美國雅培 (ABT) 2013 Q3 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's third-quarter 2013 earnings conference call.

All participants will be able to listen only until the question-and-answer portion of this call.

(Operator Instructions).

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 expressed written permission.

I would now like to introduce Mr. Brian Yoor, Vice President, Investor Relations.

Good morning and thank you for joining us.

Joining me today on the call will be Miles White, Chairman of the Board and Chief Executive Officer, and Tom Freyman, Executive Vice President Finance and Chief Financial Officer.

Miles will provide opening remarks and Tom and I will discuss our performance in more detail.

Following our comments, Miles, Tom and I will 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 2013.

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 Securities and Exchange Commission Form 10-K for the year ended December 31, 2012.

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.

In 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 will be available on our website at Abbott.com.

With that I will now turn the call over to Miles.

Okay, thanks, Brian, good morning.

This morning we reported ongoing earnings per share of $0.55, ahead of our previous guidance range; strong performance across our businesses as well as gross margin and operating margin expansion.

Expense controls and a lower tax rate enabled us to deliver strong double-digit ongoing earnings per share growth despite the impact of a supplier recall in international nutrition.

We also announced this morning a 57% increase in Abbott's dividend, demonstrating our confidence in the long-term growth of the Company, and our commitment to increasing shareholder returns.

This declaration increases our quarterly dividend to $0.22 per share from $0.14 a share, effective with the dividend to be paid in February 2014.

Reviewing the results of the quarter in more detail, total Company sales increased 4.3% operationally.

But excluding the sales disruption in international nutrition, sales would have increased approximately 6%.

Sales growth in international nutrition was affected by a supplier recall initiated in early August in China and two other markets for certain pediatric nutritional products.

While there were no health issues associated with the recalled products and the supplier subsequently determined the products had been safe for consumption, the recall created significant disruption in these markets.

As result, international pediatric nutrition sales were significantly lower than our previous expectations in the quarter.

We anticipate it will take time to work through the impact of this supplier recall, and expect lower sales growth in the fourth quarter of 2013 and the first half of 2014.

We initiated additional marketing investments in the third quarter in these markets as part of our recovery plans.

The long-term fundamentals of this business haven't changed.

Demand for both adult and pediatric nutrition is strong, and we remain optimistic about our growth prospects.

Excluding the impact of this disruption, international pediatric nutrition sales would have increased in the strong double-digits.

Reviewing the results of our other businesses in the quarter, performance was in line with or ahead of expectations.

Diagnostics delivered double-digit growth, and medical devices delivered nearly 4% growth with double-digit growth in medical optics.

We again saw strong growth in emerging markets and also began to see better performance in developed markets.

Total Company sales in developed markets increased in the low single digits, which was ahead of our expectations, and a sequential improvement over the second quarter.

Abbott's leading market share positions and the introduction of new technologies are driving profitable growth in these markets.

Diagnostics, one of our most durable growth businesses, increased more than 6% in developed markets, with double-digit growth in point of care and strong growth in US core laboratory diagnostics driven by several large customer account wins.

Medical optics also contributed to our improvement in developed markets.

Growth of our cataract business has accelerated over the last three quarters, driven by new product launches, including the TECNIS toric in the US and TECNIS OptiBlue in Japan.

Total Company emerging-market sales in the quarter increased 8% operationally, driven by double-digit growth in each of our three diagnostics businesses as well as high single-digit growth in medical devices.

Excluding the sales disruption in international nutrition, emerging-market sales in our nutrition business would have increased in the high teens.

In established pharmaceuticals this quarter, sales increased modestly.

While recent macroeconomic and market pressures in certain emerging markets resulted in somewhat slower sales growth this quarter, growth rates in emerging markets have been and are expected to continue to be higher than the growth rates of the developed world and the overall global economy.

Established pharmaceuticals remains well aligned with the fundamentals driving long-term growth in emerging markets -- a rising middle class, improving access to health care, and consumers that are seeking and willing to pay for high-quality brands.

Emerging markets are projected to drive 70% of the global pharmaceutical growth over the next several years, and the majority of that growth will be from branded generics.

In addition to sales outperformance in several businesses, we delivered strong gross margins and operating margins.

Adjusted gross margin was nearly 56% in the quarter, ahead of our expectations with strong execution in both diagnostics and nutrition.

Adjusted operating margin was 19.3%, a 210 basis point improvement over third quarter last year.

We have sequentially improved adjusted operating margin each quarter of this year as we remain focused on improving gross margins and reducing G&A expense.

In the third quarter we increased marketing investment in our nutrition business to support recovery from the supplier recall, while we reduced G&A expenses in other areas.

And, as I mentioned earlier, this morning we announced a 57% increase in Abbott's quarterly dividend.

As we have indicated since early in the year, over the course of our first year post-separation we have continued to assess capital allocation for the Company.

We have now completed that assessment, and this announcement reflects Abbott's commitment to providing immediate and significant returns to shareholders in the form of dividends.

A strong and increasing dividend has always been important to Abbott.

We are recognized as an S&P dividend aristocrat, having consistently increased the dividend for each of the last 41 years.

We have built the Company to continue to deliver sustainable earnings growth, and our investment identity continues to be one of growth with now an increased commitment of returning cash to shareholders.

I will now turn the call over to Tom and Brian to discuss third-quarter results in more detail.

Tom.

Thanks, Miles.

Before I go through our results for the quarter, I'd like to summarize at a high level the major changes from the expectations we had when we provided guidance back in July.

As Miles indicated in his remarks, the disruption in our international nutrition business that occurred in the third quarter had a meaningful impact on that business in the quarter.

As a result of this event, sales in our international nutrition business were around $90 million lower than our previous expectations.

In addition, we decided to make additional marketing investments in the quarter to accelerate recovery.

The combination of lower sales and higher spending related to this event negatively impacted our ongoing earnings per share by around $0.05.

This was offset in the quarter by better-than-expected gross margin performance, reductions in G&A expenses, and a lower tax rate.

This resulted in ongoing EPS of $0.55, which represents a 31% growth over 2012 and exceeded the midpoint of our previous guidance range by $0.03 per share.

Turning to the details for the third quarter, sales increased to 4.3% on an operational basis.

That is excluding an unfavorable 2.3% impact from foreign exchange.

The sales disruption in our international nutrition business is estimated to have reduced Abbott's worldwide sales growth by nearly 2%.

So, sales would have increased around 6% without this event.

Emerging-market sales were up more than 8% in the quarter on an operational basis and would have increased more than 12% on an operational basis without the disruption.

Sales growth was driven by strong performance across a number of our products and businesses, including operational sales growth of more than 10% in diagnostics and nearly 12% in medical optics, along with an improvement in total Company sales growth in developed markets.

Reported sales, which include the impact of exchange, increased 2% in the quarter.

The third-quarter adjusted gross margin ratio was 55.9% of sales, ahead of our previous guidance and up 70 basis points over the prior year despite the impact of exchange, reflecting strong underlying performance.

