Abbott Laboratories (ABT) — Q3 2018 Earnings Call Transcript

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail. Following their comments, Miles, Brian and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2018. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, through our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2017. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. Please note that third quarter financial results and guidance provided on the call today for sales, EPS and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which adjusts the 2017 basis of comparison to exclude the impact of exchange and historical results for Abbott's Medical Optics and St. Jude's vascular closure businesses, which were divested during the first quarter of 2017.

Okay. Thanks, Scott, and good morning. Today, we reported results of another strong quarter with ongoing earnings per share of $0.75 along with sales growth of approximately 8% on an organic basis, reflecting well-balanced growth across all 4 of our businesses. I'm particularly pleased with the continued productivity of our new product pipeline and would like to highlight a couple of areas where our products are creating and fundamentally shaping markets. I'll start with Structural Heart, where we're the global leader in minimally invasive treatments for mitral regurgitation or a leaky heart valve. We've recently made several significant advancements in this area. In July, in the U.S., we initiated a pivotal trial for Tendyne, our device that's designed to replace damaged mitral heart valves without the need for open-heart surgery. We also received U.S. FDA approval for our third-generation version of MitraClip, our market-leading device for the repair of mitral heart valves. And in September, we announced the results of our landmark COAPT trial, which demonstrated the MitraClip improved survival in clinical outcomes for patients with functional mitral regurgitation, the most prevalent form of this condition. We expect to submit this study data to the U.S. FDA in the coming weeks to support consideration of an expanded indication for MitraClip. These advancements will further enhance and strengthen our leadership position in this large and highly underpenetrated disease area and will bring new therapies to patients where effective treatment options are currently limited. Diabetes Care is another area where our technologies are making a big impact, specifically FreeStyle Libre, a revolutionary glucose monitoring system that eliminates the need for routine finger sticks. In the U.S., we received FDA approval for a 14-day sensor with a shorter 1-hour warm-up, making Libre the longest lasting wearable glucose sensor available. And in Europe, we obtained CE Mark for our FreeStyle Libre 2 system, our newest generation 14-day system with optional real-time alarms. In a relatively short period of time, FreeStyle Libre now has more than 1 million users across the globe, a testament to the mass-market appeal of this product, which is fundamentally changing the way people with diabetes manage their disease. I'll now summarize our third quarter results in more detail before turning the call over to Brian. I'll start with Diagnostics, where sales grew by 7.5% in the quarter. Alinity, our family of highly differentiated instruments, is achieving accelerated growth and strong competitive win rates in Europe, where more than 50% of our Alinity instrument placements thus far are coming from share capture. The global rollout of Alinity positions this business for consistent above-market growth for years to come, as we capture share and bring the full suite of systems to additional geographies, including the U.S. In Rapid Diagnostics, third-quarter sales were driven by cardiometabolic testing. We just completed the first year anniversary of our acquiring this business, and we're pleased with the progress we've made to position ourselves for growth and margin expansion going forward. In Established Pharmaceuticals, or EPD, sales were led by double-digit growth in several geographies, including Russia and China. As expected, sales growth in the quarter was impacted by a difficult comparison versus the prior year when we saw channel restocking across the market in India following the implementation of a new tax system in that country. Our unique branded generics business focused specifically on key emerging markets continues to execute its strategy and grow faster than the market in several of our priority countries, including India and China. In Nutrition, sales increased by 6% in the quarter, led by a strong performance in our international business. In Pediatric Nutrition, global growth was well-balanced across infant and toddler nutrition as well as above-market growth in the U.S. and double-digit growth broadly across our international markets. And in adult nutrition, growth was led by our market-leading Ensure and Glucerna brands, most notably internationally, where we achieved 7% growth overall in adult nutrition. Lastly, I'll cover our results for Medical Devices, where sales grew by 10% in the quarter led by double-digit growth in Electrophysiology, Structural Heart, and Diabetes Care. In Electrophysiology, growth of 20% was led by double-digit growth across our heart mapping and ablation portfolio as well as Confirm, the world's first and only smartphone-compatible insertable cardiac monitor. In Structural Heart, we achieved strong growth across several areas of our portfolio, including more than 20% growth of MitraClip and double-digit growth of AMPLATZER PFO, our minimally invasive device that plugs life-threatening holes in the heart. In Diabetes Care, sales grew by 40% in the quarter, led by FreeStyle Libre, which achieved sales of over $300 million in the quarter, an increase of more than 100% versus the prior year. So in summary, this was another very good quarter with all 4 businesses contributing to strong growth overall. Our pipeline continues to be highly productive, including significant recent advancements in Structural Heart and Diabetes Care that are creating and shaping markets. And lastly, we're forecasting EPS and organic sales growth at the upper end of the range, as we said at the beginning of the year. I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail. Brian?

