美國雅培 (ABT) 2015 Q4 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's fourth-quarter 2015 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.

This cannot be recorded or rebroadcast without Abbott's express written permission.

I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.

Good morning and thank you for joining us.

With me today are Miles White, Chairman of the Board and Chief Executive Officer; Tom Freyman, Executive Vice President, Finance and Administration; and Brian Yoor, Senior Vice President, Finance and Chief Financial Officer.

Miles will provide opening remarks and Brian and I will discuss the performance in more detail.

Following our comments, Miles, Tom, Brian 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 2016.

Abbott cautions that these forward-looking statements are subject to the 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, 2014.

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.

Please note that fourth-quarter financial results and guidance provided on today's call for sales, EPS and line items of the P&L will be for continuing operations only.

On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance.

These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings release and regulatory filings from today, which will be available on our website at abbott.com.

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

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

Okay.

Thanks, Scott.

Good morning.

Today, I will discuss our results for 2015, as well as our outlook for 2016.

For 2015, we achieved our financial objectives for the year, reflecting strong double-digit EPS growth when excluding the impact of foreign exchange and almost 9% growth on an absolute basis.

Excluding exchange, sales grew over 9%, including strong double-digit growth on emerging markets and we continue to expand our gross and operating margins.

Overall, we made good progress against our strategic objectives.

I'd like to highlight a few key achievements from the past year.

In established pharmaceuticals, we completed the sale of our developed markets business and successfully integrated CFR Pharmaceuticals in Latin America and Veropharm in Russia.

The integration of CFR provides the scale, manufacturing and portfolio breadth to establish Abbott as a top 10 branded generics company in Latin America and actually number one in many of the markets in Latin America.

And Veropharm had a similar impact in Russia, positioning Abbott among the top branded generics companies in this key market.

We also made significant progress improving our commercial execution, expanding our local product portfolios and driving awareness of our Abbott brand with patients, physicians and pharmacists.

In nutrition, we achieved double-digit growth and share expansion in China with a portfolio of pediatric nutrition products that are customized to meet local preferences.

In the US, we expanded our product offering in the tolerance and up age categories with a portfolio of non-GMO products providing parents with additional formula choices.

Our international adult nutrition business achieved another year of strong growth as we continue to build and shape this category globally, and we achieved another year of significant margin expansion.

In medical devices, MitraClip achieved sales of more than $250 million and we further solidified our leadership position in the transcatheter microvalve repair market with the acquisition of Tendyne and an option agreement to acquire Cephea Valve Technologies.

Along with MitraClip, these technologies position Abbott well to sustain our leadership position in this attractive segment of the market.

In medical optics, we continue to launch a number of innovative products that are driving growth and share expansion, most notably in the premium lens segment.

And in diabetes care, we introduced our revolutionary flash glucose monitor, FreeStyle Libre, in several countries throughout Europe.

Consumer response to this product continues to be very positive and we recently expanded capacity to meet the growing demand.

We also made progress during the year to bring the Libre technology to the US with the regulatory submission for approval of Libre Pro, a professional use device in June of last year.

And finally, in diagnostics, the combination of commercial execution, high-quality platforms and customer-focused solutions resulted in another year of above-market growth across both developed and emerging markets.

This business also achieved another year of margin expansion while simultaneously investing in the development of next-generation system platforms across all three of its segments, including the core lab, molecular diagnostics and point-of-care diagnostics.

So we're entering 2016 with good underlying momentum.

Our businesses are well-aligned with favorable long-term trends, including the continued expansion of healthcare in emerging economies.

While there's been some softening in these economies on a macro basis, national policies focused on expanding access to care and favorable demographic trends are driving growth in healthcare that is outpacing overall economic growth in these markets.

The fundamentals of the markets on geographies where we compete remain strong and we expect to deliver another year of strong double-digit underlying earnings growth in 2016.

However, a couple of items are impacting our growth outlook on an absolute basis and you've heard this all week.

Most notably foreign exchange.

The rapid strengthening of the US dollar relative to several emerging-market currencies beginning in the third quarter of last year means that foreign exchange will again be a growth headwind in 2016.

We're now entering the fifth year of this dollar bull cycle.

While we actively work to mitigate the impact of currency on our results, the impact of exchange on our bottom line will be more pronounced in 2016 due to the mix of currency movements and certain timing affects.

In comparing our 2016 forecast, we were mindful of finding the right balance between managing through these transitory currency dynamics in the near term while concurrently making the right choices and the appropriate investments to drive sustainable long-term growth.

The other notable impact to our 2016 outlook relates to Venezuela, which has been a good market for us for many years.

As many of you know, market conditions in Venezuela have become more challenging, including high inflation, increasing price and margin controls, regulations on imports and slowing demand.

As a result, our forecast assumes a significantly lower contribution from Venezuela operations in 2016.

Brian will provide more specific details on the impacts of the currency in Venezuela in a few minutes.

So for 2016, our adjusted earnings-per-share guidance range of $2.10 to $2.20 reflects another year of strong double-digit underlying earnings growth offset by the negative impact of foreign exchange and the lower contribution from Venezuela that I just mentioned.

In this environment, we remain focused on what we control -- our commercial and operational execution, our innovations and our efforts to expand margins.

In nutrition, our R&D organization continues to be highly productive and is now developing new products closer to our customers than ever before with the opening of several new R&D centers in Asia over the last several years.

We expect continued growth and share expansion in China, Latin America and other priority markets, including another year of strong international adult nutrition growth.

And while we've made great progress expanding margins in this business, margin improvement remains a key priority and we continue to see opportunities for steady expansion going forward.

In established pharmaceuticals, our execution has improved significantly and we're focused on strengthening our capabilities in key channels and geographies and building a well-recognized Abbott brand with consumers to take a prominent role in making decisions about their healthcare.

Internal development programs and local product acquisitions are driving a steady cadence of new products in our established pharma business to strengthen local portfolios.

