Abbott Laboratories

Good morning and thank you for standing by. Welcome to Abbott's second quarter 2022 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star one keys on your touchtone phone. This call is being recorded by Abbott. With the exception of any participants' questions asked during the question and answer session, the entire call, including the question and answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.

Good morning and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Bob Funk, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2022. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31st, 2021. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings news release and regulatory filings from today. which are available on our website at abbott.com. Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward-looking basis because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.

Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, we reported results of another strong quarter. Earnings per share were $1.43, reflecting more than 20% growth compared to last year. Sales increased nearly 14.5% on an organic basis in the quarter, led by growth in established pharmaceuticals, diagnostics, and medical devices. Based on our performance through the first six months, we increased our earnings per share guidance to at least $4.90 for the full year. This speaks to the strength and resilience of our diversified healthcare model, as well as strong execution in this challenging macro environment. We've continued to advance our R&D pipeline and strengthen our long-term growth platforms with several new product approvals. Our supply chain has remained resilient and our financial health remains strong. I'll now summarize our second quarter results in more detail before turning the call over to Bob. I'll start with established pharmaceuticals, or EPD, where sales increased more than 9% in the quarter. Strong performance this quarter was led by double-digit growth across several countries, including China, Brazil, Colombia, Mexico, and Vietnam. EPD continues to execute and perform at a very high level in a dynamic environment, achieving double-digit organic sales growth over the past year and a half, including more than 11% organic growth for the first half of this year. Moving to diagnostics, where sales grew over 35% in the quarter. COVID test sales were $2.3 billion in the quarter, more than 95% of which came from rapid tests, including BinaxNOW in the U.S., PanBio internationally, and IDNOW globally. As we had predicted some time ago, rapid testing has become widely accepted and has proven to be a very important tool in combating the virus due to its affordability and accessibility, including at-home testing. And while vaccines have been shown to play an important role in reducing severity of outcomes, With the emergence of new variants that escape immunity, rapid tests have become the best tool we have to help people quickly and easily identify new cases in quarantine to help slow and prevent transmission. As you know, forecasting COVID testing demand beyond the near term has been challenging. As such, our forecast for the next few months contemplates a modest approaching endemic-like amount of testing sales. We are in regular discussions with governments around the world, including the U.S., for surveillance testing needs and to ensure capacity is available and ready if we see another surge this winter. If that were to happen, we have a lot of manufacturing capacity in the U.S. and internationally to help meet testing needs. I'll now turn to nutrition. As you know, we initiated a voluntary recall in February of certain infant formula products manufactured at one of our U.S. facilities. Earlier this month, we resumed partial production at that facility, starting with our specialty formula Elecare and metabolic formulas. We are in the final phases of testing to restart Similac production. As a reminder, once we begin production, it takes several weeks for product to reach store shelves. That said, we will do everything possible to accelerate delivery of product to retailers so families can have access to the formula they need as soon as possible. We've already started to see some share recovery at retail over the past couple of months as we leveraged our global manufacturing network to increase supply to the US, including importing product from our FDA-registered plant in Ireland. We also began importing product from Spain after receiving informed discretion from the FDA that expanded the allowance for imports. As I said in April, it's important to note that the results of the investigation from the FDA, CDC, and Abbott concluded no evidence linked our formulas to any infant illnesses or deaths, and there is no new information to suggest otherwise. We take this matter very seriously, and we're making a number of enhancements to our operations at the impacted manufacturing plant. We're also taking steps across our manufacturing network to expand capacity and redundancy. We're committed to set the standard in industry on quality and safety and to re-earn the trust of the families that depend on us. Across our broader nutrition business, global sales in adult nutrition increased 5% and a quarter, including more than 7.5% growth internationally, led by our market-leading Ensure and Glucerna brands. Lastly, I'll wrap up with medical devices, where sales grew 7.5% in the quarter. In cardiovascular devices, sales growth was led by structural heart and heart failure. While cardiovascular procedure trends continued to improve, growth in the quarter was somewhat more modest than what we had anticipated back in April due to several factors, most notably healthcare staffing challenges, COVID surges and lockdowns in China that were implemented as part of their efforts to control the spread of the virus. We expect these dynamics to improve in the second half of the year. In diabetes care, sales of Freestyle Libre grew more than 25% on an organic basis in the quarter, and our user base now exceeds 4 million users globally. During the quarter, we continue to strengthen our medical device portfolio. with innovative new products, most notably U.S. FDA clearance of our Freestyle Libre 3 continuous glucose monitoring system, which is the world's smallest and thinnest wearable glucose sensor that provides results with the highest level of accuracy in the industry. And U.S. approval of Avere, our leadless pacemaker for the management of slow heart rhythms. AVERA was specifically designed to be retrievable if the device ever needs to be removed and expandable to a dual chamber device, which is currently under development if the therapy needs evolve over time. So in summary, our diversified healthcare model continues to prove highly resilient in a dynamic macro environment. We're achieving strong growth across several areas of the portfolio. and making good progress restarting our nutrition manufacturing facility. And as a result of our strong performance through the first six months, we're raising our EPS guidance for the year. I'll now turn over the call to Bob.

