Investors cheered when management first announced the spinoff back in 2011 because they believed the remaining portion of Abbott -- the devices business -- would post stronger growth.
That never happened, although Abbott shares are up 2.8% for the year to date as of Wednesday's close of $39.39, compared with a 0.2% decline in the Standard & Poor's 500 for the same period.
The outcome of the split generated concerns and raised questions as to whether management had a strong grasp on the company. It's true that the nutrition business was performing well. But the devices segment, Abbott's largest division, was posting mediocre results.
Making matters worse, sales from Abbott's established pharmaceuticals (or branded generics) were on the downtrend. It was two-step dance going in circles. All told, the value creation investors hoped for when the split occurred didn't happen.
In fairness to management, I believe expectations were always too high. But they did nothing to downplay the potential. And after taking some time to study the company's fourth quarter earnings results, I'm not ready to say that a lot has changed.
The 1% revenue growth can't be seen as anything other than a disappointment. Even though this was slightly better by 2% on a constant currency basis, revenue still fell short of estimates. Essentially, as with the October quarter, Abbott failed to meet the Street's growth projections.
Management offered some compelling reasons for the disappointment. Among other things, management cited the impact of the Fonterra recall. Fonterra is a dairy maker that found traces of bacteria that may lead to botulism. As precaution, Abbott initiated the recall last year. So it's understandable that international growth was somewhat lackluster.