In 2015, our productivity of new product launches increased versus the previous year and we expect another strong year of new product launch productivity in 2016.

In medical devices, we expect continued growth and share expansion in our cataracts business driven by the ongoing launch and market update of our premium intraocular lens products across multiple geographies.

In diabetes care, we recently expanded capacity, as I mentioned, to meet the strong demand for FreeStyle Libre in Europe and we expect to bring this technology into a number of new markets in 2016, targeting the multi-billion dollar global blood glucose monitoring market.

And in vascular, we'll continue to drive uptake of MitraClip and expect to bring Absorb to new markets through the year.

Finally, in diagnostics, which remains one of our most consistent growth businesses, we'll continue to execute our commercial strategy to drive above-market growth in both developed and emerging markets.

And as we progress through the year, we look forward to providing more specifics regarding our next-generation diagnostic systems platforms as we get closer to launch.

Before turning it over to Brian, I'd like to comment briefly on capital allocation.

You always ask me about that and you know that we take a very balanced approach here, which for us includes increasing our dividend, share repurchases and M&A activity.

Last month, we announced an increase to our quarterly dividend marking the 44th consecutive year we've increased our dividend.

Abbott's one of only a handful of companies to deliver with such consistency.

Share repurchases have and will continue to be part of our capital allocation mix.

And lastly, while 2015 was relatively quiet for us on the M&A front, adding to our business with good M&A remains a key priority.

We see a number of opportunities and will continue to remain active on this front.

As always, we remain disciplined and focused on finding the right balance of strategic fit and measures of return that will benefit the long-term shareholder.

I'm sure you are going to have a question for me later on that topic.

But, overall, you can see cash flows remain strong, margins remain strong, the underlying growth of our businesses remains strong.

In summary, the fundamentals of the markets in geographies in which we compete all remain strong and we continue to focus on what we can control.

In 2016, the impact of foreign exchange and the Venezuela dynamics I mentioned earlier are offsetting double-digit underlying earnings growth.

These impacts, while significant, are transitory in nature and therefore we remain focused on making the right decisions to drive long-term growth for our shareholders.

I will now turn the call over to Brian to discuss 2015 results and the 2016 outlook in more detail.

Brian.

Thanks, Miles.

Today, we reported fourth-quarter adjusted earnings per share from continuing operations of $0.62, in line with our previous guidance range.

Sales for the quarter increased 4.9% on an operational basis, driven by strong performance in our branded generics, diagnostics and adult nutrition businesses.

Reported sales declined 3.1% in the quarter, including an unfavorable impact of 8% from foreign exchange.

The negative impact from exchange was approximately 1.5 percentage points higher than previous expectations due to the continued strengthening of the US dollar relative to several currencies in the quarter.

The fourth-quarter adjusted gross margin ratio was 58.2% of sales, up 130 basis points over 2014, driven by continued margin expansion in diagnostics and nutrition.

In the quarter, adjusted SG&A expense was 29.6% of sales and adjusted R&D investment was 7% of sales, reflecting investments in development programs across the businesses, including several next-generation diagnostic system platforms.

The fourth-quarter adjusted tax rate was somewhat below our previous forecast due to inclusion of the impact of US tax legislation enacted in December.

Overall, as we look at 2015, we achieved our financial objectives for the year despite a difficult environment and we delivered strong underlying growth while continuing to make significant progress on our margin initiatives.

Turning to our 2016 outlook, today, we issued guidance for adjusted earnings per share of $2.10 to $2.20.

While this forecast reflects another year of strong double-digit underlying earnings growth, foreign exchange and the Venezuela dynamics that Miles discussed are impacting our 2016 absolute growth outlook.

Let me take a moment to provide more detail on each of these items.

As you know, in the third quarter of 2015, several emerging-market currencies weakened rapidly relative to the US dollar and have continued to steadily weaken since that time.

Based on the geographic mix of currencies that weakened and the rapid pace at which these currencies declined, foreign exchange will be a greater offset to our underlying earnings growth in 2016 versus 2015.

Additionally, in 2015, our hedging program served to mitigate some of the underlying foreign exchange exposure and volatility.

While our program remains in place for 2016 and is anticipated to deliver some offsetting impact to our exposure, the benefit of our hedges have naturally lessened over time.

So the fall-through from translational foreign exchange, combined with these hedging dynamics, negatively impacts EPS growth in our guidance by a little more than 10% for the full-year 2016.

Lastly, as Miles mentioned, due to challenging market conditions in Venezuela, our 2016 forecast assumes a significantly lower contribution from Venezuelan operations.

This impact lowers our 2016 sales growth rate by almost 2% and excluding this impact, the midpoint of our 2016 guidance range would reflect adjusted earnings-per-share growth in the mid-single digits even with the more pronounced foreign exchange impact I discussed earlier.

As the year progresses, we'll provide any relevant updates on our business in Venezuela.

I will now provide more specifics for our 2016 outlook.

For the full-year 2016, we forecast operational sales growth in the mid-single digits.

Based on current exchange rates, we would expect a negative impact of around 4% on our full-year reported sales, which would result in reported sales growth in the low single digits for the full year 2016.

Scott will provide more detail on the 2016 outlook by business in a few minutes.

We forecast an adjusted gross margin ratio of around 57% of sales, reflecting the negative impact from exchange, but partially offset by underlying gross margin improvement initiatives across our businesses.

We forecast adjusted R&D investment of somewhat above 6.5% of sales and adjusted SG&A expense of around 30.5% of sales for the full year.

We forecast net interest expense of around $125 million, up over 2015 primarily due to higher US interest rates and lower forecasted interest income in certain countries.

We forecast a loss of approximately $25 million on the exchange gain loss line of the P&L for the full year and we forecast around $10 million of non-operating expense for the full-year 2016.

We forecast an adjusted tax rate of somewhat above 18.5% for the full-year 2016, similar to 2015 and reflecting the effect of the US tax legislation enacted in December.

