Good morning. Thank you for standing by. Welcome to Abbott's conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star 1 key on your touch-tone telephone. Should you become disconnected throughout this call, please redial the number provided to you and reference the Abbott conference call. This call is being recorded by Abbott. With the exception of any participant 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, Licensing and Acquisitions.
Good morning, and thank you for joining us. With me today are Robert Ford, President and Chief Executive Officer, and Bob Funck, Executive Vice President, Finance, and Chief Financial Officer. Robert will provide opening remarks. Following his comments, we'll 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 2021. 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, to our annual report on Form 10-K for the year ended December 31st, 2020.
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 financial information 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, our prepared remarks will include non-GAAP earnings per share projections for the full year 2021 to help investors understand Abbott's expected ongoing business performance. This non-GAAP projection is reconciled with the comparable GAAP measure in our news release, which is available on our website at abbott.com. Unless otherwise noted, our commentary on sales refers to organic sales growth, which excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.
Thanks, Scott. Good morning, everyone, and thank you for joining us. As you know, Abbott took a decisive role in ramping up testing capabilities during the pandemic. Our efforts led to the rapid development of 12 COVID tests globally and the scale-up of manufacturing to meet the massive need for testing during the height of the global pandemic. Our tests and ability to scale made us a trustworthy and reliable supplier of affordable, high-quality tests that contributed significantly in stemming the spread of COVID. Before we share details about our updated guidance, I'd like to take you through what we've seen since our April earnings call. At that time, we were seeing COVID case rates hold steady in the U.S. and other major developed markets, which is where we were generating most of our COVID test sales.
We had just received U.S. approval and were initiating the launch of our OTC BinaxNOW test for at-home use. We were in discussions with numerous governmental bodies and other large organizations about providing rapid testing for return to work and school, as well as other screening and surveillance efforts. While we've always said the demand for COVID testing sales would eventually work its way to a flu-like level, we couldn't have anticipated what has occurred over the past several weeks. What we've seen is a sharp and rapid decline in demand for COVID tests, particularly rapid tests, which comprise the bulk of our testing portfolio. This has been driven by several factors, including significant reductions in COVID cases in much of the world, but particularly in the U.S. and other major developed countries, where daily new cases are down more than 60% since mid-April.
Continued rollout of vaccines globally, which has been particularly strong in the U.S. and is accelerating in many countries internationally. Very recently in the U.S., unexpected changes in health authority guidelines related to COVID testing for fully vaccinated individuals. While it's positive that these external events and trends signal an accelerated return to normalcy for many countries, they have suddenly and fundamentally impacted current and expected market demand for COVID testing, particularly for screening and surveillance with rapid testing. As a result, today, we updated our financial guidance for the year. We're now forecasting ongoing earnings per share of $4.30- $4.50, which continues to reflect strong double-digit growth compared to the prior year and more than 30% growth compared to our pre-pandemic EPS in 2019.
As part of our forecast, we now forecast approximately $4 billion-$4.5 billion of COVID testing-related sales, inclusive of around $1.1 billion of COVID testing sales in the second quarter. While we're disappointed to take this action, our successful leadership in COVID testing gave us additional flexibility to further invest in our base business. As we've discussed previously, we increased R&D and SG&A investment levels this year based on our original COVID testing revenue expectations. As part of our updated guidance, we've removed a portion of that investment to partially mitigate the earnings impact from the projected decline in COVID test sales.
That said, we're taking a mindful approach to ensure our actions don't negatively impact the strong momentum we're seeing in our base business, specifically in several high-growth business areas such as diabetes care, structural heart, electrophysiology, and diagnostics, where we're seeing positive early impacts from the investment we put in place. Our forecast contemplates R&D and SG&A spending in our base business at profiles that are in line with our pre-pandemic levels. In the first quarter of this year, our base business achieved sales growth of nearly 10% organically compared to the first quarter of 2019, which is the most relevant pre-pandemic comparison. To start the second quarter, our base business sales grew low double digits in April compared to April of 2019. We expect this accelerating growth trend to continue over the remainder of the year.
Just as importantly, our new product pipeline continues to be highly productive, with a nice mix of both iterative and transformational opportunities across our businesses. Several recently launched new products are gaining momentum and contributing to our strong base business growth. We anticipate multiple additional launches over the next several months in large, attractive growth markets, including Amulet for the minimally invasive left atrial appendage closure, Navitor and Portico, our minimally invasive transcatheter aortic valve replacement devices, CardioMEMS for remote heart failure monitoring, and AVEIR, our leadless pacemaker for the heart.
While the rapidly changing environment has negatively impacted our COVID testing revenue expectations and EPS forecast, we're encouraged with the demand and procedure trends we're seeing across our base business, which is well-positioned for sustainable strong growth going forward, which will be supported by several recent and upcoming new product launches across our portfolio. With that, we'll now open the call for questions.
