Baxter Reports First-Quarter 2019 Results

  • First-quarter revenue of $2.6 billion declined 2 percent on a
    reported basis and increased 2 percent on an operational basis
  • First-quarter GAAP earnings per share (EPS) of $0.66; Adjusted EPS
    of $0.76 increased 9 percent
  • Company now expects full-year 2019 Adjusted EPS of $3.27 to $3.351

DEERFIELD, Ill.–(BUSINESS WIRE)–Baxter International Inc. (NYSE:BAX), a leading global medical products
company, today reported results for the first quarter of 2019 and
increased its full-year 2019 earnings outlook.

We are pleased with the solid start to 2019, establishing a foundation
for accelerating performance over the course of the year,” said José
(Joe) E. Almeida, chairman and chief executive officer. “Our first
quarter results reflect the value of our diversified portfolio, an
increased emphasis on high-value innovation and an ongoing focus on
operational excellence. We remain committed to executing on our strategy
to deliver enhanced performance in 2019 and beyond.”

First-Quarter Financial Results

Worldwide sales in the first quarter totaled approximately $2.6 billion,
a decrease of 2% on a reported basis and an increase of 2% on both a
constant currency and an operational basis. Operational sales in the
first quarter exclude the impact of foreign exchange and generic
competition for U.S. cyclophosphamide.

Sales in the U.S. totaled $1.1 billion, decreasing 2% on both a reported
and operational basis. International sales of $1.5 billion decreased 1%
on a reported basis and increased 5% on a constant currency basis.

Performance in the quarter was driven by growth of Baxter’s peritoneal
dialysis and continuous renal replacement therapies, certain generic
injectable pharmaceuticals, and hemostats and sealants. In addition,
increased demand for Baxter’s hospital pharmacy compounding and
cytotoxic contract manufacturing services also contributed to growth in
the quarter. Sales growth in the quarter was partially offset by
expected lower sales of Medication Delivery and Nutritional therapies.
Baxter’s performance in International markets reflects growth across
both the Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC)
regions.

Please see the attached schedules accompanying this press release for
additional details on sales performance in the quarter, including
breakouts by Baxter’s three geographic segments and six global business
units (GBUs).

Baxter reported net income of $347 million, or $0.66 per diluted share,
on a GAAP (Generally Accepted Accounting Principles) basis for the first
quarter. These results include special items totaling $52 million
after-tax, which were primarily related to business optimization charges
and intangible asset amortization, partially offset by an insurance
recovery from a legacy product-related matter. On an adjusted basis,
Baxter’s first quarter net income totaled $399 million, or $0.76 per
diluted share, ahead of the company’s expectations of $0.66 to $0.68 per
diluted share. Adjusted earnings per diluted share advanced 9% in the
quarter, driven by solid operational performance as well as benefits
from a lower tax rate and share count as compared to the prior-year
period.

Business Highlights

Baxter continues to achieve notable milestones in pursuit of its Mission
for patients and emphasis on accelerating profitable growth. Among
recent highlights, the company:

  • Launched ready-to-use
    eptifibatide
    , a platelet aggregation inhibitor that prevents
    platelets from sticking together and clotting, using the company’s
    proprietary GALAXY container technology. Baxter’s premix presentation
    is the first of its kind available in a flexible container, offering
    healthcare providers preparation efficiencies and helping to avoid
    potential dosing errors.
  • Announced U.S. Food and Drug Administration (FDA) approval for faster
    preparation of Floseal
    Hemostatic Matrix
    . This next generation of Floseal has 20%
    fewer components and steps to prepare,2 making it easier
    and faster for operating room nurses to get Floseal into the
    hands of surgeons to help stop bleeding during procedures.
  • Initiated a collaboration
    with bioMérieux
    , a world leader in the field of in vitro
    diagnostics, to develop future biomarkers with the goal of rapidly
    identifying and informing treatment of acute kidney injury (AKI). The
    efforts are meant to help diagnose AKI earlier so a patient can have
    improved therapy options, reflecting Baxter’s growth strategy of
    addressing patient needs across the continuum of care.
  • Announced that a NantHealth
    digital health solution
    is now available to connect Baxter’s Prismaflex
    technology, used in the intensive care unit to treat patients with
    acute kidney injury, to a hospital’s electronic medical record (EMR)
    system. Digitally connected healthcare solutions have the potential to
    positively impact patient care in many ways, from reducing reliance on
    manual documentation to converting data into meaningful insights to
    improve care.
  • Announced the planned U.S. launch of Clinolipid
    (20% Lipid Injectable Emulsion)
    , Baxter’s proprietary olive
    oil-based lipid emulsion, later this year. The announcement was made
    at the 2019 ASPEN Nutrition Science & Practice Conference, where
    Baxter featured its diverse portfolio of parenteral nutrition products
    to address and help improve care for malnourished patients.
  • Received recognition from multiple organizations for its commitment to
    workplace excellence, including:

