BAX
$74.01
Baxter International
($.77)
(1.03%)
Earnings Details
1st Quarter March 2018
Thursday, April 26, 2018 7:15:00 AM
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Summary

Baxter International Beats

Baxter International (BAX) reported 1st Quarter March 2018 earnings of $0.70 per share on revenue of $2.7 billion. The consensus earnings estimate was $0.62 per share on revenue of $2.6 billion. The Earnings Whisper number was $0.66 per share. Revenue grew 8.2% on a year-over-year basis.

The company said it expects second quarter earnings of $0.69 to $0.71 per share and 2018 earnings of $2.85 to $2.93 per share. The company's previous guidance was 2018 earnings of $2.72 to $2.80 per share. The current consensus earnings estimate is $0.70 per share for the quarter ending June 30, 2018 and $2.78 per share for the year ending December 31, 2018.

Baxter International Inc is a healthcare company. It develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma and other chronic conditions.

Results
Reported Earnings
$0.70
Earnings Whisper
$0.66
Consensus Estimate
$0.62
Reported Revenue
$2.68 Bil
Revenue Estimate
$2.62 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Baxter Reports First-Quarter 2018 Results and Increases Financial Outlook for Full-Year 2018

  • First-Quarter Revenue of $2.7 Billion Increased 8 Percent on a Reported Basis and 3 Percent on an Operational Basis
  • First-Quarter GAAP Earnings Per Share (EPS) of $0.71; Adjusted EPS of $0.70 Increased 21 Percent
  • Company Increases Full-Year 2018 Sales Growth Outlook to 7 to 8 Percent on a Reported Basis and 4 to 5 Percent on an Operational Basis
  • Raises Full-Year 2018 GAAP EPS to $2.49 to $2.62; Adjusted EPS to $2.85 to $2.93

DEERFIELD, Ill.--(BUSINESS WIRE)-- Baxter International Inc. (NYSE: BAX) today reported results for the first quarter of 2018 and increased its full-year 2018 guidance.

“Baxter is off to a strong start in 2018,” said José (Joe) E. Almeida, chairman and chief executive officer. “Solid top-line performance coupled with a relentless focus on increasing operational efficiency were key drivers of earnings growth in the quarter. We look forward to building on this momentum and sharing the next chapter in Baxter’s ongoing transformation at our upcoming investor conference on May 21st. At the conference, we will highlight the strategic roadmaps for our six global businesses and provide investors an opportunity to learn more about Baxter’s promising innovation pipeline that will help fuel the company’s growth going forward.”

First-Quarter Financial Results

In the first quarter, worldwide sales totaled approximately $2.7 billion, an increase of 8 percent on a reported basis, 4 percent on a constant currency basis and 3 percent on an operational basis compared to the prior-year period. Operational sales in the first quarter adjust for the impact of foreign exchange, generic competition for U.S. cyclophosphamide, and the Claris Injectables (Claris) acquisition.

Sales in the U.S. totaled $1.1 billion, increasing 4 percent on a reported basis and 2 percent on an operational basis. International sales of $1.5 billion increased 12 percent on a reported basis, 4 percent on a constant currency basis and 3 percent on an operational basis. Drivers of growth included strong demand for the company’s continuous renal replacement therapies due to an intense flu season, and increased sales of injectable pharmaceuticals and advanced surgery products as well as U.S. IV solutions and peritoneal dialysis therapies.

In line with the financial outlook shared on February 1, 2018, first quarter sales were negatively impacted by approximately $25 million due to the temporary manufacturing disruptions in Puerto Rico caused by Hurricane Maria. All manufacturing facilities in Puerto Rico are operating at pre-hurricane production levels, and the company does not expect any further revenue impact related to recovery efforts. In addition, the company continues to import select products from Baxter facilities under temporary special importation FDA grants, and is grateful to FDA for its continued support in the recovery efforts.

In March, Baxter completed the acquisition of two surgical products from Mallinckrodt plc: RECOTHROM Thrombin topical (Recombinant), the first and only stand-alone recombinant thrombin, and PREVELEAK Surgical Sealant, which is used in vascular reconstruction. Both products complement and broaden Baxter’s surgical portfolio of hemostats and sealants. Sales of these products in the quarter were immaterial and going forward will be reported in the company’s Advanced Surgery business.

