My Market Wizard

ABBOTT LABORATORIES 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

ABBOTT LABORATORIES

Filing date:

02/21/2025

TLDR:

Abbott Laboratories’ 2024 10-K filing shows growth in Medical Devices and Established Pharmaceuticals, offsetting COVID-19 testing revenue declines. The company has a strong financial position but faces legal and operational risks.

ELI5:

Abbott, a healthcare company, is growing in some areas like medical devices, but sales from COVID tests are down. They’re doing well financially but have some lawsuits and other risks to handle.

Accession #:

0001628280-25-007110

Published on

Analyst Summary

  • Total net sales increased by 4.6% in 2024.
  • Gross Profit Margin increased to 50.9% in 2024 from 50.3% in 2023.
  • Operating Margin increased slightly to 16.3% in 2024 from 16.2% in 2023.
  • Long-term debt decreased slightly to $14.1 billion at the end of 2024.
  • Cash and Equivalents increased to $8.0 billion at the end of 2024.
  • Sales increased by 9.2% in Established Pharmaceutical Products in 2024 (excluding FX).
  • Sales increased by 5.9% in Nutritional Products in 2024 (excluding FX), with recovery in U.S. pediatric nutrition.
  • Sales decreased by 3.9% in Diagnostic Products in 2024 (excluding FX), driven by lower COVID-19 testing demand.
  • Sales increased by 13.7% in Medical Devices in 2024 (excluding FX), with strong growth in Diabetes Care, Structural Heart, Electrophysiology and Heart Failure.
  • COVID-19 Testing Revenue declined significantly from $8.4 billion in 2022 to $747 million in 2024.
  • Emerging Markets Revenue represents 37% of total sales, with growth of 8.2% in 2024 (excluding FX).
  • Gross Profit Margin: 50.69%
  • Operating Profit Margin: 16.27%
  • Net Profit Margin: 31.95%
  • Return on Assets (ROA): 16.46%
  • Return on Equity (ROE): 27.98%
  • Basic EPS: $7.67
  • Diluted EPS: $7.64
  • Current Ratio: 1.67
  • Quick Ratio: 1.23
  • Cash Ratio: 0.56
  • Debt-to-Equity Ratio: 0.29
  • Debt-to-Assets Ratio: 0.17
  • Interest Coverage Ratio: 13.21
  • Inventory Turnover: 2.94
  • Days Sales Outstanding (DSO): 60.20 days
  • Days Payable Outstanding (DPO): 81.78 days
  • Asset Turnover: 0.52
  • Price-to-Earnings Ratio (P/E): 17.60
  • Price-to-Book Ratio (P/B): 4.90
  • Price-to-Sales Ratio (P/S): 5.59
  • Enterprise Value to EBITDA (EV/EBITDA): 24.02
  • Revenue Growth: 4.59%
  • Net Income Growth: 134.18%
  • EPS Growth: 133.84%
  • Unrecognized tax benefits were approximately $3.6 billion at December 31, 2024.

Opportunities and Risks

  • Legal Proceedings: The NEC lawsuits could result in material adverse effects.
  • Cybersecurity Incidents: Reliance on complex information systems makes Abbott vulnerable to cyberattacks.
  • Regulatory Changes: Stringent regulations and potential changes in healthcare legislation could impact profitability.
  • Global Supply Chain Disruptions: Disruptions could negatively affect Abbott’s results of operations.
  • Competition: Intense competition and technological advances by competitors could negatively affect Abbott’s results of operations.
  • Medical Device Growth: Strong growth in key segments like Diabetes Care and Structural Heart.
  • Emerging Markets Expansion: Significant growth potential in emerging markets.
  • New Product Launches: Continued innovation and new product introductions across various segments.
  • Margin Improvement Initiatives: Ongoing efforts to improve operating margins.

Potential Implications

Stock Price

  • Investors should closely monitor the outcome of the NEC lawsuits.
  • Investors should monitor the impact of regulatory changes.
  • Investors should monitor the company’s ability to manage cybersecurity risks and supply chain disruptions.

