Executive Summary / Key Takeaways

• Diversified Innovation Drives Core Growth: Abbott Laboratories continues to demonstrate robust organic growth, fueled by a highly productive pipeline across its Medical Devices, Established Pharmaceuticals, and Nutritional segments. New product launches contributed nearly $5 billion in sales and over 100 basis points to organic growth in Q3 2025 alone.
• Strong Financial Performance and Margin Expansion: Despite facing significant headwinds from declining COVID-19 testing sales and challenging market conditions in China, Abbott delivered 7.5% organic sales growth (excluding COVID-19 tests) and $1.30 adjusted EPS in Q3 2025. The company is on track for high single-digit organic sales growth and double-digit adjusted EPS growth for the full year 2025, driven by gross margin expansion and operating leverage.
• Technological Leadership in Key Markets: Differentiated technologies like the FreeStyle Libre CGM systems, Aveir leadless pacemakers, and the newly launched Volt PFA system are expanding market share and setting new standards of care, underpinning long-term growth.
• Strategic Mitigation of External Pressures: Abbott is actively managing the impact of new tariff policies through its extensive global manufacturing network and operational efficiencies, aiming for sustainable long-term solutions rather than short-term fixes.
• Positive Outlook for 2026 and Beyond: With major headwinds expected to subside and a strong cadence of new product launches planned, management is confident in sustaining high single-digit organic sales growth and double-digit EPS growth into 2026, aligning with its historical performance and long-term targets.

A Diversified Healthcare Powerhouse Forges Ahead

Abbott Laboratories, founded in 1888, has evolved into a global healthcare leader with a diversified portfolio spanning Established Pharmaceutical Products, Nutritional Products, Diagnostic Products, and Medical Devices. This broad reach provides a unique vantage point across the healthcare spectrum, from nutrition to advanced medical technologies, and serves as a foundational strength, enabling resilience amidst global complexities. The company's long-standing strategy emphasizes aligning manufacturing close to customers and maintaining redundancy across its approximately ninety global manufacturing sites, a framework that has proven critical in managing geopolitical and economic shifts.

The healthcare industry is characterized by increasing demand driven by favorable demographics, a growing middle class in emerging markets, and continuous innovation. Abbott's overarching strategy is to capitalize on these trends by consistently delivering high-quality, innovative solutions that address significant patient needs. This approach has allowed Abbott to not only maintain its competitive edge but also to expand into new, high-growth areas, leveraging its robust R&D capabilities and global commercial infrastructure.

Technological Edge: The Engine of Differentiation

Abbott's investment thesis is deeply rooted in its technological differentiation and relentless innovation, which serve as powerful competitive moats. The company consistently introduces new products that either enhance existing therapies or create entirely new market segments.

A prime example is the FreeStyle Libre continuous glucose monitoring (CGM) system, a core differentiated technology that has revolutionized diabetes management. Libre offers tangible benefits over traditional blood glucose monitors by providing continuous, real-time glucose data, empowering patients and clinicians with actionable insights. This technology has driven significant market penetration, with Abbott holding approximately a 70% global market share in CGM systems. In the U.S. alone, Libre's market share on a revenue basis increased by more than 10 percentage points over three years by 2024. The company is further advancing this technology with a dual analyte sensor, expected to be a "real next level" change for intensive insulin users. This sensor aims to integrate ketone monitoring, which is crucial for preventing diabetic ketoacidosis and could facilitate the prescription of SGLT2 inhibitors for Type 1 diabetes patients, offering cardiovascular benefits despite DKA risks.

In the cardiovascular space, Abbott's AVEIR leadless pacemaker is fundamentally changing the standard of care for cardiac pacing. This innovative device is expanding the market and capturing share in both single and dual chamber pacing segments, contributing to the Cardiac Rhythm Management (CRM) business outperforming the market for ten consecutive quarters. A next-generation AVEIR is in development, projected to increase battery life by approximately 25%, extending its utility for younger patients. Furthermore, the leadless conduction system pacing product, an AVEIR variant, has received breakthrough designation from the FDA, with a pivotal trial targeted for 2026. This novel approach aims to mimic the heart's natural electrical rhythm more closely.