Bob. Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange. Turning to our results. Sales for the second quarter increased 14.3% on an organic basis, which was led by strong growth in diagnostics, established pharmaceuticals, and medical devices, along with global COVID testing-related sales of $2.3 billion in the quarter. During the second quarter, sales were negatively impacted by a voluntary recall and manufacturing shutdown in February of certain infant formula products manufactured at one of our U.S. plants. Excluding COVID testing-related sales and the U.S. sales associated with the recalled products, Abbott's sales increased 6.2% on an organic basis in the second quarter. Foreign exchange had an unfavorable year-over-year impact of 4.2% on second quarter sales. During the quarter, we saw the U.S. dollar continue to strengthen versus several currencies, which resulted in a more unfavorable impact on sales compared to exchange rates at the time of our earnings call in April. Regarding other aspects of the P&L, the adjusted gross margin ratio was 56.7 percent of sales, which reflects the impacts of the recent nutrition recall and incremental inflation we saw in certain manufacturing and distribution costs in the quarter. Adjusted R&D investment was 5.8% of sales, and adjusted SG&A investment was 24.4% of sales in the second quarter. Lastly, our second quarter adjusted tax rate was 14.5%. Turning to our outlook for the full year 2022, We forecast total company organic sales growth, excluding the impact of COVID testing-related sales, to be in the mid to high single digits. It is important to note, excluding products impacted by the nutrition recall, we forecast total organic sales growth in the high single digits for the remainder of our combined businesses, which includes medical devices, established pharmaceuticals, diagnostics excluding COVID testing-related sales, and areas of nutrition not impacted by the recall. We forecast COVID testing-related sales of $6.1 billion, which includes year-to-date sales through June of $5.6 billion, and projected sales of approximately $500 million over the next few months. We will continue to update our COVID testing-related sales forecast one quarter at a time as appropriate. Lastly, based on current rates, we would now expect exchange to have an unfavorable impact of approximately 5% on our full-year reported sales. With that, we'll now open the call for questions.

Thank you. If you have a question at this time, please press the star then the number one key on your touch tone telephone. For optimal sound quality, we kindly ask that you please use your handset instead of your speaker phone when asking your question. And again, that star then one to ask a question. And our first question will come from Robbie Marcus from JP Morgan. And your line is now open.

Great. Thanks for taking the question. Congrats on a good quarter. Robert, maybe to start, maybe I'll get a little greedy here since we're only sitting in July and half of 22 is done. But I think the focus for investors is quickly shifting to next year. And there's a lot of moving pieces going on in 2022, a lot of assumptions we have to make in the go forward of 2023. where's COVID testing, how fast does nutrition come back, and how steady can the device business be going forward? So, you know, there's a lot of uncertainty out there of where numbers should sit and, you know, how to start thinking about the business for next year. Any thoughts you have at this point would be really helpful.

