Abbott (ABT) Q2 2022 Earnings Call Transcript

Abbott  (NYSE: ABT) Q2 2022 earnings call dated Jul. 20, 2022

Corporate Participants:

Scott Leinenweber — Vice President, Investor Relations, Licensing and Acquisitions

Robert B. Ford — Chairman and Chief Executive Officer

Robert E. Funck, Jr. — Executive Vice President, Finance and Chief Financial Officer

Analysts:

Robbie Marcus — J.P. Morgan — Analyst

Joshua Jennings — Cowen and Company — Analyst

Larry Biegelsen — Wells Fargo Securities — Analyst

Joanne Wuensch — BMO Capital Markets — Analyst

Vijay Kumar — Evercore ISI — Analyst

Travis Steed — Bank of America — Analyst

Jayson Bedford — Raymond James & Associates — Analyst

Presentation:

Operator

Good morning, and thank you for standing by. Welcome to Abbott’s Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. This call is being recorded by Abbott. With the exception of any participant’s questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott’s expressed written permission.

I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.

Scott Leinenweber — Vice President, Investor Relations, Licensing and Acquisitions

Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we’ll take your questions.

Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2022. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott’s operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31, 2021. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.

On today’s conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott’s ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward-looking basis because the Company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange.

With that, I will now turn the call over to Robert.

Robert B. Ford — Chairman and Chief Executive Officer

Thanks, Scott. Good morning, everyone, and thanks for joining us.

Today, we reported results of another strong quarter. Earnings per share were $1.43, reflecting more than 20% growth compared to last year. Sales increased nearly 14.5% on an organic basis in the quarter, led by growth in Established Pharmaceuticals, Diagnostics and Medical Devices. Based on our performance through the first six months, we increased our earnings per share guidance to at least $4.90 for the full year. This speaks to the strength and resilience of our diversified healthcare model as well as strong execution in this challenging macro environment. We continue to advance our R&D pipeline and strengthen our long-term growth platforms with several new product approvals. Our supply chain has remained resilient and our financial health remains strong.

I’ll now summarize our second quarter results in more detail before turning the call over to Bob. And I’ll start with Established Pharmaceuticals, or EPD, where sales increased more than 9% in the quarter. Strong performance this quarter was led by double-digit growth across several countries, including China, Brazil, Colombia, Mexico and Vietnam. EPD continues to execute and perform at a very high level in a dynamic environment, achieving double-digit organic sales growth over the past year and a half, including more than 11% organic growth for the first half of this year.

Moving to Diagnostics, where sales grew over 35% in the quarter. COVID test sales were $2.3 billion in the quarter, more than 95% of which came from rapid tests, including BinaxNOW in the U.S., Panbio internationally and ID NOW globally. As we had predicted some time ago, rapid testing has become widely accepted and has proven to be a very important tool in combating the virus due to its affordability and accessibility, including at-home testing. And while vaccines have been shown to play an important role in reducing severity of outcomes, with the emergence of new variants that escape immunity, rapid tests have become the best tool we have to help people quickly and easily identify new cases and quarantine to help slow and prevent transmission.

As you know, forecasting COVID testing demand beyond the near term has been challenging. As such, our forecast for the next few months contemplates a modest approaching endemic-like amount of testing sales. We are in regular discussions with governments around the world, including the U.S., for surveillance testing needs and to ensure capacity is available and ready if we see another surge this winter. If that were to happen, we have a lot of manufacturing capacity in the U.S. and internationally to help meet testing needs.

I’ll now turn to Nutrition, where as you know, we initiated a voluntary recall in February of certain infant formula products manufactured at one of our U.S. facilities. 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 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.

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 U.S., including importing product from our FDA registered plant in Ireland. We also began importing product from Spain after receiving important discretion from the FDA that expanded the allowance for imports. As I said in April, it’s important to note that the results of the investigation from the FDA, CDC 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. We’re also taking steps across our manufacturing network to expand capacity and redundancy. We’re committed to set the standard in industry on quality and safety and to re-earn the trust of the families that depend on us. Across our broader Nutrition business, global sales in Adult Nutrition increased 5% in the quarter, including more than 7.5% growth internationally, led by our market-leading Ensure and Glucerna brands.

And lastly, I’ll wrap up with Medical Devices, where sales grew 7.5% in the quarter. In Cardiovascular Devices, sales growth was led by Structural Heart and Heart Failure. While cardiovascular procedure trends continued to improve, growth in the quarter was somewhat more modest than what we had anticipated back in April due to several factors, most notably healthcare staffing challenges, COVID surges and lockdowns in China that were implemented as part of their efforts to control the spread of the virus. We expect these dynamics to improve in the second half of the year.

