This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: the conference will begin shortly to raise and lower your hand during q a you can dial star one one good morning and thank you for standing by welcome to abbott's fourth 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 one keys on your touch tone 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.
spk07: 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 2023. 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 the 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, excluding COVID testing sales, on a forward-looking basis because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. And less 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.
spk02: Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, I'll discuss our 2022 results as well as our outlook for this year. For the full year 2022, we achieved ongoing earnings per share of $5.34, which is well above the original EPS guidance we set at the beginning of the year. As you know, macro business conditions have been highly dynamic and challenging over the last few years, particularly for US-based multinational companies. COVID-19 pandemic played a big role in this, of course. We saw the US dollar strengthen significantly and inflation reached new heights last year. Supply chains continue to face challenges, and our healthcare customers have been navigating staffing challenges that are negatively impacting certain medical device procedure trends and routine diagnostic testing volumes. As we start the new year, however, while these factors remain headwinds, I'm cautiously optimistic that we're starting to see them peak and in some cases ease a bit. Over the past few months, the impact of COVID-19 on society has lessened and economies around the world are increasingly reopening. In the U.S., the U.S. dollar weakened a bit and inflation has eased somewhat. And hospital-based procedures and routine testing trends continue to steadily improve in many areas. As you know, COVID testing has been a big part of our story these past couple of years and I'm proud of what our team has built. A full suite of tests across several platforms and the intentionality and how we established a leading role in the world's response to the pandemic. In total, we've delivered nearly 3 billion COVID tests globally since the start of the pandemic. Going forward, we expect COVID-19 to transition to more of an endemic, seasonal type of respiratory virus. And with that, COVID testing, while still important, is expected to decline significantly. We expect variants will continue to emerge, and therefore our tests will remain an important part of our leading respiratory testing portfolio, along with flu, RSV, and strep, which we offer across multiple testing platforms, including lab-based systems in hospitals, small desktop devices in urgent care centers and physician offices, as well as at-home tests. As we reflect back on the impact of COVID testing efforts over the last few years, it's clear that our success in this area will have a positive, long-lasting impact for the company. It strengthened our strategic position in diagnostics through the expansion of our installed base of instruments, including IDNow, our rapid point-of-care molecular testing platform, and through the opening of new testing channels, such as physician offices and at-home testing. It enabled us to increase investments in priority growth areas across the company, including R&D and commercial initiatives, in support of several recent and upcoming new product launches. while at the same time increasing returns to our shareholders in the forms of dividend growth and share repurchasing. And lastly, it further strengthened our overall financial health and balance sheet, which will provide significant strategic flexibility as we look to build and grow the company even further. I'm proud of the role we played in fighting COVID the last few years. It reinforced our purpose. had a meaningful impact on society and enhanced our long-term strategic position going forward. Turning now to our outlook for 2023, as we announced this morning, we forecast ongoing earnings per share of $4.30 to $4.50. We forecast organic sales growth, excluding COVID testing sales, in the high single digits. And we forecast around $2 billion of COVID testing sales for the full year 2023. I'll now provide more details on our results by business area before turning the call over to Bob. I'll start with nutrition, where sales declined around 6% in both the fourth quarter and full year as a result of manufacturing disruptions at one of our U.S. infant formula facilities last year. Production at the facility is up and running. And as we've mentioned previously, our initial supply priority was to the WIC, Women, Infant, and Children Federal Food Assistance Program to ensure underserved participants have access to infant formula. As our manufacturing capacity has continued to recover, we've been able to increase production of our non-WIC brands with a focus on serving the broader infant formula market and building back inventory levels on retail shelves. turning to diagnostics, where, as expected, sales growth in the fourth quarter was negatively impacted by year-over-year decline in COVID-19 test sales. COVID testing sales were $1.1 billion in the fourth quarter, with rapid testing platforms including BinaxNOW in the U.S., PanBio internationally, and IDNOW globally compromising approximately 95% of these sales. Excluding COVID testing sales, worldwide diagnostics grew over 11% in the fourth quarter. Growth in the quarter was led by rapid diagnostics where excluded COVID-19 tests, sales increased 30% compared to the prior year. As I mentioned earlier, during the pandemic, we significantly expanded the installed base of IDNow and opened new testing channels. This expanded footprint drove strong growth and supported testing needs when flu and other respiratory infection surged late last year. During this past year, we continued the rollout of Alinity, our innovative suite of diagnostic instruments, and expand test menus across our platforms for immunoassay, clinical chemistry, and molecular testing. Moving to established pharmaceuticals, or EPD, where sales increased 8% in the fourth quarter and over 10% for the full year. EPD continues to perform at a high level, having carved out an attractive growth space in the global pharmaceutical market. Specifically, our geographic focus on fast-growing emerging markets with a broad portfolio targeting attractive therapeutic areas. Strong performance in the quarter was led by double digit growth across several geographies, including India, China, Brazil, and Mexico. And I'll wrap up with medical devices, where sales grew 7.5% in the fourth quarter and 8% for the full year. Growth in both the quarter and full year was led by double digit growth in electrophysiology, structural heart, and diabetes care in the US. Internationally, sales growth was negatively impacted by COVID surges in China during the fourth quarter, as well as lingering supply challenges in a couple areas. In diabetes care, fourth quarter sales of Freestyle Libre, our market-leading continuous glucose monitoring system, grew over 40% in the US, and global Libre sales reached $4.3 billion for the full year 2022. We continue to strengthen our medical device portfolio with numerous pipeline advancements and launches, including recent U.S. regulatory approvals of Avere, our highly innovative leadless pacemaker used to treating people with slow heart rhythms. Eterna, the smallest implantable rechargeable spinal cord stimulation system currently available in the market for the treatment of chronic pain. Freestyle Libre 3, which provides continuous glucose readings in the world's smallest and most accurate wearable sensor. Libre was recently named the best medical technology of the last 50 years by Galen Foundation. And finally, Navitor, our latest generation transcatheter aortic heart valve replacement system. So in summary, 2022 was another highly successful year for Abbott. We're optimistic about the early signs we're seeing of an improving operating environment and excited about the growth opportunities that lie ahead for all of our businesses. And we continue to strengthen our overall strategic position with a steady cadence of innovative technologies that are either in the early stages of launching or expected to launch over the course of this year. I'll now turn over the call to Bob.
spk19: 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 decreased 6.1% on an organic basis in the quarter. COVID testing-related sales were $1.1 billion in the quarter, which, while stronger than the forecast we provided back in October, reflect a year-over-year decline versus sales in the fourth quarter of the prior year. Excluding both COVID testing-related sales and U.S. infant formula sales that were impacted by manufacturing disruptions last year in our nutrition business, total Abbott sales increased 7.1% on an organic basis in the fourth quarter and 7.4% for the full year 2022. Foreign exchange had an unfavorable year-over-year impact of 5.9% on fourth quarter sales, which resulted in a somewhat favorable impact on sales compared to exchange rates at the time of our earnings call in October, as we saw the dollar weaken a bit late last year. Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 55.6% of sales, which reflects the impact of the nutrition manufacturing disruptions and inflation we've experienced on certain manufacturing and distribution costs across our businesses. Adjusted R&D investment was 6.5% of sales and adjusted SG&A expense was 28% of sales in the fourth quarter. Turning to our outlook for the full year 2023, Today, we issued guidance for full-year ongoing earnings per share of $4.30 to $4.50. For the year, we forecast organic sales growth, excluding the impact of COVID testing-related sales, to be in the high single digits. We forecast COVID testing-related sales of around $2 billion, with around $750 million forecasted in the first quarter. Based on current rates, we would expect exchange to have an unfavorable impact of approximately 1% on our reported full year sales, which includes an expected unfavorable impact of approximately 3% on our first quarter reported sales. We forecast an adjusted gross margin ratio for the full year of approximately 56% of sales. Also for the year, we forecast R&D investment of around $2.5 billion and SG&A investment of around $11 billion, which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives. We forecast net interest expense of around $300 million non-operating income of around $450 million, and a full-year adjusted tax rate of approximately 14% for the year. As Robert mentioned, the strength and resiliency of our business, particularly since the start of the pandemic, has allowed us to concurrently invest in our strategic priorities, provide strong return to our shareholders, and further strengthen our financial health which provides a strong base on which to grow the company going forward. With that, we'll now open the call for questions.
spk00: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. Again, that's star 1 1 to ask a question. Please stand by while we compile the Q&A roster. And our first question will come from Robbie Marcus from J.P. Morgan. Your line is open.
spk12: Oh, great. Thanks. Good morning, everyone. Robert, maybe to kick it off, I appreciate the guidance, but there's a lot of moving parts through the different business lines with macro involved, with a lot of new product launches involved. Maybe you could just build up how we should be thinking about how you came up with the guidance range on both the top and bottom lines, given all the moving parts.
