Good morning and thank you for standing by. Welcome to Abbott’s second quarter 2024 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star-one-one keys on your touchtone phone.

This call is being recorded by Abbott. With the exception of any participants’ questions asked during the question and answer session, the entire call including the question and answer session is material copyrighted by Abbott. It cannot be recorded or rebroadcast with Abbott’s express written permission. I would now like to introduce Mr.

Mike Comilla, Vice President, Investor Relations..

Good morning and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Phil Boudreau, Executive Vice President, Finance and Chief Financial Officer. Robert and Phil will provide opening remarks. Following their comments, we’ll take your questions.

Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2024.

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 Ia, Risk Factors to our annual report on Form 10-K for the year ended December 31, 2023.

Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. On today’s conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott’s ongoing business performance.

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

Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward-looking basis because the company is unable to predict future changes in foreign exchange rate, which could impact reported sales growth.

Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in the press release issued earlier today. With that, I will now turn the call over to Robert..

Thanks Mike. Good morning everyone and thank you for joining us. Today we reported organic sales growth of more than 9%, excluding COVID testing sales. We also reported adjusted earnings per share of $1.14, which exceeded analyst consensus estimates and represents a 16% sequential increase from the first quarter.

Based on our performance in the quarter and confidence in our outlook for the remainder of the year, we raised our guidance and now forecast full year organic sales growth, excluding COVID testing sales, to be 9.5% to 10% and adjusted earnings per share in a range of $4.61 to $4.71.

Our performance continues to be driven by broad-based growth across the portfolio with growth this quarter led by double-digit growth in medical devices and high single-digit growth in established pharmaceuticals and nutrition.

In addition to benefiting from outperforming expectations on the top line, we are also seeing positive contribution from gross margin expansion coming from continued execution from our supply chain teams, lower commodity costs, and favorable sales mix.

I’ll now summarize our second quarter results in more detail before turning the call over to Phil, and I’ll start with nutrition, where sales increased 7.5% in the quarter. Strong quarter in the quarter was led by double-digit growth in international adult nutrition and U.S. pediatric nutrition.

International adult nutrition continues to perform at a very high level. The five-year compound annual growth rate of this business is more than 10%, which in addition to our market-leading position and commercial execution reflects the impact from positive demographic trends that drive increasing demand for our Ensure and Glucerna brands.

Through the investments we’ve made to expand capacity, we are well positioned to continue to capitalize on these secular demand trends. On the topic of litigation, regarding pre-term infant formula and human milk fortifier, Abbott stands by our products and the information provided to the neonatologist specialists who have used them for decades.

Necrotizing enterocolitis, or NEC, is a terrible gastrointestinal disease that primarily affects premature infants, and it is devastating to families; however, plaintiff lawyers are advancing a theory that is without merit or scientific support.

These products, which are sold for hospital use, are incorporated into a feeding regimen along with human milk by experienced specialists and are an important part of the standard of care for the majority of preterm infants. Their use is supported by medical associations in the United States and other countries around the world.

The products and their ingredients have been reviewed and are deemed safe for use by regulators, who have also reviewed their labels.

There has been no increase in the rate of NEC, meaning these cases have not emerged in response to a trend or any new information, yet we’re seeing plaintiffs’ lawyers investing millions of dollars in misleading TV advertising in an attempt to move physician decisions from the hospital to the courtroom.

Total revenues for these products are about $9 million annually, and have remained at that level for the past several years. If these products were no longer available, physicians would be deprived of the vital food that is needed in the NICU. This would create a public health crisis affecting every state across this country.

We believe it’s important for all who have an interest in health of preterm infants, who recognize the need for these products and to take action accordingly.

Moving to diagnostics, where sales increased 6% excluding COVID testing sales, growth in the quarter was driven by high single-digit growth in core laboratory diagnostics and double-digit growth in point-of-care diagnostics.

In core lab diagnostics, we continued to drive growth through increased adoption and utilization of our market-leading systems and global demand for our extensive testing menus across the areas of immunoassay, clinical chemistry, hematology, and blood screening.

While our Alinity family of diagnostic systems first launched more than six years ago, given the long contract cycles common in the diagnostics industry, we continued to see a benefit in our contract renewal and competitive win rates with several recent large account wins expected to increasingly contribute to growth in the second half of the year.

Turning to EPD, where sales increased 8% in the quarter, EPD continues to deliver at a high level as this business executes its unique branded generic strategy in emerging markets, where growth is supported by favorable demographic trends, including increasing populations, growing middle classes, and increasing focus on expanding access to healthcare.

As you recall, we identified biosimilars as a new strategic growth pillar for this business. With our extensive presence in emerging markets, we have a unique opportunity to scale a licensing model that is capital efficient and can bring access to these life-changing medicines to millions of people in emerging markets.

