Baxter’s Q4 Performance Beats Expectations

Fourth-quarter (ended Dec. 31) results for Baxter International Inc. exceeded the company’s and Wall Street’s expectations. The firm also recently reported on its progress toward its planned separation into two independent companies by mid-year.

For fourth quarter 2014, Deerfield, Ill.-based Baxter reported net income of $953 million and earnings per diluted share of $1.74, compared to net income of $326 million and earnings per diluted share of $0.59 in the same period last year. These results reflect both earnings and an after-tax gain from its recently divested vaccines franchise of $429 million (or 78 cents per diluted share), as well as after-tax special items totaling $209 million (or 38 cents per diluted share) for intangible amortization, costs associated with business development and contingent milestone payments, integration of the company’s acquisition of Gambro AB, and Baxter’s planned separation. Fourth quarter 2013 results included a loss from discontinued operations and after-tax special items, totaling $401 million (or 74 cents per diluted share).

Most analysts had expected earnings per share to be around $1.31. he results surpassed Wall Street expectations.

On an adjusted basis, excluding special items and discontinued operations, Baxter’s fourth quarter income from continuing operations totaled $733 million, or $1.34 per diluted share. According to management, the results reflect “strong revenue growth across several key franchises, and continued investments in commercial and manufacturing operations, as well as research and development.”

Worldwide revenues totaled $4.5 billion and increased 3 percent from prior-year levels (or 7 percent excluding the impact of foreign currency). Sales within the United States totaled $1.9 billion and advanced 6 percent, and international sales of $2.6 billion increased 2 percent (or 7 percent excluding the impact of foreign currency). BioScience division revenues of $1.9 billion rose 9 percent from the prior-year period (or 12 percent excluding the impact of foreign currency). Performance was driven by double-digit growth across the company’s broad Hemophilia and BioTherapeutics franchises. Medical Products division sales of $2.6 billion were comparable to the prior-year period (or up 3 percent excluding the impact of foreign currency) resulting from strong U.S. performance across intravenous therapies, specialty pharmaceuticals, and products to treat end-stage renal disease.

Revenue also beat the street by a fair margin. Analysts polled by Zacks Investment Research expected sales of $4.35 billion.

Baxter’s net income totaled $2.5 billion, or $4.56 per diluted share, in 2014. Compared to the prior year, excluding special items and discontinued operations, Baxter’s adjusted income from continuing operations increased 4 percent to $2.7 billion, and earnings per diluted share of $4.90 advanced 4 percent, exceeding the company’s previously issued guidance for the year.

Baxter’s worldwide revenues in 2014 totaled $16.7 billion and rose 11 percent (or 13 percent excluding the impact of foreign currency). After adjusting both periods for the contribution of Gambro, Baxter’s worldwide sales rose 4 percent (or 5 percent excluding the impact of foreign currency).

Compared to the prior-year period, BioScience sales of $6.7 billion grew 7 percent (or 8 percent excluding the impact of foreign currency), while Medical Products sales of $10 billion advanced 15 percent (or 16 percent excluding the impact from foreign currency). After adjusting both periods for the contribution of Gambro, Medical Products unit sales increased 2 percent (or 4 percent excluding the impact of foreign currency) on a full-year basis.

During 2014, Baxter generated cash flows from operations of approximately $3.2 billion and invested record levels in research and development and capital improvements. The company’s investments in research and development grew 22 percent to more than $1.4 billion, while capital expenditures increased 24 percent to $1.9 billion, reflecting investments in manufacturing capacity to support future demand and growth opportunities across the company’s global portfolio.

”Throughout 2014, we executed on our financial and strategic priorities while positioning both companies for sustained success with investments to enhance our commercial, operational and scientific capabilities,” said Robert L. Parkinson, Jr., chairman and CEO. ”As we chart distinct and unique paths forward as separate global healthcare leaders, we look forward to unlocking value for our shareholders, partners, employees, and the patients and healthcare providers we serve.”

Last year, Baxter announced plans to create two separate, independent global healthcare companies—one focused on developing and marketing innovative biopharmaceuticals and the other on medical products.

Working toward that goal, the company has:
• Named the executive management teams for both companies, unveiling of ”Baxalta Incorporated” as the identity for the new biopharmaceutical company, and filing of a preliminary Form 10 with the U.S. Securities and Exchange Commission for Baxalta.
• Formed a new global innovation and research and development (R&D) center in Cambridge, Mass., for the biopharmaceuticals business, which positions the new company to accelerate innovation by building on its robust pipeline in core areas of expertise, establish and strengthen R&D collaborations with partners in new and emerging biotech areas, and optimize R&D productivity while enhancing patient care globally.
• Integrated Gambro, which combined with Baxter’s own global leadership in home-based peritoneal dialysis therapy, provides a comprehensive renal portfolio and global array of cross-therapeutic options.
• Enhanced manufacturing capabilities in its Medical Products division to support growth in demand for peritoneal dialysis solutions and dialyzers.

For the first quarter of 2015, the company expects sales growth of approximately 2 to 3 percent, excluding the impact of foreign currency. Including the impact of foreign currency, the company expects sales to decline approximately 3 to 4 percent. Baxter also expects earnings from continuing operations, before special items, of 85-90 cents per diluted share, which reflects traditional seasonality, the impact of foreign currency, increased generic competition, and additional manufacturing and operational costs which are expected to be most pronounced in the first quarter of 2015.