Sure. Well, I think there's a lot of uncertainty for everybody regarding 2023. I think you've kind of highlighted some of the Aspects as it relates to our business here But the macro the macro environment still is is pretty challenging and I don't think it's unique to us obviously there's significant inflation and Seems like there's a pretty significant call like a commodity super cycle for us There's health care staffing challenges you hear about that and then obviously a strong US dollar so all those kind of combinations of are the challenges that a lot of companies are going to face. And if you look at a lot of the financial and consumer indicators, retail, housing, auto, et cetera, those tend to point towards an increased risk here of recession. So what I would say is historically in that macro environment, healthcare has proven to be pretty resilient. And whether it's the durability of these essential procedures and products, I mean, you can only defer them somewhat. A large portion of the healthcare spend is government funded. And we've got a diversified model that's proved itself to be very resilient in this kind of environment. So at a macro level, I think those are the headwinds that we're all facing and we'll all be facing. You mentioned COVID as a factor here. Um, you know, it's interesting, um, last year, this time we were talking about how COVID would, you know, COVID testing would move away, but we've actually, we've actually shipped, uh, just as amount of tests in the first six months of this year compared to all of last year. So, um, I think that, um, we're going to need to see how the cases evolve Robbie, uh, especially during the, uh, you know, the winter and fall months over here. Obviously, I don't think it's prudent to forecast a winter surge, but like I said, we've got capacity to be able to deal with that. Those are some of the key factors here that we're looking at. Nutrition that you mentioned, we're recovering pretty nicely, I would say, versus where we originally thought we were going to be back in April. A lot of focus on restarting the manufacturing site. already a good portion of the share that we lost. And obviously, we continue to see that moving forward positively. So on the flip side, though, what I would say is that we're not going to just sit still over the next couple of months and wait for these macro kind of factors here to play out, right? We're taking a very proactive approach on the elements that we can control and that we can impact. We're taking price where we can, and we've seen that in our consumer-based businesses, these are businesses because of the strength of our brands that we've been able to do that and pass it on. We're also looking at other areas that we can or that historically we haven't necessarily looked at in terms of price. We're looking at our cost structure. I've talked about this in previous calls, too, and we've got a program in place now where we're looking at our cost structure. The hurdles in terms of investment have obviously increased given this macro environment. We're not going to put any risk to our long-term growth platforms, but we're definitely looking at our cost structure and see where we can improve. And inventory is important as we move into this inflationary period here. So we're ensuring that we've got the right amount of inventory. So I put all that together. Ravi, we've got macro headwinds that everybody else has regarding nutrition. I think our performance is well aligned to where we planned and where I see us ending up end of the year is ultimately where our forecast, the forecast that we laid out. COVID testing is one that to simply assume that there won't be any COVID testing next year, we've never believed that. The question is just your ability to forecast beyond three to six months. That's the challenge. So fundamentally, I think our business remains very strong. We've got leading positions in attractive long-term growth markets, strong pipeline, and I'm sure we'll talk about some of that today also. We've got a lot of ongoing upcoming launch activity and a strong balance sheet that provides us a lot of strategic and financial flexibility. So it's difficult to pin a number on it right now, Robbie, but at a high level, those are the elements that we're working with. and ultimately like to see some of these elements play out over the next couple of months here.

Great. Maybe just as a follow-up to that, Robert, you were talking about the cost structure at Abbott, and this is something we're hearing from basically everyone, that in inflation, supply chain, et cetera, you're in this enviable position where you've probably grown operating margins more than anyone else in MedTech since the start of COVID, a lot of that has been from the benefit of COVID testing sales, which are at healthy margins and still healthy reinvestment against that. So, you know, as we think about your operating margins going forward and you reevaluating your cost base here, you know, I just, it's a difficult question and it's been a while for MedTech investors to see anything but just margins going straight up. So how do you want investors to start thinking about where your base operating margin is, maybe potentially if COVID testing sales slow down in the future?

Yeah, I always appreciate you like to get at the next year's number in a couple different ways, Robbie. I guess I would say on the cost structure piece, I don't necessarily fully agree with you that the way you characterize it in terms of COVID being the the ultimate driver here. I think we made a lot of progress on our gross margins historically, whether it was in devices and in nutrition. So as the device business continues to grow, that profile of that business is accretive. And you've seen our growth rates in that business over these last couple of years. So that helps the margin. Our biggest challenge, I would say, from a gross margin perspective is is really on the inflation side, yeah, we're seeing input costs go up, you know, probably more on the commodity side. So, you know, impacting EPD, impacting nutrition, less so in, you know, I would say in devices and diagnostics. Yeah, there's some, you know, there's some noise that happens here with one supplier, another supplier. and we deal with it. But, you know, the real challenge we've had, I would say, over the last kind of six months here has been on the nutrition side. And part of that is, you know, some of it is commodities. So we're going to have to see how those look like over the next kind of couple of months. Seen some slowing down of some commodities, but that's the biggest kind of driver there. But the other part of the nutrition is, I would say, costs that I don't anticipate to be there next year. So, for example, we're paying WIC rebates for competitive products since April, actually since March when we initiated the recall. As we restart production in the facility, I don't assume that that will continue. I made statements in my open comments about bringing product in from overseas. We brought a lot of formula From overseas and that's all air freight and you know the story on freight distribution. So once that facility Starts up and running. I don't anticipate to see those same kind of freight expenses from overseas shipments and we put some money towards brand recovery and You know, I think that that was an investment that's necessary to get our share back in position that we need as we go into next year so That being said, as I said, we're going to look at our cost structure. We're going to look at areas that have a higher hurdle now for passing an investment hypothesis or thesis, and we'll take action where we need to take action. So that's how I would characterize our margin.

