Abbott (ABT) Q1 2023: Base Business Accelerates to 10% Growth as COVID Testing Declines
Abbott’s core business delivered double-digit growth in Q1, offsetting the anticipated drop in COVID testing revenue and validating years of reinvestment in its foundational platforms. Management’s tone shifted from cautious to bullish, signaling confidence in the sustainability of demand and margin recovery across devices, diagnostics, and nutrition. The call’s detail on segment momentum, pricing dynamics, and geographic expansion sets up a constructive outlook—even as inflation and FX headwinds linger.
Summary
- Device and Nutrition Demand Rebound: Underlying procedure volumes and consumer health spending are driving broad-based top-line strength.
- Margin Recovery in Focus: Input cost normalization and stable device pricing support gradual margin improvement.
- Structural Growth Signals: New product launches and geographic expansion underpin management’s high single-digit growth forecast.
Business Overview
Abbott Laboratories is a diversified global healthcare company, generating revenue from medical devices, diagnostics, nutrition, and established pharmaceuticals. Its business model is anchored in branded generics for emerging markets, consumer health products, and leading device franchises such as Freestyle Libre (continuous glucose monitoring) and cardiovascular solutions. Revenue streams are diversified geographically and by end market, with a mix of recurring consumable sales and capital equipment.
Performance Analysis
Abbott’s Q1 2023 results were defined by robust base business growth, with organic sales excluding COVID testing up 10%. Medical devices led the way, posting double-digit gains globally, driven by strong US demand and international expansion. The Freestyle Libre franchise achieved over 25% organic growth, including a 50% surge in the US, reflecting both market expansion and share gains. Nutrition rebounded sharply, aided by recovery from last year’s infant formula recall and sustained momentum in adult nutrition.
Diagnostics performance was mixed, as expected, with COVID testing revenue dropping sharply. However, core lab and rapid diagnostics grew mid to high single digits, particularly in the US and Europe, as routine healthcare activity resumed. Established pharmaceuticals delivered 11% growth, propelled by branded generics in emerging markets like Brazil, China, and Southeast Asia. Margin pressure from lingering inflation and FX persisted, but management highlighted early signs of input cost normalization and stable device pricing, supporting a positive margin trajectory.
- Device Portfolio Drives Accretion: Higher-margin device growth, especially in cardiovascular and diabetes care, is lifting overall profitability.
- Geographic Breadth Sustains Growth: Emerging market strength in EPD and international device sales diversify risk and opportunity.
- COVID Testing Decline Managed: Base business outperformance more than offset the planned reduction in COVID-related revenue.
The quarter’s performance validates Abbott’s reinvestment strategy, with new product launches and operational execution translating into tangible top-line and margin progress. The underlying demand environment appears durable, not simply a post-pandemic backlog flush.
Executive Commentary
"The strong performance we're achieving is broad-based and fueled by strong execution, new products, and improving market conditions. And our core foundational growth platforms have strong momentum and are achieving exceptional results, positioning us well for top-tier growth going forward."
Robert Ford, Chairman and Chief Executive Officer
"We've essentially been able to offset [carryover inflation] through some of the gross margin programs we have across our businesses, as well as taking some price in some of the areas of the business, again, with the more consumer-facing businesses. And we've really been able to kind of mute that carryover inflation this year."
Bob Funk, Executive Vice President, Finance and Chief Financial Officer
Strategic Positioning
1. Device-Driven Margin Expansion
Abbott’s device segment is positioned as the margin engine, with growth in diabetes (Libre) and cardiovascular platforms outpacing the rest of the portfolio. Management emphasized that device pricing, historically a headwind, has stabilized, while new launches and expanded indications (e.g., Libre’s Medicare coverage for Type 2 diabetes) are broadening addressable markets.
2. Branded Generics and Local-for-Local Model
The established pharmaceuticals division leverages a “local for local” strategy, developing and manufacturing branded generics tailored to emerging market needs. This approach enables Abbott to capture share and drive profitability, even amid FX volatility and regional macro risk.
