Abbott Laboratories Earnings Call Insights: Market Pieces and SG&A Details
Michael Weinstein – JPMorgan: If I think about the Company, I talk about the way you guys – I thought you did an excellent job in laying it out in the press release which is a lot of different details than you’ve had before. You’ve got 40% of the Company in emerging markets. It’s growing 15% this quarter. You have got the other (60%) in developed markets that was down like 3% this quarter. If we think about the acceleration in the total Company over the balance of this year, is it the developed market piece gets better if you think about it in aggregate or is it the emerging markets piece? I think I know the answer but, I just want you to flush that out a little bit.
Miles D. White – Chairman and CEO: Well it’s a little bit of both. I would tell you that a little bit of improvement in the developed markets goes a long way but the emerging markets for us are showing strong growth and I would say even a bad day in the emerging market looks a lot better than a developed market right now. So when we look at some of these emerging markets and even at the very strong growth rates we see there, they are a little slower than what we may have historically seen in the last couple of years. So I think it kind of depends. Unfortunately they’re not all binary and separated, they are linked. They are somewhat interdependent and I would say we’re seeing the roll through right now in the developed markets of the actions – austerity actions that have been taken obviously in the last year to 15 months and I think that’s going to be with us for a while. I know the senior management at Johnson & Johnson commented a little bit on that yesterday and I thought their comments were quite eloquent about that, quite correct that it’s going to take a while for this to roll through and for businesses or companies to lap the actions we have seen in the developed markets. But a little bit of improvement there as I said goes a long way. At the same time the emerging markets are still very robust and strong comparatively speaking, and frankly even in the absolute. So I think all of us we look at our various businesses, it’s really as you point out, a two-part story. It’s developed markets, emerging markets and they are pretty different. So the tactics or the things that we put in place in any of those markets are different. We are expanding as rapidly as we can where the growth is and we are finding better ways to be efficient and compete more effectively and frankly compete for share in the developed markets. So I think at the end of the day, while we have given guidance that we expect mid to high single digits, depending on how long sort of the economic conditions persist will be toward the mid and if it begins to improve we will start to move the other way.
Michael Weinstein – JPMorgan: Let’s take EPD, because I think that’s probably the business where there is probably the biggest range of use on the growth profile of that business and if you look at it this quarter and then what you’re expecting over the balance of the year, you’ve got your emerging markets piece which is posting good growth, not double-digits, but pretty close. Then you’ve got rest of Europe, which has been declining, that’s been a drag. So if EPD gets better over the balance of the year, is that because you sought to lap some of those cuts that occurred in Europe last year or is it because the merchant markets accelerates?
Miles D. White – Chairman and CEO: Again, it’s a little bit of both. We definitely get better as we lap some of last year. The developed market part of EPD in some ways has been more strongly hit than any other businesses or that business in developed markets has been more strongly impacted because of just this the direct impact of price cuts in Japan or Europe. Then of course you have got the yen on top of it and we’ve got a pretty significant business in Japan there. So we’ve got a disproportionate index on the developed markets in EPD. So I think as we lap that it gets better, but at the same time, as you pointed out, the growth rate of the EPD in the emerging markets is about 9% and frankly I expect that to improve in the latter half of the year.
Michael Weinstein – JPMorgan: Then one last follow-up for Tom; the gross margin commentary for the second quarter, you’re expecting a step down from 1Q to 2Q despite having probably $200 million in incremental revenues. Is that just because the first quarter was just higher than normally it would be because of FX hedges?
Thomas C. Freyman – EVP, Finance and CFO: Yeah. We just had – the timing of the flow through of the exchange really just kind of – it helped the first quarter a little bit and it will be a little bit of an offset in the second or the last three quarters of the year. I think the big – the key message on gross margin is, as we look at the full year, we’re right on track with what we thought we would have as we talked about back in January. So, it’s really just a timing thing Mike.
Rajeev Jashnani – UBS Research: I was wondering if you’d comment a little bit about maybe what’s going on beneath the surface of SG&A. There’s a lot of early activity in emerging markets and maybe talk about some of the investments you’re making there versus what you’re doing in the developed markets to just facility the longer-term growth first.
Miles D. White – Chairman and CEO: Rajeev, this is Miles. I think that’s a pretty good summary right there. We’re definitely expanding in the growth markets around the world, both in headcount and promotional spending and so forth, to support that growth. We’re doing that at a prudent rate. We’re also tightly managing the sales and marketing expenses in markets where we’re not going to get the return or aren’t getting the return. I would also say a little bit of what’s going on there and you’ll probably see this play out over the remaining quarters of the year. We’re putting an awful lot of emphasis on our G&A. It’s not that we want to spend less or invest less in our sales and marketing support of our businesses or investment in the businesses, but I do want to run the Company at a very efficient level from a G&A standpoint and so we put a lot of emphasis on how we are performing in all of our call it overhead or support functions around the world, doesn’t matter what country you’re in fort that one, or what business, and we’re looking at any kind of duplication between our businesses and corporate and so on. Now that we’ve got a little different configuration of the Company without the proprietary Pharma business, it gives us an opportunity to look pretty closely at a lot of our support spending in G&A. That’s not something we can do in just a quarter but over the coming quarters we will definitely be putting some emphasis on that. So and is it enough that you can see that play out in the SG&A, yes. The question is driven more toward, gee are you too tight on SG&A, I’d say, no, we don’t feel like we are starving SG&A. I think not at all actually. If we have the opportunity to invest more where we know we can get the return in growth we are definitely doing that. There is a certain pace at which you can do that, a certain quality at which you can do that and we are mindful of that. But we want to make sure we put that investment into the growth of the businesses. I’d say the same with R&D. You look at the profile of R&D this quarter and it looks like it might be slightly down. That’s really a timing issue. We don’t like to shift or reduce any kind of R&D spending at all, provided it’s productive. So we like the notion of investing more in R&D and we like investing it well. We don’t want to make our bottom line based on what we do with discretionary spending is SG&A or R&D. That bottom line needs to be driven by core performance at the gross margin level and that’s why we are putting so much emphasis on the gross margin improvement in the businesses which is going quite well. That not only is good for the investor at the bottom line but affords us more investment capability in R&D and SG&A. I know it’s a long winded answer but there you go.
Rajeev Jashnani – UBS Research: I guess one quick follow-up on the products side. Just wondering, if you could talk about the Absorb product in Europe and what your – maybe a little more granular on what you’re seeing there in terms of uptake and how do you expect that to broaden out over the coming quarters? Thanks.
Miles D. White – Chairman and CEO: Well, I’d say the uptake has taken a little longer to ramp than we might like. But it is coming along pretty nicely. We are confident that this is going to be a workhorse stent for us over time. I think the initial trial and positioning of this stent has people trying it and you might even say in its initial launch it looks like it’s going to a very high niche. On the other hand that’s the starting point to get some experience with physicians and doctors. It’s our intent to drive it into what I would call very common work force use. The pace of that is steady. I think we’re always going to be impatient and wanting to drive it faster. For a little while it was about having the range of sizes. We solved that in a number of our markets. So I expect that to continue to perform pretty well.
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