Thanks, Miles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the third quarter increased by 7.8% on an organic basis. Rapid Diagnostics, which was acquired late last year and is therefore not included in our organic sales growth results, achieved sales of $481 million. Exchange had an unfavorable year-over-year impact of 2.7% on third quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, resulting in a larger unfavorable impact on our results this quarter compared to the expectations had exchange rates held steady since the time of our earnings call in July. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.5% of sales, adjusted R&D investment was 7.3% of sales, and adjusted SG&A expense was 29.7% of sales. Turning to our outlook for the full year 2018. We forecast organic sales growth of approximately 7%, at the top end of the guidance range we provided at the beginning of the year. At current rates, we expect exchange to have a slightly negative impact on full year reported sales. In addition, we continue to expect Rapid Diagnostics to contribute sales of a little more than $2 billion. We forecast an adjusted gross margin ratio of around 59.5% of sales, which includes underlying gross margin improvement across our businesses. We forecast adjusted R&D investment of a little less than 7.5% of sales and adjusted SG&A expense of around 30.5% of sales. Turning to our outlook for the fourth quarter of 2018. We forecast an adjusted EPS of $0.80 to $0.82. We forecast organic sales growth of mid- to high single digits. And at current exchange rates, we expect exchange to have a negative impact of a little more than 3% on reported sales. In addition, we expect Rapid Diagnostics to contribute sales of around $500 million in the fourth quarter, which, as I previously mentioned, is not included in our organic growth rate this year. Before we open the call for questions, I'll now provide an overview of our fourth quarter organic sales growth outlook by business. For Established Pharmaceuticals, we forecast mid-single-digit sales growth, which reflects the difficult comparison in our noncore other business segment relative to the fourth quarter of last year when sales increased strong double digits. In Nutrition, we forecast low- to mid-single-digit sales growth. In Diagnostics, we forecast mid- to high-single-digit sales growth. And in Medical Devices, we forecast high-single-digit sales growth, which reflects double-digit growth in several areas of this business.

Can you hear me now?

Thank you, David. Let me address the first part of your question. I can confidently say yes to the sustainability of our earnings. Regarding sales, I would affirm that we're aiming for a growth range of 6% to 7%, and I even see potential for better than 7%. Looking at the current momentum and growth of our various businesses, there are areas where I believe improvements can still be made. Although I'm not ready to forecast it yet, I still see a lot of growth and opportunity ahead, especially with our new product pipeline. This is evident from the performance of our businesses. The growth rate in Diagnostics has clearly improved, influenced by Alinity's success in Europe. Libre is performing exceptionally well, and we haven't heavily promoted it yet, which bodes well for its future. The new product rollout from Medical Devices is strong, and we expect another approval soon in the U.S. Overall, I'm optimistic about our top-line sustainability and the company's underlying growth. However, we need to acknowledge the challenge posed by exchange rates. This is a common concern for multinationals like us, and all companies operating in international markets share this experience. We’re seeing a rise in exchange impacts, and while we anticipate some headwinds in the fourth quarter that may extend into next year, the core growth and strength of our business remain robust. Historically, we have managed to counteract exchange fluctuations effectively, and we aim to be reliable performers for our investors. Each year, we set a goal for double-digit earnings growth, and it’s rare for us not to meet or exceed that target. As we prepare for next year, we are optimistic about starting with double-digit growth, given the solid performance across all our business sectors.