Foreign-exchange negatively impacted the gross margin ratio by almost 150 basis points in the quarter, somewhat more than our previous expectations.

In the quarter ongoing R&D investment was approximately 6.5% of sales, in line with previous expectations.

Ongoing SG&A expense was also in line with previous expectations, reflecting additional marketing investments in our international nutrition business, offset by G&A expense reductions.

Overall, our adjusted operating margin ratio improved 210 basis points in the quarter over the prior year.

Our year-to-date ongoing tax rate through the third quarter was 19%, lower than the forecast we provided on the second quarter call.

This 19% rate also reflects our expectations for the full year 2013.

The revision to this lower tax rate for the full year resulted in a tax rate of 15.7% for the third quarter.

Turning to the outlook for the full year 2013, today we are confirming our ongoing full-year earnings per share guidance range of $1.98 to $2.04, reflecting double-digit growth.

We are forecasting operational sales growth, that is excluding the impact of foreign exchange, in the low to mid single digits for the full year 2013.

Based on current exchange rates, we would expect exchange to have a negative impact of around 2% on full-year reported sales.

This would result in reported sales growth in the low single digits.

We forecast an ongoing adjusted gross margin ratio for the full year of approximately 55.5% of sales, ongoing R&D at around 6.5% of sales, and ongoing SG&A expense of somewhat more than 30% of sales.

We also forecast the full year net interest expense of approximately $100 million, nonoperating income of around $50 million, and around $40 million of expense on the exchange gain/loss line of the P&L.

Finally, as previously indicated, we forecast a full-year ongoing tax rate of 19%.

Turning to the outlook for the fourth quarter of 2013, operational sales growth is expected to be in the low to mid single digits, which includes the impact of the nutrition disruption.

At current exchange rates we would expect roughly 3% negative impact from exchange.

We forecast an ongoing adjusted gross margin ratio in the fourth quarter of approximately 55.5% of sales.

We also forecast an ongoing tax rate of 19% for the fourth quarter, in line with the year-to-date rate.

And, lastly, similar to the third quarter, we expect the recent sales disruption in our international nutrition business to impact our ongoing earnings per share by approximately $0.05 in the fourth quarter, which is factored into our forecast.

With that I will turn it over to Brian for the operating highlights and growth outlooks by business.

Thanks, Tom.

This morning I will provide an overview of third-quarter performance and our outlook for the fourth quarter.

My comments will focus on operational sales growth, which excludes the impact of foreign exchange.

I'll first discuss nutrition, where global sales increased more than 3% in the third quarter.

The sales disruption in international nutrition is estimated to have reduced global nutritional operational sales growth by approximately $90 million.

Global pediatric nutrition sales grew 2.7% in the quarter, including international pediatric sales growth of 3%.

Excluding the sales disruption, international pediatric nutrition continues to drive strong growth as it launches new product innovations and executes on geographic expansion initiatives.

US pediatric sales were up 2%.

Abbott remains the market leader in the non-WIC segment of the US infant formula market, and continues to drive uptake of recent innovation launches including Similac Total Comfort, a first switch formula that addresses a broad range of mild tolerance symptoms.

Global adult nutrition sales increased 4.4% operationally in the quarter.

International adult sales grew 7.5% overall, and double digits in the emerging markets.

Driven by product innovations in our Ensure product line and execution of market expansion initiatives.

US adult nutrition sales were up 1%, negatively impacted by the exit from certain non-core business lines as part of our margin improvement initiative.

Excluding the impact of these exits, US adult sales would have grown mid single digits.

As previously discussed, we will continue to see the impact of the sales disruption on international nutrition growth in the fourth quarter and in the first half of 2014 as we continue to work towards recovery.

So, for the fourth quarter we expect our global nutrition business to grow low single digits on an operational basis.

Moving on to diagnostics, which delivered another quarter of strong growth with sales increasing 10.5%.

Core laboratory diagnostics operational sales increased 9% in the third quarter, driven by strong growth in the US and internationally.

International sales grew 7.7%, driven by continued strong double-digit growth in emerging markets.

US sales increased 15%, driven mainly by a number of new key account wins as large health systems continue to choose Abbott's integrated and flexible solutions to manage their testing volumes and to increase operational efficiencies.

We also continue to broaden and differentiate our industry-leading assay menu, and expect to launch new tests in the area of diabetes, cancer and cardiac care.

Most recently, preliminary clinical trial results suggest that Abbott's high sensitive Troponin tests on ARCHITECT may improve the diagnosis and prognosis of patients presenting with heart attack symptoms.

In molecular diagnostics, worldwide sales increased 16% in the third quarter.

International sales growth of 24% was led by continued strong infectious disease growth and geographic expansion in emerging markets, including the benefit from tender wins in Brazil, Russia and Africa as well as continued growth of companion diagnostics.

In point of care diagnostics, worldwide sales increased 17% driven by continued growth in the US hospital and physician office labs segments, as well as strong double-digit growth in emerging markets.

For the fourth quarter we are forecasting our global diagnostics business segment to generate high single-digit operational sales growth.

In our established pharmaceuticals business, sales in the quarter increased modestly.

Sales growth in key emerging markets was 2.3%.

We continue to focus on implementing tailored strategies to accelerate growth in emerging markets that are projected to remain attractive for branded generic pharmaceuticals over the long-term.

In the fourth quarter we continue to expect low single-digit operational sales growth for our established pharmaceuticals division business.

And, lastly, medical devices, which includes our vascular, diabetes care, and vision care businesses.

Sales growth in medical devices increased 4% in the quarter.

In our vascular business, worldwide sales increased 2.5%.

Sales growth continued to improve sequentially over the second quarter, in line with our expectations.

International sales increased nearly 3% driven by continued momentum in key geographies of the next-generation drug eluting stent Xience Xpedition, and our bioresorbable vascular scaffold ABSORB.

This includes continued share gains in Europe as well as Japan where we launched Xience Xpedition in August, following a successful launch of the Xience Prime small vessel drug eluting stent earlier in the year.

MitraClip, our first-in-class device for treating mitral regurgitation, also contributed to international growth in the quarter.

US sales increased nearly 2%.

While the drug eluting stent market declined in the quarter, we have continued to gain share over the course of the year with the US launch of Xience Xpedition.

Mid single digit growth in our global endovascular business also contributed to vascular performance in the quarter.

In August Abbott completed its acquisition of IDEV Technologies, which expands our endovascular portfolio by adding the SUPERA stent.

SUPERA is available in Europe and is under review by the US FDA for the treatment of blockages in the superficial femoral artery or the SFA.

This unique technology provides Abbott an opportunity to further penetrate the largest and the fastest-growing SFA segment of the global peripheral market.

For the fourth quarter of 2013 we expect our global vascular business to increase in the low single digits on an operational basis.

In diabetes care, global sales in the third quarter increased 1%.

International sales, which comprise 60% of total diabetes sales, increased nearly 9% in the quarter driven by continued strong double-digit growth in emerging markets.