Before I review our first-quarter outlook, I'd like to provide some context for our forecasted pattern of quarterly earnings growth in 2016.

We forecast underlying adjusted EPS growth in the double digits for each quarter of 2016.

However, in absolute terms, both foreign exchange and the Venezuela dynamics will have a more pronounced impact on our results in the first half of the year.

We expect the pace of both sales and adjusted EPS growth to progressively accelerate throughout the year.

So for the first quarter, we forecast adjusted earnings per share of $0.38 to $0.40, reflecting double-digit underlying growth, which is more than offset by the impact of foreign exchange and a lower contribution from Venezuela operations.

We forecast operational sales growth in the low single digits and at current exchange rates, we'd expect a negative impact of exchange around 6% resulting in a reported sales decline in the low single digits.

The Venezuela dynamics that I discussed lowered our first-quarter operational sales growth forecast by around 3 percentage points.

We forecast an adjusted gross margin ratio approaching 57% of sales, adjusted R&D investment of somewhat above 7% of sales and adjusted SG&A expense of around 34% of sales in the first quarter.

And we forecast net interest expense of around $25 million in the first quarter.

In summary, we achieved strong growth in 2015 despite a challenging environment.

Our businesses entered 2016 with good underlying momentum and we continue to execute well on our margin expansion initiatives.

Our underlying earnings growth forecast is forecasted to remain strong in 2016, very similar to the underlying earnings growth we saw in 2015.

With that, I will turn it over to Scott to review the business operating highlights and outlook.

Scott.

Thanks, Brian.

Today, I will provide an overview of our fourth-quarter sales performance and 2016 outlook by business.

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

I will start with diagnostics where sales increased 7% in the quarter.

In core laboratory diagnostics, international sales increased nearly 8%, driven by double-digit growth in emerging markets.

And in the US, we continued to achieve above-market performance with growth of more than 6%.

In molecular diagnostics, sales grew 3% led by strong growth in our core focus area of infectious disease testing.

As expected, US sales were impacted by the planned scale-down of our genetics business.

And lastly, point-of-care diagnostics, where sales increased nearly 9% in the quarter.

US and international growth was driven by continued market adoption of i-STAT, our handheld device, which provides critical information at the patient's side, helping healthcare providers choose the best treatment in a variety of care settings when minutes matter the most.

In 2016, we'll continue to leverage our best-in-class commercial model and provide customers with a full offering of solutions to help them most efficiently operate their businesses while improving care.

We expect global diagnostics sales to increase mid-single digits on an operational basis for both the full year and first quarter of 2016.

In nutrition, global sales increased 5.5% in the quarter.

Pediatric nutrition sales increased approximately 4% and (inaudible) by continued market uptake of Eleva in China and Similac Advanced Non-GMO in the US.

As expected, international pediatric nutrition results were impacted by a difficult comparison versus the prior year and sales increased more than 20% driven by market uptake for product launches in China and Southeast Asia.

In adult nutrition, sales were led by 10% international growth, including double-digit operational growth in several Latin American countries.

US performance was led by growth of Ensure in the retail and institutional segments of the market.

In 2016, we'll continue to focus our efforts on capturing share with locally relevant pediatric nutrition products and growing and shaping the adult nutrition category globally.

For the full-year 2016, we expect global nutrition sales to increase mid-single digits on an operational basis.

It's important to note that the Venezuela dynamics that Miles and Brian reviewed most significantly impacts our forecast for nutrition and established pharmaceuticals.

Excluding this impact, we forecast operational sales for our global nutrition business will be mid to high single digits for the full-year 2016.

For the first quarter, we're forecasting global nutrition sales to increase low to mid-single digits on an operational basis.

In medical devices, as expected, vascular store sales were relatively flat for the quarter.

MitraClip, our first-in-class device for the treatment of mitral regurgitation, once again grew strong double digits and Supera, our innovative endovascular stent, continued to perform well.

This growth was mitigated by market dynamics in the coronary stent market.

In 2016, we'll continue to drive market uptake of MitraClip and Supera and expect to bring Absorb, our fully-dissolving stent, to the US market.

For both the full year and first quarter of 2016, we expect global vascular sales to decline low single digits on an operational basis.

In diabetes care, sales growth was again driven by strong international sales of FreeStyle Libre in Europe.

In 2016, with our recently completed capacity expansion, we look forward to bringing this breakthrough technology to more consumers around the world.

For the full-year 2016, we expect global diabetes sales to increase double digits on an operational basis.

For the first quarter, we are forecasting global diabetes sales to increase mid-single digits on an operational basis.

In medical optics, global sales increased 2% as strong performance in the cataract business, notably in the premium lens segment, was partially offset by dynamics in the refractive market.

In 2016, we'll continue to drive uptake of our innovative premium intraocular lenses and we expect global medical optic sales to increase low to mid-single digits on an operational basis for both the full year and first quarter of 2016.

And lastly, established pharmaceuticals, or EPD, where sales again increased double digits.

Sales growth in the quarter was led by strong performance from several markets, including Russia, India and China.

For the full-year 2015, EPD sales grew double digits operationally with and without the impact of recent acquisitions.

In 2016, we'll continue to broaden our portfolio with [globally] relevant new products and remain focused on successfully building our presence and scale in key countries of focus.

For the full-year 2016, we expect EPD sales to increase mid to high-single digits on an operational basis.

As I mentioned earlier, Venezuela has a significant impact on our forecasted EPD growth rates.

Excluding this impact, we would forecast operational sales growth for EPD in the low double digits for the full-year 2016.

For the first quarter, we're forecasting EPD sales to increase mid-single digits on an operational basis reflecting double-digit operational growth, excluding the impact of Venezuela.

In summary, we achieved another year of strong underlying sales and margin growth and are well-positioned to maintain that type of momentum for the full-year 2016.

We will now open the call for questions.

Thank you.

(Operator Instructions).

Mike Weinstein, JPMorgan.

Good morning, everybody.

