Q2 2010 Earnings Call Transcript
July 21, 2010 9:00 am ET
Larry Peepo –Divisional VP, IR
Tom Freyman – EVP, Finance and CFO
Rick Wise - Leerink Swann
David Lewis - Morgan Stanley
Glenn Novarro - RBC Capital Markets
Jami Rubin – Goldman Sachs
Bruce Nudell – UBS
Derrick Sung – Bernstein
Mayank Gandhi – Cowen and Company
Larry Biegelsen – Wells Fargo
Matthew Dodds – Citigroup
Previous Statements by ABT
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Good morning and thank you for standing by. Welcome to Abbott's second quarter 2010 earnings conference call. All participants will be able to listen only until the question-and-answer portion of this call. (Operator Instructions) Should you become disconnected throughout this call, please dial 1-517-308-9029 and reference the Abbott earnings call. This call is being record by Abbott. With the exception of participant questions ask 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 express written permission.
I would now like to introduce Mr. Larry Peepo, Divisional Vice President, Investor Relations.
Thanks, Wendy. Good morning and thanks for joining us. Also on today's call will be Tom Freyman, Executive Vice President, Finance and Chief Financial Officer. Tom will review the details of our financial results for the quarter and our outlook for the year. I'll then discuss the highlights of our major businesses, following our comments, Tom and I will take any questions.
Some statements made today may be forward-looking. 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, 2009, and in Item 1A, risk factors to quarterly report on Securities and Exchange Commission Form 10Q for the quarter ended March 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 with that, I’ll turn the call over to Tom.
Thanks, Larry. Today, we're pleased to report the strong second quarter results with ongoing earnings per share above our guidance range for the quarter. We delivered consistent results across our major businesses, while taking actions to enhance our long-term growth particularly in the emerging markets and with our pharmaceutical pipeline. This includes the announced acquisition of Piramal Healthcare Solutions providing Abbott with the leading market share position and fast-growing Indian pharmaceutical markets.
We also added to our emerging markets product offering with an agreement with Zydus Cadila of India to license abroad portfolio of 24 products in 15 emerging markets, with the option to access 40 additional products. And we're creating a new standalone established product division to provide focus, structure and resources to optimize the global market opportunity for our strong branded generics portfolio.
We also entered into collaboration to promising late-stage treatment for endometriosis, a product that will fit well within our existing Lupron franchise and we completed the fastest Biotech acquisition adding a compound for MS that recently entered Phase III study.
In the quarter, we delivered double-digit sales growth in most of our major global businesses and we reported ongoing EPS of $1.01, up 13.5% in 2009 and above our previous guidance range of $0.98 to $1.
Sales growth in the quarter was 17.8%, including a favorable 2.7% impact from exchange rates. Sales included the first full quarter contribution from the Solvay acquisition, adding roughly $880 million in sales for the quarter.
U.S. pharmaceutical sales growth was impacted by U.S. health care reform legislation and the continued generic impact on derecog. The impact of additional medicate rebates required that the U.S. health care reform has been reflected in the sales of the respected U.S. pharma products in our earnings release lowering the growth rates in the quarter.
The adjusted gross margin ratio for the quarter was 60.6%, about 100 basis points ahead of our forecast driven by strong performance across several businesses included, vascular, nutrition, diabetes care and diagnostics as well as a favorable impact of foreign exchange.
We also had strong double-digit growth in investment spending in the quarter, including the contribution from the Solvay acquisition. R&D investment reflects continued progress in our broad-based pipeline. This includes programs in biologics and vascular as well as promising Phase I and Phase II clinical programs in HCV, oncology and neuroscience. The ongoing tax rate was in line with our previous forecast.
Looking to our outlook for the full year 2010, we're confirming our ongoing earnings per share guidance range of $4.13 to $4.18, which excludes classified items. The mid-point of this guidance range reflects growth of nearly 12% over 2009. We continue to expect strong double-digit sales growth for the full year, including the incremental sales from the Solvay Pharmaceuticals acquisition.
For the first half, we saw favorable 3.4% impact on sales from foreign exchange. Assuming current exchange rates, we expect this favorability to reverse in the second half of the year. Forecasting and negative impact from exchange on sales of 1% to 2% in the third quarter and 3% to 4% in the fourth quarter, so for the full year, we forecast foreign exchange to having neutral impact on 2010 sales growth.