Good morning and thank you for standing by. Welcome to Abbott's third quarter 2016 earnings conference call. All participants will be able to listen-only until the question-and-answer portion of this call. [Operator Instructions]. This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.

Good morning and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; Tom Freyman, Executive Vice President, Finance and Administration; and Brian Yoor, Senior Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks and Brian will discuss our performance in more detail. Following their comments, Miles, Tom, Brian and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Securities Litigation Reform Act of 1995, including the expected financial results for 2016. Abbott cautions that these forward-looking statements are subject to the risk 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, to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2015 and in our quarterly report on Form 10-Q for the period ended June 30, 2016. 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 will be available on our website at abbott.com. Our commentary on sales growth refers to operational sales growth, which excludes the impact of foreign exchange unless otherwise noted. As you recall, Abbott issued a press release on April 28, 2016 announcing the transaction with St. Jude Medical and a related press release on October 18, 2016. Please refer to those releases for additional important information about Abbott, St. Jude, and related matters. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott. Good morning. Today we reported adjusted earnings per share of $0.59 at the high end of our guidance range. We also raised the midpoint of our 2016 adjusted earnings per share guidance and narrowed the range to $2.19 to $2.21, exceeding the initial guidance we set at the beginning of the year. Sales increased 4% in the quarter or more than 5.5%, excluding the impact of Venezuela. Growth was led by strong performance in established pharmaceuticals and medical devices. We achieved our expectations overall and our pipeline continued to deliver a steady cadence of new product approvals and launches that are contributing to growth. At the same time, we continued to actively and strategically shape our portfolio. In September, we took the next logical step in shaping our medical device business with the announcement that we will sell our medical optics business to J&J. This action is in line with our strategic decision to sharpen our focus on building leadership in cardiovascular devices. I will now briefly review our third quarter results. And I will start with diagnostics, where we achieved sales growth of 5.5% in the quarter, driven by continued above-market performance in core laboratory and point-of-care diagnostics. In August, at the American Association for Clinical Chemistry Conference, we unveiled our next-generation suite of instruments called Alinity. The Alinity suite includes new instruments for every segment of the diagnostics market in which we compete. Over the next few months, we will launch new systems for point of care, immunoassay testing, clinical chemistry, and blood screening in Europe. Over time, we will introduce additional systems and launch the full Alinity suite into additional geographies providing a highly differentiated platform for sustainable, long-term growth. In nutrition, sales declined 1% in the quarter, below our expectations due to soft…

Okay. Thank you, Miles. Sales for the quarter increased 4% on an operational basis. That is excluding an unfavorable impact of 1.1% from foreign exchange. Reported sales increased 2.9% in the quarter. Regarding other aspects of the P&L, the adjusted gross margin ratio was 57.3% of sales, adjusted R&D investment was 6.2% of sales, and adjusted SG&A expense was 29.7% of sales, in line with our prior guidance. Turning to our outlook for the full year 2016. We narrowed our adjusted earnings per share guidance range to $2.19 to $2.21. The midpoint of our guidance range reflects double-digit underlying growth offset by the impact of foreign exchange on our operating results. We continue to forecast operational sales growth in the mid-single digits for the full year 2016. Based on current exchange rates, we expect exchange to have a negative impact somewhat above 2% on our full-year reported sales. This would result in reported sales growth in the low-single digits for the full year 2016. We continue to forecast an adjusted gross margin ratio of around 57% of sales for the full year, which includes underlying gross margin improvement initiatives across our businesses. We also continue to forecast adjusted R&D investment of around 6.5% of sales and adjusted SGA expense approaching 31% of sales for the full year. Turning to our outlook for the fourth quarter of 2016. We forecast adjusted earnings per share of $0.64 to $0.66, again reflecting double-digit underlying growth. We forecast operational sales growth of mid single-digits in the fourth quarter. We have now annualized the significant strengthening of the U.S. dollar that began late in the second quarter of last year and at current exchange rates, we expect a favorable impact to sales from exchange of somewhat more than 50 basis points in the fourth quarter. Turning to other aspects of the P&L for the fourth quarter. We forecast an adjusted gross margin ratio somewhat above 57%, adjusted R&D investments somewhat above 6.5% of sales and adjusted SG&A expense of around 28% of sales. And finally, we project specified items of $0.25 in the fourth quarter. Before we open the call for questions, I will now provide a quick summary of our fourth quarter operational sales growth outlook by business. For established pharmaceuticals, we forecast high single-digit sales growth. In nutrition, we forecast sales growth similar to the third quarter. In diagnostics, we forecast mid-single-digit growth. And lastly, in our medical devices business, for vascular, we forecast mid-single-digit sales growth. In diabetes care, we forecast double-digit sales growth. And in medical optics, we forecast low to mid single-digit sales growth. With that, we will now open the call for your questions.

