Abbott Laboratories' CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Abbott Laboratories (ABT)

Abbott Laboratories (NYSE:ABT)

Q4 2012 Earnings Call

January 23, 2013 9:00 a.m. ET


Brian Yoor - Vice President of Investor Relations & Public Affairs

Miles D. White - Chairman, Chief Executive Officer and Chairman of Executive Committee

Thomas C. Freyman - Chief Financial Officer and Executive Vice President of Finance


Michael Weinstein – JP Morgan Chase & Co.

David R. Lewis - Morgan Stanley

David Roman - Goldman Sachs

Rajeev Jashnani – UBS Research

Glenn Novarro - RBC Capital Markets

Larry Biegelsen – Wells Fargo


Good morning, and thank you for standing by. Welcome to Abbott's Fourth Quarter 2012 Earnings Conference Call. (Operator Instructions) This call is being recorded by Abbott. 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's expressed written permission. I would now like to introduce Mr. Brian Yoor, Vice President, Investor Relations.

Brian Yoor

Good morning, and thank you for joining us. Joining me today on the call will be Miles White, Chairman of the Board and Chief Executive Officer; and Tom Freyman, Executive Vice President, Finance and Chief Financial Officer. Miles will provide his opening remarks in our 2013 outlook. Tom will then provide a brief overview of our fourth quarter and full year 2012 performance as well as some additional detail on our 2013 outlook and guidance. I will then provide highlights and guidance for each of our major businesses. Following our comments, Miles, Tom and I will take your questions. Please note that our discussion of 2012 performance will include results of what is now AbbVie. However, AbbVie will provide additional highlights and details of their 2012 performance and 2013 outlook on their call Next Wednesday, January 30.

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 planned separation of the research-based pharmaceutical company from the diversified medical products company and the expected financial results of the 2 companies after the separation.

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. 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 Securities and Exchange Commission Form 10-K for the year ended December 31, 2011, and in the interim reports filed on form 10-Q for subsequent quarterly periods. 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.

In today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings release and regulatory filings from today, which will be available on our website at

With that, I will now turn the call over to Miles.

Miles White

Okay, thanks Brian. Good morning. This morning I will review our 2012 results and our outlook for 2013.

Abbott reported another year of strong performance in 2012 and executed on a number of key actions that will drive future growth for the company. On January 1, we launched AbbVie as an independent Fortune 200 biopharmaceutical company. The creation of AbbVie is a significant event in Abbott’s history and our ability to change is the reason that Abbott has endured as evidenced by the fact that in 2013 we also enter our 125th year well positioned for future success.

As we announced this morning, we expect to deliver another year of strong performance. We issued ongoing 2013 EPS guidance of $1.98 to $2.04, representing double digit growth over 2012. I’ll talk more about the year ahead in just a moment. As Brian mentioned, our fourth quarter and full year 2012 results are for total Abbott and include the proprietary pharmaceutical business.

So for the full year 2012, Abbott delivered ongoing EPS growth that exceeded our initial guidance range. We also generated record operating cash flow of more than $9 billion, returning more than $3 billion to shareholders in the form of dividends. We’ve increased our dividend payout for 40 consecutive years. Abbott is one of only a handful of companies to deliver with such consistency.

Since our separation announcement in October 2011 to the end of last year, Abbott stock price appreciation and dividends generated a total shareholder return of nearly 30%, compared to the S&P 500 return of somewhat above 19%.

Before I review our business results, I want to spend a few minutes on the longer term outlook for the company, with the expectation that Abbott will be one of the largest and fastest growing diversified healthcare investments. Over the last several years we recognized the significant economic and demographic shifts that are changing the healthcare industry, including the development of healthcare systems and improving economic conditions in emerging economies, a global population that’s growing older and living longer, resulting in an increase in age related and chronic diseases, and the increasing focus on the type of innovation that reduces costs for payers in addition to improving outcomes for patients and delivering value to customers.

Abbott is well positioned to become a leader in this new environment. We’re balanced across four business segments; Branded Generics, Medical Devices, Diagnostics and Nutrition. These businesses also provide us with a diverse customer base and payer mix. We are more weighted to the growth that’s taking place in emerging economies, with the expectation that 50% of our sales will occur in these faster growing economies and geographies by 2015.

We hold leadership positions across all of our major businesses. We have many opportunities in our broad based pipeline. This includes next-generation diagnostic systems, medical devices in coronary, endovascular and structural heart, as well as innovations that are important to our customer facing businesses in branded generics and nutrition. These businesses have more rapid R&D cycles focused on brand enhancements, local solutions and improved formulations and packaging. And we remain focused on financial discipline and operational execution as we expand margins and continue to generate very strong cash flow, upwards of $4 billion this year.

Moving on to our 2012 results and outlook for the businesses that comprise the new Abbott. Full year 2012 new Abbott sales increased mid-single digits operationally, adjusted for the transitional items we have discussed before. The impact of Promus royalty revenues and our direct distribution initiatives in nutrition. Emerging market sales for new Abbott which represented nearly 40% of sales continued to drive growth increasing double-digits operationally. As we have discussed over the past year, going forward Abbott will be comprised of four roughly equal sized businesses and I will provide a brief overview of each.

In our established pharmaceutical division, or EPD, we are generating in international sales from a large and growing portfolio of hundreds of branded generic pharmaceuticals that have broad use throughout the world. 60% of EPDs sales are in emerging markets and 40% are in developed markets. While full year 2012 sales in developed markets were impacted by austerity measures, sales in emerging markets generated strong growth. EPD has a number of early stage geographic and product expansion initiatives underway, including more than 150 registration approvals and new product launches expected in 2013.

As these initiatives generate new growth opportunities and as faster growing emerging markets become a larger percentage of EPDs sales base, we expect to see steadily improving growth. Our medical device businesses include diabetes care, vision care, and vascular devices. In diabetes care in 2012, we continued the global rollout of our FreeStyle InsuLinx glucose meter. It’s the foundation of our diabetes pipeline where we are focused on addressing the needs of insulin users. In 2013, we are planning on several new product and software launches as well as initiating our pivotal clinical trial for our next generation sensor that we expect to first bring to the European market by the end of 2014.

In vision care we launched several new products in 2012, primarily in our cataract business which now represents nearly 65% of our vision care sales. We have outpaced the growth of the cataract market driven by double-digit growth in emerging markets and share gains in the premium intraocular lens segment led by our TECNIS brand. Cataract surgery remains the number one surgical procedure in the world and it’s a market that will continue to grow as the world’s population ages.

And in vascular devices, we are seeing this business grow most rapidly outside the United States where we now have more than 60% of vascular sales. We launched several important new products last year that solidified our position as the number one vascular device company globally. And as we look to 2013, we expect to accelerate growth by first gaining share with our leading drug-eluting product portfolio. We launched our new Xience Xpedition drug-eluting stent in Europe in August, and in the U.S. this month. We expect to launch Expedition in Japan mid-year.

