What's Driving Abbott's Gross Margin Growth Amid Macro Issues

In the second quarter, Abbott Laboratories ABT posted gross profit of $6.29 billion, up 8.9% year over year despite a 5.4% increase in the cost of products sold (excluding amortization expense). This led to a gross margin expansion of 79 basis points (bps) to 56.4%, backed by a favorable product mix shift toward higher-margin businesses, particularly within its Medical Devices segment, where double-digit growth in diabetes care, structural heart, and electrophysiology contributed meaningfully.

The strong uptake of Libre CGM, AVEIR leadless pacemaker, and structural heart products — TriClip, Amulet and MitraClip — helped enhance pricing leverage and operational efficiency. Continued demand for Adult Nutrition products, Ensure and Glucerna, supported a richer-margin portfolio within the Nutrition business.

Additionally, improved foreign exchange conditions, with a weaker U.S. dollar versus prior expectations, provided a modest tailwind. In lieu of this, foreign exchange had a favorable year-over-year impact of 0.5% on second-quarter sales.

Continued cost discipline in manufacturing, combined with lower COVID testing drag and productivity gains across the supply chain, further supported the 79-basis-point year-over-year improvement in gross margin. These factors reinforced the company’s ability to drive profitability despite macro headwinds such as tariffs and selective pricing pressures in China’s diagnostics market.

ABT’s Peer Performance

Thermo Fisher’s TMO gross margin of 41.2% in the second quarter contracted 83 basis points (bps) year over year. The contraction was due to a transition in its revenue mix as COVID-related revenues continued to decline. This created a tougher year-over-year comparison despite healthy growth in core businesses like Bioproduction, Analytical Instruments and Pharma Services. Additionally, macro headwinds, including inflationary pressures on raw materials and international conflicts causing disruption in global supply chains, negatively impacted profitability.

Boston Scientific’s BSX gross margin in the second quarter contracted 152 basis points (bps) year over year to 67.7%. This decline was primarily due to inventory charges linked to the global discontinuation of its ACURATE valve. Excluding this one-time impact, underlying gross margin performance remained strong, supported by continued growth in high-margin areas such as electrophysiology, structural heart and neuromodulation.

ABT Price Performance

In the past year, Abbott’s shares have surged 16.8%, outperforming the industry’s 4.1% growth. The S&P 500 composite grew 15.6% in the same period.

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Discounted Valuation

ABT currently trades at a forward 12-month Price-to-Sales (P/S) of 4.88X compared with the industry average of 5.61X.

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ABT Stock Estimate Trend

In the past 30 days, ABT’s EPS estimate has remained unchanged for 2025 and 2026.

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ABT stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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