[Operator Instructions]. Our first question comes from Mike Weinstein from JPMorgan. Your line is open.

Good morning guys and thanks for taking the questions. Let me start with nutritionals, Miles. That's now your challenged businesses, so to speak. Could you just spend a few more minutes on China, what you see playing out in that market and how much of what's playing out today is transient versus a longer-term, more structural change?

I will try to. I would say the market in China has been in a bit of a transition for a number of months, it would appear, maybe even a little more , and it depends on who you are and what channels you are in, and so forth, depending how it affects you. We expected this year to see 7% to 8% growth in China, slightly above the GDP growth, et cetera, and what we are seeing now is flat-to-low single digits and I think some of our competitors have reported the same, so we’ve gotten some triangulation on just underlying market growth rate, but beyond that a number of dynamics are at work there. There's some pretty rapid channel shift from traditional channels, like modern trade to various e-commerce channels and so forth. And I don't think that's surprised anybody in terms of just overall trends. But the speed and magnitude of it, I think, has hit China differently than what you would see in the U.S. or other countries. And so that's been a pretty big chunk. In the process of that, what's happened is, some inventories have piled up in, let's say, traditional channels while the market's needs have been satisfied by e-commerce channels. And so the market has got to burn through that, I guess, to some degree. So we have seen growth slow. And in our case, there's been a loss of about 0.5 share point, we estimate. We are also seeing a fair amount of market and competitor reaction to the anticipated new food safety laws, which will become effective in a little over a year, in January of 2018. Those new laws will limit the number of brands per manufacturing plant for a competitor, et cetera. All products have to be re-registered…

Understood. I am going to just ask a question about 2017. And Miles, I know you are not going to give 2017 guidance, but I just want to think about the framework for it. When we had the call to announce the St. Jude acquisition, and then on the call that you and I had back in June, you talked about the goal of the company historically of delivering double-digit underlying EPS growth. Let's just say that's 10% and that the goal for 2017 would be to try and deliver that. Then on top of it, you get the accretion from the transactions. Obviously, we don't know yet what's going to happen with Alere, but looks like St. Jude is on track to close. If we think about the base business piece of that, given that nutritionals is obviously looking weaker than it was six months ago, the device business was looking better, so there's some pluses and minuses, is the underlying business on track to deliver 10% next year? And is the right way to think about 2017, the underlying 10% plus the accretion? Or should we back off of the underlying expectations? Thanks.

Well, I would say, first of all, you are right. It's too early to be giving 2017 guidance or even be able to be precise about it. But I would say, look, the underlying growth does continue to be strong in our businesses. Fortunately, we are very diverse, many companies, many businesses, many products, many geographies, and we are not that over-indexed in China in any particular case. So I can't say that I think the China pediatric business is going to be great growth next year but I don't think it's going to impact in a fashion the overall strength of the growth of the company globally. So I would tell you that I see the underlying growth continuing to be strong. Clearly, that will have some impact on us. But at this point, I think we are seeing great growth in our pharmaceutical business. We are in the midst of preparing to launch a number of new systems in diagnostics. FreeStyle Libre, I would say, is going gangbusters in Europe and we are looking forward to having that in the U.S. shortly. There's a lot of new product launch and approval happening. So there's a lot of drivers of growth here and frankly, I think there's a lot of growth to be seen in St. Jude as well. So I remain kind of in the same position. I know we have got a slower situation in China. But I don't see us as so over-indexed in China that that is somehow going to knock us back in a way that I can forecast for you right now that this is going to have a huge impact on the company next year. I mean, frankly, it was going to have a huge impact in a fashion, you would have…

Perfect. I will let some others jump in. Thank you, Miles.

Thank you. Our next question comes from Glenn Novarro from RBC Capital. Your line is open.

