Baxter (BAX) Earnings Beat, Revenues Lag Estimates In Q3

Baxter International Inc. (NYSE:BAX) reported third-quarter 2018 adjusted earnings per share of 80 cents, which surpassed the Zacks Consensus Estimate by 8.1% and improved from the year-ago quarter by 25%.

In the last four quarters, the company delivered positive earnings surprises, the average being 9.6%.

Baxter posted sales of $2.77 billion, which marginally missed the Zacks Consensus Estimate of $2.79 billion. Revenues improved 2.2% on a year-over-year basis and 3% at constant currency (cc).

Growth was backed by strong revenues from the company’s Renal Care, Pharmaceuticals, Advanced Surgery and Acute Therapies businesses. However, per management, these businesses were impacted by market disruptions due to Hurricane Maria.

This Zacks Rank #2 (Buy) company’s shares have rallied roughly 6.5% in a year’s time and the industry has gained 0.6%. The current level is also higher than the S&P 500 index’s rally of 4.3%.

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 Americas, Baxter recorded sales of $1.5 billion, up 2.7% on a year-over-year basis and 4% at cc.

In EMEA, sales totaled $707 million, up 3.7% from the year-ago quarter and 4% at cc.

In APAC, sales of $563 million declined 0.7% from the prior-year quarter and were flat at cc.

Segmental Details

Renal Care

This segment recorded sales of $910 million in the reported quarter, up 1.6% year over year. Sales at the segment increased 3% at cc.

Medication Delivery

Sales at the segment grossed $652 million, down 4% from the year-ago quarter. Sales at the segment inched down 3% at cc.

Pharmaceuticals

Sales in the segment were $519 million, up 4.2% from the year-ago quarter and 5% at cc.

Clinical Nutrition

Sales in the segment were $218 million, down 2.2% from the year-ago quarter’s tally. At cc, revenues fell 2%.

Advanced Surgery

Sales in the segment were $200 million, up 14.3% from the year-ago quarter and 15% at cc.

Acute Therapies

Sales in the segment were $122 million, up 8.9% from the prior-year quarter and 10% at cc.

Other

Sales in the segment were $146 million, up 17.7% on a year-over-year basis. At cc, revenues increased an impressive 17% in the quarter.

Margin Analysis

Baxter registered adjusted gross profit of $1.28 billion in the third quarter, up 4.4% year over year. As a percentage of revenues, adjusted gross margin expanded 100 basis points (bps) to 46.3% in the third quarter.

Adjusted operating income increased 12.5% year over year to $505 million in the quarter. As a percentage of revenues, operating margin expanded 170 bps to 18.3% in third-quarter 2018.

Guidance

For fourth-quarter 2018, Baxter expects sales growth of 1% on a reported basis and 3-4% at cc. Adjusted earnings per share are projected in the band of 71-73 cents. The Zacks Consensus Estimate is pegged at 77 cents, above the guided range.

For 2018, Baxter expects adjusted earnings per share within $2.98 to $3. Notably, the company has lifted the low end of the previously-issued guidance. The Zacks Consensus Estimate is pegged at $2.98, at the low end of the guided range.

Revenues are expected to grow 5% on a reported basis and 4% at cc in 2018. This is marginally lower than the earlier provided view of 6% on a reported basis and 5% at cc.

Wrapping Up

Baxter ended the third quarter of 2018 on a mixed note. While earnings surpassed the consensus mark, revenues missed the same. However, the company continues to gain from its Renal Care, Pharmaceuticals, Advanced Surgery and Acute Therapies businesses. Solid growth in the United States and EMEA also buoys optimism. The company also received regulatory approvals for its PrisMax system, Actifuse and ALTAPORE bone graft systems which paints a bright picture. New addition to the company’s parenteral nutrition portfolio and collaboration with Mayo Clinic are heartening developments. Considerable expansion in the company’s gross and operating margins is encouraging as well. Baxter raised the low end of its earnings per share guidance for 2018. However, a weak revenue guidance for the upcoming quarter is indicative of headwinds ahead. Notably, Baxter’s Medication Delivery and Clinical Nutrition saw a soft third quarter. Market disruptions due to Hurricane Maria continue to plague the company. Sales in the APAC region declined which is worrisome.

Earnings of MedTech Majors at a Glance

A few top-ranked stocks in the broader medical space which reported solid earnings this season are Intuitive Surgical (NASDAQ:ISRG) , Stryker Corporation (NYSE:SYK) and Merit Medical Systems, Inc. (NASDAQ:MMSI) . Each of the stocks carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted earnings per share of $2.83, which beat the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, also surpassing the consensus estimate of $918.6 million.

Stryker posted third-quarter 2018 adjusted earnings per share of $1.69, steering past the Zacks Consensus Estimate of $1.68. Operating margin was 17.8%, up 30 bps.

Merit Medical reported third-quarter 2018 adjusted earnings per share of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus estimate of $218 million.

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