In Diabetes Care, sales of FreeStyle Libre grew more than 25% on an organic basis in the quarter and our user base now exceeds 4 million users globally. During the quarter, we continued to strengthen our Medical Device portfolio with innovative new products, most notably U.S. FDA clearance of our FreeStyle Libre 3 continuous glucose monitoring system, which is the world’s smallest and thinnest wearable glucose sensor that provides results with the highest level of accuracy in the industry.

And U.S. approval of Aveir, our leadless pacemaker for the management of slow heart rhythms. Aveir was specifically designed to be retrievable if the device ever needs to be removed and expandable to a dual-chamber device, which is currently under development if the therapy needs to evolve over time.

So, in summary, our diversified healthcare model continues to prove highly resilient in a dynamic macro environment. We’re achieving strong growth across several areas of the portfolio and making good progress restarting our nutrition manufacturing facility. And as a result of our strong performance through the first six months, we’re raising our EPS guidance for the year.

I’ll now turn over the call to Bob. Bob?

Robert E. Funck, Jr. — Executive Vice President, Finance and Chief Financial Officer

Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange.

Turning to our results. Sales for the second quarter increased 14.3% on an organic basis, which was led by strong growth in Diagnostics, Established Pharmaceuticals and Medical Devices, along with global COVID testing-related sales of $2.3 billion in the quarter. During the second quarter, sales were negatively impacted by a voluntary recall and manufacturing shutdown in February of certain infant formula products manufactured at one of our U.S. plants. Excluding COVID testing-related sales and the U.S. sales associated with the recalled products, Abbott sales increased 6.2% on an organic basis in the second quarter.

Foreign exchange had an unfavorable year-over-year impact of 4.2% on second quarter sales. During the quarter, we saw the U.S. dollar continue to strengthen versus several currencies, which resulted in a more unfavorable impact on sales compared to exchange rates at the time of our earnings call in April.

Regarding other aspects of the P&L, the adjusted gross margin ratio was 56.7% of sales, which reflects the impacts of the recent nutrition recall and incremental inflation we saw in certain manufacturing and distribution costs in the quarter. Adjusted R&D investment was 5.8% of sales, and adjusted SG&A investment was 24.4% of sales in the second quarter. Lastly, our second quarter adjusted tax rate was 14.5%.

Turning to our outlook for the full year 2022. We forecast total company organic sales growth, excluding the impact of COVID testing-related sales, to be in the mid to high single digits. It is important to note, excluding products impacted by the nutrition recall, we forecast total organic sales growth in the high single digits for the remainder of our combined businesses, which includes Medical Devices, Established Pharmaceuticals, Diagnostics excluding COVID testing-related sales and areas of nutrition not impacted by the recall. We forecast COVID testing-related sales of $6.1 billion, which includes year-to-date sales through June of $5.6 billion and projected sales of approximately $500 million over the next few months. We will continue to update our COVID testing-related sales forecast one quarter at a time as appropriate. Lastly, based on current rates, we would now expect exchange to have an unfavorable impact of approximately 5% on our full year reported sales.

With that, we’ll now open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. And our first question will come from Robbie Marcus from J.P. Morgan. And your line is now open.

Robbie Marcus — J.P. Morgan — Analyst

Great. Thanks for taking my question. Congrats on a good quarter. Robert, maybe to start — maybe I’ll get a little greedy here since we’re only sitting in July and half of ’22 is done. But I think the focus for investors is quickly shifting to next year. And there’re a lot of moving pieces going on in 2022, a lot of assumptions we have to make in the go forward of 2023. Where is COVID testing? How fast does Nutrition come back? And how steady can the device business be going forward? So, there’s a lot of uncertainty out there of where numbers should sit and how to start thinking about the business for next year. Any thoughts you have at this point would be really helpful.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. Well, I think there’s a lot of uncertainty for everybody regarding 2023. I think you’ve kind of highlighted some of the aspects as it relates to our business here. But the macro environment still is pretty challenging. And I don’t think it’s unique to us. Obviously, there’s significant inflation and it seems like there’s a pretty significant, call it, a commodity super cycle for us. There’re healthcare staffing challenges, you hear about that, and then obviously, a strong U.S. dollar. So all those kind of combinations are the challenges that a lot of companies are going to face. And if you look at a lot of the financial and consumer indicators, retail, housing, auto, etc., those tend to point towards an increased riskier recession. So, what I would say is, historically, in that macro environment, healthcare has proven to be pretty resilient. And whether it’s the durability of these essential procedures and products, I mean you can only defer them somewhat, a large portion of the healthcare spend is government-funded. And we’ve got a diversified model that’s proved itself to be very resilient in this kind of environment. So, at a macro level, I think those are the headwinds that we’re all facing and we’ll all be facing. You mentioned COVID as a factor here. It’s interesting. Last year at this time, we were talking about how COVID would — COVID testing would move away. But we’ve actually shipped just as an amount of tests in the first six months of this year compared to all of last year. So, I think that we’re going to need to see how the cases evolve, Robbie, especially during the winter and fall months over here. And obviously, I don’t think it’s prudent to forecast a winter surge. But like I said, we’ve got capacity to be able to deal with that.