spk02: Sure. I mean, there's obviously a macro environment here that's been complex, and you've mentioned it. And as I said in my remarks, I think they've gotten significantly better versus where we were in October on our last earnings call. So I think that we factored some of that improvement and some of that stabilization in there. I mean, I don't necessarily think that we've got too many moving parts here. I mean, obviously, we run a, you know, the company's got a lot of different, you know, business and business segments. But, I mean, if you look at, if you look at really the two areas, I would say, Robbie, that kind of have had this effect of, you know, maybe sometimes distorting the results a little bit is our COVID testing business and the impact of the recall products last year, right? So, you know, From a COVID perspective in 2022, we actually sold more tests than we sold in 2021. And then obviously the impact of recall products, that was a negative. Both of those split next year. So if you take those out of the equation, you kind of go back to what we were growing pre-pandemic, right? Which was top tier, high single digits, 7% to 8% growth. That's what we grew in 2022, again, excluding COVID and the impact of the recall products. And then if you take that, you know, that comp out on the recall product side, you know, this year as we return to market and, you know, look at the base business, you know, obviously without the COVID testings, we're going to be growing, you know, high single digits, probably at a higher end of that pre-pandemic range, probably 8 plus percent. So I think it starts with the top line and, you know, That's probably the number one part of our guidance is obviously making sure that we feel that our top line is taking advantage of all the good parts, all the good product launches, et cetera, that we have. And from that perspective, I think a lot of what we're doing kind of supports that ongoing you know, that ongoing high single-digit growth rate. You know, if you look at our device portfolio, you know, we'll be looking at high single-digit growth rate, low double-digit growth rate, combination of both kind of recovery, the steady recovery procedures that we're seeing, combined with all these product launches that we've got lined up, you know, that will ultimately have a full-year impact, whether it's Libre 3, AMULED, AVERE, NAVITOR, CARDIOMEMS, you know, Eterna on the neuromodulation side, our mapping system, NEP. We're going to launch a new ablation catheter. So the device portfolio is well set up to be able to drive those high single-digit, low double-digit growth rate. I think we're going to continue to see strong performance in EPD. I think as the world continues to reopen, those emerging markets continue to be a great opportunity for us. Um, we've strengthened our position in diagnostics, uh, throughout these years. Uh, and we'll see continued successful rollout, uh, of Alinity in our core and molecular diagnostics, and then the recovery, uh, and in from formula two. So I think. I think you put all that in place. Our, our core business Abbott that we knew pre pandemic is actually stronger than we were pre pandemic with the investments that we made. And I think that's the other part of, uh, I guess in the P and L, if you look at what we've been able to do this year is because of COVID. and the investments that we made during COVID in these growth areas, we're able to drive this high single-digit growth across the company with a fairly flat investment line, whether it's R&D and SG&A, so really getting the leverage across the businesses. So, I mean, I think it really starts with our top line and the confidence we have in the products we're launching, the pipeline, the positions we have. And then, you know, COVID, You know, COVID, we forecast about 2 billion next year. And I think that's the right number right now. Obviously, we see kind of society transitioning here. We've got a strong installed base. We've got manufacturing capacity. We haven't factored in any kind of real surge. But if that happens, we do have the capacity to be able to do that. So I'd say those are some of the moving pieces there. um but fundamentally uh we're in a real strong position in terms of our long-term growth opportunities leading positions in these attractive growth areas strong pipeline which i'm sure we'll get into some of them and a strong balance sheet so that's how this has been constructed and i think that we're in a good position here great uh thanks robert really helpful maybe uh one for bob um you know your
spk12: You give us the full year guide and you gave some commentary down the PML, which is really helpful. But how should we be thinking about some of the quarterly cadence here? How FX flows? What is FX on the bottom line? And how did that compare to 22? And any just things we should be thinking about first half or second half on the PML? Thanks a lot.
spk19: Yeah, so if you think about kind of the cadence of our business for 2023, it really starts with the top line, some of the things that Robert kind of talked about. You know, first, we have a lot of new product launch activity, especially in our medical device businesses that, you know, products that either launched last year or will be launching this year. I'm sure we'll talk about some of those on the call today. So you'll see the impact of those launches kind of grow over the course of the year, kind of feather into that top line. Secondly, we are seeing a steady improvement in procedure trends in the U.S. and Europe. We've been seeing that, and we expect to continue to see kind of a steady improvement there on procedure trends over the course of the year. In our nutrition business, we will see improvement as we continue to supply the market, in particular the non-WIC products. segment of the infant formula market in the U.S., and so we'll recover share there, and so we'll have the impact of that over the course of the year. For China, Robbie, I'd say we've assumed a softer start in Q1, given some of the dynamics there at the start of this year, but we anticipate that will improve over the course of the year. And so all those changes, all those impacts on the top line, as that builds over the course of the year, will flow through. to earnings as Robert talked about. We're going to get leverage in the middle here. And so for the first quarter, we think earnings will be approximately $1, and then we'll build from there. On your question on foreign exchange, rates have improved a bit recently, but exchange is still a headwind, particularly on earnings. You know, current rates, as I said in my opening remarks, exchanges approximately 1% headwind on sales. EPS, you know, it's a little bit more than 30 cent headwind for us in 2023. The fall through impact when currencies move like we have seen over the last year is always complex. You know, translation is just a piece of the impact. And while that has improved from where we were a few months ago, it still remains a headwind. One of the biggest drivers that we're seeing is the impact from our hedging program. We realized pretty significant hedging gains last year that won't repeat this year. And you can really see the impact of those hedging gains on our 2022 results. Last year, there was a pretty significant exchange headwind on sales, a little over 5% or $2.1 billion, but a fairly modest impact on earnings. It was less than a dime. And that was really the benefit we realized last year on those hedging gains that won't repeat in 2023. And that's not a unique dynamic that we're seeing. We're seeing that from some other multinationals as well.
spk12: Thanks a lot.
spk00: Thank you. One moment for our next question, please. And our next question will come from Larry Beagleson from Wells Fargo. Your line is open.
spk03: Good morning. Thanks for taking the question, Robert. I feel compelled to ask about Libre again, just given how important it is. So maybe I'd love to hear from you, you know, the outlook for 2023. You know, how should we think about worldwide growth? Can it exceed 20% this year? And can you talk about, you know, international where you've been negatively impacted by the supply issues and the transition to Libre 3 in Germany. When do you expect those issues to be resolved? And just the growth drivers like basil and the vitamin C resolution, what are some of the growth drivers to look forward to this year for Libre? And I had one follow-up. Thank you.
spk02: Sure, Larry. Well, I think Libra had another great year, full year growth of over 21%, strong growth in the U.S., over 42%. And international kind of grew in those mid-teens number. We were impacted a little bit by back orders, as you said. on the international side. And I'd say, you know, probably a little bit more on our early generation products. So kind of Libre 1 was that. You know, we had a significant improvement in that situation in Q4. I expect, you know, one or two more months of, you know, until we can completely resolve that. But a significant improvement over there. um on our international performance i i think one of the key things on the international side is you know it was the it was a little bit of this uh this this supply chain on chips that we had uh like that i said is mostly behind us uh the other part of it is you know the upgrade cycle right and when you go with an accelerated upgrade cycle versus you know with libre three that we did from libre two in some of our key markets When we went from Libre 1 to Libre 2, we let that upgrade somewhat happen naturally. That takes about a year and a half, two years to actually complete. For Libre 3, we wanted to go more aggressively in some of these markets. That takes your sales force away from new demand generation to making sure that we can get the scripts and do all the behind the scenes work for those upgrades. I would say that's still ongoing, but I'd call it about 80% to 85% complete. So then that allows us starting now in 2023 on the international side to start kind of driving new additions here. So I'd say I expect continued growth in the U.S., in terms of market expansion. Basel opportunity, I think, is a great opportunity, and I think it'll start in the U.S., but I think we're seeing that also internationally. And now that we've got the supply chain issue largely behind us and the upgrade cycle, again, largely behind us, we can focus our demand generation activities on on new users. So I think that that's one key driver of growth for us. Can we see path for another 20% growth in 2023? Yeah, I can. And I think there's a lot of opportunities of growth. I think one of them that you mentioned being the basal expansion is a significant opportunity. I think we've been leading the charge over here, Larry, in terms of generating the clinical data. That's required to be able to support reimbursement. It'll start, I think, in the U.S., but I don't think it'll be a U.S.-only phenomenon. But in the U.S., it'll probably start first. You've got about 4 million type 2 basal patients in the U.S. About a third of them are Medicare. And, you know, even if you assume a reasonable market penetration, you also have to assume, you know, a difference in annual utilization rates versus, you know, a Type 1, an MDI, or a pumper. But even if you take all that in consideration, the opportunity, you know, starts with a $1 billion, and it can And it can range depending on the speed and the uptake of that. So I think this is a great growth opportunity. And like I said, I don't think it's a US-only situation. I think this is going to start to expand across the world, given the clinical data that you see with Libre and the impact that it has. So I think this is another great opportunity for us. The vitamin C issue that you asked, we've submitted our response. We're working with the FDA. on this. I'm not going to try and forecast that approval, but what I will say is that as soon as that gets approved, then we'll start to see the product with a couple quarters connect to IED pump systems. We have already launched a connected AID system in Europe. Initial results of the receptivity of that product, of that combined product in Europe has been very favorable. So I think that's another key growth driver for us in 2023. And then finally, I would say on the pipeline perspective, I don't think it's a 2023 milestone for sales, but I think it's an important development activity for us. It's going to be, you know, running our trial for the combined glucose ketone sensor with the FDA and generating the data to support a dual sensor Because I think, again, as I've mentioned, it seems to be the go-to sensor for pumpers will be this ability to measure glucose and ketones and factoring that into the algorithms. So that's obviously having a lot of focus of us in terms of running that trial. And then finally, I would say outside of Libre, the Lingo platform is another kind of key growth driver for us. I talked about expanding the Libre platform outside of diabetes and using this more broadly for a much more broader target. We have a separate team that's been working on that development, Larry. We will be launching two Lingo products this year in Europe. I'd say the first one will probably be in the first half of this year and the second one in the second half. I've talked about Libre being a $10 billion product by 2028. That implies a 15% annual growth rate. We'll do better than that this year, and I think the opportunities we have to be able to drive to that kind of revenue for this product are very real, and I think we've been executing very strongly on all these areas.
spk03: That's super helpful. Just one brief follow-up. You talked about being excited about the TriClip opportunity at JPMorgan. I think it was just this month. I know, you know, it's limited in what you can say, you know, because you're presenting the tri-luminate data at ACC. But how are you thinking about that opportunity relative to Mitral? You know, do you still expect to, you know, do you still expect approval in the U.S. by year end 23? Thanks for taking the questions.