We began implementing this strategy last year when we announced an agreement to commercialize several biosimilars in the areas of oncology and women’s health, with the first of these expected to launch in 2025.

We recently completed additional agreements that provide Abbott access to biosimilar versions of market-leading autoimmune disease and GLP1 medications. Biosimilars represent the highest growth segment in the branded generic pharmaceutical market, and we look forward to continuing to build one of the most complete portfolios in the industry.

I’ll wrap up with medical devices, where sales grew 12%, in diabetes care, Freestyle Libre sales were $1.6 billion in the quarter and grew 20%.

We announced in June that we received FDA approval for two new over-the-counter continuous glucose monitoring systems called Lingo and Libre Rio, which are based on Libre’s glucose technology that is now used by more than 6 million people around the world.

While over-the-counter availability is a new option in the United States, we’ve been selling over-the-counter in international markets since Libre launched 10 years ago.

Given our clear leadership position in these markets, we have demonstrated our ability to tailor solutions, approach and communication for the various types of users who compose the CGM customer base. Lingo is designed for consumers who are willing to improve their overall health and wellness.

The Lingo wearable sensor and app will track glucose, provide personalized data, insights and coaching to help create and maintain healthy habits. Libre Rio is designed for adults with Type 2 diabetes who do not use insulin and typically manage their diabetes through lifestyle modifications.

In electro-physiology, growth of 17% was driven by double-digit growth in all major geographic regions, including 17% growth in the U.S., which represents an acceleration compared to the growth in the first quarter. Growth was broad-based across the portfolio and included 20% growth in ablation catheters.

In structural heart, growth of more than 15% reflects an acceleration in growth compared to the first quarter and was led by several recently launched products that are driving new adoption and share capture in attractive high growth areas, including TAVR, LAA, and tricuspid repair.

This quarter, we launched our tricuspid repair device, TriClip in the United States and continued our trend of capturing market share in the global TAVR market.

In rhythm management, growth of 6% was led by Aveir, our highly innovative leadless pacemaker, and in June we announced that we received CE mark in Europe for Aveir to be used in dual chamber pacing procedures, which is the largest segment of the pacing market.

In heart failure, growth of 9% was driven by our market-leading portfolio of heart-assist devices that offer treatment for both chronic and temporary conditions. In neuromodulation, growth of 8% was driven by strong demand in international markets for our Eterna rechargeable spinal cord stimulation device, which obtained CE mark in Europe last year.

In vascular, we received FDA approval in late April for our Esprit dissolvable stent, a breakthrough innovation for people who suffer from blocked arteries located below the knee. Esprit is designed to keep the arteries open, deliver a drug to support vessel healing prior to completely dissolving over time.

New products like Esprit combined with the investments that we made in our vascular business, both organically and inorganically, have expanded our presence in faster growing areas and increased the future growth outlook for this business.

In summary, we exceeded expectations both the top and bottom lines and, as a result, we raised our financial outlook for the year.

We continue to make good progress on our gross margin initiatives and, more importantly, our pipeline continues to be highly productive, and thus we’re well positioned to deliver strong results for the remainder of the year. I’ll now turn over the call to Phil..

Thanks Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our second quarter results, sales increased 7.4% on an organic basis and increased 9.3% when excluding COVID testing sales.

Foreign exchange had an unfavorable year-over-year impact of 3.5% on second quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, which resulted in more unfavorable impact on sales compared to exchange rates at the time of our earnings call in April.

Regarding other aspects of the P&L, the adjusted gross margin ratio was 56% of sales. Adjusted R&D was 6.3% of sales, and adjusted SG&A was 27.7% of sales in the second quarter. Lastly, our second quarter adjusted tax rate was 15%.

Turning to our outlook for the full year, we now forecast full-year adjusted earnings per share of $4.61 to $4.71, which represents an increase compared to the guidance range we provided in April. We also raised the midpoint of our guidance for organic sales growth.

We now forecast organic sales growth excluding COVID testing sales to be in the range of 9.5% to 10%. Based on current rates, we expect exchange to have an unfavorable impact of more than 2.5% on full-year reported sales, which includes an expected unfavorable impact of approximately 3% on third quarter reported sales.

Lastly, for the third quarter we forecast adjusted earnings per share of $1.18 to $1.22. With that, we’ll now open the call for questions..

Thank you. At this time, we will conduct a question and answer session. [Operator instructions] Our first question will come from Larry Biegelsen from Wells Fargo. Your line is now open..

Good morning. Thanks for taking the question, and Robert, congratulations on a nice quarter. Thanks for your comments on the NEC litigation. I’m wondering if you have anything to add on that, Robert, and then I have one follow-up question..

No Larry, I think I said everything I said during my prepared comments.