Miles, very clear. And the second, just a follow-up for you is just, can you help us put the Robert Ford announcement into perspective and sort of share your thoughts on what it means for you over the intermediate term?

Well, what it means to me over the intermediate term is I get a lot more help, which I'm happy about. Look, it's obviously a succession step. And one of the things that I think any good leader's got to do with his company is make sure that there's always good, strong succession, building, growing, et cetera, in the company. And that applies to me, too. So I think, for the continuity of the performance of this company, the continuity of its strategies, the continuity of its sustainable growth rates and so forth going forward, that's important. Robert Ford has been in this company this entire year. I've known him for 22 years and pay a lot of attention to his career, as you might imagine. And he's been an excellent operator. He's handled our entire St. Jude integration, done a terrific job with Medical Devices. And consequently, I want all of those Medical Device businesses continuing to report directly to him, even as he takes on more responsibility. And I'd say, with time, this will develop pretty nicely. And I think it's a very good strong move for the company.

Miles, wanted to ask you about COAPT. A lot of us were at the TCT conference in San Diego last month and saw the great data there to a room of standing ovation, which we don't see in Medical Devices that often. So us on The Street, we can think about big numbers with such a large patient opportunity. Maybe tell us how you're thinking about MitraClip over the next few years and how you think The Street should be thinking about it.

The performance of MitraClip in that study was outstanding. It's rare to see studies that are so clearly positive and beneficial for patients. We are very pleased and proud of this outcome. Our goal is to navigate the regulatory processes as quickly as possible to make it available for use. The medical community recognizes the significant benefits it offers. Making such a difference is undeniably important. Predicting how quickly we will move through the regulatory process is challenging. Currently, there are no specific impacts from this product in our roadmap for next year, so anything that occurs will be a bonus. I believe there is a substantial opportunity ahead, and while it's not a mass-market product, many patients will benefit. It will certainly impact the overall performance of the company and the Medical Device business significantly, rather than being a minor factor. Scott, do you have anything to add?

No, that's fair. We'll submit, as Miles mentioned in his prepared remarks, to the FDA in the coming weeks. And after that, it's in their hands, and we'll let that process play out.

Okay. Great. Maybe a follow-up on Libre. This is a product that's been wildly successful and now over a $100 million run rate in the U.S., over $1 billion globally. And you really have one major competitor here that's, let's call it, at the upper end of the technology scale. And Abbott, I view as the low-cost, easy-to-access, very easy-to-use product in continuous glucose monitoring. So as we think about the evolution of Libre over the next few years, how do you think about Libre staying at the lower end of the cost and ease-of-use curve versus moving up and trying to compete with your main competitor there?

I see Libre as quite a distinct product with exceptional capabilities. Its pricing makes it accessible to patients globally. When we introduced it in Europe, there was no government reimbursement, and the monitoring was entirely out-of-pocket for patients. It achieved impressive acceptance, which ultimately led to government reimbursements. Healthcare products today are often quite expensive, whether they are drugs or devices. It was crucial for us to provide both medical and economic value to ensure many patients could access it. There are millions of diabetes patients, including type 1 and insulin-dependent individuals, as well as type 2 patients who are managing their condition. Our product appeals to a wide range of patients, and we benefit from lower costs and superior automated manufacturing processes that facilitate mass production. Our approach has been more retail and direct-to-consumer focused, which has had a significant impact. Currently, we are enjoying healthy profits from this product and have no plans to adjust its value proposition. Your question implies we might raise prices to compete, but I would encourage you to consider how competitors will enhance their value propositions. Our product is an excellent value, which drives high demand. We do not measure ourselves against competitors, including finger stick methods; we know the potential patient base and aim to capture the largest share possible in the near future. Many consider Libre a huge success, but I believe we are just at the beginning, and we are investing substantially to expand faster. People may ask how to model this growth, but I'm not sure it's something we can accurately model because it's very promising. It’s important to think differently about the value proposition and the access it provides, especially as the healthcare landscape evolves. Certain products may remain niche and costly to develop, but others have the potential for broader impact and accessibility. Companies like ours must focus on making these products widely available while also ensuring we achieve a healthy return, which we are successfully doing with Libre.

