DEERFIELD, Ill., July 21, 2005 – Baxter International Inc. (NYSE:BAX) today reported its results for the second quarter of 2005.
Earnings per diluted share from continuing operations were $0.51, compared to a loss of $0.28 reported last year. Baxter's income from continuing operations totaled $324 million for the quarter, compared to a loss of $169 million reported in the same period last year. The second quarter 2005 results include a $65 million (or $0.10 per diluted share) after-tax charge associated with the COLLEAGUE® Volumetric Infusion Pump remediation efforts announced today. If additional remediation efforts are necessary in the future, further charges may be required. The second quarter results also include an $80 million (or $0.12 per diluted share) after-tax benefit from adjustments to Baxter's restructuring charges, which were recorded originally in 2003 and 2004. On an adjusted basis, excluding the charge and restructuring benefit, earnings from continuing operations were $309 million in the second quarter, or $0.49 per diluted share. Contributing to the growth in earnings was strong operational performance, including improved sales, gross and operating margin, and lower taxes.
The second-quarter results include a $0.03 per diluted share benefit from a year-to-date tax adjustment, as the company adjusted its income tax rate to the anticipated 2005 full-year rate of 22 percent. This rate reflects savings related to a change in estimate of the company's tax rate due to ongoing improvements to the company's geographic product sourcing strategy.
Worldwide sales in the second quarter totaled $2.6 billion, an increase of 8 percent over the same period last year (including a 3 percentage point benefit from foreign exchange). Domestic sales increased 6 percent to $1.2 billion, while international sales grew 11 percent (including a 7 percentage point benefit from foreign exchange) to $1.4 billion. In addition to the positive impact of foreign exchange, strong performance from the company's recombinant and drug delivery businesses contributed to sales growth in the quarter. Sales of Baxter's recombinant products grew 24 percent to $397 million, including $148 million in sales of ADVATE®, the company's Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM) product for the treatment of hemophilia A.
Cash flow from continuing operations totaled $508 million for the quarter, compared to $305 million in the same period last year. Free cash flow (cash flow from continuing operations, less capital expenditures of $98 million in 2005 and $139 million in 2004) was $410 million for the quarter, an improvement of $244 million from the second quarter last year.
“We are pleased with the improvement in our operational and financial performance . We've continued to meet our commitments with solid improvement in operating margin, earnings and cash flow, ” said Robert L. Parkinson, Jr., chairman and chief executive officer. “We are committed to improve our business processes and product quality, continue to execute upon our long-term business strategies, and leverage the value inherent within our business portfolio.”
Six-Month Results
For the first six months of 2005, Baxter's worldwide sales grew 8 percent to $5.0 billion, up from $4.6 billion in the same period last year. Foreign exchange favorably impacted sales growth by 3 percentage points year-to-date. Domestic sales totaled $2.2 billion, an increase of 4 percent over the same period last year, while international sales increased 12 percent (including an 6 percentage point benefit from foreign exchange), to $2.8 billion.
Baxter's income from continuing operations totaled $548 million, or $0.88 per diluted share, in the first six months of the year, including the charge and restructuring benefit recorded in the second quarter. Excluding these items, the company reported year-to-date income from continuing operations of $533 million, and earnings per diluted share from continuing operations of $0.85.
Cash flow from continuing operations totaled $779 million for the first six months of the year, compared to $252 million in the same period in 2004. Free cash flow (cash flow from continuing operations, less capital expenditures of $163 million in 2005 and $229 million in 2004) was $616 million for the first half of 2005, an improvement of $593 million from the same period last year.
Third Quarter and Full-Year 2005 Outlook
For the third quarter of 2005, the company expects organic sales growth of 2 to 4 percent, and earnings per diluted share from continuing operations of $0.45 to $0.47.
For full-year 2005, Baxter expects organic sales growth of 2 to 4 percent and adjusted earnings per diluted share from continuing operations of $1.86 to $1.90. Baxter also expects cash flow from continuing operations to exceed $1.6 billion, and to generate free cash flow of at least $1.0 billion in 2005 (after approximately $550 million of anticipated capital expenditures).
The company's guidance above excludes the $0.02 per diluted share net benefit from the second-quarter charge and restructuring adjustment, future pre-tax charges expected to total $40 to $50 million related to the rationalization of its hemodialysis instrument manufacturing capacity, and the cost to repatriate foreign earnings under the American Jobs Creation Act of 2004. Including the $0.02 per diluted share net benefit of the second-quarter items, Baxter's full-year earnings guidance under Generally Accepted Accounting Principles (GAAP) is expected to be $1.88 to $1.92 per diluted share.
A webcast of Baxter's second quarter 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 July 21, 2005. Please visit Baxter's website for more information regarding this and future investor events and webcasts, including investor presentations.
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including cancer, hemophilia, immune disorders, kidney disease and trauma. The company applies its expertise in medical devices, pharmaceuticals and biotechnology to make a meaningful difference in patients' lives.
This release includes forward-looking statements concerning the company's financial results for the third quarter and full year, as well as developments with respect to the COLLEAGUE infusion pump. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: timely realization of the benefits of the company's restructuring initiatives; the impact of geographic and product mix on the company's sales; actions of regulatory bodies and other governmental authorities, including the Food and Drug Administration and foreign counterparts that could delay, limit or suspend product sales and distribution, including with respect to the COLLEAGUE infusion pump; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays or declining sales; product development risks; interest rates; demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; foreign currency exchange rates; the availability of acceptable raw materials and component supply; global regulatory, trade and tax policies; regulatory, legal or other developments relating to the company's A, AF and AX series dialyzers; the ability to enforce patents; patents of third parties preventing or restricting the company's manufacture, sale or use of affected products or technology; reimbursement policies of government agencies and private payers; results of product testing; and other risks identified in the company's most recent filing on Form 10-Q and other SEC filings, all of which are available on the company's web site. The company does not undertake to update its forward-looking statements. Financial schedules, including additional reconciliations of non-GAAP measures, are attached to this release and available on the company's web site.
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