spk02: I think it's a great opportunity for us, and I think that we've shown that we're definitely here one of the leaders when it comes to clip-based heart valve repair market. Do I think it could be bigger than Mitral? I'm not sure I would go that far yet, but I would say that the uptake of the tricuspid repair market I think will be faster than the uptake for the Mitral just because I think when Mitral was launched it was the first repair system And now you have a large group of implanting physicians that are familiar with the CLIP technology, are familiar with mapping that CLIP technology in the procedure. We did make some changes to the delivery device for the CLIP. It's a little different anatomy, a little bit more challenging to get there with the CLIP in the tricuspid area. But I think that it's a great opportunity. I mean, I think there's 3 million people today that suffer from tricuspid regurgitation. There's not a lot of really good options available for treatment, which is why we invested in the trial here in the US to bring product to the trial. Like you said, we're going to be presenting that in a couple of months. And I think it's a great opportunity for us. We've already seen real nice traction of that in Europe. You know, we launched that in 2021. You know, the team wanted to launch it right in COVID, and, you know, I must say at the beginning I was somewhat against that, but, you know, they proved me wrong, and the product's done really well in Europe. So I think this is another great opportunity for us here in the U.S. too. So, you know, we're not, you know, ignoring MitraClip. It's part of our entire portfolio, and I think the combination of those two products in the implanting physician will be very powerful for Abbott.
spk00: All right. Thanks so much. Thank you. One moment for our next question, please. And our next question will come from Josh Jennings from Cowan. Your line is open.
spk17: Hi. Thanks for taking the questions. Good morning. Robert, I was hoping just to follow up on Larry's questions just on Libra, but just thinking more kind of in the out years and this $10 billion target that you've set. I think maybe just, I think you outlined everything for 2023, probably holds true for over the next five years, but just if you could reiterate your confidence, we're not in that $10 billion out-year target. And just do you expect consolidation between pump and CGM companies? And it may be just great to hear strategic rationale of whether a combined pump CGM offering under one roof would be advantageous for either Abbott or another company. And then the second question is just on the Abbott tour and the launch here in the United States. What would represent a win for Abbott from a U.S. share gain perspective? And what segment is a low-hanging fruit considering the current label? Is it Is it the elderly patients that don't have a long life expectancy that are high risk or even intermediate risk? And how do you expect an abattoir launch to play out and add to the medical device growth in 2023? Thanks for taking the questions.
spk02: Sure. Well, I mean, I guess on Libre, you know, to your question on, you know, how to get to $10 billion by 2028, I mean, you know, the math will say 15%, right? How do you get to that 15%? I mean, there are real three key areas, and I talked a little bit about them. I'd say, first of all, it's to continue to have a dominant share in the heavy insulin user segment. We have that today with the non-pumpers, with the MDI, both in the U.S. and globally and internationally. So the real focus there becomes, okay, how do we focus now on the pumper segment and the connectivity over there? And like I said, I think we'll do that with a little bit of catch-up with Libre, too, in terms of what is currently offered in the market. But then to leapfrog that, I think the combined sensor or glucose ketone sensor is ultimately the way we'll play. And we'll see what pump company, you know, is going to want to line up, you know, to be first, you know, on that connectivity, you know, if and once we get that approval. Again, I continue to hear from KOL the importance of that product for the pumper segment. The second part is the basal expansion. Like I said, you can look at the basal population globally, assume a certain penetration rate globally, a certain utilization rate, and that adds a significant amount of growth to that number. And then the third piece of that is really expanding Libre beyond just diabetes and looking at the Lingo platform. So the adding up and the execution of those strategies are what ultimately gives us confidence that we can get there and we can sustain that 15% growth rate over the next kind of five years. Regarding questions on pumps, listen, I think that it's an important segment. It's one that benefits quite significantly from a combined system. We're focusing more aggressively on that. As it relates to an all-in-one, I think the market has spoken in terms of the pump is one choice. They want to be able to choose what is the best sensor Pump combination and I so I think right now, you know, my view on that is, you know, the consumers have spoken The market has spoken the regulators spoken They want that interchangeability and I think that our focus will be on providing the best sensor for the pump systems that are out there so So that's I think I think I I think I covered your Libre questions. I think you had a question on Navator and Listen, we're excited about this. It's a large market. It's a large segment here in the U.S. It's about $3 billion. Our label is about 50% of the market because we're only approved right now for the high-risk patients. But it's got a strong clinical profile. I mean, we'll be sharing data at CRP specifically to this, but I mean, we've already released some data on on it last year, comparing it to other valve systems. So I think that we've been very intentional about wanting to enter this market and to do it in a way that is sustainable. Expectations, I mean, I've talked a little bit about this. There's obviously two pretty well entrenched players in the US market. Do I think that we can be a leader in three, four, five years? I think that might be difficult, but I think that we can come into this market and offer another choice, another opportunity that provides additional benefits or differentiated benefits versus other systems that allow us to pick up share. If I look at where we are in Europe, we launched this in Europe, and we have high single-digit share in Europe. We're not in all centers. We're in about half of the market. In the centers that we are implanted and available, our share is in the mid-teens. You put that together, we're high single, but where we're competing, We're in the mid-teens, so I think this will be a ramp. I think we've got the sales force in place. We want to roll this out in a way that allows us to be sustainable in that strategy of being able to be a double-digit share gain over the next couple of years.
spk00: Appreciate it. Thank you. Thank you. One moment for our next question, please. And our next question will come from Joanne Wunsch from Citibank. Your line is open.
spk13: Good morning, and thank you for taking the questions. I have two. The first one has to do with nutrition, and if you could outline where the company is in terms of the recovery and when do you think it will return to growth. And then the second question has to do with use of cash. What are your thoughts on it and where you are on share repurchases? Thank you.
spk02: Sure. Well, on nutrition, as I said in the opening statements, production at Sturgis is up and running. The team is working around the clock, nonstop, very hard. Number one focus here, as I said, was to serve the customers, get product back on shelves. We started with WIC. The inventory levels on our WIC contracts are very good as we entered into Q4, and we then started to focus on our non-WIC brands, and that's progressed very well in the fourth quarter. And, you know, as we go into this year, you know, looking very good. So I would say if you look at our growth rate, obviously, you've got this year-over-year comp. You're going to see the growth already in Q1, Joanne, right, because we were impacted last year in February. But I guess the right way to look at this is, okay, strip away the comp. Strip away, you know, where, you know, this year-over-year effect of coming back on the market, et cetera. I expect our overall nutrition business to be growing at that pre-pandemic level between 4% and 6%. Our market shares in WIC have largely recovered. and we're seeing a nice cadence of recovery in the non-WIC share here in the U.S. So I think you'll start to see that growth rate already on the print in Q1, obviously in Q2 and Q3, but the important thing here is we're looking at our share, and the share recovery is very much in line with our forecast that we've set for the full year. I'd like to see our market share get back to pre-pandemic levels by the end of the year. And then, sorry, what was your other question?
spk13: Thank you. Use of cash and where would you stand on share repurchases? Thank you.
spk02: Sure. Well, use of cash, you know, talked about this. We've taken this balanced approach. I'd say if I were to kind of rank it in terms of use of cash, we're committed to growing a dividend, a strong and growing dividend. So that's probably number one, use of cash. We announced that increase of about 9% in our dividend last year. So that I'll say is priority number one. Number two is obviously ensuring that all these new products that we've got launching are appropriately resourced in terms of manufacturing and a lot of our CapEx investments. On the buybacks, we did, you know, throughout the first nine months of last year, we had about $3 billion of buybacks. and you know I'd say we probably did a little bit of catch-up there Joanne in terms of catching up to some of the dilution as we were focusing on on on getting our leverage down post acquisitions so we do a bit of catch-up there and I'd say in terms of buybacks going forward we'll be contemplating them and they'll be largely focused on on on offsetting um on offsetting uh any kind of dilution that we have this year i'd say the other the other kind of key use here for us this year is going to be debt uh we have we have some debt towers coming up and um you know we're not going to be uh we're not going to be renegotiating those uh just given interest rates we want to move those off so that's probably the you know where you see the use of cash On the M&A side, which I know is always a question, so I'll preempt anybody over there who's got that on their list. I've talked about it on several calls. We're interested. We're actively assessing the opportunities, whether it's tucking on up. Clearly, the valuations here have come down somewhat. I think they need to stabilize a little bit. But we've cast a pretty wide net. Diagnostics devices are the areas where We have most interest and again if it's financially makes sense for our shareholders, and it fits strategically Then we will you know we've got that strategic flexibility in our balance sheet to do that You know and and you know we're going to be looking at businesses where we can bring value You know whether it's you know whether we can accelerate sales whether we can enhance an R&D program or enhance its probability of success and a growth area that we can build and have a path to building a position or even if it's just to augment our own existing pipeline. I think when we've taken that approach, our track record shows that when we've taken that approach, it's largely been very successful for our shareholders.
spk00: Thank you. Thank you. One moment for our next question, please. And our next question will come from Vijay Kumar from Evercore ISI. Your line is open.
spk09: Hey, guys. Thanks for taking my question. Good morning to you, Robert. Maybe my first question on your organic growth assumptions here. I think I heard A-plus is a reasonable number for 23. What is that deserving for in any impact from China or supply chain, any VBP impact? If you could just give us some assumptions around those macro factors, that would be helpful.
