Abbott Laboratories Earnings Call Insights: GAAP Numbers and Key Growth Numbers
Michael Weinstein – JPMorgan: I have a bunch of questions. Let me start with, could you just spend a minute on – Tom on the spread between the GAAP and cash guidance for 2013, it’s obviously more than the amortization expense. So are you just assuming certain charges that will run through over the course of the year, and that’s why the GAAP numbers are off?
Thomas C. Freyman – EVP, Finance and CFO: Yeah, there’s two basic things happened beyond amortization. There is a little bit of post-separation, I’d call it residual separation cost and there is some previously announced actions we took in areas of cost reduction, particularly in areas that impact manufacturing that do carry over into 2013. So that’s the difference.
Michael Weinstein – JPMorgan: Then can you add – two questions. One, do you have, Tom, a new Abbott EPS number at this point for 2012? Then second, can you aggregate at all the divisional revenue guidance to which your organic revenue guidance is and reported revenue guidance for 2013 for the total Company?
Thomas C. Freyman – EVP, Finance and CFO: On the second point, we’ve provided mid-to-upper overall operational growth as guidance for 2013. And if you were to go through all the details that Brian outlined in his remarks, you will – those details will build up to that type of growth. So, I think you’ll find that certainly this all hangs together. With regard to the 2012 baseline, as I spent a few minutes on my remarks, we need to provide investors and we plan to do so before the first quarter call with the adjusted 2012 effectively continuing operations baseline for new Abbott. As I indicated in my remarks, we can’t really do that until we’ve completed this carve out work which we still need to complete in the fourth quarter which we’re going to do in the coming weeks and once we do that, we will – we’ll be able to provide you detailed quarterly GAAP and non-GAAP reconciled P&L baseline, if you will. But of course we have done some modeling and as we modeled it and then based upon this guidance range and if you take the middle of this ongoing guidance range we’ve provided that would be double-digit growth plus over what we believe the 2012 baseline will come in at. So, I think things are very consistent with what we’ve been saying and it’s just going to take us a little bit of time to come up with the precise numbers. Among the challenges we’ll have when we present that is just effectively normalizing capital structure between the year as you know, when we look at the carve out of AbbVie, AbbVie did not have debt in the carve out, they do have debt going forward. Abbott will have less debt than what we’ve had historically in the implied carve out of the Abbott side. So there will be some adjustments in those areas where we will build a 2012 baseline that’s meaningful relative to how we’re growing the business in 2013. Hopefully that answers your question.
Michael Weinstein – JPMorgan: Then maybe Miles wants to chip in on this last one, but EPD is probably the business that people probably have the least amount of visibility into probably the least amount of conviction in terms of sustainability of mid to high-single digit growth which you guys have talked about. Can you just talk a little bit about the strategy to accelerate growth off of what looks to be a subpar year in 2012?
Miles D. White – Chairman and CEO: Yeah, I think you’re right. I think people do lack a certain understanding or visibility to the business, Mike, and I think it comes from two major kind of dimensions. One is, there is a lot less, call it, publically available sources of data for a lot of the countries that make up this business, at least for analysts and investors to have an independent look at, and there’s a lot of countries here as you know, but I think the first thing is that the absence of that. And the second is, this is a business that’s a segment business; meaning, there is a proprietary pharma business in a lot of countries, there’s a commodity generic business in a lot of countries, and there’s a branded generic business, and they’re all three different. They’re different. And this branded generic business is quite large, and much more like our nutrition business. It’s very consumer-facing and a lot more like that in terms of consumer choice, consumer pay, et cetera. And that’s why some of the lack of complete understanding and so on. The business, however, is quite attractive. It’s very profitable; it’s quite attractive, it’s growing very nicely, but it’s a story of really two geographies and maybe two market segments. 60% of the business now is in what we will characterize as emerging or growth markets and 40% of it’s in developed markets, and those developed markets, as you know, have been under a fair amount of austerity pressure. So, if I were going to (debut it) up for it, so we’ve got a tale of two different segments here; the BRIC countries and the other emerging markets and so forth depending on which markets are either growing very high single-digits or mid-teens, double-digits, et cetera on the sales line. And so the emerging markets collectively growing double-digit is very healthy. But Europe in particular is experiencing a kind of austerity pressure on pricing and utilization that it’s experiencing for many products, even outside of healthcare. And so the developed markets have been down in the last quarter’s mid-single-digit and sort of two steps forward one step back for a while here. So, there’s a couple of things that will evolve, that will drive EPD’s growth. We believe very strongly in the growth in the various emerging markets. That will be driven by the launch of new products of which there are many this year, and new registrations, so the expansion of our product lines and the launch of new or improved products that have significant potential in these markets. So that will drive some of it. We’re still rolling out geographic expansion; that will drive some growth, and then we’ve got good momentum in a number of these markets. So, I think certainly on the emerging side it’s all going, I’d say, pretty much according to what we would expect. The European piece, or developed market piece – but in effect we’re talking about Europe, I’d say if that can stabilize, and that’s getting an awful lot of attention from us from a stability standpoint, that would help. If you can stem the bleeding in Europe, that would be a tremendous plus. It is a profitable business, it is a cash generating business, but from a growth – when you melt the two together, the appearance of growth appears to be diluted, of course, as you point out, and what we’ve got to do is, I think, breakout on an ongoing basis here and communicate for investors so they can see both pieces, because they’re really two different tales.
