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Why Is Baxter (BAX) Down 0.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Baxter International (BAX). Shares have lost about 0.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Baxter due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Baxter Beats on Q2 Earnings & Revenues, Ups EPS View

Baxter delivered second-quarter 2019 adjusted earnings of 89 cents per share, which surpassed the Zacks Consensus Estimate of 81 cents by 9.9%. The bottom line also improved 15.6% from the year-ago quarter.

Revenues of $2.84 billion outpaced the Zacks Consensus Estimate of $2.79 billion by 1.9%. The top line fell 0.1% year over year on a reported basis but increased 4% on operational basis.

Geographical Details

Baxter reports 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 $1.52 billion, down 0.3% on a year-over-year basis but up 1% at constant currency (cc).

In EMEA, revenues totaled $744 million, down 1.9% from the year-ago quarter but up 6% at cc.

In APAC, revenues of $576 million increased 3% from the prior-year quarter and 9% at cc.

Segmental Details

Renal Care

This segment reported revenues of $910 million in the quarter under review, down 2.3% year over year. Revenues at the segment increased 3% at cc.

Medication Delivery

Revenues at the segment grossed $689 million, up 1.2% from the year-ago quarter and 4% at cc.

Pharmaceuticals

Revenues at the segment amounted to $539 million, up 0.4% from the year-ago quarter and 4% at cc.

Clinical Nutrition

Revenues at the segment were $215 million, down 2.7% from the year-ago quarter and 2% at cc.

Advanced Surgery

Revenues at the segment totaled $232 million, up 13.7% from the year-ago quarter and 17% at cc.

Acute Therapies

This segment reported revenues of $133 million, up 3.1% from the prior-year quarter and increased 8% at cc.

Other

Revenues in the segment grossed $122 million, down 12.2% on a year-over-year basis and 9% at cc.

Margin Analysis

Baxter registered adjusted gross profit of $1.26 billion in the second quarter, down 2.2% year over year. As a percentage of revenues, gross margin contracted 100 bps on a year-over-year basis at 44.5% in the second quarter.

Operating income decreased 7.6% year over year to $355 million in the quarter under review. As a percentage of revenues, operating margin contracted 100 bps to 12.5% in the second quarter.

Guidance

On the basis of the strong performance in the second quarter, Baxter raised earnings guidance for 2019.

Adjusted earnings are anticipated to be in the band of $3.34-$3.40 per share, up from the previously guided range of $3.27-$3.35 per share. The Zacks Consensus Estimate for earnings stands at $3.32, within the company’s guided range.

The company anticipates sales growth in the range of 1-2% on a reported basis, and about 4% on both cc and operational basis.

For the third quarter of 2019, management at Baxter expects revenues to grow in the range of 3-4% on a reported basis, and approximately 5% on both cc and operational basis. Adjusted earnings are projected to be in the range of 82-84 cents per diluted share. The Zacks Consensus Estimate is pegged at 85 cents, which lies above the guided range.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months.

VGM Scores

At this time, Baxter has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Baxter has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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