Abbott Laboratories' Q3 Results: Its 57% Dividend Hike Offers Attractive Opportunities To Value Investors

Oct.22.13 | About: Abbott Laboratories (ABT)

The third quarter financials of Abbott Laboratories (NYSE:ABT), the largest international healthcare company based in the U.S., were released to the investing public in the early hours of Wednesday, October 16. The company's non-GAAP earnings of $0.55 per share exceeded analysts' consensus estimates of $0.51 by $0.04 which is quite good. The company also delighted shareowners with the announcement of a more-than-expected dividend hike with its massive 57% increase in its quarterly dividend payout to be distributed among its shareholders. If anything at all, the massive dividend hike which will mark the 42nd consecutive year the global health company has increased its dividend was the big news in Abbott's Q3 2013 earnings release leading to a jump in the price of the stock since the earnings were released last Wednesday.

The price levels of the shares of Abbott Laboratories have since gone up by about 11% between Wednesday, October 16 when the results were made public and Friday, October 18. Undoubtedly, the increase in price levels signifies that investors were pleased with the performance of the company as reflected in its Q3 financials. There is every reason to believe that the shares of the company will see more momentum and price gains in the coming days, weeks and even months because of the impressive results the company posted and its generous dividend payout. Interestingly, the improved dividend payout will be distributed to shareholders on Feb. 15, 2014 and to all shareholders recorded in the book of the company at the close of business on Jan. 15, 2014. That makes allowance for non-shareholders who want to benefit from the dividend hike to take position in the company between now and Jan. 15, 2014. Existing shareholders have the opportunity to either book some profits at some favorable price levels by selling some portions of their current holdings or by buying more shares now to earn more dividends.

Abbott's CEO and Chairman Miles D., while presenting the third quarter financials, delightedly informed shareholders that:

''We continued to have strong earnings performance, in spite of a supplier recall that impacted our International Nutrition business. Today we also are announcing a significant increase in our quarterly dividend.''

Abbott's Q3 Results at a Glance

According to the press release detailing the Q3 financials, Abbott grossed a whopping $5.37 billion in revenues for the quarter under review. By the gross revenues, there was an increase of 2.0% on the company's results for the corresponding quarter of the previous year although the earnings slightly missed consensus by about $0.02 billion.

Abbott's GAAP net earnings halved to $966 million but its net earnings from continuing operations increased by 128% to $173 million according to the earnings report. As stated above, Abbott's adjusted earnings per share (EPS) for the quarter was $0.55 up by $0.04 per share when compared with the consensus estimate. The company reported that gross margins increased by 160 basis points to 54.4% of its total earnings. The company also reported impressive operating earnings of $630 million which represent 11.7% of its total revenues.

Abbott's Potentials for Future Growth

Abbott's business is in five segments and they are: diagnostics, medical devices, nutrition, proprietary pharmaceuticals, and established pharmaceuticals. The company split into two companies - AbbVie (NYSE:ABBV) and New Abbott - in 2012. In global healthcare markets, Abbott has sound footing by commanding leadership position in blood screening, immunoassay, adult nutrition, branded generics, pediatric nutrition, and in the design and development of many modern medical tools. In its 2013 Q3 results, Abbott's nutrition business recorded an increase of 1.9% in earnings with a total of $1.63 billion and sales in its diagnostics segment also increased by 8.0% to $1.12 billion. Also, in its 2013 Q3, Abbott's medical devices segment recorded an increase of 1.9% to $1.34 billion with growth influenced mainly by increased performance of its medical optics market but the company's earnings from its established pharmaceuticals fell by 2.9% to $1.23 billion which was largely due to the not-too-favorable currency movements.

Abbott has successfully implemented very tight cost control in all major cost-related areas like selling, general and administrative expenses. In the 2013 Q3 results, Abbott's costs fell some 415 basis points to 32.3% of total revenues. In fact, Abbott's management has been excellent in controlling its costs leading to great improvement in its gross margin over the years which also necessitate a decrease in the costs of goods sold and in the costs of its R&D. Abbott's margin has continuously improved by an average of about 20% from 2008 to 2012. I do believe the company has the capacity to keep maintaining an improved upside potential into the foreseeable future. Therefore, I place a buy rating on Abbott.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.