美國雅培 (ABT) 2013 Q4 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's fourth-quarter 2013 earnings conference 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 rerecorded 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.

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 2014.

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 release and regulatory filings from today, which will be available on our website at Abbott.com.

Our commentary on sales growth refers to operational sales growth, which excludes the impact of foreign exchange unless otherwise noted.

I will now turn the call over to Miles.

Okay.

Thanks, Brian.

Good morning.

This morning I will review our 2013 results as well as our outlook for 2014.

For the full-year 2013 we achieved ongoing earnings per share of $2.01, representing double-digit growth over 2012.

At the same time, we returned nearly $2.5 billion to shareholders in the form of dividends and share repurchases and announced a substantial increase in our dividend beginning this year.

Strong performance across many of our businesses and operating margin expansion enabled us to deliver on our 2013 expectations despite a few challenges.

Similar to other multinationals, we were impacted by a slowdown in several emerging economies as well as by foreign currency.

Abbott was also impacted by a supplier recall in international nutrition.

As I have discussed on our previous earnings calls, we were able to offset these impacts in 2013, in part through selective cost management.

At the same time, we executed on our key priorities.

We achieved high single-digit sales growth in diagnostics, vision care, and nutrition, excluding the impact of the supplier recall, as well as sequential improvements in our vascular business each quarter of last year.

We increased total Company emerging market sales by 11%.

This was driven by double-digit growth in our diagnostics, medical devices, and nutrition businesses.

We completed two acquisitions in medical devices that brought us important, best-in-class technologies to expand our presence in our endovascular and vision care businesses.

We launched numerous new products including our MitraClip structural heart device in the US, multiple innovations in our cataract lens business that are driving share gains, and nearly 70 product launches in nutrition.

And we expanded our margins significantly in nutrition and diagnostics.

As we move into 2014 we will continue to appropriately invest in our businesses to execute on our strategic priorities to drive long-term growth.

Our ongoing earnings-per-share guidance of $2.16 to $2.26 calls for double-digit growth at the midpoint.

However, in the first half of the year we will see some carryover effects from foreign exchange and the nutrition supplier recall, where we are making good progress to recover our share.

The long-term fundamentals of our business are strong, and we remain committed to increasing returns to shareholders.

In addition to our dividend increase we are projecting an increase in share repurchase activity.

Overall, we expect to return more than $3 billion of cash to shareholders in 2014, which Tom will discuss in a few minutes.

Moving on to our 2013 results and outlook for the businesses in 2014.

In nutrition, as expected, fourth-quarter sales growth increased low single digits, affected by the supplier recall that was initiated in August.

The additional marketing investments we made in the third and fourth quarters are supporting our recovery, and we are on track with our expectations to recapture our share in the affected geographies.

As we look to 2014 we remain optimistic about our growth prospects in nutrition, and we are well positioned to achieve our strategic priorities.

We will further expand global capacity with three new manufacturing facilities that will come online in the US, China, and India this year.

Demand is strong for both adult and pediatric nutrition.

We will continue to see productivity from our R&D organization and expect to launch several important innovations in 2014 that will help us gain share and in adult nutrition continue to shape and grow that market.

With the combined launch of new products, we expect to return to high single-digit operational sales growth in nutrition this year, as we lap the impact from the supplier recall in the second-half 2014.

This will continue to be driven by double-digit growth in emerging markets, which we expect to comprise nearly half of nutrition's total sales by the end of this year.

Finally, margin improvement, which remains a key priority for this business: we expanded operating margin in our nutrition business by nearly 300 basis points in 2013, ending the year at 18.7% of sales.

We expect meaningful margin expansion again this year, and the business is well on track to reach its 2015 operating margin target of more than 20% of sales.

In established pharmaceuticals, full-year sales increased modestly.

As we have discussed, macroeconomic and market pressures in certain emerging markets impacted EPD more significantly than we had anticipated at the start of last year.

At the same time, new commercial leadership is working to improve how we execute our branded generics strategy in both emerging markets and developed countries.

As I have said, this will take time; and we will be looking for improved momentum in this business heading into next year.

Over the next several years we expect continued improvement in EPD's growth as sales in emerging markets become a larger component of this business.

Growth rates in emerging markets have been and are expected to continue to be higher than the growth rates of the developed countries and the overall global economy.

And Established Pharmaceuticals remains well aligned with the fundamentals driving long-term growth for healthcare in emerging markets.

In our medical device business, which includes our vascular, diabetes care, and vision care businesses, sales increased 4% in the fourth quarter.

In vascular, in 2014 we expect continued improvement over full-year 2013, driven by growth in emerging markets and the launch of multiple new products to expand our leading share positions.

This includes the US launch of MitraClip, our first-in-class product for the minimally invasive treatment of mitral regurgitation, which is the most common heart valve condition in the world.

Combined with continued growth outside the US, we expect strong double-digit growth of MitraClip sales in 2014.

We have the expected launch of the new peripheral stent in our endovascular portfolio, and we will continue to expand share with our leading drug-eluting product portfolio.

We launched XIENCE Xpedition in August in Japan and will launch it in China this month.

We will also continue to expand share of our bioresorbable vascular scaffold, Absorb, outside of the US at the same time we move it through the development process in several key geographies including the US, Japan, and China.

In vision care, sales increased 15% in the quarter driven by accelerating growth in our cataract lens business.

This business now represents more than 65% of our vision care sales and has been growing well in excess of market growth rates.

We expect double-digit sales growth for this business in 2014, with continued positive momentum from new products.

This includes our TECNIS Toric lens in the US, our TECNIS OptiBlue lens in Japan, and our new Catalys laser cataract system as well as new product launches we expect early this year.

Diagnostics remains one of our most durable growth businesses, consistently delivering mid to high single-digit operational sales growth for the past three years.

Full-year 2013 sales growth of 8% was balanced geographically, with double-digit growth in emerging markets and mid single-digit growth in developed markets.

Margin expansion once again exceeded expectations for the full year, increasing 300 basis points versus 2012.

In 2014 we expect strong performance in diagnostics, as we continue to build momentum in core laboratory diagnostics, increase the penetration of our molecular and point-of-care businesses, and expand our presence in emerging markets across all three diagnostics businesses.

In our R&D pipeline, we will continue to invest in the development of several new instrument platforms across the diagnostics portfolio that we expect to launch over the next several years.

These new systems add new features that are important to our customers such as speed, scalability, productivity, and shorter turnaround time.

So in summary, as we look to 2014 we again expect double-digit ongoing earnings-per-share growth.

We are on track with our recovery efforts in nutrition.

