Abbott eager on emerging markets, in Venezuela to stay

Abbott Laboratories ($ABT) Chairman and CEO Miles White said that despite soaring inflation and a crashing exchange rate, the company will continue business in Venezuela hit by weak oil prices and political turmoil--and the same goes for emerging markets generally.

Abbott CEO Miles White

In a Jan. 28 earnings call that discussed Venezuela and emerging markets at length, White was asked why the company did not just trim or halt operations during the current instability.

"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," White said.

"And a lot of times in the past 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."

The comments came as the earnings hit from Venezuela in the fourth quarter showed on the bottom line for Abbott, which posted net profit of $767 million, down from $905 million in the same quarter a year ago. Revenues fell 3.1% to $5.19 billion.

Abbott is increasingly unique in the emerging markets space with its mix of established pharmaceutical, nutrition and devices joined by acquisitions such as Veropharm in Russia and CFR Pharmaceuticals in Chile, points that White brought up in assessing the company's performance. He did so as slowing economic growth in emerging markets becomes a key point for analysts following the firm.

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

On the nutrition business, White said the company "achieved double-digit growth and share expansion in China with a portfolio of pediatric nutrition products that are customized to meet local preferences"--an important dynamic to watch after the country in October of last year ended its one-child policy and allowed families to have two children.

In fact, White discussed at length his views that the China slowdown story was overblown, along with the case that emerging market plays were on the wane.

"The frustrating thing, and I think it's frustrating for a lot of multinational companies that are U.S.-based is, the underlying market dynamics remain strong in a lot of places," White said. "Every morning, we get up, we see CNBC, and 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."

However, he noted the impact of weak oil prices from Saudi Arabia to Venezuela do have a big impact and the company expects that to continue to hit sales in 2016.

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

But Abbott remains on the lookout for what White said were a limited number of opportunities to buy into emerging markets and that economics play an important role in pulling the trigger on any M&A deals.

"Everybody is out there trying to buy stuff," White said. "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."

He did say that branded generic pharmaceuticals are a good area to look at if the valuation presents an "opportunistic" play.

- here's the release

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