Second, building on the 2012 international launch of ABSORB, the world’s first and only bioresorbable vascular scaffold, which is now available in more than 30 countries including most recently India. Our pivotal clinical trial for U.S. approval is also now underway. Third, accelerating sales of our structural heart device, MitraClip, in international markets. We are planning for an FDA panel in the first half of this year as we work to bring this important product to the U.S. market.

Four, expanding our market share in endovascular, where we are applying our expertise and developing best in class coronary devices to increase our penetration of this faster growing market. And finally, driving continued strong growth in emerging markets where interventional procedures are growing double-digits and penetration remains low. This geographic segment comprises more than 20% of total vascular sales and has been growing at a strong double-digit pace. We expect this type of growth in emerging markets to continue in 2013.

Diagnostics had another impressive year in terms of both sales and margin growth. Full year 2012 operational sales increased more than 7% and operating margin approached 19% of sales. We expect another year of strong performance in 2013. Core Laboratory Diagnostics delivered 7% operational growth for the full year. 80% of this division sales occur outside the United States with more than 35% of sales in emerging geographies. We are focused on China, Brazil and Russia, which combined have grown 30% year-to-date. China is our largest growth opportunity where we have seen an increasing demand for industry-leading systems such as ARCHITECT and PRISM, as this country continues to invest to improve its healthcare system.

Molecular and point of care round out our diverse portfolio of diagnostics offerings. We’re growing both businesses as we increase penetration of systems and tests in the developed world and expand in emerging markets.

We also plan to launch several new instrument platforms across our diagnostics portfolio over the next several years. These systems add new features that are important to our customers such as speed, scalability and shorter turnaround time. Lowering cost is also a major design objective for these programs.

While we’ll invest in diagnostics R&D at a somewhat higher level in 2013 to deliver these future growth opportunities, we expect continued steady expansion of diagnostics operating margin over the year ahead. We remain on track to well exceed our original target of 20% of sales over the next few years.
And finally, our nutrition business had a very strong fourth quarter, with worldwide operational sales growth of 10%, building continued momentum for 2013.  Nutrition is the fasted growing business in our portfolio and has the most opportunity for margin expansion.

In 2012, we had a number of key achievements that continue to position us well for future growth. In the U.S, we saw strong growth across our key brands, maintaining our leading infant formula share with Similac and delivering double digit growth of both PediaSure and Ensure.

Outside of the U.S, emerging market sales comprised more than 40% of our nutrition sales and they grew double digits for the full year for both pediatric and adult. We’ve seen outstanding productivity from our R&D organization, with 80 product launches in 2012.

We made good progress on the expansion of global capacity in the U.S, China and India. Our three new manufacturing facilities are expected to come online by early next year. And we exceeded our 2012 expectations for operating margin improvement and remain on track for our goal of exceeding 20% of sales by 2015.

So in summary, New Abbott is a diversified, differentiated, large capital care investment opportunity well positioned to deliver top-tier growth and as we look to the future, we see significant opportunity ahead. We hold leadership positions across our major businesses and we’re delivering customer focused innovation. Our portfolio is aligned with favorable demographics that are driving growth in healthcare. We have a large presence in rapidly growing emerging markets. We’re focused on expanding margins across our businesses and we have strong cash flow generation which will provide ample resources for investments in future growth and returns to shareholders.

I’ll now turn the call over to Tom who will review 2012 results and the 2013 outlook in more detail. Tom?

Thomas Freyman

Thanks Miles. Before I review our financial performance, I’d like to explain how we’ll handle the transition from pre-separation Abbott results to post-separation Abbott results. In our remarks today regarding 2012, our results reflect all of the pre-separation businesses, including the proprietary pharmaceutical business. Our 2013 guidance and outlook will reflect only the new Abbott businesses.

Regarding 2013 comparisons to 2012 for New Abbott, we plan to provide investors with a post-separation base line of the quarterly income statement on both the GAAP and non-GAAP basis with appropriate reconciliations prior to our first quarter earnings release in April. This will be for 2012. In order to provide this information, we must first complete in the coming weeks the so-called audited carve out of AbbVie results from Abbott’s combined fourth quarter results.

So while we don’t have the final 2012 baseline established as of today’s call, we understand that investors are looking for perspective on 2013 growth rates on both the top and bottom line. With that in mind, today we’ll provide you with our projections of full year sales and ongoing earnings per share growth in 2013 over an estimated 2012 baseline. Please keep in mind the growth rates against the actual 2000 baseline may change somewhat once the final 2012 carve out is completed.

Let’s move on to our fourth quarter and full year 2012 results for the total company. We’re very pleased with how we ended 2012 as we exceeded our initial expectations for ongoing earnings per share for the full year. For the fourth quarter, we reported ongoing diluted earnings per share of $1.51, in line with our previous guidance range.

Sales for the quarter increased 5.6% on an operational basis and 4.4% on a reported basis, that is including an unfavorable 1.2% impact from foreign exchange. These results are in line with the expectations we provided on our third quarter call.

We continue to see strong growth in emerging markets particularly as Miles mentioned in those businesses that will comprise New Abbott, with these sales growing double digits on an operational basis in the quarter. As we discussed in previous quarters, sales growth trends for New Abbott businesses have been affected by two factors that are transitional in nature. First, the phase out of Promus royalty revenues in our vascular business. This impacted year-over-year sales growth in 2012 and continues into the first quarter of 2013 for Japan sales. And second, the shift to direct distribution in certain markets in our international nutrition business. Adjusting for these transitional factors new Abbott operational sales growth would have been in the mid-single digits for the fourth quarter and the full year 2012.

The fourth quarter adjusted gross margins ratio for the total company was 63.3%, in line with expectations including a negative exchange effect of 130 basis points. Recall from our third quarter call that we expected the trend of favorable foreign exchange impact on the gross margin ratio that we had seen through nine-months to reserve in the fourth quarter and continue into 2013. This is what’s occurring as we anticipated. Excluding the impact of exchange, our underlying ongoing gross margin ratio improved by around 80 basis points.

Overall, as we look at 2012, we delivered a strong ongoing earnings per share growth despite a challenging environment and a foreign exchange headwind on sales of almost 3%. We generate record full-year operating cash flow of more than $9 billion in 2012, exceeding our initial expectations and our forecast for the fourth quarter. And we delivered these results while we successfully launched AbbVie.

Looking ahead to 2013, as of January 1, Abbott and AbbVie began operating as independent companies. As indicated, all my remarks for 2012 were for the entire pre-separation results of legacy Abbott, the guidance I will now provide reflects the outlook only for new Abbott. The AbbVie management team will discuss its outlook on a separate conference call next week. Today we issued full year ongoing earnings per share guidance of $1.98 to $2.04. As previously discussed, our non-GAAP ongoing EPS metric going forward excludes the impact of intangible amortization expense forecasted at $0.40 per share in 2013, as well as other specified items discussed in our earnings news release.

We believe this metric provides a meaningful measurement for assessing Abbott earnings power and growth. The mid-point of our guidance range represents double-digit ongoing earnings per share growth based on an estimated 2012 ongoing EPS base line. Sales for those businesses comprising new Abbott approached $21.5 billion in 2012. Consistent with financial profile expectations we communicated on our third quarter call, we expect 2013 full year operational sales growth, that is excluding the impact of foreign exchange, in the mid to high single digits.