We are projecting an increase in share repurchases in 2014 following a 57% increase in our dividend announced last October.

And as we move into the second half of this year, we expect stronger sales and earnings growth, highlighted by a re-acceleration in our nutrition business, continued durable performance in diagnostics, strong vision care growth, and another year of double-digit sales growth in emerging markets.

I will now turn the call over to Tom and Brian to discuss 2013 results and the 2014 outlook in more detail.

Tom?

Thanks, Miles.

Today, we reported ongoing diluted earnings per share for the fourth quarter of $0.58, in line with our previous guidance range and up more than 20% over the prior year.

Sales for the quarter increased 3.3% on an operational basis; that is, excluding an unfavorable impact of nearly 3% from foreign exchange.

As anticipated, fourth-quarter sales growth was affected by the supplier recall in our international nutrition business, which reduced operational sales growth by an estimated 1.5 percentage points in the fourth quarter.

Operational sales growth was driven by high single-digit growth in diagnostics and double-digit growth in vision care.

Sales in emerging markets were up 9% in the quarter on an operational basis.

Reported sales, which include the impact of exchange, were up slightly in the quarter.

The fourth-quarter adjusted gross margin ratio was 55.4%, in line with expectations and up 60 basis points versus the prior year, despite a negative impact from exchange of 60 basis points.

Ongoing SG&A expense was 28.5% of sales, somewhat lower than expectations, reflecting in part G&A expense reductions.

Finally, our adjusted gross margin ratio improved by 160 basis points over the prior year in the quarter.

Overall, as we look at 2013, we delivered strong ongoing earnings-per-share growth in line with our initial guidance and up double digits despite some challenges.

We also achieved a number of financial objectives we set out a year ago.

Our diagnostics business expanded its operating margin by 300 basis points and continued to deliver strong top-line growth.

Our nutrition business expanded its operating margin by nearly 300 basis points; and overall, we expanded adjusted gross operating -- adjusted operating margin by more than 100 basis points.

Turning to our outlook for the full-year 2014, today we issued full-year ongoing earnings-per-share guidance of $2.16 to $2.26, reflecting double-digit growth at the midpoint of the range.

Before I review our forecasts for sales and P&L line items, I would like to discuss certain factors that are impacting our forecasts for 2014 and comparisons to 2013.

We achieved our ongoing EPS expectation in 2013 in the face of a negative foreign exchange impact on sales of approximately 2%.

Additionally, the supplier recall in our international nutrition business impacted EPS by an estimated $0.10 per share in the second half of the year.

The effects of these two items on growth will carry into the first half of 2014.

In terms of exchange, the yen began a steady decline in the first quarter of 2013, and a number of emerging market currencies similarly weakened, beginning late in the second quarter.

Both of these events are expected to affect reported results in the first half of 2014.

But if current rates were to hold, exchange impacts would normalize by the second half of 2014.

Over the past 12 months, we have been assessing how to better align our resources and infrastructure to meet the needs of our business, following the separation from AbbVie.

As I mentioned previously, we took some select G&A expenses out in 2013 and reduced our ongoing SG&A expense ratio from 31.3% of sales in 2012 to 30.6% in 2013.

In 2014, as part of our efforts to get our support structure to appropriate levels, we will take further actions to reduce our expenses.

We expect SG&A expense as a percentage of sales to decline by around 70 basis points in 2014.

We will continue to update you on these initiatives as appropriate.

We project share repurchases in 2014 to exceed $2 billion, above the 2013 level.

Combined with the 57% increase in the dividend announced last October, we plan to again return substantial cash to shareholders in 2014.

In 2014 we intend on a one-time basis to repatriate about $2 billion of 2014 earnings generated outside the United States.

We expect that the cash taxes due in the US on this one-time repatriation will be low, as we plan to accelerate utilization of various long-term deferred tax assets.

This repatriation would result in specified charges to tax expense of around $0.40 per share in 2014, of which $0.30 would be non-cash, with $0.10 in cash taxes.

Turning to our 2014 outlook, we're forecasting operational sales growth in the mid single digits for the full-year 2014.

Based on current exchange rates we would expect exchange to have a negative impact of somewhat more than 1% on our full-year reported sales, with the most significant impact in the first half of the year.

This would result in reported sales growth in the low to mid single digits for the full-year 2014.

Operational sales growth is expected to be driven by continued strong growth in diagnostics, nutrition, and vision care, along with an improvement in the growth rate in vascular.

We are also forecasting continued strong growth across our businesses in emerging markets.

We expect a high single-digit operational sales decline in our diabetes care business driven by reimbursement reductions and competitive dynamics in the US.

Brian will go into more detail on the 2014 outlook by business in a few minutes.

We forecast an adjusted gross margin ratio of approximately 55% the full-year 2014, which reflects a negative impact of around 90 basis points from the combination of foreign exchange and the effects of US market conditions on our US diabetes care business, partially offset by underlying improvements in nutrition, diagnostics, and vision care.

We forecast ongoing R&D somewhat above 6% of sales and ongoing SG&A of approximately 30% of sales for the full-year 2014.

Overall, we expect to expand our full-year adjusted operating margin by approximately 60 basis points in 2014.

We forecast net interest expense of around $90 million; nonoperating income around $10 million; approximately $50 million of expense on the exchange gain loss line of the P&L; and an ongoing tax rate of 19% for the full-year 2014.

Finally, I would like to review the quarterly outlook for 2014.

For the first quarter we are forecasting ongoing earnings per share of $0.34 to $0.36.

As I discussed earlier, certain anomalies will affect sales and earnings comparisons in the first and second quarters of 2014, including the carryover effects of 2013 foreign exchange movements and the 2013 supplier recall in nutrition.

We forecast modest operational sales growth in the first quarter.

And at current exchange rates we'd expect a negative impact from exchange of approximately 3%, resulting in reported sales down low single digits.

We forecast an adjusted gross margin ratio approaching 54%, which reflects impacts from foreign exchange, the 2013 supplier recall in nutrition, and competitive dynamics in diabetes care.

We also forecast ongoing SG&A expense of around 33.5% of sales and R&D expense approaching 7% of sales in the first quarter.

For the second quarter, we are forecasting ongoing earnings per share of $0.49 to $0.51.

We forecast operational sales growth in the low to mid single digits in the second quarter; and at current exchange rates we would expect a negative impact from foreign exchange of approximately 1.5 percentage points.

For the first and second quarter, we project specified items of $0.27 and $0.22, respectively, reflecting the same items as we identified for the full year in our earnings release.