As expected, US sales were impacted by the implementation of the CMS competitive bidding program for Medicare patients.

We project fourth-quarter diabetes care sales growth to be down low single digits on an operational basis, reflecting the impact of CMS competitive bidding in the US, partially offset by strong growth internationally.

In vision care we exceeded our previous expectations by delivering nearly 12% growth in the third quarter.

Cataract sales, which represent more than 60% of our global vision care sales, increased double digits, well outpacing the market.

Strong cataract growth was driven by the uptake of new products, including TECNIS OptiBlue in Japan, and TECNIS Toric in the US.

Both products provide Abbott with access to large and growing segments of the cataract market where Abbott wasn't previously competing, with toric lenses representing the fastest-growing category in the premium segment.

Strong double-digit growth in key emerging markets also contributed to performance this quarter.

In August Abbott completed its acquisition of OptiMedica, which provides Abbott with a state-of-the-art laser system and immediate access to the rapidly developing laser cataract surgery market.

This allows Abbott to have broader reach in the growing cataract market.

For the fourth quarter in our global vision care business we expect another quarter of double-digit operational sales growth, driven by continued strong performance of our cataract business.

In summary, while sales and earnings were affected by a disruption in our international business, nutrition business, we delivered strong performance across our businesses and improved operating and gross margins.

Excluding the impact of the supplier recall in nutrition, total Company sales growth was balanced across both developed and emerging markets, with continued sequential sales growth improvement in developed markets and continued double-digit growth in emerging markets.

We improved gross margin by 70 basis points and expanded operating margin by 210 basis points in the third quarter.

And, finally, we announced a 57% increase in our quarterly dividend, demonstrating our confidence in the long-term growth of the Company and our commitment to increasing shareholder returns.

We will now open the call for questions.

(Operator Instructions).

Mike Weinstein, JPMorgan.

First off, I thought you did a good job of covering all the issues in the nutritionals business and the impact of Fonterra.

I think that's pretty straightforward.

Let me start with the dividend, because obviously, it's a very significant increase.

You have meaningfully changed the profile of Abbott's payout and the ongoing payout ratio for the Company.

My question, Tom, is the mix of the Company's cash flows, because as everybody knows, Abbott, post the spin, is generating 70% of its sales outside the US.

Can you talk about the ability to fund the dividend long-term given your mix of sales and cash flows as you look out?

And do you need to repatriate profits in order to sustain that longer-term?

Thanks.

I think we are in really good shape for that, Mike.

As you know, we have very strong cash flow as a Company.

On a normalized basis, this year probably approaching the $4 billion range.

And we're -- we have been in a very good position to date to cover our cash needs between the various geographies.

And as we go forward I think we're in a good position to do that with this dividend payout, and, obviously, that's part of the plan.

I think over time, as the Company grows and we fund growth, wherever it is, debt levels might gradually increase over time, but we are in very good shape to fund this dividend increase.

Okay, and so when the Board, I guess, contemplated what the right mix was going forward of dividend and buybacks and acquisitions, maybe Miles can give us a little insight into how you came up with this payout ratio.

And what's the thought process on the right mix with the Company on capital allocation?

Well, Mike, if I take you back to the fourth quarter of last year when we split the companies and we split -- and we aligned cash flows and debt and so forth with dividend payout, everything aligned in a proportional way with the cash flow generating capability of the two companies.

And you'll recall at the time AbbVie announced a disproportionately higher dividend.

We had a disproportionately lower dividend and payout ratio than we had as a combined Company historically.

And we thought that was appropriate for a pharma business like AbbVie's.

And the question we had at the time, because we were actually not trying to be dividend neutral between the two companies, the combined dividend, as you'll recall went up a little bit, not a lot, but a little bit.

And we wanted to stabilize and see what cash flows going forward were, because as we looked at the investment identity of remaining or new Abbott, it was unclear to us exactly where to put the dividend, not only from the strength of our performance, but just in general what the peer group and/or investors would expect.

Over the course of the year we got a fair amount of feedback, and we had a chance to look at that.

And we concluded that it was so essential to the overall identity of the Company that the combination of growth and income was important to our investment base.

And that income piece was actually probably a little more important than we had placed it at that time, which I acknowledged to investors over the course of the fourth quarter last year and the first few quarters this year.

So in terms of looking at the expectation of it, I acknowledged to investors during the year we would look at it.

We would look at the capital allocation.

As Tom already indicated, it's not a strain on cash flows or a strain on capital allocation.

We are a healthy cash generator.

And, frankly, I think we're going to continue to be a healthy cash generator going forward, because we are seeing great progress in the margin initiatives we have, both on the gross margin line and on the G&A line.

And I think there is still a lot of opportunity there for us to improve margins and improve cash flows as we grow.

So as we looked at that, we said making sure we live to that historic identity of a combination of growth and income was important, and we didn't -- we came to the conclusion that at the payout ratio we began the year, we weren't quite where we needed to be or wanted to be on the income side.

So we chose to take it to where we believed that was -- at least relative to a peer group -- and there's probably several different peer groups investors we compare us to.

But relative to the peer groups we'd be compared to, we put ourselves in a position where we think we're a pretty competitive, if not attractive, combination of growth and income.

And from a cash flow standpoint it's completely achievable.

With regard to share buybacks or M&A activity or other things longer-term, or frankly even debt pay down, we think that the cash flows just as they have been historically are strong enough to accommodate all of that.

So we made the move.

And I think rather than tickle our way into a little bit at a time, we just concluded let's just go where we think it needs to be or would like to be.

And we will just set it there and not do this incremental creep up over time.

Our investors ought to know what our identity is and what our payout is going to look like, and that's why we just chose to announce it now and get it over with.

Okay, let me just follow with one fundamental question, if I can, then I will jump.

If we look at the quarter, outside of the whole issue with nutritionals, there is really two things that stood out to me, and one was the strength of the diagnostics business.

I don't think people would have expected your US core immunoassay business to be up as much as it was.

And then on the downside, the EPD business, which continues to struggle, I think people were hoping that as you anniversaried some of the price cuts from last year that that business would start to pick up in the second half, and obviously it didn't.

So can you talk about what gets EPD going, and if the answer a quarter, a year from now, two years from now is that maybe that just isn't as good is a business as we hoped, does that business remain part of the portfolio?

Thanks.

That's an easy one; it absolutely remains part of the portfolio.

A couple of things.

Earlier in the year acknowledged, I think, couple of times on these phone calls that what I saw as the bigger issue in EPD for us with our own execution.

And while we had dumped up against some of the volatility of emerging markets from time to time, whether it was price pressure or whatever it might be, the fundamentals underlying that business in those markets over time were strongly in our favor.

So the part that was more in our control that I was not as satisfied with our own execution.

And we have made a number of changes in the last few quarters here on that, in terms of the structure of our organization, some of the management leading the organization, frankly the commercial strategies, and a linkage between the breadth of our product lines and the therapeutic categories of products in markets that we are marketing and promoting.

It takes some time for that execution to sink in and show some results.

