Abbott Laboratories (NYSE:ABT) is engaged in the discovery, development, manufacture and sale of a portfolio of science-based healthcare products, which operates in four segments: Diagnostics, Medical Devices, Nutritionals and Generic Pharmaceuticals. The company reported earnings before the market opened on 22 Jan 2014 and on the surface everything looked pedestrian with the company reporting fourth quarter earnings of $0.58 per share (in-line with analysts' estimates) on revenue of $5.65 billion (missing analysts' estimates by $70 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.
Totals, $ in millions
From third quarter of 2013 every segment of the company was hitting on all cylinders, on an annualized basis the smallest increase we would see is 12% in any one segment. Unfortunately things don't work that way. Nonetheless, I believe it was a great quarter for revenues albeit missing analysts' estimates.
Cost of products sold, excluding amortization expense
Amortization of intangible assets
Selling, general, and administrative
Total Operating Cost and Expenses
Interest expense, net
Loss on extinguishment of debt
Net foreign exchange (GAIN) loss
Other (income) expense, net
Earnings (loss) from Continuing Operations before taxes
Taxes on Earnings (loss) from Continuing Operations
Earnings (Loss) from Continuing Operations
Earnings from Discontinued Operations, net of taxes
Net Earnings from Continuing Operations, excluding specified items
Avg. # of Common Shares Outstanding Plus Dilutive Common Stock Options and Awards
Diluted Earnings per Common Share from Continuing Operations, excluding Specified Items
The main thing to notice on the income statement is the massive 16% reduction in R&D spending from fourth quarter of 2012 to fourth quarter of 2013. I definitely don't like to see that in a biotech company because a biotech company is only really as good as its R&D and pipeline really. Overall total operating cost and expenses decreased by 4% causing operating earnings to increase by 48% from the prior year. Earnings from continuing operations before taxes are now in positive territory as is earnings after taxes. Net earnings however have decreased 44% due in large part to the loss of earnings from discontinued operations which were realized in 2012. After a 2% reduction in outstanding common shares Abbott produced $0.58 in earnings this quarter and is a 22% increase from fourth quarter last year, which is an awesome gain.
The company reported earnings which were 22% higher than a year before on slightly more revenue while the share price was up 14.32% in the past year excluding dividends. The share count has decreased slightly for the entire year. I definitely love that both earnings per share and revenue were up year over year. I don't like that R&D spending decreased for the entire year. So why did the stock drop after it reported you ask? It is quite possible that the stock drop was due to the 44% decrease in net earnings. Going forward though this shouldn't be an issue as the there shouldn't be the earnings from discontinued operations to be compared against. If that is really the case on why the stock dropped, then it is not justified and the drop should be bought. On a fundamental basis this biotech is fairly valued with respect to 2014 earnings. The company reported good results but investors were spooked by the net profit drop. The company also announced that it plans to retire another $2 billion worth of outstanding shares in 2014 which accounts for about 3.5% of the outstanding shares at today's market price. I for one don't think the company should be purchasing shares right now and wait for a gift from Mr. Market as I see the market pulling back right now. Personally, I've been contemplating selling my shares and moving into a different biotech company. I just don't know which one yet, and in the meantime, this is a great company to keep my money parked.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long ABT. 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.