On February 1, 2017 Baxter International Inc. (NYSE:BAX) reported results for the fourth quarter ended December 31, 2016, and provided its guidance for the first quarter and full-year 2017 (Press release, Baxter International, FEB 1, 2017, View Source [SID1234517613]).
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"Baxter’s solid operational performance in 2016 was fueled by strong sales and disciplined execution across the organization," said José (Joe) E. Almeida, chairman and chief executive officer. "We’ll continue to build on this momentum in 2017 and beyond, driven by new product launches, effective portfolio management and further progress on our business transformation initiatives – all in support of delivering sustainable top-quartile results for our shareholders, and advancing our mission to save and sustain lives."
Fourth-Quarter Financial Results
Baxter reported income from continuing operations of $240 million, or $0.44 per diluted share, on a GAAP (Generally Accepted Accounting Principles) basis for the fourth quarter. These results included special items totaling $134 million ($72 million net after-tax), primarily related to business optimization initiatives and intangible asset amortization.
On an adjusted basis, excluding special items, Baxter’s fourth quarter income from continuing operations totaled $312 million, or $0.57 per diluted share, exceeding the company’s previously issued guidance of $0.49 to $0.52 per diluted share.
Baxter’s worldwide sales totaled $2.6 billion in the fourth quarter, an increase of 2 percent on both a reported and constant currency basis as compared to the prior-year period. Sales within the U.S. were $1.1 billion, advancing 5 percent, while international sales totaled $1.5 billion, representing a 1 percent decrease on a reported basis, and an increase of 1 percent on a constant currency basis. Adjusting for the impact of foreign exchange and generic competition for cyclophosphamide, Baxter’s sales increased 7 percent in the U.S. and rose 3 percent globally in the fourth quarter.
By business, Hospital Products sales of $1.6 billion in the fourth quarter increased 1 percent on a reported basis, and 1 percent on a constant currency basis. Adjusting for the impact of foreign exchange and cyclophosphamide, Hospital Products sales advanced 2 percent from the prior-year period. Hospital Products performance in the quarter benefited from strong sales of IV therapies, infusion pumps and related IV access administration sets in the U.S., along with favorable demand for anesthesia and critical care products globally. This performance was partially offset by lower sales of IV solutions internationally, as the company implements actions to optimize its global product portfolio, as well as lower manufacturing service revenues from Shire, under the company’s manufacturing and supply agreement with Baxalta.
Baxter’s Renal sales totaled $1 billion in the fourth quarter, representing a 3 percent increase on a reported basis, and a 5 percent increase on a constant currency basis. U.S. sales grew 7 percent to $222 million, and international sales totaled $793 million, representing growth of 2 percent on a reported basis, and an increase of 4 percent on a constant currency basis. Growth continued to be driven by robust sales of peritoneal dialysis products as well as increased demand for the company’s acute renal care products.
During the quarter, Baxter repurchased $247 million worth of common stock or approximately 5.4 million shares outstanding.
Summary of Full-Year 2016 Results
For full-year 2016, Baxter reported income from continuing operations of approximately $5 billion, or $9.01 per diluted share, on a GAAP basis. These results included a gain of $4.4 billion (on a pre and post-tax basis), related to the company’s disposition of its retained Baxalta shares. Partially offsetting these results were special items of $817 million ($557 million net after-tax) related to business optimization initiatives, intangible asset amortization, debt extinguishment costs, Baxalta-related spin-off costs and asset impairments.
On an adjusted basis, excluding special items, Baxter’s full-year income from continuing operations totaled $1.1 billion, or $1.96 per diluted share.
Baxter’s worldwide sales totaled $10.2 billion in 2016, an increase of 2 percent on a reported basis and 4 percent on a constant currency basis as compared to the prior year. Sales within the United States totaled $4.3 billion, improving 6 percent over the prior year. International sales totaled $5.9 billion, representing a 1 percent decrease on a reported basis, and an increase of 3 percent on a constant currency basis. Adjusting for the impact of foreign exchange and generic competition for cyclophosphamide, Baxter’s sales increased 9 percent in the U.S. and rose 5 percent globally.
Full-year sales for Hospital Products totaled $6.3 billion, reflecting growth of 2 percent on a reported basis and 4 percent at constant currency. Adjusting for the impact of foreign exchange and cyclophosphamide, sales increased 5 percent. Baxter’s Renal sales totaled $3.9 billion, increasing 2 and 5 percent on a reported and constant currency basis, respectively.