Abbott Laboratories (ABT) 2024 10-K Filing Analysis

Executive Summary

This report analyzes Abbott Laboratories’ 2024 10-K filing. Overall, Abbott shows continued growth in key segments like Medical Devices and Established Pharmaceuticals, offsetting declines in COVID-19 testing-related revenue. The company maintains a strong financial position with healthy cash flow and a commitment to shareholder returns through dividends and share repurchases. However, investors should be aware of ongoing legal proceedings and potential risks related to global operations, cybersecurity, and regulatory changes. A ‘Hold’ rating is suggested, pending further observation of the impact of these factors on future performance.

Company Overview

Abbott Laboratories is a diversified healthcare company engaged in the discovery, development, manufacture, and sale of a broad range of healthcare products. It operates through four reportable segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. The company has a global presence, with a significant portion of its sales derived from international markets.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights growth in Medical Devices, Established Pharmaceutical Products, and Nutritional Products, while acknowledging the decline in COVID-19 testing revenue. They emphasize a productive R&D pipeline and new product launches as key drivers of growth. The MD&A also addresses the impact of foreign exchange rates and cost containment efforts. A restructuring plan is underway to streamline operations and improve efficiencies.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue Growth: Total net sales increased by 4.6% in 2024.
  • Gross Profit Margin: Increased to 50.9% in 2024 from 50.3% in 2023.
  • Operating Margin: Increased slightly to 16.3% in 2024 from 16.2% in 2023.
  • R&D Expenses: Increased to $2.8 billion in 2024.
  • Debt: Long-term debt decreased slightly to $14.1 billion at the end of 2024.
  • Cash and Equivalents: Increased to $8.0 billion at the end of 2024.

Segment Performance

  • Established Pharmaceutical Products: Sales increased by 9.2% in 2024 (excluding FX).
  • Nutritional Products: Sales increased by 5.9% in 2024 (excluding FX), with recovery in U.S. pediatric nutrition.
  • Diagnostic Products: Sales decreased by 3.9% in 2024 (excluding FX), driven by lower COVID-19 testing demand.
  • Medical Devices: Sales increased by 13.7% in 2024 (excluding FX), with strong growth in Diabetes Care, Structural Heart, Electrophysiology and Heart Failure.

Uncommon Metrics

  • COVID-19 Testing Revenue: Significant decline from $8.4 billion in 2022 to $747 million in 2024.
  • Emerging Markets Revenue: Represents 37% of total sales, with growth of 8.2% in 2024 (excluding FX).

Footnotes and Supplementary Disclosures

  • Legal Proceedings: Ongoing lawsuits related to infant formula products and necrotizing enterocolitis (NEC) represent a significant potential liability.
  • Pension and Post-Employment Benefits: Actuarial losses and gains can significantly impact obligations and annual costs.
  • Tax Matters: Complex tax rules and ongoing audits require careful monitoring.
  • Fair Value Measurements: Level 3 assets and liabilities, particularly contingent consideration, require significant management judgment.

Risk and Opportunity Assessment

Risks

  • Legal Proceedings: The NEC lawsuits could result in material adverse effects.
  • Cybersecurity Incidents: Reliance on complex information systems makes Abbott vulnerable to cyberattacks.
  • Regulatory Changes: Stringent regulations and potential changes in healthcare legislation could impact profitability.
  • Global Supply Chain Disruptions: Disruptions could negatively affect Abbott’s results of operations.
  • Competition: Intense competition and technological advances by competitors could negatively affect Abbott’s results of operations.

Opportunities

  • Medical Device Growth: Strong growth in key segments like Diabetes Care and Structural Heart.
  • Emerging Markets Expansion: Significant growth potential in emerging markets.
  • New Product Launches: Continued innovation and new product introductions across various segments.
  • Margin Improvement Initiatives: Ongoing efforts to improve operating margins.