As previously disclosed, Baxter now reports its operating results based on three reportable geographic segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Net sales are reported based on these reportable segments, as well as by the company’s new Global Business Units (GBUs). Please see the schedules accompanying this press release for more details on sales performance in the quarter.

Baxter reported income from continuing operations of $389 million, or $0.71 per diluted share, on a GAAP (Generally Accepted Accounting Principles) basis for the first quarter. These results included special items totaling $16 million ($(1) million net after-tax), primarily related to business optimization, intangible amortization and a settlement agreement related to the Claris acquisition. On an adjusted basis, Baxter’s first quarter income from continuing operations totaled $388 million, or $0.70 per diluted share. Adjusted earnings per share growth of 21 percent in the quarter was driven by solid top-line performance and the ongoing benefit from the company’s business transformation initiatives as well as a favorable tax rate.

During the quarter, Baxter’s Board of Directors approved a $1.5 billion increase in authorization for the company’s existing share repurchase plan. After accounting for repurchases during the first quarter of $522 million or approximately 8 million shares, the company had approximately $2.1 billion remaining under the authorization as of March 31, 2018. Baxter anticipates that it will continue to repurchase shares in the open market or through private transactions at times and amounts determined by the company based on its evaluation of market conditions and other factors.

In the first quarter of 2018, Baxter generated $447 million in operating cash flow, an increase of $241 million driven by improved operational performance, the ongoing impact of programs focused on enhancing the company’s working capital and a benefit from the settlement of certain claims related to the acquisition of Claris. As a result, the company generated an increase of approximately $210 million in free cash flow to $292 million (operating cash flow less capital expenditures of $155 million) as compared to the prior-year period.

2018 Financial Outlook

  • For full-year 2018: Based on the company’s strong first quarter, Baxter is raising its financial outlook for the year. The company now expects sales growth of approximately 7 to 8 percent on a reported basis, approximately 5 percent on a constant currency basis and 4 to 5 percent on an operational basis*. Baxter expects adjusted earnings from continuing operations, before special items, of $2.85 to $2.93 per diluted share for the full year.
  • For the second quarter: The company expects sales growth of approximately 9 percent on a reported basis, approximately 5 percent on a constant currency basis and 3 to 4 percent on an operational basis*. The company expects adjusted earnings from continuing operations, before special items, of $0.69 to $0.71 per diluted share.

*Full-year and second quarter operational sales have been adjusted for the impact of foreign exchange, generic competition for U.S. cyclophosphamide and the benefit from the acquisitions of Claris and the two Mallinckrodt assets.

Please see the schedules accompanying this press release for a reconciliation between the projected 2018 adjusted earnings per diluted share and projected GAAP earnings per diluted share.

A webcast of Baxter's first quarter 2018 conference call for investors can be accessed live from a link on the company's website at www.baxter.com beginning at 7:30 a.m. CDT on April 26, 2018. Baxter will be hosting an investor conference on Monday, May 21, 2018, in New York City. The investor conference will feature an innovation hall displaying product and therapy advancements from Baxter’s pipeline beginning at 7:00 a.m. EDT and presentations by members of the Baxter management team will begin at 8:00 a.m. EDT. To register for the conference and for more information, click here. Please see www.baxter.com for more information regarding this and future investor events and webcasts.

About Baxter

Baxter International Inc. provides a broad portfolio of essential healthcare products across its portfolio, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. The company’s global footprint and the critical nature of its products and services play a key role in expanding access to healthcare in emerging and developed countries. Baxter’s employees worldwide are building upon the company’s rich heritage of medical breakthroughs to advance the next generation of healthcare innovations that enable patient care.