So, those are some of the key factors here that we’re looking at. Nutrition, that you mentioned, we’re recovering pretty nicely, I would say, versus where we originally thought we were going to be back in April. A lot of focus on restarting the manufacturing site. We’ve recovered already a good portion of the share that we lost. And obviously, we continue to see that moving forward positively.

So, on the flip side, though, what I would say is that we’re not going to just sit still over the next couple of months and wait for these macro kind of factors here to play out, right? We’re taking a very proactive approach on the elements that we can control and that we can impact. We’re taking price where we can, and we’ve seen that in our consumer base businesses, these are businesses, because of the strength of our brands, that we’ve been able to do that and pass it on. We’re also looking at other areas that we can or that historically, we haven’t necessarily looked at in terms of price.

We’re looking at our cost structure. I talked about this in previous calls too, and we’ve got a program in place now where we’re looking at our cost structure. The hurdles in terms of investment have obviously increased given this macro environment. We’re not going to put any risk to our long-term growth platforms, but we’re definitely looking at our cost structure and see where we can improve. And inventory is important as we move into this inflationary period here. So, we’re ensuring that we’ve got the right amount of inventory.

So, I put all that together, Robbie, we’ve got macro headwinds that everybody else has. Regarding Nutrition, I think our performance is well aligned to where we planned and where I see us ending up end of the year is ultimately where our forecast — the forecast that we laid out. COVID testing is one that to simply assume that there won’t be any COVID testing next year, we’ve never believed that. The question is just your ability to forecast beyond three to six months, that’s the challenge.

So, fundamentally, I think our business remains very strong. We’ve got leading positions in attractive long-term growth markets, strong pipeline and I’m sure we’ll talk about some of that today also. We’ve got a lot of ongoing upcoming launch activity and a strong balance sheet that provides us a lot of strategic and financial flexibility. So, it’s difficult to pin a number on it right now, Robbie, but at a high level, those are the elements that we’re working with and ultimately would like to see some of these elements play out over the next couple of months here.

Robbie Marcus — J.P. Morgan — Analyst

Great. Maybe just as a follow-up to that, Robert, you were talking about the cost structure at Abbott, and this is something we’re hearing from basically everyone that inflation, supply chain, etc. You’re in this enviable position where you’ve probably grown operating margins more than anyone else in medtech since the start of COVID. A lot of that has been from the benefit of COVID testing sales, which are at healthy margins and still healthy reinvestment against that. So, as we think about your operating margins going forward and you reevaluating your cost base here, I just — it’s a difficult question and it’s been a while for medtech investors to see anything but just margins going straight up. So, how do you want investors to start thinking about where your base operating margin is, maybe potentially if COVID testing sales slow down in the future?

Robert B. Ford — Chairman and Chief Executive Officer

Yeah. I always appreciate you like to get at the next year’s number in a couple of different ways, Robbie. I guess I would say on the cost structure piece, I don’t necessarily fully agree with you that the way you characterized it in terms of COVID being the ultimate driver here. I think we made a lot of progress on our gross margins historically, whether it was in devices and in nutrition. So, as the device business continues to grow, that profile of that business is accretive, and you’ve seen our growth rates in that business over these last couple of years. So, that helps the margin. Our biggest challenge, I would say, from a gross margin perspective is really on the inflation side. Yeah, we’re seeing input costs go up probably more on the commodity side, so impacting EPD, impacting Nutrition, less so in — I would say, in Devices and Diagnostics. Yeah, there’s some noise that happens here with one supplier, another supplier and we deal with it. But the real challenge we’ve had, I would say, over the last kind of six months here has been on the Nutrition side. And part of that is — some of it is commodities. So, we’re going to have to see how those look like over the next kind of couple of months, seeing some slowing down of some commodities, but that’s the biggest kind of driver there. But the other part of the Nutrition is, I would say, cost that I don’t anticipate to be there next year. So, for example, we’re paying WIC rebates for competitive products since April — actually, since March when we initiated the recall. And as we restart production in the facility, I don’t assume that that will continue.

I made statements in my opening comments about bringing product in from overseas. 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. And we put some money towards brand recovery. And I think that that was an investment that’s necessary to get our share back in position that we need as we go into next year. So, that being said, as I said, we’re going to look at our cost structure. We’re going to look at areas that have a higher hurdle now for passing an investment hypothesis or thesis and we’re going to — we’ll take action where we need to take action. So, that’s how I’d characterize our margin.

Robbie Marcus — J.P. Morgan — Analyst

Great. I appreciate the thought. Thanks a lot.

Robert B. Ford — Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. And our next question comes from Joshua Jennings from Cowen. And your line is now open, sir.

