Abbott to spin off its $8.5bn nutrition unit behind Similac and Ensure

What happened

The Financial Times (FT) reported that Abbott would spin off the nutrition unit at the center of its baby formula lawsuits, and the company confirmed the plan in a release on Wednesday. The new company would have about $8.5 billion in annual sales, roughly 16,000 staff and 14 factories, with brands including Similac, PediaSure, Pedialyte, Glucerna and Ensure. Abbott shareholders would get shares in it through a distribution meant to be tax-free for US federal purposes. Completion depends on regulatory approvals, a Form 10 registration and a final board vote. Daniel Salvadori, who runs established pharmaceuticals and nutrition today, would become chief executive.

What it means

A spin-off is different from a sale. Abbott is not getting cash from a buyer. Instead, its investors end up owning two separate stocks, one for the remaining medical business and one for nutrition. Abbott said the two parts have different growth rates, investment needs and product cycles, and that each would do better with its own strategy and capital. After the split, Abbott would keep about $42 billion of annual sales across heart and nerve devices, glucose-monitoring wearables, diagnostics and established medicines.

Nutrition has been the troubled corner of the group. According to Reuters reporting carried by RTÉ, the unit lost a big federal supply deal in 2025 while its production costs rose, and the higher prices it then charged weighed on demand. Its formula business has struggled since the 2022 recall and shutdown of Abbott's plant in Sturgis, Michigan, which worsened a nationwide shortage. Abbott has also faced lawsuits alleging that its specialized formula for premature babies caused a potentially fatal bowel disease. Separating the unit puts those problems in a stand-alone company and leaves Abbott looking more like a pure medical technology group.

The timing reflects a wider trend. Johnson & Johnson is also planning a separation for 2027, as large healthcare companies drop slower businesses to focus on faster-growing ones. Abbott said the combined dividend from the two companies should equal its own dividend at the time of the split, and that the plan does not change its 2026 guidance, though it expects one-time costs that it will put a number on later.

The spin-off news came with a softer set of results. Third-quarter revenue of $13.01 billion was roughly in line with the $13 billion analysts expected, according to LSEG data, and adjusted earnings of $1.42 a share matched estimates. However, medical device sales of $5.83 billion fell short of forecasts because heart device sales were weaker than expected. Abbott now sees 2026 sales growth of about 6%, down from its earlier range of 6.5% to 7.5%, and narrowed its adjusted profit forecast to $5.50 to $5.55 a share.

The bull case

Supporters argue that a focused Abbott, built around devices and diagnostics, could earn a higher valuation once a slower, legally exposed unit is gone, and the company says it expects faster sales growth and wider margins afterward. Shareholders keep both businesses, the planned distribution is meant to be tax-free, and the total dividend should be no lower. The new nutrition company would own strong brands and could direct spending at areas such as adult and medical nutrition.

The bear case

The split will take more than a year, cost money and distract management just as the core device business missed forecasts and the growth outlook was cut. A JPMorgan analyst said the share price fall was appropriate given weaker underlying fundamentals. The stand-alone nutrition company would carry the formula business's reputational and legal baggage on its own, with less financial cushion than Abbott can provide today.