As previously indicated, we expect the pace of both sales and ongoing EPS growth to accelerate in the second half as comparisons become more favorable, with operational sales growth in the mid to upper single digits and steady operating margin expansion.

So in summary, we delivered double-digit EPS growth in 2013, and our 2014 outlook reflects double-digit earnings growth at the midpoint of our guidance range, driven by improving sales growth in a number of our businesses and expanding operating margin.

With that I will turn it over to Brian to review the business operating highlights.

Thanks, Tom.

This morning I will provide a more detailed review of our fourth-quarter performance and our 2014 sales outlook.

As mentioned earlier, my comments will focus on operational sales growth.

I will first discuss our nutrition business, where global sales increased 1% in the fourth quarter and were impacted, as expected, by the supplier recall in international nutrition.

This sales disruption is estimated to have reduced global nutritional operational sales growth by approximately $90 million or somewhat more than 5% in the quarter.

Global pediatric nutrition sales were down 2% in the quarter, including a 3% decline in international pediatric nutrition.

Excluding the impact of the sales disruption, international pediatric nutrition sales would have increased strong double digits, driven by market uptake of new product innovations.

While US pediatric sales were relatively flat in the quarter, 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.

Global adult nutrition sales increased 5% in the quarter, with international adult sales increasing 14%, driven by strong growth of our Ensure and Glucerna brands along with execution of several market development initiatives.

US adult nutrition sales were down 5%, impacted by the exit from certain non-core business lines as part of our margin improvement initiative, as well as higher sales in 2012 from the timing of a new product launch.

We continue to focus on innovation in our global nutrition business.

In 2014 we anticipate several important programs to drive share gains in pediatric nutrition and category expansion in adult nutrition, where Abbott holds the global leadership position.

This includes the recent launch of Similac SimplePac in the online market segment in China, which brings Abbott's best-in-class packaging solution to this large and rapidly growing segment of the infant formula market.

At the same time we continue to expand our manufacturing and R&D presence to be closer to our customers.

As Miles mentioned, three new manufacturing facilities will come online this year, including plants in China and India.

In addition, we are investing in local R&D and recently opened a new R&D center in China and broke ground on a new pilot plant in Singapore.

As a result of these efforts, we expect our R&D resources based in emerging markets to grow to more than 30% over the next few years.

For the full-year 2014, we are forecasting high single-digit sales growth on an operational basis for our global nutrition business.

We are on track with our recovery efforts in the geographies affected by the supplier recall and forecast low double-digit operational sales growth in international nutrition.

As Tom mentioned, we will see a first-half carryover effect of the supplier recall.

And for the first quarter we are forecasting a low single-digit sales decline on an operational basis for our global nutrition business.

In our diagnostics business, we achieved nearly 9% sales growth in the fourth quarter, including mid-teens growth in emerging markets.

Core laboratory diagnostic sales increased more than 9% in the fourth quarter, driven by continued above-market performance in both developed and emerging markets.

This business continues to execute on its commercial strategy to deliver total solutions that are efficient, flexible, and cost-effective to large healthcare customers.

In molecular diagnostics, worldwide sales increased 1% in the fourth quarter, with international sales up 10%, led by strong growth in infectious disease platforms and geographic expansion in emerging markets.

In point-of-care diagnostics, worldwide sales increased 14%, driven by continued growth in the US hospital and physician office lab segments as well as a double-digit growth in emerging markets.

In 2014, we expect to again deliver above-market performance in global diagnostics.

In core laboratory diagnostics we'll continue to broaden our ARCHITECT assay menu and execute on our commercial strategies in both developed and emerging markets such as China, Brazil, and Russia.

We also expect continued double-digit growth in our infectious disease business in molecular diagnostics and continued market penetration with our point-of-care platform, with double-digit growth in emerging markets across all three businesses.

At the same time we will continue development of several next-generation platforms that are designed to positively impact care, improve service to customers, enhance laboratory productivity, and reduce costs.

For the full year 2014, we expect our global diagnostics business to generate mid to high single-digit operational sales growth, with mid to high single-digit growth in core laboratory and molecular diagnostics, and double-digit growth in point-of-care diagnostics.

For the first quarter, we are forecasting low to mid single-digit operational sales growth in our global diagnostics business.

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

Sales growth in our key emerging markets segment increased 10% in the quarter, led by strong growth in Russia, China, and Brazil.

We continue to focus on broadening our core therapeutic area product portfolios, strengthening our commercial capabilities, and implementing tailored strategies to accelerate growth in emerging markets.

Sales growth in our developed and other market segment decreased 7% in the quarter and continues to be impacted by market conditions, particularly in Western Europe.

As we look ahead to full-year 2014 for EPD, we expect low single-digit operational sales growth as we build momentum over the course of the year.

Given that 100% of EPD's sales are outside of the US, this business is relatively more impacted by exchange movements; so we'd expect sales to be relatively flat on a reported basis.

In the first quarter of 2014 we are forecasting sales to be relatively flat on an operational basis, which includes a timing impact from a plant shutdown to expand capacity in order to meet increasing demand for one of our key products in emerging markets.

Including the impact of foreign exchange, we expect first-quarter reported sales to be down mid single digits.

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

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

Our vascular business achieved another quarter of sequential improvement in its growth rate, with worldwide sales up nearly 4%.

International sales increased more than 5%, driven by continued momentum across key geographies of XIENCE Xpedition and Absorb, double-digit sales growth of MitraClip, and strong performance of our endovascular portfolio.

US sales increased 1% in the fourth quarter.

In 2014, we expect continued sales growth improvement in our vascular business, driven by a number of new product launches, including MitraClip, the approval and launch of a new peripheral stent in our endovascular portfolio, and the continued growth of Absorb.

We continue to move Absorb through the development process in several key geographies.

Most recently, we completed enrollment in our ABSORB trial in Japan, and we are on track to complete enrollment in China and the US in the first half of this year.

For the full-year 2014 we expect sales in our global vascular business to increase in the low to mid single digits on an operational basis, with low to mid single-digit growth in the first quarter.

In diabetes care, global sales in the fourth quarter decreased 3.5%, impacted by implementation of the CMS competitive bidding program for Medicare patients.

International sales, which represent 60% of total diabetes care sales, increased 4% in the quarter, driven by strong performance in emerging markets.

For the full-year 2014, we forecast a high single-digit decline in global diabetes care on an operational basis.

In our international diabetes care business we expect similar performance to 2013, driven by continued double-digit growth in emerging markets.

This will be offset by an expected decline in the US, impacted by reimbursement reductions and competitive dynamics, resulting in a low double-digit operational sales decline for our global diabetes care business in the first half of 2014.

