Tax reform impact on Abbott’s 4Q17 and future performance
In 4Q17, Abbott Laboratories (ABT) reported $828 million in net losses, which came in at $0.48 per share. The loss was due to the impact of a $1.46-billion charge due to the recent US tax reforms. Its adjusted tax rate in fiscal 4Q17 came in at 16.5%.
In fiscal 2018, Abbott Laboratories expects an adjusted tax rate in the range of 14.5%–15%, primarily due to the impact of tax reform as well as global income mix. The company will now be able to repatriate its overseas cash to the US at a lower tax rate. According to Goldman Sachs, the major US companies below have significant overseas cash flows.
Initially, the tax reform implications were worrisome for Abbott Laboratories because nearly two-thirds of its operations are outside of the US—and because it has a large amount of debt on its balance sheet due to its big-ticket acquisitions of St. Jude Medical and Alere in 2017. However, these tax reforms are expected ultimately to bring down the company’s tax rate and yield long-term growth.
According to Abbott CEO (chief executive officer) Miles White, the company’s management is “pleased with where tax reform came out.”
White also stated the following: “As a multi-national and a company that had a lot of debt in the last two years because of the acquisitions, I had concerns about some of the structures they were looking at, but it all turned out pretty good. I think it will stimulate a lot of growth and investment in the US.”
For exposure to Abbott Laboratories while diversifying the risks driven by company-specific factors, investors can consider investing in the Vanguard Value ETF (VTV). VTV has ~0.82% of its total portfolio holdings in ABT stock.
Tax benefits reinvestment plans
Abbott Laboratories plans to invest its tax benefits into R&D (research and development). Some of the tax benefits are expected to be invested in manufacturing in the US and in SG&A (selling, general, and administrative) expenses.
By comparison, healthcare peer Johnson & Johnson (JNJ) plans to invest its tax benefits in paying dividends and acquisitions. Merck (MRK) is also upbeat about putting more cash toward higher M&As (mergers and acquisitions). After it sees its tax reform benefits, Medtronic (MDT) plans to repatriate its overseas funds over the next eight years and pay $2 billion–$3 billion costs for the same.