Joshua Jennings — Cowen and Company — Analyst

Hi, good morning. Thanks for taking the questions, and I was hoping to start with a follow-up on the raise of the 2022 EPS guidance floor and just better understand the puts and takes. I think there are some questions around the $0.30 beat in 2Q and the $0.20 increase, again realizing that it is a floor, but it seems like a lot of that I kind of guess $0.10 delta is driven by the move in the U.S. dollar in July. But just wanted to better understand the puts and takes and how you guys arrived at the increase that you did. I have one follow-up.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. Yeah. I think you’ll see — I mean, we’ve seen a lot of companies kind of beat their Q2 and either maintain their guidance for the full year or actually reduce it. And we looked at our numbers very carefully. And we basically looked at the strength of our base business. So, if you exclude AN, our nutrition — the parts of the Nutrition business that was recalled, we’re growing high single digits, and we continue to see that kind of growth rate going forward. So, between the strength of the base business and the COVID sales, we then felt that we had enough power here to navigate and push through some of these macro headwinds that are pretty significant, right? Inflation is a big element there. We had some costs when we gave initial guidance in January, we increased that in our April call. And we’ve assumed another couple of hundred million dollars of inflation since that number that we provided in April. So, that’s one element that we’re absorbing, I guess.

What I would call, healthcare staffing challenges, COVID cancellations, the lockdown issues that we saw in Q2, especially in, I’d say, on our core lab business and EP [Phonetic] in China, for example, those are being absorbed also. And then currency, as you referenced, pretty dramatic strengthening here of the U.S. dollar. So, we’ve assumed all of that. And as I said also to Robbie, we’ve had to factor in some additional costs on the nutrition side, whether it’s the WIC rebate, the freight and distribution, some of the investments we’re making to support share recovery. So, you put those two together — those two elements together on the macro on the nutrition side and then you offset that with our base business and COVID sales. And those — that’s really the element there, Josh. And as you said, since the beginning of the pandemic, we’ve gotten to at least floor-like guidance here. And that’s what $4.90 is. It’s a floor right now. Could that be better? Yeah, it could. There could be elements that could make that number be better. But on top of absorbing all these incremental headwinds here, inflation, currency, making some of the investments we need on nutrition, we’re still able to raise our full year guidance.

Joshua Jennings — Cowen and Company — Analyst

Thanks, Robert. And just one follow-up on the Medical Devices business, and it’s encouraging to hear you talk about kind of improvement in the back half and you did have that tough comp in 2Q. But are you able to just share any high-level color just on elective procedure trends throughout the quarter in 2Q, just month-over-month improvement did you see? And then anything you can share on the color in July? And just wondering, you called out a couple of the headwinds that you saw in 2Q for hospitals and the challenges that they’re facing to accelerate elective procedure volumes in the second half. But what do you think the biggest challenge is? And do you think the hospitals are well equipped to overcome those? Thanks again for taking the questions.

Robert B. Ford — Chairman and Chief Executive Officer

Yeah, sure. I think you mentioned there, I mean, Q2 last year was a pretty significant revenue for a lot in medtech. So, there is that comp aspect there. But second quarter procedures and volumes, if I look at Abbott’s procedure volumes and sales, they’re actually higher than pre-pandemic levels, and there was sequential growth from Q2 to Q1 [Phonetic], over 7% in the U.S. and a little bit lower internationally. So, the aspect here is that we are seeing growth and — but it was a little bit more modest than what we had anticipated back in April, right?

And I think there’re really three factors there. One of them, as I said, in the U.S., specifically, I think the staffing challenges were a factor there. And as people tested positive, while they didn’t have to go to the hospital and they could just stay at home, that had an impact in some of the procedures that there’s a little bit more planning towards. So, the good news is we know what those procedures are, we know where they are, and we’ve got an opportunity to follow up on them like we did last year and following up on all the procedures that got pushed out. So, internationally, I think you saw some similar headwinds there, but I think the biggest headwind for us was China and the lockdowns that occurred there.

And then the third factor for us was we had some back order and that was really due to the timing of input material availability. So, in terms of when you receive the materials to build the product, now we are building inventory, and I don’t anticipate that to be the case going forward in the second half.

So, those are really our fact — those are really the facts that had our device business a little bit more modest than what we projected in April. I think those get better. One, we’ve got launch activity. So — and I’m sure we’ll talk about some of those also, products that we’ve launched that will gain in momentum in the second half. And talking to a lot of the U.S. systems, they’ve just got to figure out better how to staff and to do more planning. And that might involve maybe looking at having more procedures booked because you know that there’s a certain amount of cancellations that will happen. So, I think that that will get better also as the hospitals understand these dynamics. So, I’m excited about the device portfolio in terms of the second half, not only because of some of these issues, which I think will get better, but also because of our pipeline and the products we’re launching and the execution.

Joshua Jennings — Cowen and Company — Analyst

Great. Thanks again.

Operator

Thank you. Our next question will come from Larry Biegelsen from Wells Fargo. And your line is now open.