In vision care we achieved nearly 15% sales growth in the fourth quarter with balanced double-digit growth in both emerging and developed markets.

Sales of cataract products increased strong double digits, outpacing the global cataract market, driven by the continued uptake of recently launched products.

These new intraocular lenses, or IOLs, provide Abbott with access to large and growing segments of the cataract market where we weren't previously competing.

We expect continued strong growth in our vision care business this year as we continue to introduce new products.

This includes the launch of new preloaded IOLs, which improve the ease of use for the cataract surgeon, as well as the further penetration of our new Catalys laser cataract system, which is receiving very positive feedback.

For the full-year 2014, we forecast double-digit operational sales growth in our global vision care business, with mid to high single-digit growth in the first quarter.

In summary, we achieved our expectations for 2013, including double-digit ongoing earnings-per-share growth, a more than 100 basis point improvement in adjusted operating margin, and numerous new product launches.

In 2014 we are well positioned to deliver another year of double-digit ongoing earnings-per-share growth, with accelerated growth in the second half of the year.

We will now open the call for questions.

(Operator Instructions) Mike Weinstein, JPMC.

Good morning.

Let me start with the combination repatriation and buyback.

Because Tom, it looks like you're -- if I am reading the press release and your comments correctly -- you're repatriating $2 billion.

There is going to be though the cash and non-cash costs doing so.

And then you're using that to buy back stock; but you're backing out the impact of repatriating from your earnings and your guidance for 2014.

Is that right?

Just a few points.

I don't think you can directly link the two items.

But certainly what this is about, Mike, is monetizing assets as early as we possibly can and providing strategic flexibility from a financing perspective across the Company.

We're in a position here where we have these deferred tax assets that, as you know, typically get realized over a long period of time in future tax returns.

And this was an opportunity to immediately use them to help monetize and bring back only 2014 earnings -- this has nothing to do with anything in the past -- and provide that cash here in the US for strategic flexibility and the various things we would want to use it for.

So since it is one-time in nature, it's going to be done only on 2014 earnings; and this is a one-time opportunity to monetize these deferred tax assets.

That is why we're handling it as a specified item in 2014.

But you are repatriating $2 billion, and you're using $2 billion to buy back stock.

But you are backing out -- at least the cash impacts you would think should go through the income statement.

But again, it is one-time in nature, Mike.

Our pattern in the past has been to reinvest; our expectation as we go forward beyond 2014 is to reinvest these foreign earnings.

And this is a one-time opportunity where basically the focus is to monetize these assets as early as we possibly can and allow them to be redirected for whatever productive use, whether it's strategic initiatives, share buyback, or whatever.

The other thing I would mention is, in 2013 we bought back over $1.5 billion in shares.

So it's not a -- it's difficult to directly link this planned action with a share repurchase.

But I think it's a matter of just productively using these assets in the best way possible for shareholders overall, and we think this is an opportunity we want to capitalize on in 2014.

Okay.

It's probably worth spending just a few minutes on the first-quarter guidance, because obviously there is a disconnect between your guidance and the Street.

I think we knew the Street was aggressive, but there is still even a wider disconnect than we were modeling.

So maybe spend a minute on some of the different elements here.

I think we're aware that FX is a headwind, but you talked about a couple of other items today, an issue where you're bringing a plant down.

Maybe you can just walk through and maybe try and help us bridge where the Street is at and where you guys are at for the first part of the year.

No, really, Mike, the two big things are FX, but obviously the nutrition supplier recall as well.

You saw the impact on the third and fourth quarters of our 2013 results.

As you know, we managed through that quite well and delivered on expectations overall, but that factor is carrying into the first half.

As Miles mentioned, we are making good progress recovering.

We are right on the path we projected.

But as we have said from the very beginning when this occurred, this was going to cause a very tough first-half comparison in 2014, and that is what you are seeing.

There are, at the business level, other relatively smaller comparison issues but these really are the two big factors that are causing the first quarter to be tough.

The last thing I would add is, while exchange is a challenge for us in 2014 in the first half, the first quarter is particularly impacted in 2014.

Because as the exchange rates moved in 2013, some of those costs are in inventory as we close out 2013 and flow through the P&L in the early part of the year in 2014.

So the exchange impact is particularly acute in the first quarter.

And I think those two factors really are the main reasons for the forecast being a little bit different than what people are expecting.

Okay.

Just on the -- early first-quarter top-line growth, it sounded like you were guiding to a constant currency that would be low single digits, since you were anticipating a low single-digit decline in recorded revenues.

Just help us with -- from the fourth quarter to the first quarter, what gets a little bit more difficult?

And then I will drop.

Thanks.

It really has to do with trends in the businesses.

Certainly as we talked about, the growth rate in international nutrition is being impacted by Fonterra -- or by the recall.

There is -- there are phasing.

As you know, our established pharmaceuticals business is a business that changes from quarter to quarter.

In the first quarter there is a plan to expand capacity for one of our key products; as a result of that, we are going to have to shut down the plant in the quarter, and that will draw down some of the sales until we can start the plant up again in the second quarter and get the growth rate going back up in that business.

I would say those are the primary reasons.

There are some timing effects in diagnostics as well, but those are the main reasons why the first quarter is in the range that you described.

Got you.

Okay.

Thanks, Tom.

David Lewis, Morgan Stanley.

Good morning.

Tom, you gave us some help on the first-quarter gross margin number.

I wonder if you could help us into the second quarter on gross margins, or just maybe more qualitatively first half versus second half, how GMs likely trend.

And what are the key headwinds and tailwinds there we should think about?

Obviously, FX being one of them.

Yes, I would say the two things going on in gross margin as we look at 2014 are pretty much what I mentioned in my remarks.

We're just slightly down year-over-year and that is really currency again being challenging, and the competitive dynamics we talked about in diabetes care.

I think as you look out into the second quarter, the pattern or the expectation for the full year could be extrapolated into our expected gross margin progress in the second quarter of the year.

So those are really the two main factors.

It was what I mentioned in my remarks.

And I think it does mask a lot of good things happening underneath in the businesses, particularly in nutrition and diagnostics, but also in vision care in terms of expanding the gross margin before some of these exchange effects hit the businesses.

Maybe just two more quick ones.

One for Tom and one maybe for Miles.

But in terms of the buyback, you are very clear on how you are funding the buyback this year.

But, Tom, could you give us a sense of free cash in 2014 and how we should think about funding dividends or buybacks, either through using debt or repatriation going forward?

Yes.