So I would tell you, as much as I was self-critical of us early in the year about our own execution, I would tell you today what I see coming out of the business is all in line with what I would want to see there.

I like what we are doing.

I think we are doing the right things.

But I think it's going to take probably several quarters here before we see the impact on the top and bottom line.

So from an anecdotal standpoint, what I see is all good.

And I think the team is doing exactly what it ought to be doing on the execution line for every one of its geographies.

But it's going to take some time to see it roll through.

So I haven't lost any conference at all, and I would say is going to play out here.

Has it been delayed relative to our initial expectations, either because of market conditions or own execution?

Yes.

Do I expect it to be further delayed in terms of what the performance would be going forward?

No, I don't.

I expect it will take a few quarters for it to start to emerge and show up on the top and bottom line.

But I'm not -- I haven't lost any confidence at all in the business and its prospects for us going forward.

As an example I would tell you in the early part of the year and we also saw depressed performance in our device businesses, and we took a number of actions beginning late last year in those businesses.

And what we have seen this year is every quarter, in particular the vascular business and the medical optics businesses, sequentially improving on the top and bottom line and sequentially improving share.

And we track share in these markets geographically as a real measure of whether we are succeeding or not, and we have seen great evidence across the board here that we are increasing share in these businesses, improving our positions and that the actions take place.

So I am pretty confident that everything in these businesses is headed in the right direction.

It's just going to take us a couple of quarters to see it.

I wouldn't have said that quite as strongly about EPD probably three quarters ago, but what I see now I like.

And I think we're going to -- you're going to see that in the top and bottom line coming forward.

Now back on diagnostics, there is another story that is taking time to play out.

That business keeps getting better every quarter.

And I don't think anybody expected double-digit sales growth on the top line, and yet its growth keeps improving.

Its margins keep improving.

It's ahead of its own plans and schedule in terms of operating and gross margin improvement.

It's ahead of anything that we've communicated to investors and you on the Street.

And I think that they've got a great pipeline of systems in development, all of which are on schedule to sequentially rollout in the next few years.

So I think that sometimes, because we have got this quarterly orientation as public companies, we are impatient about how quickly we want to see the impact, and it does take some quarters to see the impact.

So since I've seen it in diagnostics; I've seen it in vascular; I've seen it in medical optics; I've seen it in nutrition; I've seen it in the performance of our gross margin initiatives, I am confident that EPD will be just fine and that it will play out in the commitments that we've made to you and forecasted that we think that business will do.

I think it's fortunate, and I think this quarter is a good example, that we've had so much success with the margin initiatives, because had it not been for this supplier recall in Asia, we would be spewing profit and sales growth this quarter, and I think you would be ridiculing our guidance.

But the fact is the issue with Fonterra in our Asian markets did set us back, and yet we still were able to exceed expectations this quarter.

We think it's prudent to maintain our current guidance for the fourth quarter, because I think this -- I think the recall is going to continue to impact us there for a while.

It was about a $90 million hit this quarter.

We are currently forecasting it to be about $100 million in the fourth quarter, and yet we are going to maintain our guidance.

I think we would have been a position here to be substantially raising our guidance, but for that.

So the underlying fundamentals in all these businesses, and I think EPD too, all look good to me.

You just can see the visibility of EPD performance yet, but we will.

Perfect, thank you, Miles.

Larry Biegelsen, Wells Fargo.

Let me start with a margin question for Tom.

So the gross margin, I think I heard you say that there was 150 basis negative impact from FX in the third quarter, Tom.

Could you talk about when that goes away and what that -- the implications are looking forward to 2014?

And I just had one product related question.

We do expect, Larry, some of that to continue into the fourth quarter, probably at a somewhat lower level, probably closer to 100 basis points as we are currently modeling it.

This is an item that does bounce around depending on the currency volatility.

Obviously revenues immediately impact margin and sometimes there are some timing differences on the cost side.

But this quarter did come in a little heavier than we thought, and we overcame it quite nicely.

We would expect about 100 basis points in the fourth quarter.

And then if rates would stabilize, hopefully next year will be a better year relative to exchange on the margin and it will be a pure performance, but we'll have to see what volatility brings.

Thanks for that.

And then on the product side, it would be great to get an update on the progress of ABSORB in Europe, and, also, the next steps for MitraClip in the US, and I will drop.

Thanks.

Hi, Larry, this is Brian.

Yes, with ABSORB, we are still continuing to see some sequential improvement there.

We had another nice quarter.

It has certainly become a more meaningful portion of the portfolio.

I think we will continue to see further increases from it in the fourth quarter, particularly as procedures pick up and more adoption takes place.

And, also, in Europe, just as we come out of the summer months we tend to see procedures pick up.

So ABSORB is on track with our plans, and continue to make progress.

Go ahead, Miles.

Larry, let me just insert one comment there before Brian moves on.

We're representing the whole portfolio our stent products now across the board, including ABSORB, particularly in Europe.

And we are seeing sequential share pickup both versus last year and versus last quarter.

And I think that as we forecasted in the past, what we have done to bring pricing into a tighter band across the products and allow physicians and hospitals, let's say easier substitution of which product they wish to use.

And we've got ABSORB, I think, priced in a better place now.

We're seeing a pretty good share pickup, actually -- we are seeing it in Western Europe.

We are picking up share in Japan, although that's with Xpedition.

Same in the US.

So we're seeing good share pickup now across the board in all these markets.

Europe gets the extra benefit of having ABSORB and we are definitely seeing the impact of it there.

And then with respect to MitraClip, Larry, again, a meaningful contributor to our international sales growth.

Status, with respect to the US, is we just still remain in conversations with the FDA, and we'll have to see where that lands.

But we know they talked to us about decision by the end of the year and nothing has really changed from that position with respect to MitraClip.

And it's not really -- it's not factored into our guidance at all at this point.

Thanks for taking the question.

David Roman, Goldman Sachs.

I was hoping you could come back to the diagnostics business a little bit, and I think specifically in your prepared remarks you talked about a number of big or a few big contract wins.

When I was down at AACC over the summer, one of the things that seems to be clear among lab managers with whom I spoke was a propensity for labs looking to do one-stop shopping, or looking to buy across their portfolio where you and Roche consistently came up.

Can you maybe just talk about the dynamics in the lab market, both in the US and outside the US, and whether you are seeing the benefit of scale play out at all?

Hi, David.

This is Brian.

With respect to diagnostics, it is one where it is more about the total solution that you bring.

And as I mentioned in my remarks, we have had a lot of adoption from people who like the flexibility and the scalability and the offering that we bring from end-to-end with respect to our tests, with respect to our equipment.

We have had, to your point, some nice key account wins in the US with takeaways from multiple competitors in the core lab, with respect to our core laboratory business.

And recall we put in place this enterprise approach to selling.

We started with the European markets.

As we moved into the US markets, we're definitely seeing that pay dividends in terms of the approach there, in terms of selling the complete solutions that we are talking about.

So in the US you saw the result in the quarter.

