluted earnings per share under
U.S. Generally Accepted Accounting Principles (GAAP) increased in the
quarter to $0.56 from $0.53 in 2005.
-- The gross margin ratio improved by approximately 500 basis points from
the first-quarter 2005.
-- Cash flow remained strong this quarter, with operating cash flow of
$1.2 billion.
-- Adjusting both periods for the amendment of the Boehringer Ingelheim
distribution agreement, worldwide sales increased 7.9 percent before
an unfavorable 2.7 percent effect of exchange rates. Reported
worldwide sales were $5.2 billion, down 3.7 percent.
-- Medical products sales increased double-digits in the first quarter,
led by strong performance in Abbott Diabetes Care and U.S. nutrition
sales, as well as more than 50 percent growth in Abbott Vascular
following the U.S. launch of StarClose(R).
-- During the quarter, Abbott began reporting international nutritionals
as a new operating division, Abbott Nutrition International (ANI),
which is focused on the rapidly growing international nutrition
market. ANI reported sales of $376 million, an increase of
18.2 percent.
-- Pharmaceutical sales growth was driven by the strong double-digit
performance of HUMIRA(R), TriCor(R), Depakote(R) and Kaletra(R),
following the launch of the more convenient tablet formulation.
-- Abbott recently received European regulatory approval for its
previously announced agreement to purchase Guidant's vascular
business, which is contingent upon the closing of Boston Scientific's
acquisition of Guidant. The proposed transaction is under review by
the U.S. Federal Trade Commission.
"We achieved our performance expectations for the quarter," said Miles D. White, chairman and chief executive officer, Abbott. "Our market-leading products and businesses delivered strong results, led by double-digit growth in medical products. In addition, we made significant progress during the quarter to advance our broad-based business strategy with the agreement to acquire Guidant's vascular business." The following is a summary of first-quarter 2006 sales for each of Abbott's major operating divisions. Sales Summary - % Change of Impact
Quarter Ended 1Q06 % Change all non-BI of Exchange
3/31/06 ($ millions) vs. 1Q05 Products on % Change
Total Sales $5,183 (3.7) 5.2 (2.7)
Total U.S. Sales $2,674 (9.7) 6.7 ---
Total International
Sales $2,509 3.7 (6.0)
U.S. Pharmaceutical
Sales $1,448 (22.6) 2.2 ---
Abbott International
(non-U.S.
Pharmaceuticals) $1,447 0.9 (6.5)
Ross Products $766 13.0 ---
Abbott Nutrition
International Sales* $376 18.2 (2.4)
Worldwide Diagnostics
Sales $918 3.5 (4.4)
U.S. Diagnostics $330 7.0 ---
International
Diagnostics $588 1.6 (6.8)
* The international nutrition business, formerly a part of Abbott
International, was realigned as a new division, Abbott Nutrition
International (ANI), effective for 2006 reporting. See Q&A Answer 10
for further discussion.
Note: See "Consolidated Statement of Earnings" for more information.
The following is a summary of Abbott's first-quarter 2006 sales for selected products. Quarter Ended
3/31/06 Percent Percent Percent
(dollars in U.S. Change Rest of Change Global Change
millions) Sales vs. 1Q05 World vs. 1Q05 Sales vs. 1Q05
Pharmaceutical
Products
HUMIRA $218 33.2 $174 46.9 (a) $392 38.9
Kaletra $120 27.6 $160 11.3 (b) $280 17.7
Biaxin
(clarithromycin) $51 (55.2) $198 (17.3)(c) $249 (29.5)
Depakote $229 12.0 $17 39.0 $246 13.5
Ultane/Sevorane $82 9.4 $125 2.5 (d) $207 5.2
TriCor $205 20.0 --- --- $205 20.0
Omnicef $143 5.9 --- --- $143 5.9
Synthroid $111 (9.9) $15 18.2 $126 (7.4)
Leuprolide --- --- $53 0.4 (e) $53 0.4
Lansoprazole --- --- $40 11.8 (f) $40 11.8
Medical Products
Pediatric
Nutritionals $272 (1.9) $200 30.8 $472 9.7
Adult Nutritionals $254 1.1 $185 8.4 (g) $439 4.1
Abbott Diabetes
Care $139 11.7 $134 9.6 (h) $273 10.7
Abbott Vascular $53 85.2 $30 15.5 (i) $83 52.1
TAP Pharmaceutical
Products
(not consolidated
in Abbott's sales)
Prevacid $616 4.5 --- --- $616 4.5
Lupron $169 (1.5) --- --- $168 (1.5)
(a) Without the negative impact of exchange of 13.9 percent, Humira sales
increased 60.8 percent internationally.