    • Forbes Magazine, which included Baxter on its annual list of
      America’s Best Large Employers for the fifth consecutive year.
    • The National Association for Female Executives (NAFE), which cited
      Baxter among its 2019 NAFE Top Companies for Executive Women.
    • The Human Rights Campaign Foundation (HRC), which cited Baxter as
      a 2019 Best Place to Work for LGBTQ Equality based on Baxter’s
      perfect score on HRC’s Corporate Equality Index.

2019 Financial Outlook

For full-year 2019: Based on solid first
quarter performance, Baxter is raising its earnings outlook for 2019.
The company now expects adjusted earnings from continuing operations,
before special items, of $3.27 to $3.35 per diluted share. The company
continues to expect sales growth of 0 to 1 percent on a reported basis,
2 to 3 percent on a constant currency basis and 3 to 4 percent on an
operational basis.

For second-quarter 2019: The company
expects sales to decline approximately 2 percent on a reported basis,
and to grow approximately 2 percent on a constant currency basis and 2
to 3 percent on an operational basis. The company expects adjusted
earnings from continuing operations, before special items, of $0.80 to
$0.82 per diluted share.

Full-year and quarterly operational sales estimates for 2019 have been
adjusted for the impact of foreign exchange and generic competition for
U.S. cyclophosphamide.

A webcast of Baxter’s first-quarter 2019 conference call for investors
can be accessed live from a link on the company’s website at www.baxter.com
beginning at 7:30 a.m. CDT on April 25, 2019. Please see www.baxter.com
for more information regarding this and future investor events and
webcasts.

About Baxter

Every day, millions of patients and caregivers rely on Baxter’s leading
portfolio of critical care, nutrition, renal, hospital and surgical
products. For more than 85 years, we’ve been operating at the critical
intersection where innovations that save and sustain lives meet the
healthcare providers that make it happen. With products, technologies
and therapies available in more than 100 countries, Baxter’s employees
worldwide are now building upon the company’s rich heritage of medical
breakthroughs to advance the next generation of transformative
healthcare innovations. To learn more, visit www.baxter.com and
follow us on Twitter,
LinkedIn
and Facebook.

This release includes forward-looking statements concerning the
company’s financial results, business development activities, capital
structure, cost savings initiatives, R&D pipeline, including results of
clinical trials and planned product launches, and outlook for the second
quarter and full year 2019. The statements are based on assumptions
about many important factors, including the following, which could cause
actual results to differ materially from those in the forward-looking
statements: demand for and market acceptance of risks for new and
existing products; product development risks; product quality or patient
safety concerns; continuity, availability and pricing of acceptable raw
materials and component supply; inability to create additional
production capacity in a timely manner or the occurrence of other
manufacturing or supply difficulties (including as a result of a natural
disaster or otherwise); breaches or failures of the company’s
information technology systems or products, including by cyberattack,
unauthorized access or theft; future actions of regulatory bodies and
other governmental authorities, including FDA, the Department of
Justice, the New York Attorney General and foreign regulatory agencies;
failures with respect to compliance programs; accurate identification of
and execution on business development and R&D opportunities and
realization of anticipated benefits (including the acquisitions of
Claris Injectables and two surgical products from Mallinckrodt plc);
future actions of third parties, including payers; U.S. healthcare
reform and other global austerity measures; pricing, reimbursement,
taxation and rebate policies of government agencies and private payers;
the impact of competitive products and pricing, including generic
competition, drug reimportation and disruptive technologies; global,
trade and tax policies; the ability to enforce owned or in-licensed
patents or the patents of third parties preventing or restricting the
manufacture, sale or use of affected products or technology; the impact
of global economic conditions (including potential trade wars);
fluctuations in foreign exchange and interest rates; any change in law
concerning the taxation of income (including current or future tax
reform), including income earned outside the United States and potential
taxes associated with the Base Erosion and Anti-Abuse Tax; actions taken
by tax authorities in connection with ongoing tax audits; loss of key
employees or inability to identify and recruit new employees; the
outcome of pending or future litigation; the adequacy of the company’s
cash flows from operations to meet its ongoing cash obligations and fund
its investment program; and other risks identified in Baxter’s most
recent filing on Form 10-K and other Securities and Exchange Commission
filings, all of which are available on Baxter’s website. Baxter does not
undertake to update its forward-looking statements.

