Baxter (BAX) Q3 Earnings Meet Estimates, Hilrom Adds $735 M

Baxter International Inc. BAX reported third-quarter 2022 adjusted earnings per share (EPS) of 82 cents, in line with the Zacks Consensus Estimate. The bottom line, however, declined 20% from the year-ago quarter.

GAAP EPS in the quarter was a loss of $5.83 against earnings of 89 cents in the prior-year quarter. The significant loss was due to the recognition of one-time special items totaling $3.4 billion after tax.

Revenue Details

Revenues of $3.77 billion were in line with the Zacks Consensus Estimate. However, the top line improved 17% year over year on a reported basis and 23% on a constant currency (cc) basis. Sales grew slightly on an operational basis.

Geographical Details

Baxter reports operating results through three geographic segments — Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific).

In the Americas, Baxter revenues totaled $1.7 billion, down 1% on a year-over-year basis and flat at cc.

In EMEA, revenues totaled $692 million, down 11% from the year-ago quarter while up 3% at cc.

In APAC, revenues of $643 million declined 11% from the prior-year quarter and down 2% at cc.

Segmental Details

Following the Hillrom buyout (in December 2021), Baxter added three new product categories — Patient Support Systems, Front Line Care and Surgical Solutions. During the quarter under review, the company recorded $735 million in sales from Hilrom’s businesses. Patient Support Systems reported revenues of $380 million, while Front Line Care and Surgical Solutions delivered revenues of $279 million and $76 million, respectively.

Renal Care

This segment reported revenues of $942 million in the quarter under review, down 4% from the prior-year quarter but up 4% at cc.

Medication Delivery

Revenues at the segment amounted to $725 million, up 3% from the year-ago quarter and almost flat at cc.

Pharmaceuticals

Revenues at the segment totaled $525 million, down 11% from the year-ago quarter and 3% at cc.

Clinical Nutrition

Revenues at the segment were $231 million, down 5% from the year-ago quarter but up 4% at cc.

Baxter International Inc. Price, Consensus and EPS Surprise

Baxter International Inc. Price, Consensus and EPS Surprise

Baxter International Inc. price-consensus-eps-surprise-chart | Baxter International Inc. Quote

Advanced Surgery

Revenues at the segment amounted to $247 million, down 1% from the year-ago quarter but up 6% at cc.

Acute Therapies

This segment reported revenues of $158 million, down 15% from the prior-year quarter and 9% at cc.

BioPharma Solutions

This segment reported revenues of $172 million, down 17% from the prior-year quarter and 10% at cc.

Other

Revenues in the segment were $38 million, up 52% on a year-over-year basis and 56% at cc.

Margin Analysis

Baxter reported an adjusted gross profit of $1.62 billion for the third quarter, up 13.9% year over year. As a percentage of revenues, the gross margin declined 110 basis points (bps) to 42.9% in the third quarter.

Selling, general and administrative expenses amounted to $947 million, up 39% from the year-ago quarter. Research and development expenses were $152 million, up 18% on a year-over-year basis.

Adjusted operating income remained almost flat year over year at $649 million in the quarter under review. As a percentage of revenues, the operating margin contracted 300 bps to 17.2% in the quarter under review.

Guidance

For fourth-quarter 2022, Baxter anticipates sales to improve by mid-to-high single-digit percentage points on a reported basis. The currency movement is expected to benefit sales by mid-teens percentage points. On an operational basis, the company projects sales to remain nearly flat year over year.

For the same period, adjusted EPS is expected between 83 cents and 92 cents. The Zacks Consensus Estimate for the same is pegged at 82 cents per share.

For full-year 2022, Baxter anticipates sales to improve 17%-18% and by mid-teens percentage points operationally. Sales are expected to grow approximately 23% at cc.

Sales from Hilrom businesses are expected to boost Baxter’s top line by 15% in the fourth quarter and 21% in the full year.

Adjusted earnings per share are estimated in the range of $3.53 to $3.60 in 2022. The Zacks Consensus Estimate for the same stands at $3.63.

Summing Up

Baxter ended third-quarter 2022 on a dismal note, wherein revenues missed the Zacks Consensus Estimate and earnings met the same. The company witnessed lower sales across five of its business units. Contraction in growth rates across all geographies and gross and operating margins is concerning. Unfavorable currency movement hurt the sales growth rate and will continue to do so in the second half of 2022.

However, the acquisition of Hilrom businesses last year significantly boosted Baxter’s top line in the first nine months of 2022. The trend is expected to continue in the fourth quarter.

Meanwhile, cut-throat competition in the MedTech markets remains a woe. An increase in selling, general and administrative expenses is concerning. Weakness in Renal Care, Pharmaceuticals, BioPharma Solutions and Acute Therapies is disappointing.

Zacks Rank and Stocks to Consider

Currently, Baxter carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. ELV, Medpace Holdings, Inc. MEDP and Accuray ARAY.

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an earnings yield of 5.5% against the industry’s (2.3%). ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, having a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $384 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 22.04%.

Accuray reported fourth-quarter fiscal 2022 adjusted loss per share of 4 cents, which surpassed the Zacks Consensus Estimate by 33.3%. Fourth-quarter revenues of $110 million outpaced the Zacks Consensus Estimate by 4.9%. It currently has a Zacks Rank #2.

Accuray has an estimated growth rate of 100% for fiscal 2023. ARAY’s earnings surpassed estimates in three of the trailing four quarters and lagged the same in one, the average surprise being 20.8%.

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