spk02: Well, I'll let Bob talk a little bit about some of the potentially other macro factors, but the ones you've just mentioned here, I mean, China, it's an important market for us, Vijay. It's an important growth market, and it's good that it's moved to a more kind of reopening play. I think that has not only a big impact for us in China, where we've got a strong position. I mean, we're not overly reliant. I'd say it's about less than 5% of our total sales. But nonetheless, it's an important kind of growth market for us. And I think that reopening in China is going to have a real positive spillover effect in in other areas of the world. And I would say predominantly in Asia, Southeast Asia, where we've got strong positions in our EPD and in our nutrition business and in some device areas too. So I think the overall opening of China is good. Like Bob said, there's going to be some choppiness in the first quarter because we're seeing a lot of cases. hospitalizations, et cetera. But I think as that moves, starts to move down, I think we'll see a pretty strong rebound in our growth prospects over there. So the VBP that you mentioned, yeah, I mean, that does have an impact. It's more restricted for 2023 in our electrophysiology business. So we'll feel a little bit of an impact there, but I think that the market Opens up for us, you know because of the strategy we took on the VBP side So I think it's a net net it's a it's going to be positive for us in the thing You know in the in the long term here medium long term in terms of that being an opportunity for us We've seen this DJ. I mean we this happened to us this happened in the market with stents in 2019 and um in our vascular business that business is back to what i would call pre-vbp levels uh you know you know this year so uh so there's an impact uh in that case we didn't necessarily uh you know win some some of the contracts uh in the case of ep we did win the contract so or a portion of the contract so so so i'd say macro um yeah we've got some of these headwinds that we've talked about effects I think Bob's already talked about it inflation but all those seem to be you know easing off a little bit and and the recovery of the procedures and the pipeline and the product launches is a key growth driver for us understood then Bob once you're on that gross Martin's you're at 56% that's a step down year-on-year you know when I look at three pandemic
spk09: You know, you guys were at 59%. Is there a simple bridge, Bob, on how much of this has been inflation? You know, you did spoke about hedging impact. Is that all hitting your gross margin line? And why shouldn't inflationary pressures improve? And when can we start seeing gross margins, you know, creep back up to pre-pandemic levels?
spk19: Yeah, so, you know, as I said in my opening remarks, around 56% for the year. That's a modest step up. kind of from where we exited last year. As you would expect, Vijay, in this environment, there's a lot of different dynamics that multinationals are facing. We've got some headwinds. We've talked about those inflationary impact, how that flows through, including the inventory we built last year that will be sold this year. We talked about currency where we're not going to see a repeat of those hedging gains that we had in 22. So that's a bit of a headwind there. On the positive side, I'd say the recovery we're forecasting in the U.S. infant nutrition business will contribute positively as that recovery occurs over the course of the year that will have a more positive impact. We also have gross margin improvement programs across all of our businesses that will help to offset some of those headwinds. And we're taking price where we can, I'd say, in our more consumer-facing businesses. And then finally, I'd say Just from a mixed standpoint, as we continue to see an acceleration in our medical device business with some of these new product launches, those are at higher gross margins than the overall company, and that will positively contribute to our gross margin. To your question about where we were pre-pandemic and what we're guiding to this year, I'd say the biggest impact on a cumulative basis has really been inflation. And that's really, I'd say, the big difference here in terms of where we're guiding right now and where we were pre-pandemic. But as we continue to see an acceleration from a mixed standpoint and continue to work at some of our costs, we'd expect over time to see that gross margin to continue to improve.
spk08: Understood. Thank you, guys.
spk00: Thank you. One moment for our next question, please. And our next question will come from Travis Steed from Bank of America. Your line is open.
spk11: Hi, good morning. Thanks for taking the questions. Just a follow-up to Vijay's question. On the inflation piece, is that still a billion dollars baked into the 440 guidance? Just want to make sure I understand what's baked in on the gross margin line. And then anything to call out on the 2023 operating margin expansion, some of the moving parts to get the op margin expansion there. It looks like 22% is kind of what's implied by the guide.
spk19: Yeah, so, yeah, on the operating margin, yeah, we're around 22%, kind of where we were pre-pandemic. You know, we're getting the high single-digit growth on the top line, kind of in the, you know, excluding the COVID testing. We're getting leverage down to the P&L, which Robert talked about, where we were able to forward invest over the last couple of years. We're going to get leverage in the expense area, and that gets you to about around 22% op margin. You know, in terms of inflation, you know, we are going to see a carryover impact from last year. It's still pretty meaningful, but we've been able to mitigate, you know, a good portion of that through both our gross margin improvement programs that we have across our businesses as well as taking some price where we can.
spk11: Okay, that's helpful. And a couple of product questions on EP. I think you mentioned the new EP catheter mapping system. If that was new, maybe I missed that in the past. And I'm curious how you're thinking about cultural depletion and the impact on your EP business. And then the other product question was on Libre. The vitamin C, is that on Libre 2 or Libre 3? I just want to understand the pathway to get vitamin C on Libre 3 and the timing there.
spk02: Sure. On the Libre 3, I mean, it's going to start off with Libre 2. So we want to get that done first, and then we'll progress onto Libre 3. So focus right now is on Libre 2, and then we'll move to Libre 3. On your question on EP, I mean, I think the new catheter that we've launched in Japan and start to launch in Europe towards the end of last year is our TactiFlex, which is really using contact force together with the flexible tip that we had in our Flex catheters. So the feedback we've gotten that is really, really positive. So I think the combination here of our enhanced new mapping system together with our market-leading mapping catheter and HD grid, and now bringing Pac2Flex. That combination is very powerful. Regarding PFA, it's definitely an area of interest. We've been investing in it. We actually had two internal programs, had a bake-off and saw the one that we felt stronger about. taking some of the learnings that we're seeing from the current unmarket products. And there's obviously some trialing that's ongoing right now, but I would say it's a growth opportunity. It's an interesting area. I think it's still too early to say in terms of will the market move completely over to this technology or not. I think it's important to have it, and hence why we're investing in our program and incorporating into our R&D program all of the deficiencies that we've heard from some of the current on-market products or the ones that are being put in development right now. So important area, important investment area for us in EP, definitely benefited from kind of the investments that we made during COVID. And I think it's an important product to have. uh it's it's uh ability to convert uh you know i think it'll convert a portion of the market my sense is cryo is probably the first one uh but how much of cryo you know still still up still up to see uh but definitely an interesting area for investment great thank you we'll take one more question thank you one moment for our next question
spk00: And our last question will come from Matt Mixick from Barclays. Your line is open.
spk10: Hey, thanks for fitting me in. I figured maybe just if we could wrap it up with an update on a couple of the pipeline products, the five products, Robert, that you've highlighted in the past, Amulet and CardioMems. Maybe if you could just talk a little bit about, you know, where you are with these launches in terms of, you know, size, scale, you know, momentum and maybe what kinds of catalysts we can look for, metrics we can see for these two products this year. Thanks.
spk02: Sure. I mean, I think those five products that I discussed on the last call, you know, we talked about them, you know, exiting at an annual run rate of 500. They actually exited at a run rate of 550, and they grew around, you know, hundred percent so I expect those five products to to kind of have you know maybe not a hundred percent but pretty high growth rate in in next in this year regarding amulet listen I think it's it's like I said it's a great space you know we've been rolling out the product last year building the sales force key focus here is obviously ensuring that good implanting technique with the physicians. We're in about 225 accounts right now. I expect that in terms of growth catalysts, getting more share of those existing accounts as the physicians become more and more accustomed to using our product and see the benefits of using our product versus other systems. I think that'll be a growth catalyst. And then expanding. We do want to start to expand more as our sales force has increased, the competency of our sales team has increased, and our clinical team has increased. We feel more confident now to be able to kind of expand to more accounts, and that's what we'll be focused on. Another key catalyst of growth here is obviously the trial that we've been investing in in Catalyst, which is to compare Amulet to... novel oral anticoagulant. So that's another opportunity. It's not one in 2023, but, you know, continuing that enrollment in that trial is an important driver for kind of the long-term growth strategy here of AMULET. CardioMEMS has done very good. We saw an indication expansion last year in the U.S., Seen a nice step up in sales. I think it's a great long-term opportunity. I think it's part of those five products that are driving a lot of growth. And I'd say probably the next kind of big area, I mean, we've been investing in Salesforce and rolling this out. Next big area here is working on that NCD. I think that will remove some of the, you know, maybe some regional hangups in terms of reimbursement. The NCD is something that we're going to be working on this year with the data that we've collected as part of all of our trials. I think they look very strong as part of that group of five products. I'd like to close up the call here, just a few remarks. The operating environment still remains challenging, right? But it's not as challenging as we saw back in Q3 of 2022 in October. There are definitely signs here of stability. There are signs of improvement, whether it's in the macroeconomic side or whether it's specifically in the segments that we are competing in. And Abbott's well positioned. We're well positioned to both capitalize on this improving environment or to navigate if there's any unforeseen volatility over here. That's what our portfolio has been built for. That's what our balance sheet is set up for. It's set up for these kind of situations these kind of scenarios. We always knew that pandemic-level testing was not a base case. We knew that eventually this would move down to an endemic-like testing. And we're, you know, our view here is that in 2023 we'll start this process of moving to that. And so as a result of that, we did do this forward investing into our growth areas, whether it's devices, diagnostics, certain areas in EPD or nutrition, and that's allowed us to grow at the pre-pandemic level, this high single-digit top-tier growth without having to make the OPEX investment that you would expect to be able to sustain that growth. So we're getting that flow through on the P&L and that leverage on our investments. I do recognize the cost pressures. The company recognized those cost pressures. We talked about this now. you know, to BJ's question, you know, we're going to be working relentlessly on getting our gross margin, you know, back to that pre-pandemic level. And it's a combination of, you know, working at our cost profiles and our GMI programs, but also as we accelerate the growth in our device business, that mixed shift contributes to that. So, and finally, our balance sheet is strong and provides us the strategic flexibility we need to navigate. And we take this balanced approach where we can provide returns to our shareholders while at the same time investing for the long term. So thank you for being on the call overall. I think Abbott is very well positioned as we exit this pandemic state and move into more of an endemic state. I think we're well positioned and now it's all about execution.
spk07: 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.