Larry Biegelsen — Wells Fargo Securities — Analyst

Good morning, guys. Can you hear me okay?

Robert B. Ford — Chairman and Chief Executive Officer

Yeah, I can, Larry.

Larry Biegelsen — Wells Fargo Securities — Analyst

Yeah, it cut out a little bit. So, two from me, I wanted to — and thanks for taking the question. I wanted to start with Libre. Robert, just a multipart question here on Libre, another nice quarter. Any — how should we think about the Libre 3 launch in the U.S.? Should we expect it to be kind of a gradual rollout like we saw with Libre 2? And how are you feeling about resolving the vitamin C interaction issue? It sounds like you guys have made some good progress there. And just lastly, international was a little softer than we expected. Is this just kind of a law of large numbers? Or is this just a timing issue in terms of the full rollout of Libre 3? And I did have one follow-up.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. I think Libre 3, we’re very excited. We’ve had very good success in Germany in terms of upgrading the base and then with the benefits of Libre 3 actually seeing some conversions from competitive systems. So, the U.S. launch is going to be exciting for the U.S. team. It will be the only CGM with a sub-8% MARD. And that launch process is underway. But it is a little bit more gradual. So, we’re going to work to get on to pharmacy contracts, PBM contracts, Managed Care contracts, etc. So, we’re building inventory. We’re familiarizing the physicians with the product. But given what I’ve seen in Europe, I think this is a great opportunity for our U.S. business, which, by the way, did really well this quarter, right, even without Libre 3. We grew 53% in the second quarter. And I actually think that we can maintain that 30% to 40% growth rate in the U.S. even without Libre 3. So, I think that’s going to be an important growth driver for us towards the end of the year and as we go into 2023.

I do think, Larry, that CGM is a little different. I mean, we have it in devices, but the model, at least in the U.S., is very pharma-like and where patient out-of-pocket, coinsurance, co-pays, contracts, etc., they play a big role in understanding those and the interdependencies of those are very important. I think in an environment where employers and consumers are going to be looking more closely at managing their expenses, I think the value proposition of Libra’s going to be even stronger.

Regarding your question on vitamin C fixed, yes, we have done the work to be able to address that. We’ve made very good progress. I’m going to provide further updates over time. But obviously, this relates only to the U.S. We’re actually going to be launching an AID system in Europe with our partners in Europe in Q4 with Libre 2. So — but you’ll get more updates on that. I think that the exciting piece on the pump connectivity, though, is what we announced in June at the ADA with a dual sensor, a glucose-ketone sensor that’s under development that’s received Breakthrough designation from the FDA. The scientific advisers that I’ve spoken to, both in the U.S. and international, believe that this is going to become the go-to sensor for pump connectivity and — just because of the ability to bring in the ketone measurement and perfect even more of those algorithms. So, I think this is going to be an ideal sensor for existing pump companies and even for new pump manufacturers.

Regarding your question on international, there’s a little bit of timing there, I would say. Well, it’s two parts, a little bit of timing from — in Germany as we convert to Libre 3 and the mechanism is in place there. And then there was some FX headwind that impacted a lot of our international businesses. So, have I covered all for you, Larry?

Larry Biegelsen — Wells Fargo Securities — Analyst

That was very comprehensive. Really appreciate it. Just for my follow-up, Robert, I know I’ve asked this a lot on recent calls, but you’re sitting on a lot of cash. And we have seen a recent re-rating of valuations. So, are you starting to see more opportunities? Any color on deal size that you’re looking at? And I think some investors are saying, when COVID testing comes down, you might have a gap in terms of earnings that you need to fill. So, how important is it to find an accretive deal to offset a potential decline in COVID testing? Thanks.

Robert B. Ford — Chairman and Chief Executive Officer

Well, on the COVID testing side, I mean, I guess we’ll have to kind of see how things play out right now. I mean, I guess that was the same comment last year. And as I said, we’re selling more. We’re probably selling more what we sold more in the first six months here versus last year. So, regarding your comment, though, on the M&A side, yeah, I don’t think anything has really changed there. I mean, obviously, valuations have obviously come down somewhat, and we’ve got the capacity, as you said, in our balance sheet and that flexibility. But the macro environment is — just because the valuation has come down, I mean, it’s challenging and dynamic for all the companies, even the ones that have seen these valuations come significantly down. So, I think we — while we do have cash, I still think we need to be strategically and financially disciplined here to be mindful of when we’re assessing these potential targets and have they gotten to the right point given some of these macro environments that are going to be playing out. So, I think the market needs to stabilize for a period of time here, Larry, before I think a lot of management teams and their boards become a little more comfortable with the reset of their valuations and their financial outlook. That being said, yeah, I’d say the level of study, the level of review, the level of analysis on potential targets has definitely increased over the past four, five months here. And I’ve been clear about the areas that we’re looking at and the kind of types of transactions we would be interested of, but it always goes back to does it make sense strategically and does it make sense financially. So, nothing’s changed yet.

