Abbott sells a range of Covid-19 tests, including an over-the-counter rapid Covid-19 test for at-home use.
Courtesy of Abbott
As the pandemic eases in much of the world, the need for Covid-19 tests is falling.
Demand is dropping fast enough that Abbott Laboratories (ticker: ABT), a major manufacturer of rapid Covid-19 tests, is now sharply cutting earnings guidance for the year.
Abbott pointed to declining Covid-19 rates in the U.S. and elsewhere in the developed world, as well as to public-health recommendations in the U.S. that say fully vaccinated people generally don’t need to be tested for Covid-19 unless they are experiencing symptoms.
“While it is 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,” CEO Robert Ford said on an investor call Tuesday.
Abbott now expects full-year adjusted diluted earnings of between $4.30 and $4.50 a share, down from the $5 a share it had previously projected. Analysts had expected Abbott to earn $5.04 per share in 2021. Shares of the company fell 9.3% on Tuesday, and recently traded at $107.95. For the year, the stock is effectively flat.
Analysts cut their price targets on the stock in response to the update. “The stock action…is unfortunately appropriate, but we still see reasons to stay Outperform-rated,” wrote Raymond James analyst Jayson Bedford, who dropped his price target to $116, from $130.
Barron’s wrote in March 2020 that Covid-19 tests wouldn’t be a long-term earnings driver for testing companies. That was before the pandemic exploded across the U.S., but the success of the vaccine campaign here has undercut the long-lasting Covid-19 testing market some expected to develop.
Abbott sells a range of Covid-19 tests, including an over-the-counter rapid Covid-19 test for at-home use and a number of point-of-care rapid tests. In late April, the company said that Covid-19 testing-related sales were $2.2 billion for the first quarter of the 2021 fiscal year. They were $2.4 billion in the fourth quarter of the 2020 fiscal year.
At that time, the pandemic outlook looked very different, with Covid-19 case rates steady. “We couldn’t have anticipated what has occurred over the past several weeks,” Ford said.
Abbott, he added, was in discussion with governments and companies about providing testing to support returns to work and school in late April.
The past few weeks have changed everything. On Thursday, the company said that it would cost up to $700 million to ramp down its Covid-19-test manufacturing network. Those costs include write-downs of fixed assets, contract cancellations, and “employee-related costs.”
Nonetheless, Abbott’s new earnings estimate would still constitute a more than 20% increase from its 2020 earnings, on the high end.
Write to Josh Nathan-Kazis at [email protected]