spk00: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
spk14: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Music Playing Thank you. Thank you. Thank you. Bye. music music
spk00: Good morning, and thank you for standing by. Welcome to Abbott's fourth 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 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.
spk07: 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 2023. 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 the 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, excluding COVID testing sales, 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.
spk02: Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, I'll discuss our 2022 results as well as our outlook for this year. For the full year 2022, we achieved ongoing earnings per share of $5.34. which is well above the original EPS guidance we set at the beginning of the year. As you know, macro business conditions have been highly dynamic and challenging over the last few years, particularly for U.S.-based multinational companies. COVID-19 pandemic played a big role in this, of course. We saw the U.S. dollar strengthen significantly, and inflation reached new heights last year. Supply chains continue to face challenges and our healthcare customers have been navigating staffing challenges that are negatively impacting certain medical device procedure trends and routine diagnostic testing volumes. As we start the new year, however, while these factors remain headwinds, I'm cautiously optimistic that we're starting to see them peak and in some cases ease a bit. Over the past few months, the impact of COVID-19 on society has lessened, and economies around the world are increasingly reopening. The US dollar weakened a bit, and inflation has eased somewhat. And hospital-based procedures and routine testing trends continue to steadily improve in many areas. As you know, COVID testing has been a big part of our story these past couple of years and I'm proud of what our team has built. A full suite of tests across several platforms and the intentionality and how we established a leading role in the world's response to the pandemic. In total, we've delivered nearly 3 billion COVID tests globally since the start of the pandemic. Going forward, we expect COVID-19 to transition to more of an endemic, seasonal type of respiratory virus. And with that, COVID testing, while still important, is expected to decline significantly. We expect variants will continue to emerge, and therefore our tests will remain an important part of our leading respiratory testing portfolio, along with flu, RSV, and strep, which we offer across multiple testing platforms, including lab-based systems in hospitals, small desktop devices in urgent care centers and physician offices, as well as at-home tests. As we reflect back on the impact of COVID testing efforts over the last few years, it's clear that our success in this area will have a positive, long-lasting impact for the company. It strengthened our strategic position in diagnostics through the expansion of our installed base of instruments, including IDNow, our rapid point-of-care molecular testing platform, and through the opening of new testing channels, such as physician offices and at-home testing. It enabled us to increase investments in priority growth areas across the company, including R&D and commercial initiatives in support of several recent and upcoming new product launches. while at the same time increasing returns to our shareholders in the forms of dividend growth and share repurchase. And lastly, it further strengthened our overall financial health and balance sheet, which will provide significant strategic flexibility as we look to build and grow the company even further. I'm proud of the role we played in fighting COVID the last few years. It reinforced our purpose. had a meaningful impact on society and enhanced our long-term strategic position going forward. Turning now to our outlook for 2023, as we announced this morning, we forecast ongoing earnings per share of $4.30 to $4.50. We forecast organic sales growth, excluding COVID testing sales, in the high single digits. And we forecast around $2 billion of COVID testing sales for the full year 2023. I'll now provide more details on our results by business area before turning the call over to Bob. And I'll start with nutrition, where sales declined around 6% in both the fourth quarter and full year as a result of manufacturing disruptions at one of our US infant formula facilities last year. Production at the facility is up and running. And as we've mentioned previously, our initial supply priority was to the WIC, Women, Infant, and Children Federal Food Assistance Program to ensure underserved participants have access to infant formula. As our manufacturing capacity has continued to recover, we've been able to increase production of our non-WIC brands with a focus on serving the broader infant formula market and building back inventory levels on retail shelves. turning to diagnostics, where, as expected, sales growth in the fourth quarter was negatively impacted by year-over-year decline in COVID-19 test sales. COVID testing sales were $1.1 billion in the fourth quarter, with rapid testing platforms including BinaxNOW in the U.S., PanBio internationally, and IDNOW globally compromising approximately 95% of these sales. Excluding COVID testing sales, worldwide diagnostics grew over 11% in the fourth quarter. Growth in the quarter was led by rapid diagnostics where excluded COVID-19 tests, sales increased 30% compared to the prior year. As I mentioned earlier, during the pandemic, we significantly expanded the installed base of IDNow and opened new testing channels. This expanded footprint drove strong growth and supported testing needs when flu and other respiratory infection surged late last year. During this past year, we continued the rollout of Alinity, our innovative suite of diagnostic instruments, and expand test menus across our platforms for immunoassay, clinical chemistry, and molecular testing. Moving to established pharmaceuticals, or EPD, where sales increased 8% in the fourth quarter and over 10% for the full year. EPD continues to perform at a high level, having carved out an attractive growth space in the global pharmaceutical market. Specifically, our geographic focus on fast-growing emerging markets with a broad portfolio targeting attractive therapeutic areas. Strong performance in the quarter was led by double digit growth across several geographies, including India, China, Brazil, and Mexico. And I'll wrap up with medical devices, where sales grew 7.5% in the fourth quarter and 8% for the full year. Growth in both the quarter and full year was led by double digit growth in electrophysiology, structural heart, and diabetes care in the US. Internationally, sales growth was negatively impacted by COVID surges in China during the fourth quarter, as well as lingering supply challenges in a couple areas. In diabetes care, fourth quarter sales of Freestyle Libre, our market-leading continuous glucose monitoring system, grew over 40% in the US, and global Libre sales reached $4.3 billion for the full year 2022. We continue to strengthen our medical device portfolio with numerous pipeline advancements and launches, including recent U.S. regulatory approvals of Avere, our highly innovative leadless pacemaker used to treating people with slow heart rhythms. Eterna, the smallest implantable rechargeable spinal cord stimulation system currently available in the market for the treatment of chronic pain. Freestyle Libre 3, which provides continuous glucose readings in the world's smallest and most accurate wearable sensor. Libre was recently named the best medical technology of the last 50 years by Galen Foundation. And finally, Navitor, our latest generation transcatheter aortic heart valve replacement system. So in summary, 2022 was another highly successful year for Abbott. We're optimistic about the early signs we're seeing of an improving operating environment and excited about the growth opportunities that lie ahead for all of our businesses. And we continue to strengthen our overall strategic position with a steady cadence of innovative technologies that are either in the early stages of launching or expected to launch over the course of this year. I'll now turn over the call to Bob.
spk19: 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 decreased 6.1% on an organic basis in the quarter. COVID testing-related sales were $1.1 billion in the quarter, which, while stronger than the forecast we provided back in October, reflect a year-over-year decline versus sales in the fourth quarter of the prior year. Excluding both COVID testing-related sales and U.S. infant formula sales that were impacted by manufacturing disruptions last year in our nutrition business, total Abbott sales increased 7.1% on an organic basis in the fourth quarter and 7.4% for the full year 2022. Foreign exchange had an unfavorable year-over-year impact of 5.9% on fourth quarter sales, which resulted in a somewhat favorable impact on sales compared to exchange rates at the time of our earnings call in October, as we saw the dollar weaken a bit late last year. Regarding other aspects of the P&L for the quarter, The adjusted gross margin ratio was 55.6 percent of sales, which reflects the impact of the nutrition manufacturing disruptions and inflation we've experienced on certain manufacturing and distribution costs across our businesses. Adjusted R&D investment was 6.5 percent of sales, and adjusted SG&A expense was 28 percent of sales in the fourth quarter. Turning to our outlook for the full year 2023. Today, we issued guidance for full year ongoing earnings per share of $4.30 to $4.50. For the year, we forecast organic sales growth, excluding the impact of COVID testing related sales to be in the high single digits. We forecast COVID testing related sales of around $2 billion with around $750 million forecasted in the first quarter. Based on current rates, we would expect exchange to have an unfavorable impact of approximately 1% on our reported full-year sales, which includes an expected unfavorable impact of approximately 3% on our first quarter reported sales. We forecast an adjusted gross margin ratio for the full year of approximately 56% of sales. Also for the year, we forecast R&D investment of around $2.5 billion and SG&A investment of around $11 billion, which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives. We forecast net interest expense of around $300 million, non-operating income of around $450 million, and a four-year adjusted tax rate of approximately 14% for the year. As Robert mentioned, the strength and resiliency of our business, particularly since the start of the pandemic, has allowed us to concurrently invest in our strategic priorities, provide strong return to our shareholders and further strengthen our financial health, which provides a strong base on which to grow the company going forward. With that, we'll now open the call for questions.
spk00: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. Again, that's star 11 to ask a question. Please stand by while we compile the Q&A roster. And our first question will come from Robbie Marcus from JP Morgan. Your line is open.
spk12: Oh, great. Thanks. Good morning, everyone. Robert, maybe to kick it off, I appreciate the guidance, but there's a lot of moving parts through the different business lines with macro involved, with a lot of new product launches involved. Maybe you could just build up how we should be thinking about how you came up with the guidance range on both the top and bottom lines, given all the moving parts.