Conclusion and Actionable Insights

Abbott Laboratories demonstrates a resilient business model with growth drivers in key segments. However, the ongoing legal proceedings and potential risks warrant caution. The company’s commitment to innovation and global expansion presents opportunities for future growth. Based on this analysis, a ‘Hold’ rating is recommended. Investors should closely monitor the outcome of the NEC lawsuits, the impact of regulatory changes, and the company’s ability to manage cybersecurity risks and supply chain disruptions.

Financial Ratio and Metric Analysis

Note: All calculations are based on the provided data. Industry comparisons are based on my general knowledge as a financial analyst and data that is publicly available. A specific source will be listed if used.

Profitability

  • Gross Profit Margin

    • Ratio/Metric: (Net Sales – Cost of products sold, excluding amortization of intangible assets – Amortization of intangible assets) / Net Sales = ($41,950 – $18,706 – $1,878) / $41,950 = 0.5069 or 50.69%
    • Trend: 2023 Gross Profit Margin = ($40,109 – $17,975 – $1,966) / $40,109 = 50.31%. Percentage Change = (50.69% – 50.31%) / 50.31% = 0.76%
    • Industry: The healthcare industry generally has gross profit margins ranging from 40% to 70%, depending on the specific sector (e.g., pharmaceuticals, medical devices). Abbott’s gross profit margin of 50.69% is within this range.
  • Operating Profit Margin

    • Ratio/Metric: Operating Earnings / Net Sales = $6,825 / $41,950 = 0.1627 or 16.27%
    • Trend: 2023 Operating Profit Margin = $6,478 / $40,109 = 16.15%. Percentage Change = (16.27% – 16.15%) / 16.15% = 0.74%
    • Industry: A good operating margin for a healthcare company is typically between 15% and 25%. Abbott’s operating margin of 16.27% is within this range.
  • Net Profit Margin

    • Ratio/Metric: Net Earnings / Net Sales = $13,402 / $41,950 = 0.3195 or 31.95%
    • Trend: 2023 Net Profit Margin = $5,723 / $40,109 = 14.27%. Percentage Change = (31.95% – 14.27%) / 14.27% = 123.83%
    • Industry: The average net profit margin for the healthcare industry is between 5% and 15%. Abbott’s net profit margin of 31.95% is significantly higher, indicating strong profitability.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Earnings / Total Assets = $13,402 / $81,414 = 0.1646 or 16.46%
    • Trend: 2023 ROA = $5,723 / $73,214 = 7.82%. Percentage Change = (16.46% – 7.82%) / 7.82% = 110.49%
    • Industry: A good ROA for a healthcare company is generally considered to be above 5%. Abbott’s ROA of 16.46% is very strong.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Earnings / Total Shareholders’ Investment = $13,402 / $47,901 = 0.2798 or 27.98%
    • Trend: 2023 ROE = $5,723 / $38,827 = 14.74%. Percentage Change = (27.98% – 14.74%) / 14.74% = 89.82%
    • Industry: An ROE above 15% is generally considered good. Abbott’s ROE of 27.98% indicates efficient use of equity to generate profits.
  • Earnings Per Share (EPS)

    • Ratio/Metric:
      • Basic EPS: $7.67
      • Diluted EPS: $7.64
    • Trend:
      • Basic EPS: 2023 Basic EPS = $3.28. Percentage Change = ($7.67 – $3.28) / $3.28 = 133.84%
      • Diluted EPS: 2023 Diluted EPS = $3.26. Percentage Change = ($7.64 – $3.26) / $3.26 = 134.36%
    • Industry: EPS varies widely. Abbott’s EPS is strong, reflecting its profitability.