(b) Without the negative impact of exchange of 6.7 percent, Kaletra sales
increased 18.0 percent internationally.
(c) Without the negative impact of exchange of 6.3 percent, clarithromycin
sales decreased 11.0 percent internationally.
(d) Without the negative impact of exchange of 6.3 percent, Sevorane sales
increased 8.8 percent internationally.
(e) Without the negative impact of exchange of 4.6 percent, leuprolide
sales increased 5.0 percent internationally.
(f) Without the positive impact of exchange of 4.9 percent, lansoprazole
sales increased 6.9 percent internationally.
(g) Without the negative impact of exchange of 5.4 percent, Adult
Nutritionals sales increased 13.8 percent internationally.
(h) Without the negative impact of exchange of 8.0 percent, Abbott
Diabetes Care sales increased 17.6 percent internationally.
(i) Without the negative impact of exchange of 10.5 percent, Abbott
Vascular sales increased 26.0 percent internationally.
Business Highlights
-- In March, at the American College of Cardiology Scientific Sessions,
Abbott presented the first human clinical data for ZoMaxx(TM),
Abbott's investigational coronary drug-eluting stent system. The data
demonstrated 100 percent procedural success and no major adverse
cardiac events during the four-month follow-up period.
-- Abbott received U.S. Food and Drug Administration (FDA) regulatory
approval to market FreeStyle(R) Freedom(TM), a blood glucose
monitoring system with a fast five-second average testing time and a
large, easy-to-read display. FreeStyle Freedom offers virtually pain-
free testing, using a blood sample size of 0.3 micro liter, the
smallest sample size required of any blood glucose monitoring product
on the market.
-- Beginning in 2006, the international nutrition business, formerly a
part of Abbott International, is operating as a new division, Abbott
Nutrition International. The new structure allows for more focus on
both Abbott's pharmaceutical and nutrition businesses outside the
United States, while promoting a stronger relationship between the
U.S. and International Nutrition businesses. Abbott is announcing
plans to expand nutritional plant capacity in Asia to support growth,
particularly in China.
-- Results from CLASSIC-I, a Phase III pivotal study designed to evaluate
the efficacy and tolerability of HUMIRA(R) (adalimumab) to induce
remission in patients with active Crohn's disease, were published in
Gastroenterology. Results of this study indicated that treatment with
HUMIRA induced a statistically significant increase in remission at
four weeks compared to placebo. Crohn's disease affects approximately
500,000 people in the United States. Approximately 75 percent of
these patients may require future surgery.
-- Abbott announced a broad drug-discovery collaboration with Myriad
Genetics. Under a five-year research agreement, Myriad will use its
genetics and other discovery technologies to identify human genomic
profiles associated with a variety of diseases. Abbott will advance
these discoveries through its chemical genomics platform to identify
targets and leads for drug discovery. Each company will have
exclusive rights to the therapeutic targets and lead drug compounds to
expand its respective therapeutic pipelines.
