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    Baxter International Inc (BAX)

    Board Change

    Business Description

    Baxter International Inc. is a global medical technology company that provides a wide range of healthcare solutions across more than 100 countries . The company operates through four main segments, offering products and services that include sterile IV solutions, connected care systems, specialty pharmaceuticals, and dialysis therapies . Baxter's diverse product portfolio and international presence enable it to address various healthcare needs worldwide .

    1. Kidney Care - Provides chronic and acute dialysis therapies, including peritoneal dialysis and hemodialysis .
    2. Medical Products and Therapies - Offers sterile IV solutions, infusion systems, parenteral nutrition therapies, and surgical hemostat products .
    3. Healthcare Systems and Technologies - Delivers connected care solutions, smart bed systems, patient monitoring systems, and advanced surgical equipment .
    4. Pharmaceuticals - Focuses on specialty injectable pharmaceuticals, inhaled anesthesia, and drug compounding .

    Q3 2024 Summary

    Initial Price$33.50July 1, 2024
    Final Price$36.91October 1, 2024
    Price Change$3.41
    % Change+10.18%

    What went wrong

    • Uncertainty in Achieving 16.5% Operating Margin in 2025: Baxter's executives indicated that bridging from current operating margins to the targeted 16.5% operating margin in 2025 is "really complicated," raising concerns about the company's ability to meet this goal.
    • Impact of Stranded Costs on Operating Margins: The company is experiencing significant headwinds from stranded costs related to the pending sale of its Kidney Care business. These stranded costs negatively impacted operating margin by approximately 250 basis points in the quarter, leading to a decline in adjusted operating margins by 90 to 100 basis points for the full year 2024 on a continuing operations basis.
    • Significant Disruption from Hurricane Helene: Baxter's largest manufacturing facility, North Cove, suffered unprecedented devastation from Hurricane Helene. This disruption is expected to negatively impact fourth-quarter sales by approximately $200 million, including an estimated $150 million to $160 million impact on Medical Products & Therapies (MPT) sales. Full production recovery is not expected until the end of the year, posing risks to operational continuity and financial performance.

    Q&A Summary

    1. 2025 Guidance and Hurricane Impact
      Q: Confidence in meeting 2025 guidance despite hurricane and HST issues?
      A: Management reaffirms confidence in achieving 4%-5% revenue growth and 16.5% operating margin in 2025 despite minimal first-quarter impact from Hurricane Helene. They cite normalization of the HST business, significant growth in pumps (up 50% in 2024, continuing into 2025), positive pricing impacts, operational efficiencies, and cost-containment efforts as key drivers.

    2. Margin Target and Stranded Costs
      Q: Is the 16.5% margin target achievable or exceedable? How will you offset stranded costs and lost TSA income?
      A: Management views the 16.5% operating margin as an anchoring point for post-separation growth, expecting continued margin expansion over time. They plan to eliminate stranded costs by 2027 through actions like rationalizing distribution centers and rightsizing the organization. TSA income in 2025 will offset some expenses, and proactive cost-containment measures are underway.

    3. IV Fluid Revenue Recovery
      Q: Will the $150 million IV fluid revenue loss recover in 2025?
      A: While there's potential upside from restocking the market after the IV fluid shortage, management hasn't factored it into guidance yet. They expect destocking effects to balance out in 2025 and see opportunities not yet explored.

    4. Operating Margin Bridge and Dividend Policy
      Q: How do you reconcile current margins with 16.5% target? Will you maintain the dividend?
      A: Current margins include stranded costs not yet offset by TSA income or cost measures. The 16.5% target reflects expected cost containment and TSA offsets in 2025. Management plans to reset the dividend based on the company's new size but is committed to maintaining a dividend.

    5. Revenue Acceleration Drivers
      Q: What drives revenue growth acceleration to 4%-5% next year?
      A: Drivers include normalization of the HST business, significant growth in pumps (hardware up 50% in 2024), new product launches, and resolution of operational issues. Front Line Care is expected to return to normal growth, and strong performance in pumps and sets will continue.