Thanks. Good morning guys. Miles, two questions on St. Jude. The deals are on track to close by the end of this year. But in the third quarter, you had a cybersecurity report issued. You had St. Jude issue an advisory regarding battery depletion of some of its older ICDs. So I know you have been in contact with St. Jude, but maybe talk about what gives you the confidence that these issues will not impact St. Jude's business post the deal close? And then I had a follow-up.

Well, what I would tell you so far is I think St. Jude has handled all this pretty well, pretty thoroughly and not only in terms of they are taking it seriously their own investigations, the third-party consultants and investigators that they have worked with and employed. I have to say, they definitely put patient safety and patient credibility and physician credibility and the product performance and so forth first and that's right. And I think that they have done all the right things. They have been in great communication with us. And based on everything that we know, I don't see this impacting the close of the deal or the business long term. I have seen a lot of speculation in the press. And every time there's a product issue or a hiccup or whatever it may be, everybody wants to run to the headlines and speculate about the deal. I would say based on everything I see, the deal is going to close. And determined by the timing of regulatory approvals, it's probably going to close by year-end. And I haven't seen anything to date that would suggest otherwise. Regarding the performance of the company after that, I would say honestly, what I am most anxious for is for their MRI-compatible claim to be approved by the FDA in the U.S. And frankly, if you look at the rest of their businesses, they are all growing at a pretty healthy rate and particularly overseas. And I think their success overseas has demonstrated that when we do get their MRI-compatible claim in the U.S., that their recovery of share, recovery of growth rate, et cetera, there should be pretty strong. So I haven't changed my expectations about the performance of St. Jude going forward. And I could probably someday give you my opinion about the current circumstances with the cybersecurity claims and so forth, but I will keep my thoughts to myself right now and we will wait until the deal is closed.

Okay. And just a quick follow-up. St. Jude is going to be accretive to 2017. But your accretion calculations, did it contemplate the divestitures that you just announced to Terumo? Thanks.

Yes. In a fashion, Glenn, it has.

Okay. Thank you.

Thank you. Our next question comes from Matt Taylor from Barclays. Your line is open.

Hi. Thanks for taking the question. I wanted to focus a little bit on the core business. We already talked about nutrition. But maybe you could just discuss some updated thoughts on how you are seeing the diagnostics business that Abbott could perform over the next few periods of the Alinity launch and how things are going in medical devices and some specifics on Absorb and MitraClip and other moving parts there.

Okay. It's kind of a big question. Well, let me start with diagnostics. I think the diagnostics business has been one of the consistent, reliable star performers of the company. It's been good mid to higher single-digit performing overall. I mean, it does have a fair number of moving parts. The core laboratory business, that just performed exceptionally well, continues to. I think, the point of care business has. We are going through the exit of an agreement in our molecular business that we will lap in a number of months. But in any case, I think all of those businesses are performing commercially well. What I am more impressed with, with this team than anything, is that over the last four to five years, they have had an unprecedented number of systems, new diagnostic systems in development in R&D that are all beginning to launch now. And I don't think ever in the history of this industry or this business has any company attempted to develop and launch multiple new systems simultaneously across every category of its business. And our diagnostics business is, both in immunoassay, in clinical chemistry, in hematology, in blood screening, in point of care and then to be followed in molecular diagnostics. And that's an unprecedented pipeline move. We will see that roll out over years now. They are beginning of the launch in Europe. We have gotten approvals to go. So we are in an unprecedented launch phase that I think sustains the growth of the diagnostics business across the board for years to come. And no other competitor is in a position to say that. And I think that the value proposition, the performance proposition, the economic proposition of those systems was well thought out, well designed. They where unveiled and shown at…

Okay. Thanks for all the thoughts.

Thank you. Our next question comes from Rick Wise from Stifel Nicolaus. Your line is open.

Hi. Good morning, Miles. Miles, maybe the first question, just on Alere. Obviously, there's been a lot of public noise, if you will, a lot of headlines, a lot of discussion, but I think when people ask me about it, they just want to be reassured that the long-term post-merger opportunity that you saw initially is still there. I mean, is that the way? Do you still see it as basically impact in the plug-and-play for the portfolio? Abbott diagnostics portfolio still make sense? Where are you today on Alere?

