ABT — Q1 2026 Financial Report Analysis

Overview

Abbott's first quarter of 2026 is really two stories layered on top of each other. The operating business did roughly what management expected — sales up 3.7% once you strip out currency swings, with medical devices carrying the quarter and nutrition still shrinking. Then, eight days before the quarter closed, Abbott completed a $20.6 billion acquisition of Exact Sciences, and the one-time costs of that deal tore through the reported income statement.

Reported net sales were $11,164 million, up 7.8% from $10,358 million a year earlier. But more than half of that increase was a currency effect: the US dollar was weaker than a year ago, which mechanically inflates the dollar value of sales made in euros, yen, reais and so on. Abbott quantifies the effect at 4.0 percentage points of the 7.8%. Strip it out and underlying growth was 3.8%; on Abbott's "comparable" basis — which also removes the tail end of a competitor settlement in Structural Heart, and adds Exact Sciences into both years so the comparison is like-for-like — growth was 3.7%.

GAAP earnings tell a much worse story than the business does. Operating earnings fell 20.6% to $1,345 million and GAAP diluted earnings per share fell to $0.61 from $0.76. Almost all of that decline is deal cost, not deterioration: Abbott recorded $449 million of pre-tax acquisition-related expense in the quarter, of which $321 million was a single non-cash item — the accounting charge for cashing out Exact Sciences employees' unvested stock awards at closing, as the merger agreement required. On an adjusted basis, which excludes those items plus the amortization of acquired intangible assets, diluted EPS rose to $1.15 from $1.09, up about 6%.

Key metrics

"Gross margin" is the share of each sales dollar left after the direct cost of making the product. "Adjusted" figures are Abbott's own non-GAAP measures, which leave out intangible amortization and items management treats as one-off; the reconciliation is in the earnings release.

Segment results

Segment operating earnings here are Abbott's internal measure — they include cost of goods and operating expenses but exclude intangible amortization, share-based compensation and corporate costs, which is why the four segments add to $2,904 million while consolidated GAAP operating earnings are $1,345 million.

Medical Devices is doing the work. Excluding currency, Rhythm Management grew 12.5% on Aveir leadless pacemakers, Electrophysiology 12.5% on higher ablation procedure volumes and catheter demand, and Heart Failure 12.2% across ventricular assist devices. Diabetes Care — the largest single business at $2,080 million — grew 7.4% excluding currency; continuous glucose monitors, the sensors that track blood sugar without finger pricks, reached $2.0 billion in sales, up 7.6% on the same basis. That is respectable but it is the slowest grower among the big device lines, and it matters because of its size. Structural Heart's reported +9.0% flatters it: excluding currency the business grew 3.6%, held back by the end of payments under a multi-year agreement with a competitor, the final instalment of which landed in Q1 2026. Removing that from both years lifts underlying growth to 6.8%. Segment operating margin expanded 1.3 points to 34.2%, so the growth is coming with operating leverage rather than being bought.

Diagnostics is where the acquisition and a weak respiratory season collide. Core Laboratory grew 3.3% excluding currency on Alinity test volumes in the US, Europe and Latin America, held back by what Abbott calls continued challenging market conditions in China. Rapid and Molecular Diagnostics — the successor grouping to Abbott's pandemic-era rapid testing business, now combining the former Rapid, Molecular and Point of Care units — fell 9.6% excluding currency, which Abbott attributes specifically to lower demand for respiratory virus tests against a stronger season a year earlier. Cancer Diagnostics, the new business housing Exact Sciences, contributed $96 million from the March 23 close — eight days of sales. Segment operating margin fell 2.1 points to 15.4%, with segment SG&A up $56 million, reflecting the newly consolidated cost base against only a sliver of revenue.

Nutrition is the problem. Sales fell 7.7% excluding currency, with the US down 11.6% reported (pediatric −13.0%, adult −9.2%). Abbott's explanation is volume: fewer units sold across both pediatric and adult lines in the US and internationally, compounded by strategic pricing actions taken in Q4 2025. Segment operating earnings fell 21.1% and margin dropped 3.0 points to 15.4% — the decremental math of losing volume against a largely fixed manufacturing base. Management expects the same pricing moves, plus new product launches, to turn volume positive over the course of the year; that is a forecast, not yet a trend in the numbers.

Established Pharmaceuticals — branded generic medicines sold only outside the US — was the cleanest result, up 9.0% excluding currency with Key Emerging Markets up 9.4% on double-digit growth in several Latin American and Asia-Pacific countries, and operating margin up 1.9 points to 25.6%.

The Exact Sciences acquisition

Abbott closed the purchase of Exact Sciences on March 23, 2026 for approximately $20.6 billion, paying $105 per share in cash, funded primarily by $20 billion of long-term debt issued in March. It also assumed roughly $2.8 billion of Exact Sciences debt, repaying $1.4 billion in March with the rest expected to be repaid during 2026. The deal brings Cologuard, Oncotype DX and Cancerguard into Abbott and creates the Cancer Diagnostics business inside the Diagnostics segment.