Great. I appreciate the thoughts. Thanks a lot.

Thanks.

Thank you. And our next question comes from Joshua Jennings from Cowan. And your line is now open, sir.

Hi, good morning. Thanks for taking the questions. And I was hoping to start with a follow-up on the raise of the 2022 EPS guidance floor and just better understand the puts and takes. I think there are some questions around the 30-cent B2Q and the 20-cent increase, again, realizing that it is a floor. But it seems like a lot of that kind of 10-cent delta is driven by the move in the U.S. dollar in July. But just wanted to better understand the puts and takes and how you guys arrived at the increase that you did. I have one follow-up.

Sure. Yeah, I think you'll see – I mean, we've seen a lot of companies kind of beat their Q2 and either maintain their guidance for the full year or actually reduce it. And we looked at our numbers very carefully. And we basically looked at the strength of our base business. So if you exclude, you know, AN, our nutrition, you know, the parts of the nutrition business that was recalled, we're growing high single digits and we continue to see that kind of growth rate going forward. So between the strength of the base business and the COVID sales, we then felt that we had enough power here to navigate and push through some of these macro headwinds that are pretty significant right um you know inflation is is a big element there uh we we had some um costs uh when we we gave initial guidance in january we increased that uh in our april call and and we've assumed another couple hundred million dollars of inflation um since that uh since that number that we we we provided in april so so that's one element um that we're we're we're absorbing, I guess. What I would call healthcare staffing challenges, COVID cancellations, you know, the lockdown issues that we saw in Q2, especially in, I'd say, in our core lab business and NEP in China, for example, you know, those are being absorbed also. And then currency, as you referenced, you know, pretty dramatic strengthening here of the U.S. dollar. So we've assumed all of that. And, you know, as I said also to Robbie, we've had to factor in some additional costs on the nutrition side, whether it's the WIC rebate, the freight and distribution, some of the investments we're making to support share recovery. So you put those two together, those two elements together on the macro, on the nutrition side, and then you offset that with our base business and COVID sales. And that's really the element there, Josh. And as you said, You know, since the beginning of the pandemic, we've gone to at least floor-like guidance here. And that's what 490 is. It's a floor right now. Could that be better? Yeah, it could. There could be elements that could make that number be better. But, you know, on top of absorbing all these incremental headwinds here, inflation, currency, making some of the investments we need on nutrition, we're still able to raise our full-year guidance.

Thanks, Robert, and just 1 follow up on the medical devices business, and it's encouraging to hear you talk about improvement in the back half. And you did have that tough company to queue, but. Are you able to just share any high-level color just on elective procedure trends throughout the quarter in 2Q, just month-over-month improvement that you see, and then anything you can share on color in July? And just wondering, you called out a couple of the headwinds that you saw in 2Q for hospitals and the challenges that they're facing to accelerate elective procedure volumes in the second half, but what do you think the biggest challenge is, and do you think the hospitals are well-equipped to overcome those challenges? Thanks again for taking the questions.

Yeah, sure. I think you mentioned there, I mean, Q2 last year was a pretty significant revenue for a lot in MedTech, so there is that comp aspect there. But second quarter procedures and volumes, if I look at Abbott's procedure volumes and sales, they're actually higher than pre-pandemic levels, and there was sequential growth. from Q2 to Q1, over 7% in the U.S. and a little bit lower internationally. So the aspect here is that we are seeing growth, but it was a little bit more modest than what we had anticipated back in April, right? And I think there's really three factors there. One of them, as I said, in the U.S. specifically, I think the staffing challenges were a factor there. And as people tested positive, while they didn't have to go to the hospital and they could just stay at home, that had an impact in some of the procedures that there's a little bit more planning towards. So the good news is we know what those procedures are, we know where they are, and we've got an opportunity to follow up on them like we did last year and following up on all the procedures that got pushed out. Internationally, I think you saw some similar headwinds there, but I think the biggest headwind for us was China and the lockdowns that occurred there. And then the third factor for us was we had some backorder, and that was really due to the timing of input material availability. um you know in terms of when you receive uh you know the the materials to build to build the product now we are building inventory and i don't anticipate that to be the case going forward in the second half so so those are really our fact you know those really the facts um that that you know had our our our device business a little bit more modest than what we projected in april i think those uh you know get Get better one. We've got launch activity So and I'm sure we'll talk about some of those also products that we've launched that will gain In momentum in the second half in talking to a lot of the US systems You know, they've just got to figure out better how to staff and and to do more planning and that might involve maybe Looking at having more procedures booked because you know that there's a certain amount of cancellations that will happen so I think that you know, that will get better also as the hospitals understand these dynamics. So I'm excited about the device portfolio in terms of the second half, not only because of some of these issues, which I think will get better, but also because of our pipeline and the products we're launching and the execution.

