Abbott Laboratories (NYSE:ABT)‘ first-quarter earnings were boosted by its nutritional product lines, which include baby formula Similac, adult drink Ensure, and Glucerna bars. In January 2013, the company decided to move away from branded pharmaceuticals, splitting the business into AbbVie Inc (NYSE:ABBV) The company’s focus has turned to the nutritional products market.
The nutritional products sector is growing rather quickly, especially in emerging markets such as China and India. In the past five years, Abbott Laboratories (NYSE:ABT) has made substantial investments to meet demand in these markets by building, manufacturing, and investing in research and development facilities.
Pediatric nutrition is a particularly hot niche within the nutrition market; global sales in this sector rose by more than 20% compared to an increase of 9% in overall global nutrition sales. Abbott’s Q1 pediatric nutrition sales were $987 million, an increase of almost 2.5%; overall nutrition had sales of $17 billion, a rise of 8.7%.
According to Forbes, CEO Miles White projects that the company’s future lies in meeting the demand of emerging markets such as India, China, and Brazil. Emerging market sales totaled $2.2 billion, and made up more than 40% of Abbott’s total Q1 sales. These markets provide opportunities, such as higher spending on health care, and challenges, such as austerity measures that have adversely affected sales. Abbott Laboratories (NYSE:ABT)plans to expand and add more facilities in China, India, and Singapore. According to White, these facilities helped the company bring 19 new nutritional products to market in Q1.
In contrast, rival Nestle reported Q1 organic growth of 4.3% and a full year outlook of growth between 5% and 6%. Sales increased 5.4%. Nestle is also experiencing good results in emerging markets, where business grew 8.4%. Infant nutrition grew by double-digits in Q1, and the company was able to gain market share in Russia, France, Brazil, and other countries.
Another competitor, Mead Johnson Nutrition CO (NYSE:MJN), reported Q1 sales of $1.04 billion, an increase of 5% over last year’s quarter. Emerging markets also factored into the rise with 7% growth in the Asia/Latin American market as against 1% growth in Europe and North America. In its press release, Mead also mentioned about concerns with future sales in the Hong Kong/China region, where regulations went into effect on March 1, limiting exports into the area.
According to Forbes, most analysts believe Abbott Laboratories (NYSE:ABT)’s future growth will be driven by its nutritional product lines, and majority of the sales will be coming from emerging markets. Forbes quotes Morgan Stanley’s David Lewis, stating that “nutritionals is the key driver for Abbott and China is the catalyst.” Lewis goes on to say that the global nutritional market will derive about 60% of its growth from the Chinese market.
The Motley Fool’s Keith Speights expects decent profits from Abbott in the future, but investors should not expect double-digit growth after the spin-off of the company’s pharmaceutical business.
Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Abbott Shifts Focus to Nutrition Demand Overseas originally appeared on Fool.com.
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