3. Diagnostics Platform Re-Acceleration
The Alinity multi-year rollout is regaining momentum post-COVID, with hospital RFP activity and blood bank automation ramping back up. Management is balancing top-line growth with margin discipline, targeting a 7%–8% core lab growth rate that supports both revenue and profitability.
4. Nutrition Recovery and Pricing Power
Nutrition is rebounding, with U.S. pediatric volumes normalizing and adult brands like Ensure delivering steady gains. Abbott has successfully implemented selective price increases in consumer-facing businesses to offset commodity inflation, and further input cost normalization could provide incremental margin tailwinds.
5. Capital Allocation and Portfolio Enhancement
Abbott maintains a balanced approach to capital deployment, prioritizing organic investment, a growing dividend, and selective M&A. The planned acquisition of CSI in peripheral vascular is a strategic fit, expanding device capabilities in high-growth markets.
Key Considerations
This quarter underscores Abbott’s ability to deliver sustainable growth through a diversified business model and operational agility. Several factors merit investor attention as the year progresses:
Key Considerations:
- Device Launch Execution: Continued integration of new products (e.g., Eterna neurostimulator, Amulet, Navitor) is critical for sustaining double-digit device growth.
- Margin Leverage from Cost Normalization: Input cost pressures are beginning to ease, but further improvement is needed for meaningful margin expansion.
- Emerging Market Resilience: EPD’s growth in Brazil, Southeast Asia, and India highlights the importance of local execution amid global macro uncertainty.
- Diagnostics Growth Balance: Abbott must balance core lab growth with margin discipline as COVID testing revenue fades.
- Capital Allocation Discipline: Ongoing focus on balanced capital deployment supports both growth investment and shareholder returns.
Risks
Key risks include persistent FX volatility, which continues to pressure reported results, and the potential for input cost inflation to re-accelerate. Competition in devices, especially electrophysiology (PFA entrants), and the sustainability of high growth in emerging markets are watchpoints. The fading COVID testing tailwind leaves less buffer for execution missteps, and any delays in product launches or reimbursement expansion could impact the growth trajectory.
Forward Outlook
For Q2, Abbott guided to:
- COVID testing sales of around $200 million
- Base business organic sales growth (excluding COVID) at least in the high single digits
For full-year 2023, management maintained guidance:
- Adjusted EPS of $4.30 to $4.50, with a lower COVID testing contribution offset by higher base business earnings
Management highlighted several factors that support the outlook:
- Robust pipeline execution and new product launches across devices and diagnostics
- Ongoing cost discipline and margin improvement initiatives
Takeaways
Abbott’s Q1 results confirm a decisive pivot from COVID-driven swings to sustainable, diversified growth, with operational execution and product innovation driving momentum across all major segments.
- Device and Nutrition Strength: Double-digit growth in core franchises validates years of reinvestment and positions Abbott for continued outperformance as COVID testing fades.
- Margin Recovery Path: Early input cost relief and stable device pricing underpin the company’s confidence in margin expansion, though further progress is needed.
- Watch for Pipeline and Execution: Investors should monitor the cadence of device launches, emerging market dynamics, and the pace of diagnostics platform adoption for signals on sustainability.
Conclusion
Abbott’s first quarter marks a clear transition to base business-led growth, with broad-based strength across devices, diagnostics, nutrition, and EPD. Management’s bullish tone, supported by operational and financial execution, sets the stage for top-tier growth—provided margin recovery and competitive positioning are maintained.
Industry Read-Through
Abbott’s results reinforce a sector-wide pivot from pandemic volatility to normalized, procedure-driven growth, with device makers and diagnostics peers likely to benefit from similar demand trends. The return of elective procedures, stable pricing, and input cost normalization are positive signals for medtech and healthcare suppliers broadly. Emerging market resilience and local-for-local execution are increasingly critical for global pharma and device companies, while the fading COVID testing boom will require diagnostics players to refocus on core platforms and margin discipline. Investors should expect sustained competition and innovation in diabetes technology, cardiovascular interventions, and branded generics as secular demand drivers persist.