Baxter International Inc. (BAX) reported fourth quarter and fiscal 2011 adjusted (excluding one-time items) earnings per share of $1.17 and $4.31, respectively, thereby beating the corresponding Zacks Consensus Estimates of $1.16 and $4.30, and surpassing the year-ago earnings of $1.11 and $3.98, respectively. The fourth quarter results were in line with Baxter’s earlier earnings guidance of $1.15 to $1.18.
Baxter reported a profit of $463 million (or 82 cents per share) for the quarter versus $423 million (or 72 cents a share) a year ago, up roughly 9.5% year over year. The company’s results in the reported quarter include special charges (after tax) of about $200 million (35 cents per share) related to costs associated with business optimization effort and select asset impairment.
Revenues
Revenues for the quarter were $3,594 million, up 3% year over year, beating the Zacks Consensus Estimate of $3,578 million. Adjusted for the divestiture of the domestic multi-source generic injectables business, global revenues increased 4% in the reported quarter. For fiscal 2011, sales rose 8% to $13,893 million, exceeding the Zacks Consensus Estimate of $13,874 million.
Domestic revenues for the quarter edged up 2% to $1,466 million while overseas sales increased 3% year over year (up 3% in constant currency) to $2,128 million.
Segment-wise Revenue Analysis
On a segment basis, Bioscience revenues amounted to $1,575 million, up 3% (up 3% in constant currency) year over year. The better performance was attributable to higher demand for products utilized in the treatment of hemophilia and immune disorders, such as Advate and Gammagard Liquid (Immune Globulin Intravenous – Human, marketed as Kiovig ex-U.S.), several specialty plasma-based therapeutics and vaccines.
The largest sub-segment, Recombinants, had sales of $578 million, up 8% in reported terms (up 7% in constant currency) year over year. The Plasma Proteins business, did no do so well with sales of $397 million, down 4% (down 2% in constant currency) year over year. Antibody Therapy provided robust results with revenues of $406 million, higher 5% (up 6% in constant currency) year over year.
Revenues from Medical Products increased 3% year over year (up 2% in constant currency), to $2,013 million. Adjusted for the divestiture, segment revenue was up 6% benefiting from growth in peritoneal dialysis patients, intravenous therapies, some injectable drugs and critical care products.
Three important sub-segments were Renal with sales of $664 million, up 5% in constant currency; IV Therapies with revenues of $469 million, up 4% in constant currency; and Global Injectables with sales of $487 million, down 3% in constant currency.
Margins
Gross margin was 51.8% in the fourth quarter, up from 50% in the year-ago quarter. Marketing and administrative expense (as a percentage of sales) increased to 20.8% from 20.2% in the prior-year quarter while research and development expense was up to 7.1% from 6.5% in the year-ago quarter.
Balance Sheet
Cash and cash equivalents totaled $2,905 million, as of December 31, 2011, up 8.2% year over year. Net debt totaled $2,290 million, up 34.5% year over year.
Commercial and Pipeline Achievements
During the year, Baxter enjoyed a few commercial and pipeline milestones. It enhanced its new product pipeline in 2011 with record level expenditure for R&D.
Outlook and Recommendation
For the first quarter of fiscal 2012, the company expects growth in revenues of 2% in constant currency and adjusted earnings per share in the range of 98 cents to $1.00. For the full year 2012, Baxter forecasts constant currency sales growth of 4% to 5% and adjusted earnings per share in the range of $4.47 to $4.57. The current Zacks Consensus Estimates are earnings of $1.04 and $4.62 per share for the first quarter and fiscal 2012, 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 resilience 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 Neutral long-term rating on Baxter. The stock currently retains a Zacks #4 Rank, which translates into a short-term Sell recommendation.
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