Liquidity

  • Current Ratio

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $23,656 / $14,157 = 1.67
    • Trend: 2023 Current Ratio = $22,670 / $13,841 = 1.64. Percentage Change = (1.67 – 1.64) / 1.64 = 1.83%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. Abbott’s current ratio of 1.67 is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Total Current Assets – Inventories) / Total Current Liabilities = ($23,656 – $6,194) / $14,157 = 1.23
    • Trend: 2023 Quick Ratio = ($22,670 – $6,570) / $13,841 = 1.16. Percentage Change = (1.23 – 1.16) / 1.16 = 6.03%
    • Industry: A quick ratio above 1.0 is generally desirable. Abbott’s quick ratio of 1.23 indicates good short-term liquidity.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents + Investments) / Total Current Liabilities = ($7,616 + $351) / $14,157 = 0.56
    • Trend: 2023 Cash Ratio = ($6,896 + $383) / $13,841 = 0.52. Percentage Change = (0.56 – 0.52) / 0.52 = 7.69%
    • Industry: A cash ratio of 0.56 indicates that Abbott has a moderate level of cash and short-term investments to cover its current liabilities.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Debt / Total Shareholders’ Investment = ($12,625 + $1,500) / $47,901 = 0.29
    • Trend: 2023 Debt-to-Equity Ratio = ($13,599 + $1,080) / $38,827 = 0.38. Percentage Change = (0.29 – 0.38) / 0.38 = -23.68%
    • Industry: A debt-to-equity ratio below 1.0 is generally considered good. Abbott’s ratio of 0.29 indicates a conservative capital structure.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Debt / Total Assets = ($12,625 + $1,500) / $81,414 = 0.17
    • Trend: 2023 Debt-to-Assets Ratio = ($13,599 + $1,080) / $73,214 = 0.20. Percentage Change = (0.17 – 0.20) / 0.20 = -15.00%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. Abbott’s ratio of 0.17 indicates a low level of debt relative to its assets.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = (Operating Earnings + Interest Expense) / Interest Expense = ($6,825 + $559) / $559 = 13.21
    • Trend: 2023 Interest Coverage Ratio = ($6,478 + $637) / $637 = 11.17. Percentage Change = (13.21 – 11.17) / 11.17 = 18.26%
    • Industry: An interest coverage ratio above 5 is generally considered strong. Abbott’s ratio of 13.21 indicates a very strong ability to cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Cost of Products Sold / Average Inventory = $18,706 / (($6,194 + $6,570) / 2) = 2.94
    • Trend: 2023 Inventory Turnover = $17,975 / (($6,570 + $6,194)/2) = 2.80. Percentage Change = (2.94 – 2.80) / 2.80 = 5.00%
    • Industry: Inventory turnover varies widely. Abbott’s inventory turnover of 2.94 is typical for the healthcare industry.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Net Sales) * 365 = ($6,925 / $41,950) * 365 = 60.20 days
    • Trend: 2023 DSO = ($6,565 / $40,109) * 365 = 59.74 days. Percentage Change = (60.20 – 59.74) / 59.74 = 0.77%
    • Industry: A DSO of around 60 days is typical for the healthcare industry.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Products Sold) * 365 = ($4,195 / $18,706) * 365 = 81.78 days
    • Trend: 2023 DPO = ($4,295 / $17,975) * 365 = 87.15 days. Percentage Change = (81.78 – 87.15) / 87.15 = -6.16%
    • Industry: DPO varies. Abbott’s DPO of 81.78 days indicates it takes longer to pay its suppliers.
  • Asset Turnover

