Abbott: lower net income results due to discontinued operations, improved capital structure

Abbott Laboratories is an Illinois corporation, incorporated in 1900. Abbott's principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products.

Heavy decline in total net income of Abbott due to discontinued operations, however better results from continuing operations

Company’s net earnings in the latest reported annual results for the year ended Dec 31, 2013 have significantly decreased by 57% from $5,963 million (FY 2012) to $2,576 million (FY 2013). Revenues of the company in latest annual and interim results have been stagnant. However, operating margin of the company has significantly improved from 9% in previous year to 12% for latest annual results. The major reason for deterioration of net earnings of company is associated with its discontinued operations. Latest quarter results also give more or less the same picture with no material change in revenues or Profit before tax. It is absolutely relevant and essential to mention that net earnings from continued operations have increased by more than 300% in latest annual results. On the contrary, Earning from continued operations before taxes for half year ended June 30, 2014 are steady and almost same as reported in same period last year.

Low eps due to decrease in net income, but higher dividends for shareholder

EPS (FY2013: $1.62, FY2012: $3.72) of the company has fallen drastically in latest annual results, which is no surprise when we know that net income in fiscal year has dropped by 57%. However, point to be noted is that major decrease is associated with discontinued operations. Company’s performance is relatively better (FY2013:$1.50, FY2012: $0.36) (HY2014: $0.52, HY2013: $0.65) when we only look at results of continued operations which has nonetheless slightly weakened in latest half year results. Abbott has been rewarding its shareholders with dividends on consistent basis. It declared a dividend of $0.22 per share in the two quarters of 2014 with a 55% increase from $0.14 per share as declared in two quarters of previous year.

Market consensus

Market consensus narrates that company is expected to expand its revenue base along with its net income. This consensus aligns with the recent performance of the company which has been able to sustain its revenues and earnings in latest results from its continued operations. Further, increase in revenue and earnings of Abbott are also expected in coming quarters. Company is likely to further increase its dividend payout in the future. Following scale shows market expectations for Abbott in terms of its expected financial performance:


Company’s long term debt has decreased by mammoth $14,967 million from $18,085 million as at end of 2012 to $3,388 million at the end of fiscal year 2013. This has resulted in company having a LTD/equity ratio of 0.13 at the end of 2013 against 0.67 previous year. Company’s capital structure is now more stable and healthy with material amount of reduction in long term debt of the company.

Upcoming events

The company is expected to announce its 3rd quarterly results on 14 October 2014.

Major shareholders

Following are 3 major shareholders of company:

  • The Vanguard Group, Inc. 5.65% holding with 84.98m shares
  • State Street Global Advisors (US) 4.34% holding with 65.21m shares
  • BlackRock Institutional Trust Company, N.A. 3.86% holding with 57.99m shares

    Significant change in shareholding

    Following are the major shareholding transactions that took place recently:

  • TIAA CREF buying 3.89 million shares
  • Marsico Capital Management selling 5.91 million shares

    Upward growing stock price graph of Abbott, reflecting its strong financial performance over the years