When these costs are taken out, earnings actually arrived at $1.51 per share — beating Street estimates by $0.01. Likewise, revenue advanced 4.4% to $10.84 billion. This is despite an unfavorable currency rate that lowered revenue by 1.2%. Even then, Abbott was still able to top Street estimates of $10.58 billion — helped by a 10.2% increase in the nutrition business.
That said, the company now needs to diversify itself better since the split from AbbVie Inc (NYSE:ABBV). While it’s great that the nutrition business performed so well, it now accounts for roughly 30% of Abbott Laboratories (NYSE:ABT)’s overall revenue for 2012 when adjusting out the $18 billion pharmaceuticals revenue. This makes me feel uncomfortable. This over-reliance might become problematic down the road, especially since the rest of the results were mostly mixed — aside from a 5.7% growth in the diagnostics business, there wasn’t much to write home about.
OK, now what…
With a 1.7% decline in 2012 in device sales, a case can be made that Abbott is losing share to Johnson & Johnson, which just recently posted 13.7% growth in devices revenue, helped by Johnson & Johnson (NYSE:JNJ)’s Synthes acquisition. I’m willing to say this even though the devices business is broad in definition. But with the “new Abbott” now under way, investors should expect better relative results going forward. And for Abbott Laboratories (NYSE:ABT) to get the Street to believe, management has to deliver against Johnson & Johnson (NYSE:JNJ), which is arguably the standard in the business.
To that end, management issued guidance that suggests that things will get better. For the full-year 2013, the company expects earnings of $1.39 to $1.45 per share. When excluding certain items such as cost-reduction, guidance picks up to $1.98 to $2.04 per share, which is higher than Street estimates for $1.95. Management seems more confident than the Street.
Be that as it may, it’s worth noting here that when the full-year earnings-per-share is factored into the current price of $34, this pushes the P/E ratio to more than 16. This is no longer the very “cheap” territory, but given management commitment toward long-term growth, share buybacks, and dividends, there are much more risky bets out there.
The article What’s the Deal With Abbott Labs? originally appeared on Fool.com and is written by Richard Saintvilus.
Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.
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