Abbott: Get Paid, Avoid Market Volatility

| About: Abbott Laboratories (ABT)

Over the last five years, Abbott (NYSE:ABT) has done a great good job of growing both its revenues and its net income. Abbott has increased revenues in each of the last five years by a total of 49.8%, while increasing its net income in four out of the last five years by a total of 31%. Abbott reported first quarter earnings on April 18th and continued its trend of increased earnings. During the first quarter, Abbott had earnings per share of $0.78, which was a 39% increase from earnings per share of $0.56 in the first quarter of 2011. First quarter revenues were $9.4 billion, which was a 59% increase from revenues of $5.9 billion in the first quarter of 2011. First quarter net income was $1.2 billion, which was a 43% increase from net income of $864 million, in the first quarter of 2011.

In the first quarter of 2012, Abbott realized growth in each of its five business segments Proprietary Pharmaceutical Products, Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. However, its earnings growth was primarily spurred by its Proprietary Pharmaceutical Products division, which had a 10.2% sales increase, and by its Nutritional products division, which had a 9.9% sales increase. Abbott's earnings also received a huge lift from the increased sells of its blockbuster drug Humira, which had sales of $1.9 billion. Humira is used to treat patients with Arthritis and Crohn's disease. Other highlights from the company's first quarter earnings report included a 260 point basis increase in its gross margin and a 150% basis point increase in its operating margin from 2011.

During the first quarter earnings call, Miles D. White Abbott's chairman and CEO said:

Abbott is off to a strong start in 2012, delivering double-digit ongoing earnings-per-share growth. As a result, we're raising our outlook for the full year. During the quarter, we also announced a number of new product launches and strategic partnerships to enhance the pipelines of each of our major businesses. And, we remain focused on the process of separating Abbott into two leading health care companies, which remains on track to be completed by the end of the year.

While investors should be pleased with Abbott's first quarter earnings, they were probably more interested in hearing about Abbott Laboratories impending separation. Abbott will be transforming itself into

two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals. The diversified medical products company will consist of Abbott's branded generic pharmaceuticals, devices, diagnostics and nutritionals businesses, and will retain the Abbott name. In March 2012 the research-based pharmaceutical company, which will include Abbott's current portfolio of proprietary pharmaceuticals and biologics, was named AbbVie.

The date of the separation is still unclear, but it will almost certainly be completed by the end of this year. Thomas Fryman Abbott's CFO and executive VP of investor relations said, "During the second quarter, we expect to file the initial Form 10 with the SEC for AbbVie."

Positives for Abbott moving forward

Abbott is expecting strong earnings in 2012 and is raising its earnings-per-share guidance for the year to $5.00 to $5.10 from $4.95 to $5.05.

Abbott has plans to lower cost by

reducing packaging cost, ingredient costs and material costs; manufacturing, where we're building plants closer to our customers, particularly in fast-growing emerging markets; distribution, where we're going direct to customers in key geographies.

Abbott continued its record of increasing dividend. Over the last five years, it has increased its dividend by 72.8%. In the first quarter, the dividend was increased by 6.25% to $2.04 per share, with a yield of 3.3%. When the company separates, the dividend will be split between the two companies, and the dividend amount would be around $1 per share. The dividend yield should remain about the same.

Abbott has received several approvals for important new products. These approvals include the European Approval for HUMIRA in Ulcerative Colitis, FDA Clearance for New FreeStyle InsuLinx Blood Glucose Monitoring System and FDA Approval for Absolute Pro Vascular Self-Expanding Stent for Iliac Artery Disease.

Negatives for Abbott moving forward

Pharmaceutical giant Abbott Laboratories said on Monday May 7th that it had

reached an agreement with the federal and nearly all state governments to pay $1.6 billion in connection with its illegal marketing of the anti-seizure drug Depakote. The settlement stems from a four-year-old investigation into past sales activities, dating as far back as 1998.


Abbott Laboratories is one of the most respected names in the pharmaceutical products business sector. The company has an excellent earnings record and has increased its dividend in each of the last forty years. The stock price is up by around 20% over the last 52 weeks and up by 53% over the last three years. Investors will off course take Abbott's history into account. After all, over the last year, Abbott has outperformed top competitors like Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Sanofi (NYSE:SNY) and Pfizer (NYSE:PFE). However, what investors will undoubtedly want to figure out, is how the spinoff of AbbVie will affect the stock's future performance. AbbVie's focus would be to continue to grow its leading brands. Abbott's focus would be to expand geographically, and to continue to develop new technologies. Abbott Laboratories has been a top pharmaceutical company for quite some time, and the new companies should continue to perform well after the split. I believe that the stock market is correcting from the fall and spring rally, and that best of breed, dividend paying stocks like Abbott Laboratories will be in demand. Prospective investors should do further research.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.