Abbott Laboratories
ABT,
is focused on recovering its position in the baby-formula market in the U.S. following the recall that required the intervention of the Biden administration to ensure that parents were able to feed their babies.
The recall, which was announced in February, included Similac, EleCare, and other powder-formula products manufactured at one plant in Sturgis, Mich. It came after reports of two babies dying and at least two others getting sick with a bacteria called Cronobacter sakazakii. The infants had been fed with Abbott’s formulas.
The subsequent recall cut deeply into the company’s nutrition-business sales for the year. Revenue for this business has declined about 7% each quarter, to $3.8 billion in the second quarter of 2022 and $1.9 billion in the first quarter.
The company restarted partial production of specialty formulas at the Sturgis facility earlier this month. And during an earnings call on Wednesday Abbott CEO Robert Ford explained several times how the nutrition business is recuperating, using the word “recovery” a total of seven times when talking about the baby-formula business.
But he also acknowledged losing market share and having to take on several one-time recall-related costs, including providing rebates to people to purchase other baby formulas covered by the Special Supplemental Nutrition Program for Women, Infants, and Children, also called WIC; funding “brand recovery” efforts; and paying higher-than-normal airfreight costs to ship formula from Abbott’s plants in Ireland and Spain.
Airfreight rates are still more than three times higher than prepandemic prices, according to the Freightos Group, a freight-shipping marketplace.
“We brought a lot of formula from overseas,” Ford said, according to a FactSet transcript of the call. “That’s all airfreight, and you know the story on freight distribution. So once that facility starts up and running, I don’t anticipate to see those same kind of freight expenses from overseas shipments.”
The recall triggered a shortage of baby formula in the U.S. that had families driving hours to try to secure cans of formula for their children. It angered lawmakers and raised questions about why so few companies sell baby formula in the U.S. The Biden administration has since invoked the Defense Production Act and has orchestrated 17 flights from European countries to the U.S. that delivered formulas manufactured by Nestlé Health Science and Danone, among other companies.
Going forward, Abbott told investors it’s focused on recovering its market share even while it looks into a somewhat surprising new opportunity.
“We have seen an increase in birthrates,” Ford said. “So that’s another opportunity…to offset that. But I think it’s mostly about market share and market share recovery.”
Abbott’s stock has declined 23.2% this year, while the broader S&P 500
SPX,
is down 17.4%.