Well, I am going to be very limited in the comments that I am willing to make about Alere, but some of that's easy to answer. So first of all, yes, there's been a lot of noise and it's come from a lot of places, not us. And it isn't prudent for us to respond to noise. I think the questions you asked are the right questions. Is the strategic fit there? Yes, it is. We like the products. We like the businesses. We have said that and I continue to say that. Is the long-term post-merger opportunity and fit there? Yes, it is and I have never wavered on that. And I believe that right now even in this minute, right. So none of that has changed for me or for us. I believe I just told you how great I think our diagnostics business is doing. Do I think that the Alere businesses are a good fit to expand that footprint and especially our point of care business? I do. Yes. I have had no change in my view strategically that way at all.

Okay. So turning to a different topic. Back to China briefly in nutritionals, a couple of parts to the question. Am I right in thinking that China pediatric is 3% or less of sales? Does it get worse in 2017 from here? Or are you where you are and yes, it will take a year or so to work through? And maybe two last aspects of the question. knowing you and the way your hands on approach to management, maybe are there things that you can do to maybe mitigate some of the near-term challenges? And maybe last related to all this, is the long-term outlook and how confident are you that the excellent performance in Latin America and Southeast Asia is a sustainable offset in these next few quarters as we sort of get ready for 2018 in China? Thanks Miles.

Are we talking just nutrition there, Rick?

Yes. Thank you.

Yes. Okay. There's a lot there. Yes. China, I think, is about 3% of overall sales. Now that said, yes, it's a small part of the company as a whole. Nevertheless, it's an important business. It's a big business. It's a business we pay a lot of attention to. Frankly, China is an important country for us for a lot of our businesses. But it is true that in the grand scheme of Abbott, as China pediatric goes, the company isn't necessarily going to be driven by just that. So we think all of our businesses, particularly large ones and that's a large one, are important, but the diversity of the company and the size of the company, obviously, absorb shock when it happens in other parts of the company. So to your question about, are we hands on mitigating and dealing with what we think we can do with the challenges? Yes, we are. The EVP of that business is spending a lot of time in China. We have made some management and leadership changes in China in a proactive way to enhance our management, our experience, our knowledge, our skill, et cetera there. I think hope always springs eternal when you make changes in your leadership team, et cetera. But it's getting a lot of focused attention by the senior leadership team on down and in the right ways. The CFO, the Controller, everybody who's got any kind of way to have a stake in this has weighed in. We do, as a team, look at our spending allocations, our capital allocations, how we are spending, where we are spending, where the bang for the buck is, et cetera. So I think we have looked at just about everything we can, not only to specifically focus on improving…

Thank you.

Thank you. Our next question comes from Larry Biegelsen from Wells Fargo. Your line is open.

Hi guys. Thanks for taking the question. Just two for me. First, Miles, I know it's a sensitive subject but on Alere the other question we get is, now that Alere has fulfilled its reporting requirements and the business trends have been decent, what else does Abbott want to see before closing the deal? And along those lines, if you don't complete Alere, how should we think about the dilution from the AMO divestiture and offsetting that in 2017? I did have one follow-up. Thanks.

Well, first of all, Alere is not a sensitive subject and at this point, I am just not going to make a lot of comments about it. I would say we are pursuing all the necessary regulatory approvals for the deal and at this point, that is the path. That is the things that have to happen between now and whether a deal finishes here is regulatory approval. So all necessary approvals are being pursued. We are doing everything we are supposed to do on the contract. And beyond that, I am not going to forecast it or try to. But that's it. I can't say a lot more about Alere or express opinions or whatever. I think I have said about what I can say to Rick Wise's question and to yours. And other than that, we will work through the regulatory approvals and see what happen. With regard to AMO, we have said that the perceived dilution of that business will be offset in some fashion. So you don't need to adjust your model, et cetera. I have seen that's the basis of the question because net of all considerations here in the mix of our financing of these deals, there's enough moving parts that we won't need to absorb dilution there.

That's very helpful. And then you talked about focusing on cardiovascular devices earlier and your diabetes business is doing well, seems to have a bright future with Libre. I guess my question is, is diabetes still strategic for Abbott now that the focus is more at cardiovascular devices? Thanks for taking the question.