Let's start with Venezuela and maybe you could just give us a bit more in terms of what you're doing, one, with your operations there and two, the change you're assuming, it sounds like you're marking to market the business basically at different exchange rates.

Could you just walk through financially what you are doing and why that's flowing through the business as much as it is in 2016?

I'll talk about what's going on for us in the country, but I want to make it very clear that we're not changing our exchange rate assumptions for the country.

This is really about what's happening to the markets, to economic activity of those markets and really demand and ability to pay for products.

Oil price was high at the beginning of the year.

It declined throughout the year and our markets became more challenging.

And we saw, as Scott talked about and Brian talked about, significantly lower volume as we exited 2015.

And as Miles indicated in his remarks, with price controls, very high inflation and when we look at the remainder of 2016 going forward, we see very challenging conditions and much lower volumes in the country.

So we're focused on supplying the market, more focused on medically critical products.

Our products are important to the market, but just the profitability of what we would expect for the year from that activity is a very low contribution compared to what we experienced largely in the first half of 2015.

So that's kind of the situation and I think it's basically -- takes some volatility out of our forecast and reflects the reality of the market we're dealing in.

Okay.

So two fundamental follow-ups.

So one, the pediatric nutritionals business had a tougher comp in the fourth quarter internationally off the product launches, particularly in China.

Can you just separate out for us the tough comp versus the underlying growth and the degree to which you think you are seeing any slowdown in any of your markets?

Sure, Mike.

I would say in international and particularly in the slowdown that we're seeing on the surface, nothing has changed about our underlying momentum here.

If you go back to fourth-quarter 2014 that was a period where we were launching our innovations, particularly Eleva and QINTI into the market and as you know, Eleva has had great success in the portion of the market that it's playing in.

So there is a little bit of a tougher comparison fourth-quarter 2015 over 2014.

If you blend it out in China though, on the average, our nutrition business grew over the mid-teens for the full year and so that's more reflective of the performance for this business for the year and it's still ongoing.

We still have the momentum there.

We still have plans for further opportunities of how we compete and how we bring products to the various channels there.

So nothing's changed about the momentum and it continues into 2016.

Okay.

So Miles, bringing you in here, so all this discussion, the underlying business, if we can pull out Venezuela and we can pull out maybe one or two other smaller items, the underlying business hasn't changed, but the environment has changed in some places and the prices paid for -- prices for assets has changed.

Have your priorities on the capital allocation, and the M&A question, have your priorities changed at all over the last six months?

No.

Let me go back, Michael and paraphrase that for you.

The frustrating thing, and I think it's frustrating for a lot of multinational companies that are US-based is, the underlying market dynamics remain strong in a lot of places.

Every morning, we get up, we see CNBC, everybody wrings their hands about China.

But whether China is 7% growth or 6% growth, 6% is way bigger than the rest of the world.

It's a fundamentally strong market for us as are practically all of these emerging markets.

Now the oil-based economies, the ones that are extremely dependent on oil, take Venezuela, okay, they are a different story and the volatility, unreliability of a sustainable market there is different than just about anywhere in the world.

So, okay, there's an outlier.

And every year there is going to be some outlier somewhere.

And I think if you are in a broad mix of currencies and a broad mix of countries and geographies as a multinational, somewhere something is not going to be great.

But the fundamentals of the markets, particularly for us in healthcare, are good.

And yet translating that back during this period, it's unusual, it's frustrating.

None of us have seen this kind of oil price in a couple of decades.

None of us have seen this kind of currency pile on in a long time.

So, okay, that said, we all know that.

Every multinational CEO has said it in the last two weeks in his earnings calls and we all see it, we are all experiencing it.

Now going back to your next question -- has expectation of our underlying momentum changed.

No.

Has my priority changed in terms of M&A activity?

I will tell you one thing about it that's changed a little bit.

We've been looking at properties largely internationally and I'd say I'm probably balancing that a little bit back another way.

I don't think -- in the past, I've looked pretty hard at a lot of expansion opportunities in branded generic pharmaceuticals and I think there are opportunities there.

But I think as you and others -- we've watched those valuations over the last year when deals heat churn and I can tell you there was one particular one where we were involved in an auction for and the valuation that that property went for -- we did not win it -- but the valuation that property went for was non-economic, just plain non-economic.

I would challenge the buyer to explain where the economic return was in that particular deal.

And they obviously have their reasons and they obviously saw something the rest of us didn't appreciate I would say as an understatement.

But the valuations are at a level in some cases that you have to question prudence.

And I think at the end of the day while we've got strategic reasons we want to expand our footprint in different places, those valuations when we deploy the capital on behalf of our shareholders have to make some sense.

And I don't think that we are anymore -- I think we're prudent, I think we're disciplined.

I think we've made good deals in the past.

I've gone through so much of this where I've heard we paid too much, we didn't pay enough, we got a good deal, etc.

But I think some of the things I saw last year said, boy, I don't think I minded losing that one.

I don't think I minded not participating in that one.

So I think right now -- first of all, I don't see a lot that people are offering up for sale in effect.

And the old maxim, everything is for sale at some price, well, the price that some of these things would be for sale at is imprudent.

It's just imprudent.

So I think you have to step back and say we're not in that zone.

We're not going to be that irrational in some cases and that's me.

I hate that I'm going to see some of this in print later, but I think that.

So you look at some of the currencies and some of the weakening of currencies, we would do a lot of those deals in local currency.

In fact, almost all of them in local currency.

And I'd say based on where those currency rates are today, you can say it's time.

This is the time because there's not as much currency risk in a purchase in that particular market, etc., but I think if I look at the mix of geographies and the mix of currencies and so forth that we currently have, I'm not sure our investors would applaud further wading toward it just now.

And I think there's a timing issue here.

I would tell you, having said that, if there was the right opportunity and the right place and I believe that was strategically very important to us, or a real opportunity for our investors and that the balance of what we foresaw in the growth of that market, the position, the currency and so forth was all lined up and the valuation looked good, I'd probably do that deal.

