Abbott cuts 2021 outlook, blaming rapid decline in COVID-19 testing demand

Dive Brief:

Abbott Laboratories on Tuesday lowered its financial outlook for 2021 due to a "sharp and rapid" decline in demand for COVID-19 tests, a trend the company expects to continue. Full-year adjusted earnings from continuing operations is now expected to range from $4.30 a share to $4.50, down from a forecast of at least $5 per share in January. Abbott's stock was down as much as 7% on the news.
CEO Robert Ford told investors on a Tuesday call Abbott had no way of knowing in April when it reported first-quarter earnings market dynamics would change so dramatically. At that time, Ford said the company was seeing coronavirus case rates holding steady in the U.S. and other major developed countries but in May the diagnostics maker experienced a "sudden" and fundamental drop-off in demand for COVID-19 testing, particularly for surveillance and screening with rapid testing.
Abbott in April missed Wall Street expectations as COVID-19 test sales were softer than expected. Quidel, a rival in the antigen testing space, said in March that test demand fell 30% to 40% in February and March from the December high, leading it to reduce its 2021 guidance. BD in May reported fiscal second-quarter coronavirus test sales of $480 million, far below Evercore ISI analyst expectations of $550 million.

Dive Insight:

Two months into the second quarter, Abbott's updated outlook reflects a changing testing landscape driven by a significant reduction in coronavirus cases since mid-April and the rollout of vaccines across the globe. Abbott is the latest company to blame the reduction in COVID-19 test demand on the increase in vaccinations, which Ford said have been particularly strong in the U.S. and are accelerating internationally.

"While it's positive that these external events and trends signal an accelerated return to normalcy for many countries, they have suddenly and fundamentally impacted current and expected market demand for COVID testing, particularly for screening and surveillance with rapid testing," Ford said Tuesday.

Abbott's CEO specifically called out recent "unexpected" changes in guidance from the Centers for Disease Control and Prevention on testing for fully vaccinated individuals. In April, CDC said people who received vaccinations don’t need a COVID-19 test and don’t need to quarantine when traveling domestically.

"While we've always said the demand for COVID testing sales would eventually work its way to a flu-like level, we couldn't have anticipated what has occurred over the past several weeks. What we've seen is a sharp and rapid decline in demand for COVID tests, particularly rapid tests which compromise the bulk of our testing portfolio," Ford said.

During Abbott's first-quarter earnings call in April, Ford acknowledged that testing is "difficult to forecast right now." However, Ford on Tuesday said Abbott now forecasts about $4 billion to $4.5 billion in COVID-19 testing sales in 2021, including second-quarter sales of around $1.1 billion. The company previously forecasted about $6.5 billion in COVID-19 test sales.

Evercore ISI analysts in a Tuesday note said they believe fiscal year 2022 testing revenues "could be well below" a billion dollars "perhaps in the few hundred MM range (vs our current est of ~$2.8 Bn)."

Ford on Tuesday's investor call said COVID-19 is a "moving part" and it is "difficult to assume any kind of meaningful amount" for coronavirus-related test sales in FY22 and "wouldn't necessarily be prudent."

The CEO also told investors the company's fiscal 2021 outlook now reflects lower recent and projected demand for COVID-19 tests and that as part of Abbott's updated guidance it has removed "a couple hundred million dollars" in planned investment this year in its base business to partially mitigate the earnings impact from the decline in coronavirus-related test sales.

"That said, we're taking a mindful approach to ensure our actions don't negatively impact the strong momentum we're seeing in our base business, specifically in several high-growth business areas such as diabetes care, structural heart, electro-physiology and diagnostics," Ford added.