Abbott's commitment to innovation extends to its Electrophysiology (EP) and Structural Heart portfolios. The Volt Pulsed Field Ablation (PFA) system, which received CE Mark in March 2025, is a significant technological differentiator in treating atrial fibrillation. Volt delivers energy in a focused direction, creating broader, deeper, and seemingly more durable lesions while minimizing the risk of hemolysis. Its integration with the Insight mapping system provides real-time contact visualization, a "game changer" that reduces the number of applications and muscle contraction, potentially allowing procedures to be performed with conscious sedation rather than general anesthesia. This offers a significant advantage in a market where efficacy and efficiency are becoming table stakes, shifting competitive differentiation to durability and safety.

In Structural Heart, the Tendyne transcatheter mitral valve replacement (TMVR) system received FDA approval in May 2025, offering a new treatment option for patients with mitral valve disease who are not candidates for open-heart surgery. Additionally, the TriClip system for tricuspid regurgitation received regulatory approval in Japan in July 2025, building on its "excellent safety record" and strong market preference. The Navitor transcatheter aortic valve implantation (TAVI) system also secured an expanded CE Mark in August 2025 for low or intermediate-risk patients. Abbott's R&D pipeline includes a next-generation Amulet device, aiming to improve deployment and delivery while maintaining superior sealing capabilities, and a transfemoral mitral valve replacement product (from the Cephea Valve Technologies acquisition) with FDA breakthrough designation and a pivotal trial planned for 2026.

Beyond devices, Abbott is expanding its Diagnostics segment with the Alinity N system for molecular nucleic acid testing (NAT) in blood screening, targeting a $1 billion market opportunity. This system, combined with Abbott's existing serology, automation, and digital services, creates a strong competitive offering. The company is also investing in two new manufacturing and R&D facilities in Illinois and Texas, totaling $500 million, to expand its U.S. transfusion diagnostic business by the end of 2025. These technological advancements, supported by substantial R&D spending (up 5.4% to $2.207 billion in 9M 2025), are central to Abbott's strategy for sustained market leadership and financial growth.

Financial Performance: Resilience Amidst Headwinds

Abbott's financial performance in 2025 reflects the strength of its diversified model, delivering consistent growth despite notable external pressures. For the third quarter ended September 30, 2025, Abbott reported net sales of $11.369 billion, an increase of 6.9% year-over-year. Excluding the impact of COVID-19 testing-related sales, organic sales growth was a robust 7.5%. For the first nine months of 2025, total net sales reached $32.869 billion, up 6.1% (6.4% organic excluding foreign exchange). Adjusted diluted earnings per share (EPS) for Q3 2025 was $1.30, up high single digits year-over-year, and $2.70 for the first nine months of 2025.

The Medical Devices segment was a primary growth engine, with sales increasing 12.5% organically in Q3 2025 and 12.4% for the first nine months of 2025. This was driven by double-digit growth across Diabetes Care (CGM sales of $2 billion in Q3 2025, up 17%), Electrophysiology (up double digits), Cardiac Rhythm Management (up 13%), Heart Failure (up 12%), and Structural Heart (up 11%). The Established Pharmaceutical Products (EPD) segment also showed strong performance, with 7.1% organic growth in Q3 2025 and 7.5% for the first nine months, led by double-digit growth in key emerging markets. Nutritional Products grew 4.0% organically in Q3 2025 and 4.5% for the first nine months, primarily from adult nutrition, where international sales grew 10%.

However, the Diagnostic Products segment faced significant headwinds, with sales declining 7.8% organically in Q3 2025 and 4.8% for the first nine months. This was largely due to a sharp decline in COVID-19 testing-related sales, which totaled only $69 million in Q3 2025 compared to $265 million in Q3 2024, and challenging market conditions in China, including volume-based procurement (VBP) programs. Excluding China, Core Lab Diagnostics still managed to grow 7% in Q3 2025, with an acceleration in the U.S. market.