Key Growth Drivers
David Lewis – Morgan Stanley: Maybe one quick question for Tom and then for Miles. Tom, when we think about the first half of the year where you gave much better visibility, if we think about the acceleration from first to second quarter, I think it kind of sets up nicely for the acceleration story for the whole year, so I wanted to come back the first half of the year. I think if you think about the first quarter to second quarter, is it really two components first the headwinds are fading which are largely vascular, as well as the Nutritional distribution that sort of gets you from low-singles to mid. I guess what I’m really asking is get from that mid to the upper end or upper single digit part of the guidance what is sort of the key growth drivers that sort of gets you from mid to high and if you can just confirm that to get from low to mid it’s more the vascular and Nutritional distributions?
Miles D. White – Chairman and CEO: Well, there’s a lot of things going and as I’d remind you from my remarks the first quarter and really you’ll be looking at dollars in the end, the first quarter is the one quarter where we’re still getting a pretty tough exchange comparison of around 1.5 on the topline so that certainly parts. You’re correct that, that this lapping of the Japan piece is probably the biggest anomaly and the second after that is the direct distribution getting better as we go through the quarters and throughout the year. Frankly a lot of the execution we are expecting across these businesses in business such as EPD and really what the momentum we’re starting to see as Nutrition exits 2012 is what’s going to continue to build throughout the year. So, I think it’s a matter of building momentum. Vascular we shouldn’t dismiss the potential second half benefits of ABSORB, MitraClip doing better in Europe, the Xpedition benefits we think we’re going to get in the market I mean vascular we’re expecting to see a nice pick up in momentum as we move from the first quarter on through the year. So, there are a number of elements of it. Just to remind and I want to be sure from your question that it’s clear to investors our full year estimated growth over the baseline is mid to upper-single digits growth, so I think that level of growth across the quarters, would maybe a little bit better in the back and as we said a little bit softer in the first quarter, is the way to think about the year. So, I think there are a lot of things going on that are going to accelerate the growth, and we feel confident about that.
David Lewis – Morgan Stanley: And then Miles, maybe more of a strategic question, you’ve been very clear about the growth objectives and the growth potential of new Abbott. If you think about capital allocation, what should investors be prepared for over the next couple of years? You have a dividend and extremely clean balance sheet that’s (likely to be) cleaner by the end of year. So, and in the first two years of sort of the development of new Abbott growth story, is this more dividend share repurchase or is this more dividend with selective M&A? What should investors sort of be prepared for over the next couple of years as it relates to capital deployment?
Miles D. White – Chairman and CEO: Well, I think we’ve been clear that there is a certain level of dividend and share repurchase that investors have come to expect from us on a relatively reliable, steady, even growing basis. We’ve not been one to do big spikes of share repurchase, et cetera to – we believe more in a steady return to shareholders over time, and I think that it’s important that we live to that steady and reliable return to shareholder identity. I got some feedback from investors in the fall, both positive and more positive, I guess, about dividend. People like the reliability of income, but they always want more income. And the payout ratios between the two companies now in the split are different. They’re combined greater than what Abbott paid up through the end of last year on a percent of EPS basis. but AbbVie pays proportionately higher as a percentage of EPS; we now pay proportionally lower as a percentage of EPS, but both are growing dividends. And I got feedback from some thoughtful investors about that, and I always listen to investors, but I would say at this point we’ve communicated at least in opening philosophy of the dividend payout, but frankly could that change with time? It could, but I would tell you if it changes it’s likely to increase, not doing anything else, because we actually believe in a cash return to our investors in a dividend like fashion. Now, buried in your question there was that secret little what about M&A thing. We’ve had a track record in the past of occasionally adding pieces to our business when it made the most economic sense for us et cetera and well that hasn’t been an area of high focus in the last one to two years, that’s been largely because I don’t think there’s been as much that was attractive to us and we were consumed with the work required to split the companies. As I communicated with lot of our investors in the fall, we’re always kind of paying attention and tracking what might make sense, but my criteria are always the same, it strategically has to fit what we’re doing, where we’re headed, what we’re trying to accomplish and so forth and it’s got to make economic sense. It’s got to make economic sense, deal since for us. It’s got to make economic and deal sense for our investors. I would say our track record is such we’ve been pretty thoughtful and pretty careful about that, been fairly selective et cetera. I don’t rule it out, but I would tell you that the projections that we have right now for the business going forward for 2013 and beyond don’t require it. We could have some gap in there where we’re projecting returns or projecting growth that we don’t know that we can deliver with what we already have. So, I look at the M&A opportunities or licensing opportunities as opportunistic, and if you ask me are there some of those on our radar screen? I’d say, yes. And I communicated that the categories that have attraction for us tend to be in device areas or some geographic expansion, perhaps in some selective categories of pharma etcetera that we’ve communicated, but they are fairly defined, I mean they are not real broad. Beyond that I almost never project what we’re going to be interested in or what we’re watching or what we’re doing for all the competitive reasons that you can imagine, the press seems to do a pretty good job of speculating on just about everything that comes to market that Abbott might be interested in and more often than not we aren’t. We’ve got in our own minds what we know will fit well with our business I suppose it makes for great media to speculate from time to time. But in any case, we like to keep some of our powder dry so that we’re prepared if a good opportunity comes along. So, we like to keep some liquidity in our hands and we don’t like to let too much liquidity sit in our hands and earn a little. So, we keep a balance of dividend in there and frankly if we accumulate a lot of cash and we just don’t seem to be finding opportunities worth than we buy back shares and give it back to investors. I know that’s a long-winded answer but that’s really kind of it.
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