Baxter (BAX) Q2 Earnings Miss Estimates, Hilrom Adds $715 M

Baxter International Inc. BAX reported second-quarter 2022 adjusted earnings per share (EPS) of 87 cents, which missed the Zacks Consensus Estimate of 88 cents. However, the bottom line improved 9% from the year-ago quarter.

GAAP EPS in the quarter was 50 cents, 15% down from the prior-year quarter.

Revenue Details

Revenues of $3.75 billion missed the Zacks Consensus Estimate by 3.6%. Moreover, the top line improved 21% year over year on a reported basis, 26% on a constant currency (cc) basis and 3% 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 $1.64 billion, up 1% on a year-over-year basis and 2% at cc.

In EMEA, revenues totaled $738 million, down 6% from the year-ago quarter while up 6% at cc.

In APAC, revenues of $647 million declined 6% from the prior-year quarter while up 1% 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

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 $715 million in sales from Hilrom’s businesses. Patient Support Systems reported revenues of $364 million, while Front Line Care and Surgical Solutions delivered revenues of $282 million and $69 million, respectively.

Renal Care

This segment reported revenues of $931 million in the quarter under review, down 3% from the prior-year quarter but up 2% at cc.

Medication Delivery

Revenues at the segment amounted to $710 million, up 2% from the year-ago quarter and 4% at cc.

Pharmaceuticals

Revenues at the segment totaled $528 million, down 3% from the year-ago quarter and 3% at cc.

Clinical Nutrition

Revenues at the segment were $230 million, down 3% from the year-ago quarter but up 4% at cc.

Advanced Surgery

Revenues at the segment amounted to $263 million, up 3% from the year-ago quarter and 8% at cc.

Acute Therapies

This segment reported revenues of $173 million, down 8% from the prior-year quarter and 4% at cc.

BioPharma Solutions

This segment reported revenues of $163 million, down 11% from the prior-year quarter and 5% at cc.

Other

Revenues in the segment were $33 million, up 22% on a year-over-year basis and 26% at cc.

Margin Analysis

Baxter reported an adjusted gross profit of $1.59 billion for the second quarter, up 20.5% year over year. As a percentage of revenues, gross margin declined 10 basis points (bps) to 42.5% in the second quarter.

Selling, general and administrative expenses amounted to $976 million, up 45% from the year-ago quarter. Research and development expenses were $148 million, up 6% on a year-over-year basis.

Adjusted operating income rose 14% year over year to $605 million in the quarter under review. As a percentage of revenues, the operating margin contracted 460 bps to 9.1% in the quarter under review.

Guidance

For third-quarter 2022, Baxter anticipates sales to improve by high teens percentage points on a reported basis. The currency movement is expected to benefit sales by 7.5%. On an operational basis, the company projects sales to increase in low teens percentage points.

For the same period, adjusted EPS is expected between 79 cents and 83 cents. The Zacks Consensus Estimate for the same is pegged at $1.11 per share.

For full-year 2022, Baxter anticipates sales growth to improve by high teens percentage points and 2%-3% operationally. The currency movement is expected to hurt sales by 5.5%.

Sales from Hilrom businesses are expected to boost Baxter’s top line by 23% in the third quarter and 21% in the full year.

Adjusted earnings per share are estimated in the range of $3.60 to $3.70 in 2022. The Zacks Consensus Estimate for the same stands at $4.13.

Summing Up

Baxter ended second-quarter 2022 on a dismal note, wherein both earnings and revenues missed the Zacks Consensus Estimate. The company witnessed declining sales across five of its business units. Meanwhile, contraction in growth rates across all geographies is concerning. Contraction in both gross and operating margins fuels further skepticism. 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 half of 2022. The trend is expected to continue in the second half.

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 #3 (Hold).

Some better-ranked stocks from the pharma/biotech sector include Lantheus LNTH, ShockWave Medical SWAV and Alkermes ALKS. While Lantheus and ShockWave Medical sport a Zacks Rank #1 (Strong Buy), Alkermes carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for Lantheus have improved from earnings of $3.04 to $3.08 for 2022 and $3.33 to $3.62 for 2023 in the past 30 days. LNTH has surged 156.6% so far this year.

Lantheus delivered an earnings surprise of 77.82%, on average, in the last four quarters.

ShockWave Medical’s earnings per share estimates have improved from $1.84 to $2.02 for 2022 and from $2.82 to $2.95 for 2023 in the past 30 days. SWAV has declined 19.1% so far this year.

ShockWave Medical delivered an earnings surprise of 189.99%, on average, in the last four quarters.

Alkermes’ earnings per share estimates have improved from breakeven to 4 cents for 2022 and from 56 cents to 59 cents for 2023 in the past 30 days. ALKS has gained 19.6% so far this year.

Alkermes delivered an earnings surprise of 350.48%, on average, in the last four quarters.

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