On Wednesday before the opening bell, Abbott Laboratories (ABT) reported a mixed fourth-quarter earnings result. Revenues of $7.765 billion (up 2.3% year over year) was barely shy of the $7.815 billion consensus, and adjusted earnings per share of $0.81 (up 9.5% year over year) matched the consensus. Additionally, fourth quarter organic sales growth of 6.4% was relatively in-line with expectations.
"2018 was another outstanding year for Abbott," said Miles D. White, Chairman and CEO in the press release. "We exceeded the organic sales growth range we set at the beginning of the year, achieved a number of significant advances in our pipeline, and significantly improved our balance sheet and strategic flexibility. We're very well-positioned heading into 2019."
Before getting into the numbers, we remind members of how 2018 was expected to be a year of execution for Abbott. To provide you with a timeline of events, the focus of the 2017 year was on the integrations of two major acquisitions (St. Jude Medical and Alere), and the following year was an execution year judged by how well the company was able to perform. And Abbott did just that. Not only did they achieve 15% growth in earnings per share over the full year, but the 7.3% increase in organic sales came in well ahead of the 6% to 7% range management guided for at this time last year. Additionally, after a 2017 year where the balance sheet was utilized for those 2 major acquisitions, Abbott improved their flexibility by repaying more than $8 billion of debt in the year. Abbott's 2018 success was rewarded by the market and the stock closed the 2018 year up nearly 27%.
As we look towards 2019, management has forecasted another year of strong financial performance. This morning management issued their 2019 financial outlook, and it included another year of double-digit earnings per share growth despite the difficult macro/currency backdrop. Full year adjusted earnings per share is expected to be in the range of $3.15 to $3.25 (consensus $3.20), reflecting growth of about 11% at the midpoint. Furthermore, organic sales are expected to increase in the range of 6.5% to 7.5% in 2019, in-line with the 7.0% consensus.
But there could be some hidden upside to what was provided. During the Q and A section of the call, White was asked if guidance was dependent on a significant inflection in the MitraClip (which is within the Structural Heart division) or FreeStyle Libre 2 product. White responded with a flat out no, then added how their numbers were too difficult to predict and include in Abbott's totals because of the uncertain timing of their respective regulatory approvals. But make no mistake, the Libre 2, the Structural Heart division, and the Alinity system (whose U.S. launch will be later this year), represent three large long-term drivers of growth for the company and possible sources of near-term upside based on the timing of these approvals.
Then as we look ahead to the first quarter of 2019, management has forecasted adjusted earnings per share to be in the range of $0.60 to $0.62 (consensus $0.64) with organic sales growth a little bit less than 7% against a tough year over year comp. And briefly by division, for the full year 2019, organic sales in Established Pharmaceutics is expected to grow in the mid-to-high single digits, Nutrition's organic sales is expected to increase in the low-to-mid single digit range, for Diagnostics, the legacy business is expected to grow mid-to high single digits while Rapid Diagnostics is expected to be in the low-to-mid single digits. And lastly, Medical Devices is forecasted to have high single digit organic sales growth.
Digging deeper into the numbers, Nutrition sales of $1.777 billion (3.6% organic sales growth) came in slightly light to the $1.81 billion consensus. On the international side, White noted on the conference call how in China there have been improvements in both the market and Abbott's own performance after the new food safety regulations were put in place last year. Meanwhile in the United States, growth was driven by the Pediatric business and its above-market performing Similac brand and the market-leading Pedialyte Brand. "Overall," White said, "the fundamental demographic and socioeconomic trends in the global nutrition market remained favorable and our position in the market remains competitive."
In Diagnostics, sales of $1.961 billion (7.4% organic sales growth) in the quarter came in slightly ahead of the $1.938 billion consensus. Much of the beat came from Rapid Diagnostics ($548 million sales vs. $513 million consensus), which is a derivative of the company's acquisition of Alere. Core Laboratory also outperformed ($1.153 billion in sales vs. $1.142 billion expectation;9.4% organic sales growth), driven by the strength of Alinity in Europe and in other International markets. As we look ahead to 2019, we expect big things to come from the opportunity Alinity has in the United States. In discussion of this topic on the call, White said, "In 2019, while the international launch continues to gain momentum, we anticipated obtaining U.S. regulatory approvals for a critical mass of our test menu over the coming months, which will allow us to accelerate the launch of Alinity in the U.S. later this year."
At Established Pharmaceuticals, sales of $1.090 billion in the quarter (3.6% organic sales growth) was short of the $1.128 billion consensus. Impacting the reported results was an unfavorable 8.4% effect of foreign exchange. In Key Emerging Markets, sales of $838 million (organic sales growth of 4.3%) was light of the $916 million consensus view but had an unfavorable 10.5% effect of foreign exchange. Despite some of the inconsistent performance this business has faced and the currency related challenges, management used the call to describe its long-term opportunity and how there is plenty of room for future growth in emerging market healthcare spending.
Medical Devices once again posted strong organic sales growth (9.0%), though sales of $2.920 billion slightly missed estimates of $2.925 billion. Within Structural Heart, while current results are important, our attention is to when the MitraClip, which is a device for the minimally invasive repair of the mitral valve, will receive an expanded indication approval by the FDA as mentioned above. On the call, White said how its approval will "further enhance our leadership position in this large and highly underpenetrated disease area and offer the potential to create a new multi-billion-dollar cardiac device market over time." We must stay close to this one.
Notably in Diabetes Care, the division that contains Abbott's FreeStyle Libre continuous glucose monitor, sales were $530 million in the quarter, up 28.3% on a reported basis and 32.4% on an organic basis. Though $530 million was short of the Street's $542 million consensus view, we see little reason to nitpick the number because there is so much room for long-term growth and the trends remain postiive Backing this view was the 300,000 net Free Style Libre users added in the quarter, putting the company's total active user count at approximately 1.3 million for the end of 2018. For perspective, management said that there are more than 400 million people living with diabetes around the word, so having the leading product in a field with tremendous room for growth bodes well for its future.
Overall, we do not think investors should be fooled by the stock's weak reaction today. Yes, the company was soft on several sales lines and the stock's action reflects this. More importantly, Abbott's fourth quarter results capped off a terrific 2018 and put the company in position to have an even stronger 2019 despite the uncertain macro and currency-related pressures. In addition to Abbott's consistently strong underlying performance (it is hard to find a company of its size with organic sales in the 6.5%-7.5% range), we see additional paths to growth down the road as Libre expands in a huge category, Alinity hits the U.S., and the MitraClip receives approval and creates a new cardiac device market. Furthermore, Abbott's track record of consistent double-digit growth makes it a dependable name in an uncertain macro. As for the stock today, we made this position a TWO in December when we trimmed shares around $73, and while today's declines are tempting from a long-term perspective, we'll reiterate our TWO rating at the current price.