Great. Thanks again.

Thank you. And our next question will come from Larry Beagleson. from Wells Fargo, and your line is now open.

Good morning, guys. Robert, can you hear me okay?

Yeah, I can, Larry.

Yeah, it cut out a little bit. So two for me, I wanted to, and thanks for taking the question, I wanted to start with Libre. Robert, just a multi-part question here on Libre, another nice quarter. How should we think about the Libre 3 launch in the U.S.? Should we expect it to be kind of a gradual rollout like we saw with Libre 2? And how are you feeling about you know, resolving the vitamin C interaction issue. It sounds like you guys have made some good progress there. And just lastly, international was a little softer than we expected. Is this just kind of a law of large numbers or, you know, is this just a timing issue in terms of, you know, the full rollout of Libre 3? And I did have one follow-up.

Sure. I think Libre 3, we're very excited. We've had very good success in Germany in terms of upgrading the base. And then with the benefits of Libre 3, actually seeing some conversions from competitive systems. So the U.S. launch is going to be exciting for the U.S. team. It'll be the only CGM with a sub-8% MART. And that launch process is underway. But it is a little bit more gradual. So we're going to work to get onto pharmacy contracts, PBM contracts, managed care contracts, et cetera. So we're building inventory. We're familiarizing the physicians with the product. But given what I've seen in Europe, I think this is a great opportunity for our US business, which which, by the way, did really well this quarter, right, even without Libre 3. We grew 53% in the second quarter. And I actually think that we can maintain that 30% to 40% growth rate in the U.S., even without Libre 3. So I think that's going to be an important growth driver for us towards the end of the year and as we go into 2023. I do think, Larry, that CGM is – I mean, we have it in devices, but the model, at least in the U.S., is very pharma-like. And, you know, where patient out-of-pocket, coinsurance, copays, contracts, et cetera, they play a big role in understanding those and the interdependencies of those are very important. I think in an environment where employers and consumers are going to be looking more closely at managing their expenses, I think the value proposition of Libre is going to be even stronger. Regarding your question on vitamin C fix, yes, we have done the work to be able to address that. We've made very good progress. I'm going to provide further updates over time. But, you know, obviously this relates only to the U.S. We're actually going to be launching an AID system in Europe with our partners in Europe in Q4 with Libre too. So, but you'll get more updates on that. I think that the exciting piece on the pump connectivity, though, is what we announced in June at the ADA with a dual sensor, a glucose ketone sensor that's under development. It's received breakthrough designation from the FDA. The scientific advisors that I've spoken to, both in the US and international, believe that this is going to become the go-to sensor for for pump connectivity and just because of the ability to bring in the ketone measurement and perfect even more those algorithms. So, I think this is going to be an ideal sensor for existing pump companies and even for new pump manufacturers. Regarding your question on international You know, there's a little bit of timing there, I would say. Well, it's two parts, a little bit of timing from in Germany as we convert to Libre 3 and the mechanisms in place there. And then there was some FX, you know, headwind that, you know, impacted, you know, a lot of our international businesses. So does that cover it all for you, Larry?

That was very comprehensive. Really appreciate it, Alex. Just for my follow-up, Robert, I know I've asked this a lot on recent calls, but you're sitting on a lot of cash and we have seen a recent re-rating evaluations. So are you starting to see more opportunities, any color on deal size that you're looking at? And I think some investors are saying when COVID testing comes down, you might have a gap in terms of earnings that you need to fill. So how important is it to find an accretive deal to offset potential decline in COVID testing? Thanks.