I guess the only add here is I think this is way overblown in terms of its impact, and we are--we’re working to obviously defend our position and--you know, working with all the different stakeholders so that they are aware of the situation, the gravity of the situation as it progresses.

But I said all I had to say right now in my prepared comments, and if there’s a need to kind of give further updates, we will..

All right, thanks. Separately, Robert, your EPD business grew nicely in the second quarter, 17% in both the U.S. and international. What drove that, what are you seeing with PFA in the different geographies, and how are you thinking about the sustainability of that growth before bolt [ph] launches? Thank you..

Sure, well I’m seeing what I thought I was going to see.

It might be a little different from what some of you thought you were going to see, but what we’ve been seeing is obviously an increase in the market, so right now the market has accelerated, seems to be growing above 20%, so when you look at our 17%, it’s lower than the market but it’s actually growing faster than what it was growing pre-pandemic, or just after we had done the acquisition.

We’ll see if the--I mean, that growth is obviously in value. We’ll see if the growth in procedures actually translates. We are actually in more procedures than what we were in the past, given our mapping and our teams, but I think it’s a little bit too early to say if the actual number of procedures is going to significantly increase.

The market has accelerated, but it’s predominantly, I think, price right now with the introduction of this new product. It’s predominantly being used in de novo procedures, atrial procedures, right, and we think that’s about a third of all ablation procedures, Larry.

The other two-thirds, we continue to see, whether it’s re-dos, VT, SVT, ablations, in that case we continue to see RF really being viewed as the better option for those procedures. We’ll see how that’s going to translate over time, but OUS, the penetration is around 10%, 15%. It’s been pretty stable.

From the point of view of mapping, I think we haven’t seen a real big change of what we saw during those first couple of months of launch and in the last call, so over 90% of cases here in the U.S. are still being used as mapping. We’ve got a 50 share of those mapping cases.

I don’t try and look at different types of denominators to get to that market share, so I make sure my team just basically has the best access and, from what we’re seeing, it’s about 50%. RF catheters, similar to what we saw in the last call, still being used in about 20% of the PFA cases, so we continue to see that.

I think the net effect of all of this is the market’s growing, it’s accelerating. We’ve got a strong position. Everything that we’ve talked about in the past, about our opportunity with the mapping and all of the other consumables is there.

RF still plays a role, it’s still an important role, and our business has actually grown faster than what it was growing before. If you look at ’19, we were about 12%, ’18 was about 14%, so we’re actually doing better now.

I think that is positive for the market, which is why we’ve invested heavily in our PFA portfolio, which will--you will start to see hit the market in the--I’d say next year, I’m not going to try and time the quarter here, but definitely next year.

I think this is good and the teams have done an incredible job at executing the strategy that we laid out, so kudos to them..

Thanks so much. Thanks for the comprehensive answer..

Thank you. Our next question will come from Travis Steed from BofA Securities. Your line is open..

Hey, congrats on the good quarter. I wanted to ask about structural heart - really stood out this quarter, accelerated from last quarter.

Just curious how much of that is on MitraClip recovery, you got TriClip approved early, how much you’re seeing from the TriClip side and how much is coming in from some of the other newer products, like Amulet and Navitor..

Sure. Obviously TriClip was an important launch and helped to accelerate the growth rate, Travis, but I think it’s pretty broad-based here. I mean, if you look at TriClip, we were ready to go because we had certain built-in advantages in this area, right - we had the scale, we had the sales force, the manufacturing capacity, so we were ready to go.

I think from our estimates here, even though we launched a quarter after our competitor with their system, I think the repair device is already in twice as many accounts as the replacement system, so we had a natural kind of built-in advantage here as we went to the market, and the cases are doing very well. The feedback has been very positive.

But I think it’s really broad-based here. Navitor has done very well, both in international markets and in the U.S., and the value proposition is starting to gain more traction - you know, great clinical profile, excellent hemodynamics, and that’s driving a lot of opportunity for us in international and U.S. markets.

We shared some data from our registry, from our Japan registry, and great safety also, so that’s doing very well. Amulet, we saw really nice growth in the U.S.

for Amulet this quarter - it was about 45%, so that product is doing very well and we’re focusing here on continued, what I would call penetration in same store sales, so we’re about close to 20% in the accounts that we’re in.

We’re in about half of the market here in the U.S., so our opportunity here is to continue to expand the sales force and go to newer accounts, so that’s done very well, too. MitraClip, I think we continue to see some continued growth internationally. In the U.S.

with competitive activity, that’s kind of slowed down a little bit of the growth, but I think with TriClip now coming into the market and gaining traction, we’ll be able to provide a value proposition across both repair systems and drive there.