As we look at free cash flow after capital expenditures and dividends -- and as you know we are stepping up the dividend in 2014 -- I would say in the $1.7 billion to $1.8 billion range is something we would expect.

And that leaves a lot of strategic flexibility for whatever might occur or opportunities that might pop up during the year.

So as you know we had some anomalies in our cash flow in 2013 relative to the carryover effects of separation.

But we should be back into that pretty strong operating cash flow level and strong free cash flow to support the strategic objectives of the business.

Okay.

Then Miles, you made some commentary in your remarks about going after costs; and Tom talked about the leverage we're going to see in 2014.

The Company since the spin has talked about on a per-segment basis being able to achieve very strong margins.

Obviously nutritionals comes to light.

But do you see further opportunities for going after corporate costs post the spin?

And is it likely that those type of initiatives are more ratable?

Or is there a possibility for more decisive action?

Thank you.

Well, I think the simple answer to your question is yes.

It is a focus for us, not just related to the spin but in general related to the shape of the business.

A lot of our business is outside the US, and so there is an opportunity to structure ourselves from a support standpoint a little differently.

And definitely we are addressing that.

We are putting a fair amount of -- as you know we put a lot of attention on gross margin and above the line there; but we're also putting a fair amount of attention on general and administrative costs across the corporation, not only at the corporate level but in the divisions, in support and overhead costs.

So I do think there is opportunity there.

By its very nature, some of it can be more immediate; but then some of it is more ratable, because in some cases you've got to replace old processes with new processes, or old systems with newer ones, etc.

So I think it is a combination of both, David.

I like to push hard for sooner rather than later.

I think this is one of those areas where chronic dissatisfaction or impatience is a good thing, and so we push on that.

You're always trying to balance disruption to the organization or to the business versus the ongoing operation.

But yes, there is an opportunity.

We are on it.

We are paying attention to it.

And it is a combination of, frankly, both immediate and more ratable.

Okay.

Thank you very much.

David Roman, Goldman Sachs.

Thank you and good morning.

Wanted to touch a couple of business-specific dynamics and then one strategic question.

I guess maybe we could start with EPD.

And, Miles, can certainly appreciate your comments that it takes time for a new management team to get in place and effect their impact on the business.

But maybe you could go into a little bit more specifics about what the path is for that franchise.

So I look at the non-key emerging markets segment; that has been a business that has been deteriorating I think each of the past several quarters.

And it doesn't -- it is I think a little bit unclear, given how this business works, what exactly turns this around.

So maybe you could just provide a little bit more color on what steps the new management team is taking and then how we would see those flow through into reported numbers.

Well, I think we've got two very different stories here.

As I have said in the past, you've got very much an emerging markets story and a developed markets story; and then within those, some segmentation.

I would tell you that in the emerging markets there are many that are very attractive; some that are less so, because they may be more commodity oriented than brand oriented.

We tend to be focused on the ones where it is advantageous for us to be very brand oriented and the markets are very attractive and profitable.

As much as the growth rates may look modest or lacking, the profit profile of this business is quite attractive.

The gross margins in this business are above 60%; it is a very well-run business; it is a very attractive, profitable business.

If it was an unprofitable business, it would be a whole different story, but this is actually a very attractive business.

And the question is getting the segments right in terms of the attractive markets and those that are less attractive.

So we put our focus on emerging markets that are sizable, where we've got critical mass, and are attractive.

And our main focus there is two things: one, expanding the breadth of the therapeutic categories and the product lines that we are offering; and, frankly, improving our branding and consumer skills as an adjunct to that business.

Because in any given country how we reach the consumer, whether through the physician, the hospital, or direct to the consumer and so forth, does make a difference.

So in the emerging markets I think that's the focus.

It's getting a lot of attention.

It's a lot of blocking and tackling in smaller things, but frankly it is working.

We saw in the fourth quarter a return to double-digit growth in emerging markets for EPD which is what I, frankly, expect.

We know that some of those markets slowed last year; that is a function of the markets.

But the growth rates were still quite attractive to us relative to other geographies around the world.

On the developed markets side, I think the single biggest difficulty that we and a lot of our competitors face is Europe.

I think that is true across a lot of businesses.

Our diagnostics business has weathered the economy and the actions in Europe well, but a lot of other businesses are struggling with Europe.

I think that is true for us; I think it is true for our competitors.

We have watched -- I can't say growth rates, it is more like decline rates: price pressures and volume rates and so forth.

And I know that others have been hit harder than we have.

But nevertheless, we are down in these developed markets about 10%.

So we can be up 10% in emerging markets, down in the developed markets, and it sort of cancels out.

I would like these emerging markets to keep growing and get to be a much bigger portion.

But we've got very close to a 50-50 split right now, where what we are struggling with in developed markets, with price and utilization cuts and other things, is being offset by growth in emerging markets, which we intend.

But the way we deal with those developed markets is quite different.

There is a fair amount of expense reduction, focus restructuring, etc.

I know this has been one that we have been challenged on from time to time.

A previous questioner, Mike Weinstein, constantly questions me, I think, on this one.

And I have to say: fair question.

The emerging part of this is going quite well, and the developed part, it's uphill.

The legacy of the business is a combination of businesses we have acquired and legacy Abbott and so forth.

I think if we were starting with a clean sheet of paper, we'd target those markets that have the most attractive attributes.

But the fact is we've got a lot of legacy markets here in developed economies that we have been in for a long time and that continue to experience economic pressure, the most fundamental of those being Europe.

So we continue to look at that particular geography and that particular segment of business and deal with it differently than we deal with what we view as a fairly attractive growth opportunity in a lot of the emerging markets.

Okay.

That's helpful.

Maybe switching to diagnostics in the US specifically, could you comment on the molecular business?

You have pretty strong trends in point-of-care as well as the core lab segment, and I would have thought there would been some potential to cross-sell or leverage the different platforms.

But it was a pretty tough quarter in the US in the molecular segment.

Any further detail you can provide on market dynamics or Company-specific factors?

I was going to say, David, this is Brian.

I will kick it off and if Miles wants to add more color.

In the US, first of all, let me say our underlying franchise of infectious disease is growing very strongly.

It is doing very well.

We did have some comparables with respect to how you realize the companion diagnostics revenue.

We had some revenue in 2012 in the quarter that did not repeat; it was just a little bit more choppy in that respect.

And also we just had a little bit of an impact from the timing of when we ceased the distribution agreement.

But that doesn't impact the underlying business.

The underlying business is poised to continue to do well with the focus on infectious disease.

I think to look at the full year is probably more reflective of how to think about molecular in the US.

And we do expect a step up from that as we move into 2014 with our continued success and focus on infectious disease.

