Abbott Laboratories (ABT) Changes Its Focus

Abbott Laboratories (NYSE:ABT)‘  first-quarter earnings were boosted by its nutritional product lines, which include baby formula Similac, adult drink Ensure, and Glucerna bars. In January 2013, the company decided to move away from branded pharmaceuticals, splitting the business into AbbVie Inc (NYSE:ABBV) The company’s focus has turned to the nutritional products market.

The nutritional products sector is growing rather quickly, especially in emerging markets such as China and India. In the past five years, Abbott Laboratories (NYSE:ABT) has made substantial investments to meet demand in these markets by building, manufacturing, and investing in research and development facilities.

Pediatric nutrition is a particularly hot niche within the nutrition market; global sales in this sector rose by more than 20% compared to an increase of 9% in overall global nutrition sales. Abbott’s Q1 pediatric nutrition sales were $987 million, an increase of almost 2.5%; overall nutrition had sales of $17 billion, a rise of 8.7%.

Despite bright prospects expected in their nutrition business, Abbott Laboratories (NYSE:ABT) had disappointing Q1 profits of $544 million, compared to $1.2 billion in the year-ago period when pharmaceuticals were still a part of the business and the company was cashing in on the high demand for the arthritic drug Humira. According to Forbes, the company also reported higher expenses due to cost-cutting measures and higher tax implications. These seem to be growing pains as the company shifts its focus away from branded pharmaceuticals.

According to Forbes, CEO Miles White projects that the company’s future lies in meeting the demand of emerging markets such as India, China, and Brazil. Emerging market sales totaled $2.2 billion, and made up more than 40% of Abbott’s total Q1 sales. These markets provide opportunities, such as higher spending on health care, and challenges, such as austerity measures that have adversely affected sales. Abbott Laboratories (NYSE:ABT)plans to expand and add more facilities in China, India, and Singapore.  According to White, these facilities helped the company bring 19 new nutritional products to market in Q1.

In contrast, rival Nestle reported Q1 organic growth of 4.3% and a full year outlook of growth between 5% and 6%. Sales increased 5.4%. Nestle is also experiencing good results in emerging markets, where business grew 8.4%. Infant nutrition grew by double-digits in Q1, and the company was able to gain market share in Russia, France, Brazil, and other countries.