Dive Brief:
- Abbott said Wednesday it plans to spin out its nutrition business into an independent, publicly traded company.
- The business has approximately $8.5 billion in annual sales and includes brands like Pedialyte, Similac and Ensure. In Abbott’s third quarter, nutrition brought in revenue of $2.26 billion, representing year-over-year growth of about 5%.
- Abbott’s nutrition business has been at the center of lawsuits as well as a federal investigation into the manufacturing and handling of a recall of powdered infant formula in 2022 due to potential contamination. In September, the company announced a $385 million settlement with the Department of Justice to resolve claims as well as lawsuits filed by certain relators and the attorneys general in several states.
Dive Insight:
Abbott is the latest major medtech company to turn to the spinout strategy. Medtronic separated its diabetes business earlier this year, and Johnson & Johnson is planning to spin out its orthopedics business.
Abbott CEO Robert Ford framed the decision as a benefit for both companies and a way to “maximize success” in their markets, as well as a way for the remaining company to focus on higher-growth markets.
“Our Nutrition business has a unique opportunity to capitalize on the growing demand for healthy nutrition, and it will be better positioned as an independent company to more effectively direct its strategic resources across its priorities,” Ford said in the announcement. “At the same time, Abbott’s core higher-growth, innovation-driven portfolio of medical devices, diagnostics and established medicines has compelling growth opportunities to improve the health and lives of people around the world.”
After the spin, Abbott’s remaining businesses will be diagnostics, established pharmaceuticals and medical devices. The company will have approximately $42 billion in sales.
Abbott expects to complete the spin off at the end of 2027, subject to regulatory approval and other closing conditions. When the deal is complete, Abbott stockholders will own shares in both Abbott and the new company.
The planned separation will not have an impact on Abbott’s guidance for 2026 or 2027, which the company plans to provide in January.
J.P. Morgan analyst Robbie Marcus said that the spinout should be a good strategy for Abbott’s overall business going forward.
“We think the value proposition of the separation is clear – it should improve top-line growth and margins, and remove what’s been a difficult business of late, both for Abbott specifically and the packaged goods/nutrition market overall, “ Marcus wrote in a note to investors.
BTIG analyst Marie Thibault wrote that the “Nutrition business had sometimes weighed on total company sales growth, its margins are below the corporate average, and liabilities tied to infant formula litigation remain an overhang.”
In 2022, Abbott recalled several brands of baby formula due to potential contamination. The recall, as well as the temporary closing of a large manufacturing plant in Michigan, contributed to a shortage of powdered baby formula.
In announcing the DOJ settlement in September, Abbott said the government had closed its criminal investigation into the company. Abbott maintained that the settlement does not represent a finding of fault or liability, and the company said that no unopened, distributed Abbott infant formulas have ever tested positive for the Cronobacter sakazakii bacteria.
In August, Abbott announced a separate agreement to resolve a lawsuit and claims involving about 2,000 other individuals relating to certain specialty formulas for preterm infants made by the company and an alleged connection to necrotizing enterocolitis, a serious gastrointestinal problem that mostly affects premature babies. Abbott agreed to pay an aggregate amount of approximately $670 million. The company said the agreement is not an admission of liability.
There are lawsuits still pending over the nutrition business. However, Ford said on a Wednesday earnings call that fully resolving litigation matters is not a “prerequisite for completing the separation.”
Alongside the spinout announcement, Abbott reported third-quarter earnings. The company brought in $13.01 billion in sales, representing growth of 14.5%. Abbott also cut its 2026 sales growth guidance to 6%, down from a previous range of 6.5% to 7.5%.
