Baxter International Inc. (BAX) reported second-quarter 2011 adjusted (excluding one-time items) earnings per share of $1.07, beating the Zacks Consensus Estimate of $1.02, and surpassing the year-ago results of 93 cents. The results exceeded Baxter’s earlier guidance of $1.01 to $1.03.
Baxter reported a profit of $615 million (or $1.07 a share) in the quarter versus $535 million (or 90 cents a share) a year ago.
Revenues
Total revenues were $3,536 million in the second quarter, up 11% year over year, surpassing the Zacks Consensus Estimate of $3,378 million. U.S. revenues for the quarter jumped 5% to $1,418 million while ex-U.S. sales were higher 15% (up 7% in constant currency) to $2,118 million.
Segment-wise Revenue Analysis
On a segment basis, Bioscience sales totaled $1,553 million, up 14% (up 10% in constant currency) year over year. The improved performance was attributable to higher demand for Gammagard Liquid (Immune Globulin Intravenous – Human, marketed as Kiovig ex-U.S.), several specialty plasma-based therapeutics and vaccines.
The biggest sub-segment, Recombinants, had revenues of $570 million, up 9% in reported terms (up 3% in constant currency) year over year. The Plasma Proteins business, where Baxter faced structural issues in the past, performed well with revenues of $363 million, up 16% (up 11% in constant currency) year over year. Antibody Therapy produced strong results with sales of $381 million, climbing 23% (up 21% in constant currency) year over year.
Sales of Medical Products went up by 8% year over year (up 3% in constant currency), to $1,973 million. During the reported quarter, Baxter concluded the divestment of its domestic multi-source generic injectables business to Hikma Pharmaceuticals PLC. Excluding the divested business from both years, segment sales increased 10% (5% in constant currency) benefiting from robust growth in anesthesia products, nutritional therapies, infusion systems and other injectable drugs.
Three prominent sub-segments were Renal with revenues of $633 million, up 2% in constant currency; IV Therapies with sales of $452 million, up 3% in constant currency; and Global Injectables with revenues of $506 million, up 3% in constant currency.
Margins
Gross margin was 51.9% in the second quarter, up from 51.3% in the year-ago quarter. Marketing and administrative expense, as a percentage of sales, was down 100 basis points to 21.6% while research and development expense retreated to 6.8% from 6.9% in the year-ago quarter.
Balance Sheet
Cash and cash equivalents totaled $2,018 million, as of June 30, 2011, down 12.3% year over year. Net debt totaled $2,382 million, down 5.3% year over year.
Outlook and Recommendation
Baxter issued its guidance for third-quarter fiscal 2011 and raised its earnings estimates for 2011. For the third quarter, the company expects growth in revenues in the range of 3% to 4% in constant currency and adjusted earnings per share in the range of $1.07 to $1.09.
For fiscal 2011, Baxter still anticipates growth in revenues in the range of 3% to 4% in constant currency and raised expectations for adjusted earnings per share to a band of $4.27 and $4.32 (earlier $4.20 and $4.28). In addition, the company forecasts cash flow from operations of about $2.8 billion. The current Zacks Consensus Estimates are $1.07 and $4.26 per share for the third quarter and fiscal 2011, respectively.
The news regarding Baxter still remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases.
On the flip side, despite recent improvement in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a slightly somber outlook for some hospital spending and tightening of reimbursement.
Improved execution has lifted sentiment somewhat toward Baxter. Baxter is a good bet for value investors willing to wait as fundamentals improve further. Among others, it competes with Becton, Dickinson and Company (BDX) in certain niches. We currently have a long-term Neutral rating on Baxter.
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