So structural heart, the growth rate has accelerated from Q1, doing very well, and I’d say it’s really across a full portfolio approach versus just really trying to single out one product or one technology.

There’s work we have to do in MitraClip - that’s clear, in the U.S., internationally it’s done very well; but all the other products that I’ve talked about are doing very well and gaining market share, and gaining adoption, so that’s why you saw structural heart’s growth rate actually accelerate, and I continue to see that that’s going to be definitely for the rest of this year and going into next year..

That’s super helpful. Then on your sensor business, how are you thinking about segmenting the market with Lingo versus Rio, and how do you think those markets are going to develop over time? When you look at your core Libre business, anything to call out, any changes in U.S.

versus international market dynamics?.

Well, you’re trying to cover a lot of ground there with that question. You could probably spend a whole call going through all of that. I think at its highest level, Libre continues to do very well. There’s still a lot of growth opportunity.

Obviously the basal opportunity is the biggest one, and we’re doing--having great progress over there, but even in the MDI segment, there’s still a lot of penetration to occur in the MDI segment.

I think in the U.S., there’s still about a third of multiple daily injectors that aren’t using CGM, and international developed markets, it’s around 50%, so there’s plenty of growth in Libre.

Our strategy here with Lingo and Libre Rio is just really to have a full portfolio and look at this as a platform where we can expand the use of the sensor technology across different types of diabetes populations, but also what is probably the larger market, which is people that don’t have diabetes, right? I think if you--if you take--right now, I would say we’re doing to launch it here in the U.S.

and we’re going to start expanding globally, and we’ll see how it looks like and what it takes to win there. But what I do know, based on the U.K.

experience, is that it takes some time to educate and communicate with a patient population that, while excited about having new tools to drive healthier habits, they do need some time to understand its use. But I think it’s a pretty big opportunity for us and one that we’ve disproportionately invested to be able to get into this position.

I think if you take Lingo and you look at U.S. and Western Europe, the adult population there, you’ve got about 400 million people in those markets. If you take a single-digit penetration rate, a few sensors a year, you’re looking at a multi-billion opportunity there, and we’re not there yet.

I think once we’ve got better understanding of how this is going to work, we’ll be better at forecasting it; but just at a high level and looking at it from a total adult population and relatively, I’d say, modest penetration rate, it’s a pretty big opportunity.

Like I said in my comments, we’ve done this for a while since we’ve launched internationally, and we’ve learned a lot and we’re going to bring that learning and experience here to the U.S., so it’s an exciting opportunity for us..

Great, thanks Robert..

Thank you. Our next question will come from Robbie Marcus from JP Morgan. Your line is open..

Oh great, thanks. I’ll add my congratulations on a good quarter. Two for me, two product questions.

Maybe just to follow up on the diabetes Libre question, Robert, how are you thinking about a holistic drive of advertising and word of mouth for these new products, especially as we move into the OTC, versus generating data, and how much will be necessary? I think back five years ago, and where we are today was probably not in most people’s forecasts, and with the amount of data we have showing in non-diabetics how beneficial CGM is, how are you thinking about data versus not data, insurance coverage versus not insurance coverage, and how do the markets look one way or the other?.

Yeah, I don’t think--so from an insurance coverage perspective, if you’re referring to Lingo specifically for non-diabetes, I think it’s going to be--you know, I don’t think that that’s going to be something that we’re building a forecast assuming reimbursement coverage over it, even though I agree with you - you know, there is nice data that shows that people that don’t have diabetes can benefit from this, Robbie, and it helps sustain behavior modification.

Ultimately this is what it is, right - it’s using data to be able to kind of help people that want to stay healthy, give them more information, and ensure that they can refine their habits or change habits. I think that that is at the core there - it’s really communicating directly with consumers.

If you think about the diabetes space and how CGM uptake, you needed both a communication with the patient and you needed obviously a communication with the physician. I think that that’s still important for the non-diabetes.

I think that some people will want to have some sort of recognition from the healthcare professional that this might be a good investment to do in, right, and the key thing here is just the utilization.

I don’t think you’re going to see people that don’t have diabetes use this, you know, a sensor 365 days a year, but like I said, if they’re using a couple times a year, there’s still a benefit, and we’ll be generating data on this over time.

I think it’s going to be important to generate data, even if it’s not to communicate to payors to get reimbursement, but even if it’s to communicate to physicians, the primary care and the direct consumers, that there’s a value here of doing that.

I think the key thing here is personalization and how do you personalize information and the data and the coaching, so the strategy here is, yes, you’re doing to have to use TV to be able to communicate, but I don’t think it’s--I don’t think given our experience here that you could just go on TV and blast TV advertising and you’ll get this big uptake.

You’re going to have to do some on-the-ground kind of gorilla marketing - let’s call it like that, together with TV advertising to really be able to open up the market and then sustain it, right, and sustain its use.