Well, on the COVID testing side, I mean, I guess we'll have to kind of see how things play out right now. I mean, I guess that was the same comment last year. And as I said, we're selling more, we'll probably be selling more, well, we sold more in the first six months here versus last year. So Regarding your comment, though, on the M&A side, yeah, I don't think anything's really changed there. I mean, obviously, valuations have obviously come down somewhat, and we've got the capacity, as you said, in our balance sheet and that flexibility. But the microenvironment is, you know, just because the valuations have come down, I mean, it's challenging and dynamic for all the companies, even the ones that have seen these valuations come significantly down. So I think I think while we do have cash, I still think we need to be strategically and financially disciplined here to be mindful of when we're assessing these potential targets and have they gotten to the right point given some of these macro environments that are going to be playing out. I think the market needs to stabilize for a period of time here, Larry, before I think a lot of management teams and and their boards become a little more comfortable with the reset of their valuations and their financial outlooks. That being said, yeah, I'd say the level of study, the level of review, the level of analysis on potential targets has definitely increased over the past four or five months here. And I've been clear about the areas that we're looking at and kind of types of transactions we would be interested of. But it always goes back to, does it make sense strategically and does it make sense financially?

Thanks for that. Thanks for taking the questions.

Thank you. And our next question will come from Joanne Wunsch from Citi. And your line is now open.

Good morning and thank you for taking the questions. I'm going to put them all up front. Some questions regarding your Structural Heart franchise. Could you give us sort of a State of the Union or update on where you are on some key products, MitraClip, Portico, and Amulet? And then just as a follow-up to the previous question, could you remind us where you are on share repurchases and your view towards if you're not using the cash for M&A, what you will be using the cash for? Thank you.

Sure. On the Structural Heart side, talked about how this is such an important division for us and the focus that we've had there. So I'd say on AMULET, we've had a very good quarter in AMULET aligned to the trends that we were hoping for. We've got an expansion of the amount of accounts that are using the product and also an expansion on the amount of implanters that are completing and performing this procedure. And one of the challenges we had in the beginning, Joanne, was just really to get the implanters trained. We needed proctors. And as you remember, in November, December, January, and February, there was a lot of challenge with travel. So that's actually looking really nice in terms of the ramp there. What I'm very encouraged about is the traction we're seeing from the early adopters. So some of those that began the training and implanting in Q4 of last year their utilization is more than double that of the average user. So we're seeing both things in terms of driving the sales there, the increase of new accounts and then the increase in productivity and utilization of the existing implanters. On the On the Portico side or on the TAVR side, you know, sales have been strong, especially in Europe, where we've introduced Navitor, which is our next generation TAVR system. It's a competitive device from a clinical profile in high-risk patients. I estimate right now, we estimate right now, that we're about a high single digit. But when we look at the centers that are using Navator, and Navator is probably in about 40, 45% of the centers in Europe, shares in the mid-teens. And that's very encouraging also because Navator being our second product has really been an improvement for Portico. And as you know, we filed that in the U.S. in October of last year at the PMA. I expect that to be the case. I expect to see an approval, an opportunity for us to launch into the TAVR market here in the US. And on MitraClip, this was a tough conference this quarter. Last year, it was the highest quarter we've ever had in terms of procedures, in terms of sales. So there's no doubt that this one here is probably a little bit more impacted by COVID. and some of the healthcare staffing challenges and the rescheduling of procedures. So I expect these dynamics to steadily improve over time. And as I said previously, I don't think we've fully benefited yet from the indication expansion that we received for the functional MR. So the market still remains pretty under-penetrated, and there's a lot of opportunity for growth there. So a lot of activity in our structural heart business, a lot of good performance. And I just expect that to get better over the next couple of quarters. And then what was your other question?

It had to do on shared purchases, use of cash if you're not using it for M&A. Thank you.

Oh, sure. Well, listen, we've always kind of had a balanced approach for deploying our cash. We're mindful of our cash on hand. We're investing in the dividend, and we've been growing that dividend, and that's an important part of it. We're investing in the capacity expansions in several areas, Libre, electrophysiology, MitraClip, nutrition, and we bought back shares in the first half of the year, and something that we'll continue to assess as we go through the second half here. So the approach towards our capital allocation is pretty balanced, and we're committed to the dividend. Done some share buybacks in the first half. We'll continue to assess in the second half. And there's great opportunities for us to continue to invest organically to be able to drive the organic part of the business.

Thank you. Thank you. Our next question will come from Vijay Kumar from Evercore ISI. Your line is open.