Baxter, Clinolipid, Floseal, Galaxy and Prismaflex are registered
trademarks of Baxter International Inc.

1 See tables to the press release for reconciliations of
non-GAAP measures used in this press release to the closest GAAP
measures.

2 Floseal Hemostatic Matrix Instructions for Use. Hayward,
CA: Baxter Healthcare Corporation.

 
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Three Months Ended March 31, 2019 and 2018
(unaudited)
(in millions, except per share and percentage data)
 
 
Three Months Ended
March 31,
2019 2018 Change
 
NET SALES $2,632 $2,677 (2%)
 
COST OF SALES 1,552 1,563 (1%)
               
GROSS MARGIN   1,080   1,114   (3%)
% of Net Sales 41.0% 41.6% (0.6 pts)
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 600 622 (4%)
% of Net Sales 22.8% 23.2% (0.4 pts)
 
RESEARCH AND DEVELOPMENT EXPENSES 129 140 (8%)
% of Net Sales 4.9% 5.2% (0.3 pts)
 

OTHER OPERATING INCOME, NET

(33) (80) (59%)
               
OPERATING INCOME   384   432   (11%)
% of Net Sales 14.6% 16.1% (1.5 pts)
 
NET INTEREST EXPENSE 18 12 50%
 
OTHER INCOME, NET (25) (18) 39%
               
INCOME BEFORE INCOME TAXES   391   438   (11%)
 
INCOME TAX EXPENSE   44   49   (10%)

% of Income before Income Taxes

11.3% 11.2% 0.1 pts
 
NET INCOME   $347   $389   (11%)
 
NET INCOME PER COMMON SHARE
Basic   $0.68   $0.72   (6%)
Diluted   $0.66   $0.71   (7%)
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 512 539
Diluted   522   551    
 
ADJUSTED OPERATING INCOME (excluding special items) $450 A $448 A 0%

ADJUSTED INCOME BEFORE INCOME TAXES (excluding special items)

$457 A $454 A 1%
ADJUSTED NET INCOME (excluding special items) $399 A $388 A 3%
ADJUSTED DILUTED EPS (excluding special items) $0.76 A $0.70 A 9%
 
A Refer to page 7 for a description of the adjustments and a
reconciliation to GAAP measures.
 
 
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended March 31, 2019 and 2018
Description of Adjustments and Reconciliation of GAAP to Non-GAAP
Measures
(unaudited)
(in millions, except per share and percentage data)
     
The company’s GAAP results for the three months ended March 31, 2019
and 2018 included special items which impacted the GAAP measures as
follows:

Three Months Ended
March 31,

2019 2018 Change
Gross Margin $1,080 $1,114 (3%)
Intangible asset amortization expense 1 43 41
Business optimization items 2 19 6
Acquisition and integration expense 3 5 3
Litigation 4 8
European medical devices regulation5 4    
Adjusted Gross Margin $1,151   $1,172   (2%)
% of Net Sales 43.7% 43.8% (0.1 pts)
 
Selling, General and Administrative Expenses $600 $622 (4%)
Business optimization items2 (8) (29)
Acquisition and integration expense 3 (5) (4)
Litigation 4   (2)  
Adjusted Selling, General and Administrative Expenses $587   $587   0%
% of Net Sales 22.3% 21.9% 0.4 pts
 
Research and Development Expenses $129 $140 (8%)
Business optimization items 2 (11) (3)
Acquisition and integration expense 3 (4)    
Adjusted Research and Development Expenses $114   $137   (17%)
% of Net Sales 4.3% 5.1% (0.8 pts)
 

Other Operating Income, Net

$(33) $(80) (59%)
Insurance recovery from legacy product-related matter6 33
Claris settlement7   80  
Adjusted Other Operating Income $-   $-   0%
% of Net Sales 0.0% 0.0%

0.0 pts

 
Operating Income $384 $432 (11%)
Impact of special items 66   16  
Adjusted Operating Income $450   $448   0%
% of Net Sales 17.1% 16.7% 0.4 pts
 
Income Before Income Taxes $391 $438 (11%)
Impact of special items 66   16  
Adjusted Income Before Income Taxes $457   $454   1%
 
Income Tax Expense $44 $49 (10%)
Impact of special items and impact of U.S. Tax Reform 8 14   17  
Adjusted Income Tax Expense $58   $66   (12%)

% of Adjusted Income before Income Taxes

12.7% 14.5% (1.8 pts)
 
Net Income $347 $389 (11%)
Impact of special items 52   (1)  
Adjusted Net Income $399   $388   3%
 
Diluted EPS from Net Income $0.66 $0.71 (7%)
Impact of special items 0.10   (0.01)  
Adjusted Diluted EPS from Net Income $0.76   $0.70   9%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted 522   551    
 
1 The company’s results in 2019 and 2018 included intangible asset
amortization expense of $43 million ($33 million, or $0.06 per
diluted share, on an after-tax basis) and $41 million ($36 million,
or $0.06 per diluted share, on an after-tax basis), respectively.
 