So two quick questions. First, a product question and then an earnings growth question. On the product side, obviously, the context here is that Abbott is a company delivering absolutely top-of-class revenue growth. But the one thing in the quarter that I wanted to ask about was Neuromodulation. That was a little slower like the last quarter. I'm just curious, is your outlook for that business changed at all? Or is this just still temporary hiring issues? And when do you think you can return to more like double-digit growth in that division?

Okay. Thanks. I think it's more of the same from last quarter. And I do think this is temporary. I think it's going to take us a couple of quarters to work through, let's call it, the commercial execution issue we have. And you don't fix that overnight, but we will fix it and fix it in the near term. And I do think that this is a business that should return to double-digit growth. So I can look at that as something that gets better for us. It was obviously very strong last year. It hit a stall point during this year. But I do think that upside is there. And it's strictly in our hands at this point. So yes, I'm pretty optimistic about it. Do you go to bed happy about it? No. Can you fix it? Yes, and we are.

Okay, I have a couple of quick questions. What was the imminent U.S. product approval you mentioned in your prepared remarks? Also, I'd like to follow up on David's question regarding earnings growth. I understand you typically start each year with a 10% growth estimate, but the Street is projecting approximately 12% earnings growth for the next few years. Considering the various factors at play, is that a reasonable starting point, or could currency fluctuations complicate that?

The first question is straightforward. I was talking about HeartMate 3 and a new claim. The second question is a good one. I understand the current situation on Wall Street. Generally, the consensus has not factored in or modeled currency exchange. We are all observing the same exchange trends, including Wall Street. If I were to privately poll the approximately 20 sell-side analysts covering Abbott or any company, they would likely indicate that their current estimates are based on underlying growth, but are uncertain about currency's impact. Additionally, there's uncertainty regarding how much of that impact will be absorbed into their profit and loss statements versus how much will be reflected in their estimates. We are collectively navigating this uncertainty. I do consider the 10% to 12% growth range reasonable. Typically, we start every year with double-digit growth. The underlying growth of our businesses exists, but there are various factors to consider, including not only product variations but also the tax rate impacts from tax reforms this year. We have a positive adjustment in some of our euro debt costs. There are several positives and negatives to evaluate. Currency exchange is challenging to forecast, but historically, we've been accurate to the penny or slightly better every quarter. We strive for precision in our forecasts, and currency exchange remains the trickiest element to predict. It could have a mitigating effect, though we will have clearer insights when establishing next year's guidance. Over the years, we have consistently tried to counterbalance or mitigate currency exchange impacts to reliably meet our investors' expectations. There are many variables at play, and we aim to piece them together to provide reliable forecasts every quarter. For the last 15 to 20 years, we've done a commendable job. Our objectives for next year will be no different. I believe the estimates that contribute to the 12% consensus you mentioned are still subject to revisions based on currency exchange and other factors. In our situation, we continuously seek to minimize that impact. I cannot predict exact outcomes, but I think that range is likely accurate. We will start at 10%, and we will see how things unfold from there. If currency situations improve and we encounter a weaker dollar, we will be able to meet or exceed expectations.

So Miles, maybe the first one on the sustainability question. If I'm looking at '19, you have MitraClip FMR indication, which is incremental. Libre continues its strength. You have HeartMate 3, which is incremental. Portico U.S. launch, which is incremental. A stable CRM outlook. Neuromod, your comps get easy. Alinity, it should be ramping in the U.S. It really feels like all the strength we've seen in '18, they should continue into '19. So maybe can you just talk about some drivers or how we should be thinking about the pluses and the minuses?