If you'd like to ask a question at this time, please press the star then the number one key on your touch-tone telephone. To withdraw your question, press the pound key. If you're using a speakerphone, please lift the handset before asking your question. Our first question comes from Bob Hopkins, Bank of America.
Thank you, and good morning. Two quick questions. The first question is that, in Abbott's old guidance before today, I think you had assumed around $6.5 billion in COVID testing and around $1.5 billion of reinvestment of those profits. It sounds like today the new guidance assumes $4 billion-$4.5 billion of testing revenue for COVID. I'm just curious where that is, that assumption on the $1.5 billion of reinvestment gone. How much lower is that? I have one follow-up. Thank you.
Sure, Bob Funck. You're correct on the COVID forecast now. On the investment spend, as I said in my comments, we wanted to make sure that we were continuing to strengthen the strong momentum we're seeing on the base business. We partially mitigated the impact of the COVID sales. Let's say we're probably looking at a couple hundred million dollars of expense cuts. We try to prioritize our R&D spending and the programs that we had already started. It's a couple hundred million dollars, Bob Funck.
Okay. The second question is, given the volatility in testing, I'm sure a lot of people would be really interested in the following, and that is, if you look at Abbott's kind of underlying profitability and operating margin in 2021, if you look at this new guidance, what are you assuming for the underlying operating margin of the business in 2021, excluding testing and assuming a normalized level of spend? I'm just curious, in other words, what would the earnings per share be in 2021, ex testing and assuming a normalized spend? We can just try to understand the core underlying earnings power of the company.
Sure. Our operating margin with this revised forecast year is going to be between 23.5%-24%. What we're working on is to ensure that we're at a stronger position in our base business exiting this year than when we were in 2019. You look at a lot of our profiles on R&D and SG&A, as I made that comment, we'll see our SG&A and R&D profiles very much in line with the profiles that we had in our 2019 kind of pre-pandemic levels. We expect to have that same kind of margin profile in the base business in 2021.
Okay. Just one last quick one. How would you want people to start thinking about next year, given all these moving pieces? I'll drop. Thank you.
Sure. Well, it's a little too early here to talk about 2022. A lot of my focus here has been on making this adjustment today. As you know, Bob, we always start our planning process every year with a double-digit target, and we'll start our budgeting process for 2022 in the upcoming months. We'll be contemplating a lot of the different moving parts here as a result of that, our sales forecast, our investments, the spending mix, prioritization, etc . As part of those moving parts here, I'd say obviously COVID will be one of those moving parts, and I can probably tell you that it'd be difficult to assume any kind of meaningful amount here. I think to assume any meaningful amount of sales next year wouldn't necessarily be prudent. That being said, the base business is clearly well-positioned for strong double-digit growth.
We've got a lot of momentum in the base business. We continue to see that improvement that we saw in the back end of Q1 continue to play out in Q2. We've got a lot of momentum, and we've got a lot of ongoing and upcoming launch activity here, which is why we left these investments in place to be able to support not only that double-digit growth in our base business, not only in 2022, but going forward into the outer years.
Thank you.
Our next question comes from Robbie Marcus with JP Morgan.
Yeah. Thanks for taking the question. Maybe just turning back to 2021 here and the cadence. You gave guidance of at least $1 in second quarter in EPS. I know COVID testing was helping certain line items a lot, particularly margins. How do we think about now that COVID is coming out, how do we think about gross margin and spend for the rest of the year? Any just cadence you could talk about in third and fourth quarter would be helpful. Thanks.
Sure. I'll say a little bit about what we're seeing in the second quarter here. I'll ask Bob to give you a little bit more details on the gross margin side. Listen, we're two months into the second quarter here. We've obviously seen a pretty sharp decline in COVID testing. I outlined there that we expect our COVID test sales for this quarter to be around $1.1 billion. We feel good about our current forecast here of at least $1, not only based on the COVID test sales that we're seeing and that we factored in, but also more importantly about our base business and the recovery we're seeing in our base business. Bob, why don't you talk about the gross margin profile?
Sure. Robbie, we expect gross margin in the second quarter to be around 56%. That includes some friction from currency, although we're seeing some tailwind on currency on the top line. A lot of that's coming from developed markets where we have a higher cost base, in particular the euro, and some hedging activities as well. We also have some friction in the second quarter related to the actions we took today in the COVID business. Around 56% in the second quarter.
Got it. Maybe just a follow-up on Bob's question, maybe asked a different way. Coming into COVID, the business was doing operating margin somewhere in the low 20s. There's been a lot of shifts happening since then. Alinity is picking up, diabetes is picking up, structural heart continues to grow. What do you think going into next year when you axe out COVID testing, and as you said, that's not a meaningful number next year. How do you think about the trajectory? Should low to mid-20s operating margin be building off of where you were pre-COVID the right way to think about the underlying business? Thanks.