That's largely attributed to these account wins.

There was like five or so major account wins that we had taken, which helps to build momentum and it tends to be sticky over time as well, when you're talking about these contracts, because they tend to be longer-term in nature.

(multiple speakers) If you look at molecular, we have strong growth there.

Again, internationally infectious disease has been our strength.

We continue to penetrate there.

We had strong double-digit growth in emerging markets having some key tender wins in some key countries -- Brazil, Russia, Africa.

And most of our sales, again, 60% of molecular is outside the US.

And that's where we are really growing nicely, and the US is more of that durable growth that we continue to expect to see.

And then maybe just a follow-up on the overall top line, how it looks both for this year and also how you think about the business going forward.

There has obviously been an evolution of your thinking throughout the course of 2013.

I think we started mid to high single digit growth for the year, then mid to high single digit growth in the back half.

And now it looks like where you are year-to-date is where you are saying things are going to be for the balance of the year.

And understandably there have been some new factors, like the Fonterra situation that have emerged.

Maybe you could just talk about the top line growth profile, both on a near and longer-term basis.

Is 4% the right baseline, and you need -- and then how do you get back to that 5%, 6%, 7% type level?

That's an easy one, David.

We are right where we expected to be, but for the issue with nutrition in Asia in this quarter.

Had that not happened, we would be at 6% on the top line.

And there's a lot of ins and outs there.

I guess first we should probably talk operationally, which would be the case.

Clearly exchange this year, I think for everybody, has been a significant issue.

But in any case, exchange comes and goes.

The underlying operating strength of the business has ramped just as we had expected it would.

It hasn't done in every single business the way we thought it would.

EPD has been slower.

Diagnostics and devices have been faster.

But what it boils down to is we would be right where -- in fact we are where we said we would be on the bottom line.

We are where we said we would be on the top line, but for the issue with nutrition in Asia.

And I would tell you that our plans haven't changed at all, nor have our expectations.

I wouldn't be setting a 4% topline target; I would be doing higher than that.

And we haven't changed our expectations, because we don't see the underlying factors any differently than we have before, and we don't see our strategies any differently.

We are not changing our investment profile.

We are not changing our geographic profile other than -- beyond what we have told you.

So, for us, it is all systems straight ahead.

And it's -- so far playing out exactly as we had hoped and expected.

We are getting very good gross margin improvement, very good G&A improvement.

We have got a lot of room to go there.

Our pipelines are evolving very nicely in R&D.

Our execution in EPD is progressing just as I have wanted to.

Our growth in nutrition is progressing as we have said, and remains strong.

Diagnostics, particularly strong; the device businesses all improving, and medical optics dramatically so.

So I would say it all looks to me very strong.

The one exception, and it was a significant exception in this quarter, was the Asian issue with nutrition.

And that's one we will just recover our way out of, and we're not going to change our intentions with China or any of the other countries.

We're not changing anything about our strategies.

It happened.

It wasn't of our making.

We are dealing with it, and we will continue to deal with it.

But our prospects and our expectations haven't changed one bit.

Okay, and then maybe just a last one.

I know there was some discussion earlier around use of capital and the decision to raise the dividend.

Maybe you could frame up how you're thinking about M&A and if the deals that you have been doing as of late, is it a good reflection of the type of acquisitions we should expect on a go forward basis?

Well, I would say a couple of things, and I would go back to the bigger picture.

The overall intent of the Company as we have described now for the better part of a year, as a great combination of growth and income, hasn't changed.

And we're in emerging markets for a reason, for the growth that they represent.

We're broadly spread in those emerging markets, so we're not over-indexed in one.

We are focused on margin initiatives, et cetera, which is going to be an absolutely great improvement over time here to lever the bottom line with that growth.

It's going to generate increasing cash flow, so we have the cash to do the things we want to do.

So I think all the working pieces are progressing as we would wish.

One of the things we saw in the quarter that I think is important for investors to note is that when the Company hits adversity, like any company, you expect your management to navigate that adversity and protect your investment.

Either protect that investment or improve upon it in some fashion.

I think that what we saw here was even in the absence of the pharma business we spun off, the Company and its management are capable of managing through adversity and protecting the investors' investment in the Company, and still delivering the expectations on the bottom line.

And it hasn't knocked us off of our trajectory or intent.

Now to go more specifically to your question about cash allocation or capital allocation, on the M&A front the --it remains an opportunistic world.

I would tell you there's a lot of things that we have looked at and turned down or decided that they weren't economic to pursue.

I would describe the deal market in terms of attractive opportunities right now as limited, and where there are businesses that might be available, I think some of the price expectations or value expectations are frankly out of line with reason.

And we are not poor buyers, as you might know.

And I think also one of the things that has affected that M&A market, if you are a dollar-based company and you're looking overseas, exchange is definitely affecting the valuations of companies.

And I think when exchange is volatile, and/or moving as much as it did this year, it's prudent to wait.

It's prudent to wait to see values align.

So in some cases we have looked a lot of things.

We are always vigilant.

We are always paying attention.

I can't say we are aggressively hunting, but we are mindful of opportunities as they might fit our businesses or intentions should we want to add to the business.

So I would say we're opportunistically ready if it happens.

We are not constrained from a financing standpoint, nor would anything we might look at affect our capital allocation as it might relate to dividends or share buybacks.

So we have tried to maintain a pretty healthy balance for our shareholders over time.

Obviously, a very steady dividend and share buyback to return cash to our investors on a meaningful basis.

And if we can enhance the growth prospects of the Company with something in M&A that fits what we are doing and fits our businesses, or fits our overall governing strategy, then we take a good hard look at it.

But if the value is not there, we don't move.

And I would say that in the past year here, there is only a couple of times when we have found that the value and the strategic intent of the Company have lined up, and on those occasions both with IDEV and OptiMedica, we moved on it.

But other than that, I would say we are cautiously surveying and not overly jumpy.

Okay, that's a very helpful perspective.

Thanks, Miles.

Glenn Navarro, RBC Capital Markets.

Had a quick question, a follow-up on the gross margin.

You had 55.9% in the third quarter, so great gross margin, and you're calling for about 55% in the fourth quarter.

And I know nutritionals are going to --.

Actually, that's 55.5%, I think.

55.5%, sorry.

I know nutritionals are going to weigh a little bit more, but are there fewer offsets in the fourth quarter?

So, Tom, I'm wondering if you can just give us the put and takes.

Then, as a follow-up, is 55.5% a good number for the first half of next year given the nutritional issues, and then strength thereafter?

Thanks.

Glenn, we are not in a position to talk about 2014 right now, so we get through this year and then, obviously, we will talk about our guidance at the appropriate time.

What time really means is we're not going to talk about 2014, even if we are able to.

Yes.

It's probably just some mix things between the divisions.

Every division is showing nice progress.

I wouldn't read too much into that slight change in outlook, and, hopefully, if we continue to execute the way we did in the third quarter, maybe we will do a little bit better than that forecast.