While the impact of exchange varies across our businesses, based on current exchange rates we would expect exchange to have a slightly negative impact overall on our full year reported sales. Brian will review our growth outlooks by business in a few minutes. From a geographic perspective, we expect continued double-digit full year operational sales growth in emerging markets for 2013. As we have discussed before, approximately 70% of Abbott sales are generated outside of U.S. and approximately 40% of sales are in emerging markets, which we expect to continue increasing as a percent of Abbott’s total sales overtime.

We are forecasting a full year ongoing adjusted gross margin ratio, again excluding intangible amortization expense of approximately 55% consistent with the modeling guidance provided on the third quarter call. We are forecasting continued investments in R&D to drive long-term growth in 2013 and beyond with full year ongoing R&D of 6% to 7% of sales. We forecast ongoing SG&A expense somewhat above 30% of sales for the full year 2013. We expect this ratio to decline as we progress through the quarter this year and it reflects meaningful leverage over 2012 -- the 2012 estimated base line.

I would note that SG&A includes the estimated impact from the medical device tax under the U.S. Affordable Care Act that begins in 2013. Overall, we expect to expand our full year ongoing operating margin by around 100 basis points in 2013. We are forecasting net interest expense of around $110 million in 2013. Non-operating income of approximately $20 million and around $50 million of expense in the exchange gain/loss line of the P&L. We are projecting the full year tax rate in 2013 at around 21%, which now includes the 2013 U.S. R&D tax credit enacted into law at January 2.

As we move into the post-separation period, 2013 will also be the first year we report quarterly results for New Abbott. Certain items that span both 2013 and 2012 are expected to affect the quarterly comparisons to the 2012 baseline. These include the impact of exchange rates on sales and margin between the years, a line down of Promus revenues in Japan in the first quarter of 2013 and non-operating income recorded in 2012. We expect these anomalies to result in less ongoing earnings per share growth in the first half of the year and more in the second. However, after adjusting for these items, the underlying earnings growth for New Abbott each quarter is forecasted to be strong and more in line with our full year outlook for double digit ongoing EPS growth.

Today and as we progress through the year, where significant, we will communicate in advance these types of items that would affect upcoming quarterly earnings comparisons to 2012. So specifically, with regard to the first quarter of 2013, today we’re providing ongoing EPS guidance that is before specified items of $0.40 to $0.42 per share. We forecast specified items of approximately $0.17 in the first quarter, reflecting intangible amortization expense, separation cost and cost reduction programs.

Our operational sales growth in the first quarter is expected to be low to mid-single digits off of 2012 baseline approaching $5.3 billion. At current exchange rates, the first quarter is our most difficult sales comparison with almost 1.5% negative impact from exchange which would result in reported sales growth in the low single digits. We expect the last quarter of the winding down of Promus in Japan be a sales headwind of somewhat less than 1% in the first quarter.

We’re forecasting an ongoing adjusted gross margin ratio, again excluding intangible amortization expense, that approaches 55% in the first quarter, ongoing R&D at around 7% of sales and ongoing SG&A expense of a little over 32% of sales. Finally I’d note that we had around $40 million of non-operating income in the first quarter of 2012 related to a contractual settlement which is non-recurring in 2013.

At this time, we’d also like to provide an early view of the ongoing P&L profile of the system as we see it in the second quarter of 2013. At this time we forecast operational sales growth in the second quarter in the mid to upper single digits off of 2012 baseline of around $5.3 billion. We currently expect the second quarter gross margin to be negatively impacted by year-over-year effects of exchange. So at this point, we forecast the adjusted ongoing gross margin ratio at around 54.5% of sales in the second quarter. We forecast ongoing R&D expense at around 6.5% and ongoing SG&A expense falling below 32% of sales in the second quarter of 2013.

So in summary, we delivered a strong ongoing earnings per share growth in 2012, which exceeded our initial forecast, while at the same time executing the steps necessary to launch AbbVie as an independent company. Our 2013 outlook for Abbott reflects strong performance on the topline and double digit ongoing EPS growth as we continue to build Abbott to be a top-tier performer in the years ahead.

With that, let’s turn to the business operating highlights. Brian?

Brian Yoor

Thanks Tom. This morning I’ll provide a brief overview of the fourth quarter and full year 2012 performance for each of our major businesses that comprise the New Abbott. I’ll also review our 2013 sales outlook by business. My comments will focus primarily on operational sales growth, which excludes the impact of foreign exchange.

I’ll start with our established pharmaceuticals business or EPD, where sales in the fourth quarter and the full year increased in the low single digits on an operational basis. Full year 2012 sales in the emerging markets grew high single digits on an operational basis, with the BRIC and key emerging markets growing mid-teens. This growth was largely offset by mid-single digit declines in developed markets where austerity measures impacted performance.

In 2013, we expect to accelerate operational sales growth from the low single digits into the mid-single digits by executing on a number of product and geographic expansion initiatives. We’re also moving a large number of registrations through our pipeline and regulatory approval process. This includes increasing the breadth of our product offerings by launching new and improved formulations of our current trusted brands such as Creon and Brufen as well as launching new products, such as Amitiza which we recently launched in Japan; expanding geographically, including registrations of numerous productions across multiple geographies such as Central and Eastern Europe and Africa. And accelerating and capturing new sources of growth through select licensing agreements. Through our agreement with [Noble] in Turkey, we are expanding our cardio-metabolic offering and through our agreement with Zydus we are launching new products into key Eastern European markets.

We expect to deliver double-digit growth in emerging markets in 2013 growing faster than the market in many key countries where we have strong positions. We are particularly focused on the BRIC markets as well as several additional key emerging markets. We expect our total emerging markets sales base to increase to approximately 65% of total EPD sales in 2013, up from 60% of EPD today.

So for the full year 2013 in EPD, we expect mid-single digit operational sales growth with continued strong bottom line performance. At current exchange rates this business would be relatively more impacted by exchange in 2013, so we would expect full year reported sales growth in the low to mid-single digits. For the first quarter of 2013, we expect low single digit operational growth with higher sales growth in the second half of 2013. Including the impact of foreign exchange, we expect a low single-digit decline in EPD sales in the first quarter.

Moving on to medical devices. In diabetes care, global sales in the fourth quarter increased more than 4% on an operational basis. In the U.S. in the retail segment of the market, we continued to grow faster than our competition and moved into the number two market position during 2012. Outside of the U.S., sales growth was driven by share gains in key emerging markets and continued uptake of our FreeStyle InsuLinx meter. Looking ahead to 2013, we expect sales to be relatively flat on an operational and reported basis. While we expect continued growth in key emerging markets, the 2013 implementation of CMS competitive bidding for Medicare patients will impact sales in the U.S.

In vision care, global operational sales increased in the low single-digits for the fourth quarter and the full year. While our LASIK business continues to be affected by economic conditions, we have seen a steady acceleration in the growth of our cataract business which now represents nearly 65% of our global vision care sales. We also saw continued strong double-digit cataract growth in emerging markets including strong performance in India and China. For 2013, we expect low single-digit operational and reported sales growth in our vision care business driven by continued growth in cataract sales and continued emerging market expansion.