Profitability metrics demonstrate Abbott's operational effectiveness. The adjusted gross margin profile for Q3 2025 was 55.8% of sales, and for the first nine months, it improved to 52.4% from 51% in the prior year. This expansion reflects "favorable gross margin improvement initiatives," partially offset by higher costs, including tariffs, and unfavorable foreign exchange impacts. Adjusted operating margin for Q3 2025 increased 40 basis points year-over-year to 23.0% of sales. Selling, general, and administrative (SG&A) expenses increased 4.7% to $9.203 billion for the first nine months of 2025, reflecting increased selling and marketing investments to drive growth. Interest expense decreased due to debt repayments, with $1.5 billion repaid in 2025.

Liquidity and Capital Allocation

Abbott maintains a strong financial position, evidenced by its investment-grade long-term debt ratings of AA- (S&P Global Ratings) and Aa3 (Moody's Investors Service). As of September 30, 2025, cash and cash equivalents stood at $7.511 billion, and working capital increased to $10.30 billion from $9.50 billion at the end of 2024. Net cash from operating activities for the first nine months of 2025 was $6.30 billion, an increase of $561 million year-over-year, primarily driven by higher segment operating earnings.

The company's capital allocation strategy is balanced, prioritizing reinvestment in the business, funding capacity expansions, debt repayment, and returning capital to shareholders. In 2024, Abbott generated $8.5 billion in operating cash flow, allocating $5 billion to dividends and share repurchases. The company has actively managed its debt, repaying $1.5 billion in 2025, and has an additional $3 billion in debt maturing in 2026. Shareholder returns are a consistent focus, with Abbott declaring its 407th consecutive quarterly dividend in September 2025 and increasing its dividend payout for 53 consecutive years, making it an S&P 500 Dividend Aristocrat.

Competitive Landscape and Strategic Positioning

Abbott operates in highly competitive markets, facing rivals across its diverse segments. In Medical Devices, key competitors include Medtronic (MDT) in cardiovascular and diabetes, and Johnson & Johnson (JNJ) in various device categories. In Diagnostics, Thermo Fisher Scientific (TMO) is a significant player. For Established Pharmaceuticals, Pfizer (PFE) and other pharmaceutical giants compete in branded generics and biosimilars.

Abbott's competitive advantage stems from its diversified portfolio, which provides operational resilience and multiple "shots on goal" for growth. Its technological leadership in areas like CGM (70% global share) and leadless pacemakers (outperforming the market for ten consecutive quarters) allows it to capture significant market share and often set new standards of care. The Volt PFA system, with its unique energy delivery and integration with Insight, positions Abbott strongly against other PFA systems by emphasizing safety and real-time visualization. While competitors like JNJ and PFE may exhibit strong innovation in specific pharmaceutical areas, Abbott's integrated approach across devices, diagnostics, and nutrition offers a more holistic patient-centric solution.

In Diagnostics, while facing challenges from China's VBP programs (which impacted sales without corresponding volume offsets), Abbott's performance outside China remains strong, with Core Lab Diagnostics growing 7% in Q3 2025 (excluding China). The upcoming Alinity N system is poised to enter a new, lucrative segment of the blood screening market, enhancing its competitive offering. In Nutritional Products, strong brand recognition for Ensure and Glucerna, coupled with continuous product innovation (e.g., new Glucerna with 1g sugar, Ensure with 42g protein), helps maintain market leadership despite competitive pressures, such as those experienced in U.S. Pediatric Nutritionals due to a competitor's supply recovery and a lost WIC contract. Abbott's strategy to expand its commercial presence in the U.S. TAVR market, doubling its team by year-end 2025, aims to increase its penetration beyond the current 5% of implanting hospitals.

Outlook and Forward Guidance

Abbott's management is confident in its ability to sustain strong performance, providing full-year 2025 organic sales growth guidance in the range of 7.5% to 8.5% and adjusted EPS guidance of $5.05 to $5.25, reflecting double-digit growth at the midpoint. This outlook is underpinned by several key assumptions and strategic initiatives.