Abbott confirms earnings-per-share guidance for the full-year 2006 and issues earnings-per-share guidance for the second-quarter 2006 Abbott's earnings-per-share guidance, including the impact of stock compensation expense, for full-year 2006 remains unchanged at $2.51 to $2.57 and, for the first time, Abbott is providing earnings-per-share guidance of $0.59 to $0.61 for the second quarter, both excluding specified items. This guidance does not include the estimated impact of the Guidant vascular transaction. Abbott will provide additional details after the completion of this acquisition. Abbott expects previously announced specified items for the full-year 2006 of $0.05 per share, with $0.01 per share expected in the second-quarter 2006. Including the specified items, projected earnings per share under GAAP would be $2.46 to $2.52 for the full-year 2006 and $0.58 to $0.60 for the second quarter. The estimate of specified items excludes those items associated with the Guidant vascular acquisition, which will include acquired in-process R&D expense and other one-time charges associated with the transaction. The company expects to provide estimates of these items by the second-quarter earnings conference call. Abbott declares quarterly dividend On Feb. 17, 2006, the board of directors of Abbott increased the company's quarterly common dividend to 29.5 cents per share. The cash dividend is payable May 15, 2006, to shareholders of record at the close of business on April 13, 2006. This marks the 329th consecutive dividend paid by Abbott since 1924. Abbott is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The company employs 60,000 people and markets its products in more than 130 countries. Abbott's news releases and other information are available on the company's Web site at http://www.abbott.com/ . Abbott will webcast its live first-quarter earnings conference call through its Investor Relations Web site at http://www.abbottinvestor.com/ at 8 a.m. Central time today. An archived edition of the call will be available after 11 a.m. Central time. Private Securities Litigation Reform Act of 1995 -
A Caution Concerning Forward-Looking Statements
Some statements in this news release may be forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in the "Risk Factors" section and Exhibit 99.1 of our Securities and Exchange Commission Form 10-K for the period ended December 31, 2005, and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments. Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
First Quarter Ended March 31, 2006 and 2005
(unaudited)
Percent
2006 2005 Change
Net Sales $5,183,459,000 $5,382,679,000 (3.7) a)
Cost of products sold 2,169,704,000 2,522,531,000 (14.0) b)
Research & development 485,142,000 436,656,000 11.1 b)
Selling, general &
administrative 1,464,415,000 1,287,621,000 13.7 b)
Total Operating Cost and
Expenses 4,119,261,000 4,246,808,000 (3.0)
Operating earnings 1,064,198,000 1,135,871,000 (6.3)
Net interest expense 34,519,000 42,270,000 (18.3)
Net foreign exchange (gain) loss (610,000) (3,046,000) n/m
(Income) from TAP Pharmaceutical
Products Inc. joint venture (101,311,000) (82,845,000) 22.3
Other (income) expense, net (3,417,000) 1,636,000 n/m
Earnings before taxes 1,135,017,000 1,177,856,000 (3.6)
Taxes on earnings 270,134,000 339,968,000 (20.5)
Net Earnings $864,883,000 $837,888,000 3.2 b)
Net Earnings Excluding Specified
Items, as described below $882,274,000 $919,097,000 (4.0) b)c)
Diluted Earnings Per Common
Share $0.56 $0.53 5.7 b)
Diluted Earnings Per Common Share
Excluding Specified Items, as
described below $0.57 $0.58 (1.7) b)c)
Diluted Earnings Per Common Share
Excluding Specified Items and
Incremental Stock Compensation
Expense, as described below $0.64 $0.58 10.3 b)c)
Average Number of Common Shares
Outstanding Plus Dilutive
Common Stock Options and
Awards 1,537,695,000 1,569,505,000
a) Adjusting both periods for the amendment of the Boehringer Ingelheim
distribution agreement, net sales increased by 5.2 percent.
b) 2006 results include incremental stock compensation expense that was
not required under Generally Accepted Accounting Principles in 2005.
Incremental stock compensation expense in 2006 totaled $103 million,
after-tax, or $0.07 per share. See Q&A Answer 4 for stock
compensation expense detail by Consolidated Statement of Earnings line
item.
c) 2006 Earnings Excluding Specified Items excludes after-tax charges of
$17 million or $0.01 per share primarily related to cost
reduction/integration activities and other. 2005 Earnings Excluding
Specified Items excludes after-tax charges of $24 million or $0.01 per
share primarily related to cost reduction initiatives and $57 million
or $0.04 per share related to the tax expense associated with the
repatriation of foreign earnings.
NOTE: See attached questions and answers section for further explanation
of Consolidated Statement of Earnings line items.
n/m = Percent change is not meaningful.
Questions and Answers
Q1) What impacted total sales growth?
A1) Adjusted for sales from the Boehringer Ingelheim (BI) distribution
agreement in both periods and before the effect of exchange rates,
total corporate sales growth for the first quarter was 7.9 percent.