But that was a stackup of a lot of ifs right now.

So you'd say what's changed.

I'd say where I'm looking and what I'm considering, it hasn't changed; it's just shifted in some of its balance.

I think I've got all the same pharmaceutical opportunities on my radar screen, but I am prioritizing some others now that are maybe more important, I think, in this market, this environment in terms of strengthening our businesses.

Now I've heard other CEOs say the same thing.

I've heard a lot of people say -- actually, I've mostly heard bankers say -- that it's very robust.

Everybody is out there trying to buy stuff [market].

I've heard it more from bankers than from other companies reporting.

I don't think there's that many things out there for people to consider in our spaces.

I don't think there's that many properties.

I don't think there's that many assets.

I don't think there's that much to consolidate.

So I think it's fairly predictable, particularly for an analyst in this space, as you are, to predict the kinds of things that people are going to be looking at.

There's not a lot out there to consider.

So I think for us, we know what our strategic priorities are.

We know what can help our business.

We know where there's real pluses and opportunities and the question is whether or not the other parties, wherever they may be, see the same sort of opportunity and we can come together on an overlap of valuation and make something happen.

And I know that sounds like textbook platitude, but that's really what it is.

There's a lot of people at the dance looking at each other and trying to decide whether they want to dance.

But I don't think there's that many opportunities to be made and everybody's in the same environment where they think their own valuations are low and they look at the valuations from last year that look kind of high and I think you're in a zone where people are adjusting to what's my value.

And so having said all that, am I any less focused on it?

No, I'm probably more focused on it, if anything.

But I'd say we're also pretty analytical about what we can do with the businesses and what's the right valuation and what's the right timing and so forth because we don't get swept up in deal heat.

We're fairly strategic about it and I know that a lot of people think that a lot happened last year and we should have been in the mix of it, but I didn't see anything go by that I felt particularly bad about not being in the mix of.

As I mentioned, there was one particular one we were in the hunt on and the valuation at the end was so high I don't mind missing it at all.

So I realize that's a long ramble for you, Mike, but that probably gives you a fair degree of insight into how I'm thinking about it.

We're definitely not inactive.

That's for sure.

Understood.

Listen, I have follow-ups, but I'm going to let some others jump in.

Thanks, Miles.

Kristen Stewart, Deutsche Bank.

Good morning.

Thanks for taking my questions.

Just to kind of follow up, I guess, along Mike's line of thinking, I know you talked a lot about more from a geographic point of view.

I'm just wondering if you could talk more about the balance of Abbott from more of a business mix point of view.

Has the way that you've looked at the mix of Abbott from that perspective changed over the last kind of year or so, really since the spin of AbbVie?

And if I look at the growth rates for this year, medical devices, the growth operationally was 1.5.

If that division were to be separated out, I just look at Abbott as -- it would be even stronger as a company and how do you think about that franchise and strengthening it, or just kind of the composition of Abbott today and the future.

Well, I think I'd start with -- I'd be all about strengthening rather than separating out.

But we're committed to all four major segments that we have in the Company.

One of the important things about those segments is that they are in relative balance in terms of size, sales, profitability, etc.

They've all got somewhat different dynamics and they've also got a lot in common.

If you take EPD and nutrition globally, they share a lot of channel dynamics and so forth -- devices, diagnostics.

There's a lot of different things going on with these businesses, but I'd say first is balance matters in the mix that is -- the investment identity of a company for an investor because you want to be a reliable performer steadily over time.

As you know our proprietary pharma business avaricely grew to a terrific size and based on one product in particular, and so we were out of balance as a Company and so we split into two companies.

But we've got balance in these businesses.

That said, I'd say from and M&A perspective in the places where we're looking, to be perfectly fair we're not looking to do anything with regard to M&A in our nutrition business today.

If something came along opportunistically, we would look at anything.

But the fact is, that business is -- that's an organic business for us.

All of our performance objectives and the things we want to do in the nutrition business globally are organically driven and we think we're in a good position for all of that.

So the kind of investments we'd be making in those businesses are more capital plant, etc., in the right markets of the world and managing supply chain and so forth.

The other three businesses are each a different tale.

Diagnostics I'd say we've got a very strong business here.

It's actually a diverse business.

There's a lot of segment to diagnostics and if we opportunistically could add to it we would.

Obviously all the criteria you look at have to make sense, but that's a business where we don't really have to but if we had opportunities, we look.

EPD, similar.

We've got a gem of the business there and having done a lot of things to shape that business in the last several years, we are in the right growth markets.

We're in high growth markets.

We're in markets where the profitability and the market development, the retail facing, all the structural and channel dynamics for a brand of generics are good.

We've identified, let's say in priority, 15 countries in particular that meet all our criteria, and we've got strong positions in most of those, particularly important ones, and we're always looking to enhance our footprint in those markets if we can and expand our brands in those markets.

Latin America was a great example of that.

And so there's still many geographic opportunities to do so, but I always make the distinction for investors and others that it's really where we can distinctively differentiate branded generic pharmaceuticals, which means retail and channel and so forth like India and other Latin American countries and so forth.

And so when we have those opportunities, it's great to add on, but what we've got as a core business now is a very strong branded generic international, largely focused in emerging market business where there's tremendous tailwind of market growth.

So that's another one that's opportunistic.

And then devices, I'd say it's some of both.

We look at that.

We'd always want to strengthen that business.

We do wish to strengthen that business.

There are a number of ways of doing that.

Obviously there is organically in-house and then there's our venture organization where we're building a number of small companies.

We're investing in other early-stage companies and so forth in building our pipelines for the future.

And then, finally, if opportunistically there's available opportunities where it fits our market segments and so forth, then there's always M&A.

And so we're always mindful of those opportunities too.

But that gives you a sense of how we think about each of those segments.

If you said, well, would you think about something completely unrelated different?

Probably not.

