Abbott Reports – How much longer can this go on?
This morning Abbott (NYSE:ABT) reported second quarter and half-year results. In what was an otherwise solid report the Diabetes Care Unit continues to suffer. Domestic sales for the second quarter fell by 5.4% and 1% for the first six months of 2008. The news isn’t much better internationally after taking into account the positive impact of exchange sales grew 8.4% for the quarter and 9.6% for the first half of 2008.
Perhaps the biggest news coming out of this morning’s conference call is what the company did not say. For a call that lasted over an hour barley 2 minutes was spent on the diabetes care unit. This is quite understandable given the continued dismal performance of the unit. Based on how well the company is doing on other areas why spend time talking about a unit that’s performing so poorly.
Which brings us to the question of the day; Will the company continue to live under the delusion that this unit can be turned around or will they finally wise up and sell the unit to Bayer?
Although the company has denied rumors that the unit is on the block several sources have confirmed that Abbott is actively shopping their diabetes franchise. Thankfully the company did say today that they are not looking to make any major acquisitions. Maybe after long last they have learned their lesson after running two promising diabetes franchises into the ground.
It would also be a disaster if the company made the foolish decision to throw good money after bad. With no new major products on the horizon combined with the changing dynamics of the blood glucose monitoring market the problems require more than just money. In reality this is the main issue with Abbott and their attitude towards diabetes. Instead of addressing the real problem with the unit, namely poor leadership, the company has lived in fantasyland believing that any problem can be solved by throwing money at it. Simply put they will not be able to buy their way out of the problem.
With their other franchises doing so well the wise decision is to sell the unit while it still has some value. Based on their history in diabetes Diabetic Investor isn’t sure the company will actually do what needs to be done. Like the ostrich who likes to stick his head in the sand, Abbott seems incapable of acknowledging the obvious. Or as Mark Twain said; “Let us be thankful for fools. But for them the rest of us could not succeed.”