This release includes forward-looking statements concerning the company’s financial results, business development activities, capital structure, cost savings initiatives, R&D pipeline including results of clinical trials and planned product launches, and outlook for 2018. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance of risks for new and existing products; product development risks; product quality or patient safety concerns; continuity, availability and pricing of acceptable raw materials and component supply; inability to create additional production capacity in a timely manner or the occurrence of other manufacturing or supply difficulties (including as a result of a natural disaster or otherwise); breaches or failures of the company’s information technology systems, including by cyberattack; future actions of regulatory bodies and other governmental authorities, including FDA, the Department of Justice, the New York Attorney General and foreign regulatory agencies; failures with respect to compliance programs; future actions of third parties, including payers; U.S. healthcare reform and other global austerity measures; pricing, reimbursement, taxation and rebate policies of government agencies and private payers; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; global, trade and tax policies; accurate identification of and execution on business development and R&D opportunities and realization of anticipated benefits (including the recent acquisitions of Claris Injectables and two surgical products from Mallinckrodt plc); the ability to enforce owned or in-licensed patents or the patents of third parties preventing or restricting manufacture, sale or use of affected products or technology; the impact of global economic conditions; fluctuations in foreign exchange and interest rates; any change in law concerning the taxation of income (including current or future tax reform), including income earned outside the United States; actions taken by tax authorities in connection with ongoing tax audits; loss of key employees or inability to identify and recruit new employees; the outcome of pending or future litigation; the adequacy of the company’s cash flows from operations to meet its ongoing cash obligations and fund its investment program; and other risks identified in Baxter’s most recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on Baxter’s website. Baxter does not undertake to update its forward-looking statements.

             
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income

Three Months Ended March 31, 2018 and 2017

(unaudited)
(in millions, except per share and percentage data)
 
 
Three Months Ended
March 31,
2018 2017 Change
 
NET SALES $2,677 $2,475 8%
 
COST OF SALES 1,563 1,431 9%
               
GROSS MARGIN   1,114   1,044   7%
% of Net Sales 41.6% 42.2% (0.6 pts)
 
MARKETING AND ADMINISTRATIVE EXPENSES 622 564 10%
% of Net Sales 23.2% 22.8% 0.4 pts
 
RESEARCH AND DEVELOPMENT EXPENSES 140 127 10%
% of Net Sales 5.2% 5.1% 0.1 pts
 
CLARIS SETTLEMENT (80) - NM
               
OPERATING INCOME   432   353   22%
% of Net Sales 16.1% 14.3% 1.8 pts
 
NET INTEREST EXPENSE 12 14 (14%)
 
OTHER (INCOME) EXPENSE, NET (18) 11 NM
               
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   438   328   34%
 
INCOME TAX EXPENSE   49   55   (11%)
% of Income from Continuing Operations before Income Taxes 11.2% 16.8% (5.6 pts)
 
INCOME FROM CONTINUING OPERATIONS 389 273 42%
 
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX - (1) NM
 
NET INCOME   $389   $272   43%
 
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE
Basic   $0.72   $0.50   44%
Diluted   $0.71   $0.50   42%
 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS PER COMMON SHARE
Basic   $0.00   $0.00   NM
Diluted   $0.00   ($0.01)   NM
 
NET INCOME PER COMMON SHARE
Basic   $0.72   $0.50   44%
Diluted   $0.71   $0.49   45%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 539 541
Diluted   551   551    
 
ADJUSTED OPERATING INCOME (excluding special items) $448 A $415 A 8%
ADJUSTED PRE-TAX INCOME FROM CONTINUING OPERATIONS (excluding special items) $454 A $390 A 16%
ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special items) $388 A $318 A 22%
ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special items) $0.70 A $0.58 A 21%
 
A Refer to page 8 for a description of the adjustments and a reconciliation to GAAP measures.
 
NM - Not Meaningful
             
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended March 31, 2018 and 2017
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
     
The company's GAAP results for the three months ended March 31, 2018 and 2017 included special items which impacted the GAAP measures as follows:
Three Months Ended
March 31,
     
2018 2017 Change
Gross Margin $1,114 $1,044 7%
Intangible asset amortization expense 1 41 38
Business optimization items 2 6 16
Claris acquisition and integration expenses 3 3 -
Litigation costs 4 8   -
Adjusted Gross Margin $1,172   $1,098 7%
% of Net Sales 43.8% 44.4% (0.6 pts)
 
Marketing and Administrative Expenses $622 $564 10%
Business optimization items 2 (29) (15)
Baxalta separation-related costs 5 - (7)
Claris acquisition and integration expenses 3 (4) -
Litigation costs 4 (2) -
Historical rebate and discount adjustments 7 -   12
Adjusted Marketing and Administrative Expenses $587   $554 6%
% of Net Sales 21.9% 22.4% (0.5 pts)
 
Research and Development Expenses $140 $127 10%
Business optimization items 2 (3)   2
Adjusted Research and Development Expenses $137   $129 6%
% of Net Sales 5.1% 5.2% (0.1 pts)
 