    6. Capital Allocation and Spending Trajectory
      Q: How are you balancing investments with cost measures?
      A: Management continues to invest in R&D for innovation while expecting expense leverage in SG&A through cost-containment measures. They anticipate gaining leverage from growth and are carefully managing expenses to offset impacts like the IV fluid shortage.

    7. China Impact and Tariffs
      Q: What is the impact of China performance and potential tariffs?
      A: Post-separation, China will represent less than 2% of sales. Baxter is less exposed to China-related risks, including VBPs and tariffs, and does not expect significant impact.

    8. Novum Pump Uptake
      Q: How is the Novum pump uptake progressing?
      A: The Novum pump launch is going extremely well, with market share gains of 2% to 2.5% expected by year-end. Infusion hardware sales are up 50% in 2024, with strong growth expected to continue into 2025.

    9. IV Solutions Manufacturing and Pricing
      Q: Will you spread out manufacturing to reduce risk? Will IV bag pricing increase?
      A: Baxter utilizes a global network of plants to mitigate risk, with facilities in countries like Spain, Canada, and China. They've invested over $0.5 billion in their facility since 2016 and recovered quickly from disruptions. While acknowledging the critical nature of IV solutions, they did not comment on pricing.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    José E. AlmeidaChair, President, and Chief Executive OfficerJanuary 1, 2016José E. Almeida has been serving as the Chair, President, and CEO of Baxter International Inc. since January 1, 2016. He began his role as an executive officer in October 2015. Before joining Baxter, he was a Senior Advisor with The Carlyle Group and held leadership roles at Covidien plc .
    James BorziExecutive Vice President and Chief Supply Chain OfficerAugust 2020James Borzi joined Baxter in August 2020. Prior to Baxter, he was Vice President and Chief Supply Chain Officer at GE Healthcare and held leadership roles at Becton Dickinson (BD) .
    Joel T. GradeExecutive Vice President, Chief Financial Officer, and Interim Chief Accounting Officer2023Joel T. Grade joined Baxter in 2023 after a 25-year career with Sysco Corporation. He was appointed as Interim Chief Accounting Officer on September 3, 2024, while continuing as CFO .
    Heather KnightExecutive Vice President and Group President, Medical Products & Therapies2023Heather Knight was appointed to her current role in 2023. She joined Baxter in 2019 from Medtronic plc and has nearly 30 years of experience in the pharmaceutical and medical device industries .
    Jeanne K. MasonExecutive Vice President and Chief Human Resources Officer2006Jeanne K. Mason has been with Baxter since 2006, coming from GE Insurance Solutions. She has held leadership roles at General Electric (GE) and is involved with various boards and councils .
    Reazur RasulExecutive Vice President and Group President, Healthcare Systems & Technologies2023Reazur Rasul was appointed to his current role in 2023. He joined Baxter in 2017 and has held leadership positions at Hewlett Packard Enterprise and GE Healthcare .
    David S. RosenbloomExecutive Vice President and General CounselN/ADavid S. Rosenbloom joined Baxter from McDermott Will & Emery, where he was a partner and Global Head of the Litigation Practice Group. He also served in the U.S. Attorney’s Office for the Northern District of Illinois .
    Alok SonigExecutive Vice President and Group President, Pharmaceuticals2023Alok Sonig was appointed to his current role in 2023 after joining Baxter in 2022. He has over 25 years of experience in the life sciences industry, with previous roles at Lupin, Inc., Dr. Reddy’s Laboratories, and Bristol Myers Squibb .
    Christopher A. TothExecutive Vice President and Group President, Kidney CareJune 2023Christopher A. Toth assumed his responsibilities at Baxter in June 2023. Before joining Baxter, he was CEO of Varian, a Siemens Healthineers Company, and held various executive roles over two decades .
    Jeffrey (Jay) A. CraigDirector and Member of the Audit CommitteeSeptember 8, 2024Jeffrey (Jay) A. Craig was appointed to the Board of Directors on September 8, 2024. He is the former CEO and President of Meritor, Inc., and has held leadership roles at General Motors Acceptance Corp. and Deloitte & Touche LLP .