There's too many opportunities to build or strengthen the ones we have and their needs from a strengthening standpoint vary.

Some have more need to have more breadth of product than others and some are purely opportunistic, Kristen.

Okay.

And then just thinking about -- I know one of the areas that you had highlighted earlier was building out the capacity for FreeStyle Libre.

What about the US timing for that and is that going to be a consumer product, or is that just going to be more of the physician product?

I think it depends on what timeframe you're asking in.

It's going to be both eventually.

Right now, I want the fastest regulatory path possible.

This product has been exceptionally well-received in Europe, spectacularly well-received I should say, and consumers and users and diabetics and so forth have just given us an overwhelmingly positive response.

So that's good.

And we're just in the process now of releasing all the new capacity we invested in in the last year, and we've got the next wave of capacity expansion underway.

So it's kind of one of those great challenges where I would tell you, from my own perspective, the diabetic community in the United States wants this product.

And it's a regulatory pacing issue here.

It wasn't so in Europe, and I would say no more about that.

But I'm in a hurry because we know the value of the product.

We know the reception of the product.

We know what the physician community reception of the product is.

We know all of that and the value proposition of this product on top of the medical proposition is just fabulous.

I have great expectations for it.

I'm excited about it, and so there's two dimensions of that.

One is, enough capacity, which for a while we'll have and then we'll have another tranche coming on.

And the regulatory process for how fast we can go.

Any sense on when the first product could hit market in the US?

I'm one of those superstitious people that no matter what I tell you I'm going to be wrong.

And so I don't want to jinx anything.

So I would just say I would optimistically hope toward the end of this year, but I don't know.

Fair enough.

Thank you very much for the questions.

Glenn Novarro, RBC Capital Markets.

Good morning, guys.

Miles, first question is on the Mylan stake.

I'm wondering if you can give us an update on the stake and what your thinking is.

I know in the past you said you're not going to be a long-term holder.

Are you any closer to selling that stake and will the sale be associated with some M&A?

Thanks.

The good news is -- you're right; we're not going to be a long-term shareholder of Mylan, but the good news is we don't have to sell it right away.

We have the freedom to sell it.

We just don't have an immediate reason to have to.

So I'd say we could leave it in Mylan shares, or we could leave it in cash, either way.

You asked would it have something to do with M&A.

Well, obviously that might trigger it.

I think it depends on what the price of Mylan is in the market and the manner in which we might market our shares and so forth.

There's a couple of dynamics there, but I would confirm.

No, we don't intend to be long-term Mylan holders, and the only thing holding us back is probably trigger of M&A activity, maybe a little valuation.

But we're not particularly hung up on value right now.

We did watch the entire Perrigo process and [hoped for a path] and thought until that stabilized and was finished, there was no point in being in the way of that.

So that's happened.

That's stabilized.

That's finished.

There's a stable market now for Mylan shares and we will just wait and see what triggers it.

But we otherwise have no reason to move one way or the other until there's some trigger like M&A, I would guess, Glenn.

Okay.

Let me follow up --.

If the price were to rocket north, we'd probably view that as a trigger too and [be obvious].

Okay.

Let me ask a specific question on your vascular business because, if you strip out currency, I think over the last 12 months, even going forward, most of the businesses are on track, at least performing in line with our expectations.

But the vascular business continues to come -- at least relative to our expectations, continues to come in below and I know you highlighted Absorb, but a lot of our channel checks are not very positive on Absorb.

So I guess my question is what's the commitment to this vascular business?

Is this a business that you need to build up through M&A and is the reason why we haven't seen a lot of M&A, is it because the targets have still unrealistic valuations?

Thanks.

Well, I'd say a couple things.

First of all, we're committed to the business and I think -- I think there is a bigger market condition here.

If you look at the markets around the world, not just the US, but literally every major country of the world, the markets have stabilized among competitors.

Share doesn't move a lot.

If it does, it moves a little.

You know that the physicians in this space, they take a new product and they experiment with it a little bit and that's about it.

The innovation here is at a point where I'd say the incremental value recognized by the healthcare system is limited.

If you think about what drug-coated stents and so forth have done in the vascular space, it's been a tremendous boon for the treatment of patients, but I think now what we see is this market is far more driven by cost than prices as either countries or hospital groups and others try to manage the overall cost of healthcare.

So I think all of us see the same dynamics where we're increasingly challenged on more value proposition than just innovation.

And I think, increasingly, the payor, whether it's a government or the purchasing people or insurer, whatever it is, are increasingly more influential here than the preference of physicians.

You say, well, those aren't very good dynamics.

Well, they are not bad dynamics either.

We have to compete in this business just like we compete in a lot of other businesses and I think we and our competitors in this business are all broadening our productlines or innovating in other surrounding spaces and broadening those offerings in the space and there's still a lot of room for innovation, but it may not be specifically just on the stents.

So that -- what behooves us is to expand our business and to some degree, or to a large degree, that is M&A.

And in our case, it's been a lot of small ball M&A and looking to expand around those businesses.

MitraClip, Absorb, those kinds of things are incremental.

Well, MitraClip is very significant that way.

We look at expanding into structural heart or heart failure or other categories and we're trying to build our breadth in those other -- let's say surrounding spaces that way.

I don't think that's very different for any of the companies in this business worldwide.

I think what's been difficult for any market that had the kind of robust innovation-driven growth that this one did back in the early 2000s, it's a different market today.

It's a different market everywhere today.

So is it a slow growth market?

Yes.

Is it still a very attractive market?

Yes.

It's still a very profitable market for all participants and it's why it gets a lot of pressure from a cost standpoint from the payors, etc.

I don't think that's a secret to anybody.

So while others look at that performance of the business and say, gee, it's a little below our expectations, I'm beginning to think it's just all of us adjusting our expectations to the reality of the value propositions in the market today.

And so I think it's a very strong business.

It's a very healthy one at least in that respect.

We still invest quite substantially in R&D and innovations there and clinical trials and so forth.