Yes. Diabetes is definitely strategic for Abbott. There have been a number of occasions over the past, I think, five years when I have had inbound phone calls of people interested in acquiring the diabetes care business and we absolutely said no because we had a program here that started with Navigator years ago that became Libre that fundamentally changes diabetic monitoring, glucose monitoring, et cetera, that we believe is game changing, market changing, health care changing, et cetera. And we believe that the notion and the opportunity was such that we just plain had a different game plan than everybody else and that it was worth us making that core and pursuing it and we have. And we are seeing the benefit of that now with the rollout of Libre in Europe and soon a rollout in United States. And there's a lot of opportunity for Libre beyond that depending on how we develop it and how we take it. So it is strategically core to us. If you think that's kind of on my radar screen for some strategic move, take it off your screen. That is core to Abbott, will remain core to Abbott and the opportunity there, we think, is nothing but great looking forward.

Very clear. Thanks for taking the questions.

Operator, we will take one more question.

Thank you. Our final question comes from Jayson Bedford from Raymond James. Your line is now open.

Good morning. Thanks for taking the question. Maybe just to actually follow up on the diabetes. Clearly, it was a standout in the quarter. The noticeable step-up from trend and the guidance implies a follow-through in the fourth quarter. You have unique offering with Libre. Is double-digit growth how you expect this franchise to play out over the next couple of years?

Well, you have got two franchises going here. You have got the old established legacy franchise of blood glucose monitoring and then you have got what we call flash glucose monitoring or Libre. And that older blood glucose monitoring market is clearly under both volume and price pressure and Libre is growing rapidly in Europe and we expect to grow rapidly in the United States. So at some point, we would hope that Libre would grow so significantly that it would overtake the other. So I don't expect, obviously, that kind of growth out of the base. But I think we are going to keep experiencing pretty heavy double-digit growth out of Libre for the foreseeable future. So yes, I think it drives a lot of growth. But where it crosses in the overall business is somehow double-digit. I am not sure I can project.

Okay. That's fair. And then just second question on gross margin. It's down year-over-year. My understanding is that FX is weighed on this metric. Is there a point where we anniversary the FX headwinds and are able to see some gross margin expansion in the base business, meaning, excluding St. Jude and Alere?

Well, I would say it's interesting. We have put a fair amount of focus on gross margin, more than four or five years ago in a couple of our businesses and you can see that. You can see it in the performance. You can see it in the bottom line of those businesses. You can see it in the bottom line of the company. You can see it in those margins of the company. So we expanded those efforts across the company in a number of places. And I think what we have obviously learned from that is there's always opportunity to improve your business model, improve your cost structure, improve your gross margin, et cetera and it hasn't been done with price. It's been done with the fundamental inputs in cost and the way we do business, the way we manufacture, the way we do a lot of things. So I think there's always opportunity and we approach the business and the businesses every year with that in mind. And it's fortunate that we have because we have had some great success there in a couple of businesses particularly, which has offset the effects of exchange over the last, say three, four years which, as you know, has been pretty heavy. And without that, the company would have obviously been at a lot more profit growth pressure. So for us, it's become a routine. We look for more gross margin improvement opportunity every year. And if I look across the businesses, there are still many opportunities for us as we benchmark competitors or other models, the business models we see out there to improve the cost structure of our business in ways that are meaningful for the corporation. Included in that is even the cost of new things launching. The cost of our new diagnostic analyzers will be a tremendous improvement over the cost of our current diagnostic analyzers. And one of the ways you can affect gross margin over the long term is design it in your products and we are. So I think there's a lot of initiatives internally at the company and across businesses now that make this part of routine daily life to keep improving gross margin. I can't forecast to you right know how that will impact us. But I think in a world where you denominated in dollars and every year exchange tries to erode some of your top and bottom line, it becomes a routine part of your business to always be looking at ways to improve your margin and we do and we are and we are having a fair amount of success with that.

I appreciate the color. Thank you.

Okay. Thank you.

Thank you operator and thank you for all of your questions and that concludes Abbott's conference call. A replay of this call will be available after 11:00 A.M. Central Time today on Abbott's investor relations website at abbottinvestor.com and after 11:00 A.M. Central Time via telephone at (404)-537-3406, passcode 79624675. The audio replay will be available until 4:00 P.M. Central Time on Wednesday, November 2. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have wonderful day.