2 The company’s results in 2019 included charges of $38 million ($30
million, or $0.06 per diluted share, on an after-tax basis) related
to business optimization charges. This included charges of $25
million related to restructuring activities, $10 million of costs to
implement business optimization programs, which primarily included
external consulting and internal transition costs, and $3 million of
accelerated depreciation associated with facilities to be closed.
The $25 million of restructuring charges included $8 million of
employee termination costs, $10 million of asset impairment charges
related to facility closures and $7 million of other exit costs.
 
The company’s results in 2018 included charges of $38 million ($34
million, or $0.06 per diluted share, on an after-tax basis) related
to business optimization charges. This included charges of $12
million related to restructuring activities, $25 million of costs to
implement business optimization programs, which primarily included
external consulting and internal transition costs, and $1 million of
accelerated depreciation associated with facilities to be closed.
The $12 million of restructuring charges included $10 million of
employee termination costs and $2 million of asset impairment
charges related to facility closures.
 
3 The company’s results in 2019 included $10 million ($8 million, or
$0.01 per diluted share, on an after-tax basis) of acquisition and
integration expenses related to its acquisitions of Claris
Injectables Limited (Claris) and the RECOTHROM and PREVELEAK
products in prior periods as well as the 2019 acquisition of an
in-process research and development asset of $4 million ($3 million,
or $0.01 per diluted share, on an after-tax basis). The company’s
results in 2018 included acquisition and integration expenses of $7
million ($6 million, or $0.01 per diluted share, on an after-tax
basis) related to its acquisition of Claris.
 
4 The company’s results in 2018 included a charge of $10 million ($9
million, or $0.01 per diluted share, on an after-tax basis) related
to certain product litigation.
 
5

The company’s results in 2019 included costs of $4 million ($3
million, or $0.01 per diluted share, on an after-tax basis)
related to updating its quality systems and product labeling to
comply with the new medical device reporting regulation and other
requirements of the European Union’s regulations for medical
devices that will become effective in 2020.

 
6

The company’s results in 2019 included a benefit of $33 million
($25 million, or $0.05 per diluted share, on an after-tax basis)
related to its allocation of insurance proceeds received pursuant
to a settlement and cost-sharing agreement for a legacy
product-related matter.

 
7 The company’s results in 2018 included a benefit of $80 million ($78
million, or $0.14 per diluted share, on an after-tax basis) for the
settlement of certain claims related to the acquired operations of
Claris.
 
8

Reflected in this item is the income tax impact of the special
items identified in this table. Additionally, the company’s
results in 2018 included a tax benefit of $8 million, or $0.01 per
diluted share, related to updates to the estimated impact of U.S.
federal tax reform previously made in 2017. The tax effect of each
adjustment is based on the jurisdiction in which the adjustment is
incurred and the tax laws in effect for each such jurisdiction.

 
For more information on the company’s use of non-GAAP financial
measures in this press release, please see the company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission
on the date of this press release.
 
BAXTER INTERNATIONAL INC.
Sales by Operating Segment
Periods Ending March 31, 2019 and 2018
(unaudited)
($ in millions)
                           
      Q1     Q1     % Growth @     % Growth @
        2019     2018     Actual Rates     Constant Rates
Americas $1,408 $1,442 (2%) (1%)
EMEA 705 724 (3%) 4%
APAC     519     511     2%     7%
Total Baxter     $2,632     $2,677     (2%)     2%
 
 
BAXTER INTERNATIONAL INC.
Sales by GBU
Periods Ending March 31, 2019 and 2018
(unaudited)
($ in millions)
                 
  Q1   Q1   % Growth @   % Growth @
    2019   2018   Actual Rates   Constant Rates
Renal Care¹ $851 $868 (2%) 3%
Medication Delivery² 634 676 (6%) (4%)
Pharmaceuticals³ 509 496 3% 6%
Clinical Nutrition⁴ 205 223 (8%) (5%)
Advanced Surgery⁵ 198 182 9% 12%
Acute Therapies⁶ 128 129 (1%) 4%
Other⁷   107   103   4%   8%
Total Baxter   $2,632   $2,677   (2%)   2%
 
