Baxter International Inc.
) reported third quarter adjusted (excluding one-time items)
earnings per share of $1.14, in-line with the Zacks Consensus
Estimate and surpassing the year-ago earnings of $1.09 per share.
The third quarter result is at the higher end, within Baxter's
earlier earnings guidance of $1.12 to $1.14 per share.
Reported profit in the quarter inched up 1% year over year to
$583 million (or $1.06 per share). Baxter's results in the
reported quarter includes post-tax research and development
charge of about $45 million (or 8 cents per share) related to
Oncova Therapeutics licensing agreement in Europe.
Revenues were flat on a year-over-year basis (up 5% in constant
currency) at $3,477 million. Baxter's third quarter revenues are
below the Zacks Consensus Estimate of $3,516 million.
On a geographic basis, U.S.-based revenues in the quarter
improved 8% year over year to $1,513 million while international
revenues declined 5% year over year (up 2% in constant currency)
to $1,964 million.
On a segment-wise basis, Bioscience revenues stood at $1,522
million, flat year-over-year (up 5% in constant currency).
Constant currency growth was led by double-digit growth across
all major product lines in the domestic market.
Revenues were primarily driven by higher domestic demand for
Advate, Gammagard Liquid and certain specialty plasma-based
therapeutics. The acquisition of Synovis Life Technologies
contributed $20 million to segment revenues.
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Recombinants, the largest sub-segment, accounted for $555
million. Recombinants clambered 1% in reported terms (up 5% in
constant currency) year over year. The Plasma Proteins revenues
of $337 million was down 9% (down 4% in constant currency) year
over year. Revenues from Antibody Therapy increased 6% year over
year (up 9% in constant currency) to $404 million.
Revenues from Medical Products remained flat year over year (up
4% in constant currency) at $1,955 million. Higher sales of
injectable drugs, anesthesia products and nutritional therapies
were primary revenue drivers for the segment.
Three important sub-segments are - Renal with sales of $629
million, up 2% in constant currency; IV Therapies with revenues
of $479 million, up 12% in constant currency; and Global
Injectables with sales of $509 million, up 7% in constant
Third quarter gross margin was 52.1% (up 120 basis points)
compared with 50.9% in the prior-year quarter. Marketing and
administrative expense (as a percentage of sales) declined to
21.4% (down 120 basis points) from 22.6% in the year-ago quarter
while research and development expense increased to 8.3% (up 140
basis points) from 6.9% in the prior-year quarter.
Baxter ended the third quarter with net debt of $2,756 million,
up 25% year over year. Cash flow from operations declined roughly
19% year over year to $747 million.
Outlook and Recommendation
For the fourth quarter of 2012, the company expects growth in
revenues in the range of 3% to 4% (up 5% to 6% in terms of
constant currency) and adjusted earnings per share in the band of
$1.24 and $1.27.
For full year 2012, Baxter maintains its forecast of reported
sales growth of 2% (up 4% to 5% in terms of constant currency).
However, the company narrowed its expected adjusted earnings per
share to the range of $4.51 to $4.54 (earlier $4.50 to $4.56).
Baxter expects cash flow from operations to exceed $3,000 million
The news regarding Baxter still remains somewhat mixed. On the
positive side, Baxter's focus on life-sustaining products which
are not commoditized, partly insulate 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.
On the flip side, despite resilience in certain sub-segments, we
are concerned about relative stagnation in sales, a slightly
somber outlook for hospital spending and tightening of
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
Becton, Dickinson and Company
) in certain niches.
We currently have a long-term Neutral recommendation on Baxter.
The stock carries a Zacks #3 Rank, which translates into a
short-term Hold rating.