I think it is really important to note in this business too that 60% of the sales are outside the US.

You can see the double-digit growth there; we are doing very well in emerging markets in our platforms in infectious disease.

So we like the growth rates that we see overall for molecular.

Okay.

Then maybe just last one strategic question.

As you look at the evolution of the, quote-unquote, new Abbott story over the past 12 months, if we started a year ago with a view of a growth company of mid to high single-digit top-line growth.

Obviously some well-documented challenges that emerged over the course of 2013.

You've had a pretty obviously significant increase in the dividend in the third quarter this year.

And it seems like we are shifting from a growth company to a capital return company.

How should we think about the strategic positioning of Abbott longer-term and, Miles, where you're taking the business, either growth versus capital return, M&A versus shareholder buybacks and things like that, from a capital deployment standpoint?

Well, I think you ought to think about the Company much as we described.

Definitely a growth platform with an intention of growth.

The things that I'd say probably disappointed me or set us back last year, largely foreign exchange, which was a big deal.

That hit the top line and the bottom line, and we were able to offset that.

But that was one thing.

I think the recall we had in the nutrition business was a couple hundred million dollars.

That's a big hit, and that particular business is one of our big growth drivers.

I would say strategically I am pretty pleased with how the base core businesses are all performing, particularly relative to the nature of the geographies and economies and so forth out there.

I think that is all trending pretty well.

The one business where it's got a lot of my attention and focus, as we just talked about, is the branded generic pharmaceutical business, where I would say strategically I'd like this one to be improving faster.

What I'd call your attention to is, after we acquired AMO, I would say analysts and some shareholders had a fair amount of skepticism about the performance of that business for some time.

And admittedly it took a few years to pick up momentum there.

But today that business is churning at a fairly steady double-digit growth rate.

It is gaining share.

It is doing quite well.

My own impatience would have been that it do that much faster than it did.

And I am always pushing for faster progress or faster impact in the performance of a business, I guess not just for your expectations but for my own.

And yet we got to where we wanted to be.

We saw with the vascular business terrific performance.

We have seen steady quarter-to-quarter sequential improvements.

We've gained share in the vascular business across the board, every geography.

We are number one in the stent business around the world.

The AMO business is doing exceptionally well that way.

Diagnostics has had a very steady sequential track record of improving growth.

The frustration I have got is the pace of that improvement in EPD right now, and it's got the focus of our management team and my focus.

It's the only place I'm really I guess strategically a little frustrated.

But a lot of that has to do with the nature of the developed economies, and I think you're going to hear that from a lot of our competitors and from a lot of other businesses.

So I would say first of all, in no way do I think we are stepping away from an intention of growth, a focus on growth, a focus on share gain, or a focus on geographies where the dynamics are, frankly, around growth.

I think that's all still very valid, very true.

At the same time, we and other companies, if we're well run, we accumulate a fair amount of cash, and our investors are looking for a return.

I think if we're not able to deploy some of that cash to strategic opportunities or we disproportionately accumulate cash relative to strategic opportunities -- you know we look at the shape of our balance sheet.

We look at the shape of all of that.

And I think if investors -- we have got this tension between the long term and of course the quarter.

And each quarter we've got to report to our investors how we are doing.

But I think also investors would like the constant feedback of a healthy return particularly in uncertain economies and uncertain time.

Our Company has had a history for probably more than 30 years of very steady dividend growth and return to investors that has got a certain identity and a certain appeal to a lot of investors.

We have had a fairly steady track record of share repurchase.

We have had a steady track record of pretty significant profitability and cash accumulation and cash generation.

We have had a good track record with M&A and other things.

And I think we try to keep all that in balance so that our investors are benefiting both from the growth profile over the long term and a good healthy cash return when economies are more uncertain, and on a steady, reliable basis.

So I would tell you I don't think it's black and white.

You're not one or the other.

We happen to be both, and that has been the hallmark of the Company for decades, that we have been a growth vehicle and we've had a nice, healthy cash return of dividends and share buyback.

And I think if we are successful, profitable, generating that kind of cash, that is what we ought to do, is find that balance.

Okay.

That's helpful perspective.

Thank you.

Lawrence Biegelsen, Wells Fargo Securities.

Good morning.

Thanks for taking the question.

Let me start on EPD.

Miles, on the last call you expressed your commitment to the business.

I guess I am wondering, within EPD you're obviously more excited about the emerging market opportunity.

Do you need to have an EPD business in the developed markets?

That is my first question.

Need?

No.

Want?

It depends.

I think it depends on the dynamics in any given market.

I'm not -- I don't think any of us are pleased with the pressures or decline, if you will, of growth rates in, say, a Europe.

But at the same time, Larry, it's extremely profitable business.

Even with all the price pressure, utilization pressure, and volume pressure, it's a very profitable business.

So I think our challenge is -- it's always: how long will these circumstances last?

How long will these dynamics last?

Is this a trend that doesn't change?

Is there a bottom?

Is there a turn?

How long does this endure?

And what is the best manner for us to derive best value for our owners, our investors, our shareholders in that time?

You can get hung up on the optics of growth rate and say: gee, it is hurting; it's diluting my growth rate.

But at the same time I think there's the notion that it's making a fair amount of money, and it's profitable, and there is value in that.

So I think our job is to figure out best way to optimally derive that value for our investor.

And that is a trade-off between what we can do here over some duration of time relative to how long we expect market conditions to exist.

Or, what is the best deployment of the asset value in the event we can drive the right value for it?

But when it is as profitable as it is, that is a tough trade-off.

That's helpful.

Then on adult nutrition, can you talk about the impact of the divestitures, and any quantification, and when that laps in the adult nutrition business in the US?

Thanks.

Yes, Larry, this is Brian.

You are seeing in the fourth quarter on the adult segment in the US around a 4 percentage point impact, headwind.

And that also does spill into the first quarter as well.

As we were talking about some of the things impacting first quarter, that would be one item that spills into the first quarter of 2014 as well for the US adult segment in nutrition.

Thanks for taking the questions.

Glenn Novarro, RBC Capital Markets.

Hi, good morning.

Two questions.

First, on the infant nutritional business, you mentioned on the call that the recovery in emerging markets, China, etc., was on track.

I was wondering if you could share with us some evidence that suggests that things are on track.

Was December better than November?

Is there script data that you are tracking?

Any color that would be helpful to give us confidence that the business recovers, other than just from easy comps?

And then as a follow-up, I --

Go ahead, Glenn.

I am chuckling a little bit, because I am thinking: No, we just make this stuff up.