Hi, Robert. Thanks for taking my question. Congrats on a strong QQ here. One, on this guidance here, when we look at the base floor for Fiscal Year 20 to 490, you guys did close to 315 of earnings in first half. So the implied earnings for back half is The floor is $1.74. That's annualizing to about $2.50-ish. I guess that $1.74-ish for back half, that's below the back half of 2019. I'm wondering between FX, inflation, is there something else that's going on here where we still have COVID revenues flowing through in the back half? It seems a little light on the EPS guidance.

Hey, Vijay, this is Bob. I'll take that question. You know, I think using an implied kind of fourth quarter exit rate as an indicator kind of how we're thinking about 23, you know, probably wouldn't be prudent at this point. There's obviously a lot going on in the macro environment that warrants further monitoring and assessment. And on top of that, there are a couple swing factors that are specific to us, strength of our COVID testing business. You know, that's provided us an awful lot of flexibility to reinvest back into our P&L the last couple of years. And so, you know, as part of our, and as Robert kind of talked about, we'll see kind of how COVID testing plays out. We continue to see very strong demand. And so there's some element of that that we fully expect to stick around. And it's just difficult to pinpoint what that level is at this point in the year. As part of our budgeting process for next year, we'll take a close look at the overall cost structure, which Robert touched on, and our investment priorities. As you know, we're also working through the nutrition recall and making good progress incrementally investing. Robert talked about the fact that some of those investments will modulate over time or even go away. That combined with recapturing share, we'll see the earnings power of that business ramp up over time. And then, you know, finally, our pipeline has been highly productive and especially in devices. And as we drive that growth, that's that's a creative growth overall to to to the corporation. So, you know, those are big moving parts. And as we start to think about 2023, we'll incorporate all those elements active and especially in devices. And as we drive that growth, that's that's creative growth overall to to the corporation. So, you know, those are big moving parts. And as we start to think about 2023, we'll incorporate all those elements in our forecast next year.

I guess I'll just add to that, Vijay, also. I mean, when we talk about the strength of the U.S. dollar and the impact that we're having on a full year basis, it's pretty significant and a big portion of that impact is actually forecasted to happen in the second half of this year. So that also plays a role together with the inflation aspects that we're facing. So that's really the challenge.

That's helpful. And maybe one last one now. With the second half of base business guidance, mid-single digits to high single digits, if I look at 2Q, ex-China and ex-nutrition at base business did north of 7%, which is in line with the high single sort of trajectory that investors have baked in. The back half of mid-single to high single.

So like I said, I think we've got opportunity here on the back half also. We've set a floor. And again, I'll just reiterate that this is where contemplating all these puts and takes that we've been discussing We feel confident in that floor number, and we believe that there's opportunities here for upside to that.

Hey, Vijay, I would just say, as Bob said in his prepared remarks, excluding nutrition, we expect high single digits for the kind of remainder of the businesses, to your point. So the math you're doing there is right.

That's helpful, Scott. So the guide is assuming some impact here in the back. That's helpful. Thanks, guys.

Thank you. And our next question will come from Travis Steed from Bank of America, and your line is now open.

Hi, good morning. Can you hear me okay? Yes. All right, great. I just wanted to ask a couple more on the margin puts and takes. And I know in response to Ravi's question, you mentioned a lot of like one-time costs and nutrition with contracts on top of inflation and FX. just wanted to think about the commitment and ability to grow operating margin, you know, off this year's base margins. You know, if the macro environment just remains stable, I assume most of those nutrition and one-time investments go away later this year as nutrition ramps back up. But I don't know if there's any other levers that you can pull in the margin line and also not sure about this year's FX headwinds, how much of those naturally carry over into next year. That's something that J&J kind of flags for people.

Yeah. Listen, the commitment to grow, the operating margin is always there. We always shoot for that growth. You had a big if there, and that's the big if, if the conditions remain the same. I don't know what currency is going to look like next year. Bob can talk about that a little bit, but there are some of these costs that I mentioned that I don't anticipate having to fly in the amount of formula that we flew in from overseas. I don't anticipate having to kind of pay those WIC rebates on competitive product. We have what I would call a steady investment profile on our nutrition business that I would say we're a little bit out of profile in the next quarter or so because we want to make sure that as product coming back that we can work to regain our share. And, you know, we've seen some of that share regain over the last couple of months. I mean, from the start of the recall, we lost about half of our IMF share. And of that half that we lost over the last couple of months, we've regained half of that back. So, some of these costs, like I said, are more one-time in nature. On the FX side, I don't know, Bob, if you have a comment on there.