Reported worldwide sales were $5.2 billion, down 3.7 percent,
including a 2.7 percent unfavorable impact of exchange rates. The
unfavorable effect of exchange rates versus the prior year is
expected to be strongest in the first quarter, moderating over the
remaining quarters of 2006, if rates were to continue at current
levels.
As announced in August 2005, we amended our co-promotion and
distribution agreement for the three BI products: Mobic, Flomax and
Micardis. As of Jan. 1, 2006, Abbott no longer distributes these
products and no longer records sales for distribution activities.
Although this change reduces reported 2006 sales growth, it also
results in significant improvements in the gross margin ratio, as
discussed below. Abbott earns a small residual commission related to
these products in 2006, and the expected 2006 contribution to net
income remains the same as would have occurred under the original
agreement.
Q2) What drove pharmaceutical sales growth, as adjusted for the BI
products?
A2) In the United States, growth was led by double-digit increases in
HUMIRA, Kaletra, TriCor and Depakote. HUMIRA increased more than
33 percent as the product continued to gain market share in both the
rheumatology and dermatology self-injectable biologics markets. We
remain on track to achieve our full-year HUMIRA worldwide sales
forecast of more than $1.9 billion. Growth in U.S. pharmaceuticals
was partially offset by a decline in Biaxin sales resulting from the
May 2005 entrance of generic competition for the immediate-release
formulation, as well as a weaker flu season. As a reminder, we
continue to promote the once-daily formulation, Biaxin XL, which is
not subject to generic competition.
Sales of Abbott's international pharmaceuticals increased 7.4 percent
during the quarter, before a 6.5 percent unfavorable impact from
exchange. International growth was favorably impacted by double-
digit growth of Kaletra, as well as the continued strength of HUMIRA,
with sales this quarter up 47 percent, or more than 60 percent before
the impact of exchange. Growth was partially offset by lower
clarithromycin sales resulting from a weaker flu season.
Q3) What drove double-digit medical products sales growth?
A3) Double-digit sales growth in medical products was led by Abbott
Vascular, which grew more than 50 percent globally. Abbott
Vascular's strong performance was led by the successful U.S. launch
of the StarClose vascular closure device and continued momentum of
the Xact/Emboshield carotid stent system launch. Double-digit sales
growth in Abbott Nutrition International, Ross Products and Abbott
Diabetes Care also contributed to the strong results in medical
products.
Q4) How did stock compensation expense impact the quarter?
A4) First-quarter 2006 earnings per share includes incremental stock
compensation expense of $0.07 per share that was included in the
various line items of the Consolidated Statement of Earnings, as
follows (in millions):
1Q06
----
Cost of products sold $9
R&D $32
SG&A $94
Pre-tax Total $135
----
Taxes $32
----
After-tax Total $103
====
The remaining $0.08 to $0.09 per share of forecasted incremental
stock compensation expense is expected to occur evenly throughout the
last three quarters of 2006. As a reminder, most stock compensation
expense was not required to be charged to earnings under GAAP prior
to 2006.
Q5) How did specified items and stock compensation expense affect
reported results?
A5) Specified items and stock compensation expense impacted first-quarter
Net Earnings as follows (dollars in millions, except earnings-per-
share data):
1Q06 1Q05
Earnings Earnings
Pre-tax After-tax EPS Pre-tax After-tax EPS
As reported $1,135 $865 $0.56 $1,178 $838 $0.53
Add back
specified items:
Cost reduction/
integration
activities
and other $23 $17 $0.01 $31 $24 $0.01
Tax expense for
repatriation --- --- --- --- $57 $0.04
Excluding specified
items $1,158 $882 $0.57 $1,209 $919 $0.58
Add back
incremental stock
compensation
expense $135 $103 $0.07 --- --- ---
As adjusted $1,293 $985 $0.64 $1,209 $919 $0.58
The pre-tax impact of the specified items by Consolidated Statement
of Earnings line item is as follows (dollars in millions):
1Q06 1Q05
Cost of Cost of
Products Products
Sold R&D SG&A Total Sold SG&A Total
Cost reduction/
integration
activities
and other $11 ($2) $14 $23 $25 $6 $31
Total $11 ($2) $14 $23 $25 $6 $31
The first-quarter 2006 specified items above are primarily related to
previously announced initiatives to reduce costs and improve gross
margins related to Abbott's manufacturing and acquisition integration
activities. First-quarter 2005 results were impacted by specified
items related to the tax expense for repatriated earnings and the
residual impacts of acquisitions and restructurings.