So I wouldn't read too much into it, and as Miles has indicated, and we said in our remarks, many times, it's driving gross margin improvement over time is a major focus of the Company.

It has been for a number of years now, and as we go into 2014, we're obviously going to be pushing to drive that up.

So I think we will be in good shape when we report in the fourth quarter, and nothing significant in terms of what that guidance means.

Okay, can I just sneak in a quick one then?

ABSORB, I'm assuming ABSORB is being priced at a premium in Europe.

You talked about certain ranges.

Can you give us a sense of what the premium ranges are in Europe?

Thanks.

We are trying to decide which one of us is going to answer this question.

Glenn, we talked about this before.

It really depends by market.

Certain markets are going to demonstrate different premiums versus others, just where the baseline is.

But I think it's really a market by market segmentation in terms of how we compete with our portfolio of products.

But it's not -- it's meant, again, as you know, to be a workhorse type stent, and as Miles mentioned, it's part of the portfolio solution along with Xpedition and the other things that we have out there, which is contributing to meaningful share gains.

But we -- by market it would be hard to just quote an overall number, but I don't know -- Miles, Tom.

I will just say a couple of things.

As Miles talked about on the second quarter call, our goal on this pricing is that the price is not a barrier to use.

And that is what supports the use of the product as a workhorse stent.

So I would say as we look at it in any one market it's a relatively modest premium, and certainly not a barrier to the use of the product.

Is the only barrier right now reimbursement in certain countries?

No, I just think it's a matter of not all lesions lend themselves to ABSORB right now, and it's a matter of physician training.

Physicians need to become comfortable with it.

Those that have used it quite a bit find it -- they can apply it to a relatively high percentage of the lesions.

So those are really the two things that the commercial team continues to work on in terms of increasing the uptake for the product.

Okay, great.

Thanks for taking my questions.

Rick Wise, Stifel Nicolaus.

Can you talk a little bit more about how the new EPD management team is settling in?

You touched on it a little bit.

Maybe use some language like we are taking tailored steps to drive better growth.

Can you give us any more color on new team strategies or focus?

Are they focused more on execution or something else?

We would be very grateful for any perspective.

Thank you.

Yes, it's -- well, first of all, let me address the team.

We have brought a number of new people to the Company from other companies, and other places that have been a terrific addition in terms of their knowledge and experience.

The branded generic markets around the world are all a little different country by country.

But that said, they have got a lot of -- a lot in common from a similarity standpoint.

They are not like proprietary pharma.

And among the things that we have found, at least in our own management, in our own team as we separated the company, we have a lot of people in positions that are very experienced with the proprietary pharma businesses, but not so experienced with branded generic marketing, which is marketing a brand, marketing broad product lines, marketing broad therapeutic categories where a lot of your attention isn't to a given molecule.

It's to a channel, to a pharmacy, to a hospital, to a consumer in a lot of cases and often so.

But it's about the breadth of offering the brands and so forth and less about a patentable advantage.

So the marketing skills and the channel skills, the commercial skills around that are different.

And we have made some changes in our marketing teams at the top.

We have separated the developed markets from the emerging markets because, frankly, their business structures and characteristics are quite different.

The channels in the markets are quite different.

The way the markets behave are different.

Our emerging markets don't reimburse; the developed markets do.

So there is very different points of call, and points that drive the business.

And I would say now we have got our management team much more aligned with the differences of the various markets, and we have got our marketing teams better aligned with it.

And, frankly then, it's a question of tailoring the particular elements of a therapeutic category.

There might be 10 or 12 different therapies in a category like gastrointestinal.

And we want to make sure we've got the right mix for each given market.

It could be different from country to country.

And that alignment is taking us a little bit of time, but I would say we're in a much stronger position now knowing exactly what the mix of products is we want by country, by therapeutic category, by channel, et cetera.

And all of that working in concert is just taking some time.

That's very helpful.

Turning to margins again, you clearly indicate you are seeing continued improvements in diagnostic and nutritional margin.

I think -- am I understanding correctly that you're ahead of planning in diagnostics?

And when I think maybe, Tom, and you talk about a 20% margin goal for diagnostics and nutrition by 2015, is that now looking possibly conservative from a timing and/or magnitude perspective.

And maybe you could talk about the ramp up in the manufacturing distribution facilities and where we are in all that process, Tom?

Yes, I mean the division already has had quarters in that range, and they are not halting their progress and their activity.

And I think it's fair.

You characterized it pretty fairly, Rick, that we certainly think we're going to do better than that.

I think if you follow the results over the next couple of quarters you're going to see really good progress relative to that goal.

So, yes, is the situation in diagnostics.

In nutrition, obviously with the event we're going to get a very temporary setback here until we recover.

We still did expand the margin in the quarter, but it's a little bit short, obviously, of what we were targeting before the event, because we need to invest to recover.

So we will get a little bit of a bump in the road there, but I think within a matter of a few months we will be rapidly back, and continue to target that same high level of improvement in nutrition that we've been talking about for some time.

So diagnostics, I would say ahead, characterize it properly.

And nutrition we should be right back on track in relatively short order.

Thanks so much.

David Lewis, Morgan Stanley.

Tom, or for Miles, just a quick question on this particular recall and the dynamics.

In other larger recalls we have seen, and this is different in that it's not an Abbott quality issue, and the severity of the impact is actually a little bit less.

But you are actually assuming the recovery period is going to be quite similar.

So can you help us understand the dynamics, and whether this guidance as it heads into our early next year reflect any conservatism?

And I wonder, just given the dynamics of this recall with other larger players in China, if this actually presents a long-term share opportunity for the Company?

I would say this.

I wish I had a crystal ball that would tell us that exactly, because our experience in the past -- we have had experiences in the past with whether it's been a recall or some other event that has impacted share, but what happens in the market is mothers in China are acutely aware and acutely informed.

And same with Vietnam, same with -- frankly, I suppose any market in the world -- mothers are acutely aware of what they feed their babies and they follow infant formula and so forth closely.

And with social media and other things there is just a lot -- there is just an awfully informed consumer base.

So when something is -- something happens that creates any kind of concern, whether it's rumor or otherwise, around infant formula, it impacts mothers' confidence in the product or the brand.

And in this particular case the fear that was created was around botulism.

And as it turned out not to be valid and not to be true, it didn't turn out that there was a result that way until weeks later.

And we can take exception to why it took weeks, and so forth, and we have had those conversations, but in the meantime the mother switches to another brand.

When she switches to another brand, she doesn't have a lot of incentive to switch back real fast.

And it's like a lot of things, the media around the negative, meaning the fear of contamination of some sort, is far greater and more intense than the media around, gee, it was a mistake.

And so, consequently, we and other companies that were affected by this find it more difficult to switch the mothers back than it is for them to have switched themselves in the first place.

So we try to model what the behavior of the consumer is going to be and how we might affect that behavior to get her back, but it's frankly just more difficult.

So we model it.

And the end result is the same whether it was a quality issue from our Company or a quality issue from another company, or simply a rumor that wasn't a quality issue at all.