Claris Settlement $(80) $- NM
Claris settlement 8 80   -
Adjusted Claris Settlement $-   $- 0%
% of Net Sales 0.0% 0.0% 0 pts
 
Operating Income $432 $353 22%
Impact of special items 16   62
Adjusted Operating Income $448   $415 8%
% of Net Sales 16.7% 16.8% (0.1 pts)
 
Pre-Tax Income from Continuing Operations $438 $328 34%
Impact of special items 16   62
Adjusted Pre-Tax Income from Continuing Operations $454   $390 16%
 
Income Tax Expense $49 $55 (11%)
Impact of special items 6 17   17
Adjusted Income Tax Expense $66   $72 (8%)
% of Adjusted Pre-Tax Income from Continuing Operations 14.5% 18.5% (4 pts)
 
Income from Continuing Operations $389 $273 42%
Impact of special items (1)   45
Adjusted Income from Continuing Operations $388   $318 22%
 
Diluted EPS from Continuing Operations $0.71 $0.50 42%
Impact of special items (0.01)   0.08
Adjusted Diluted EPS from Continuing Operations $0.70   $0.58 21%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted   551   551    
 
1 The company's results in 2018 and 2017 included intangible asset amortization expense of $41 million ($36 million, or $0.06 per diluted share, on an after-tax basis) and $38 million ($28 million, or $0.05 per diluted share, on an after-tax basis), respectively.
 
2 The company's results in 2018 included a charge of $38 million ($34 million, or $0.06 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a charge of $12 million related to restructuring activities, $25 million of costs to implement business optimization programs which primarily included external consulting and project employee costs, and $1 million of accelerated depreciation associated with facilities to be closed. The $12 million of net restructuring charges included $10 million of employee termination costs and $2 million of asset impairment charges primarily related to facility closures.
 
The company's results in 2017 included a charge of $29 million ($21 million, or $0.04 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $3 million related to restructuring activities, $21 million of costs to implement business optimization programs which primarily included external consulting and project employee costs, and $5 million of accelerated depreciation associated with facilities to be closed. The $3 million of net restructuring charges ($2 million, or $0.00 per diluted share, on an after-tax basis) included net $2 million of employee termination costs and $1 million related to contract termination costs.
 
3 The company's results in 2018 included acquisition and integration costs of $7 million ($6 million, or $0.01 per diluted share, on an after-tax basis) related to the company's acquisition of Claris Injectables Limited.
 
4 The company's results in 2018 included charges of $10 million ($9 million, or $0.01 per diluted share, on an after-tax basis) related to product litigation.
 
5 The company's results in 2017 included costs incurred related to the Baxalta separation totaling $7 million ($5 million, or $0.01 per diluted share, on an after-tax basis).
 
6 The company's results in 2018 included a benefit of $8 million, or $0.01 per diluted share, related to an update to the estimated impact of U.S. federal tax reform previously made by the company in addition to the tax impact of the other special items identified in this table.
 
7 The company's results in 2017 included a benefit of $12 million ($9 million, or $0.02 per diluted share, on an after-tax basis) related to an adjustment to the company's historical rebates and discount reserves.
 
8 The company's results in 2018 included a benefit of $80 million ($78 million, or $0.14 per diluted share, on an after-tax basis) for the settlement of certain claims related to the acquired operations of Claris Injectables Limited.
 
For more information on the company's use of non-GAAP financial measures in this press release, please see the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this press release.
 
NM -

Not Meaningful

               
BAXTER INTERNATIONAL INC.
Sales by Operating Segment
Periods Ending March 31, 2018 and 2017
(unaudited)
($ in millions)
                         
Q1 Q1 % Growth @ % Growth @
            2018   2017   Actual Rates   Constant Rates
Americas $1,442 $1,373 5% 4%
EMEA 724 631 15% 3%
APAC           511   471   8%   3%
Total Baxter           $2,677   $2,475   8%   4%
               
BAXTER INTERNATIONAL INC.
Sales by GBU
Periods Ending March 31, 2018 and 2017
(unaudited)
($ in millions)
                           
Q1 Q1 % Growth @ % Growth @
              2018   2017   Actual Rates   Constant Rates
Renal Care¹ $868 $789 10% 4%
Medication Delivery² 676 664 2% 0%
Pharmaceuticals³ 496 427 16% 13%
Nutrition4 223 212 5% 0%
Advanced Surgery5 182 168 8% 4%
Acute Therapies6 129 106 22% 14%
Other7           103   109   (6%)   (12%)
Total Baxter           $2,677   $2,475   8%   4%
 
1 Includes sales of the company’s peritoneal dialysis (PD) and hemodialysis (HD) and additional dialysis therapies and services.
 
