Baxter International Inc. (BAX) reported first quarter adjusted (excluding one-time items) earnings per share of $1.01, thereby beating the Zacks Consensus Estimate of 99 cents and sailing past the year-ago earnings of 98 cents per share. The first quarter results beat Baxter’s earlier earnings guidance of 98 cents to $1.00 per share.
Baxter reported a profit of $588 million (or $1.04 per share) for the quarter compared with $570 million (or 98 cents a share) a year ago, up about 3.2% year over year. The company’s results in the reported quarter include a net post-tax special benefit of about $19 million (3 cents per share) related to commercial developmental activities.
Sales for the quarter were $3,388 million, up 3% year over year, surpassing the Zacks Consensus Estimate of $3,302 million.
U.S.-based revenues for the quarter edged up 3% to $1,468 million while ex-U.S. sales increased 3% year over year (up 5% in constant currency) to $1,920 million.
Segment-wise Revenue Analysis
On a segment-wise basis, Bioscience sales were $1,462 million, up 4% (up 5% in constant currency) year over year. The performance was attributable to higher demand for products utilized in the treatment of hemophilia and immune disorders, such as Advate and Gammagard Liquid (Immune Globulin Intravenous – Human), several specialty plasma-based therapeutics and vaccines. This segment benefited from the acquisition of Synovis Life Technologies.
The largest sub-segment, Recombinants, had revenues of $533 million, up 4% in reported terms (up 5% in constant currency) year over year. The Plasma Proteins business did better in the reported quarter with sales of $316 million, up 3% (up 4% in constant currency) year over year. Antibody Therapy reported sales of $388 million, higher 4% (up 5% in constant currency) year over year.
Revenues from Medical Products were up 3% year over year (up 3% in constant currency), to $1,926 million.
Three important sub-segments were Renal with sales of $588 million, up 1% in constant currency; IV Therapies with revenues of $472 million, up 12% in constant currency; and Global Injectables with sales of $505 million, down 2% in constant currency.
Gross margin was 50.6% in the first quarter, slightly down from 51% in the year-ago quarter. Marketing and administrative expense (as a proportion of sales) inched up to 22.2% from 21.8% in the prior-year quarter while research and development expense was up to 7.9% from 6.5% in the year-ago quarter.
Balance Sheet
Net debt stood at $2,937 million at the end of the reported quarter, up 33.1% year over year.
Outlook and Recommendation
For the second quarter of fiscal 2012, the company expects growth in revenues in the range of 3% to 4% in constant currency and adjusted earnings per share in the band of $1.10 and $1.12. For the full year 2012, Baxter continues to forecast constant currency sales growth of about 4% to 5% and adjusted earnings per share in the range of $4.49 to $4.57 (earlier $4.47 to $4.57).
The news regarding Baxter still remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.
Baxter, in November 2011, completed its acquisition of Baxa Corporation. The takeover highlights the company’s continued commitment toward patient safety and nutrition. It also permits Baxter to provide a wider set of solutions for the safe preparation and delivery of IV medication. Baxa’s know-how will benefit patients across the globe.
Moreover, Baxter struck a deal, in December 2011, to buy Synovis Life Technologies, a well-known provider of mechanical and biological products for the repair of soft tissue utilized in a large number of surgical operations. The acquisition will further expand Baxter’s offerings in the area of biosurgery and regenerative treatment.
On the flip side, despite resilience in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement. We also account for the unfavorable impact of foreign exchange translation and possible dilution associated with the company’s acquisitions of Baxa and Synovis.
Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company (BDX) in certain niches. We currently have a Neutral long-term rating on Baxter. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.
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