Abbott Labs' Secret Weapon: Layoffs

Sometimes a company does everything right and no one notices: Abbott Labs just unveiled a stellar third quarter and investors shrugged, leaving its stock flat. The basics you already know: Profit up 51 percent to $1.08 billion, sales up 17.6 percent to $7.5 billion.

But check out what happened to the effectiveness of Abbott's marketing dollars: It went through the roof. On the last three quarters, Abbott got around $3.50 cents in revenue for every dollar it spent on sales reps and brand manager salaries. Not too bad. (Compare it to Johnson & Johnson, which only gets $3 returned.)

This quarter, Abbott got $3.63 per dollar of SG&A -- spectacular.

The press pointed to Xience, its new wonder-stent, which is already dominating the market and exceeding expectations.

A few weeks ago I bashed Abbott by noting that less attention was being paid to the company's bad news, such as the downgrading of its debt, the threat to its Kaletra franchise abroad, and the patent on its big epilepsy drug Depakote which expires next year.

At the same time, Abbott was laying of thousands to reduce its cost-base. Those cuts have worked, meaning that Abbott now spends far less per dollar of sales and gross profit than many of its larger rivals. And that's with a $5 billion stock buyback plan! Time will tell: If Abbott can maintain these efficiencies with a reduced workforce as it continues to roll out the launches it needs to bridge its patent cliff, then it will be cash-generating monster on the prowl for acquisitions that will make Eli Lilly's ImClone snatch look like amateur hour.

Just a note on that debt downgrade: Unlike Bristol-Myers Squibb and Eli Lilly, Fitch seems to think that Abbott is well-placed to weather its patent cliff.