In our vascular business, adjusted for the impact of non-commercial revenues including Promus, full year worldwide vascular sales increased 3.5% on an operational basis. As a reminder, while the impact from the U.S. Promus transition was completed last year, the impact from the Japan Promus transition will continue into the first quarter of 2013. Global sales in the fourth quarter of 2012, adjusted for the impact of non-commercial revenues and foreign exchange, increased modestly. International sales which comprised more than 60% of total vascular sales, increased 8% operationally. This was primarily offset by the expected decline in U.S. XIENCE sales reflecting drug-eluting stent market dynamics as well as the difficult comparison to the fourth quarter 2011 when XIENCE PRIME was launched in the U.S. market.

International sales represent nearly 70% of our drug-eluting coronary product portfolio which now includes both our market leading XIENCE stents as well our new bioresorbable vascular scaffold ABSORB. International DES sales increased nearly 13% on an operational basis in the quarter. We expect to increase market share in 2013 with the continued global launch of our new more deliverable XIENCE Xpedition drug-eluting stent and our BVS ABSORB. Since our launch of both new products last year in Europe, we have seen meaningful share gains, solidifying our deliverability advantage with Xpedition and establishing a new path forward in this market with ABSORB.

In endovascular, sales increased in the low-single digits in the fourth quarter and on an operational basis, including continued strong growth internationally. In structural heart, MitraClip, which is our first in class treatment for mitral regurgitation, continues to see strong demand outside of the United States with sales of nearly $30 million in the fourth quarter. We have nearly doubled our 2012 sales over 2011 and plan to nearly double sales again in 2013.

Starting this month, MitraClip will receive formal reimbursement coverage in Germany which is where the majority of MitraClip procedures occur today.

Looking ahead to 2013, we expect low to mid-single digit operational and reported sales growth for our vascular business, driven by several new product launches as well as continued strong growth internationally, particularly in emerging markets. For the first quarter of 2013, including the impact from the wind down of the Promus transition in Japan and foreign exchange, we expect reported sales to decline in the low single digits. Adjusting for both of these items, we expect first quarter sales to increase in the low single digits.

Moving on to Diagnostics. In Core Lab Diagnostics, operational sales increased nearly 6% for the fourth quarter and 7% for the full year. As Miles mentioned, emerging market sales represent 35% of total sales, an increase in the mid-teens for both the fourth quarter and the full year. We expect the emerging markets to represent more than 40% of Core Laboratory Diagnostics sales in the next several years.

In addition to delivering strong sales growth, we are also delivering on our pipeline. We recently launched two new tests on our architect platform that continue to broaden our menu and differentiate us from the competition. In the coming months, we’re also launching a next-generation automation solution to improve efficiencies in the lab.

In Point of Care Diagnostics, worldwide sales increased more than 14% on an operational basis. And in Molecular Diagnostics, worldwide sales increased 5% on an operational basis for the fourth quarter. For 2013, we expect our worldwide diagnostics businesses, including Core Laboratory Diagnostics, Point of Care and Molecular to generate mid to high single digit operational and reported sales growth, with double digit growth in both Point of Care and Molecular Diagnostics.

And finally in our nutritionals business, global sales increased 10% in the fourth quarter on an operational basis, driven by high single digit growth in the U.S and double digit growth internationally. In the U.S, pediatric sales increased more than 8% during the quarter, including strong double digit growth of both our PediaSure and Pedialyte toddler brands.

U.S adult sales also increased double digits, driven by continued strong growth of Ensure where we’ve continued to launch new innovations to drive sustainable growth. Outside of the U.S, pediatric sales increased 14% on an operational basis in the quarter. We launched several new products in the fourth quarter in key global markets, including the continued rollout of our Similac, Total Comfort infant formula brand, as well as other specialty toddlers’ products. Adult nutrition sales increased mid-single digits driven by continued strong growth of both Ensure and Glucerna.

We also made significant progress during the year on our margin expansion initiative in nutrition. For the full year 2012, our operating margin improved nearly 250 basis points over 2011. Key drivers of improvement in this division remain focus on driving down manufacturing costs, reducing freight and distribution costs, focusing our products and geographies on profitable growth and optimizing our supply chain.

So as we look ahead to 2013 for our global nutrition business, we’re forecasting sales to approach double digit growth on an operational and reported basis. This includes low to mid-single digit growth in our U.S business and double digit growth in our international business.

So in summary, in 2012 we completed our planned separation into two leading global healthcare companies and demonstrated strength through our financial performance. As we move into 2013, Abbott is well positioned to deliver durable, top-tier growth as a diversified healthcare company, one with a broad and balanced portfolio of leadership businesses that are aligned with favorable demographic and healthcare trends.

We will now open the call for questions.

Question-and-Answer Session


(Operator instructions). Our first question today is from Mike Weinstein from JP Morgan.

Michael Weinstein – JP Morgan Chase & Co.

I have a bunch of questions. Let me start with, could you just spend a minute, Tom, on the spread between the GAAP and cash guidance for 2013. It’s obviously more than the amortization expense. So are you just assuming certain charges that will run through over the course of the year and that’s why the GAAP numbers are off?

Thomas Freyman

Yeah. There’s two basic things happened beyond amortization. There’s a little bit of post-separation. I call it residual separation cost and there’s some previously announced actions we took in areas of cost reduction, particularly in areas that impact manufacturing that do carryover into 2013. So that’s the difference.

Michael Weinstein – JP Morgan Chase & Co.

Okay. And then can you -- two questions, one, do you have, Tom, a new Abbott EPS number at this point for 2012. And the second, can you aggregate up all the divisional revenue guidance to what your organic revenue guidance is in reported revenue guidance for 2013 for the total company.

Tom Freyman

On the second point, we provided mid to upper overall operational growth as guidance for 2013 and if you were to go through all the details that Brian outlines in his remarks, those details will build up to that type of growth. So I think you will find that certainly this all hangs together. With regard to the 2012 base line, as I spent a few minutes in my remarks, we need to provide investors and we plan to do so before the first quarter call with the adjusted 2012, effectively continuing operations base line for new Abbott. As I indicated in my remarks, we can't really do that until we have completed this carve out work which we still need to complete the fourth quarter which we are going to do in the coming weeks.

And once we do that, we will be provide you detailed quarterly GAAP and non-GAAP reconciled P&L base line, if you will. But of course we have done some modeling, and as we model it and based upon this guidance range and if you take the middle of this ongoing range we have provided, that would be double-digit growth plus over what we believe the 2012 base line will come in at. So I think things are very consistent with what we have been saying and it just kind of takes us a little bit of time to come up with the precise numbers.

Among the challenges we will have when we present that is just effectively normalizing capital structure between the year. As you know when we look at the carve out of AbbVie, AbbVie did not have debt in the carve out. They do have debt going forward. Abbott will have less debt than what we have had historically in the implied carve out of the Abbott side. So there will be some adjustments in those areas where we will build a 2012 base line that’s meaningful relative to how we are growing the business in 2013. Hopefully that answers your question.