Well, Vijay, you forgot to mention Alere and COAPT. You also overlooked some improvements in EPD. It's interesting because I've never seen such a wide range of new products, launches, and market conditions throughout the company in my career. Even Nutrition is performing significantly better than it has in recent years. While I wouldn't predict further improvements for Nutrition, I appreciate its current performance. EPD is in either high growth or at least moderate to high growth markets, benefitting from strong tailwinds. Of course, it faces currency challenges like everything else, but overall, these areas are performing very well. Products that are easier to track, such as Libre and Alinity, are actually picking up speed, which is encouraging. The sustainability and diversity of our growth are significant advantages for us. We're not dependent on a single product or market, nor are we overly reliant on China. There’s a substantial range of growth opportunities available. I'm genuinely proud of the company's productivity and pipeline, which includes St. Jude. Throughout our acquisition discussions with them, they consistently emphasized the strength of their pipeline, and they were correct; that has been validated. Therefore, I’m optimistic about the variety of opportunities we have. Although we could focus on one or two standout products like Libre and Alinity, every incremental gain matters. Every component of our business, whether it's HeartMate 3, Neuro, EPD, Alere, or Portico, contributes to our company's growth, and we appreciate having all parts of the company performing well.

That's helpful. And maybe one for Brian. Brian, when you look at the guidance for Q4, any implication for '19? So gross margin is at 59.5%. That would imply an acceleration to Q4. Any particular reason why GM sequentially should step up? How much did FX cost you guys in the EPS? There were a lot of questions on why guidance was not raised for the year. And it looks like, at least, $0.05 cents hit in the back half here. And is that sort of a similar number we should be thinking about just given where FX is right when you think about for '19?

Let me start with the gross margin. Our underlying gross margin improvement has been strong, increasing by nearly 0.5 points year-over-year, primarily due to the synergies from the integration of Alere and also synergies with St. Jude. Each year, we focus on enhancing the underlying gross margin across all our businesses, which has allowed for healthy reinvestment back into the company. Foreign exchange fluctuations do vary day by day but haven't significantly impacted us. We are seeing close to 40 basis points of gross margin improvement for the year based on underlying factors. Your point about foreign exchange affecting earnings is accurate. At the beginning of the year, we anticipated a foreign exchange tailwind of about $0.05, but it now appears to be closer to a $0.03 to $0.04 downturn on a full-year basis. We are managing through this with the strong underlying performance that Miles described across all our businesses. Overall, the performance is impressive and carries momentum into 2019.

I just want to add a comment regarding the CEO's statement. I'm not overly concerned about any potential changes in the fourth quarter. We've been ahead all year and our performance has been strong. Like everyone else, I'm focused on next year and ensuring continuity and sustainability. Whatever happens in the fourth quarter is what it is, and it's highly unlikely we'll miss expectations. We are all aware that exchange rates are becoming a bigger challenge. However, when it comes to providing guidance for the fourth quarter or making adjustments, I believe it's mostly about fine-tuning. At this point in the year, focusing on just one quarter seems less relevant; my attention is on next year. So, I wouldn't read too much into it. The main takeaway is that the underlying growth is quite strong and sustainable, so don't overanalyze the situation.

I would like to ask about the Vascular segment in Medical Devices, which seems to be experiencing some slower progress. I have a couple of questions. First, can you provide any insights on how the initial launch of the XIENCE Sierra stent is performing? Second, regarding the PHP percutaneous pump, the trial is currently on hold. Are there any updates on when it might resume?

