On April 26, 2018 Baxter International Inc. (NYSE: BAX) reported results for the first quarter of 2018 and increased its full-year 2018 guidance (Press release, Baxter International, APR 26, 2018, View Source [SID1234525763]).
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"Baxter is off to a strong start in 2018," said José (Joe) E. Almeida, chairman and chief executive officer. "Solid top-line performance coupled with a relentless focus on increasing operational efficiency were key drivers of earnings growth in the quarter. We look forward to building on this momentum and sharing the next chapter in Baxter’s ongoing transformation at our upcoming investor conference on May 21st. At the conference, we will highlight the strategic roadmaps for our six global businesses and provide investors an opportunity to learn more about Baxter’s promising innovation pipeline that will help fuel the company’s growth going forward."
First-Quarter Financial Results
In the first quarter, worldwide sales totaled approximately $2.7 billion, an increase of 8 percent on a reported basis, 4 percent on a constant currency basis and 3 percent on an operational basis compared to the prior-year period. Operational sales in the first quarter adjust for the impact of foreign exchange, generic competition for U.S. cyclophosphamide, and the Claris Injectables (Claris) acquisition.
Sales in the U.S. totaled $1.1 billion, increasing 4 percent on a reported basis and 2 percent on an operational basis. International sales of $1.5 billion increased 12 percent on a reported basis, 4 percent on a constant currency basis and 3 percent on an operational basis. Drivers of growth included strong demand for the company’s continuous renal replacement therapies due to an intense flu season, and increased sales of injectable pharmaceuticals and advanced surgery products as well as U.S. IV solutions and peritoneal dialysis therapies.
In line with the financial outlook shared on February 1, 2018, first quarter sales were negatively impacted by approximately $25 million due to the temporary manufacturing disruptions in Puerto Rico caused by Hurricane Maria. All manufacturing facilities in Puerto Rico are operating at pre-hurricane production levels, and the company does not expect any further revenue impact related to recovery efforts. In addition, the company continues to import select products from Baxter facilities under temporary special importation FDA grants, and is grateful to FDA for its continued support in the recovery efforts.
In March, Baxter completed the acquisition of two surgical products from Mallinckrodt plc: RECOTHROM Thrombin topical (Recombinant), the first and only stand-alone recombinant thrombin, and PREVELEAK Surgical Sealant, which is used in vascular reconstruction. Both products complement and broaden Baxter’s surgical portfolio of hemostats and sealants. Sales of these products in the quarter were immaterial and going forward will be reported in the company’s Advanced Surgery business.
As previously disclosed, Baxter now reports its operating results based on three reportable geographic segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Net sales are reported based on these reportable segments, as well as by the company’s new Global Business Units (GBUs). Please see the schedules accompanying this press release for more details on sales performance in the quarter.
Baxter reported income from continuing operations of $389 million, or $0.71 per diluted share, on a GAAP (Generally Accepted Accounting Principles) basis for the first quarter. These results included special items totaling $16 million ($(1) million net after-tax), primarily related to business optimization, intangible amortization and a settlement agreement related to the Claris acquisition. On an adjusted basis, Baxter’s first quarter income from continuing operations totaled $388 million, or $0.70 per diluted share. Adjusted earnings per share growth of 21 percent in the quarter was driven by solid top-line performance and the ongoing benefit from the company’s business transformation initiatives as well as a favorable tax rate.
During the quarter, Baxter’s Board of Directors approved a $1.5 billion increase in authorization for the company’s existing share repurchase plan. After accounting for repurchases during the first quarter of $522 million or approximately 8 million shares, the company had approximately $2.1 billion remaining under the authorization as of March 31, 2018. Baxter anticipates that it will continue to repurchase shares in the open market or through private transactions at times and amounts determined by the company based on its evaluation of market conditions and other factors.
In the first quarter of 2018, Baxter generated $447 million in operating cash flow, an increase of $241 million driven by improved operational performance, the ongoing impact of programs focused on enhancing the company’s working capital and a benefit from the settlement of certain claims related to the acquisition of Claris. As a result, the company generated an increase of approximately $210 million in free cash flow to $292 million (operating cash flow less capital expenditures of $155 million) as compared to the prior-year period.
2018 Financial Outlook
For full-year 2018: Based on the company’s strong first quarter, Baxter is raising its financial outlook for the year. The company now expects sales growth of approximately 7 to 8 percent on a reported basis, approximately 5 percent on a constant currency basis and 4 to 5 percent on an operational basis*. Baxter expects adjusted earnings from continuing operations, before special items, of $2.85 to $2.93 per diluted share for the full year.
For the second quarter: The company expects sales growth of approximately 9 percent on a reported basis, approximately 5 percent on a constant currency basis and 3 to 4 percent on an operational basis*. The company expects adjusted earnings from continuing operations, before special items, of $0.69 to $0.71 per diluted share.
*Full-year and second quarter operational sales have been adjusted for the impact of foreign exchange, generic competition for U.S. cyclophosphamide and the benefit from the acquisitions of Claris and the two Mallinckrodt assets.
Please see the schedules accompanying this press release for a reconciliation between the projected 2018 adjusted earnings per diluted share and projected GAAP earnings per diluted share.
A webcast of Baxter’s first quarter 2018 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 26, 2018. Baxter will be hosting an investor conference on Monday, May 21, 2018, in New York City. The investor conference will feature an innovation hall displaying product and therapy advancements from Baxter’s pipeline beginning at 7:00 a.m. EDT and presentations by members of the Baxter management team will begin at 8:00 a.m. EDT. To register for the conference and for more information, click here. Please see www.baxter.com for more information regarding this and future investor events and webcasts.