spk02: Sure. I mean, there's obviously a macro environment here that's been complex, and you've mentioned it. And as I said in my remarks, I think they've gotten significantly better versus where we were in October on our last earnings call. So I think that we factored some of that improvement and some of that stabilization in there. I mean, I don't necessarily think that we've got too many moving parts here. I mean, obviously, we run a, you know, the company's got a lot of different, you know, business and business segments. But, I mean, if you look at, if you look at really the two areas, I would say, Robbie, that kind of have had this effect of, you know, maybe sometimes distorting the results a little bit is our COVID testing business and the impact of the recall products last year, right? So, you know, From a COVID perspective in 2022, we actually sold more tests than we sold in 2021. And then obviously the impact of recall products, that was a negative. Both of those split next year. So if you take those out of the equation, you kind of go back to what we were growing pre-pandemic, right? Which was top tier, high single digits, 7% to 8% growth. That's what we grew in 2022, again, excluding COVID and the impact of the recall products. And then if you take that, you know, that comp out on the recall product side, you know, this year as we return to market and, you know, look at the base business, you know, obviously without the COVID testings, we're going to be growing, you know, high single digits, probably at a higher end of that pre-pandemic range, probably 8 plus percent. So, I think it starts with the top line. That's probably the number one part of our guidance is obviously making sure that we feel that our top line is taking advantage of all the good parts, all the good product launches, et cetera, that we have. And from that perspective, I think a lot of what we're doing kind of supports that ongoing you know, that ongoing high single-digit growth rate. You know, if you look at our device portfolio, you know, we'll be looking at high single-digit growth rate, low double-digit growth rate, combination of both kind of recovery, the steady recovery procedures that we're seeing, combined with all these product launches that we've got lined up, you know, that will ultimately have a full-year impact, whether it's Libre 3, AMULED, AVERE, Navitore, CardioMEMS, you know, Eterna on the neuromodulation side, our mapping system, NEP. We're going to launch a new ablation catheter. So the device portfolio is well set up to be able to drive those high single-digit, low double-digit growth rate. I think we're going to continue to see strong performance in EPD. I think as the world continues to reopen, those emerging markets continue to be a great opportunity for us. Um, we've strengthened our position in diagnostics, uh, throughout these years. Uh, and we'll see continued successful rollout, uh, of Alinity in our core and molecular diagnostics, and then the recovery, uh, and in from formula two. So I think. I think you put all that in place. Our, our core business Abbott that we knew pre pandemic is actually stronger than we were pre pandemic with the investments that we made. And I think that's the other part of, uh, I guess in the P and L, if you look at what we've been able to do this year is because of COVID. and the investments that we made during COVID in these growth areas, we're able to drive this high single-digit growth across the company with a fairly flat investment line, whether it's R&D and SG&A, so really getting the leverage across the businesses. So, I mean, I think it really starts with our top line and the confidence we have in the products we're launching, the pipeline, the positions we have. And then, you know, COVID, You know, COVID, we forecast about 2 billion next year. And I think that's the right number right now. Obviously, we see kind of society transitioning here. We've got a strong installed base. We've got manufacturing capacity. We haven't factored in any kind of real surge. But if that happens, we do have the capacity to be able to do that. So I'd say those are some of the moving pieces there. but fundamentally we're in a real strong position in terms of our long-term growth opportunities leading positions in these attractive growth areas strong pipeline which I'm sure we'll get into some of them and a strong balance sheet so that's how this has been constructed and I think that we're in a good position here great thanks Robert really helpful maybe one for Bob you know your your
spk12: You give us the full year guide and you gave some commentary down the PML, which is really helpful. But how should we be thinking about some of the quarterly cadence here? How FX flows? What is FX on the bottom line? And how did that compare to 22? And any just things we should be thinking about first half or second half on the PML? Thanks a lot.
spk19: If you think about the cadence of our business for 2023, it really starts with the top line, some of the things that Robert talked about. First, we have a lot of new product launch activity, especially in our medical device businesses. Products that either launched last year or will be launching this year. I'm sure we'll talk about some of those on the call today. You'll see the impact of those launches grow over the course of the year, feather into that top line. Secondly, we are seeing a steady improvement in procedure trends in the U.S. and Europe. We've been seeing that, and we expect to continue to see kind of a steady improvement there on procedure trends over the course of the year. In our nutrition business, we will see improvement as we continue to supply the market, in particular the non-WIC segment of the infant formula market in the U.S., and so we'll recover share there, so we'll have the impact of that over the course of the year. For China, Robbie, I'd say, you know, we've assumed a softer start in Q1, given some of the dynamics there at the start of this year, but we anticipate that will improve over the course of the year. And so all those changes, all those impacts on the top line, as that builds over the course of the year, will flow through. To earnings as Robert talked about we're going to get leverage in the in the middle here And so you know for the first quarter. We're you know we think you know earnings will be approximately a dollar And then we'll build from there on your on your question on foreign exchange. You know rates have Improved a bit recently, but exchange is still a headwind particularly on earnings and You know, current rates, as I said in my opening remarks, exchanges approximately 1% headwind on sales. EPS, you know, it's a little bit more than 30 cent headwind for us in 2023. The fall through impact when currencies move like we have seen over the last year is always complex. You know, translation is just a piece of the impact. And while that has improved from where we were a few months ago, it still remains a headwind. One of the biggest drivers that we're seeing is the impact from our hedging program. We realized pretty significant hedging gains last year that won't repeat this year. And you can really see the impact of those hedging gains on our 2022 results. Last year, there was a pretty significant exchange headwind on sales, a little over 5% or $2.1 billion, but a fairly modest impact on earnings. It was less than a dime. And that was really the benefit we realized last year on those hedging gains that won't repeat in 2023. And that's not a unique dynamic that we're seeing. We're seeing that from some other multinationals as well.
spk00: Thanks a lot. Thank you. One moment for our next question, please. And our next question will come from Larry Beagleson from Wells Fargo. Your line is open.
spk03: Good morning. Thanks for taking the question, Robert. I feel compelled to ask about Libre again, just given how important it is. So maybe I'd love to hear from you, you know, the outlook for 2023. You know, how should we think about worldwide growth? Can it exceed 20% this year? And can you talk about, you know, international where you've been negatively impacted by the supply issues and the transition to Libre 3 in Germany. When do you expect those issues to be resolved? And just the growth drivers like basil and the vitamin C resolution, what are some of the growth drivers to look forward to this year for Libre? And I had one follow-up. Thank you.
spk02: Sure, Larry. Well, I think Libra had another great year, full year growth of over 21%, strong growth in the U.S., over 42%. And international kind of grew in those mid-teens number. We were impacted a little bit by back orders, as you said. on the international side. And I'd say, you know, probably a little bit more on our earlier generation products, so kind of Libre 1 was that. You know, we had a significant improvement in that situation in Q4. I expect, you know, one or two more months of, you know, until we can completely resolve that, but a significant improvement over there. um on our international performance i i think one of the key things on the international side is you know it was the it was a little bit of this uh this this supply chain on chips that we had uh like that i said is mostly behind us uh the other part of it is you know the upgrade cycle right and and when you go with an accelerated upgrade cycle versus you know with libra 3 that we did from libra 2 in some of our key markets When we went from Libre 1 to Libre 2, we let that upgrade somewhat happen naturally. That takes about a year and a half, two years to actually complete. For Libre 3, we wanted to go more aggressively in some of these markets. That takes your sales force away from new demand generation to making sure that we can get the scripts and do all the behind the scenes work for those upgrades. I would say that's still ongoing, but I'd call it about 80% to 85% complete. So then that allows us starting now in 2023 on the international side to start kind of driving new additions here. So I'd say I expect continued growth in the U.S., in terms of market expansion. Basel opportunity, I think, is a great opportunity, and I think it'll start in the U.S., but I think we're seeing that also internationally. And now that we've got the supply chain issue largely behind us and the upgrade cycle, again, largely behind us, we can focus our demand generation activities on on new users. So I think that that's one key driver of growth for us. Can we see path for another 20% growth in 2023? Yeah, I can. And I think there's a lot of opportunities of growth. I think one of them that you mentioned being the basal expansion is a significant opportunity. I think we've been leading the charge over here, Larry, in terms of generating the clinical data. That's required to be able to support reimbursement. It'll start, I think, in the U.S., but I don't think it'll be a U.S.-only phenomenon. But in the U.S., it'll probably start first. You've got about 4 million type 2 basal patients in the U.S. About a third of them are Medicare. And, you know, even if you assume a reasonable market penetration, you also have to assume, you know, a difference in annual utilization rates versus, you know, a Type 1, an MDI, or a pumper. But even if you take all that in consideration, the opportunity, you know, starts with a one, you know, one billion. And it can range depending on the speed and the uptake of that. So I think this is a great growth opportunity. And like I said, I don't think it's a US only situation. I think this is going to start to expand across the world, given the clinical data that you see with Libre and the impact that it has. So I think this is another great opportunity for us. The vitamin C issue that you asked, we've submitted our response. We're working with the FDA. on this. I'm not going to try and forecast that approval, but what I will say is that as soon as that gets approved, then we'll start to see the product with a couple quarters connect to IED pump systems. We have already launched a connected IED system, AID system in Europe. initial results of the receptivity of that product, of that combined product in Europe has been very favorable. So I think that's another key growth driver for us in 2023. And then finally, I would say on the pipeline perspective, I don't think it's a 2023 milestone for sales, but I think it's an important development activity for us is going to be, you know, running our trial for the combined glucose ketone sensor with the FDA and generating the data to support a dual sensor. Because I think, again, as I've mentioned, it seems to be the go-to sensor for pumpers will be this ability to measure glucose and ketones and factoring that into the algorithms. So that's going to be, that's obviously having a lot of focus of us, you know, in terms of running that trial. And then finally, I would say outside of Libre, the Lingo platform is another kind of key growth driver for us. I've talked about expanding the Libre platform outside of diabetes and using this more broadly for a much more broader target. We have a separate team that's been working on that development, Larry. We will be launching two Lingo products this year. In Europe, I'd say the first one will probably be in the first half of this year and the second one in the second half. So I've talked about Libre being a $10 billion product by 2028. You know, that implies a 15%, you know, annual growth rate. We'll do better than that this year. And I think the opportunities we have to be able to drive to that kind of revenue for this product are very real. And I think we've been executing very strongly on all these areas.
spk03: That's super helpful. Just one brief follow-up. You talked about being excited about the TriClip opportunity at J.P. Morgan. I think it was just this month. I know, you know, it's limited in what you can say, you know, because you're presenting the Triluminate data at ACC. But how are you thinking about that opportunity relative to Mitral? You know, do you still expect to, you know, do you still expect approval in the U.S. by year end 23? Thanks for taking the questions.
