Baxter International Inc.
) 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
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.
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.
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.
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.
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
St. Jude Medical Inc.
). All of them are carrying a Zacks Rank #2 (Buy) at present.
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