New fresh air in pharmaceutical company Abbott Laboratories

The pharmaceutical and chemical industry has seen significant growth during the coronavirus era. Huge profits due to vaccine purchases have ensured huge profits for companies. Today, the world is more or less getting back to normal and this part of the income began to stagnate. The American pharmaceutical giant Abbott Laboratories had a kind of 'wild ride' in recent months, because they had to withdraw even their infant formula from the shelves. However, after the scandal, the card is turning and this particular company could return to her previous levels in the next weeks.

Q1 results  

Abbott Laboratories released its first quarter results in April, where we saw profit growth of more than a third, with revenue growth of almost 30%. The American conglomerate made a net profit of USD 843 million compared to only USD 615 million in the first quarter last year. Revenues grew to USD 6.34 billion, it grew up 29.7% compared to Q1 last year.

Infant formula shortage in the US

There was a problem in the US at the beginning of the year. In February, Abbott Nutrition had to withdraw three brands of powder formulas from the market: Similac, Similac Alimentum and Elecare. This caused a nationwide shortage of formula in the following months, which lasts from May 2022. The reason for the withdrawal of the products from the shelves was an investigation because of a complain of Cronobacter sakazakii infections among four children who were supposed to have consumed artificial infant formula produced under this brand. Cronobacter sakazakii may be the cause of sepsis infection or meningitis, so the alleged formula may have caused the deaths of two infants, the US Food and Drug Administration announced. Both Abbott and U.S. President Biden tried to solve the shortage from other sources but it was not enough.

The stock drop

During the first quarter, the company's share price rose to higher levels. Compared to industry competitors, the stock value was higher and fears of a decline were eventually confirmed. On May 5, we saw a significant decline and the stock price was at $105. Compared to the April high of $123, this is a drop of as much as 14%. The decline in stock value comes at a time when the company is going through a problem with the withdrawal of infant formula from the shelves and at the same time has to deal with the declining demand for vaccines.

Abbott Laboratories' performance over the past 5 years. (Source: Investing)*

Solving the crisis

The bad situation around a recall of the baby formula happened also because Abbott is the largest infant formula manufacturer in the US. However, the recall of the products was inevitable because 2 babies died. The FDA investigation started after four children were hospitalized with bacterial infections, and that is when they consumed the mentioned formula. These days, however, the situation started to stabilize, which could return the company's stock to previous levels. Abbott Nutrition has resumed production of infant formula in the state of Michigan, so the nationwide crisis should be resolved in the coming weeks. The pharmaceutical sector offers interesting opportunities for investors, and just as stocks are falling, there is an opportunity to buy them cheaper and take advantage of the opportunity.

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*Past performance is no guarantee of future results.

 [1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guarantees of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.