That’s how we’re thinking about it, and that’s why we have a separate team completely removed from the Libre and the diabetes team, that they’re focusing on how to execute this strategy. I think it’s more of an S-curve growth versus an out-of-the-gate.

I know that everybody is focused on what the sales are in the second half, whether it’s me or the competitor. I think the bigger picture here is, hey, there’s a really big opportunity here and if we do it right, it’s an opportunity that will be more than a flash in the frying pan. It will sustain itself and it could become standard, so..

Great color. One more from me - Aveir and the leadless pacing, particularly the dual chamber now with coverage, I think is an underappreciated opportunity. Maybe if you don’t mind, spend a minute there, how you see this market evolving, and what’s the early feedback on the launch so far? Thanks..

Yes, I mean, ultimately I think this whole leadless is going to change the growth trajectory of our CRM business.

If you look at CRM, it grew 7% last year, it’s grown 7% the first half of this year - it was previously a flat business, and we’ve been doing that, I would say, with good success on dual, but I wouldn’t say that it’s at full cycle yet, because one of the things that we’re working on is ensuring that we’re doing the training and we’re getting physicians comfortable with the procedure, right? It’s a completely different procedure versus what the entire industry has been accustomed to.

We’re using mapping, we’re going into the groin versus doing pockets above the chest, so it is a little different and we’re focusing on that. That being said, we’ve been able to accelerate the growth rate just with a single chamber.

I think right now after two years, we’ve probably captured about 50 share, but to your point, the bigger opportunity is in dual, and the procedures are going great.

Once physicians get several under their--you know, experience with several of them, they’re talking about okay, how do we accelerate this and an opportunity to drive more patients into it, but we want to make sure we’ve got a pretty large base of well-trained, great outcomes physicians across the United States.

Listen, this is a $3 billion global segment and there really hasn’t been much innovation in it, and here you have something that’s truly unique and differentiated, and I’d say once we feel that we’ve gotten to a point where we feel good about the capabilities and training and the amount of physician coverage that exists, this is definitely a product that I can see going a little bit more mainstream, having more direct consumer communications because of the value proposition it affords them, so I think this is a great opportunity for us.

It might be under-appreciated with the market, but it is definitely appreciated amongst me and the device team and the CRM team, and we’re working hard to get to that point where you can really let it go strong..

Great, thank you very much..

Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is now open..

Good morning, thanks for taking the questions. Robert, I wanted to just start asking about just this multi-year trajectory for Abbott.

You’ve been delivering top tier organic revenue growth performance over the last two years and potentially have a two-year double-digit stacked comp next year, but I think the team has been publicly stating that potentially the business could outpace pre-pandemic levels, which were in that 7% to 8% range.

I think during this call, you’ve put forward a lot that supports that type of trajectory, but maybe just to reiterate your confidence level there, and is this kind of outpacing your pre-pandemic levels over the medium term dependent on M&A, or is this the core business with internal development programs that’s really going to drive this top tier growth out over the next couple of years?.

Was that an attempt to get to the 2025 kind of question? I’d say, listen - we’ve been saying that we made investments during COVID to accelerate the company, make it stronger, build our portfolio so we could accelerate the growth, right? If you look at the last six quarters, we’ve been delivering top tier, high single digit, double digit growth, and this is on a company that’s doing $40 billion-plus of revenues, so I think that’s pretty impressive.

If you look at our med tech portfolio, it was the fastest growing med tech portfolio last year, fastest growing in the first quarter of this year.

We’ll see what happens this second quarter, but we’ve positioned the company to be able to deliver this, and do I think that we can continue to deliver this top tier performance throughout this year and into next year? Yes, I absolutely do, because of, one, what we’ve built, and then just the evidence and the proof points that we’ve been able to reliably and sustainably deliver that.

So yes, we feel good about our ability. The markets that we’re participating in are attractive, so they are markets that we lead, and when those markets grow, our leadership benefits.

There are markets that are attractive that we’re entering, and there’s plenty of opportunity for market share gain; and there are markets that are attractive that we’re building, and there’s no real clinical opportunity--or there’s a clinical opportunity for our products that we’re developing to come in there, so as we build those markets, they become attractive and our position gets solidified.

I think that framework applies to all four of our business units have opportunities across those three frameworks.

On the M&A front, yes, if we’re able to find an asset that makes sense strategically to us, makes sense financially that could add even further to that growth, then we’ve got the balance sheet to be able to do that; but it’s not dependent--as I’ve told you, it’s really focused on the organic side to be able to deliver this top tier growth..

Understood, and thanks for that answer.