Michael Weinstein – JP Morgan Chase & Co.

Yeah. And then maybe, Miles, I want to zip it on this last one. But EPD is probably the business that people have probably the least amount of visibility into and probably the least amount of conviction in terms of sustainability of mid to high-single digit growth which you guys have talked about. Can you just talk a little bit about the strategy to accelerate growth of those, what looks to be a subpar year in 2012?

Miles White

Yeah, I think you are right. I think people do lack a certain understanding or visibility to the business, Mike. And I think it comes from two major dimensions. One is, there is a lot less, call it publicly available sources of data for a lot of the countries that make up this business, at least for you know analysts and investors to have an independent look at. And there is a lot of countries here as you know. But I think the first thing is that the absence of that and the second is, this is a business that’s a segment business. Meaning there is a proprietary pharma business in a lot of countries, there is a commodity generic business in a lot of countries, and there is a branded generic business. And they are all three different. They are different.

And this branded generic business is quite large and much more like our nutrition business. It’s very consumer facing and a lot more like that in terms of consumer choice, consumer pay etcetera. And that’s why some of the lack of complete understanding and so on. The business however is quite attractive. It’s very profitable, it’s quite attractive. It’s growing very nicely. But it’s a story of really two geographies and maybe two market segments.

60% of the business now is in what we will characterize as emerging or growth markets and 40% of it is in developed markets. And those developed markets as you know, have been under a fair amount of austerity pressure. So if I were going to [do you] an upgrade, so we get a tale of two different segments here. The BRIC countries and the other emerging markets and so forth depending on which markets, are either growing very high single digits or mid-teens, double-digits etcetera on the sales line. And so the emerging markets collectively grow in double-digits, very healthy. But Europe, in particular, is experiencing the kind of austerity pressure on pricing and utilization that it’s experiencing for many products, even outside of healthcare.

So the developed markets have been down in the last quarters mid-single digits and sort of two steps forward, one step back for a while here. So there’s a couple of things that will evolve, that will drive EPD’s growth. We believe very strongly in the growth in the various emerging markets. That will be driven by the launch of new products, of which there are many this year, new registration. So, the expansion of our product lines and the launch of new or improved products that have significant potential in these markets. So that will drive some of it. We’re still rolling out geographic expansion. That will drive some growth and then we’ve got good momentum in a number of these markets. So I think certainly on the emerging side, it’s all going, I’d say pretty much according to what we would expect.

The European piece or developed market piece, in effect we’re talking about Europe, I’d say if that can stabilize and that’s getting an awful lot of attention from us from a stability standpoint, that would help. If you can stem the bleeding in Europe, that would be a tremendous plus. It is a profitable business. It is a cash generating business, but from a growth, when you meld the two together, the appearance of growth appears to be diluted of course as you point out and what we’ve got to do is I think break out on an ongoing basis here and communicate for investors so they can see both pieces because they’re really two different tales.


Our next question is from David Lewis from Morgan Stanley.

David R. Lewis - Morgan Stanley

Good morning. Maybe one quick question for Tom and then for Miles. Tom, when we think about the first half of the year where you gave much better visibility, if we think about the acceleration from first to second quarter, I think it sets up nicely for the acceleration story for the whole year. So I wanted to come back to the first half of the year. I think if you think about the first quarter to second quarter, is it really two components? First, the headwinds are fading which are largely vascular as well as the nutritional distribution and that gets you from low singles to mid. I guess what I’m really asking is to get from mid to that upper end or upper single digit part of the guidance, what are the key growth areas that get you from mid to high? And if you could just confirm that to get from low to mid it’s more the vascular and nutritional distribution.

Thomas Freyman

Well, there’s a lot of things going and as I’d remind you from my remarks, the first quarter and really you’ll be looking at dollars and the Yen. The first quarter is the one quarter where we’re still getting a pretty tough exchange comparison of around 1.5 points on the topline. So that’s certainly part. You’re correct that this lapping of the Japan piece is probably the biggest anomaly. The second after that is the direct distribution getting better as we go through the quarters throughout the year. And just frankly, a lot of the execution we are expecting across these businesses, in businesses such as EPD and really the momentum we’re starting to see as nutrition exits 2012 is what’s going to continue to build throughout the year. So I think it’s a matter of building momentum.

Vascular, we shouldn’t dismiss the potential second half benefits of ABSORB and MitraClip doing better in Europe, the expedition benefits we think we’re going to get in the market. Vascular we’re expecting to see a nice pickup in momentum as we move from the first quarter on through the year. So there are a number of elements of it. Just to remind and I want to be sure from your question that it’s clear to investors, our full year estimated growth over the baseline is mid to upper single digits growth. So I think that level of growth across the quarters with maybe a little bit better in the back and as we said, a little bit softer in the first quarter is the way to think about the year. So I think there are a lot of things going on that are going to accelerate the growth and we feel confident about that.

David R. Lewis - Morgan Stanley

Very clear, Tom. And then Miles, maybe more of a strategic question. You’ve been very clear about the growth objectives and the growth potential of New Abbott. If you think about capital allocation, what should investors be prepared for over the next couple of years? You have a dividend, an extremely clean balance sheet that’s likely to get cleaner by the end of the year. So in the first two years of the development of the New Abbott growth story, is this more dividend share repurchased or is this more dividend with selective M&A? What should investors be prepared for over the next couple of years as it relates to capital deployment?

Miles White

Well, I think we've been clear that there is a certain level of dividend and share repurchase that investors have come to expect from us on a relatively reliable, steady, even growing basis. We've not been one to do big spikes of share repurchase, et cetera to – we believe more in a steady return to shareholders over time. And I think it’s important that we live to that steady and reliable return to shareholder identity. I got some feedback from investors in the fall both positive -- more positive I guess about dividend. People like the reliability of income but they always want more income. And the payout ratios between the two companies now in the split are different. They are combined greater than what Abbott paid up through the end of last year on a percent of EPS basis.

But AbbVie pays proportionality higher as a percentage of EPS, we now pay proportionally lower as a percentage of EPS. But both are growing dividends. And I got feedback from some thoughtful investors about that and I always listen to investors, but I would say at this point we have communicated at least and opening philosophy of the dividend payout. But frankly, could that change with time, it could. But I would tell you that the change is, it’s likely to increase not do anything else.

So because we actually believe in a cash return to our investors in a dividend like fashion. Now buried in your question there was that secret little, what about M&A thing. And we have had a track record in the past of occasionally adding pieces to our business when it made the most economic sense for us etcetera. And while that hasn’t been an area of high focus in the last one to two years, that’s been largely because I don’t think there has been as much that was attractive to us and we were consumed with the work required to split the companies.

As I communicated with a lot of our investors in the fall, we are always kind of paying attention and tracking what might make sense. But my criteria are always the same, it strategically has to fit. What we are doing, where we are headed, what we are trying to accomplish and so forth. And it’s got to make economic sense. Got to make economic sense, deal sense for us, it’s got to make economic and deal sense for our investors. And I would say, our track record is such we have been pretty thoughtful and pretty careful about that, been fairly selective etcetera.

