Preview of Abbott's Q1 performance: The COVID-19 pandemic dividend dissipates, and cost pressures increase

On April 17th, before the US stock market opened, Abbott (NYSE: ABT) will hold a conference call to announce its financial results for the first quarter of 2024. As a global leader in healthcare, Abbott's performance has been steadily improving in recent years, especially benefiting from the COVID-19 pandemic. According to Bloomberg data, the following are the consensus estimates of major banks for Abbott's operating performance in Q1 2024:

Before exploring changes in total revenue, let's first have a preliminary understanding of Abbott's revenue composition:

Abbott is committed to discovering, developing, manufacturing, and selling a wide range of healthcare products, including medical devices, diagnostic products, nutritional supplements, pharmaceuticals, and others.

As mentioned earlier, Bloomberg expects Abbott's total revenue to increase by 1.4% in Q1 2024. Among them, Abbott's Q1 diagnostic product revenue is expected to be approximately USD 2.23 billion, a year-on-year decrease of 16%, mainly due to the significant reduction of COVID-19 testing business after the epidemic weakened - COVID-19 testing business revenue is expected to decrease by 80% YoY.

However, this decline is expected to be offset by growth in other businesses. Excluding COVID-19 testing business, the growth rate of core businesses is more than 9%. According to Bloomberg data, it is expected that Abbott's nutritional supplement revenue will increase by 6.4% YoY in Q1, and mature pharmaceutical revenue will increase by 4.2% YoY. Medical device revenue is expected to increase by 11% YoY, which is the business with the largest growth rate for Abbott in this period.

According to analysis of its business over the past three months, the recent improvement in Abbott's fundamentals is mainly driven by the return of its business to its fundamentals and the launch of new products. Key products such as Libre (glucose monitoring system) and MitraClip (innovative product for treating heart valve disease) have strong sales momentum, and a series of high-growth new products such as TriClip (MitraClip iteration product), Aveir (pacemaker technology), Navitor (coronary stent system), CardioMEMS (wireless remote monitoring of heart physiological parameters sensor), and Amulet (left atrial appendage occluder) have made positive contributions. The company has sufficient capital to prepare for strategic allocation to create shareholder value

Although Abbott's income statement showed good performance, the company's profit expectations for Q1 showed a clear YoY downward trend. According to Bloomberg's expectations, its gross profit is estimated to be around USD 5.56 billion, with a YoY increase of 2.17%. However, according to data disclosed in the company's conference call, Abbott invested a large amount of funds in operating expenses in 2024: marketing expenses increased by 5.56%, and research and development expenses increased by 4.18%. At the same time, depreciation and amortization expenses also increased to varying degrees, with YoY increases of 7% and 6%, respectively.

Overall, although Abbott's Q1 net profit has declined, the increase in marketing expenses indicates the company is actively promoting products and services to expand its market share or support the launch of new products, and the increase in research and development expenses is seen as an investment in the company's long-term competitiveness, helping to develop innovative products and technologies. Although this may squeeze short-term profit margins, it is beneficial to the company's sustainable development in the long run. Currently, Wall Street regards these changes as positive strategic investments, with Q1 net asset return expected to be 18.8%, with a YoY increase of 17%.

Since the beginning of 2023, the company's stock has risen by about 4.7%, and has seen a significant increase of nearly 20% since November 2023. Currently, its market capitalization is USD 188.9 billion, with a TTM P/E ratio of 33.4. Based on historical data and market sentiment, Abbott's performance has been consistently satisfactory and it is rumored to have risen 250,000 times since its IPO 80 years ago.

In Q1 of 2024, Abbott distributed a dividend of USD 0.55 per share, with the ex-dividend date on February 15. The current TTM dividend yield is 1.87%. Based on historical data, the company has increased its dividend for 50 consecutive periods, putting it on the list of Dividend Kings, indicating that the company has always been willing to share profits with investors.

This quarter's financial report is expected to perform moderately well, but the market's main concern is on the revenue side, as COVID-19 testing business is expected to significantly decrease after the pandemic subsides. Therefore, the focus is on whether new products and other businesses will perform better than expected. The market has high expectations for Abbott, and if the revenue fails to meet expectations, the stock price may decline.