We've got innovations that are in R&D in the clinical space and a lot of investments around it.

So would it benefit from a much broader footprint?

Well, it probably would.

The question is how to get to that broader footprint.

And I think that, in the, call it, medical device space broadly defined today, there's either a bunch of big companies or a bunch of little companies.

There's not much in the middle and the couple of things in the middle are extremely highly valued relative to their current performance and I think there's a lot of speculation or question about whether or not that kind of value will play out.

So I think it will develop over time here.

We've made a lot of investments in smaller companies and segments, as you know, whether Tendyne or Cephea or others to expand our footprint here.

So I believe in the medical device space right now and long term, but I don't think it will be the same kind of space it was 10, 15 years ago.

You had mentioned priorities.

Is vascular higher up on your priority list now?

That implies it wasn't before.

I would say the device space has always been high on my priority list, and whether it's in the vascular space or the optics space or whatever, this has been high on my priority list for a while.

Okay, great.

Thank you, Miles.

Larry Biegelsen, Wells Fargo.

Good morning.

Thanks for taking the question.

It's just one clarification question and then two real questions.

On the emerging market growth in Q4, can you give us the organic constant currency growth for this quarter, please?

Yes, Larry, if you look at the quarter and you take out the impact of what we talked about a little bit slowing in Venezuela through the year, we're in the double-digit range for emerging markets across Abbott's businesses.

So the emerging market momentum (multiple speakers).

Sorry, Brian, that was for Q4 2015?

For Q4 2015 and for the full year as well, double-digit growth.

So the underlying momentum continues into 2016 here as well.

Okay.

Thanks for that.

And then so for my two real questions, one is on deal size.

Miles, you've talked about in the past a sweet spot of $5 billion to $7 billion.

That's one thing you haven't touched upon this morning.

Any color on that?

Is that still the case?

And then I had one follow-up.

Thanks.

In reality, we've got a lot of capacity and it just depends.

Larry, we've obviously done a lot of small things and small can be measured a lot of ways.

I can remember when I thought $1 billion was huge.

Now people seem to think of that as dinky.

We've done a lot of things smaller than that, so midsize.

I don't feel constrained at $7 billion.

I don't feel constrained at $8 billion or $10 million.

I don't feel constrained.

So I'd say, look, if the opportunity is right, the strategic fit is right and the valuation is right, I don't feel constrained by size right now.

That's very helpful.

And then I hope you understand the spirit of this question because it's kind of a question that we will probably get today, but I was struck by your comment earlier, Miles, when you said every year there's some outlier somewhere when you were talking about Venezuela.

And I think, in the past, Abbott would absorb those outliers.

So I guess why not now and what can you do to kind of mitigate that in the future?

Thanks.

Well, I think that's a good question.

And I'd say we always do everything we can to mitigate.

Here's what's different this time.

Last year, exchange was a strong headwind for any US-based multinational across the board.

And I recall at this very time last year from December to now, you will recall both oil and exchange kind of had a sudden hit except that the oil price drop at that point was a much higher level than where we are today.

But there was this sudden hit in late fourth quarter 2014 and in early 2015 and everybody scrambled to readjust their EPS guidance for the year to try to deal with what they saw coming as currency or was already happening.

And a lot of companies dialed back to single digit or whatever and laid it on exchange and so forth, which was valid.

In our case, we said we think we can navigate through it and we did and we had extremely strong underlying growth in our markets, as we still do and it wasn't just double digit, it's been healthy double digit all year long.

And so in our case, we were able to mitigate an awful lot of that exchange all year long and still deliver what was frankly very differentiated, higher growth than many, many of our peers, even multinational peers not in healthcare.

And what we've got now is another year on top of that, okay, of the same sort of thing and if you look at the exchange rate graphs, who would've thought these exchange rates could, in a lot of cases, be even bigger, even bigger exchange rates or however you want to translate it, stronger for us we hear on the other side.

And then on top of that nobody predicted $25 to $30 oil.

Now that's a curveball for the whole world.

And so when you throw that curveball in there, it dramatically unbalances the mix of your currencies because of the oil-based economies where lower oil prices really affect the underlying performance of the country.

So you take a country like Russia or Venezuela or Saudi Arabia, these are countries that are all strong countries for us and to different degrees, they've been impacted by their own oil revenues and therefore their own ability to pay for products.

Now having said that, is Russia still a strong market for us?

It is.

Do we have the same kind of difficulties in Russia that we have in Venezuela?

We don't.

It is a fundamentally good market, strong underlying market, etc.

The only thing that's not strong is the ruble, which is dramatically weaker versus the dollar than even a year ago.

And so there's this disproportionate imbalance in the pressures in the currency basket, if you will, from a little handful of countries where they already had currency and translation challenges just like the rest of the world, except that they have oil dependence on top of it, which amplifies it even more.

And when you start to staff up all of those things, you'd say, okay, could we navigate through this and the answer is we could.

I can cut a lot of expenses.

I can delay a lot of investments.

There's a lot of things that frankly I have the discretion to do, we as a company have the discretion to do.

And I could then say to you we'll either have 5% earnings growth or high single digit earnings growth, but in our judgment this year is so unusual this way with the ongoing depth of currency [woes] and the unusual circumstance of oil prices and its impact on these economies that I would look out and say I don't think it's prudent to compromise our ability to go after all this underlying growth for one year.

In fact, it's more prudent to take out Venezuela out of the assumptions.

It's more prudent to take that one out and keep right on going and I think if you believe in the underlying strength of economies around the world, the ones that are delivering growth, and if you believe in the underlying growth of healthcare and those economies and you believe in the underlying growth of all our products at Abbott and if you believe in Abbott's ability to continue to access all that growth, then my judgment was, okay, I'm going to roll out of the pocket here, take Venezuela out of the assumption.

If I hadn't taken Venezuela out of the assumptions, I'd be telling you right now that you are going to have mid-single digit growth on the top and bottom line.

