Baxter Beats, Raises Outlook

 
Baxter International Inc. (BAX - Analyst Report) today reported third quarter fiscal 2009 earnings per share of 98 cents, surpassing the Zacks Consensus Estimate of 97 cents and the year-ago earnings of 88 cents. The company also raised its outlook for full fiscal 2009.
 
Sales

Net sales in the quarter were roughly flat year over year at $3.1 billion. An unfavorable foreign currency translation (FX) adversely affected net sales. Excluding FX, net sales increased approximately 6% year over year. On a geographic basis, domestic sales accounted for approximately 42% of total sales and increased 5% year over year. International sales declined 4% year over year.

In terms of business segments: BioScience revenues increased 2% year over year to approximately $1.4 billion. Growth was due to higher sales of recombinant products (including ADVATE), antibody therapies and biosurgery products. This was partly offset by lower demand for plasma proteins.  

Medication Delivery sales increased 1% year over year to roughly $1.2 billion. Growth could be attributed to strong sales of injectable drugs and anesthesia products.

Renal sales declined 3% year over year to $576 million. The decline was due to lower sales of Peritoneal dialysis (PD) and Hemodialysis (HD) products.

Margins

Baxter witnessed an expansion in margins in spite of flat sales. This was possible due to the company’s cost-control initiatives. Lower cost of sales helped in increasing gross margin 360 basis points (bps) year over year to 51.9%.

Marketing and administrative expenses as a percentage of sales declined 20 bps year over year to 21.4%. Research and development (R&D) expenses as a percentage of sales declined 10 bps year over year to 7.2%. Net margin increased 190 bps year over year to 16.9%.

Balance Sheet and Cash Flow

Baxter has a healthy balance sheet. Its cash and cash equivalents totaled approximately $2.6 billion. The company was able to retire roughly $432 million of debt in the reported quarter, bringing the debt balance to roughly $1.6 billion at the end of the third quarter. Cash flow from operations was $875 million.

Outlook

Baxter has provided its outlook for the next quarter and full fiscal 2009. For the fourth quarter, net sales are expected to grow between 8% and 10% year over year. Foreign currency translation is expected to have a positive impact on net sales. Excluding FX, net sales growth is expected between 6% and 8%. Earnings per share should be in the range of $1.02 to $1.04.

For fiscal 2009, Baxter expects net sales to grow between 0% and 1%. Excluding FX, net sales growth is expected between 7% and 8%. Earnings per share should be in the range of $3.79 to $3.81, an increase from the previous guidance of $3.76 to $3.80.

Baxter achieved several milestones in the third quarter, most important of which was the CE mark approval it received for marketing the Swine Flu vaccine, CELVAPAN H1N1, in the European Union.

Baxter is a leading global medical products and services company that develops, manufactures and markets products to save the lives of millions of people affected by hemophilia, kidney disease, infectious diseases, etc. 

Baxter’s main competitors include Becton, Dickinson and Company (BDX - Analyst Report) and Johnson & Johnson (JNJ - Analyst Report). Baxter’s products are primarily life-sustaining, a hedge against the current economic turmoil.

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