Larry Biegelsen — Wells Fargo Securities — Analyst

All right. Thanks for that. Thanks for taking the questions.

Operator

Thank you. And our next question will come from Joanne Wuensch from Citi [Phonetic]. And your line is now open.

Joanne Wuensch — BMO Capital Markets — Analyst

Good morning, and thank you for taking the questions. I’m going to put them all upfront. Some questions regarding your Structural Heart franchise. Could you give us sort of a state of the union or update on where you are on some key products, MitraClip, Portico and Amulet? And then just as a follow-up to the previous question, could you remind us where you are on share repurchases and your view towards if you’re not using the cash for M&A, what you will be using the cash for? Thank you.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. On the Structural Heart side, I talked about how this is such an important division for us and the focus that we’ve had there. So, I’d say on Amulet, we’ve had a very good quarter in Amulet aligned to the trends that we were hoping for. We’ve got an expansion of the amount of accounts that are using the product and also an expansion on the amount of implanters that are completing and performing this procedure. One of the challenges we had in the beginning was just really to get the implanters trained, we needed proctors. And as you remember, in November, December, January and February, there was a lot of challenge with travel. So, that’s actually looking really nice in terms of the ramp there. What I’m very encouraged about is the traction we’re seeing from the early adopters. So, some of those that began the training and implanting in Q4 of last year, their utilization is more than double that of the average user. So, we’re seeing both things in terms of driving the sales there, the increase of new accounts and then the increase in productivity and utilization of the existing implanters.

On the Portico side or on the TAVR side, sales have been strong, especially in Europe where we’ve introduced Navitor, which is our next-generation TAVR system. It’s a competitive device from a clinical profile in high-risk patients. I estimate right now — we estimate right now that we’re about a high single digit. But when we look at the centers that are using Navitor, and Navitor is probably in about 40%, 45% of the centers in Europe, shares in the mid-teens, and that’s very encouraging also because Navitor being our second product has really been an improvement for Portico. And as you know, we filed that in the U.S. in October of last year at the PMA, I expect that to be the case, I expect to see an approval and opportunity for us to launch into the TAVR market here in the U.S.

And on MitraClip, this was a tough comp for us this quarter. Last quarter [Phonetic] last year, it was the highest quarter we’ve ever had in terms of procedures in terms of sales. So, there’s no doubt that this one here is probably a little bit more impacted by COVID and some of the healthcare staffing challenges and the rescheduling of the procedures. So, I expect these dynamics to steadily improve over time. And as I said previously, I don’t think we fully benefited yet from the indication expansion that we received for the functional MR. So, the market still remains pretty underpenetrated and there’s a lot of opportunity for growth there.

So, a lot of activity in our Structural Heart business, a lot of good performance. And I just expect that to get better over the next couple of quarters. And then what was your other question?

Joanne Wuensch — BMO Capital Markets — Analyst

It had to do on share repurchases, use of cash if you’re not using it for M&A. Thank you.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. Well, listen, we’ve always kind of had a balanced approach for deploying our cash. We’re mindful of our cash on hand, we’re investing in the dividend, and we’ve been growing that dividend, and that’s an important part of it. We’re investing in the capacity expansions in several of our areas, Libre, Electrophysiology, MitraClip, Nutrition. And we bought back shares in the first half of the year and something that we’ll continue to assess as we go through the second half year. So, the approach towards our capital allocation is pretty balanced, and we’re committed to the dividend, done some share buybacks in the first half. We’ll continue to assess in the second half. And there’re great opportunities for us to continue to invest organically to be able to drive the organic part of the business.

Joanne Wuensch — BMO Capital Markets — Analyst

Thank you.

Operator

Thank you. Our next question will come from Vijay Kumar from Evercore ISI. And your line is now open.

Vijay Kumar — Evercore ISI — Analyst

Yeah. Hi, Robert. Thanks for taking my question. Congrats on a strong 2Q here. One, on this guidance here, when you look at the base floor for fiscal ’22, $4.90, you guys did close to $3.15 of earnings in first half, so the implied earnings for back half was — the floor is $1.74, that’s annualizing to about $3.50-ish. Is there — I guess, that $1.74-ish for back half, that’s below the back half of 2019. So, I am wondering between FX [Phonetic] inflation, is there something else that’s going on here where — we still have COVID revenues flowing through in the back half, it seems a little light on the EPS guidance.