Another kind of high level question you probably receive regularly, but just wanted--it’s our understanding as well that your team, the Board ever year at least once a year, maybe multiple times a year, is just considering the strategic fit of the four major business units for Abbott, and maybe just if we could get an update on your thoughts on the business combinations and the potential for spins down the line.

Thanks a lot..

Well, we look at our portfolio on an ongoing basis.

I don’t think there’s this one moment in the year that we do it - we’re doing it on an ongoing basis, and the company has a history of ensuring that the portfolio that is assembled is not only delivering value to patients and governments and healthcare systems, but it’s also delivering value to our shareholders.

We historically haven’t shied away from asking ourselves the questions and answering those questions, and if there’s an opportunity to create value through addition or through subtraction, then the company has shown that it’s ready to do that.

I think the two fundamental questions about that is, is there an opportunity to create value for shareholders, and is there somebody that could do better with our businesses? Right now, you look at what we’re doing with our businesses, we’re performing at the highest level across all of the four segments.

We’ll see what happens during this earnings season here, but I feel very good about the team and what they’re doing.

Obviously there are areas that we could always do better, and we focus on that; but at the highest level, all four of our sectors have been delivering outstanding growth, market-leading growth, and quite frankly innovating and fulfilling our purpose and our mission, which is to help people live healthier lives. I like the diversity.

The diversity provides both defense and offense capabilities, and as long as you’re managing them within each one of their segments, allocating capital that is proportionate to their growth and their industry, and we spend a lot of time managing all four segments, then I think we’re doing a good job at running them..

Great, thanks a lot..

Thank you. Our next question will come from David Roman from Goldman Sachs. Your line is open..

Thank you and good morning everybody. I was hoping to ask one question on the P&L side and one on the capital allocation side. Maybe I’ll start with the P&L here.

As I kind of look at the guidance here for the back half of the year, our math implies it’s something like 100 basis points-plus of year-over-year operating margin expansion, and about 9% EPS growth at the midpoint of the range.

Can you maybe talk through some of the drivers that underpin that margin expansion on a year-over-year basis? Obviously we saw a turn here in Q2 versus what we saw in Q1, but maybe walk us through some of the drivers that get to that improved margin and earnings growth performance in the back half of the year..

Sure, I’ll let Phil take that..

Yes, good morning David.

Robert touched a little bit in his opening comments here on some of that expansion already this year, and we’re in a pretty unique position relative to some of our peers in terms of our op margin profile, that we’re already back to pre-pandemic levels, and we did that strategically through managing spend through the ups and downs of COVID testing.

As we talked earlier this year, Q1 was really the last big comp on COVID testing impacts on sales and profiles. With respect to margin expansion and gross margin in particular, the guidance for the year is around 75 basis points as you highlight some progress here, and more to go, but the trajectory is there.

We’re focused on the things that we can control and execute on, and in particular some of this great portfolio contribution from our sales top line performance, particularly in accretive businesses, is a contributor here, and one that we anticipate will continue to expand here throughout the year.

We have dedicated teams in each one of our businesses focused solely on gross margin improvement, productivity yield improvements, cost reductions, innovation that brings accretion to the portfolio. All of those elements are contributors here quarter in and quarter out and continue to contribute through the rest of the year.

Then we also have elements--we’ve talked about some of the cycles that we go through, be it in commodities markets and the like, some of the inflation the last few years, that are starting to sort of stabilize and normalize We’re seeing freight and distribution profiles normalize and start to be more a tailwind as opposed to headwind, and we’re also seen in commodity markets as well things not only stabilizing, but coming down and also contributing to tailwinds to gross margin, and anticipate that to persist here as well.

The combination of all of those contributes to the confidence here and continuing to drive the top tier sales performance, but also expand margins throughout the year..

Super helpful, thank you.

Then maybe just on the capital allocation side, maybe thinking about the other side of Josh’s question, if you look across the sector here, we’ve seen M&A pick up a little bit in the second quarter - I think there were two billion dollar-plus transactions announced with transaction multiples starting to trend toward the lower end of historical levels.

But could you maybe give us your latest perspective on the M&A environment and how you’re thinking about capital allocation as your cash balance continues to build nicely here?.

Well, on the capital allocation more broadly, listen - I’ve been pretty clear every call about we have a balanced approach, right? I know you guys cover a lot of companies that have different approaches. Our approach is balanced, and we believe that that balanced approach benefits the long term shareholder.

One of the metrics that I believe, David, is a good measure of evaluating capital deployment effectiveness is ROIC, and if you look at ROIC over the last three years, we’ve averaged around high teens, and that’s on the higher end of the med tech peers that we often get compared to, so.

We believe that ROIC is a good measure of how effectively we’re deploying the capital, and we look at a balanced approach, so are there internal capital investments that drive future growth. We’ve been talking about all these great opportunities we have, and we’re funding them and they have great returns.