Well, I guess I'd say history has taught us that rates rarely, if ever, hold for a long period of time. So trying to pinpoint kind of an accurate projection for next year at this point is pretty challenging. There's an awful lot of moving parts, as you know, different central banks taking different rate actions, different strengths of economies, etc., You know, that said, at a high level, you know, based upon kind of where we're at today, a decent portion of the impact we're seeing this year will carry into next year. Obviously, there's a long way to go, so we need to see how things play out. And as part of our planning process, you know, we always look for opportunities to mitigate currency impacts as best we can.

No, thank you for the additional color. That was helpful. I did want to make sure I heard you right. It sounds like you're going to launch an AID influence system in Europe with Libre2 by Q4. And I don't know if you'd be willing to say, like, who that partner is or what that product might look like in any form or fashion.

Yeah, I think we made an announcement about the partnership several, you know, about a month, month and a half ago. So, yeah, that's with Ipsomed, a local European manufacturer and another partner. um so uh yeah our target is to get our target is to be able to launch that uh by the end of the year in europe okay no great thanks a lot for the questions operator we'll uh we'll take one more question thank you and our last question will come from jason bedford from raymond james and your line is now open uh hi good morning and thanks for taking the questions just a couple first

on the infant nutrition and the manufacturing ramp here. Is there any way to frame where you are today and when you feel like you'll be back to full production levels? And obviously, I'm just thinking in the context of where you were last year and potential profit recapture in this segment.

Sure. Well, as I said, we restarted in July 1st and we began production of the specialty formulas The production of the Simulac, which we call our more base formula, I mean, we're very close to that, Jason, is what I would say. I don't want to necessarily kind of put an exact date here, but we're not talking months. We're not talking weeks. So we're very close there, and we obviously have a team that's ready to go and to ramp up. We know that we're going to have to work hard to shorten the time between manufacturer and on-shelf availability. So there's a team that's specifically dedicated to working on accelerating that timeframe also. So I like where we're at, and we'll continue to use our global network to be able to augment those efforts of share recapture.

So, Robert, when we look at 23 for USPs, is it the debate just around market share? And I'm assuming from a manufacturing standpoint, you should be pretty clean in 23.

Yeah, that's our expectation. I think the debate on 23 is predominantly market share, and then there might be a little bit of market also in terms of understanding you know, how much of, you know, the growth in today's market is inventory build. We have seen an increase in birth rates, so that's another opportunity also for, to maybe to offset that. So, but yeah, I think it's mostly about market share, market share recovery, and like I said, I think in the previous question, I think we've done pretty well about using our network to be able to regain the market share that we had lost in those first couple of months. So yeah, it's really about looking at our share and share recovery, which is why, you know, as I said, we've made some investments during, you know, over the next, you know, three, four, five months here to be able to put us in in that right position in 2023. So I just close the poll here. Obviously, a lot of your questions show that there is, I guess, some uncertainty in the environment. It's pretty dynamic, and I think that's going to be the same for a lot of companies. For Abbott specifically, our new product launches are performing very well R&D pipeline is strong, and as I said, our financial health is also strong. We're making progress in nutrition to drive share recovery, and our adult business and international growth opportunities still remain very strong. The cardiovascular portfolio, device portfolio, There is growth. It continues to recover, albeit not at the same level that we had forecasted back in April, but I do expect that same recovery trend. It's not as linear as we would like or as what we've historically had, but ultimately, I do believe that the segment will continue to grow and recover. EPD and Libre continue to perform very well. And in diagnostics, I get that COVID testing is a big portion of the equation here. But I just remind ourselves to where we were last year and what we thought was going to happen last year. And right now, all the data shows that testing is still here. Cases are up. Our test sales are actually up. And our tests have done very well from a brand and, you know, become somewhat of a preferred format over here. So as I look to the second half of the year, I anticipate, you know, some of the macro challenges to continue in some cases to be tough. And in other cases, you know, hopefully we'll see some easing on there. But, you know, Our diversification year is very unique, and that's what's held up very well. We're navigating the macro headwinds. We're investing in our growth platforms, and we raise our guidance for the full year. And I think that's a rarity in this environment, and I think it speaks to the strength of the portfolio and the execution and our ability to manage and leverage the portfolio. So with that, we'll wrap up, and thank you for joining us today.

Thank you, Operator. And thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.

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