I don’t rule it out, but I would tell you that the projections that we have right now for the business going forward for 2013 and beyond, don’t require it. We don’t have some gap in there where we are projecting returns or projecting growth that we don’t know that we can deliver with what we already have. So I look at the M&A opportunities or licensing opportunities as opportunistic. And if you ask me, are there some of those are on our radar screen, I would say, yes, and I had communicated that you know the categories that have attraction for us tend to be in device areas or some geographic expansion, perhaps in some selective categories of pharma etcetera, that we have communicated. But they are fairly defined. I mean they are real broad.

And beyond that I almost never project what we are going to be interested in or what we are watching or what we are doing for all the competitive reasons that you can imagine. The press seems to do a pretty good job of speculating on just about everything that comes to market that Abbott might be interested in. More often than not, we aren’t. We have got  in our own minds what we know will fit well with our business, suppose it makes for great media to speculate from time to time. But in any case, we like to keep some of our powder dry so that we are prepared if a good opportunity comes along. So we like to keep some liquidity in our hands and we don’t like to let too much liquidity sit in our hands and earn little. So we keep a balance of dividend in there.

And frankly, if we accumulate a lot of cash and we just don’t seem to finding opportunities for it, than we buy back shares and give it back to investors. I know that’s a long winded answer but that’s really kind of it.


Our next question is from David Roman from Goldman Sachs.

David Roman - Goldman Sachs

As I look across the number of the businesses in the fourth quarter, there was a nice acceleration versus a slowing in Q3. And I guess more specifically I would point out nutritionals, molecular, diagnostics, diabetes, and medical optics. Can you maybe just talk about some of the dynamics underpinning that uptick in growth? And I guess the reason I asked that is that a lot of the guidance that you are providing for certain segments also does point to growth improving throughout the course of 2013. So maybe you could just provide some perspective to the yearend turnaround? And then what are the drivers to allow that to continue and hit the numbers that you're putting out there?

Miles White

David, I'll take a little crack at framing this and then I'll let Tom and Brian chime in here. I'd say, first of all, while we like nice sequential smooth quarters, the world doesn't actually provide us that. The world doesn't act in smooth fashion. And our third quarter tends to always be, I guess I'd say the slowest of the four of the year because of obvious seasonal impacts and so forth. Whether it's exchange or any of the temporal events that Tom talked about earlier during the course of the year, that obviously has some impact too. Over the course of the year, there were a number of programs or projects that we undertook that you'd begin to see the fruition come to you in the latter part of the year to jumpstart 2013. So I'd say a lot of that is at play here and some of it's just plain old economy in some places or the launch of products taking hold.

As we look at 2013, Tom indicated, we're still lapping some of the one-time events of the early part of the year, particularly exchange and so even '13 won't look particularly beautiful in terms of smoothness. It will look like the tale of two halves; a slower first half and a much more robust second half, and that's not really a hockey stick in there as much as it’s comparisons. The underlying true growth of the business is nice and solid, and the launch and timing of products and so forth, solid. So one of our challenges for the year is giving you good visibility to that quarterly gating and what underlying momentum is. Mike called out earlier there's a need I think too for analysts and investors to know what the baseline is they're comparing to.

And so we've got to be able to give you here, I'd say, by the end of the first quarter or in the first quarter call what the quarterly breakdown is of Abbott separated from AbbVie, which this carve-out completion will give us, and then we'll be able to more precisely show you, here's the underlying momentum, here's those one-time or bigger offsets like exchange that swing so much. And then I think underneath that you'll see – we've got to breakdown as I said when I was answering Mike's question about the branded generics business, you’ve got to look at the components. You’ve got to look at the emerging market piece, you’ve got to look at the European piece, and we can show you that separately so that you can see what parts of the business are truly driving growth and where we've got our challenges with austerity measures and so forth.

So I think all of that plays in. We've got to sort it out for you, because as we know going forward this is not a business where we're tracking HUMIRA and everything else. We've got to give you some insight into all the individual pieces. I would say the underlying growth of the businesses, as we say, is significant and promising and we think it’s mid-to-high-single, and there's some events that happened over the course of the year, including product launches and so forth that drive us toward that higher single that we want to see. Brian, Tom, you guys want to add to that?

Thomas Freyman

Yeah. David, I think Brian will just cover a couple of the business as you talked about where the momentum did pick up in the quarter and give you a little more color on that. Why don't you go ahead, Brian?

Brian Yoor

Hi David. Let me start with Nutritionals. As you saw in the quarter, we performed at double-digits. We were up double-digits year-over-year, and we had strong performance both in the U.S. as well as our international business. We've been seeing strong performance out of the U.S. all year. In this quarter we saw particularly continued strong performance from our up-age toddler brands and we have PediaSure and Pedialyte there that have been performing double-digits; PediaSure, most notably consistently throughout the year. We also maintained as you know the share leadership there in the U.S. market as far as our infant formula market, where we have a commanding share lead. As we move into 2013, this may moderate a little bit, but we're up against the market in infant formula. That’s relatively flat. However, we have a lot of momentum from our PediaSure and Pedialyte that will continue into next year that will help offset that.

Also we have on our adult business has been growing very strong. It's been growing double digits in the Ensure business for the U.S. and a lot of this comes from new product launches. We've launched a lot of products across our Ensure line, most notably Ensure Complete and we're seeing that these innovations matter. And as Miles mentioned, we had 80 product launches this year across nutrition. So that's been a real differentiator for our portfolio. If you switch over to international, and you take out what we have been talking about these headwinds on the distribution, as we change how we distribute to our end customer, we have been growing double-digits in our Nutrition business. This quarter, we didn't have any headwinds from the distribution programs that we are working through, and what you're seeing is now the results coming through on a peer basis. We have very nice momentum in China, where sequentially we're gaining share and we continue to plan to do so as well into next year. And then if you take a lot of the key emerging markets in nutrition, we are growing double-digits and consistently have been.

David Roman - Goldman Sachs

Okay. That’s helpful. And then maybe as a follow up to that and maybe, Miles, you could help me think. Just on a longer-term basis where you think conceptually about the growth rate of the business and the top line, that it’s sort of a combination of emerging markets growth  driven by strengthening of those economies, lab build out, higher healthcare consumption. And what drives the acceleration in the over top line is really EM becoming a larger percentage of total and the higher segments like nutritional starting to comprising a bigger part of the business. And then a backstop on that new product launches in things like vascular and medical optics and diabetes to at least keep those businesses stable. Is that a fair way to think about the long term growth rate?

Miles White

Well, I think about the long-term growth rate in a couple of ways. First of all you are right, the emerging markets have their own tailwinds. You know their own wave, if you will. And in those markets I want a bigger surfboard to ride that wave and I think that’s a question of expanding product lines. Whether it’s registrations in the pharmaceutical business or more product innovations in the nutrition business, or taking our device businesses more thoroughly into those markets, which we are doing.

