Baxter International Tops Earnings Ests but Shrinks Guidance - Analyst Blog

By Zacks Equity Research,

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Baxter International Inc. ( BAX ) posted a 5.0% rise in adjusted net earnings to $692 million or $1.26 per share for the second quarter of 2014 from $659 million or $1.20 per share in the same quarter a year back. With this, earnings per share not only surpassed the company's previously issued guidance of $1.18 to $1.22 but also the Zacks Consensus Estimate by 5 cents.

The adjustments in the current quarter include intangible asset amortization and costs associated with contingent revenues and product development milestone payments, remediation efforts related to the ongoing SPECTRUM Infusion Pump recall, integration of BAX's acquisition of Gambro AB, and the company's planned split-up of its biopharmaceuticals and medical device segments into two independent companies in order to put greater management focus on the two businesses. These costs were partially offset by the reversal of certain business optimization and litigation reserves.

Reported net earnings were $520 million or 95 cents in the 2014-second quarter, compared with earnings of $590 million or $1.07 in the same quarter of 2013.

Revenues and Margins

Revenues for the quarter went up 16.2% to $4,264 million globally and exceeded the Zacks Consensus Estimate of $4,112 million. Excluding the $408 million contribution from Gambro, revenues in the quarter grew 5%.

Revenues within the U.S. escalated 12.0% to $1,732 million while international revenues rose 19.3% (both in reported and constant currency) to $2,532 million in the quarter.

Adjusted gross profit rose 11.3% to $2,163 million but adjusted gross margin fell 230 basis points (bps) to 50.7% in the quarter. Adjusted pre-tax earnings rose 4.9% to $885 million in the quarter.   

Segment Results

Revenues from BioScience zoomed 6.9% (6% excluding the impact of foreign currency) to $1,751 million in the quarter. The increase was attributable to strong growth in all the global franchises, particularly double-digit growth of ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method] and albumin, as well as higher global demand for GAMMAGARD LIQUID [Immune Globulin Intravenous (Human)], biosurgery products and select vaccines.

Revenues from Medical Products spiked 23.7% to $2,513 million. The increase was driven by solid sales of injectable drugs, anesthetics and nutritional therapies, as well as gains in peritoneal dialysis patients, particularly in the U.S. and emerging markets. Excluding contributions from Gambro acquisition, revenues from the segment escalated 4% in the quarter.

Financial Position

BAX had cash and cash equivalents of $1,866 million as of Jun 30, 2014, significantly down by 68.8% from $5,989 million as of Jun 30, 2013. Total debt stood at $8,839 million as of Jun 30, 2014, down 2.2% from $9,035 million as of Jun 30, 2013.

In the first half of 2014, BAX generated cash flow from operations inched up roughly 1.0% to $1,158 million from $1,149 million in the 2013-period. Capital expenditures escalated 32.1% to $844 million from $639 million in the first half of 2013.

Way Ahead

For the third quarter of 2014, BAX expects revenues to grow between 12 and 13%, barring the impact of foreign currency. The company also expects adjusted earnings in the range of $1.28 to $1.32 per share for the quarter. The current Zacks Consensus Estimate of $1.31 lies within the guided range.

For full year 2014, BAX now expects higher revenue growth of 10 to 11% compared with the prior view of 9 to 10%, excluding the impact of foreign exchange.

However, BAX narrowed its adjusted earnings per share guidance to $5.10 to $5.20 from the earlier band of $5.05 and $5.25. It has kept its operating cash flow guidance intact at $3.5 billion for the year, excluding cash costs related to the spin-off of the biopharmaceutical business. The Zacks Consensus Estimate of $5.15 for the year lies within the guided range.

Our Take

We are encouraged about BAX's earnings and revenues beat in the quarter. The company depicts a stable earnings stream with positive surprises in all the trailing four quarters. However, we express our concern about the tapered earnings guidance for the full year.

Currently, BAX retain a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry include Alere Inc. ( ALR ), CareFusion Corporation ( CFN ), and St. Jude Medical Inc. ( STJ ). All of them are carrying a Zacks Rank #2 (Buy) at present.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: STJ , CFN , BAX , ALR

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