BAXTER INTERNATIONAL INC (BAX) Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 continuing-operations sales were $2.84B (+5% reported, +2% operational) and adjusted diluted EPS was $0.69; GAAP diluted EPS from continuing operations was ($0.10) as tax items drove a GAAP loss .
• Versus S&P Global consensus, EPS beat ($0.69 vs $0.598*) while revenue missed ($2.835B vs $2.877B*), driven by Infusion Therapies & Technologies weakness (Novum IQ LVP ship/install hold and IV solutions fluid conservation) offset by strength in Advanced Surgery and Care & Connectivity Solutions .
• Baxter cut FY25 guidance to 4–5% reported sales growth (1–2% operational) and $2.35–$2.40 adjusted EPS; Q4 guide is ~+2% reported sales, ~–2% operational, and $0.52–$0.57 adjusted EPS .
• Dividend reduced to $0.01 per share beginning with Jan 2, 2026 payment to accelerate deleveraging—management expects >$300M annual cash flow benefit, a key stock narrative catalyst .
  Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Advanced Surgery revenue rose to $306M (+13% reported, +11% operational) on strong demand and steady procedure volumes; MPT adjusted operating margin expanded +50 bps YoY to 20.5% .
• Care & Connectivity Solutions delivered +4% reported (+3% operational) with U.S. capital orders up ~30% YoY and no observed slowdown in hospital capital spending; order pipeline remained strong .
• Companywide adjusted operating margin improved +40 bps YoY to 14.9% on disciplined expense management and TSA income; adjusted EPS grew +41% YoY to $0.69 .

What Went Wrong

• Infusion Therapies & Technologies fell to $1.023B (–4% operational) as Novum IQ LVP remained under a ship/install hold (returns/exchanges) and U.S. IV solutions demand stayed below pre-Hurricane Helene levels due to fluid conservation .
• Adjusted gross margin compressed 430 bps YoY to 39.4% (mix, manufacturing/supply costs, cost reclassification); HST adjusted operating margin fell 460 bps YoY to 13.5% and Pharmaceuticals adjusted operating margin declined 100 bps YoY to 8.9% .
• FY25 outlook lowered (operational sales growth 1–2%, adjusted EPS $2.35–$2.40) and Q4 guide implies operational decline (~–2%); GAAP loss in Q3 reflected a large tax expense .

Financial Results

Consolidated performance vs prior year, prior quarter, and estimates

Segment revenue and margins

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are not satisfied with our current performance… we have already taken decisive steps, including the launch of a new enterprise-wide continuous improvement system to sharpen execution and strengthen future results.” — Andrew Hider, CEO .
• “We will be better able to invest in the business by strengthening our balance sheet… we and the Board intend to reduce the quarterly dividend to $0.01 per share, beginning with the dividend to be paid in January 2026.” — Andrew Hider .
• “Total U.S. capital orders for CCS increased 30% compared to the prior year… we have not observed a slowdown in U.S. hospital capital spending.” — Joel Grade, CFO .
• “Adjusted earnings from continuing operations were $0.69 per share… adjusted tax rate for the quarter was 5.1%… TSA income and lower non‑operating expenses aided results.” — Joel Grade .

Q&A Highlights

• Novum IQ LVP timing: Management cannot commit to a specific resolution timeline and expects the ship/install hold to remain beyond 2025; active support includes potential corrections and offering Spectrum IQ as an alternative .
• 2026 outlook and growth: CEO emphasized a focus on stabilization, deleveraging, and continuous improvement; declined to provide 2026 guidance but expressed confidence in Baxter’s customer value proposition and medium-term growth aspiration .
• Pharmaceuticals mix/pressure: Ongoing U.S. premix softness tied to IV protocols shifting to IV push; teams are reinforcing clinical value and improving commercial execution; margin impacts largely volume/mix driven .
• Free cash flow: Q3 FCF $126M; management expects continued Q4 FCF generation and working-capital improvement next year (inventory focus) .
• Capital allocation/M&A: Near-term priority is deleveraging; future tuck‑in M&A possible once leverage targets achieved .

Estimates Context

• Q3 2025 EPS: Actual $0.69 vs consensus $0.598* — bold beat. Revenue: Actual $2.835B vs consensus $2.877B* — miss. Expect estimate revisions lower for revenue trajectories in ITT and Pharma premix, and higher EPS intra-quarter due to the lower Q3 adjusted tax rate and TSA support .
  Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

• The story shifted to stabilization and deleveraging: dividend cut to $0.01 frees >$300M cash annually and aims at ~3x net leverage by end-2026; near-term capital returns subordinated to balance-sheet repair .
• Operational headwinds in ITT and U.S. IV solutions will likely weigh on Q4 and FY25 top line; Novum IQ remediation is the key swing factor for 2026 sentiment and recovery timing .
• HST’s CCS momentum (orders +30% YoY) and Advanced Surgery strength provide durable growth/earnings ballast amid pump/IV softness .
• Margin narrative: despite gross margin compression, adjusted operating margin expanded YoY on expense discipline and TSA income; watch for mix and supply-chain cost normalization to protect margins in 2026 .
• Cash flow turning: Q3 positive FCF and expected Q4 generation support deleveraging; inventory normalization is a near-term operational priority .
• Guidance reset lowers expectations: FY25 operational growth 1–2% and Q4 operational decline ~–2% set a lower base; upside depends on Novum IQ resolution pace and IV solutions demand recovery .
• Product pipeline and connected care launches (Connex 360) reinforce longer-term HST differentiation; monitor adoption and pricing power as macro/tariff headwinds persist .