We are seeing great opportunity for all of them as those economies and those healthcare systems develop and the sophistication of medicine practice there expand. We are seeing the impact of that on diagnostics, we are seeing it in our coronary business, we are seeing it in our medical optics business. They are all benefiting from that. And the Abbott presence there and the Abbott brand there is actually a big boost to that. I would tell you that -- I recall a consultant telling me about five years ago that there was no point in diagnostics being in China. Five years later I am glad we ignored that. You know it’s a fantastic market for us. We fit well there. It’s great growth and great profitability on top of it so we are in a nice position there.

So those markets that have their own tailwind of expansion and growth are great. And it still behooves us to expand and tailor our product lines and so forth to those markets which we are doing. Developed markets are still of very high importance and interest to us. And I think that to be forthright about it, it’s a little different story. You are not relying on the tailwind of growth, you have to take share and you have to do it by demonstrating to the payor and/or the customer that your value or your cost position relative to what you deliver is valuable and worth it.

And hence our offerings in diagnostics, we will pay a lot of attention to that going forward. I think we have got great opportunity in diagnostics in these markets, in core diagnostics, that I think our business today is demonstrating already with its high single-digit growth rate, mid to high single digit growth rate in Europe and other developed countries and economies. So what we know is, in our next generation products and systems, they need to be even more cost effective for us to have a good value proposition in those markets on a sustainable basis.

So I think the developed markets are still awfully attractive to us. I think the nutrition business has shown that even in markets where birth rates are declining, we are taking share. The U.S. stent is just a prime example. And we can grow and expand and create an adult nutrition market because we can show that it’s got merit and value and in a lot of cases we are putting the clinical evidence behind our products to show that.

So there are opportunities. Our EPD business, as you know, will struggle for a while in developed markets. And we are looking at all the ways that we might staunch that. But I think -- and in our devices I would say, as has been pointed out many times by those people who followed the device markets, particularly the coronary device markets or vascular device markets. This is no longer a market where you just bring a new innovation out or a new technology, price it higher and the market expands to absorb the cost.

Today, whether it's countries in Europe or hospitals in the United States or anywhere, they've got a fixed budget. They've only got so much to spend and they are trying to make that fixed amount of money cover as much innovation as they can. And I think that means that companies like us change our strategy. We've got probably the most thorough and powerful product line, top-to-bottom, in the stent category. And our job is to take share out of a fixed revenue pool, fixed profit pool out there, and I'd say that probably forecasts a change to our strategy. And we think we've got the wherewithal to alter that strategy and take share and grow in our business and actually achieve the returns for the innovation we've invested in.

So, I think those developed markets are ones where competition is such you got to take share, and in the emerging markets you're going to ride a wave of tail-winded growth. And from our perspective, we think that the leadership positions we have in each of our businesses, the product lines we offer and the things that we have on the board for our pipeline are all well-defined and well-designed for exactly that and that we'll see lower growth rates out of developed markets, higher growth rates out of emerging markets and what I would characterize as very durable growth on ongoing basis.
David Roman - Goldman Sachs

Okay. Let me just take one real quick one here, since you didn't put numbers out on HUMIRA. Any perspective you can provide on inventory build or price versus volume growth in the quarter? It looked like a pretty good number there?

Thomas Freyman

Well, I can tell you that Rick Gonzalez won't want me answering any of his questions. I'm going to leave it for him next week to ask him about HUMIRA, because I now live in a no-HUMIRA world here.

David Roman - Goldman Sachs

I had to try. Thank you very much for the perspective and detail.


Our next question is from Rajeev Jashnani from UBS.

Rajeev Jashnani – UBS Research

Good morning. I was wondering if you could talk about the U.S. Nutritionals business and specifically the adult segment. The growth there was pretty robust and I know you've provided guidance for the U.S. Nutritionals business overall, but maybe talk about what your – what we can really anticipate over a longer period of time for the U.S. adult business and what kind of opportunities you see there? Thanks.

Thomas Freyman

As Brian indicated in his – when he answered the question a bit earlier, we've just – even though the infant side of this market is a little tougher because of birthrates and the like, we've just had outstanding brand execution on the PediaSure and the Ensure and a number of our brands really across the portfolio and it does come down to innovation. When we can bring out a differentiated product that delivers value for customers, we're finding we can take share in the various markets, and I think the team did a truly outstanding job at that in 2012. For 2013, we have a little bit lower growth expectation in that business and to the contrary a little bit higher growth expectation on the international side. So overall higher growth for the nutrition business overall and really it's just continued brand execution and more or less offsetting a flattish instant market that we've been experiencing. That's an area where clearly we'd like to continue to take share and gain some growth and the team is focused on that. So I think in the U.S., more of a mid to upper sustainable growth rate is probably more in the range, but I think that team aspires to push towards upper single growth and that's what we'll continue to target longer term as we build this business.

Rajeev Jashnani – UBS Research

And I did – this follows on to Mike's question earlier about getting to EPD and the performance in Western Europe in a little bit more detail. You talked about perhaps taking some measures to improve the performance there in Western Europe with respect to EPD. Could you go into a little bit more detail as to what your options are to change the trajectory there?

Thomas Freyman

As we've talked about before on EPD, this team is really moving into its full execution mode after coming together from the disparate businesses, a lot of focus on commercial execution in this market. And then there has been some cost management as well in this side. So we're trying to be sure that the costs are in line with the revenue opportunities and I'd say those are the two key things. We're open to product opportunities coming out of the various product pipelines, including areas like the collaborations we've had, et cetera. To the extent we can bring those to the market that should offset some of the austerity measures. The last thing I'd say is while the last 12 to 18 months have been tough from an austerity perspective, as we exit 2012 and as we go into 2013, I think we are seeing a bit of stabilization there and I think the comps in the second half of the year relative to the austerity measures should be better and hopefully the government won't be quite as aggressive as we go forward as they have been, as they've gone through this very, very difficult period the last couple of years.

Miles White

The irony of Europe is, depending on the country, but sometimes the price pressure is greater on the generic or branded generic products than the innovative products. And it depends on the country because they do protect innovation and they do protect the patented products. But once of course it’s off patent, then it's a different story. But I think we have felt a fair amount of pressure there and to some degree the impact on the business is a lot less than probably what it could have been. And I think that the innovations that we put into our products, improvements in our products, expansion of the registrations and products on the shelf or adding new products, all of that helps. And it's sort of a -- it's hard to be specific within detail because it kind of depends locally on each market, each country and the mix of product in that country, and I'd say scale that we are on the shelf in that country. But I think Tom has answered it. It's one that we're paying a lot of attention to and in the meantime while we deal with the headwinds in Europe we try to manage cost and expense very tightly.


Thank you. Our next question is from Glenn Novarro from RBC Capital Markets.

Glenn Novarro - RBC Capital Markets

Two questions, one for Tom. I wonder if you can help us with the quarterly earnings split for the year. You've given us guidance for 1Q, $0.40 to $0.42. Should we assume 2Q is in that range and then 4Q we get a big hockey stick with EPS north of $0.60? And then any commentary on share count, share repurchase? And then I had a follow-up on nutritionals?

