Fitch Affirms Abbott Laboratories' Long-Term IDR at 'A+'; Outlook Stable
CHICAGO -- November 21, 2013
Fitch Ratings has affirmed Abbott Laboratories' (ABT/Abbott) ratings,
including the long-term Issuer Default Rating (IDR), at 'A+'. The Rating
Outlook is Stable. A full list of ABT's ratings follows at the end of this
release, and the ratings apply to approximately $8.3 billion of debt
outstanding as of Sept. 30, 2013.
KEY RATING DRIVERS
-- ABT's diversified product portfolio is forecasted to continue to produce
mid-single-digit organic growth with incrementally improving margins in the
--Fitch expects ABT will generally operate with debt leverage (total
debt/EBITDA) of 1.3 times (x) to 1.5x.
--Sales of Nutritionals, Diagnostics and Established Pharmaceuticals, in
particular, should benefit from the rapidly growing middle class in emerging
--Fitch expects a continued weak employment environment in the U.S. and
government austerity measures in Europe to weigh on Abbott's growth and
margins in the developed markets.
--Fitch anticipates that ABT's efforts to improve gross and operating margins
will continue to yield results, more than offsetting the aforementioned
--Fitch believes that ABT will, in part, focus on shareholders when deploying
cash, balancing the return opportunities of share repurchases, acquisitions
and dividends (regular dividend recently increased by 57%).
--Fitch forecasts Abbott generating strong free cash flow (FCF) of $1.3
billion-$1.4 billion, which incorporates the recent dividend increase.
Stable Post-Spin Operations
Fitch forecasts that ABT's diversified product portfolio will continue to
produce mid-single-digit organic growth in the intermediate term, given the
strength of its product offerings and its geographic mix. Emerging markets
will represent a larger portion of ABT's revenue. Increasing revenues and
margin support should provide for solid FCF generation.
Leverage Maintained at 1-3x.1-5x
Fitch expects that ABT will balance its investment needs with shareholder
focused activities, so that it generally operates with leverage of 1.3x-1.5x.
Adequate growth, margin support and solid FCF (cash flow from operations minus
capital expenditures and dividends) should mitigate the need for significant
increases in the company's total debt.
Emerging Markets Supporting Growth
Fitch expects the majority of ABT's growth will come from emerging markets
during the next two years. ABT expects to generate roughly 50% of its revenues
from emerging markets by 2015, up from 40% currently. Nutrition, Diagnostics
and Established Pharmaceuticals, in particular, should benefit from the
rapidly growing middle class in these markets. Nearly all purchases in these
markets are paid for by consumers. This contrasts to the developed markets
where the vast majority of purchases involve third-party payers. As such,
rising disposable income is an important driver of demand in these markets.
Developed Markets To Remain Soft
Fitch expects demand trends in developed markets (U.S., Europe and Japan) to
remain relatively soft during the next 12 months. A weak employment
environment in the U.S. and government austerity measures in Europe will
likely persist in the near term. These trends will affect ABT's Nutrition and
Medical Devices segments the most.
Efforts to Support Margins
Fitch anticipates that ABT will continue efforts to drive efficiencies across
business segments, resulting in improving margins. Most recently, the company
is focusing on improving the cost structure in its Nutrition, Established
Pharmaceutical and Diagnostic segments. In addition, it has taken out some
general and administrative corporate costs.
Shareholder-Focused Cash Deployment
Fitch believes ABT will be opportunistic with cash deployment as it weighs
potential returns for shareholders. As such, the company will likely remain
acquisitive, focusing on companies or device platforms that offer innovation
and growth, as technological advancement in the device sector remains
relatively fragmented. ABT may also consider targets that offer further
expansion opportunities into favorable geographies. Fitch expects share
repurchases will likely continue, especially in the absence of viable
acquisition targets. The company has demonstrated commitment to its dividend,
as evidenced by the recently announced 57% dividend increase beginning
Fitch estimates that ABT will generate solid cash flow of roughly $1.8 billion
in 2013, driven by dependable revenue growth and incrementally improving
margins. FCF should be sufficient to fund moderate share repurchases and
targeted acquisitions. FCF for 2014 is forecasted to be $1.3 billion-$1.4
billion, below the 2013 level due to the $500 million increase in the
Fitch expects ABT to maintain adequate liquidity, as the company had
approximately $8.6 billion in cash and short-term investments at Sept. 30 2013
and its unused $5 billion revolving credit facility that expires in July 18,
2017. However, the company had roughly $4.6 billion in short-term debt. In
addition, the company will likely continue to have ample access to public debt
Manageable Debt Maturities
At Sept. 30, 2013, ABT had approximately $8.3 billion in debt outstanding,
including $4.6 billion in commercial paper borrowings. Fitch believes the
company's debt maturities are manageable with roughly $264 million maturing in
2013, $947 million in 2019 and $597 million in 2020. Fitch's forecasts assume
that ABT will refinance most of these maturities with the proceeds from new
While Fitch does not anticipate an upgrade in the near to intermediate term, a
positive rating action could result from ABT committing to and operating with
leverage stronger than 1.2x, while maintaining relatively stable operations
and solid FCF.
Future developments that may, individually or collectively, lead to a Negative
Outlook or one notch downgrade to 'A/F1' include:
--Debt above 1.5x EBITDA without the prospect for timely deleveraging, which
could result from a scenario in which revenue and margins are significantly
stressed (more than Fitch anticipates); resulting FCF weakens; and capital
deployment is not adjusted to reduce the company's need for debt financing.
--As such, significant debt-financed share repurchases or acquisitions in the
near term could prompt a negative rating action, although ABT has some
flexibility associated with the company's current leverage.
Fitch affirms ABT's ratings as follows:
--Issuer Default Rating (IDR) at 'A+';
--Senior unsecured bank loan at 'A+';
--Senior unsecured debt at 'A+';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 15, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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