Baxter's Adjusted Earnings and Cash Flow Exceed Company's Previously Issued Guidance
Company Provides 2006 Financial Outlook
DEERFIELD, Ill., January 26, 2006 – Baxter International Inc. (NYSE:BAX) today reported its financial results for the fourth quarter and full-year 2005, and provided its financial outlook for the first quarter and full-year 2006.
Summary of Fourth Quarter Results
On an adjusted basis, excluding special charges described below, Baxter's earnings from continuing operations totaled $379 million and earnings per diluted share of $0.60 increased 5 percent compared to the fourth quarter of 2004. Including after-tax special charges of $85 million, or $0.14 per diluted share in the quarter, Baxter's earnings from continuing operations on a GAAP basis totaled $294 million, or $0.46 per diluted share, compared to $0.17 per diluted share in 2004.
The previously announced after-tax special charges recorded in the fourth quarter totaled $85 million ($0.14 per diluted share) and included costs associated with the withdrawal of its 6060 ambulatory infusion pump, additional costs associated with Baxter's decision in July 2005 to discontinue hemodialysis instrument manufacturing, costs associated with the early retirement of debt during the quarter, and the tax expense related to the company's completed repatriation of approximately $2.1 billion in foreign earnings under the American Jobs Creation Act . Details of these charges are included in the financial schedules that follow the text of this press release.
Worldwide sales totaled $2.5 billion in the fourth quarter, a decline of 4 percent compared to the same period last year. Excluding the impact of foreign exchange, sales declined 3 percent. Domestic sales declined 11 percent to $1.1 billion, while international sales grew 2 percent to $1.4 billion. Excluding the impact of foreign exchange, international sales increased 4 percent.
As the company expected, sales were lower in the fourth quarter primarily due to the hold on shipments of the COLLEAGUE Infusion Pump, the effect of exiting several lower-margin businesses, and the impact of generic competition for propofol, an anesthetic agent. Offsetting these items was solid sales growth in Baxter's BioScience business, with sales totaling $1.0 billion, an increase of 6 percent (or 8 percent excluding the impact of foreign currency) compared to the fourth quarter of 2004. Sales growth in the BioScience business was driven by increased sales of ADVATE, Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM) for the treatment of hemophilia A, which totaled $174 million for the quarter and over $600 million for the full year. In addition, Bioscience sales were driven by strong growth in sales of Antibody Therapy products, which included recently-launched GAMMAGARD LIQUID™ [Immune Globulin Intravenous (Human)] (IVIG) 10% Solution for the treatment of primary immunodeficiencies.
Summary of Full-Year 2005 Results
For full-year 2005, Baxter's worldwide sales grew 4 percent to $9.8 billion, up from $9.5 billion reported last year. Foreign exchange favorably impacted sales growth by 2 percentage points during the year. Domestic sales totaled $4.4 billion, a decline of 2 percent from last year, while international sales increased 8 percent (including a 3 percentage point benefit from foreign exchange), to $5.5 billion.
On an adjusted basis, excluding net special charges, the company reported 2005 earnings from continuing operations of $1.2 billion, or $1.92 per diluted share, an increase of 14 percent over last year. Baxter's adjusted earnings exceeded the company's financial guidance for 2005 of $1.88 to $1.90, excluding net charges. Including net charges recorded during the year of $250 million ($0.40 per diluted share), Baxter's income from continuing operations totaled $958 million, or $1.52 per diluted share, compared to $0.62 per diluted share in 2004. Details of net charges recorded in 2004 and 2005 are included in the financial schedules that follow the text of this press release.
Excluding the previously announced $400 million contribution in the fourth quarter to domestic pension plans, cash flow from operations totaled $2.0 billion, or $1.6 billion after the pension contribution. Baxter's full-year cash flow performance exceeded the company's financial guidance for 2005, which had projected cash flow from operations of approximately $1.7 billion, excluding the fourth quarter pension plan contribution. Free cash flow (cash flow from operations, less capital expenditures of $444 million in 2005) totaled $1.1 billion, or $1.5 billion excluding the fourth quarter pension plan contribution.
During the year, Baxter achieved significant reductions in a number of its financial obligations. Debt was reduced by approximately $1.0 billion, and the company made contributions of approximately $570 million to its pension plans. Baxter also reduced its net investment hedge liabilities by $527 million during the year.
“We have made considerable progress during 2005, meeting or exceeding virtually all of our key financial objectives, despite the challenges with the COLLEAGUE Infusion Pump,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “During 2005, we also increased our spending on R&D and accelerated the pace of business development initiatives, which reflects our commitment to reinvigorating innovation within our company.”
First Quarter and Full-Year 2006 Outlook
For the first time, Baxter is providing its financial outlook for the first quarter and full-year 2006. Due to the continued hold on shipments of the COLLEAGUE Infusion Pump and the uncertainty of the timing of resuming COLLEAGUE sales, the company's guidance for full-year 2006 does not reflect any pump sales or earnings contributions from this product. Baxter's guidance also excludes the impact of adopting Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2003), “Share-Based Payment” (SFAS No. 123-R), relating to stock option expense. The company estimates stock option expense of approximately $0.08 to $0.10 per diluted share for full year 2006.
For full-year 2006, Baxter expects to achieve organic sales growth of 4 to 5 percent and adjusted earnings per diluted share from continuing operations of $2.08 to $2.16, before any special items. Baxter expects cash flow from operations for full-year 2006 to total approximately $1.9 billion, with free cash flow of approximately $1.4 billion (after approximately $550 million of anticipated capital expenditures).
For the first quarter of 2006, the company expects organic sales to grow 2 to 3 percent, and adjusted earnings per diluted share from continuing operations to total $0.41 to $0.43, before any special items. The first quarter guidance excludes the impact of adopting SFAS No. 123-R, which the company estimates to be approximately $0.02 to $0.03 per diluted share.
“The significant progress we've made in improving our balance sheet, earnings and cash flow in 2005 provides us with considerable financial flexibility,” said John J. Greisch, corporate vice president and chief financial officer. “Our 2006 guidance includes increased investments in sales and marketing, and accelerated spending in research and development and business development activities.”
A webcast of Baxter's fourth 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. CST on January 26, 2006. 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. 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 or result in seizures, injunctions and monetary sanctions, including with respect to the COLLEAGUE Infusion Pump; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, 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; 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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