Abbott Laboratories (ABT) has agreed to pay $385 million to resolve civil claims related to its powdered infant formula manufacturing, bringing the company's total formula-related settlements announced since August to approximately $1.055 billion. The latest agreement, disclosed Thursday, covers federal and state claims tied to the company's 2022 recall and manufacturing practices at its Sturgis, Michigan, and Casa Grande, Arizona, facilities.
The settlement follows a separate $670 million agreement announced on August 20 to resolve lawsuits over necrotizing enterocolitis (NEC) brought on behalf of premature infants. Together, these two agreements represent 8.4% of Abbott's second-quarter companywide revenue, underscoring the financial magnitude of the legal challenges.
Under the terms of the civil settlement, Abbott will pay $348.7 million to the United States and $36.3 million to participating states, totaling $384,999,040. The Justice Department alleged that products made at the two facilities between 2018 and 2022 failed to meet statutory, regulatory, and contractual requirements. However, the settlement contains no finding of liability, and Abbott maintains that no unopened formula distributed by the company tested positive for Cronobacter sakazakii, the bacteria linked to the recall.
The case centered on government purchases, as more than half of U.S. infant formula is bought through the USDA's Women, Infants and Children (WIC) program. Three former Abbott employees who brought the False Claims Act case will receive $69 million from the federal recovery.
Investors appeared to take the news in stride. Abbott shares traded at $101.28 at 12:13 p.m. New York time Thursday, down 1.1% from Wednesday's close, with volume at about 30% of the stock's 20-session average. The stock had gained 1.1% on September 14 when the settlement was first announced during the session, suggesting the market had already priced in the payment.
Abbott can absorb the financial hit. The company generated $3.80 billion in operating cash flow in the first half of the year and held $5.10 billion in cash as of June 30. However, the sequence of settlements changes the legal baseline. Before either agreement was announced, Abbott's second-quarter filing carried a $510 million accrual for all legal proceedings and environmental exposures, with an estimated possible-loss range of $120 million to $530 million.
Despite the settlements, litigation remains. Abbott said in August that roughly 1,700 lawsuits were still pending in federal and state courts, covering claims on behalf of about 12,700 infants. The company disputes those claims and emphasizes that medical authorities recognize preterm formula as necessary when human milk is unavailable.
The operating backdrop in Abbott's Nutrition segment is also challenging. Second-quarter Nutrition sales fell 3.1% to $2.14 billion, with U.S. pediatric nutrition down 10.7% to $525 million. While total Nutrition sales improved by $127 million from the first quarter, the segment's weakness contrasts with companywide results, which saw reported sales rise 13% and adjusted earnings guidance lifted to $5.45–$5.60 per share.
This divergence is the key test for investors. Abbott's Medical Devices division and the Exact Sciences acquisition can help sustain overall earnings growth while formula-related costs are absorbed. Yet another material charge, or a failure to stabilize U.S. pediatric sales, could make Nutrition more than a contained legal overhang. The company's next earnings report will need to clarify how the two settlements are booked, the expected timing of cash payments, and whether remaining claims alter the legal reserve.
