Baxter (BAX) Beats on Q3 Earnings, Divests BioPharma Business
Baxter International Inc. BAX reported third-quarter 2023 adjusted earnings per share (EPS) of 68 cents, which beat the Zacks Consensus Estimate of 66 cents by 3%. However, the bottom line declined 4% from the year-ago quarter’s level.
On a GAAP basis, the EPS was 9 cents against a loss of $5.94 in the prior-year quarter. The company recorded $2.79 billion as goodwill impairment in the prior-year quarter.
On its third-quarter earnings call, Baxter announced that it completed the divestment of its BioPharma Solutions (BPS) business at the end of the third quarter. In May, it had signed an agreement to divest the business for $4.25 billion. The company reported BPS business as discontinued operations this quarter. Moreover, it completed the restructuring of its operating model by integrating its diverse product categories under four global segments — Medical Products & Therapies, Healthcare Systems & Technologies, Pharmaceuticals and Kidney Care.
Adjusted EPS, including discontinued operations during the third quarter, was 82 cents, flat year over year.
Revenue Details
Revenues from continued operation totaled $3.71 billion, up 3% on a reported basis and 2% at constant currency (cc). Revenues from discontinued operations (BPS business) amounted to $191 million. The Zacks Consensus Estimate for total sales is pegged at $3.69 billion.
Shares of BAX were up 2.3% in pre-market trading following better-than-expected results and the completion of divestment. The company’s shares have lost 35.7% year to date compared with the industry’s decline of 13%. The broader S&P 500 Index has moved up 11.4% in the same period.
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Segmental Details
As part of its transformation plan announced in February, Baxter established its new operating model, integrating its prior matrixed structure of nine businesses operating across three geographic regions into the aforementioned four verticalized global segments. The company started reporting under a new model, beginning third-quarter 2023.
Medical Products & Therapies
The segment includes Advanced Surgery and a new category, Infusion Therapies & Technologies. Total sales at this segment during the third quarter were $1.26 billion, up 5% year over year reportedly and 4% at cc.
Infusion Therapies and Technologies’ sales totaled $1 billion, up 5% year over year, reportedly, and 4% at cc. Advanced Surgery category sales amounted to $255 million, up 3% year over year reportedly as well as at cc.
Healthcare Systems and Technologies
The segment includes the Front Line Care category. It also includes Patient Support Systems and Surgical Solutions categories, which are clubbed as the Care & Connectivity Solutions category. Total sales at this segment during the third quarter were $744 million, up 1% year over year reportedly and flat at cc.
Front Line Care category sales totaled $301 million, up 8% year over year, reportedly, as well as at cc. Care & Connectivity Solutions category sales amounted to $443 million, down 3% year over year reportedly and 4% at cc.
Pharmaceuticals
The segment was reported as one of the product categories till last quarter. This segment’s report presently includes two product categories — Injectables & Anesthesia and Drug Compounding. Total sales during the third quarter were $580 million, up 10% year over year reportedly and 9% at cc.
Injectables and Anesthesia category sales totaled $351 million, up 8% year over year reportedly and 7% at cc. Drug Compounding category sales amounted to $229 million, up 15% year over year reportedly and 13% at cc.
Kidney Care
This segment includes BAX’s Renal Care category, which is now reported under the Chronic Therapies category. The segment also includes the Acute Therapies category. Total sales at this segment during the third quarter were $1.1 billion, up 1% year over year reportedly and flat at cc.
Chronic Therapies category sales totaled $921 million, up 8% year over year reportedly and 7% at cc. Acute Therapies category sales amounted to $188 million, up 13% year over year reportedly and 12% at cc.
Baxter plans to spin-off this segment, which will trade as an independent, publicly-traded company under the proposed tradename of Vantive. The spin-off is expected to be completed by July 2024.
Other
Revenues at the segment amounted to $17 million, down 63% on a year-over-year basis and 61% at cc.
Margin Analysis
Baxter reported an adjusted gross profit of $1.55 billion for the third quarter, up 1% year over year. As a percentage of revenues, the gross margin declined 70 basis points (bps) to 41.7% in the same quarter.
Selling, general and administrative expenses amounted to $1 billion, up 6.5% from the year-ago quarter’s figure. Research and development expenses totaled $166 million, up 9.9% on a year-over-year basis.
Adjusted operating income from continuing operations totaled $347 million, down 4.9% year over year. As a percentage of revenues, the operating margin contracted 70 bps to 9.4%. Adjusted income from discontinued operations, net of tax, amounted to $71 million during the reported quarter.
Guidance Updated
For fourth-quarter 2023, Baxter anticipates sales from continuing operations to grow approximately 1-2% on a reported basis and 1% at cc. The Zacks Consensus Estimate for the same is pegged at $3.84 billion, implying a decline of 1.3% reportedly.
Adjusted EPS from continuing operations is expected between 85 cents and 88 cents. The Zacks Consensus Estimate for the same is pegged at 84 cents.
For full-year 2023, sales growth for continuing operations is expected to be 1-2% on a reported basis and 2% at cc. Adjusted EPS from continuing operations is projected in the band of $2.57-$2.60. During the last quarter, BAX anticipated revenues to be flat to 1% growth on a reported basis and 1% at cc. EPS was anticipated in the range of $2.54-$2.62.
Baxter International Inc. Price, Consensus and EPS Surprise
Baxter International Inc. price-consensus-eps-surprise-chart | Baxter International Inc. Quote
Zacks Rank and Other Stocks to Consider
Currently, Baxter carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, DexCom DXCM and Integer Holdings ITGR.
Abbott, carrying a Zacks Rank #2 at present, reported third-quarter 2023 adjusted EPS of $1.14, which beat the Zacks Consensus Estimate by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues of $10.14 billion outpaced the consensus mark by 3.6%.
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 6.76%.
DexCom reported third-quarter 2023 adjusted EPS of 50 cents, which beat the Zacks Consensus Estimate by 47.1%. Revenues of $975 million beat the Zacks Consensus Estimate by 4%. The company currently carries a Zacks Rank #2.
DXCM has a long-term estimated growth rate of 33.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.43%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27 and revenues of $405 million, which beat their respective Zacks Consensus Estimate by 21% and 8.7%. It currently carries a Zacks Rank #2.
ITGR has a long-term estimated growth rate of 15.8%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.98%.
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