Debt pay down - we don’t have much this year, but we took care of some towers last year because we didn’t want--we obviously didn’t want to refinance them. Dividend and buybacks are--you know, the dividend is definitely core to our investment identity, and we intend to continue to grow our dividend, so that is a balanced approach.

Even with all of that, we also, as you’ve probably seen, we have opportunity from a balance sheet perspective to deploy that from an M&A perspective, and we’ve been spending time talking about our strong top line and the pipeline that we’ve developed, and that allows us to be a little bit more selective.

You look at other transactions that happened and you have to ask, okay, what’s the strategy behind that, and a lot of the time you can see you’re having to sustain your growth rate, right? If you’re in the business of driving top line through acquisitions, then you’ve got to--you know, that’s part of your model, you’re going to have to keep doing that, whether the valuations are right or wrong, or not right.

But we look at these strategic fit, can they generate an attractive return, can we make the business better that we’re acquiring.

We don’t want to be just a holding, and I think that we’ve shown that when we do, do our acquisitions, that’s the framework, you know - fits in strategically, generates nice return, and we tend to operate them or add value to them than when they were a standalone, so..

Appreciate all the perspective, and thanks for taking the question..

Thank you. Our next question will come from Danielle Antalffy from UBS. Your line is open..

Hey, good morning guys, thanks so much for taking the question. Congrats on a really good quarter here.

Robert, one of the things that struck me when we spoke--I have two product-specific questions, when we last spoke is how you’re looking at the sustainability of historically slower growing businesses and areas exposed to historically slower growing markets, so obviously I’m thinking CRM.

Can you talk a little bit about the strategy there - obviously Aveir is a big part of that, and just leadless pacing in general, and how sustainable--I mean, it’s been, like, multiple quarters now of organic growth in the mid-plus single digit range, and then just one follow-up, another product question..

Yes, well that was part of our strategy as we looked at our med tech portfolio - you’ve obviously got high growth drivers there with EDP, structural heart, diabetes care, neuro, heart failure, and we looked at CRM and vascular, and those are more flat businesses, so the combination of all that is you had a med tech portfolio that was growing 7%, 8%, maybe 9% a quarter there.

To get to double digits, we needed those two businesses to get at least to mid single digits, right, and I’d say on the CRM side, our strategy there was to really focus on Aveir leadless pacemakers. You know, there’s a pipeline of products there - I don’t want to tilt my hand here, but we didn’t do Aveir DR and stop there.

The team’s gotten R&D programs to continue to advance those and even to look at the ICD market also and what are the opportunities that we can do to innovate.

But there is space to innovate in that market, and that for me is important, is the diabetes market, you know, 15 years ago, people would say, gee, that’s a slow growth market - well, now look at it, right? If you focus on innovation on meeting needs, unmet needs, you can turn a market around.

From a vascular perspective, as I said in my comments, we’re trying to--we’ve been repositioning the portfolio to more higher growth areas, peripheral areas, endovascular areas, but we started that a little bit later than what we did in CRM, so I expect to start to see our vascular business start to also contribute to a higher growth rate, the same way that CRM is, and that just kind of bolsters our entire med tech portfolio and gets us into that 12%, 13% growth rate, at least that’s our target..

Okay, that’s helpful. Then the follow-up question is on the structural heart side of things, and I know Amulet has been on the market for a little bit here, but my impression is that now it’s kind of like Abbott is no longer fighting with one hand tied behind their back.

Can you talk a little bit about that, and your 45% growth, I think you said in the quarter, where to from here for Amulet? Thanks so much for taking the questions..

Yes, so it was a great quarter. I think the team’s kind of hitting its stride right now. As I’ve said, our focus here was really to kind of drive adoption in the centers that we were at, versus expansion. The competitor has expanded the market - there is probably about 800 centers that are doing these implants, and we’re probably in about half of it.

Now, that’s good, right - that provides a market expansion dynamic here in the U.S., but-.

I mean, I’m really encouraged by some of the data that I’m seeing, and I think it starts with the data, right? You know, we had patient registry data come out where we showed that 95% closure rates were achieved post implant and sustained after 45 days, 90% of closure success rate using Amulet, for patients that actually fail to achieve proper closure rate with a competitive product, so I think that there’s an opportunity here for our value proposition, and then we’ve got to continue to invest.

We are already investing on our next-generation Amulet, focusing on ease of use, focusing--and we’ll maintain our superiority here that we believe we have regarding the ceiling of LEA.

We’re investing in clinical trials, obviously we’ve been public about Catalyst, which is a trial that will compare Amulet to NOAC and to ablation treatment, so this is an exciting market for us and we will continue to invest in it, and ultimately it comes down to really looking at surrounding the electrophysiologist with the most comprehensive portfolio, whether it’s on pacemakers and ICDs, structural heart interventions with stroke preventions, and then obviously ablations and AF treatment.