And you know something, you'd think that was terrific in this environment.

And if you compared it to all the other multinationals in our space or frankly other multinational spaces, you'd say that's right in there with everybody else.

So in this case, we said I don't want to artificially compromise our investments in a lot of these businesses, whether it's an SG&A investment, or R&D, or whatever because of Venezuela.

So I think I'm going to take that one out and keep right on going because I believe in the longer-term growth prospects of these economies and these businesses and I'm not going to compromise that for a couple of quarters of Venezuela.

So at the end of the day, could we manage through it?

Yes and you know this.

If you look back at even 10 years of track record at Abbott, we've absolutely been reliable at double-digit bottom line and high single digit top line unlike almost any other large diverse multinational out there.

We've been a very reliable performer that way in a very diverse world.

So I don't say all that defensively, even though it might sound like it.

I look at the world and say, man, this is like a total different circumstance than any of us have ever seen and you have to kind of make a judgment of how far do I go to push off what we ought to be doing to sort of wait out this oddball storm we're in.

And this oddball storm, I think there's a lot of people that would project oil prices are going to stay down for a long time.

And yet everyone says, yes, but what is down.

And at what point do these oil-driven economies start performing better?

$60, $70, $50.

There's different thresholds where the performance of those economies changes dramatically for a lot of different businesses in the world, not just us.

In our case, healthcare is pretty good no matter what the oil price is.

The dynamics of a Venezuela are unique.

They are unique.

And even the Saudis, do they still spend on healthcare?

Yes, they do.

It's still a very strong important market for us, and so is Russia and so on.

So I don't know, that's a long roundabout way of saying we made a deliberate decision.

It was discretionary.

Could I have made the decision to say I'm going to deliver high single digit earnings growth no matter what?

Yes, probably, but I would have had to compromise the underlying momentum in ways I didn't think was prudent.

For exchange, yes, we can manage exchange.

Venezuela?

I think it's more prudent to just take Venezuela out of the mix in terms of what our expectations are and that's an unusual anomaly.

I challenge back to 2015, we lived through exchange.

Can we live through exchange again?

Yes, we can.

Yes, we can.

And the single biggest difference in our guidance for this year is actually Venezuela.

I don't know if that answers your question or not, but that was my judgment.

It's not an inability; it's more of a decision.

If you look at our spending rates and stuff in our go-forward guidance, our spending rates are healthy.

Very healthy.

Thanks, Miles.

We'll take one more question, operator.

All right, sir.

Rick Wise, Stifel Nicolaus.

Thanks for the question.

Miles, hard to resist just asking one more question on Venezuela, and I totally understand the point you were making there.

But you sort of said in your last comment that maybe a quarter or two of headwind.

Wouldn't it be more prudent to think this might be a couple of year issue and might be structural?

And then just as part of that, maybe for Brian, is the simple monkey math on this -- you're really growing mid-teens, (inaudible) 15%.

If Venezuela is a 5% hit to EPS growth and FX is 10%, that's what you're really growing on a sustained basis.

Yes, Let me deal with your Venezuela question first and then I'll let Brian wrap up with -- close on on what you just said about our growth rates.

You could be dead right about Venezuela.

I don't know.

I don't know, but here's the difference for us.

We're a healthcare company and among our businesses, there are products that are medically necessary.

And we have to pay attention to medically necessary.

We don't have to lose money all the time.

We don't have to be irrational for whatever reason, but we're mindful that we're a healthcare company.

We're mindful that we have medically necessary products.

We're mindful that we've been in Latin America and in Venezuela for decades.

And a lot of times in the past in decades, foreign companies have exited those countries immediately when the economics turned sour.

And the long-term commitment to that continent -- the governments of those countries and the healthcare systems in those countries, they know that and they recognize that.

Abbott's never done that in 90 years in Latin America and we're a fundamentally large healthcare provider in Latin America.

So our judgment was we'll make these decisions one step at a time as we see how circumstances develop.

It's a pretty big decision that we've taken just to say we're going to take the sales and profit expectations out of our expectations for the year so that our investors -- frankly, you're getting -- the news today that we're taking it out of our expectations.

And yet all I'm trying to do here is derisk your expectations, derisk your riding the roller coaster of volatility here in that particular country because that one is unique.

So we've just chosen to take it out of the estimates because we know we're going to continue to have medically necessary products there.

But that's going to be in our view at a much lower commercial level than in the past.

So for right now, Rick, I think that's the right prudent place to be.

Could that change?

I suppose.

Anything could change.

I hope it changes more favorably, frankly, but I'm not whistling through the graveyard.

I just know that they are in a very tough circumstance as a country and they are volatile.

They are unpredictable and it's not a very reliable market, as markets go.

So I think this is the right step.

You can say, well, shouldn't you just go a lot further?

And I'd say you could say that if you were just in some common industrial consumer or whatever [bid], but I don't think as a healthcare company you can quite do the same thing.

So I think we have to be a little prudent here about the medically necessary part.

That's why we're where we are.

And Brian, you can address the final comment there about underlying growth rate.

Sure.

Rick, if you think about Venezuela and the decision to derisk this and just assume for a second that that's your reality, your growth rate, it doesn't change.

Your growth rates actually become better as you move through time.

So nothing's changed about Abbott's growth perspectives; they may even become better.

When you think about what I have said and what you've modeled in 2015, you know that we had mid-teens underlying growth but for the impacts of foreign exchange.

And when you take these things that we've talked about into account, be that the derisking of Venezuela and what it means to our earnings, as well as the FX, you are going to get right back to the mid-teens.

Rick, I think you did a better job summarizing than Brian did.

Thanks, Miles.

Thanks.

Thank you, operator and thank you for all of 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 website at abbottinvestor.com and after 11 AM Central time via telephone at 203-369-3630, passcode 6422.

The audio replay will be available until 4 PM Central time on Thursday, February 11.

Thank you for joining us today.

That concludes today's conference.

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You may now disconnect.