(laughter) Of course; I will answer you.

Just a second.

Go ahead.

And then just second, just on the operating margin goals, it looks like you're going to get to the nutritional operating margin goals sooner than expected.

And it looks like diagnostics we're going to hit those goals quickly too.

So I am wondering as we look at nutritionals, is 25% a realistic new goal?

And with respect to diagnostics are we in the late innings, or is there another opportunity for more expansion there?

Just qualitatively if you can help us think about the longer-term goals there.

Thanks.

All right.

Well, let me go back to the beginning.

First of all, evidence of recovery.

There's three major geographies that we're paying a lot of attention to in the recovery of this recall that we experienced in nutrition.

It is China, Vietnam, and Saudi Arabia, all of which are fairly important markets to us.

We do get market share data.

We get it from multiple sources in these countries.

We get offtake data, meaning what leaves the shelf.

We get a fair amount of actually measured data; we get it from multiple sources.

And then we get a fair amount of anecdotal data as well.

And we do track it.

It is numerical.

It is measurable.

We are seeing sequential month-to-month -- in fact, we've got a fairly, I would say, robust model that has been pretty accurate for us that is predictive.

It takes into account holidays, buying patterns, consumer patterns, all that stuff, believe it or not, in all these markets; so we can do that.

There is a bit of a lag, maybe a month, or month and a half in some cases and it varies by geography.

But we are able to measure our progress.

We are ahead of our progress in China -- or our model.

We are ahead of our expectation.

We are ahead of our expectation in Vietnam.

And we are a little behind in Saudi Arabia.

So we are able to measure that.

We are able to see sequential evidence.

We have got enough data points now that we can trust our forecasting, trust our model, trust our data, trust our feedback.

Early, mid, and late fall we didn't have enough data points yet to be confident of the kind of trends we were seeing because there is some -- not cyclicality, but there is some up and down in the trends depending on holidays and other things.

And we have seen enough of that now.

We've had enough months of recovery that we can pretty reliably forecast for ourselves and for you how we will recover in the various countries.

So I would say: yes, there is definite evidence, definite data, we definitely can see it, and I am pleased by what I see, frankly.

I think our teams in those countries are doing an excellent job.

It gives us not only data about us but data about segments, data about competitors, etc., and how we believe all of that is going.

So I am pleased with what I see.

With regard to operating margin goals or even gross margin goals, I would say for diagnostics, late innings.

I think there is a point where even if we could do better I am not sure I'd want to.

I would always look for improvements in gross margin.

But then you have discretionary spending in R&D, or sales and marketing expenses, etc., that then get down to operating margin.

And I would say in the diagnostics business, I would say late innings because I would like to be putting more and more into R&D there.

I think we've got a nice model from a sales and marketing standpoint.

But as you know, in the diagnostics businesses we have got half a dozen systems, major systems in development and these are expensive programs, all of which are tracking very well as we renew the system platforms that are in the markets.

Over the next five, six years here, there is going to be a steady drumbeat of new product coming that is going to drive the growth of this business globally on top of the installed base we already have.

And I think that those are very important initiatives, so I would like to be putting money into R&D -- or more money into R&D.

That is not to say you should expect any kind of diminishment in bottom line.

You should not.

But I would like to be improving the gross margin in order to be able to invest more in what we would call discretionary spending and R&D and maybe even SG&A.

So I would say that one, while they have managed profitability I think brilliantly, and yes, they are ahead of schedule, I think it's delivered for the investor, the shareholder, and the business.

And strategically it also needs to be reinvesting in itself as we go along, which it is doing; and I think it's found a nice balance.

On nutritionals, I think there's still a lot of opportunity.

I would not go so far as to set a specific numerical target for you, as ambitious as you might be, but I'd probably say the same thing.

We're always looking to improve our gross margin.

And to the extent that that drops through to the bottom line, that business is not as expense intensive in R&D; R&D doesn't cost as much as a percent of sales.

And so it is a highly productive R&D organization in terms of new product development, new product innovation, etc.

And it has got a low percentage of sales spent on R&D.

It is much more SG&A or marketing intensive.

If I were going to spend more money promoting that business I'd do it in the sales and marketing lines.

I think that as the gross margin continues to improve there, which I expect it will substantially, I think there will be a sharing between dropping it to the bottom line for the investor and reinvesting further in sales and marketing and expansion, because there is so much opportunity, particularly internationally, for this business.

So I think that is about how I would characterize it.

I do expect to continue to see margin expansion there.

I would say that these businesses in particular -- all the businesses have put a fair amount of focus on margin expansion, and they've gotten it.

And you've seen that in the gross margin line in our reporting.

You've also foreign exchange erode some of that.

Or in some businesses, like the vascular business, while they've had great improvement also in gross margin and yields and productivity, we've also seen price pressures that they have had to absorb.

I think that the fact that, under some of the pricing and utilization pressures we have seen in Europe and other geographies in some of our businesses over the last several years, and particularly last year, the margin improvement initiatives that we have had have not only mitigated that but continued to improve margin anyway.

So I think there is more to come.

All right, great.

Thanks for the color, Miles.

Rick Wise, Stifel.

Good morning, everybody.

Tom, if I could ask you again on gross margin, so the 55% gross margin guidance you said included 90 basis points of negative FX, the diabetes, and some other offsets.

Was that -- I assume the plant shutdown is reflected in that as well.

Can you break that portion out just (multiple speakers) specifically?

Sure, Rick.

The plant shutdown I referred to is just a timing issue.

That is affecting the gating of sales for that one particular business between the quarters.

So that really -- certainly there is a little bit of startup and the like, but it's not meaningful to the overall Corporation.

So that really is not related.

It's is really the two big factors that we cited as a lot of good things, as Miles mentioned, going on within the businesses underlying and being a little bit offset or largely offset by those two factors.

Okay.

Coming at it another direction, is part of the gross margin headwind what I will call temporary excess capacity from the three new nutritional facilities?

Is that a big factor?

There's a little bit of startup there as well.

But again, I don't think that's overall meaningful for the overall comparison year-over-year for the entire Corporation.

Certainly there is some cost in there, but they have a lot of other things going on in terms of their margin improvement programs that overall are driving an improvement in the nutrition gross margin in 2014.

One last quick one, the buyback.

Does that get you to the middle of your guidance range or the high end?

How do we think about that?

And maybe you can comment on whether you would do an accelerated share repurchase.

Thanks so much.

Well, the guidance is the guidance.

It is the range.

Obviously, our baseline expectation is to be within the range.

And if the year goes well, we will be in the high end; and if there were challenges, we're going to work not to be below the middle.