spk02: I think it's a great opportunity for us, and I think that we've shown that we're definitely here one of the leaders when it comes to clip-based heart valve repair market. Do I think it could be bigger than Mitral? I'm not sure I would go that far yet, but I would say that the uptake of the tricuspid repair market, I think, will be faster than than the uptake for the Mitral just because I think when Mitral was launched, it was the first repair system. And now you have a large group of implanting physicians that are familiar with the CLIP technology, are familiar with mapping that CLIP technology in the procedure. We did make some changes to the delivery device for the CLIP. It's a little different anatomy, a little bit more challenging to get there. with the CLIP in the tricuspid area, but I think that it's a great opportunity. I mean, I think there's 3 million people today that suffer from tricuspid regurgitation. There's not a lot of really good options available for treatment, which is why we invested in the trial here in the U.S. to bring product to the trial. Like you said, we're going to be presenting that in a couple of months. And I think it's a great opportunity for us. We've already seen real nice traction of that in Europe. You know, we launched that in 2021. You know, the team wanted to launch it right in COVID. And, you know, I must say at the beginning I was somewhat against that. But, you know, they proved me wrong. And the product's done really well in Europe. So I think this is another great opportunity for us here in the U.S. too. So, you know, we're not – You know, ignoring MitraClip, it's part of our entire portfolio. And I think the combination of those two products in the implanting physician will be very powerful for Abbott.
spk00: All right. Thanks so much. Thank you. One moment for our next question, please. And our next question will come from Josh Jennings from Cowan. Your line is open.
spk17: Hi. Thanks for taking the questions. Good morning. Robert, I was hoping just to follow up on Lyra's questions just on Libra, but just thinking more kind of in the out years and this $10 billion target that you've set. I think maybe just, I think you outlined everything for 2023 probably holds true for over the next five years, but just if you could reiterate your confidence or not in that $10 billion out year target and just do you expect consolidation between pump and CGM companies? And it may be just great to hear strategic rationale of whether a combined pump CGM offering under one roof would be advantageous for either Abbott or another company. And then the second question is just on the Abbott tour and the launch here in the United States. What would represent a win for Abbott from a U.S. share gain perspective? And what segment is a low-hanging fruit considering the current label? Is it Is it the elderly patients that don't have a long life expectancy that are high risk or even intermediate risk? And how do you expect an abattoir launch to play out and add to the medical device growth in 2023? Thanks for taking the questions.
spk02: Sure. Well, I mean, I guess on Libre, you know, to your question on, you know, how to get to $10 billion by 2028, I mean, you know, the math will say 15%, right? How do you get to that 15%? I mean, there are real three key areas, and I talked a little bit about them. I'd say, first of all, it's to continue to have a dominant share in the heavy insulin user segment. We have that today with the non-pumpers, with the MDI, both in the U.S. and globally and internationally. So the real focus there becomes, okay, how do we focus now on the pumper segment and the connectivity over there? And like I said, I think we'll do that with a little bit of catch-up with Libre, too, in terms of what is currently offered in the market. But then to leapfrog that, I think the combined sensor or glucose ketone sensor is ultimately the way we'll play. And we'll see what pump company, you know, is going to want to line up, you know, to be first, you know, on that connectivity, you know, if and once we get that approval. Again, I continue to hear from KOL the importance of that product for the pumper segment. The second part is the basal expansion. Like I said, you can look at the basal population globally, assume a certain penetration rate globally, a certain utilization rate, and that adds a significant amount of growth to that number. And then the third piece of that is really expanding Libre beyond just diabetes and looking at the lingo platform. So the adding up and the execution of those strategies are what ultimately gives us confidence that we can get there and we can sustain that 15% growth rate over the next kind of five years. Regarding questions on pumps, listen, I think that it's an important segment. It's one that benefits quite significantly from a combined system. We're focusing more aggressively on that. As it relates to an all-in-one, I think the market has spoken in terms of the pump is one choice. They want to be able to choose what is the best sensor Pump combination and I so I think right now, you know, my view on that is, you know, the consumers have spoken The market has spoken the regulators spoken They want that interchangeability and I think that our focus will be on providing the best sensor for the pump systems that are out there, so So that's I think I think I I think I covered your Libre questions. I think you had a question on Navator and Listen, we're excited about this. It's a large market. It's a large segment here in the U.S., about $3 billion. Our label is about 50% of the market, because we're only approved right now for the high-risk patients. But it's got a strong clinical profile. I mean, we'll be sharing data at CRT specifically to this, but I mean, we've already released some data on on it last year, comparing it to other valve systems. So I think that we've been very intentional about wanting to enter this market and to do it in a way that is sustainable. Expectations, I mean, I've talked a little bit about this. There's obviously two pretty well entrenched players in the US market. Do I think that we can be a leader in three, four, five years? I think that might be difficult, but I think that we can come into this market and offer another choice, another opportunity that provides additional benefits or differentiated benefits versus other systems that allow us to pick up share. If I look at where we are in Europe, we launched this in Europe, and we have high single-digit share in Europe. We're not in all centers. We're in about half of the market. In the centers that we are implanted and available, our share is in the mid-teens. You put that together, we're high single, but where we're competing, We're in the mid-teens, so I think this will be a ramp. I think we've got the sales force in place. We want to roll this out in a way that allows us to be sustainable in that strategy of being able to be a double-digit share gain over the next couple of years.
spk00: Appreciate it. Thank you. Thank you. One moment for our next question, please. And our next question will come from Joanne Wunsch from Citibank. Your line is open.
spk13: Good morning, and thank you for taking the questions. I have two. The first one has to do with nutrition, and if you could outline where the company is in terms of the recovery and when do you think it will return to growth. And then the second question has to do with use of cash. What are your thoughts on it and where you are on share repurchases? Thank you.
spk02: Sure. Well, on nutrition, as I said in the opening statements, you know, production at Sturgis is up and running. You know, the team is working, you know, around the clock, nonstop, very hard. Number one focus here, as I said, was to serve the customers, get product back on shelves. We started with WIC. The inventory levels on our WIC contracts are very good as we entered into Q4, and we then started to focus on our non-WIC brands, and that's progressed very well in the fourth quarter. And, you know, as we go into this year, you know, looking very good. So I would say if you look at our growth rate, obviously, you've got this year-over-year comp. You're going to see the growth already in Q1, Joanne, right, because we were impacted last year in February. But I guess the right way to look at this is, okay, strip away the comp. Strip away, you know, where, you know, this year-over-year effect of coming back on the market, et cetera. I expect our overall nutrition business to be growing at that pre-pandemic level between 4% and 6%. Our market shares in WIC have largely recovered. and we're seeing a nice cadence of recovery in the non-WIC share here in the U.S. So I think you'll start to see that growth rate already on the print in Q1, obviously in Q2 and Q3, but the important thing here is we're looking at our share, and the share recovery is very much in line with our forecast that we've set for the full year. I'd like to see our market share get back to pre-pandemic levels by the end of the year. And then, sorry, what was your other question?
spk13: Thank you. Use of cash and where would you stand on share repurchases? Thank you.
spk02: Sure. Well, use of cash, you know, talked about this. We've taken this balanced approach. I'd say if I were to kind of rank it in terms of use of cash, we're committed to growing a dividend, a strong and growing dividend. So that's probably number one, use of cash. We announced that increase of about 9% in our dividend last year. So that I'll say is priority number one. Number two is obviously ensuring that all these new products that we've got launching are appropriately resourced in terms of manufacturing and a lot of our CapEx investments. On the buybacks, we did, you know, throughout the first nine months of last year, we had about $3 billion of buybacks. and you know I'd say we probably did a little bit of catch-up there Joanne in terms of catching up to some of the dilution as we were focusing on on on getting our leverage down post acquisitions so we do a little bit of catch-up there and I'd say in terms of buybacks going forward we'll be contemplating them and they'll be largely focused on on offsetting any kind of dilution that we have this year. I'd say the other kind of key use here for us this year is going to be debt. We have some debt towers coming up, and we're not going to be renegotiating those just given interest rates. We want to move those off. So that's probably where you see the use of cash. On the M&A side, which I know is always a question, so I'll preempt anybody over there who's got that on their list. I've talked about it on several calls. We're interested. We're actively assessing the opportunities, whether it's tucking on up. Clearly, the valuations here have come down somewhat. I think they need to stabilize a little bit. But we've cast a pretty wide net. Diagnostics devices are the areas where We have most interest. And again, if it's financially makes sense for our shareholders and it fits strategically, then we've got that strategic flexibility in our balance sheet to do that. And we're going to be looking at businesses where we can bring value, whether we can accelerate sales, whether we can enhance an R&D program or enhance its probability of success. a growth area that we can build and have a path to building a position or even if it's just to augment our own existing pipeline. I think when we've taken that approach, our track record shows that when we've taken that approach, it's largely been very successful for our shareholders.
spk00: Thank you. Thank you. One moment for our next question, please. And our next question will come from Vijay Kumar from Evercore ISI. Your line is open.
spk09: Hey, guys. Thanks for taking my question. Good morning to you, Robert. Maybe my first question on your organic growth assumptions here. I think I heard A-plus is a reasonable number for 23. What is that deserving for any impact from China or supply chain, any VBP impact? If you could just give us some assumptions around those macro factors, that would be helpful.
