Baxter International Inc.
) reported second quarter adjusted (excluding one-time items)
earnings per share of $1.12, thereby beating the Zacks Consensus
Estimate by a penny and surpassing the year-ago earnings of $1.07
per share. The second quarter result is at the higher end, within
Baxter's earlier earnings guidance of $1.10 to $1.12 per share.
Reported profit in the quarter was $661 million (or $1.19 per
share), up about 7% year over year. Baxter's results in the
reported quarter include a net post-tax special benefit of about
$42 million (or 7 cents per share) related to business
These results are inclusive of a special post-tax charge of $23
million (or 4 cents per share) associated with the company's
worldwide collaboration with Chatham Therapeutics. The charge is
more than offset by a net post-tax gain of $65 million (or 11 cents
per share) related to the acquisition payment of ApaTech Limited
and adjustment of reserves for Colleague infusion pumps.
Revenues edged up 1% year over year (up 4% in constant currency)
to $3,572 million, sailing past the Zacks Consensus Estimate of
On a geographic basis, U.S.-based revenues in the quarter
increased 6% to $1,503 million while international revenues
decreased 2% year over year (up 3% in constant currency) to $2,069
Segment-wise Revenue Analysis
On a segment-wise basis, Bioscience sales increased 1% year over
year (up 4% in constant currency) to $1,566 million. Revenues were
primarily driven by higher domestic demand for Advate, healthy
growth of certain specialty plasma-based therapeutics and surgical
sealants. The acquisition of Synovis Life Technologies also
contributed to segment growth.
The largest sub-segment, Recombinants sales accounted for $565
million, down 1% in reported terms (up 3% in constant currency)
year over year. The Plasma Proteins revenues of $364 million was
flat in reported terms (up 4% in constant currency) year over year.
Antibody Therapy reported sales declined 1% year over year (up 1%
in constant currency) to $376 million.
Revenues from Medical Products clambered 1% year over year (up
4% in constant currency) to $2,006 million.
Three important sub-segments are - Renal with sales of $635
million, up 4% in constant currency; IV Therapies with revenues of
$479 million, up 10% in constant currency; and Global Injectables
with sales of $539 million, up 9% in constant currency.
Gross margin came in at 51.8% in the second quarter compared
with 51.9% in the prior-year quarter. Marketing and administrative
expense (as a percentage of sales) inched up to 22.1% from 21.6% in
the year-ago quarter while research and development expense
increased to 7.7% from 6.8% in the prior-year quarter.
Baxter ended the second quarter with net debt of $2,961 million,
up 24.3% year over year.
Outlook and Recommendation
For the third quarter of 2012, the company expects growth in
revenues in the range of 5% to 6% in terms of constant currency and
adjusted earnings per share in the band of $1.12 and
For full year 2012, Baxter maintains its forecast of constant
currency sales growth of about 4% to 5%. However, the company
revised its expected adjusted earnings per share to the range of
$4.50 to $4.56 (earlier $4.49 to $4.57). Baxter expects cash flow
from operations to exceed $3,000 million for 2012.
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.
On June 25, 2012, Baxter reported that the Food and Drug
Administration (FDA) approved Gammagard Liquid 10% -- Immune
Globulin Infusion (Human) -- as a therapeutic option for multifocal
motor neuropathy (MMN). This treatment had received a regulatory
nod in Europe in 2011. It is the first immunoglobulin therapy for
MMN patients in the U.S. for which Baxter has received Orphan Drug
Designation. Gammagard Liquid is called Kiovig outside North
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 in a large number
of surgical operations. The acquisition will further expand
Baxter's offerings in the area of biosurgery and regenerative
treatment. The takeover of Synovis was completed in the first
quarter of 2012.
On the flip side, despite resilience in Plasma Proteins and
Antibody Therapy sub-segments, we are concerned about relative
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
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 Neutral long-term
recommendation on Baxter. The stock currently retains a Zacks #3
Rank, which translates into a short-term Hold rating.
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis
To read this article on Zacks.com click here.