At the end of the day if the mother is in any way lacking in confidence about a brand or product, she switches to something else, and it takes some time to get her back.

So we have invested considerably in a number of things in marketing to rebuild consumer confidence in us, our product, our brand, and to attempt to switch mothers back to us who were our consumers in the first place.

It just -- it's -- you follow that model, and what eventually happens is the baby moves off of infant formula to baby food and other things, and you are starting with a new set of moms coming along, who are at a stage where they are going to feed their infant formula.

And in effect you end up replacing the consumer who was affected by the adversity with new consumers.

And it's about rebuilding the brand and the brand confidence.

So it takes time.

It's not an instantaneous recovery, and the damage tends to last a while as you cycle out the consumer who has switched away and new consumers cycle in.

And that is what keeps the pace of recovery more measured than we otherwise might like it.

The more immediate recovery depends on our ability to get that mother back, and that depends very heavily on our customer relation management systems and so forth that we know who that consumer is, that we can reach her through social media and other mechanisms.

And unfortunately we have had this experience a few times, so we are getting better and better at it.

I don't know that we are at a point where we can very reliably forecast what the recovery looks like.

I would tell you that in the first weeks here after the event became or was -- became known to we, in the public, the initial drop-off was significant and then there was a steady ramp of recovery.

There was a major weeklong holiday in China and consumers loaded up prior to the holiday because stores would be closed.

That created a blip.

And then, of course it drops off during the holidays, so you've got a bump in the recovery rate.

So you look at the trends of the sales and it's choppy because buying patterns affected by holidays and other things.

I would say the underlying trends in performance is encouraging, but it still going to be at a measured pace, and I think we are going to need some weeks, if not a couple of months here of experience to see how our recovery is going, because, frankly, in some markets we can only measure data monthly.

Otherwise it's anecdotal.

In China we can measure data weekly, but it's only segments of the market.

So we are getting partial data, and a lot of anecdotal evidence about what the magnitude of loss was and what the recapture rate or recovery rate is.

And I would say we have seen some encouraging things, but we need more data and time here to trend it out.

So it is hard to forecast it out very far.

Okay, Miles, very helpful.

Maybe just a follow-up question.

If I think about your statements about this nutritional business in the beginning of the year, obviously during the year we have had this recall issue that is well understood.

We've also had statements by the NDRC in China as well.

If you think about structurally your nutritional business over the next several years, do you still feel as confident in your ability to take share in China and as confident in your ability to drive margins higher?

Thank you.

Let me deal with the last one first.

I am not lacking any confidence at all about the margins.

I think that first of all, it's a very good business, and it's a very good business in China and other markets as well.

So I'm not concerned about that.

And the issue that occurred this summer for all manufacturers around pricing, I would say small bump in the road, dealt with.

But the bigger issue here was this recall.

Now has that changed our prospects or anything in the way we view China?

China is a choppy market sometimes.

I think it's big, it's very attractive.

It's clear the Chinese government has its own policies about Chinese companies and what it would like to see as the evolution of its own economy and its own companies.

But -- and I think you see that across a lot of businesses, a lot of different industries and so forth, not just infant nutrition or medical products and so forth.

That said, China is an attractive market.

And it's attractive for us from a growth standpoint and from a share standpoint.

It's a very, very competitive market.

It's competitive among multinationals and it's competitive with Chinese-based companies or China-based companies with whom we compete.

So I would say it's an intensely competitive market.

Share can move, share can change.

It tends to change the most when there is some adverse event.

Otherwise, you are in a battle every day for share, much as we would be in any consumer-like market around the world.

Our prospects and our expectations of China haven't changed.

Our investment profile hasn't changed.

We have built a large plant in China.

We intend to build more.

And we will build more.

We intend to -- I suppose it's rather convenient, but we have been looking at our entire global sourcing and supply chain with regard to our nutrition business, and owing to what we believe are the growth prospects globally, China is part of that.

This doesn't change it.

In fact, if anything, it's pretty convenient timing that we are considering our total global sourcing strategy at this time.

And I would say if anything this helps us acutely focus on what the answers to that might be.

So while China will from time to time, as any emerging market may be from time to time, be choppy, I would say collectively the emerging markets overall are a pretty attractive opportunity.

And as we have said before, you've got to be in more than a few of them, so that you can balance and mitigate the adversity in any one of them in any given point in time.

I can't recall a year when we didn't have some developing market have a problem, whether it was a devaluation or a supply problem or something or an exchange issue, whatever the case may be.

There's always been a problem somewhere and there has been over-performance somewhere else.

I think collectively the emerging markets represent an awful lot of growth and an awful lot of development.

And to the extent that you can balance a portfolio of businesses and geographies across them, there is a tremendous growth opportunity there for companies to participate in.

If you over-index in any given place, like a China, then your trip is going to be a little rockier.

And in our case China is big opportunity, but all of our businesses have somewhere between eight and 14 markets that they have targeted as primary growth opportunities to balance that potential choppiness from time to time.

Unfortunately, the investor will read the media about any given one of them, and I think that looks volatile to investors, and if you were only in that country it might be.

But we are pretty well diversified across them.

And this is a really good example.

This was a fairly significant hit, but we have been able to absorb it.

I would want to have to absorb this very often, but the point is, with the diversity we haven't product line, geographies, et cetera, we were able to absorb this, navigate it and keep right on going.

So I would say that's a plus.

If you're going to participate in these kinds of growth markets, and to access the growth that is there, then you have got to have enough breadth to manage that volatility from time to time.

And we do.

Okay, thank you very much.

Jeff Holford, Jefferies.

So just firstly on nutrition, what kind of confidence to have in some of those outer year revenue guidance ranges that you talked about in the $9 billion to $10 billion range for 2015?

Does the recent impact of the recall in China impact that aspiration at all?

Secondly, do you think there could be any positive structural tax benefits for you going into 2014?

Which is a closer rate to think about?

Is it more like 21%, more like 19%?

Then just on the buybacks, you made some helpful commentary.

But could you just be a bit clearer?

Would your intention to be -- to actually reduce the net share count for the Company or just to more or less offset employee stock options?

And then, just lastly, consensus margins call for flat margins, basically between 2014 to 2016.

Obviously, that is calling for maturation of the margins and a topping out of the underlying efficiency gains.

Would you be disappointed with flat margins at the EBIT level between 2014 and 2016?

Do you think you can do better?

Thank you.

Boy, you got all that done with one breath.

Let me see if I can run back through all that.

Margins, for starters, I haven't looked at what the consensus is across the analyst community.

But I would tell you that it depends an awful lot on what happens with exchange for starters, and what happens in general in the economies of the world.

So I would tell you as a Company we expect to improve our margins, and I have great confidence in that.

That said, actions taken from time to time, either by governments on pricing or exchange or other things, do affect margins one way or the other.

And that is less predictable for us, of course.

But had we not had the progress we have had in our own operational margin improvements, and G&A margin improvements, we wouldn't have been able to absorb those for our investors.