Q6) How does the first-quarter gross margin profile compare to the prior
year?
A6) The gross margin ratio improved this quarter by approximately
500 basis points, to 58.5 percent, excluding specified items and
stock compensation expense, consistent with our forecast. Gross
margin before and after specified items and stock compensation
expense is shown below (dollars in millions):
1Q06 1Q05
Cost of Gross Cost of Gross
Products Gross Margin Products Gross Margin
Sold Margin % Sold Margin %
As reported $2,170 $3,014 58.1% $2,523 $2,860 53.1%
Less incremental stock
compensation expense ($9) $9 0.2% --- --- ---
Excluding stock compensation
expense $2,161 $3,023 58.3% $2,523 $2,860 53.1%
Less specified items:
Cost reduction/integration
activities and other ($11) $11 0.2% ($25) $25 0.5%
As adjusted $2,150 $3,034 58.5% $2,498 $2,885 53.6%
The significantly improved gross margin ratio resulted primarily from
the amendment to the BI agreement, which ended Abbott's activities as
the distributor of these low-margin products effective Jan. 1, 2006.
Q7) How much did R&D and SG&A increase during the quarter?
A7) The inclusion of stock compensation expense in 2006 results has
impacted the comparison of R&D and SG&A expense to the prior year as
described in the following table:
1Q06 1Q05 % Increase
Stock Excl. Stock
Comp. Comp.
Expense Other Total Total Reported Expense
R&D $32 $453 $485 $437 11.1% 3.9%
SG&A $94 $1,370 $1,464 $1,288 13.7% 6.4%
Excluding stock compensation expense, both R&D and SG&A investment
increased in the mid-single-digit range during the quarter, in line
with our expectations. Our full-year guidance of mid- to high-
single-digit growth remains unchanged. Including stock compensation
expense, we expect double-digit increases in both of these line items
for the full year.
Q8) What was the tax rate in the quarter?
A8) The tax rate this quarter was 23.8 percent, in line with our previous
forecast.
Q9) How did the TAP joint venture perform in the quarter?
A9) Income from the TAP joint venture of $101 million was in line with
our previous expectations for the quarter. Total TAP sales were
$785 million, up 3 percent. Prevacid sales were up 4.5 percent,
while Lupron sales were down 1.5 percent, consistent with the
full-year outlook for both products. We continue to expect full-year
2006 income from the TAP joint venture of $450 million to
$475 million.
Q10) How is the new Abbott Nutrition International division (ANI)
reflected in reporting?
A10) The international nutrition business, formerly a part of Abbott
International (AI), was realigned as a new division, Abbott Nutrition
International (ANI), for 2006 reporting. This was done to enhance
the strategic focus of this large and rapidly growing business,
positioning it to maximize the many opportunities in nutritional
markets around the world. As a result, sales performance of ANI will
now be reported in the quarterly earnings release, as will Abbott
International, which is now focused solely on pharmaceuticals.
The following table provides a comparison of the new reporting
structure to the prior year:
1Q06 1Q05
New Reporting
Structure As Reported
Abbott International (Included
Pharmaceuticals and Nutritionals in
2005) --- $1,753
Abbott International (non-U.S.
Pharmaceuticals only in 2006) $1,447 ---
Abbott Nutrition International
(Nutritionals only in 2006) $376 ---
Total $1,823 $1,753
The historical results of this new reporting structure are as
follows:
As Reported 2006 Reporting Basis
Abbott Abbott
International ANI International
2004
1st Quarter $1,496 $287 $1,209
2nd Quarter $1,508 $313 $1,195
3rd Quarter $1,445 $314 $1,131
4th Quarter $1,717 $349 $1,368
Total $6,166 $1,263 $4,903
2005
1st Quarter $1,753 $318 $1,435
2nd Quarter $1,770 $361 $1,409
3rd Quarter $1,644 $366 $1,278
4th Quarter $1,800 $369 $1,431
Total $6,967 $1,414 $5,553
Company News On-Call: http://www.prnewswire.com/comp/110328.html Website: http://www.abbott.com/ |
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