    Questions to Ask Management

    1. Given the operating margin in the third quarter decreased by 90 basis points year-over-year on a comparable basis, can you explain the specific actions you are taking to achieve the significant jump to a 16.5% operating margin next year, and how confident are you in reaching this target?

    2. With the unprecedented disruption caused by Hurricane Helene at your North Cove facility, how do you plan to mitigate the risk of future supply interruptions, and will you consider spreading out manufacturing among other facilities to reduce this risk?

    3. Considering the softness in your Healthcare Systems & Technologies segment, particularly the decline in sales related to the U.S. primary care market and international markets like China and France, what specific strategies are you implementing to drive growth and improve performance in this segment?

    4. As you anticipate resetting your dividend to align with the new size of your organization post the pending sale of the Kidney Care business, can you provide clarity on your dividend policy and whether you are committed to maintaining or adjusting the dividend levels?

    5. Given the expected loss of TSA income over time and the need to offset stranded costs resulting from the Kidney Care divestiture, can you detail the initiatives you are undertaking to eliminate these stranded costs and ensure operating margin expansion while the TSA income declines?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJuly 2012
    End Date/DurationNo expiration date
    Total Additional AmountN/A
    Remaining Authorization$1.30 billion as of September 30, 2024
    DetailsAuthorization amount has been increased multiple times

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • Full Year 2024:
        • Total Company Adjusted EPS: $2.90 to $2.94 per diluted share.
        • Continuing Operations Adjusted EPS: $1.81 to $1.84 per share.
        • Total Sales Growth: 1% to 2% as reported, approximately 2% on a constant currency basis.
        • Continuing Operations Sales Growth: Approximately 2% on both reported and constant currency basis.
        • Adjusted Operating Margin: Expected to increase by more than 50 basis points.
        • Continuing Operations Adjusted Operating Margin: Expected to decline 90 to 100 basis points.
        • Adjusted Tax Rate: Approximately 22% for the total company, 18.5% for continuing operations.
        • Diluted Share Count: Expected to average 511 million shares.
      • Fourth Quarter 2024:
        • Total Company and Continuing Operations Sales: Expected to decline low single digits.
        • Total Company Adjusted EPS: $0.77 to $0.81 per diluted share.
        • Continuing Operations Adjusted EPS: $0.50 to $0.53 per share .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Full Year Sales Outlook: Increased, reflecting strategic priorities and momentum.
      • Adjusted EPS Guidance: Adjusted upwards due to strong performance.
      • Revenue Growth: Expected to exit the year with 4% to 5% growth excluding Kidney Care.
      • Pricing Contribution: Impact of about 100 basis points for the full year.
      • Kidney Care Separation: Expected in late 2024 or early 2025.
      • Fourth Quarter Revenue: Implies growth below 1% due to product mix impacts .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      • Full Year 2024:
        • Total Sales Growth: Approximately 2% reported, 2% to 3% constant currency.
        • MPT Segment Sales Growth: 4% to 5%.
        • Healthcare Systems & Technologies Segment: Flat sales.
        • Pharmaceuticals Segment Sales Growth: 6% to 7%.
        • Kidney Care Sales Growth: Flat to 1%.
        • Adjusted Operating Margin: Increase by at least 50 basis points.
        • Nonoperating Expenses: Approximately $350 million.
        • Adjusted Tax Rate: 22.0% to 22.5%.
        • Diluted Share Count: Average 511 million shares.
        • Adjusted EPS: $2.88 to $2.98 per diluted share.
      • Second Quarter 2024:
        • Global Sales Growth: Approximately 1% reported, 2% to 3% constant currency.
        • Adjusted EPS: $0.65 to $0.67 per diluted share .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      • Full Year 2024:
        • Total Sales Growth: 2% reported and constant currency.
        • Medical Products and Therapies Sales Growth: 3% to 4%.
        • Healthcare Systems and Technology Sales Growth: Approximately 3%.
        • Pharmaceuticals Sales Growth: 4% to 5%.
        • Kidney Care Sales Decline: 1% to 2%.
        • Adjusted Operating Margin: Increase by at least 50 basis points.
        • Nonoperating Expenses: Approximately $350 million.
        • Adjusted Tax Rate: 22.0% to 22.5%.
        • Diluted Share Count: Average 510 million shares.
        • Adjusted EPS: $2.85 to $2.95 per diluted share.
      • First Quarter 2024:
        • Global Sales Growth: Approximately 1% reported, 1% to 2% constant currency.
        • Adjusted EPS: $0.59 to $0.62 per diluted share .