At its highest level, that’s the important side here, is Amulet fits an important role even though we report it as structural heart. It’s really playing a role here to surround the physician, the EP with the tools they need to advance care..

Thank you..

Operator, we’ll take one more question, please..

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

Hi Robert. Thanks for taking my question, and congrats on a nice sprint here. I wanted to touch on biosimilars - you know, you brought this up on the call.

Can you elaborate on your strategy there? Are you planning to manufacture these products? Is Abbott going to be a CDMO in that space or do you plan to launch your own biosimilars, or is this more of Abbott being a distributor and taking advantage of your brand presence in emerging markets? What is Abbott’s role in that place, and how do you size that market opportunity for Abbott? When should that start contributing to Abbott?.

Sure. You know, this is one where I’d say there’s a couple phases to the strategy. The core premise of this, Vijay, is if you look at the emerging markets and the disease prevalence that exists in these emerging markets, they’re no different than the disease prevalence in the U.S or Europe.

You could look at some of them are higher, etc., but in general there’s an opportunity to bring these biologics into the emerging market. For a variety of reasons, those markets have not been a priority for the originators.

Their main focus has obviously been in the international developed markets - U.S., Western Europe, Japan, Canada, Australia, etc., so this provides just a patient need opportunity that we want to size up.

What we’ve seen through some of our--you know, we have done some more regional biosimilar deals that we’ve launched, and what we’ve seen is that the growth of the molecule grows significantly once a biosimilar enters in terms of penetration into a patient population.

It’s a different dynamic in developed markets, as we know, but in emerging markets the category really expands, so what we wanted to do is to say, okay, before we start to think about manufacturing, before we start to think about that, we want to be able to understand what is the uptake of these products once you go ahead and put a concerted effort to developing these types of products in emerging markets.

It fits right into our wheelhouse, where we’ve got relationships with governments, we have relationships with physicians, and we’ve got relationships with the distribution area.

The question is how can you do it in--how can you execute that strategy that’s capital efficient and doesn’t erode gross margin of that business, and I give a lot of kudos to the team because they’ve really been able to position our presence in these markets as an advantage to these players that really aren’t focusing on emerging markets, they’re focusing more on the opportunity that exists in developed markets, and now they can partner with one single company, reputable company to be able to use that capacity in other markets.

I’d say we’re in the phase right now of, okay, is there sustainability to this, so the deals that we’ve done give us access, our gross margin is not dilutive, and we’re going to see how it goes.

As you think about the ramp-up of what we’ve got in the pipeline, we’ll start launching in 2025, but you look at some of the big molecules that will come up for us ’26,’27, that’s I think when some of these very large oncology opportunities that we have will play a huge role for us and accelerate the growth there..

That’s helpful. Maybe one last one on capital deployment. I know it’s been asked - I’m curious on share repurchases. You guys have done phenomenal growth. The street doesn’t seem to be giving credit. Why not? You didn’t see any share repurchase in the first half.

Why is Abbott being conservative on share repurchases?.

Yes, well we’ve done a lot of share repurchases over the last couple of years, say catching up a little bit, to maybe not doing as much repurchasing after the two acquisitions we did in 2017 and 2018.

If you look at our repurchases and dividends, it’s been about $20 billion that we’ve returned over the last four years, Vijay - $20 billion in dividends and buybacks, and that accounts for a good amount of our free cash flow over the last couple of years to our shareholders. We’re not--the year’s not over, and again we’ll see opportunities.

We’ve got plenty of opportunities to be able to do that, so I’d say I think we’ve done a pretty good here at returning cash back to our shareholders over the last couple of years, and that commitment we’ll maintain, so..

I’ll just close here. This was a great quarter for us and, quite frankly, a great quarter in connection with five quarters before that, where we’ve delivered above-market growth. I’m really pleased with our continued strong performance. We’ve raised our sales outlook, our EPS ranges for the second time this year.

The toughest COVID test comps are now behind us, so I look forward to not having to--you know, we’ll obviously report our COVID testing sales, but you’ll start to see those comps start to dwindle away now, which means then that our EPS is back to growth.

I think one of the questions there about showing our EPS exiting the year in high single digits, double-digit kind of range and getting back to our formula, that’s what we’re interested in, and we’ve got a lot of positive momentum here heading into the second half of the year. With that, we’ll wrap up, and thank you for joining us..

Thank you Operator, and thank you all for your questions. This now concludes Abbott’s conference call. A webcast replay of this call will be available after 11:00 am Central time today on Abbott’s Investor Relations website at abbottinvestor.com. Thank you for joining us today..

Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day..