Yeah. As I said, I'm not going to go into specifics on 2022. If you look at our base business without COVID, that's the range that we were at pre-pandemic, and I expect that to be the range as we go into 2022. As the product launches start to gain more traction into 2022 and into 2023, I'd expect those margins to sequentially get better. As we think about exiting this year and going into next year, I think those are right margin profiles because we are going to want to keep our spend level at those same kind of profiles, R&D and SG&A, given the opportunities that we have.
Great. Thanks a lot.
Our next question comes from Larry Biegelsen with Wells Fargo.
Good morning. Thanks for taking the question. Robert, 1 on the underlying business growth that's assumed in the new guidance and 1 on the pipeline. On the underlying business, you talked about 10% underlying growth in Q1 over 2019 and acceleration that you've seen in Q2. Can you talk about what's embedded for the non-COVID testing in that new guidance? I think the Street's at about 12%-13%. Year-over-year growth in 2021 were about 10% versus 2019. In 2022, are you confident you can grow the underlying business at a high single-digit rate? I have 1 follow-up.
Sure. I think all those numbers are exactly right. I tend, Larry, to look at the comparison versus 2019. I just think it's more meaningful because you had so much disruption and comp effect versus last year. We look at our base business and look at its growth trajectory right now. We see our base business growing a little more than 10% versus 2019 full year. If you think about our pre-pandemic target growth rate of 7%-8%, that is definitely at an accelerating pace. We're seeing that continued growth momentum in our more consumer businesses with nutrition, with established pharmaceuticals, which is doing very well even in the pandemic, and diabetes care with Libre doing really well. The consumer part of the business was not only on a strong growth last year, it continues that same strong growth.
Adding to that then is this recovery in what I would call more hospital-based businesses, let's say, in diagnostics and especially in cardiovascular care. We saw that in mid-Feb into March. We continue to see that in April, and I don't have May data with me yet, but we've been looking at May pretty regularly here, and I feel confident that same theme of improvement in those hospital-based businesses are going to continue. That growth rate continues to accelerate. You've got a significant amount of launches. When you ask me, does 2022 look on the base business at that high single digit? Yeah, I think we're in a strong position today, and we're going to be adding to that with our new product launches.
That's very helpful. On the pipeline, given there's so much focus on it, when are we going to see the GUIDE-HF data? How important do you think a mortality benefit is to physicians and payers in that data set? Any update on when we'll see the pivotal Amulet data. Thanks for taking the questions.
Sure. I'm going to kind of continue my point here on the data. We'll probably see that data in the second half of the year, and we're just looking at the right venue for that data. For both those sets, you're probably looking at the second half of this year. I think Amulet's a great opportunity for us. You know the space pretty well. It's a large market. It's about $1 billion today. It's growing double digits. We have a highly competitive device in Europe. We completed a trial. We filed for regulatory approval late last year. A lot of our focus right now is preparing for launch. On GUIDE-HF for CardioMEMS, I've said I think this is a big opportunity for us.
I think mortality is an important benefit, but to be honest with you, I think hospitalization and ability to remote monitor and prevent hospitalization I think is just as important. I think it's even gotten strengthened, that concept, as we've gone through COVID and the notion of remote monitoring. I think both those products are great opportunities for Abbott. They're all multi-billion-dollar segments with high growth rates, and we'll be seeing data in the 2nd half of this year.
Thanks so much.
Our next question comes from Matt Taylor with UBS.
Hi, thank you for taking the question. I wanted to ask a question on testing. With the guidance that you gave us today, it really implies pretty minimal testing revenue through the end of the year, and you mentioned it's not prudent to put a lot into next year. Are you not thinking that there's going to be any kind of resurgence or ramp-up of screening testing in the fall? What are you going to do with all the capacity that you've built up and the pricing of the testers? Is that going to change at all? Just some more color on your testing outlook will be really helpful.
Sure. Well, listen, as I've said, we have observed a sharp decline more on the rapid kind of point-of-care testing. The PCR lab-based testing, that's been declining, it's been declining very much along the lines that we had planned and we had projected. What's really driving the rapid decline is obviously a real acceleration in the vaccination rates, especially over the last month and a half. I think more important to your question there on the surge is, we've seen a change in health authority guidelines here for vaccinated people, where now the guidelines are you don't really need to test if you've been vaccinated and you've come across some sort of exposure. That ultimately puts a challenge there into the value proposition of kind of surveillance and screening with affordable rapid testing.
Even if you do see a surge, I think that that is going to be a little bit in contrast with right now the guidance is that if you've had the vaccine and you come across some sort of exposure, you really don't need to test. I would say, we've got the capacity to be able to help out, help in a surge, and to be able to supply the market with more tests. I guess I would question whether that would be the case, even if you do have a surge. I'd say the testing on the rapid side, which was the bulk of our product sales and our forecast, was really tied to kind of surveillance and screening and the continuity of that.
