Abbott Laboratories shares dropped the most since June 2021 after third-quarter earnings showed a dwindling demand for COVID testing and substantial declines in its infant nutrition businesses after recalls spawned nationwide baby formula shortages.
Total sales of $10.4 billion were down 4.7% from a year ago, with the most acute decline in Abbott’s U.S. nutrition business, where sales dropped 25%. Earlier this year the company had to stop production at one of its baby formula plants after a recall though that production has since resumed.
After a company analysis of the infant baby formula market concluded the U.S. would benefit from more manufacturing capacity, Abbott said it will invest half a billion dollars in a new facility for specialty and metabolic formulas.
“We’re currently in the final stages of determining the site location and we’ll work with regulators and other experts to ensure this facility is state of the art and sets a new standard for infant formula production,” Chief Executive Officer Robert Ford said on a call with investors Wednesday morning.
COVID testing is also emerging as a sore spot for Abbott as companies and schools wind down their monitoring programs, with sales of the tests dropping 26% from the second quarter, to $1.7 billion. While the results weren’t as bad as analysts predicted — both profit and sales exceeded Wall Street estimates and Abbott raised its outlook for the year — investors pushed down the company’s stock.
“A beat led by COVID-testing is going to underwhelm” because investors are paying more attention to the company’s core businesses in the wake of the formula crisis, Bloomberg Intelligence’s Matthew Henriksson said. COVID tests still make up nearly half of the diagnostics division’s sales, which were down about 11% from a year earlier.
Omicron has continued to splinter into new subvariants, some of which may be able to evade immunity offered from vaccines, leading to warnings from health experts that cases could rise again this winter.
“We haven’t really planned for a big winter surge,” Ford said. “It’s more of an endemic-like forecast for Q4 and I think that’s the kind of endemic forecast that we’ll see going into 2023, but I think right now it’s looking like Covid test sales are stickier than most would assume.”
Abbott’s shares fell 7.2% to $97.43 at 11:08 a.m. in New York. The stock was down 25% year to date as of Tuesday’s close.
Medical devices were a bright spot: sales grew 11.3% in the quarter as the company launched new products like a modified glucose monitor. Sales in the electrophysiology, structural heart and diabetes care divisions drove the growth.