Robert E. Funck, Jr. — Executive Vice President, Finance and Chief Financial Officer

Hey, Vijay. This is Bob, I’ll take that question. I think it’s — I think using an implied kind of fourth quarter exit rate as an indicator kind of how we’re thinking about ’23 probably wouldn’t be prudent at this point. There’s obviously a lot going on in the macro environment that warrants further monitoring and assessment. And on top of that, there are a couple of swing factors that are specific to us, strength of our COVID testing business, that’s provided us an awful lot of flexibility to reinvest back into our P&L over the last couple of years. And so, as part of our — and as Robert kind of talked about, we’ll see kind of how COVID testing plays out. We continue to see very strong demand. And so, there’s some element of that that we fully expect to stick around, and it’s just difficult to pinpoint what that level is at this point in the year. But as part of our budgeting process for next year, we’ll take a close look at the overall cost structure, which Robert touched on and our investment priorities. And as you know, we’re also working through the nutritional recall and making good progress, incrementally investing, and Robert talked about the fact that some of those investments will modulate over time or even go away. And so, that combined with recapturing share, we’ll see the earnings power of that business ramp up over time. So — and then finally, our pipeline has been highly productive and especially in devices. And as we drive that growth, that’s accretive growth overall to the corporation. So, those are big moving parts. And as we start to think about 2023, we’ll incorporate all those elements and especially in devices. And as we drive that growth, that’s accretive growth overall to the corporation. So, those are big moving parts. And as we start to think about 2023, we’ll incorporate all those elements in our forecast next year.

Robert B. Ford — Chairman and Chief Executive Officer

I guess I’ll just add to that, Vijay, also. I mean when we talk about the strength of the U.S. dollar and the impact that we’re having on a full year basis, it’s pretty significant and a big portion of that impact is actually forecasted to happen in the second half of this year. So, that also plays a role together with the inflation aspects that we’re facing. So, that’s really the challenge.

Vijay Kumar — Evercore ISI — Analyst

Okay. That’s helpful. And maybe one last one. With the second half base business guidance mid-single digit to high single digits, if I look at 2Q ex China and ex Nutrition, the base business did north of 7%, which is in line with the high single sort of trajectory that investors have baked in, that back half of mid-singles to high singles…

Robert B. Ford — Chairman and Chief Executive Officer

So, like I said, I think we’ve got opportunity here on the back half also. We’ve set a floor. And again, I’ll just reiterate that this is where contemplating all these puts and takes that we’ve been discussing, we feel confident in that floor number, and we believe that there’re opportunities here for upside to that.

Scott Leinenweber — Vice President, Investor Relations, Licensing and Acquisitions

Hey, Vijay, I would just say, as Bob said in his prepared remarks, excluding Nutrition, we expect high single digits for the kind of remainder of the businesses to your point. So, the math you’re doing there is right.

Vijay Kumar — Evercore ISI — Analyst

Great. That’s helpful, Scott. So, the guide is assuming some impact here in the back half. That’s helpful. Thanks, guys.

Operator

Thank you. And our next question will come from Travis Steed from Bank of America. And your line is now open.

Travis Steed — Bank of America — Analyst

Hi, good morning. Can you hear me okay?

Robert B. Ford — Chairman and Chief Executive Officer

Yes.

Travis Steed — Bank of America — Analyst

All right. Great. Just wanted to ask a couple more on the margin puts and takes. And I know [Technical Issues] to Robbie’s question, you mentioned a lot of like onetime costs and nutrition with contracts on top of inflation and FX. So, just wanted to think about the commitment and ability to grow operating margin off this year’s base margins. If the macro environment just remains stable, I assume most of those nutrition and onetime investments go away later this year as the nutrition ramp back up. But I don’t know if there’re any other levers that you can pull on the margin line and also not sure about this year’s FX headwinds, how much of those naturally carry over into next year. That’s something that J&J kind of flagged for people.

Robert B. Ford — Chairman and Chief Executive Officer

Yeah. Listen, the commitment to grow the operating margin is always there. We’ve — we always shoot for that growth. You had a big if there and that’s the big if, right, if the conditions remain the same. So, I don’t know what currency is going to look like next year. Bob can talk about that a little bit. But there are some of these costs, but I mentioned that I don’t anticipate having to fly in the amount formula that we flew in from overseas. I don’t anticipate having to kind of pay those WIC rebates on competitive product. We have a, what I would call, a steady investment profile on our Nutrition business that I would say we’re a little bit out of profile in the next quarter or so because we want to make sure that as product is coming back that we can work to regain our share. And we’ve seen some of that share regain last couple of months. I mean from the start of the recall, we lost about half of our IMF share. And of that half that we lost over the last couple of months, we’ve regained half of that back. So, some of these costs, like I said, are more onetime in nature. On the FX side, I don’t know, Bob, do you have a comment on there?

Robert E. Funck, Jr. — Executive Vice President, Finance and Chief Financial Officer

Well, I guess I’d say history has taught us that rates rarely if ever hold for a long period of time, so trying to pinpoint kind of an accurate projection for next year at this point is pretty challenging. There’s an awful lot of moving parts. As you know, different central banks taking different rate actions, different strengths of economies, etc. That said, at a high level, based upon kind of where we’re at today, a decent portion of the impact we’re seeing this year will carry into next year. Obviously, there’s a long way to go, so we need to see how things play out. And as part of our planning process, we always look for opportunities to mitigate currency impacts as best we can.

