Executive Summary / Key Takeaways

• Abbott Laboratories demonstrated resilient performance in Q1 2025, achieving high single-digit organic sales growth (8.3% excluding COVID testing) and double-digit adjusted EPS growth (11%), reaffirming its full-year guidance despite emerging tariff impacts.
• The company's diversified business model across Medical Devices, Diagnostics, Nutritionals, and Established Pharmaceuticals, underpinned by a global manufacturing network and a robust pipeline of over 25 new products, provides a strategic advantage in navigating dynamic global environments.
• Technological leadership, particularly in Continuous Glucose Monitoring (FreeStyle Libre, Lingo, Rio), Electrophysiology (Volt PFA, Aveir leadless pacemaker), and Structural Heart (TriClip, Navitor, Amulet), is a key driver of market share gains and premium positioning, contributing significantly to top-line growth and margin expansion.
• While facing specific challenges like volume-based procurement in China impacting Diagnostics and ongoing NEC litigation, Abbott is leveraging operational efficiencies, gross margin improvement initiatives, and spending discipline to maintain profitability and deliver on financial commitments.
• Management's reaffirmed 2025 guidance for 7.5% to 8.5% organic sales growth and $5.05 to $5.25 adjusted EPS reflects confidence in the underlying business momentum, pipeline contributions, and ability to mitigate external pressures, positioning Abbott for continued strong performance.

Abbott Laboratories: Innovation Fuels Resilient Growth Amidst Headwinds

Abbott Laboratories stands as a diversified healthcare powerhouse, operating across four distinct yet complementary segments: Medical Devices, Diagnostics, Nutritionals, and Established Pharmaceuticals. This broad portfolio, coupled with a deep history of innovation and a vast global footprint encompassing ninety manufacturing sites, forms the bedrock of its strategy. This structure has historically enabled Abbott to adapt and thrive amidst various global complexities, from pandemics to economic shifts and geopolitical tensions. The company's strategic focus centers on developing market-leading products, leveraging its scale and operational efficiency, and expanding its presence in attractive, growing markets worldwide.

Within the competitive healthcare landscape, Abbott faces a diverse array of rivals, including large, diversified players like Johnson & Johnson (JNJ) and Medtronic (MDT), as well as segment-specific competitors such as Pfizer (PFE) in pharmaceuticals and diagnostics, and Novartis (NVS) in pharmaceuticals. While precise, directly comparable market share figures across all niche competitors are not publicly detailed, Abbott's strong performance in key areas suggests a competitive edge. The company strategically positions itself by emphasizing technological differentiation, clinical evidence, and the ability to offer integrated solutions across its portfolio. For instance, its Medical Devices segment leverages synergies between different cardiovascular product lines, while its Diagnostics business aims to provide comprehensive testing platforms. Challenges like volume-based procurement (VBP) programs in China and intense competition in specific device markets necessitate continuous innovation and operational discipline to maintain market standing.

Technological Leadership Driving Differentiation

Abbott's investment thesis is deeply intertwined with its technological prowess and relentless pursuit of innovation. The company's R&D pipeline is a critical engine, expected to yield over 25 key new product launches in the next three years. This focus on next-generation technologies provides a significant competitive moat and fuels future growth.

A prime example is the FreeStyle Libre continuous glucose monitoring (CGM) system. This technology offers a less invasive, more convenient way for people with diabetes to monitor glucose levels compared to traditional fingerstick methods. The system's tangible benefits include ease of use, real-time data tracking, and connectivity with smartphone apps and insulin delivery systems through strategic partnerships. Recent expansions include the launch of Lingo and Libre Rio in the U.S. in Q2 2024, targeting the non-diabetic health and wellness market and Type 2 non-insulin users, respectively, leveraging the core Libre technology platform. Management views the Libre platform as having mass market potential, extending beyond traditional diabetes management.