spk02: Well, I'll let Bob talk a little bit about some of the potentially other macro factors, but the ones you've just mentioned here, I mean, China, it's an important market for us, Vijay. It's an important growth market, and it's good that it's moved to a more kind of reopening play. I think that has not only a big impact for us in China, where we've got a strong position. I mean, we're not overly reliant. I'd say it's about less than 5% of our total sales. But nonetheless, it's an important kind of growth market for us. And I think that reopening in China is going to have a real positive spillover effect in in other areas of the world. And I would say predominantly in Asia, Southeast Asia, where we've got strong positions in our EPD and in our nutrition business and in some device areas too. So I think the overall opening of China is good. Like Bob said, there's going to be some choppiness in the first quarter because we're seeing a lot of cases. hospitalizations, et cetera. But I think as that moves, starts to move down, I think we'll see a pretty strong rebound in our growth prospects over there. So the VBP that you mentioned, yeah, I mean, that does have an impact. It's more restricted for 2023 in our electrophysiology business. So we'll see a little bit of an impact there, but I think that the market Opens up for us, you know because of the strategy we took on the VBP side So I think it's a net net it's a it's going to be positive for us in the thing You know in the in the long term here medium long term in terms of that being an opportunity for us We've seen this DJ. I mean we this happened to us this happened in the market with stents in 2019 and in our vascular business, that business is back to what I would call pre-VBP levels this year. So there's an impact. In that case, we didn't necessarily win some of the contracts. In the case of EP, we did win a contract or a portion of the contract. So I'd say macro, yeah, we've got some of these headwinds that we've talked about. FX, I think Bob's already talked about it, inflation, but all those seem to be easing off a little bit and the recovery of the procedures and the pipeline and the product launches is a key growth driver for us.
spk09: Understood. Then Bob, I want to hear on that gross margin here, the 56%. That's a step down year on year. When I look at pre-pandemic, You know, you guys were at 59%. Is there a simple bridge, Bob, on how much of this has been inflation? You know, you did spoke about hedging impact. Is that all hitting your gross margin line? And why shouldn't inflationary pressures improve? And when can we start seeing gross margins, you know, creep back up to pre-pandemic levels?
spk19: Yeah, so, you know, as I said in my opening remarks, around 56% for the year. That's a modest step up. kind of from where we exited last year. As you would expect, Vijay, in this environment, there's a lot of different dynamics that multinationals are facing. We've got some headwinds. We've talked about those, inflationary impact, how that flows through, including the inventory we built last year that will be sold this year. We talked about currency where we're not going to see a repeat of those hedging gains that we had in 22. So that's a bit of a headwind there. On the positive side, I'd say the recovery we're forecasting in the U.S. infant nutrition business will contribute positively as that recovery occurs over the course of the year that will have a more positive impact. We also have gross margin improvement programs across all of our businesses that will help to offset some of those headwinds. And we're taking price where we can, I'd say, in our more consumer-facing businesses. And then finally, I'd say Just from a mixed standpoint, as we continue to see an acceleration in our medical device business with some of these new product launches, those are at higher gross margins than the overall company, and that will positively contribute to our gross margin. To your question about where we were pre-pandemic and what we're guiding to this year, I'd say the biggest impact on a cumulative basis has really been inflation. And that's really, I'd say, the big difference here in terms of where we're guiding right now and where we were pre-pandemic. But as we continue to see an acceleration from a mixed standpoint and continue to work at some of our costs, we'd expect over time to see that gross margin to continue to improve.
spk08: Understood. Thank you, guys.
spk00: Thank you. One moment for our next question, please. And our next question will come from Travis Steed from Bank of America. Your line is open.
spk11: Hi, good morning. Thanks for taking the questions. Just a follow-up to Vijay's question. On the inflation piece, is that still a billion dollars baked into the 440 guidance? Just want to make sure I understand what's baked in on the gross margin line. And then anything to call out on the 2023 operating margin expansion, some of the moving parts to get the out margin expansion there. It looks like 22% is kind of what's implied by the guide.
spk19: Yeah, so, yeah, on the operating margin, yeah, we're around 22%, kind of where we were pre-pandemic. You know, we're getting the high single-digit growth on the top line, kind of in the, you know, excluding the COVID testing. We're getting leverage down to the P&L, which Robert talked about, where we were able to forward invest over the last couple years. We're going to get leverage in the expense area, and that gets you to about around 22% op margin. You know, in terms of inflation, you know, we are going to see a carryover impact from last year, still pretty meaningful, but we've been able to mitigate, you know, a good portion of that through both our gross margin improvement programs that we have across our businesses as well as taking some price where we can.
spk11: Okay, that's helpful. And a couple of product questions on EP. I think you mentioned the new EP catheter mapping system. I don't know if that was new. Maybe I missed that in the past. and I'm curious how you're thinking about cultural depletion and the impact on on your EP business and then the other product questions on on Libre the vitamin C is that only rate to or Libre three so understand the pathway to get vitamin T on only way through in the timing there sure on the Libre three that see I mean it's going to start off with Libre two so we want to get that done first and then we'll and then we'll progress
spk02: onto Libre 3. So focus right now is on Libre 2, and then we'll move to Libre 3. On your question on EP, I mean, I think the new catheter that we've launched in Japan and started to launch in Europe towards the end of last year is our TactiFlex, which is really using contact force together with the flexible tip that we had in our Flex catheters. So the feedback we've gotten that is really, really positive. So I think the combination here of you know, our enhanced new mapping system together with our market-leading mapping catheter and HD grid, and now bringing Pac2Flex. That combination is very powerful. Regarding PFA, you know, it's definitely an area of interest. We've been investing in it. We actually had two internal programs, had a bake-off and saw the one that we felt stronger about. taking some of the learnings that we're seeing from the current unmarket products. And there's obviously some trialing that's ongoing right now, but I would say it's a growth opportunity. It's an interesting area. I think it's still too early to say in terms of will the market move completely over to this technology or not. I think it's important to have it, and hence why we're investing in our program and incorporating into our R&D program all of the deficiencies that we've heard from some of the current on-market products or the ones that are being put in development right now. So important area, important investment area for us in EP, definitely benefited from kind of the investments that we made during COVID. And I think it's an important product to have. Its ability to convert, you know, I think it'll convert a portion of the market. My sense is cryo is probably the first one. But how much of cryo, you know, still up to see. But definitely an interesting area for investment.
spk06: Great. Thank you. We'll take one more question.
spk00: Thank you. One moment for our next question. And our last question will come from Matt Mixick from Barclays. Your line is open.
spk10: Hey, thanks for fitting me in. I figured maybe just if we could wrap it up with an update on a couple of the pipeline products, the five products, Robert, that you've highlighted in the past, Amulet and CardioMEM. Maybe if you could just talk a little bit about, you know, where you are with these launches in terms of, you know, size, scale, you know, momentum and maybe what kinds of catalysts we can look for, metrics we can see for these two products this year. Thanks.
spk02: Sure. Well, I mean, I think those five products that I discussed on the last call, you know, we talked about them, you know, exiting at an annual run rate of 500. They actually exited at a run rate of 550, and they grew around, you know, hundred percent so I expect those five products to to kind of have you know maybe not a hundred percent but pretty high growth rate in in next in this year regarding amulet listen I think it's it's like I said it's a great space you know we've been rolling out the product last year building the sales force key focus here is obviously ensuring that good implanting technique with the physicians. We're in about 225 accounts right now. I expect that in terms of growth catalysts, getting more share of those existing accounts as the physicians become more and more accustomed to using our product and see the benefits of using our product versus other systems. I think that'll be a growth catalyst. And then expanding. We do want to start to expand more as our sales force has increased, the competency of our sales team has increased, and our clinical team has increased. We feel more confident now to be able to kind of expand to more accounts, and that's what we'll be focused on. Another key catalyst of growth here is obviously the trial that we've been investing in in Catalyst, which is to compare Amulet to... novel oral anticoagulant. So that's another opportunity. It's not one in 2023, but, you know, continuing that enrollment in that trial is an important driver for kind of the long-term growth strategy here of AMULET. CardioMEMS has done very good. We saw an indication expansion last year in the U.S., Seen a nice step up in sales. I think it's a great long-term opportunity. I think it's part of those five products that are driving a lot of growth. And I'd say probably the next kind of big area, I mean, we've been investing in Salesforce and rolling this out. Next big area here is working on that NCD. I think that will remove some of the, you know, maybe some regional hangups in terms of reimbursement. The NCD is something that we're going to be working on this year with the data that we've collected as part of all of our trials. I think they look very strong as part of that group of five products. I'd like to close up the call here, just a few remarks. The operating environment still remains challenging, right? But it's not as challenging as we saw back in Q3 of 2022 in October. There are definitely signs here of stability. There are signs of improvement, whether it's in the macroeconomic side or whether it's specifically in the segments that we are competing in. And Abbott's well positioned. We're well positioned to both capitalize on this improving environment or to navigate if there's any unforeseen volatility over here. That's what our portfolio has been built for. That's what our balance sheet is set up for. It's set up for these kind of situations these kind of scenarios. We always knew that pandemic-level testing was not a base case. We knew that eventually this would move down to an endemic-like testing. And we're, you know, our view here is that in 2023 we'll start this process of moving to that. And so as a result of that, we did do this forward investing into our growth areas, whether it's devices, diagnostics, certain, certain areas in EPD or nutrition. And that's allowed us to grow at the pre pandemic level, this high single digit top tier growth without having to make the, you know, OpEx investment that you would expect to be able to sustain that growth. Uh, so we're getting that flow through, uh, on the P and L and that leverage on, on our investments. Uh, I do recognize the cost pressures company recognize those cost pressures. We talked about this now. to Vijay's question, we're going to be working relentlessly on getting our gross margin back to that pre-pandemic level. And it's a combination of working at our cost profiles and our GMI programs, but also as we accelerate the growth in our device business, that mixed shift contributes to that. And finally, our balance sheet is strong and provides us the strategic flexibility we need to navigate. And we take this balanced approach where we can provide returns to our shareholders while at the same time investing for the long term. So thank you for being on the call overall. I think Abbott is very well positioned as we exit this pandemic state and move into more of an endemic state. I think we're well positioned and now it's all about execution.
spk07: 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.
spk00: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Disclaimer