Abbott Labs shares surge on earnings and a big sign of confidence in the business

Shares of Abbott Laboratories jumped Wednesday after the diversified health-care company delivered strong first-quarter results and left its earnings guidance intact — a big sign of confidence in an uncertain time. Revenue in the three months ended March 31 rose 4% to $10.36 billion, narrowly missing the consensus of $10.4 billion, according to estimates compiled by LSEG. Organic sales, excluding Covid testing results, rose 8.3%, beating the 7.7% estimate, according to FactSet. Adjusted earnings per share (EPS) increased 11.2% on an annual basis to $1.09, topping expectations by 2 cents, LSEG data showed. ABT YTD mountain Abbott Laboratories YTD Abbott’s earnings rally extends what has already been a good year for the stock in a brutal overall market. Shares of Abbott entered Wednesday’s session as the second-best performing Club stock, advancing 11.6%. Only CrowdStrike , with a 14.8% gain, had done better. Abbott has also significantly outperformed a basket of medical device stocks this year. Bottom line Abbott turned in an excellent quarter in a difficult, tariff-fueled environment. The company topped Wall Street expectations on its three primary profitability metrics — earnings per share, adjusted gross margin, and adjusted pretax income margin — while also delivering better-than-expected organic sales growth when excluding Covid tests. The miss on topline revenue is not concerning. For starters, it was just $40 million below consensus. Plus, the shortfall is tied to its diagnostics segment, which faces pressures largely outside its control — specifically, low-margin Covid test sales were down $120 million from a year ago, and then China’s national strategy to control health-care costs remained a drag on the prices paid to Abbott. “We’re seeing growth in our growth in our diagnostic business everywhere except China,” CEO Robert Ford said on the earnings call. “Outside of China this quarter, we grew around 7%.” Abbott is looking at ways to stoke growth in other geographies to offset the realities of doing business in China, Ford said. “We’re just going to have to go through this. [China] is still an important market. It’s still got good profitability.” Abbott Laboratories Why we own it : Abbott is a high-quality medical technology company growing at a fast clip for its industry. The stock has dealt with various overhangs since we’ve owned it, such as litigation concerns tied to its specialized infant formula; falling Covid testing sales; and concerns that GLP-1 adoption will disrupt its continuous glucose monitor business. However, As Abbott’s organic sales growth continues to shine. Competitors : Dexcom , Boston Scientific and Edwards Lifesciences Most recent buy : May 29, 2024 Initiated : Jan. 29, 2024 The cherry on top of the quarter was that Abbott reaffirmed its 2025 earnings guidance of $5.05 to $5.25 per share despite a considerably different tariff picture than in late January . Abbott estimates a tariff hit this year of a “few hundred million dollars,” with the impact really starting to be felt in the third quarter, Ford said. The company is looking at all sorts of mitigation plans, Ford said, though not at the expense of pulling back investments in future growth such as lowering research and development spending. For example, a weaker U.S. dollar helps Abbott, which generates about two-thirds of its revenue overseas. With 90 manufacturing sites around the world, Abbott also has the ability to “considerably” mitigate the tariff impact on a long-term basis. “Prior to the whole tariffs … given the momentum that we were seeing in the base business, we were even considering raising our EPS guidance,” Ford said. “But tariffs are here, so we felt reaffirming our guidance is already a pretty strong statement.” We agree. For that reason, we’re reiterating our price target of $145 a share — no small feat in a market where PTs are being cut left and right — and keeping our hold-equivalent 2 rating on the stock. We know Abbott’s tariff exposure is marginal, and it has other drivers to offset those headwinds. Abbott could be a stock to buy if we see another day where tariff headlines drive down the entire stock market. Commentary The chart above illustrates the quality of Abbott’s quarter. Diagnostics was the only one of Abbott’s four reporting segments to miss on sales, but as discussed, it’s not a material concern. Nutrition — home to brands such as Ensure protein powder and PediaSure drinks for kids — topped expectations, and Ford said the company is making progress on regaining market share it lost a few quarters ago due to execution misfires. Sales in established pharmaceuticals — its generic pharmaceutical products business that only operates internationally — also came in better than expected. Medical devices — its largest and most important segment — delivered strong year-over-year growth, up 9.9% on a reported basis and 12.6% organically, which excludes foreign-exchange headwinds. In its fast-growing diabetes portfolio, sales of continuous glucose monitors, or CGMs, totaled $1.7 billion in the first quarter, up more than 20% year over year and 30% in the U.S. In 2024, the CGM business, which includes FreeStyle Libre for diabetes patients, grew 22% annually and 27% in the U.S. This is the kind of “base business” momentum that Ford referenced when explaining how Abbott contemplated its earnings guidance for the year. As far as tariffs go here, Ford also mentioned that Abbott has two manufacturing sites for Libre in the U.S. to serve customers in its home market. Another important product for Abbott is its Volt PFA System, which in March secured an earlier-than-expected approval from European regulators. Volt, which is used to treat abnormal heart rhythms, helps Abbott compete against the likes of Boston Scientific and Medtronic in the market for pulsed field ablation (PFA) devices. The legacy way to treat conditions such as atrial fibrillation used extreme heat (radiofrequency ablation) or cold (cryoablation). PFA devices, by contrast, use an electrical pulse to destroy the cells that cause abnormal heart rhythms — an approach that is billed as safer and quicker than traditional treatment options. Abbott plans to submit for U.S. approval for Volt later this year, with clearance possibly coming in early 2026. “The initial feedback that my team has shared with me has been very, very positive,” Ford said of Volt’s launch in Europe. “Obviously, we’re going to start with a rollout where we’ll focus a little bit on the users that were part of our clinical trial, and then we’ll start to kind of ramp up that as we go into the second half of the year.” He added, “I think the product is going to do really well. I think it’s going to do what we intended it to do.” Abbott’s effort to shed a litigation overhang from its stock suffered a setback during the first quarter — though our belief is that it will just be temporary. In mid-March, a judge in Missouri ordered a re-trial in a case that Abbott and its rival Reckitt won in November , beating back allegations that their specialized formulas for premature babies caused a severe intestinal illness known as necrotizing enterocolitis, or NEC. Abbott has said it will appeal the re-trial ruling, which was based on alleged misconduct from the lawyers for the defendants during the initial proceedings. Executives did not really discuss the NEC proceedings on the call, other than to say it does not influence the way they are evaluating its entire business. The main takeaway here: Abbott’s NEC litigation has not gone away, but we continue to believe the risks are far more manageable than what the market previously estimated. (Jim Cramer’s Charitable Trust is long ABT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Abbott Chairman of the Board and CEO Robert B. Ford delivers a keynote address at CES 2022 at The Venetian Las Vegas on January 6, 2022 in Las Vegas, Nevada.

Ethan Miller | Getty Images