In Electrophysiology, Abbott's Volt Pulse Field Ablation (PFA) System, which received CE Mark in March 2025, represents a significant technological advancement for treating atrial fibrillation. PFA uses high-energy electrical pulses to ablate cardiac tissue, potentially offering improved targeting and safety compared to traditional radiofrequency or cryoablation methods. Abbott is also a leader in cardiac mapping technology, which is crucial for guiding ablation procedures, and management noted in Q1 2025 that they continue to be the market leader in mapping PFA cases. The company is also advancing its Aveir leadless pacemaker technology, including the dual-chamber system (CE Mark in June 2024) and a new version for left bundle branch pacing (Breakthrough Designation), aiming to fundamentally change the standard of care in the pacing market by offering less invasive options.

The Structural Heart portfolio showcases a range of innovative devices. The TriClip tricuspid repair system, launched in the U.S. in 2024 and receiving CE Mark in March 2025, addresses a previously underserved patient population with leaky tricuspid valves. Recent two-year data from the TRILUMINATE pivotal trial demonstrated significant benefits, including reduced heart failure hospitalizations and improved quality of life. Abbott is also gaining share in the transcatheter aortic valve replacement (TAVR) market with its Navitor valve and expanding adoption of its Amulet left atrial appendage (LAA) occlusion device. In Vascular, the Esprit below-the-knee resorbable stent, launched in the U.S. in Q2 2024, offers a novel approach to treating peripheral artery disease. Furthermore, Abbott initiated a U.S. pivotal trial for its coronary intravascular lithotripsy (IVL) system in March 2025, targeting severe calcification in coronary arteries, a large and growing market segment.

These technological advancements contribute directly to Abbott's competitive moat by offering differentiated clinical benefits, driving market adoption, supporting premium pricing, and contributing to favorable sales mix and gross margin expansion. The ongoing R&D investment ensures a continuous pipeline of next-generation products to sustain growth.

Segment Performance and Financial Strength

Abbott's diversified structure was evident in its Q1 2025 performance. Total net sales grew 4.0% on a reported basis and 6.9% organically, or 8.3% organically excluding the impact of declining COVID-19 testing sales. Foreign exchange headwinds unfavorably impacted sales by 2.8%.

The Medical Devices segment was the primary growth engine, with organic sales increasing 12.6% to $4.9 billion. This was fueled by robust demand for Diabetes Care products, where CGM sales reached $1.7 billion and grew over 20% organically (30% in the U.S.). Strong performance was also seen in Structural Heart (+14.7% organic), Heart Failure (+12.4% organic), and Electrophysiology (+9.9% organic), driven by new product adoption and increasing procedure volumes.

The Established Pharmaceutical Products segment, focused on branded generics in emerging markets, delivered solid organic growth of 7.8% to $1.3 billion, led by a 9.3% increase in Key Emerging Markets across various therapeutic areas. The strategic focus on biosimilars is expected to contribute to future growth, with 15 products projected over the next three years.

Nutritional Products organic sales increased 6.2% to $2.1 billion. This growth was driven by strong performance in U.S. Pediatric Nutritionals (+14.2% organic) and International Adult Nutritionals (+10.6% organic), although International Pediatric Nutritionals saw a decline (-4.8% organic). Management noted that U.S. Adult Nutritionals were partially offset by the discontinuation of the ZonePerfect line in March 2024.

The Diagnostic Products segment faced headwinds, with organic sales decreasing 4.9% to $2.1 billion. This decline was primarily attributed to lower demand for COVID-19 tests in Rapid Diagnostics (-16.1% organic) and the impact of volume-based procurement programs in China on Core Laboratory (+0.9% organic, but 6.5% excluding China). Abbott is investing $500 million in new U.S. transfusion diagnostic facilities and developing the Alinity N system for the $1 billion molecular blood screening market to bolster this segment.

Financially, Abbott demonstrated strong operational efficiency. The adjusted gross margin expanded by 140 basis points to 57.1% in Q1 2025, reflecting ongoing improvement initiatives and favorable foreign exchange impacts. Adjusted operating margin also increased by 130 basis points to 21.0%. Research and development expenses increased 4.6%, supporting the robust pipeline, while selling, general, and administrative expenses increased 3.5%.

