Baxter (BAX) Beats on Q2 Earnings, Revises 2023 EPS Guidance
Baxter International Inc. BAX reported second-quarter 2023 adjusted earnings per share (EPS) of 66 cents, which beat the Zacks Consensus Estimate of 59 cents by 11.9%. However, the bottom line declined 24% from the year-ago quarter’s level.
On a GAAP basis, the loss was 28 cents per share against earnings of 50 cents in the prior-year quarter, reflecting higher cost of sales.
Baxter reported BioPharma Solutions (BPS) business as discontinued business. In May, it had signed an agreement to divest the business for $4.25 billion. The divesture is expected to close in the second half of 2023.
Adjusted EPS from continuing operations during the second quarter was 55 cents, down 24.7% year over year.
The company’s shares have rallied 61.3% year to date compared with the industry’s growth of 15.5%. The broader S&P 500 Index has moved up 20.2% in the same period.
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Revenue Details
Revenues from continued operation totaled $3.71 billion, up 3% on a reported basis and 4% organically. Revenues from discontinued operation (BPS business) amounted to $142 million. The Zacks Consensus Estimate for total sales is pegged at $3.79 billion.
Geographical Details
Baxter reported operating results for continuing operations in its three geographic segments — Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific).
In the Americas, revenues from continuing operations totaled $1.56 billion, up 5% on year-over-year as well as cc basis.
In EMEA, revenues amounted to $762 million, up 3% year over year and up 9% at cc.
In APAC, revenues of $638 million declined 1% year over year but increased 4% at cc.
Segmental Details
Following the Hillrom buyout (in 2021), Baxter added three new product categories — Patient Support Systems, Front Line Care and Global Surgical Solutions — to its portfolio. During the reported quarter, the company recorded $743 million in sales from Hilrom’s businesses, up 4% on a year-over-year basis as well as at cc.
Patient Support Systems reported revenues of $359 million, while Front Line Care and Global Surgical Solutions recorded revenues of $307 million and $77 million, respectively. While sales at Patient Support Systems declined year over year, the same at the other two segments improved.
Renal Care
This segment reported revenues of $936 million, up 1% year over year and 2% at cc.
Medication Delivery
Revenues at the segment totaled $761 million, up 7% on a year-over-year basis as well as at cc.
Pharmaceuticals
Revenues at the segment amounted to $550 million, up 4% year over year and 6% at cc.
Clinical Nutrition
Revenues at the segment totaled $243 million, up 6% on a year-over-year basis and 7% at cc.
Advanced Surgery
Revenues at the segment totaled $272 million, up 3% year over year and 4% at cc.
Acute Therapies
This segment reported revenues of $180 million, up 4% from the prior-year quarter’s level and 6% at cc.
Other
Revenues in the segment amounted to $22 million, down 50% on a year-over-year basis and at cc.
Margin Analysis
Baxter reported an adjusted gross profit of $1.5 billion for the second quarter, down 0.8% year over year. As a percentage of revenues, the gross margin declined 160 basis points (bps) to 40.4% in the second quarter.
Selling, general and administrative expenses amounted to $964 million, down 0.6% from the year-ago quarter’s figure. Research and development expenses totaled $165 million, up 11.5% on a year-over-year basis.
Adjusted operating income from continuing operations was $343 million, down 27.5% year over year. As a percentage of revenues, the operating margin contracted 390 bps to 13.8%. Adjusted income from discontinued operations, net of tax, was $55 million during the reported quarter.
Guidance
For third-quarter 2023, Baxter anticipates sales from continuing operations to grow approximately 2% on a reported basis and 1% at cc. The Zacks Consensus Estimate for the same is pegged at $3.87 billion, implying growth of 2.6% reportedly.
Adjusted EPS from continuing operations is expected between 65 cents and 67 cents for the third quarter. Adjusted EPS, including discontinued operations, is anticipated in the range of 78-80 cents. The Zacks Consensus Estimate for the same is pegged at 79 cents.
For full-year 2023, Baxter provides two scenarios based on completion of divestment of BPS business.
If the divestment gets completed by September-end, sales growth for continuing operations and in aggregate (including discontinued operations) would be approximately flat to 1% on a reported basis and approximately 1% at cc. Adjusted EPS, including discontinued operations, is expected in the band of $2.87-$2.95, while the same from continuing operations is anticipated in the range of $2.54-$2.62.
The company expects sales growth of 1-2% on a reported basis and approximately 2% at cc, if the BPS business remains part of Baxter till the end of 2023. Adjusted EPS, including discontinued operations, is expected in the range of $2.92-$3.00, while the same from continuing operations is expected in the band of $2.49-$2.57.
Summing Up
Baxter ended second-quarter 2022 with improvement in both earnings and revenues. Sales across all product categories were strong except for decline in Patient Support Systems, led by lower rental revenues. Robust growth rates across all geographies buoy optimism. However, declining gross and operating margins are concerning.
The company expects the demand for its medically essential products to continue amid a stabilizing macroeconomic climate and healthcare marketplace. It stated that the ongoing transformational actions, announced earlier this year, will likely boost its performance going forward.
The transformational actions, which include realigning its businesses and operations into four vertically integrated global business segments, are likely to be completed by July 2024. Baxter is also progressing with the proposed spin-off of Kidney Care segment — comprising Renal Care and Acute Therapies product categories — into an independent, publicly traded company. This is also a part of BAX’s transformational actions.
Baxter International Inc. Price, Consensus and EPS Surprise
Baxter International Inc. price-consensus-eps-surprise-chart | Baxter International Inc. Quote
Zacks Rank and Stocks to Consider
Currently, Baxter carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Elevance Health, Inc. ELV and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of 2 (Buy) at present, reported second-quarter 2023 adjusted EPS of $1.08, which beat the Zacks Consensus Estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues of $9.98 billion outpaced the consensus mark by 2.9%.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, which beat the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. The company currently carries a Zacks Rank #2.
ELV has a long-term estimated growth rate of 12.1%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, which beat the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
ISRG has a long-term estimated growth rate of 14.5%. Its earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 4.2%.
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