Once you remove those guidelines, at least here in the U.S., that I think becomes a challenge in terms of being able to forecast whether people will be doing that testing or not. We've announced actions today to be able to right size our manufacturing network. We have, as we've discussed over the last 12 months, we've built a robust network of existing capacities that we had and new facilities. We'll be reducing some of our facilities here in the U.S., but we still have capacity in the U.S. and still have capacity internationally to be able to deal with any kind of surge.
I would just kind of emphasize here that this is about the demand adjusting for a demand decline. We still have the broadest range of tests. We still have the capacity. We'll be having combined flu and COVID tests. We still think that we'll be one of the leaders here in the category. It's just that this category is becoming smaller and quite frankly, faster than what we thought.
Great. Got it. Thank you, Rob.
Our next question comes from Joanne Wuensch with Citi.
Good morning, and thanks for taking the question. It's actually two pieces of it. One is, I was curious if you could discuss sort of the regional impact that you're seeing in this pullback and decline. The second thing is, when we've talked about the use of cash in the past, it's been in terms of, first of all, investment, R&D, and SG&A, but also potentially an external M&A. I'm just curious whether or not the trends you're seeing changes that ratio of how you think about use of cash. Thank you.
Sure. I'd say on your question on geographic trends, we're seeing it much more accentuated. I mean, the rapid drop that we've seen here is much more accentuated in the U.S., and as I said, really driven by the focus on vaccine and vaccination and the acceleration we've seen as a result of that focus and that focus shifting from testing to vaccination, combined with revised guidelines. The international markets, we expect a similar trend to happen, and I think we'll start to see that first with the developed markets as the vaccination rates in those developed markets continues to increase and accelerate. Emerging markets, we still see pretty high COVID cases versus the U.S. and other international developed markets, all of them are also on a decline here. We've got COVID testing in these countries.
Obviously, there are some segments that make sense for us to participate, and we are selling. There are other segments here where it doesn't make sense for us given the economics and those economics not working for us. That on a test dynamic by geography, seeing it very rapidly here in the U.S., and we expect that to move through on international markets also. Regarding your question on M&A, first of all, I'll tell you, not going to tip my hand like that, especially when it comes to M&A.
You know our philosophy here. We're always actively looking. We're monitoring, we're studying. If there's something that's attractive that grows or that we could do well with, we're going to be interested. This won't change our capital allocation process. Obviously, we might have had some CapEx built in there for some COVID manufacturing enhancements that we'll no longer need to do. It doesn't change our capital allocation strategy.
Let me just offer a few closing comments here. I'd say pandemic's been a pretty unique experience, obviously, for all of us and for all companies, especially for Abbott. Not only have we obviously been focusing on our supply chains, our people, our manufacturing, our customers, but obviously working hard to develop all these tests to help and contribute in the fight against this virus. I'm very proud of what the Abbott team have done and what they've mobilized and how they met the moment. We've had a lot of positives out of these efforts. We've developed, as I said, the broadest set of COVID tests. We have significant manufacturing capacity that's available. We'll have our combo tests. As I said, I still expect us to be one of the category leaders here.
It's just that it's a category that's declining and declining a little bit more faster than what we had forecasted. Strategically, I'd say it's advanced Abbott. The response we had has brought us closer to a lot of customers and market segments we hadn't previously penetrated. I talked about the ability to accelerate the rollouts of some of our capital systems, like the Alinity m or our ID NOW for point-of-care testing. It's allowed us to invest in a lot of growth platforms across the company. If you look at it just from a financial perspective, the efforts and the investments were all clearly positive. We generated very strong returns and several billion dollars in net positive cash flow here. When you put all this together, obviously, we're disappointed that we had to take this action today.
It's clearly not the way we envisioned things unfolding this year. It's a decision that wasn't something that we took lightly. That said, as I noted in my remarks, I think it is important to keep it in perspective here that our revised EPS guidance is up 20% versus last year and more than 30% compared to our pre-pandemic EPS in 2019. I mention that because I think there are just a couple of companies in our peer group here that have been able to achieve that sort of growth since the start of the pandemic. An important factor that we had in our decision-making, as I laid out, was we didn't want to do any harm to our base business. It's in a very strong position. Our growth rate is accelerating, and we need to ensure that we maintain that momentum.
We've got a lot of ongoing and upcoming launch activity, and these launches are in big, high-growth markets, and it's the right decision here to fund these opportunities appropriately. Because ultimately, it's our base business here that will drive our strong, long-term sustainable growth for the years to come, and it's what it's been positioned to do even with the announcements today. With that, I'd like to thank you for joining us. Thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 A.M. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.
This concludes today's conference call. Thank you for participating. You may now disconnect.