Abbott Laboratories, which plans to separate into two companies, said the tax rates of the new companies will rise in order to support the higher dividend payouts after the split. The shares fell the most in 14 months.
Abbott will have a tax rate of 21.5 percent, and the new prescription drug company, AbbVie Inc., a rate of 22 percent. That’s about 10 percentage points higher than AbbVie’s previously disclosed tax rates. The higher rates will cut 8.5 percent from earnings, according to Michael Weinstein, an analyst with JPMorgan Chase & Co.
Abbott said it’s on schedule to split by the end of the year into a namesake business that will hold Abbott’s medical device and consumer brands, and AbbVie, which will get the prescription medicine lines. The Abbott Park, Illinois-based drugmaker has sought to expand use of the anti-inflammatory injection Humira, the world’s best-selling medicine, with new indications beyond rheumatoid arthritis, such as ulcerative colitis and pediatric Crohn’s disease.
Abbott also plans to fire 550 workers from its non-AbbVie side, as well as “several hundred” more next year, said Adelle Infante, a spokeswoman. The firings “allow the businesses to align resources to better meet evolving needs,” she said in a telephone interview. The workers will be cut from Abbott’s nutrition, vascular, established products and molecular diagnostics units.
Abbott fell 4.3 percent to $69.04 at 4 p.m. New York time, its biggest one-day decline since August 2011. The shares had increased 28 percent this year through yesterday, bolstered by anticipation of the separation and expectations for a new, injection-free treatment for the liver disease hepatitis C.
“We believe shares are trading lower following management’s disclosure on the conference call of a higher-than-expected tax rate for AbbVie,” said Linda Bannister, an analyst with Edward Jones & Co. in Des Peres, Missouri, said in an e-mail. “This is the result of the company’s need to move cash from abroad into the U.S. to fund the dividend going forward.”
International companies reduce their tax obligations by keeping profit overseas so it will be taxed at lower local rates than in the U.S. The higher rates will cut about $600 million from AbbVie’s 2013 earnings, Bannister estimated.
“These are very different businesses going forward,” Abbott Chief Financial Officer Thomas Freyman said on a conference call today. “The rate at which AbbVie will be starting its existence is a very good sustainable rate given that the profile of the business.”
Third-quarter sales fell 0.4 percent to $9.77 billion from a year earlier, missing the $9.94 billion average of 14 analyst estimates compiled by Bloomberg. Excluding the effect of foreign currency exchange, sales increased 4.1 percent, Abbott said in a statement today.
After the separation, Abbott will have $7.5 billion in debt and AbbVie will hold $16 billion, the company said on the conference call. The namesake business will get $5 billion in cash, while AbbVie will hold $7 billion.
AbbVie will pay a $1.60 a share annual dividend, while Abbott shareholders will get 56 cents a year.
The experimental hepatitis C therapy, which avoids a yearlong series of shots that give patients flu-like side effects, would help Abbott compete with Gilead Sciences Inc., which is trying to be the first company with such a regimen. If approved, the treatment might be a $2.5 billion product for Abbott, Catherine Arnold, an analyst with Credit Suisse Group AG in New York, said.
Earnings excluding one-time items of $1.30 a share beat by 2 cents the average of 17 analyst estimates compiled by Bloomberg. Humira sales rose 10 percent to $2.33 billion.
Abbott narrowed its forecast for 2012 earnings excluding one-time items to $5.06 to $5.08 a share from a previous outlook of $5 to $5.10.
New indications for Humira may add about $1 billion in sales, Elizabeth Hoff, a company spokeswoman, said in August. U.S. regulators approved Humira for use in ulcerative colitis in September.