Abbott CEO White 'cautious' on China pediatric nutrition sales in Q2 call

China

On the second quarter earnings call, Abbott Laboratories ($ABT) CEO Miles White noted weaker pediatric nutrition sales--milk powder--in China in comments notable against a backdrop of the end of the one-child policy and efforts by regulators to crack down on quality issues with domestic brands.

"I'd say you can see in our numbers it's a strong quarter across the board, across the world in all of our businesses but one," White said in response to a question from an analyst.

"And the Nutrition business is weaker and the weakness is primarily focused on China pediatric, really nowhere else. What's been not only forecasted by some of our global competitors but also our own experience has been a slowing of growth in the China pediatric market."

Earlier this year, another strong player in the overall pediatric segment in China--Johnson & Johnson ($JNJ)--said it was still early to tell whether China's moves to end the one-child policy in October last year and allow two children flowed through to over-the-counter baby care and women's health products.

The impact of the policy change is being closely watched by analysts and though it is less than a year--and barely 9 months since the official announcement--there had been speculation that a mini-boom in pediatric over-the-counter and related pharmaceuticals could be in the offing.

White, however, said the Nutrition business actually fell from a year ago.

"Last year at this time I think that market was probably 13%, 14% growth estimated and this year it's probably just under half that would be our estimate," he said in the July 20 call. "And I think that's probably consistent with what some of our competitors have seen or expressed as well."

Abbott said in its release that international nutrition sales reached $990 million in the second quarter, up 2.8% on a reported basis and 5.3% on an operational basis without a breakout for China.

"So I'm a little cautious on the second half. I don't expect that to change on this particular business. I don't expect that growth rate or that let's just call it softness--it's not softness in terms of decline, it's just slower growth."

Still, White said that there may be other changes happening to account for the slowdown such as more breastfeeding in China.

Other analysts have questioned whether Chinese households are showing caution on adding more members to the family because of costs, or whether domestic brands are finally gaining acceptance after a horrific scandal in 2008 that found the toxic chemical melamine in the baby formula of a leading dairy firm.

White did, however, say that Established Pharmaceuticals showed continued strength.

"Sales growth (in Established Pharmaceuticals) of 9.5%, or 14% excluding the impact of Venezuela, was led by balanced growth across several markets including India, China and several countries in Latin America," White said.

"The acquisitions and subsequent integrations of both CFR Pharmaceuticals and Veropharm have exceeded our expectations and are contributing to strong growth overall."

- here's the earnings release from Abbott

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