    • Ratio/Metric: Net Sales / Total Assets = $41,950 / $81,414 = 0.52
    • Trend: 2023 Asset Turnover = $40,109 / $73,214 = 0.55. Percentage Change = (0.52 – 0.55) / 0.55 = -5.45%
    • Industry: Asset turnover varies. Abbott’s asset turnover of 0.52 indicates moderate efficiency in using assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $134.92 / $7.67 = 17.60
    • Trend: 2023 P/E Ratio = $134.92 / $3.28 = 41.14. Percentage Change = (17.60 – 41.14) / 41.14 = -57.22%
    • Industry: The healthcare industry P/E ratio varies. Abbott’s P/E ratio of 17.60 is reasonable.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Total Shareholders’ Equity = (Shares Outstanding * Stock Price) / Total Shareholders’ Equity = (1,740 * $134.92) / $47,901 = $234,760.8 / $47,901 = 4.90
    • Trend: 2023 P/B Ratio = (1,740 * $134.92) / $38,827 = $234,760.8 / $38,827 = 6.05. Percentage Change = (4.90 – 6.05) / 6.05 = -19.01%
    • Industry: A P/B ratio between 1 and 3 is considered good. Abbott’s P/B ratio of 4.90 suggests it may be overvalued.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Net Sales = (Shares Outstanding * Stock Price) / Net Sales = (1,740 * $134.92) / $41,950 = $234,760.8 / $41,950 = 5.59
    • Trend: 2023 P/S Ratio = (1,740 * $134.92) / $40,109 = $234,760.8 / $40,109 = 5.85. Percentage Change = (5.59 – 5.85) / 5.85 = -4.44%
    • Industry: A P/S ratio below 2 is considered good. Abbott’s P/S ratio of 5.59 suggests it may be overvalued.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash and Equivalents = (1740 * 134.92) + (12625 + 1500) – 7616 = 234760.8 + 14125 – 7616 = 241269.89 million
      EBITDA = Operating Income + Depreciation and Amortization = 6825 + 1340 + 1878 = 10043 million
      EV/EBITDA = 241269.8 / 10043 = 24.02
    • Trend: Data not available for previous period
    • Industry: EV/EBITDA between 10-15 is considered healthy. Abbott’s EV/EBITDA of 24.02 suggests it may be overvalued.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($41,950 – $40,109) / $40,109 = 0.0459 or 4.59%
    • Trend: 4.59%
    • Industry: The healthcare industry revenue growth varies. Abbott’s revenue growth of 4.59% is moderate.
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($13,402 – $5,723) / $5,723 = 1.3418 or 134.18%
    • Trend: 134.18%
    • Industry: The healthcare industry net income growth varies. Abbott’s net income growth of 134.18% is very high.
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($7.67 – $3.28) / $3.28 = 1.3384 or 133.84%
    • Trend: 133.84%
    • Industry: The healthcare industry EPS growth varies. Abbott’s EPS growth of 133.84% is very high.

Other Relevant Metrics

  • Share Repurchases

    • During the period from October 1, 2024, to December 31, 2024, Abbott repurchased 3,190,000 shares at an average price of $114.693 per share, for a total cost of $3,190,000.
    • The maximum number of shares that may yet be purchased under the plans or programs is approximately $7,293,222,352.
  • Sales Change Analysis

    • Total Net Sales: 2024 vs. 2023: 4.6% increase. 2023 vs. 2022: 8.1% decrease.
    • Total U.S.: 2024 vs. 2023: 5.6% increase. 2023 vs. 2022: 14.8% decrease.
    • Total International: 2024 vs. 2023: 3.9% increase. 2023 vs. 2022: 3.3% decrease.
    • Medical Devices Segment: 2024 vs. 2023: 12.4% increase. 2023 vs. 2022: 14.1% increase.
    • Diagnostic Products Segment: 2024 vs. 2023: 6.5% decrease. 2023 vs. 2022: 39.4% decrease.
    • Nutritional Products Segment: 2024 vs. 2023: 3.2% increase. 2023 vs. 2022: 9.3% increase.
    • Established Pharmaceutical Products Segment: 2024 vs. 2023: 2.5% increase. 2023 vs. 2022: 3.1% increase.
  • Unrecognized Tax Benefits

    • Unrecognized tax benefits were approximately $3.6 billion at December 31, 2024.

Commentary

Abbott Laboratories demonstrated a strong financial performance in 2024, marked by significant improvements in profitability metrics such as net profit margin, ROA, and ROE. The company’s revenue experienced moderate growth, driven primarily by the Medical Devices segment, while the Diagnostic Products segment faced a decline. Abbott maintains a healthy liquidity position and a conservative capital structure. The substantial increase in net income and EPS, along with a lower P/E ratio compared to the previous year, suggests improved investor sentiment and earnings quality.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️