Management anticipates increasing contributions from new product launches, including the Volt PFA system (international rollout in 2025, U.S. approval expected early 2026), the dual analyte Libre sensor, the Alinity N diagnostic system, and biosimilars (with launches beginning in 2025 and expanding in 2026). These innovations are expected to gain momentum throughout the year and into 2026. Robert Ford expressed comfort with consensus estimates for 2026, projecting sustained "high single-digit top line growth [and] double digit EPS growth," driven by underlying momentum in the current portfolio, new product launches, and the easing of 2025 headwinds.

Specifically, the significant headwinds in Diagnostics, including the decline in COVID-19 testing sales and the impact of China's VBP programs (a projected $700 million or 750 basis points headwind for FY2025), are expected to be fully lapped by 2026, with some moderation beginning in Q4 2025. Abbott also forecasts an improvement in its full-year 2025 adjusted gross margin profile to approximately 57% of sales (an 80 basis point improvement) and an adjusted operating margin profile of 23.5% to 24% of sales (a 150 basis point improvement), driven by gross margin initiatives and spending leverage. While foreign exchange is expected to have an unfavorable impact of approximately 2.5% on full-year reported sales in 2025, and the adjusted tax rate is projected to increase to 16-17% due to the Pillar 2 tax framework, management believes these factors are manageable within their financial framework. The company also plans to conduct close to 200 clinical trials in 2026, demonstrating an unwavering commitment to pipeline investment.

Risks and Challenges

Despite its strengths, Abbott faces several pertinent risks. The ongoing necrotizing enterocolitis (NEC) litigation related to its preterm infant formula products remains a concern. While Abbott has won summary judgments in federal MDL bellwether cases and maintains that a material loss is not probable, the resolution of these lawsuits "could be material to Abbotts financial position, cash flows or results of operations." Robert Ford emphasized the company's commitment to defending its products, stating that decisions on product availability should be made by "physicians and neonatologists and not lawyers and corp rooms."

Challenging market conditions in China, particularly the volume-based procurement programs in Diagnostics, continue to impact sales by imposing price hits without corresponding volume offsets. This dynamic differs from historical VBP experiences and requires ongoing strategic adaptation. The decline in COVID-19 testing-related sales also remains a headwind for the Diagnostics segment.

Furthermore, new tariff policies represent an evolving economic challenge. Abbott estimates a "few hundred million dollars" impact in 2025, primarily affecting the U.S. and China. The company is actively implementing mitigation strategies, leveraging its global manufacturing network to pursue long-term sustainable solutions rather than merely short-term fixes. Robert Ford highlighted that tariffs "don't go away" and require strategic optimization of the manufacturing footprint. The adoption of the OECD's Pillar 2 tax framework is also expected to increase the adjusted tax rate, adding approximately $200 million in expense in 2025, with two-thirds of this paid to overseas countries, which management views as not beneficial for U.S. competitiveness.

Conclusion

Abbott Laboratories stands as a compelling investment opportunity, underpinned by a powerful combination of diversified innovation, operational resilience, and a clear strategic roadmap. The company's ability to consistently deliver high single-digit organic sales growth and double-digit adjusted EPS, even when confronting significant headwinds in its Diagnostics segment and new tariff policies, underscores the strength of its business model and management's adept execution.

The core investment thesis hinges on Abbott's continuous technological leadership, particularly in high-growth areas like continuous glucose monitoring, leadless cardiac pacing, and advanced structural heart therapies. These differentiated technologies not only expand market share but also redefine standards of care, creating sustainable competitive advantages. As the impact of declining COVID-19 testing sales and China's VBP programs wanes, and a robust pipeline of new products gains momentum, Abbott is exceptionally well-positioned to accelerate its growth trajectory into 2026 and beyond. The company's disciplined capital allocation, strong liquidity, and commitment to shareholder returns further enhance its appeal, making Abbott a resilient and rewarding long-term holding for discerning investors.