Abbott maintains a strong balance sheet and generates robust cash flow. Net cash from operating activities increased to $1.4 billion in Q1 2025, a $392 million increase year-over-year, primarily due to higher operating earnings. The company repaid $1.0 billion in maturing debt in March 2025 and expects to maintain its investment-grade credit rating. Working capital increased to $10.1 billion, driven by inventory and receivables growth. Abbott's balanced capital allocation strategy includes significant investments in the business, debt management, a long history of dividend increases (53 consecutive years, a Dividend Aristocrat), and share repurchases, with a $7.0 billion authorization approved in October 2024.

Outlook and Strategic Resilience

Abbott reaffirmed its full-year 2025 guidance, projecting organic sales growth in the range of 7.5% to 8.5% and adjusted earnings per share between $5.05 and $5.25. This implies double-digit EPS growth at the midpoint, a return to the company's historical growth formula now that the significant COVID testing headwind is largely behind it. The guidance for Q2 2025 adjusted EPS is set at $1.23 to $1.27.

Management's confidence in achieving this outlook is grounded in the momentum of the core business, the expected contributions from the rich product pipeline, and the ability to continue expanding margins through operational efficiencies and favorable mix. While foreign exchange is expected to present an unfavorable impact of around 1% on full-year reported sales, and the effective tax rate is forecast to increase to 16-17% due to Pillar 2 adoption, the underlying business performance is anticipated to absorb these pressures.

The emergence of new tariff policies is a notable external challenge, estimated to have a "few hundred million dollar" impact in 2025, primarily starting in Q3. However, Abbott is leveraging its extensive global manufacturing network and supply chain expertise to implement mitigation strategies, focusing on both short-term levers (FX, interest, tax) and long-term manufacturing optimization to sustainably manage the impact. Management emphasized that their diversified model and experience in navigating complex environments position them well to address this.

Key Risks and Challenges

Despite its strengths, Abbott faces several risks. The ongoing NEC litigation related to preterm infant formula poses a significant, albeit currently unquantifiable, potential financial risk, with adverse jury verdicts and appeals underway. Abbott maintains its products are medically necessary and the claims lack scientific merit, but the resolution of these cases could be material.

Challenges in the Diagnostic segment, particularly the impact of VBP programs in China, are expected to persist, requiring the company to accelerate growth in other geographies and product lines to compensate. While temporary supply challenges for products like Libre 3 have been addressed, maintaining sufficient manufacturing capacity to meet surging demand for high-growth products like CGMs remains an ongoing operational focus.

Furthermore, the competitive intensity across all segments, particularly in high-growth areas like EP (PFA) and Structural Heart, requires continuous investment in R&D and commercial capabilities to maintain market share and pricing power. Changes in healthcare regulations, reimbursement policies, and global economic conditions, including foreign exchange volatility and potential future tariff expansions, also represent ongoing external risks that could impact financial performance.

Conclusion

Abbott Laboratories' Q1 2025 results underscore the resilience and strategic effectiveness of its diversified healthcare model. Despite facing specific challenges in its Diagnostics segment and navigating emerging external pressures like tariffs, the company delivered strong underlying organic growth and double-digit EPS expansion, reaffirming its ambitious full-year guidance. The core investment thesis remains centered on Abbott's ability to leverage its technological leadership and robust pipeline to drive market share gains and create new growth opportunities across its Medical Devices, Nutritionals, and Established Pharmaceuticals segments.

The company's operational discipline, demonstrated by consistent gross and operating margin expansion, provides a crucial buffer against macroeconomic headwinds and investments in future growth. While the NEC litigation and ongoing VBP impacts warrant close monitoring, Abbott's strong balance sheet, cash flow generation, and commitment to shareholder returns through dividends and buybacks provide a foundation of financial stability. With a clear strategic roadmap focused on innovation, market expansion, and operational excellence, Abbott appears well-positioned to continue delivering top-tier performance and create value for investors in a dynamic global healthcare market.