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Research analyst, valuentum
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Abbott (ABT) reported mixed third-quarter results as a supplier recall in August in its 'International Nutrition' business forced revenue to come up just a bit short of expectations. The firm's top-line still advanced 4.3% on an operational basis led by strength in its 'Diagnostic' segment, where revenue jumped more than 10% on an operational basis (shown below).

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Image Source: Abbott

Its 'International Nutrition' business revealed sales expansion of 3.4% on an operational basis - not a terrible showing, but a marked slowdown from the 7% growth rate recorded during the first nine months of the year (third quarter inclusive) and the 8.4% pace registered in the second quarter. Though we're not too worried about this hiccup, we note the market disruption caused by the supplier recall may continue to hurt segment performance through the first half of 2014.

Third-quarter adjusted diluted earnings per share came in at $0.55, above the previous guidance range, thanks to strong margin performance. Abbott's third-quarter adjusted gross margin increased 70 basis points in the period (above expectations), while its third-quarter adjusted operating margin advanced 210 basis points over the prior-year period. We continue to believe there is further upside to both measures as the firm rolls in recent acquisitions (IDEV Tech and OptiMedica) and its 'Nutrition' business recovers.

Looking ahead, Abbott confirmed its full-year 2013 ongoing earnings per share guidance of $1.98 to $2.04, which is in-line with our $2.03 per share forecast. The company also raised its quarterly dividend to $0.22 per share, marking the 42nd consecutive year the firm has increased the dividend. We expect to update our dividend report with the new information soon.

Valuentum's Take

The firm's reaffirmed 2013 bottom-line outlook and freshly-raised dividend give us confidence that Abbott's fundamental performance remains on track. Though we didn't like news of the supplier recall that is expected to continue to hurt segment results into 2014, the firm's underlying portfolio of business segments remains impressive. We continue to like its leadership position in the 'Nutrition' segment with names such as Similac, Ensure, and PediaSure, and we're looking forward to emerging markets expansion to propel future growth across all of its business lines. We think shares are fairly valued at this time.

Source: Abbott's Fundamental Performance Remains On Track