In 2016, Baxter generated $1.6 billion in operating cash flow, an increase of $371 million driven by improved operational performance and implementation of new programs focused on improving the company’s working capital. In addition, through disciplined management of expenditures Baxter reduced capital spending by $192 million to $711 million. As a result, the company generated an increase of $563 million in free cash flow to $905 million (operating cash flow less capital expenditures).
"We are extremely pleased with the significant improvements Baxter has made in free cash flow generation. Our progress in 2016 represented an increase of more than 2.5 times as compared to 2015, and further supports our ability to reinvest in the business both organically and inorganically to drive accelerated growth," said Jay Saccaro, Baxter’s chief financial officer.
Business Highlights
In 2016 Baxter continued delivering meaningful innovation for patients and expanded access to life-sustaining therapies through a combination of more than 20 new product launches, line extensions and geographic expansions, including: NUMETA G13E, the only triple-chamber commercially prepared parenteral nutrition system approved for vulnerable neonatal patients; HEMOPATCH, an advanced surgical patch; premix generic drugs such as VANCOMYCIN injection in 0.9% Sodium Chloride; new applications and features for the SIGMA SPECTRUM infusion system; and HDx therapy enabled by THERANOVA to provide high performance hemodialysis treatments.
Additionally, the company saw continued momentum with its new Automated Peritoneal Dialysis (APD) systems, AMIA in the U.S. and HOMECHOICE CLARIA outside the U.S., both featuring Baxter’s SHARESOURCE Connectivity Platform, the first and only two-way remote patient management system for home dialysis therapy.
In December, Baxter announced plans to expand its presence in the generic injectables space with the proposed acquisition of Claris Injectables Limited (Claris). The acquisition of Claris, which is expected to close in the second half of 2017, will provide Baxter with a currently marketed portfolio of molecules in anesthesia and analgesics, renal, anti-infectives and critical care in a variety of presentations including bags, vials and ampoules, along with a robust pipeline and high-quality manufacturing capabilities. This acquisition will provide Baxter with a platform to establish a leadership position in generic injectables.
Over the course of the year, the company also took actions to significantly improve its balance sheet position and return value to shareholders through the disposition of the Baxalta retained stake, a $1.6 billion debt offering to retire existing higher coupon rate bonds and pay off outstanding commercial paper, a 13 percent increase in its shareholder dividend and share repurchases of approximately $300 million.
Financial Outlook
Baxter is providing its outlook for the full-year and first quarter of 2017:
For full-year 2017, Baxter expects sales to be comparable to the prior-year period on a reported basis and to increase approximately 2 percent on a constant currency basis. Adjusting for the impact of generic cyclophosphamide competition (an estimated one percent) and selected strategic product exits the company is undertaking (an estimated one percent), Baxter expects underlying constant currency sales growth of approximately 4 percent. The company expects earnings from continuing operations, before special items, of $2.10 to $2.18 per diluted share. This guidance does not include any impact from the company’s proposed acquisition of Claris, which is expected to close in the second half of 2017.
For the first quarter, the company expects sales growth of approximately 2 to 3 percent on a reported basis, or 3 to 4 percent on a constant currency basis. Adjusting for the impact of generic cyclophosphamide competition (an estimated one-half percent) and selected strategic product exits the company is undertaking (an estimated one and a half percent), Baxter expects underlying constant currency sales growth of 5 to 6 percent. The company expects earnings from continuing operations, before special items, of $0.50 to $0.52 per diluted share.
The reconciliations between the projected 2017 adjusted diluted earnings per share and projected GAAP diluted earnings per share follows:
2017 Earnings per Share Guidance Q1 2017 FY 2017
Diluted Earnings per Share – Adjusted $0.50 – $0.52 $2.10 – $2.18
Estimated intangible asset amortization $0.04 $0.18
Estimated business optimization charges $0.05 – $0.06 $0.31 – $0.38
Estimated Baxalta separation-related expenses $0.01 $0.02
Diluted Earnings per Share – GAAP $0.39 – $0.42 $1.52 – $1.67
These estimates are based on information reasonably available at the time of this release and future events or new information may result in different actual results.