1 Includes sales of the company’s peritoneal dialysis (PD),
hemodialysis (HD) and additional dialysis therapies and services.
2 Includes sales of the company’s intravenous (IV) therapies, infusion
pumps, administration sets and drug reconstitution devices.
3 Includes sales of the company’s premixed and oncology drug
platforms, inhaled anesthesia and critical care products and
pharmacy compounding services.
4 Includes sales of the company’s parenteral nutrition (PN) therapies
and related products.
5 Includes sales of the company’s biological products and medical
devices used in surgical procedures for hemostasis, tissue sealing
and adhesion prevention.
6 Includes sales of the company’s continuous renal replacement
therapies (CRRT) and other organ support therapies focused in the
intensive care unit (ICU).
7 Includes primarily sales of contract manufacturing services from the
company’s pharmaceutical partnering business.
 
                 
BAXTER INTERNATIONAL INC.
GBU Sales by U.S. and International
Periods Ending March 31, 2019 and 2018
(unaudited)
($ in millions)
                                       
  Q1 2019   Q1 2018   % Growth
      U.S.   International   Total   U.S.   International   Total   U.S.   International   Total
Renal Care $192 $659 $851 $196 $672 $868 (2%) (2%) (2%)
Medication Delivery 406 228 634 436 240 676 (7%) (5%) (6%)
Pharmaceuticals 232 277 509 243 253 496 (5%) 9% 3%
Clinical Nutrition 77 128 205 83 140 223 (7%) (9%) (8%)
Advanced Surgery 120 78 198 99 83 182 21% (6%) 9%
Acute Therapies 48 80 128 46 83 129 4% (4%) (1%)
Other   45   62   107   44   59   103   2%   5%   4%
Total Baxter   $1,120   $1,512   $2,632   $1,147   $1,530   $2,677   (2%)   (1%)   (2%)
 
 
BAXTER INTERNATIONAL INC.
Free Cash Flow Reconciliation
(unaudited)
($ in millions)
           
    Three Months Ended
March 31,
      2019   2018
Cash flows from operations – continuing operations   $148   $447
  Capital expenditures   (198)   (155)
Free cash flow – continuing operations   ($50)   $292
 
 
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measure
Change in Net Sales As Reported to Operational Sales
From The Three Months Ended March 31, 2018 to The Three Months
Ended March 31, 2019
(unaudited)
         
 
 
             
      Q1 2019*
Net sales US Operational
      As Reported   Cyclophosphamide   FX   Sales
Renal Care (2%) 0% 5% 3%
Medication Delivery (6%) 0% 2% (4%)
Pharmaceuticals 3% 2% 3% 9%
Clinical Nutrition (8%) 0% 3% (5%)
Advanced Surgery 9% 0% 3% 12%
Acute Therapies (1%) 0% 5% 4%
Other   4%   0%   4%   8%
Total Baxter   (2%)   0%   4%   2%
 
*Totals may not foot due to rounding
 
 
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measures
Projected 2019 Adjusted Earnings Per Share and Projected GAAP
Earnings Per Share, and
Projected 2019 Adjusted Sales Growth and Projected GAAP Sales
Growth
(unaudited)
   
 
 
         
2019 Earnings Per Share Guidance   Q2 2019   FY 2019
Earnings per Diluted Share – Adjusted   $0.80 – $0.82   $3.27 – $3.35
Estimated intangible asset amortization   $0.07   $0.26
Estimated business optimization charges   $0.03 – $0.04   $0.13 – $0.16
Estimated acquisition and integration expenses   $0.02   $0.06
Insurance recovery from legacy product-related matter     ($0.05)
Estimated European medical devices regulation   $0.01   $0.07
Earnings per Diluted Share – GAAP   $0.66 – $0.69   $2.77 – $2.88
 
 
 
         
2019 Sales Growth Guidance   Q2 2019   FY 2019
Sales Growth – Operational   2% – 3%   3% – 4%
U.S. cyclophosphamide  

(1%) – 0%

 

(1%) – 0%

Foreign exchange  

(4%)

 

(2%) – (3%)

Sales Growth – GAAP  

(2%)

  0% – 1%

Contacts

Media Contact
Steve Brett, (224) 948-5353
[email protected]

Investor
Contact

Clare Trachtman, (224) 948-3020

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