Abbott Laboratories (ABT)

Q4 2011 Earnings Call

January 25, 2012 9:00 am ET

Executives

Thomas C. Freyman - Chief Financial Officer and Executive Vice President of Finance

Miles D. White - Chairman, Chief Executive Officer and Chairman of Executive Committee

John B. Thomas - Vice President of Investor Relations & Public Affairs

Analysts

Charles Anthony Butler - Barclays Capital, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Barbara A. Ryan - Deutsche Bank AG, Research Division

Sara Michelmore - Brean Murray, Carret & Co., LLC, Research Division

David R. Lewis - Morgan Stanley, Research Division

Presentation

Operator

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Good morning, and thank you for standing by. Welcome to Abbott's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] Should you become disconnected throughout this conference call, please dial 1 (517) 308-9049 and reference the Abbott earnings call. This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. John Thomas, Vice President, Investor Relations and Public Affairs.

John B. Thomas

Thank you. Good morning, and thanks for joining us, everybody. Also on today's call will be Miles White, our Chairman of the Board and Chief Executive Officer; Tom Freyman, Executive Vice President, Finance and Chief Financial Officer; and Larry Peepo, Divisional Vice President of Investor Relations. Miles will provide his opening remarks, and Tom will review the details of our fourth quarter results, as well as our outlook for 2012. I'll then discuss the highlights of our major businesses. Following our comments, Miles, Tom, Larry and I will take your questions.

Some statements made today may be forward-looking, including the planned separation of a research-based pharmaceutical company from the diversified medical products company and the expected financial results of the 2 companies after the separation. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Factors that may affect Abbott's operations are discussed in Item 1A Risk Factors to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2010, and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.

In today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings news release and regulatory filings from today, which will be available on our website at abbott.com. And so with that, I'll turn the call over to Miles. Miles?

Miles D. White

Okay. Thanks, John. Good morning. This morning, I'll review our 2011 performance, as well as our outlook for 2012, and Tom and John will walk you through the details of our fourth quarter and our full year results, as well as our 2012 outlook, and then we'll take your questions.

As you can see from our earnings news release, Abbott reported another year of strong performance in 2011 despite what's been another challenging year for the healthcare industry and for the global economy. We managed through these challenges as we've always done and delivered full year ongoing EPS growth of nearly 12%. And as we announced this morning, we expect to deliver another year of strong performance as we issued guidance of $4.95 a share to $5.05 a share for 2012. I'll talk more about the year ahead in a moment.

In 2011, Abbott sales grew more than 10%, driven by double-digit growth in Established Pharmaceuticals, International and Nutritionals, Molecular and Point of Care Diagnostics, International Vascular and Global Proprietary Pharmaceuticals. HUMIRA had another outstanding year, and with nearly $8 billion in sales, solidifying its global position as the anti-TNF market leader. In addition to full year double-digit sales growth as forecasted, we improved the profitability of many of our operating businesses, and in the fourth quarter, we delivered an adjusted gross margin ratio of nearly 64%. We also generated more than $9 billion of operating cash flow, which was another record year. And we returned $3 billion to shareholders in the form of dividends. Our payout ratio is strong at more than 40%. We've increased our dividend for 39 consecutive years, making Abbott one of only a handful of U.S. companies to deliver with such consistency.

Our return of cash to shareholders through dividends, together with Abbott's stock price appreciation, generated a total shareholder return of nearly 22% in 2011 compared to 2% for the S&P 500 over the same period of time. This level of performance led all large-cap medical device companies and was also near the top of large-cap pharmaceutical companies. Abbott's performance in 2011 is our best annual return in 5 years and our second-best performance in 10 years. Abbott's 5-year total return of nearly 35% was more than double the S&P Healthcare Index. Over the same time period, the S&P 500 Index declined 1%.

To continue to generate value for our shareholders and align Abbott's long-term strategic goals with shareholders' best interest, we announced in October that our intention to separate Abbott into 2 leading healthcare companies, one in diversified medical products and the other in research-based pharmaceuticals. Creating 2 independent companies provides 2 unique and compelling investment opportunities for shareholders as the investment identities and operating models of each business have evolved independently over the last several years. Both enterprises will be well-positioned, large-cap investment opportunities in their respective peer groups. They'll also have broad product portfolios and global presence, strong balance sheets, significant and durable cash flows and are expected to have strong investment-grade credit ratings. As we've said, each will generate a dividend that when combined will equally Abbott dividend at the time of separation. And as you can see from our earnings news release this morning, both businesses performed well again in 2011.

After we announced the separation in October, we immediately brought our transition organization together. This is the same organization that executed the separation of our hospital products business and successfully integrated our key acquisitions, including Knoll, Guidant and Solvay. Right now, we're working through the many details of separating the 2 organizations. This has been simplified in large part by completing the separation of our Established Pharmaceuticals business at the beginning of last year. But as you can imagine, there's still a significant amount of work to do. The transition team has developed and is implementing detailed plans to prepare for the separation.

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