Baxter International Inc. (BAX) reported first quarter adjusted (excluding one-time items) earnings per share of $1.05, thereby beating the Zacks Consensus Estimate of $1.04 and surpassing the year-ago earnings of $1.01. The first quarter result was in accordance with the company’s earlier stated guidance.
Reported profit in the quarter decreased 6% year over year to $552 million (or $1.00 per share). Baxter’s results in the reported quarter includes unusual after-tax amount of $29 million (or 5 cents per share) pertaining to its intended takeover of Gambro AB.
Revenues for the quarter were $3,448 million, up 2% (up 2% in constant currency) year over year, missing the Zacks Consensus Estimate of $3,489 million.
On a geographic basis, U.S.-based revenues in the quarter improved 1% year over year to $1,482 million while international revenues rose 2% year over year (up 2% in constant currency) to $1,966 million.
On a business-wise basis, Bioscience revenues stood at $1,530 million, up 5% year over year (up 5% in constant currency). Revenues were primarily driven by higher demand for Advate used in hemophilia and certain specialty plasma-based therapeutics.
Hemophilia, the largest sub-unit, accounted for $765 million. Hemophilia clambered 3% in reported terms (up 3% in constant currency) year-over-year. The BioTherapeutics revenues of $509 million was up 2% (up 2% in constant currency) year over year. Revenues from BioSurgery increased 12% year over year (up 11% in constant currency) to $172 million. Vaccines amounted to $84 million, up 25% (up 28% in constant currency).
Revenues from Medical Products remained flat year over year (down 1% in constant currency) at $1,918 million.
Four sub-units are — Fluid Systems with sales of $740 million, up 2% in constant currency; Renal with sales of $590 million, up 1% in constant currency; Specialty Pharmaceuticals with revenues of $363 million, down 2% in constant currency; and BioPharma Solutions with sales of $225 million, down 11% in constant currency.
First quarter adjusted gross margin was 51% (up 20 basis points) compared with 50.8% in the prior-year quarter. Marketing and administrative expense (as a percentage of sales) rose to 22.6% (up 70 basis points) from 21.9% in the year-ago quarter while research and development expense rose marginally to 7.1% (up 10 basis points) from 7% in the prior-year quarter.
Baxter ended the first quarter with net debt of $3,178 million, up 8.2% year over year. Cash flow from operations dropped roughly 13.5% year over year to $386 million.
Outlook and Recommendation
For the second quarter of 2013, the company expects growth in revenues of 3% in constant currency and adjusted earnings per share in the band of $1.12 and $1.14.
Baxter’s forecast for 2013 includes impact of its Gambro acquisition. For 2013, Baxter continues to guide to reported sales growth of 10% in constant currency. The company also continues to expect adjusted earnings per share in the range of $4.60 to $4.70 for 2013. The guidance for earnings per share takes into account that Gambro will dilute earnings by 10 cents to 15 cents in 2013. Baxter continues to expect cash flow from operations to approximate $3,300 million for 2013.
The news regarding Baxter still remains somewhat mixed. On the positive side, Baxter’s focus on life-sustaining products which are not commoditized, partly insulate it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.
On the flip side, despite resilience in certain sub-segments, we are concerned about relative stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement.
Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company (BDX) in certain niches.
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