3 Things to Absolutely Love About Abbott Labs' Q3 Results

3 Things to Absolutely Love About Abbott Labs' Q3 Results

The market liked what it saw today with Abbott Labs' third-quarter financial results. Shares jumped as much as 7% as investors savored the company's positive numbers, as well as a Senate deal to increase the federal debt ceiling. There was plenty to like with Abbott's results, but here are three things investors should absolutely love.

1. Blowing away expectations
Abbott beat both analysts' expectations and its own projections for earnings. The company reported third-quarter adjusted diluted earnings of $0.55 per share. That's higher than it had previously guided and handily surpassed the average analysts' estimate of $0.51 per share.

Wall Street expected revenue to come in at $5.4 billion. Abbott's actual total sales for the quarter were $5.369 billion. However, this narrow miss didn't bother anyone. A supplier for Abbott's international nutrition business issued a recall in early August that disrupted sales temporarily.

Diagnostics continues to set the pace for the rest of the company, growing at a solid 8% year over year. Molecular and point of care diagnostics were especially strong, both with double-digit operational growth.

2. Improving margins
Few things please investors as much as when a company makes good margins that get even better as time goes by. Abbott reported a third-quarter adjusted gross margin ratio of 55.9% and an adjusted operating margin ratio of 19.3%. Both reflected solid improvement over the prior year and beat earlier expectations.

It's somewhat difficult to find a good company to compare Abbott against due to its multiple lines of business. Johnson & Johnson is perhaps one of the best fits, since it has several business segments that roughly align with Abbott's.

If we gauged Abbott's third-quarter margins using J&J as a benchmark, the company is doing well. J&J's profit margin and operating margin over the last 12 months were 18.38% and 26.68%, respectively. Abbott's trailing 12-month numbers aren't as strong as J&J's, but the recent quarter showed considerable improvement -- and provided tangible proof that initiatives to grow margins are paying off.

3. Rising dividend
The one gripe I have had with Abbott since the spinoff of AbbVie is the relatively low dividend yield. AbbVie pays a nice 3.5% yield. Abbott, on the other hand, has only had a yield of 1.7%. That dividend just got better, though.

Abbott announced a 57% increase of its dividend to $0.22 per quarter. With this hefty bump, the yield will be close to 2.5%. That's much better.

During the earnings conference call, Abbott CEO Miles White discussed the thought process around dividends. He said that before the spinoff of AbbVie, management thought it made sense for the new company to sport a higher yield with the existing business going with a lower payout.

Based on comments made by White, though, it appears the company heard the message loud and clear from the investment community that a stronger dividend was needed for Abbott. White said management received "a fair amount of feedback" about the dividend and concluded that the "income piece was actually probably a little more important" than the company initially thought.

Looking ahead
I have thought for some time that Abbott was a solid investment option, albeit one that isn't too exciting. After the third-quarter results, I still hold that opinion -- but the excitement level is building.

Abbott's focus on improving margins seems likely to continue producing fruit. I like the growth in the diagnostics business. Nutrition looks great, also. The established pharmaceuticals and medical devices business segments could do better, but Abbott's long-term plans seem sound.

The bottom line is that there's a lot for investors to like about Abbott. More quarters like the last one could make those emotions even stronger.

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The article 3 Things to Absolutely Love About Abbott Labs' Q3 Results originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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