2 Includes sales of the company’s IV therapies, infusion pumps, administration sets and drug reconstitution devices.
 
3 Includes sales of the company’s premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.
 
4 Includes sales of the company’s parenteral nutrition (PN) therapies.
 
5 Includes sales of the company’s biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.
 
6 Includes sales of the company’s continuous renal replacement therapies (CRRT) and other organ support therapies focused in the ICU.
 
7 Includes sales primarily from the company’s pharmaceutical partnering business.
                                   
BAXTER INTERNATIONAL INC.
GBU Sales by U.S. and International
Periods Ending March 31, 2018 and 2017
(unaudited)
($ in millions)
                                                                   
            Q1 2018             Q1 2017             % Growth
              U.S.   International   Total             U.S.   International   Total             U.S.   International   Total
Renal Care $196 $672 $868 $179 $610 $789 9% 10% 10%
Medication Delivery 436 240 676 429 235 664 2% 2% 2%
Pharmaceuticals 243 253 496 213 214 427 14% 18% 16%
Nutrition 83 140 223 88 124 212 (6%) 13% 5%
Advanced Surgery 99 83 182 97 71 168 2% 17% 8%
Acute Therapies 46 83 129 37 69 106 24% 20% 22%
Other           44   59   103             60   49   109             (27%)   20%   (6%)
Total Baxter           $1,147   $1,530   $2,677             $1,103   $1,372   $2,475             4%   12%   8%
           
BAXTER INTERNATIONAL INC.
Free Cash Flow Reconciliation
(unaudited)
($ in millions)
                   
  Three Months Ended
March 31,
              2018   2017
Cash flows from operations - continuing operations           $447     $206  
  Capital expenditures           (155 )   (123 )
Free cash flow - continuing operations           $292     $83  
                 
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measure
Change in Net Sales As Reported to Operational Sales
From The Three Months Ended March 31, 2017 to The Three Months Ended March 31, 2018
(unaudited)
 
 
 
                 
            Q1 2018*
Net sales US Operational
            As Reported   Cyclophosphamide   Claris   FX   Sales
Renal Care 10 % 0 % 0 % (6 %) 4 %
Medication Delivery 2 % 0 % 0 % (2 %) 0 %
Pharmaceuticals 16 % 2 % (9 %) (3 %) 6 %
Nutrition 5 % 0 % 0 % (5 %) 0 %
Advanced Surgery 8 % 0 % 0 % (4 %) 4 %
Acute Therapies 22 % 0 % 0 % (8 %) 14 %
Other (6 %) 0 % 0 % (6 %) (12 %)
 
Total Baxter           8 %   0 %   (1 %)   (4 %)   3 %
 
*Totals may not foot due to rounding
 
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measures
Projected 2018 Adjusted Earnings Per Share and Projected GAAP Earnings Per Share, and
Projected 2018 Adjusted Sales Growth and Projected GAAP Sales Growth
(unaudited)
                       
                             
2018 Earnings Per Share Guidance             Q2 2018             FY 2018
Earnings per Diluted Share – Adjusted             $0.69 - $0.71             $2.85 - $2.93
Estimated intangible asset amortization             $0.06             $0.24
Estimated business optimization charges             $0.04             $0.18 - $0.23
Litigation costs             -             $0.01
Acquisition and integration expenses             -             $0.03
Claris settlement             -             ($0.14)
U.S. tax reform             -             ($0.01)
Earnings per Diluted Share - GAAP             $0.59 - $0.61             $2.49 - $2.62
 
 
 
                             
2018 Sales Growth Guidance             Q2 2018             FY 2018
Sales Growth – Operational             3% - 4%             4% - 5%
U.S. cyclophosphamide             0%             (1)%
Acquisitions            

2%

            1%
Foreign exchange             4%             2% - 3%
Sales Growth - GAAP             9%             7% - 8%

Baxter International Inc.
Media Contact:
Bill Rader, (224) 948-5353
media@baxter.com
or
Investor Contact:
Clare Trachtman, (224) 948-3085

Source: Baxter International Inc.