So that is the way we think about the guidance.

But what I would say is, what is a definite part of the plan is to buy back shares roughly in the range we talked about today.

Certainly that's a baseline you can count on as you build your model for 2014.

There is no plan at this time to do an accelerated structure; but that is something we have looked at and we'll think about.

Thanks.

Josh Jennings, Cowen and Company.

(Operator Instructions)

Kristen Stewart, Deutsche Bank.

Hi, thanks for taking the question.

Just wanted to focus in on the vascular business.

I know you had commented on strong growth in MitraClip.

I was wondering if you would be willing just to provide a baseline number of where it ended this year with European sales.

And then just thoughts around, as you're rolling this out in the US, just the strategy given the reimbursement environment.

Yes.

Hi, Kristen, this is Brian.

MitraClip had strong growth in Europe.

I think it ended the year approximately round $130 million.

We expect some additional approvals in certain countries there to continue our growth in Europe.

So we expect another year of strong growth with MitraClip in the Europe region in 2014.

I will say with respect to the US, we were very pleased with the decision that was made by the panel last year to receive the approval that we have for the degenerative mitral regurgitation patient in the US that is at high risk.

It's a pretty, I will say, modest way to think about it; but we're going to take it the right way in terms of how we approach our centers and those large cardiac specialty centers that are capable and have the expertise to work with the MitraClip.

Again, another year of strong growth.

I think we could think about it probably approaching close to $200 million as we move into 2014.

But clearly between the Europe side and the US side, a nice contributor to our overall vascular growth.

We continue to work towards also the reimbursements and improving our reimbursement there.

I think we have discussed before that we ultimately foresee this coming more in line with the TAVR line of reimbursement in the US.

Again, I know the societies have submitted for the national coverage.

And as well, we also submitted for what would also be a special add-on technology indication.

We will have more color to provide for you on both of those in the later part of 2014.

Okay.

Then I guess just more broadly, just in structural heart, how do you see MitraClip fitting in?

Do you need to surround it with additional programs to really have that platform be competitive?

Or do you think, looking ahead, just having a transcatheter mitral valve repair product alone will be successful within Abbott?

Kristen, this is Miles.

I think it could stand alone quite easily.

But I think we are always looking for more innovation and more opportunity to expand a position in a given treatment segment.

So I would put it more in the desire rather than need.

I think given the lack of therapies out there to treat patients, it clearly can stand alone.

But to the extent that other therapies evolve over time here, it's certainly to the benefit of the patient and the business to expand the offering.

Great.

Then just on the stent business, I was wondering if you could offer any additional commentary just on the Absorb product and what you are seeing in terms of market share positioning in the accounts in which you are in.

And then just to remind on the timing to the US; I think you had mentioned that you expected to complete enrollment in the US study this year.

Just wanted to confirm that.

Let me address share then I will hand it to Brian to talk about US.

First of all, I am very pleased with how the overall shares of the stent business have evolved.

We have grown share in all of our geographies.

We hold the number one position in stents across Europe, the US, Japan, etc.

We have not only held share but gained share.

I think there has been gratifying, for the breadth and the strength and the quality of the product line.

I think it has been a challenging environment to some degree from a competitive or pricing standpoint.

I think I expect that to mitigate some here, going into this year; and we are seeing that as we see sequential improvement and growth at least in our own business.

As it regards Absorb, I think the acceptance, the use of Absorb continues to improve.

Its share continues to improve and continues to grow in many accounts.

Then I would have to note that while the trend has been a fair amount of price degradation in this segment, Absorb is selling at a premium to metal drug-eluting stents, etc.

So it continues to gain share.

It continues to gain a share of procedures in accounts where it is being used.

Continues to grow very nicely and do so at some premium to what are truly good-quality stents out there in the metal drug-eluting stent category.

So with that, let me give you to Brian to talk about the US.

Yes.

Kristen, obviously Absorb, great contribution as Miles had mentioned to Europe and our share gains there year-over-year.

In the US, as we are expecting to complete the enrollment in 2014 -- and that also goes for China as well.

We just completed enrollment for Japan.

I think the way to think about this, too, is we're only in half of the market, the worldwide market today, if you think about it in terms of being in Europe.

But we still have another half of the world to go here.

So by completing these enrollment we set ourselves out there to be the only one in this kind of technology with the opportunity to continue to penetrate and achieve the workhorse status we expect to.

We have time for one more question.

Jayson Bedford, Raymond James.

Good morning.

Thanks for squeezing me in.

Just wanted to revisit an earlier question on EPD.

I am still a little unclear as to the source of the sluggishness in developed markets.

Is it increased competition?

Is it a demand issue?

Is it price?

And then just as a follow-up, can you give us the estimated market growth rates in EPD?

And if it is easier, you can split it between emerging markets and developed markets.

In the developed markets it is a little bit of the items you discussed.

Price, as we've talked about the last couple years, has probably running at a rate twice what it had been prior to maybe 2012.

It had been very low single digits and it probably doubled for a period of time.

That seems to be mitigating a little bit as we go forward.

And I would say the balance is basically either austerity in some of the countries where scripts are actually down or -- and in some cases in our portfolio, a few of our products have -- we are at the end of patent lifes in Europe.

We did have a few of those.

We had a few patented products and some of those went off patent.

Each one is relatively minor, but that has been part of what is going on in the developed world.

I would say in terms of market growth rates, it depends on markets.

Obviously, India for us is a key market; and while it slowed probably into the mid single-digit range in 2013, IMS forecasts it to be back into that double-digit range in 2014, which is a positive for us.

I would say overall in the key emerging markets we are seeing basic market growth probably in that mid-single range, maybe even a little bit better in a country like Russia, for example.

And I think most investors are familiar that Europe has been a pretty sluggish market overall from a volume perspective, and that has carried over into our business as well.

Okay.

Then just lastly for me, getting back to the discussion on cash repatriation, do you anticipate that you will be more active with M&A in 2014 than you were in 2013?

I think it all depends on the opportunities out there.

I don't feel cash constrained about any of that.

I feel more constrained by what I view as a not terribly robust set of opportunities or valuations.

I am always vigilant for opportunities for the Company, but they've got to be good fits strategically and they've got to be good valuations.

Fair enough.

Thanks.

Okay.

Thanks, Jayson, and thank you, operator.

And thank you for all your questions.

That concludes the 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 203-369-3270 pass code 4627.

The audio replay will be available until 4 PM Central Time on Wednesday, February 5. Thank you for joining us today.

Thank you.

This does conclude today's conference.

You may disconnect at this time.