This Dividend King Just Announced Great News for Investors
Key Points
Abbott Laboratories’ third-quarter results were somewhat mixed, with the company’s nutrition business still dragging down sales growth.
The healthcare leader announced that it would spin off its nutrition segment into a standalone company, which could help boost revenue growth.
Abbott’s core medical device unit still boasts excellent prospects.
Abbott Laboratories (NYSE:ABT) has had a rough go of it over the past few years. Sales growth hasn't met market expectations, and the company has faced various legal and regulatory challenges. But is the healthcare leader ready to turn over a new leaf? Abbott Laboratories announced its third-quarter update on Oct. 21, and along with its financial results, the company shared news that investors should welcome with open arms.
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A major business decision
Abbott Laboratories' third-quarter financial results were pretty good. The company's sales were $13 billion, growing 7% year over year on a comparable basis. The healthcare leader's adjusted earnings per share came in at $1.42, 9% higher than the year-ago period. Abbott's medical device and established pharmaceuticals segments remain the biggest growth drivers.
Medical device sales jumped 7.8% year over year on a comparable basis to $5.8 billion, while pharmaceutical revenue was $1.6 billion, 8.4% higher than the year-ago period. However, the company's nutrition business is still posting the slowest sales growth among the company's major business segments. It recorded $2.3 billion in revenue, up 4.9% year over year.
Abbott's nutrition segment has faced multiple headwinds in recent years. For instance, back in 2022, the company recalled several infant formula products following reports of bacterial infections among infants who had consumed them.
Abbott has also faced lawsuits alleging that some of its formula products designed for premature infants increase the risk of a dangerous and potentially deadly intestinal disease called necrotizing enterocolitis.
These problems (and several others) have likely contributed to lower demand for some of the company's nutrition products, leading to slower-than-expected sales growth. That's why Abbott's recent decision about its nutrition business is noteworthy. The company will spin off this segment into a stand-alone company.
This could lead to stronger revenue and earnings growth over the long run, as well as higher margins, while allowing the company to avoid the legal and regulatory obstacles the nutrition unit has encountered.
What's next for Abbott?
Earlier this year, Abbott Laboratories closed its $21 billion cash acquisition of Exact Sciences, a company that specializes in developing cancer diagnostics tests. Exact Sciences' most important product, Cologuard, a non-invasive test for colorectal cancer, is one of the most successful products in this niche.
Exact Sciences was also developing several other products that Abbott Laboratories will inherit, allowing it to tap into the growing cancer diagnostic market. That, combined with the spin-off of its nutrition business, should work wonders for the company's top-line growth.
Meanwhile, Abbott Laboratories' medical device segment arguably remains the most important for its long-term prospects. Several medical device products should help drive sales growth over the medium term. Consider the company's FreeStyle Libre, a series of continuous glucose monitoring (CGM) systems that help patients with diabetes track their blood glucose levels.
The FreeStyle Libre is one of the leading devices in this niche, and it has powered Abbott's diabetes care unit for years. In the third quarter, diabetes care sales were $2.2 billion, accounting for nearly 17% of the company's total sales and growing by 6.7% year over year.
Abbott still sees a large CGM market globally. It estimates that 70 million to 80 million of the half-billion patients with diabetes worldwide would benefit from CGM technology. Currently, the number of people on CGM is between about 10 million and 12 million.
In other words, the market is severely underpenetrated, and Abbott is ideally positioned to be one of the major winners over the long run as this industry expands. Abbott has other promising products in its medical device unit, and the company's deep technological expertise should enable it to launch newer, better ones, as it regularly does.
So, the healthcare giant's prospects remain intact. Then there is Abbott's dividend program. The company is a Dividend King, a corporation that has increased its dividends for at least 50 consecutive years. Abbott's membership in this elite group makes it an excellent pick for long-term income investors.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool has a disclosure policy.