    Latest news

    Recent developments and announcements about BAX.

    Corporate Leadership

      Board Change

      ·
      Nov 22, 2024, 10:15 PM

      Peter M. Wilver has notified Baxter International Inc. of his resignation from the Board of Directors, effective December 31, 2024. His departure is for personal reasons and not due to any disagreement with the company .

      Leadership Change

      ·
      Nov 22, 2024, 10:15 PM

      Peter M. Wilver is leaving the Board of Directors of Baxter International Inc. for personal reasons, effective December 31, 2024. Jeffrey A. Craig will step up as the chairperson of the Audit Committee following Wilver's departure. Craig is a former CEO and President of Meritor, Inc. .

    Financial Reporting

      Earnings Report

      ·
      Nov 8, 2024, 12:00 AM

      Baxter International Inc. Third-Quarter 2024 Earnings Results

      Baxter International Inc. has released its earnings results for the third quarter of 2024, reporting several key financial metrics and operational updates:

      • Sales Performance: Baxter's total sales for the third quarter of 2024 amounted to $3.85 billion. Sales from continuing operations were $2.70 billion, marking a 4% increase on both a reported and constant currency basis. This growth was driven by strong performance across all segments, including Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals .

      • Earnings Per Share (EPS): The company's U.S. GAAP diluted EPS from continuing operations was $0.12, while the adjusted EPS was $0.49. The adjusted total Baxter diluted EPS was $0.80, which exceeded the company's previously issued guidance .

      • Operational Highlights: Baxter has made significant progress in restoring production at its North Cove facility, which was impacted by Hurricane Helene. The facility's highest-throughput IV solutions manufacturing line has been restarted, and new products are expected to begin shipping by the end of November 2024 .

      • Strategic Initiatives: The pending sale of Baxter's Kidney Care business to Carlyle is a major milestone in the company's strategic transformation. This transaction is expected to close in late 2024 or early 2025, subject to regulatory approvals .

      • Financial Outlook: Due to the impact of Hurricane Helene, Baxter has adjusted its full-year 2024 financial outlook. The company now expects total sales growth of 1% to 2% on a reported basis and approximately 2% on a constant currency basis. Adjusted earnings per share for the full year are projected to be between $2.90 and $2.94 .

      These results reflect Baxter's ongoing efforts to navigate operational challenges while pursuing strategic growth initiatives. The company's focus on restoring production capabilities and executing its transformation strategy positions it for continued progress in the coming quarters.

    Financial Actions

      Dividend Policy

      ·
      Aug 13, 2024, 12:00 AM

      Baxter Announces Dividend Policy Realignment

      Baxter International Inc. has announced a realignment of its dividend policy. Starting with the January 2025 dividend payment, the rate will be adjusted to align with the company's new financial profile following the divestiture of its Kidney Care segment. This change is part of Baxter's broader strategic transformation aimed at enhancing operational efficiency and innovation .