The preliminary purchase-price allocation is heavily weighted toward things that are not physical assets: $12.8 billion of acquired intangibles and $11.4 billion of goodwill (the premium paid above the identifiable value of what was bought), against just $0.4 billion of net tangible assets, a $2.0 billion deferred tax liability and $2.0 billion of net debt. Neither the intangibles nor the goodwill is tax-deductible. Two practical consequences follow. First, intangible amortization — already $422 million a quarter — will step up meaningfully from Q2 as a full quarter of the acquired intangibles is charged, widening the gap between GAAP and adjusted earnings. Second, the $20 billion of new debt starts costing real money: interest expense, net, was $68 million this quarter against $49 million a year ago, but that reflects only days of the new borrowing.

Abbott's own pro-forma disclosure is the most useful number here: had the deal closed at the start of 2025, Q1 2026 sales would have been roughly $11.9 billion rather than $11.2 billion, against roughly $11.1 billion in the year-ago quarter — implying about 7% growth for the combined company, comfortably ahead of the 3.7% the standalone business delivered. That is the case for the deal, and it is also the number to hold management to.

Cash and equivalents fell from $8.5 billion at December 31, 2025 to $6.8 billion, and working capital from $9.5 billion to $7.1 billion, largely on the cash portion of the deal and the $1.4 billion debt repayment. Abbott's long-term debt is rated A+ by S&P and Aa3 by Moody's, and management says it expects to stay investment grade.

Margins and tax — where the adjusted number really came from

Adjusted gross margin fell 0.8 points to 56.3%. Abbott attributes the decline to higher costs and an unfavorable currency effect, partly offset by margin improvement work. It is worth noticing that currency cuts both ways here: it added 4.0 points to reported sales growth while working against gross margin, because Abbott's costs sit in different currencies than its sales.

The adjusted EPS growth is also thinner than it looks. Adjusted pre-tax earnings rose 3.8% ($2,385 million from $2,298 million), but adjusted net earnings rose 5.4% — the difference is the adjusted effective tax rate falling from 16.5% to 15.2%, helped by roughly $50 million of net benefit from resolving prior-year tax positions. Held at last year's rate, adjusted earnings would have been about $30 million lower, roughly two cents of the six cents of adjusted EPS growth. So of the 6% adjusted EPS growth, about a quarter is tax, not operations.

One item appears in both years and is easy to miss: approximately $200 million of tax expense in each of Q1 2026 and Q1 2025 relating to the reversal of a large non-cash deferred tax benefit recognized in a prior year. Because it repeats, it does not distort the year-over-year comparison, but it does keep the reported tax rate near 25.6% despite a 15.2% adjusted rate.

Abbott also continues to contest three IRS statutory notices of deficiency for tax years 2017–2020, totaling $417 million (2019), $192 million (2017/2018) and $443 million (2020), all centered on the same question of how income is allocated between US and foreign affiliates, plus a $413 million Malaysian assessment upheld by the Penang High Court in October 2025 and now under appeal. None is reserved as a loss, and together they are a real, if not near-term, cash risk.

Guidance and outlook

Management guided full-year 2026 comparable sales growth of 6.5% to 7.5% and adjusted diluted EPS of $5.38 to $5.58, the latter including $0.20 of dilution from the Exact Sciences deal — that is, the acquisition subtracts twenty cents from this year's adjusted earnings before it starts adding. Second-quarter adjusted EPS was guided to $1.25 to $1.31. Abbott declined to give the equivalent GAAP figures, citing an inability to forecast restructuring, impairment, acquisition and currency items. The board declared its 409th consecutive quarterly dividend at $0.63 per share.

The gap between Q1's 3.7% comparable growth and the 6.5–7.5% full-year guide is large, and it rests on three things happening: Exact Sciences entering the comparable base at its own growth rate, nutrition volumes turning from −7.7% to positive, and the respiratory-testing comparison easing after the first half. The first is arithmetic and close to certain. The second is a genuine forecast with nothing in this quarter's numbers yet supporting it — nutrition's decline was volume-driven, and management's own remedy, Q4 2025 pricing actions, is part of what depressed the quarter. The third depends on a season no one controls.

The device franchise is the reason to be constructive: 8.1% growth excluding currency with margin expanding 1.3 points, led by businesses where Abbott has specific product drivers rather than market tailwinds. The risk sits on the other side of the ledger — a business now carrying $20 billion of fresh debt, a materially higher amortization charge from Q2, and a nutrition segment where the fix is still a plan rather than a result.

Takeaway: Strip out the $449 million of Exact Sciences deal costs and the 20% drop in GAAP operating earnings dissolves — segment operating earnings actually rose 9.2%. The real signal in the quarter is the split inside the business: Medical Devices grew 8.1% excluding currency with margin expanding, while Nutrition fell 7.7% on lost volume and Diagnostics grew just 2.5% as respiratory testing declined 9.6%. Abbott's 6.5–7.5% full-year comparable growth guide needs Exact Sciences' arithmetic plus a nutrition volume recovery that has not yet shown up anywhere in the numbers.

Source: Abbott Laboratories Form 10-Q for the quarterly period ended March 31, 2026 (filed April 29, 2026; accession 0001628280-26-028357) and the Q1 2026 earnings release furnished on Form 8-K, Exhibit 99.1 (April 16, 2026).