Raj, this is Scott. Yes, I would just say with respect to the Vascular business, I think the big news item earlier this year was the U.S. approval of our XIENCE Sierra stent. That's off to a very good start. When you're going in to that, that physician feedback, I know it was very positive to our experience in Europe there. So we've added Sierra to a number of our contracts here in the U.S. We've actually recaptured several share points in the U.S. during the quarter. We also launched a product in Japan recently, and it's performing there very well. So the business had some momentum. But honestly, Sierra stent, it's a very good product. There's a little bit of masking of that growth with respect to some of the non-commercial royalty revenue that we get, but that's noise. The commercial side of the business is really performing quite well with respect to that launch. With respect to PHP, that's a program we're still committed to very much so. We have not provided any updates on the timeline as of late. I would expect we will in the future at some point.

Okay. Fair. For my second question, I would like to ask about the overall tone and outlook for the business. It seems to depend heavily on the portfolio that different companies have. Is there any information you can provide regarding how procedure volumes and pricing are currently doing in the industry?

Yes. No change, really. I mean, procedures and demand volume from that side of things are fairly constant to the way they've been running and trending for the last several quarters. Pricing in some of the segments, such as CRM and Vascular, is a modest headwind. But demand is strong, offsetting most of that.

Two quick questions. First, Miles, on Alere, you'll do $2 billion in revenue this year. I think that's hitting expectations. But Alere is going to be folded into organic growth in 2019. So can you help us think about Alere growth in 2019 and beyond? That's the first question. And then quickly on Libre 2, can you give us an update on the U.S. approval timing?

Let me start with Alere. You're correct in your observations. Our first year involved stabilizing, integrating, and organizing the business, and we successfully put management in place. This past year, we also benefited from one of the strongest flu seasons in a long time, which positively impacted the infectious disease testing business. Moving forward, our focus needs to shift toward driving growth. At this point, I cannot provide a forecast for 2019 or even beyond that into 2020. However, we have mostly completed the disruption and transition activities, and I will have an update on that after this meeting. Now, our main emphasis is on identifying a sustainable growth rate for that business. I don’t have a specific answer for you yet, Glenn, but I believe this will be one of our key growth drivers in the future. What was the second part of your question?

Timing, Libre 2 in the U.S.

I might have to ask Scott for some help on that because I'm not sure we can give you timing on that.

Yes, that's right, Miles. We haven't provided timing yet on Libre 2 in the U.S. Obviously, we will bring an alarm version to the U.S. at some point in time. The current version is obviously doing quite well as well. So that's just another opportunity in the pipeline, but we have not provided specifics on timeline yet.

I would tell you this. It should take a lot less time than it seems to. The U.S. lags Europe and the rest of the world on some of these approvals in a way that I find hard to explain, but it is what it is.

One on capital allocation, one on Nutrition. Miles, you've been paying down debt. You've been quiet on the M&A front in 2018. Do you expect that to change in 2019? And I just had one question on Nutrition.

Let me address that first. The organization has done an excellent job with cash generation and reducing debt, and I give Brian Yoor and the management team full credit for that. Our cash management and debt reduction efforts have been effectively led by him. When we incurred borrowing for the St. Jude and Alere acquisitions, our debt to EBITDA ratio was around 4.3. We committed to the rating agencies to reduce that quickly, and we’ve brought it down to approximately 2. We’re pleased with this fast debt reduction as it provides us greater flexibility in capital allocation. Yes, we will continue to pay down debt, but we also have other capital needs, such as targeting our dividend within a specific range relative to our earnings per share. We can meet those targets for dividend payouts. A portion of our capital has been focused on growth. We are investing in Alinity and Libre, with a significant investment aimed at expanding capacity for Libre, which should facilitate more growth for that product. We are also significantly investing in Alinity’s expansion. Our focus is on investing our capital for both short-term and long-term growth with high returns, which we are actively doing. To be transparent, we haven’t found any attractive opportunities in the M&A space recently. We consistently monitor potential options that could interest us or fit into our portfolio, but there’s nothing currently that captures our attention. We have abundant organic growth opportunities and developments within our pipelines, which is where our focus remains. While there may be smaller M&A possibilities, none appear to be significantly impactful in the near term. Another potential opportunity I haven’t mentioned yet is share buybacks. Currently, we have not engaged in share buybacks, and the growth reflected in our earnings per share is solely from our business growth, not from buybacks. This year, many companies have not seen high returns from share buybacks, and we have found better ways to utilize our capital that yield higher returns. That doesn’t mean we are ruling out share buybacks entirely; we would consider them if they provide good returns for us and our investors. As of now, our best investment is our own operations. Our cash flow is strong, offering us many valuable options. We will keep paying down debt, but we also have strategic flexibility regarding where to allocate our resources, which is a positive situation.

