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Baxter (BAX) Misses Q3 Revenue Estimates, Issues Guidance

Zacks Equity Research

Baxter International Inc. BAX reported preliminary third-quarter 2019 revenues of $2.85 billion, which missed the Zacks Consensus Estimate of $2.86 billion by 0.5%. However, the top line rose 3% year over year on a reported basis and 5% on both constant currency and operational basis.

However, the company hasn’t released any earnings number in its preliminary results.

Geographical Details

Baxter reports preliminary operating results through three geographic segments — Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific).

In Americas, Baxter recorded revenues of $1.53 billion, up 2.5% on a year-over-year basis.

In EMEA, revenues totaled $730 million, up 3.3% from the year-ago quarter.

In APAC, revenues of $587 million increased 4.3% from the prior-year quarter.

Segmental Details

Per the preliminary results, Baxter’s results of its global business units are as follows.

Renal Care

This segment reported revenues of $918 million in the quarter under review, up 0.9% year over year.

Medication Delivery

Revenues at the segment grossed $701 million, up 7.5% from the year-ago quarter.

Pharmaceuticals

Revenues at the segment amounted to $527 million, up 1.5% from the year-ago quarter.

Clinical Nutrition

Revenues at the segment were $219 million, up 0.5% from the year-ago quarter.

Advanced Surgery

Revenues at the segment totaled $216 million, up 8% from the year-ago quarter.

Acute Therapies

This segment reported revenues of $130 million, up 6.6% from the prior-year quarter.

Other

Revenues in the segment grossed $140 million, down 4.1% on a year-over-year basis.

Margin Analysis

Baxter registered preliminary adjusted gross profit of $1.30 billion in the third quarter, up 1.8% year over year. As a percentage of revenues, preliminary adjusted gross margin came in at 45.7% in the third quarter, contracting 60 bps on a year-over-year basis.

Preliminary operating income surged 44.2% year over year to $555 million in the quarter under review. As a percentage of revenues, preliminary operating margin expanded 370 bps to 17.6% in the third quarter.

Guidance

Per the preliminary results, the following is the fourth-quarter 2019 outlook.

For the fourth quarter of 2019, management at Baxter expects revenues in the range of 3-4% on a reported basis, and approximately 5% on both cc and operational basis.

The company projects operating margin to range between 15.2% and 15.9% on a reported basis and 18.5-19% on an adjusted basis.

Summing Up

Baxter reported solid preliminary revenues in the third quarter. The stock continues to benefit from its core Renal Care, Medication Delivery, Advanced Surgery, Pharmaceuticals and Acute Therapies units.

Higher revenues across all global businesses and regions, and continued execution on business transformation initiatives fueled the company’s preliminary third-quarter results.

Growth in APAC buoys optimism. The company initiated the U.S. and Canadian launches of its next-generation PrisMax system for continuous renal replacement therapy (CRRT) and therapeutic plasma exchange (TPE). Further, Baxter is set to acquire Cheetah Medical that will bolster the company’s presence in the specialized patient monitoring space. The company also announced new data relating to the utilization of its automated peritoneal dialysis (APD) cyclers and the Sharesource remote patient management platform with a 39% reduction in hospitalizations for home PD patients receiving care at Baxter Renal Care Services clinics in Colombia.

However, in the quarter under review, the company witnessed gross margin contraction. Cut-throat competition in the MedTech markets is indicative of dull prospects.

It is important to note here that as per the preliminary results released, the company has announced internal investigation of misstatements in previously reported non-operating income related to foreign exchange gains and losses. Moreover, the company does not expect to file its quarterly report on Form 10-Q for the period ended September 30, 2019 on a timely basis.

Zacks Rank

Baxter currently carries a Zacks Rank #3 (Hold).

Key Picks

A few better-ranked stocks in the broader medical space are Incyte Corporation INCY, Vertex Pharmaceuticals Incorporated VRTX and Jazz Pharmaceuticals plc JAZZ.

Incyte is scheduled to release third-quarter 2019 results on Oct 29. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted EPS is pegged at 65 cents per share and the same for revenues stands at $538.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vertex Pharmaceuticals is scheduled to release third-quarter 2019 results on Oct 30. The Zacks Consensus Estimate for third-quarter adjusted EPS and revenues is $1.13 per share and $947.8 million, respectively. The stock has a Zacks Rank of 1.

Jazz Pharmaceuticals is expected to release third-quarter 2019 results on Nov 5. The Zacks Consensus Estimate for adjusted EPS for the to-be-reported quarter is $3.59 per share and the same for revenues is pegged at $522.6 million. The stock carries a Zacks Rank #2 (Buy).

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