And we have, and still improved margin in spite of that.

So I would tell you that as a baseline, in terms of margin improvement I would expect us to continue to improve margin.

What I can't predict for you is the external factors that might impact it.

Tax rate, in 2014, Tom?

Just like all the guidance type questions, we will cover that at the appropriate time in the future.

Obviously, as I indicated in my remarks, we expect this rate to continue through the fourth quarter, and to be our rate for the full year 2013, and we will see how it trends as we go into 2014.

You better be clear which rate you are talking about.

This quarter's rate is not a fourth-quarter rate.

Right, the 19% rate that we have in the year-to-date third-quarter and the 19% we predict for the fourth quarter, 19% for the full year is how we are going to finish 2013, we believe.

And we will see how we trend into 2014 as we finalize all our planning activities on 2014.

We are careful, Jeffrey, not to give guidance in pieces.

And I know that a lot of you want to build models for 2014, but just as we don't talk in terms of payout ratio and dividends, we don't talk about some of these elements because it will -- everybody will be backing into some earnings estimate for next year, which we are not prepared to talk about yet.

I want to see how some of this trending is going to come in the fourth quarter.

Our goal is always double digits, so that part is fairly straightforward.

You could start there every year.

But how the elements will come together is still to be seen.

Now I have got to back up and remember the other early part of your question.

Growth in nutrition over the long term here -- the goals in terms of revenue growth in nutrition haven't changed.

What I can't tell you is what the -- the recall in Southeast Asia will do, at least in the near-term.

I think I know what is going to do and I think I know how we're going to recover from it.

And I think I can project that to some degree.

But, frankly, it was a setback, so it has probably cost us some time.

But I wouldn't say it's going to cost us longer-term the revenue we aspire to, or the share we aspire to et cetera.

It's just a question of time and the pace at which we can recover it.

So I think there is a finite magnitude of its impact on us, and we then grow beyond it.

So I would say our revenue aspirations haven't changed.

Whether we have got the timing just right or not, unclear.

What I want to be careful about doing is giving a specific number for 2015, because I don't know what that number ought to be exactly.

So it's a little transitory that way.

But in terms of general growth rate here and general trending, I would say our aspirations for nutrition business haven't changed.

And then, finally, you asked about buybacks.

Tom?

We have continued to be a Company that buys back shares most years, virtually every year.

We have been pretty active this year, continuing to buy back, probably in the [1.5 billion] range.

The question was specifically, though, around whether we are just trying to offset options and stock comp versus share count (multiple speakers).

And, frankly, at a bare minimum we do the employee grants and so forth and, generally, share count has gone down.

Right, so, obviously, the baseline would be the dilution impacts, and we have been pretty opportunistic to the increase beyond that.

And like the other questions, we will see how we do in 2014.

But we have a substantial authorization in place, I think, over [2.6 billion] remaining on that authorization, so we have plenty of room.

We continue to buy back shares as we see appropriate.

We don't like share count to go up.

Actually, we like it to go down.

Thanks, guys, that's really helpful.

(multiple speakers) one more call for what's in the queue, please.

One more question.

Kristen Stewart, Deutsche Bank.

Miles, I was just wondering if you could just give us an update on your thinking within the medical product side, specifically within devices.

A lot of companies within the space have been talking more and more about the increased importance of being really deep and broad across product lines.

So I'm just wondering how you are feeling with the vascular business, and to what extent going forward you think you need to be more broadly in cardiovascular to really be successful there?

And then, also, your thoughts on how to position the diabetes business, whether that might be another opportunity for you to expand as well?

Okay.

First, let me take the cardiovascular device business.

We have a desire to be broader, I suppose, like everybody else does.

I think the timing and the categories you are broader in depends on your strategy.

And it depends on how you want to get there.

So I would say our acquisition of IDEV was in a category where we wanted to be broader, no question about it.

That was an attractive opportunity for us.

We always have pipeline of opportunities that we are tracking, some of which we have equity investments in and participate either passively or indirectly in, and others more directly.

So I think it's a question of when those opportunities ripen and when the right time is to bring them into the portfolio if we do that.

I'd say we're always looking to broaden the device businesses, and we're always looking for innovation beyond our own.

That said, I think it depends on the timing.

There is a lot of times in the device business that companies will go out and investing a lot of things early.

And it will take four, five, six years for something to develop.

We have made equity investments early, but we tend to wait until we can see the whites of its eyes before we are ready to move more substantially on an investment when we can tell it's coming to commercial fruition.

So I'd say we definitely continue to have aspirations for breadth that way.

That would be true of our medical optics business as well.

Turning to diabetes care, a lot of change going on in that market right now.

And I would say that with -- in particular in the US, with the competitive bidding and so forth, if you track the few competitors in this space and their responses to that, and compare our various performances, you will see that there has definitely been an impact on the diabetes care business, dramatically for some, relative to others, less impactful on us.

Our strategy has been different there than some of our competitors.

And I think we have held share and revenues very well.

Longer-term, the strategy, at least for us, is a focus on very innovative family of products coming in our R&D pipeline that we have alluded to in the past and are beginning to emerge now, I think are beginning to get some visibility now in terms of continuous testing and so forth, that I think will be game changing and very well received by the market.

That's very different than the base core business today, but we have actually great expectations and aspirations about that.

And we think we are in a position here that others are not in, at least in this particular category.

So we've got great hopes for what our R&D people are coming with.

As I said, it's beginning to show.

And as the next 12 months or so progress we will start to see more of that.

With continuous testing, is that just expanding or I guess some sort of a Navigator iteration?

Well, I think it's -- I'd say it captures some of the intent of Navigator, but in a very different way.

And so I think it's meant to address the frequent tester, the insulin-dependent tester and the person who clearly wants easy, but frequent continuous monitoring, instantaneously, and in a different way -- a somewhat different way than Navigator.

But it's clearly meant to address those who were Navigator users.

And others, and frankly on top of that.

Just last question, I guess.

Would you also be looking to expand beyond the existing businesses that you're in within devices or just deepening across more adjacencies?

I just never forecast that.

It's always possible, because we look for businesses that have characteristics or criteria that are consistent with the characteristics in our portfolio.

And it depends to some degree on whether those businesses have an advantage being part of Abbott where we can do better with it than what we see are doing standalone or as part of somebody else.

So I would say first priority is always related strategic fit with our existing businesses.

But in some cases it might be a new category, although today I could tell you I am not focus on something that is not part of Abbott now.

Okay, thanks very much.

Okay, Lisa.

Thank you, Lisa, and thank you for all your questions.

And that concludes Abbott's conference call.

A replay of this call will be available after 11 AM Central Time today on Abbott's investor relations website at www.abbottinvestor.com and after 11 AM Central Time via telephone at 203-369-0228, passcode 3871.

The audio replay will be available until 4 PM Central Time on Wednesday, October 30.

Thank you for joining us today.

Thank you.

That does conclude today's conference.

Thank you for your participation and you may now disconnect.