Very clear. And just last for me, Miles, on Nutrition. A year ago, that was the slowest-growing business. That's clearly turned around. The international Pediatric Nutrition business is doing really well. Any color on what's going on in China? And lastly, on that, the Adult Nutrition business in the U.S. has been a little weak recently. Is that still private label competition? What's the outlook there?

Okay. Yes, I'll take the last first, Larry. This is Brian. With respect to the U.S., what you're seeing is the impact of a wind-down of a noncore product line for us. You'll see that here in Q3. Otherwise, the U.S. business will be growing. You'll see in Q4 as well. It's noncore to us, and we've just decided to wind it down. That's the only thing going on in the U.S. With respect to China, the transition is going smoothly. The food safety law transition is going smoothly. I think behavior has been rational in the market. The market growth rates in China have been strong. And we're always fighting there to grow share. But our greater China business has done quite well this year. And we expect the markets there in China to remain strong and stable going forward on the pediatric side of the business.

Yes. I would only add that the whole Nutrition business, obviously, is doing a lot better this year than it did last year. Where it is right now, there are various countries or various segments of the business where we want to do better. There are ups and downs. But overall, if you take it as a whole, I'm a lot happier with where it is today than where it was a year ago.

I wanted to follow up on the FX commentary and try to make sure we're all on the same page. As we think about next year, Brian, if rates were to stay where they are right now, what would the earnings impact from currency be in 2019?

It's going to be somewhere probably between 3% and 4% of our earnings. And we've seen that before. And as Miles said, we always work to mitigate as much of that as possible. And the great news is that we have a lot of underlying growth in the businesses and the sales growth that we're going to power through as much of that as possible.

I would add to that, Chris. It always involves a judgment trade-off. If we could predict currency for the entire year or beyond, that would be different, but we can't. We take various actions to mitigate its volatility or impact. We have a very sophisticated and complex rolling hedging program for the currencies we can hedge, which helps reduce a lot of the unpredictability. Over the long term, we're not currency traders and don't aim to be, but we strive to make our earnings and sales more predictable, stable, and reliable for what our investors expect and for our own planning and management. That said, if today's currency rates hold, they will be a significant challenge. I don't believe all of that will pass through to the investor. I also don't think the currency rates will remain the same in three or six months. If you ask me whether they will go up or down, I have no idea. As I mentioned earlier, we focus on finding the right balance that suits us in mitigating or hedging to meet our investment identity expectations and manage our performance prudently for our investors, always starting with a double-digit growth target. There are many moving parts, and we'll see how it goes. Right now, that's the primary concern for us, while everything else looks positive and strong or is manageable. The aspect we can't fully control is the currency. However, we do have several strategies in place to minimize its impact on our overall performance for our investors.

And Brian, just to make sure that I'm hearing you correctly. You're saying about $0.10 headwind for next year, give or take.

It's a range. Exchange currency moves every day, if you look, 3% to 4%, about that.

Okay. And then, Miles, just one last one on Alinity in the U.S. What's the latest on the timing there and when you think you'll have a broad enough menu in place to really make a big push domestically with that product?

Chris, this is Scott. I would just say, as you know, that the clinical chemistry and immunoassay instruments, the core business there, the instruments are approved. And we are building our test menu at a pretty ratable kind of rate quarter to quarter, so to speak, and making progress on that front. It will still take a few more quarters until we get what we consider a critical mass there. So you're probably looking at the back half of 2019 on what we feel like we're really going to have the menu and the systems we need to go out and get business.