Tom Freyman

Yeah, I'll say just a few things. First of all, when you look at the baseline of the new Abbott businesses, the patterning we're seeing in 2012, there are couple of anomalies as I talked about in my remarks. But overall in general and it's been in this way in this company for number of years with or without the pharmaceutical business, that the second half is generally a more profitable year, growth is driven harder, generally stronger, and margins are a little bit better as we are leveraging that expense base. So, I don't think the patterning you are going to see here is that much different than what you really have seen at Abbott over the years and it's just a function of the business, and as Miles mentioned for example, some of the seasonality factors.

So, I think that's one piece of it. And then when you're talking about the second quarter, I think the best thing to do is just to take the profile information I've provided in my remarks and that should give you a good sense of at least this point where we see the quarter coming out and obviously when we get into the first quarter call we'll provide a more specific guidance range. But the intention of trying to give you an early look at the second quarter was to help you kind of build that quarterly gating before we get this final baseline out in front of you. So, I think it's -- and as I said in my remarks, when you cut through the anomalies you're going to find that the year-over-year growth quarter-to-quarter is pretty consistent across the year.

Miles White

You're not going to have to wait for the fourth year to see it, Glenn, fourth quarter, rather.

Glenn Novarro - RBC Capital Markets

Okay. And then any commentary on share repurchase or shares outstanding?

Tom Freyman

Well, we had a pretty active year in 2012 and we are definitely planning a level of share repurchase for 2013. Obviously with the separate company our relative amounts perspective changes, but I think it will be meaningful and at this point we're just not going to provide forecast on what that will be.

Miles White

We continue to have robust cash flow.

Glenn Novarro - RBC Capital Markets

Okay. And then let me ask you just a follow-up on nutritional, and specifically on China. That's one area of concern that I hear with investors and that is, China in the nutritional market is slowing. And I think the investors hear that because that's commentary coming from Mead Johnson. So, Miles, can you talk about the size of your China nutritionals business and how you see that market? I'm assuming your growth is accelerating, but commentary would be helpful?

Miles White

China is an important market for us. We're not as concentrated solely in China. We're fairly-- we're in 100 countries in our nutrition business across the board, but clearly China is an important one for us, number one. Number two, investors have asked me all during the late fall, gee, are we seeing a slowing in China? The answer is no, we're not. We're actually seeing acceleration and expansion and we're expanding and our growth rate in China is pretty healthy. And I think China, I would tell you, is a very difficult market for investors, analysts, and even the manufacturers to measure from time-to-time. I did see that one of our competitors in the industry there acknowledged inventory challenges in China. It's hard to measure inventory in China and it's hard to keep track of inventory in China.

We know that. I think the large multinationals that are extremely well established have a better view of that than many. It's one of the reasons to be out of distributors and go direct. You can have a greater control over inventories and so forth. I’ve seen that some competitors have indicated that they may have inventory challenges in the market and it's a hard – if you got too much inventory in the market you might think the market is slowing. I would tell you the underlying fundamentals of that market don't appear to us to be changing of slowing. So I think that any of us from time-to-time go through little ups and downs of the absorption of our products in that market. It's such a healthy market, such a good market that I think measuring it quarter-to-quarter isn't always that informative.

You’ve got to look at it over the course of the year and I think our competitors will probably acknowledge the same that it's a very healthy market, still robust and we're all still expanding into more cities. It's intensely competitive. It’s obviously drawn a lot of competitive attention of the large four multinationals, which includes us, Mead, the Europeans do very well in that market and there's some local Chinese manufacturers in the value segments that are also growing and doing well. I don't have much to say about the market except that it's really robust, good and we're not experiencing a slowdown there, Glenn.

Brian Yoor

We have time for one more question.


And our final question today is from Larry Biegelsen from Wells Fargo.

Larry Biegelsen – Wells Fargo

Good morning. Thanks for fitting me in. Tom, let me start with a financial question. The midpoint of the old guidance that you gave was about $2.03. The tax rate came down a little bit, gives you about $0.02. So that gets you about to $2.05 and the midpoint for today's guidance is $2.01. So am I doing the math right? What changed? And the baseline operating margin -- so I think the midpoint of the operating margin guidance for 2013 in the last call was about 18.5%. What is your best guess as that what that was for the new Abbott in 2012? And then I just have one follow-up.

Thomas Freyman

I'd just like to clarify something. Obviously, this was the first time we’ve provide guidance. On the third quarter call, as we moved into our discussions on the two new companies, we felt it was appropriate to provide some meaningful profile perspectives on both companies, which we did on that call and certainly -- and I think the key message there was from a New Abbott perspective was that given the topline growth and our ability to grow the bottom line and expand margins that we saw this as a double digit grower. So this was the first time we provided guidance. Now, if you look at that profile information, a lot has changed in the world since October, but not a lot has changed in terms of our forecast. We're still very close to that profile that we provided. Tax is a little bit better because of the R&D tax credit which obviously we didn't know about back in October and we've gone through a budgeting process.

We've looked at final exchange rates, which in a number of countries have moved significantly since October and it’s just a function of completing our budget process, which is why we didn't provide guidance in October because we knew we needed to go through that process before we could provide you a meaningful guidance number. So I think what we're providing today is very, very consistent with what we've talked about in October and anything that – $0.01 or $0.02 up or down is really a function of just the process we've been going through. So I think that hopefully answers your question there, Larry.

Larry Biegelsen – Wells Fargo

Tom, and the R&D tax credit for 2012, did you pushed that into 2013? And then I just wanted to ask, on the Established Pharma, the potential impact to the new drug pricing list in India, can you talk a little bit about that? We've gotten some questions on it. I think you guys have roughly $800 million to $1 billion of exposure in India, and I'll drop. Thank you.

Thomas Freyman

Yeah. So the 2012 R&D tax credit, which as most investors know who have been following the story, very odd for all companies, the way this has to be handled. Since Congress didn't approve the law until after the 31st of December, the accounting impact of getting the 2012 credit actually becomes a 2013 accounting event. That is not reflected in our ongoing guidance. We're planning to call that out as a specified good news item, if you will, in our quarterly reporting in 2013 and that is not reflected. What is included in the guidance is the regular 2013 R&D credit, which is now law, which we can count on as we move through the year. With regard to your question on India, obviously there has been a fair amount of discussion with various ministries on the pricing environment in India.

As one might expect, this has gone through a quite a range of discussion. The most recent feedback on this was more of a market-based model, which is much more consistent with the way we view the appropriate approach towards balancing innovation and customer needs within the market. And if you look at the result of that conclusion, it's very consistent with our planning assumptions for 2013 for the established pharmaceutical division. So, at this point in time we feel good about our assumptions. I know there are additional discussions going on and there is not a final approach towards this, but all information we have at this point is that our assumptions are solid for 2013.

Brian Yoor

Okay. Thank you, operator, and thank you for all of your questions. And that concludes Abbott’s conference call. A replay of this call will be available after 11.00 AM Central Time today on Abbott’s Investor Relations website at, and after 11.00 AM Central Time via telephone at 203-369-3329; pass code 5109. The audio replay will be available until 4.00 PM Central Time on Wednesday, February 6. Thank you for joining us today.


Thank you. And this does conclude today's conference, you may disconnect at this time.

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