Abbott Laboratories (ABT) said Wednesday it would lay off about 2% of its work force in response to U.S. market pressures, while the health-products maker reported a 6.4% drop in fourth-quarter earnings.
The elimination of about 1,900 jobs will be primarily in Abbott's U.S. pharmaceutical commercial and manufacturing operations over the next several years. Abbott said it needs to cut costs in the face of "changes in the health care industry, including U.S. health care reform and the challenging regulatory environment."
The latest round of layoffs follows Abbott's September announcement of a 3% reduction in its work force, which it said eliminated overlap from last year's $6.1 billion acquisition of Solvay SA's (SVYZY) pharmaceutical unit.
Abbott has performed relatively well in recent years, thanks partly to strong sales growth for its blockbuster anti-inflammatory drug Humira and the artery-opening stent device Xience. But the company needs to reduce its dependence on Humira for future growth, and has recently experienced setbacks bringing new drugs to market that would have helped diversify its revenue sources.
Abbott and partner AstraZeneca PLC (AZN) dropped plans to sell a combination cholesterol drug that had been rejected by regulators, and Abbott recently withdrew bids for regulatory approval of a new psoriasis drug, saying regulators may want more research.
"It's frankly more difficult to get products approved," Chief Executive Miles White said on a conference call with analysts. Abbott has taken other steps to grow, including expanding in emerging markets.
The restructuring plan is expected to yield annual pretax savings of more than $200 million when complete. In addition to layoffs, Abbott will close a plant in North Chicago, Ill., near its headquarters, in 2015. Abbott spokesman Scott Stoffel said the plant has older technology that won't support manufacturing of products in Abbott's pipeline.
Abbott is facing other challenges including manufacturing-quality problems. Last month it announced a recall of about 359 million diabetes-test strips due to potential false readings, and in September it recalled about five million containers of Similac baby formula due to potential contamination by beetles or beetle larvae.
And echoing comments made by executives at rival Johnson & Johnson (JNJ) on Tuesday, Abbott said it faces pressures on multiple fronts, including price cuts imposed by European national health programs and new fees and rebates associated with the new U.S. health-care overhaul.
"I think it is a tough environment," White said. "I don't expect it to ease up.... This industry has lost a lot of jobs in the U.S. and overseas. It may continue to do so. Companies will adjust their cost structures."
Still, in light of these difficulties, Abbott's near-term financial outlook remained relatively strong. The company projected 2011 earnings will come in at $4.54 to $4.64 a share, excluding restructuring and acquisition-related costs. Analysts polled by Thomson Reuters most recently expected $4.63.
Leerink Swann analyst Rick Wise said Abbott's 2011 forecast could prove conservative if the company continues focusing on cost cuts.
For the first quarter, however, Abbott predicted earnings excluding items of 88 cents to 90 cents a share, short of the Thomson view of 96 cents. Abbott said fallout from the Similac recall and pricing pressure would weigh on first-quarter results.
For the fourth quarter, the Abbott Park, Ill., company reported net earnings of $1.4 billion, or 92 cents a share, compared with $1.5 billion, or 98 cents a share, a year earlier. The latest quarter included acquisition and cost-reduction charges; excluding these, earnings would have been $1.30 a share, a penny above the mean estimate of analysts surveyed by Thomson Reuters.
Fourth-quarter sales rose 13.4% to $9.97 billion, ahead of the Thomson estimate of $9.89 billion. Currency-exchange rates reduced sales growth by 0.4%. U.S. sales rose 6.3% while non-U.S. sales jumped 19.4%.
Pharmaceutical sales, the company's biggest segment by revenue, rose 23% to $5.9 billion. Humira sales rose 13% to $1.9 billion.
Worldwide nutritional sales were flat at $1.4 billion due to the Similac recall, while diagnostics sales climbed 4.1% to $1 billion.
Abbott's vascular sales, which include artery-opening stents, were up 13.7% at $822 million.
-Peter Loftus, Dow Jones Newswires; +1-215-656-8289; email@example.com
--Drew FitzGerald and John Kell contributed to this article.
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