Abbott rakes in earnings despite infant formula investigation but Nutrition suffers sales loss

21 Jul 2022 --- Despite being embroiled in a nationwide scandal across the US over an investigation into numerous infant deaths and illnesses, Abbott’s sales reached US$11.3 billion in its second quarter this year, marking a 14.3% organic sales growth.

Nonetheless, organic international and domestic sales in its nutrition segment suffered a 4.5% loss compared to the same period last year, reaching US$1.95 billion. Its Pediatric segment, more closely affiliated with the infant formula products, experienced a 13.4% sales loss. 

“Total worldwide Nutrition and Pediatric Nutrition sales were negatively impacted by a voluntary recall and manufacturing shutdown initiated in February of certain infant formula products manufactured at one of Abbott’s US plants,” Robert B. Ford, chairman and CEO, Abbott, tells NutritionInsight.

Abbott Nutrition initiated a voluntary product recall in February after the US Food and Drug Administration (FDA) announced it was investigating consumer complaints linked to Cronobacter sakazakii. Since then, families have filed lawsuits against the company.

The company’s sales spur was led by growth in Established Pharmaceuticals, Diagnostics and Medical Devices.

The company says it is making progress in Nutrition to drive share recovery.Company rebound
Elaborating on the outlook for the full year 2022, Ford forecasts total company organic sales growth, excluding the impact of COVID-19 testing-related sales, to be in the mid-to-high single digits.

“We have seen an increase in birth rates, so that’s another opportunity for us.” 

This Tuesday, the US National Center for Health Statistics confirmed a 1% increase in births in 2021, the first increase since 2014. However, despite the 1% increase, the number of births in 2021 was 2% lower than the number of births in 2019. 

In the company’s earnings call, Ford explains an investment was made to “put some money toward brand recovery. That was an investment that’s necessary to get our share back in the position that we need as we go into next year.” 

“It’s mostly about market share, market share recovery. We’ve done pretty well using our network to be able to regain the market share that we had lost in those first couple of months.” 

“We’ve already started to see some share recovery at retail over the past couple of months, as we leveraged our global manufacturing network to increase supply to the US, including importing product from our FDA registered plant in Ireland. We also began importing product from Spain after receiving informed discretion from the FDA that expanded the allowance for imports.” 

Ford adds that the company has leading positions in attractive long-term growth markets. “Our business remains very strong,” he says. 

Tainted growth?
Delving into details of its Nutrition sales, the company outlines that excluding sales associated with product recalls “in the current and prior years,” sales in the segment increased 3.8% on an organic basis in Q2. 

The company’s product recall caused bottlenecks across the already strained supply chain in the US. Amid nationwide shortages and consumers scrambling to find infant formula, the FDA greenlighted the company to restart production at its contentious Sturgis plant in Michigan. 

A previous on-site inspection revealed five environmental subsamples were positive for Cronobacter sakazakii at the facility. The FDA noted Abbott Nutrition failed to ensure that all surfaces in contact with infant formula were maintained to protect the product from being contaminated by any source. Product samples analyzed for Cronobacter were found negative.

“It’s important to note that the results of the investigation from the FDA, Centers for Disease Control and Prevention and Abbott concluded no evidence linked our formulas to any infant illnesses or deaths, and there is no new information to suggest otherwise. We take this matter very seriously, and we’re making a number of enhancements to our operations at the impacted manufacturing plant,” Ford stresses. Abbott says it is “very close” to beginning production of Similac but does not wish to specify when exactly.

Cutting costs
Not even two weeks after Abbott Nutrition restarted production in Sturgis, the company shut down the plant, citing heavy thunderstorms flooding the facility. The company resumed production on July 1, without making any official statement. 

“Earlier this month, we resumed partial production at that facility, starting with our specialty formula EleCare and metabolic formulas. We are in the final phases of testing to restart Similac production. As a reminder, once we begin production, it takes several weeks for the product to reach store shelves.”

“That said, we will do everything possible to accelerate delivery of product to retailers, so families can have access to the formula they need as soon as possible,” Ford underscores. 

Currently, the company has been importing formula from its Ireland plant in an attempt to bridge supplies. “As we restart production in the facility, I don’t assume that will continue. We brought a lot of formula from overseas, and that’s all airfreight. And you know the story on freight and distribution. So once that facility starts up and running, I don’t anticipate to see those same kind of freight expenses from overseas shipments.”

By Andria Kades