Travis Steed — Bank of America — Analyst

Thank you for the additional color. That’s helpful. I do want to make sure I heard you right. It sounds like you’re going to launch an AID insulin system in Europe with Libre 2 by Q4. And I don’t know if you’d be willing to say like who that partner is or what that product might look like in any form or fashion?

Robert B. Ford — Chairman and Chief Executive Officer

Yeah. I think we made an announcement about the partnership several — about a month, a month and a half month ago. So, yeah, that’s with Ypsomed, a local European manufacturer and another partner. So, yeah, our target is to be able to launch that by the end of the year in Europe.

Travis Steed — Bank of America — Analyst

Okay. No. Great. Thanks a lot for the questions.

Scott Leinenweber — Vice President, Investor Relations, Licensing and Acquisitions

Operator, we’ll take one more question.

Operator

Thank you. And our last question will come from Jayson Bedford from Raymond James. And your line is now open.

Jayson Bedford — Raymond James & Associates — Analyst

Hi, good morning. And thanks for taking the questions. Just a couple. First, on the infant nutrition and the manufacturing ramp here. Is there any way to frame where you are today and when you feel like you’ll be back to full production levels? And obviously, I’m just thinking in the context of where you were last year and potential profit recapture in this segment.

Robert B. Ford — Chairman and Chief Executive Officer

Sure. Well, as I said, we restarted on July 1st, and we began production of the specialty formulas. The production of the Similac, which we call our more base formula. I mean, we’re very close to that, Jayson, what I would say and I don’t want to necessarily kind of put an exact date here, but we’re not talking months, we’re not talking weeks. So, we’re very close there. And we obviously have a team that’s ready to go and — to ramp up. We know that we’re going to have to work hard to shorten the time between manufacturer and on-shelf availability. So, there’s a team that’s specifically dedicated to working on accelerating that time frame also. So, I like where we’re at. And we’ll continue to use our global network to be able to augment those efforts of share recapture.

Jayson Bedford — Raymond James & Associates — Analyst

So, Robert, when we look at ’23 for USP, is it — the debate just around market share? And I’m assuming from a manufacturing standpoint, you should be clean in ’23.

Robert B. Ford — Chairman and Chief Executive Officer

Yeah. That’s our expectation. I think the debate on ’23 is predominantly market share and then there might be a little bit of market also in terms of understanding how much of the growth in today’s market is inventory build. We have seen an increase in birth rates. So, that’s another opportunity also for — to maybe to offset that. So — but yeah, I think it’s mostly about market share, market share recovery. And like I said, I think in the previous question, I think we’ve done pretty well about using our network to be able to regain the market share that we had lost in those first couple of months. So, yeah, it’s really about looking at our share and share recovery, which is why, as I said, we’ve made some investments during — over the next three, four, five months here to be able to put us in — in that right position in 2023.

So, I’ll just close the call here. Obviously, a lot of your questions, so that there is, I guess, some uncertainty in the environment, it’s pretty dynamic. And I think that’s going to be the same for a lot of companies. For Abbott specifically, our new product launches are performing very well. R&D pipeline is strong. And as I said, our financial health is also strong. We’re making progress in Nutrition to drive share recovery and our Adult business and international growth opportunities still remain very strong. The Cardiovascular portfolio, Device portfolio, there is growth. It continues to recover, albeit not at the same level that we had forecasted back in April, but I do expect that same recovery trend. It’s not as leaner as we would like or as what we’ve historically had. But ultimately, I do believe that the segment will continue to grow and recover.

EPD and Libre continue to perform very well. And in Diagnostics, I get that COVID testing is a big portion of the equation here. But I just remind ourselves to where we were last year and what we thought was going to happen last year. And right now, all the data shows that testing is still here. Cases are up, our test sales are actually up, and our tests have done very well from a brand and become somewhat of a preferred format over here. So, as I look to the second half of the year, I anticipate some of the macro challenges to continue in some cases to be tough. And in other cases, hopefully, we’ll see some easing on there. But our diversification is very unique, and that’s what’s held up very well. We’re navigating the macro headwinds. We’re investing in our growth platforms. And we raised our guidance for the full year. And I think that’s a rarity in this environment and I think it speaks to the strength of the portfolio and the execution and our ability to manage and leverage the portfolio.

So, with that, we’ll wrap up, and thank you for joining us today.

Scott Leinenweber — Vice President, Investor Relations, Licensing and Acquisitions

Thank you, operator, and thank you for all of your questions. This now concludes Abbott’s conference call. A webcast replay of this call will be available after 11:00 AM, Central Time, today, on Abbott’s Investor Relations website at abbottinvestor.com. Thank you for joining us today.

Operator

[Operator Closing Remarks]