Baxter Raises Full-Year Guidance Reflecting Strong First-Half Operating Performance and Continued Momentum
DEERFIELD, Ill., July 20, 2006 – Baxter International Inc. (NYSE:BAX) today announced stronger-than-expected growth in sales and earnings for the second quarter and raised its full-year guidance to reflect the company's strong first-half operating performance and continued momentum.
Excluding special items, Baxter reported second quarter income from continuing operations of $373 million, an increase of 21 percent from $309 million in 2005. On a GAAP basis, Baxter reported income from continuing operations of $309 million, compared to $324 million reported in the same period last year. Adjusted earnings per diluted share from continuing operations increased 16 percent to $0.57 per diluted share, compared to $0.49 in the prior-year period. GAAP earnings per diluted share from continuing operations of $0.47 compares to $0.51 per diluted share reported in the second quarter last year.
The company's financial results reflect strong operational performance, better- than-expected sales, continued expansion of gross and operating margins, and lower interest expense. Excluding the impact of stock-option expense of approximately $0.02 per diluted share under SFAS No. 123-R, adjusted earnings per diluted share of $0.59 compares favorably with the guidance that Baxter previously provided for the quarter of $0.54 to $0.56 (which also excluded stock-option expense).
Special items in the second quarter included a previously announced $64 million (or $0.10 per diluted share) after-tax charge associated with the COLLEAGUE Volumetric Infusion Pump remediation efforts. Special items impacting the second quarter 2005 results included an $80 million (or $0.12 per diluted share) after-tax benefit from adjustments to Baxter's restructuring charges and a $65 million (or $0.10 per diluted share) after-tax charge for COLLEAGUE remediation efforts.
Baxter's worldwide sales totaled $2.6 billion in the second quarter and increased 3 percent, or 4 percent excluding the impact of foreign exchange. This compares favorably to the guidance the company previously provided of organic sales growth, which excluded the impact of foreign exchange, of 2 to 3 percent. Sales within the United States totaled $1.2 billion, an increase of 3 percent over the same period last year, and sales outside of the United States also grew 3 percent (or 5 percent excluding the impact of foreign exchange) to $1.5 billion in the quarter.
Driving the company's sales performance was the BioScience business, with record quarterly sales of $1.1 billion, an increase of 13 percent. Momentum continued to build for several products used for the treatment of immune disorders and hemophilia, including Baxter's portfolio of intravenous immunoglobulin (IVIG) products and ADVATE [ Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method (rAHF-PFM)] and specialty biosurgery products used in the areas of hemostasis, tissue sealing and tissue repair.
Renal sales increased 2 percent to $516 million. Global peritoneal dialysis (PD) sales increased 5 percent (or 6 percent on an organic basis) as a result of growth in the number of patients using PD, a home-therapy for the treatment of end-stage renal disease, particularly in international markets. Offsetting this growth was a decline in lower-margin hemodialysis (HD) products. Medication Delivery sales were $1.0 billion, down 7 percent, primarily due to the COLLEAGUE infusion pump hold and generic drug competition.
Research and development (R&D) spending totaled $146 million in the second quarter, an increase of 10 percent. The company has accelerated spending across all its businesses, with particular emphasis on its BioScience business where R&D spending increased by more than 15 percent over last year.
“We are extremely pleased with our operational and financial performance in the first half of the year , as we realize the benefits from our ongoing margin improvement initiatives,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “With our financial results exceeding our first-half objectives, we now have additional flexibility to not only deliver growth in the near term, but to accelerate our investments in R&D and select marketing activities to drive future value for our shareholders.”
Baxter recently announced several initiatives that leverage the company's unique technology platforms and further expand its global presence. These initiatives include:
- U.S. Food and Drug Administration (FDA) approval and U.S. launch of an ultra-high dosage strength of ADVATE for Hemophilia A, making it easier for people requiring higher doses to administer ADVATE by reducing both the infusion volume of drug solution and the storage space; and the launch in Canada of GAMMAGARD Liquid [Immune Globulin Intravenous (Human)] 10 % Solution .
- A tender from the U.S. government, through a contract award to DVC LLC, to develop cell-culture based influenza vaccines. Baxter will develop seasonal and pandemic vaccines using the company's vero-cell technology and has recently initiated a Phase I/II clinical trial to test a candidate H5N1 pandemic influenza vaccine in Austria and Singapore.
- Tentative approvals from the FDA for Ondansetron Injection USP, a generic version of GlaxoSmithKline's Zofran, in vial and premix presentations.
- The commercial availability of HYLENEX, a liquid injectable formulation of recombinant human hyaluronidase, in the U.S.
Six-Month Results
For the first six months of 2006, Baxter's adjusted income from continuing operations was $655 million, or $1.00 per diluted share. On a GAAP basis, Baxter's income from continuing operations for the first half of 2006 totaled $591 million, or $0.90 per diluted share.
For the first six months of 2006, Baxter's worldwide sales grew 2 percent to $5.1 billion, up from $5.0 billion in the same period last year. Excluding the impact of foreign exchange, organic sales growth for the first half of the year was 4 percent. Domestic sales totaled $2.2 billion, an increase of 2 percent over the same period last year, and international sales also grew 2 percent (or 5 percent excluding the impact of foreign exchange) to $2.8 billion.
Cash flow from operations totaled $848 million for the first six months of the year, compared to $778 million in the same period in 2005. Free cash flow (cash flow from operations, less capital expenditures of $198 million in 2006) was $650 million for the first half of 2006, reflecting an improvement of approximately $35 million from the same period last year.
“As we move into the second half of the year, we will continue to focus on improving our working capital management and driving a return-on-invested-capital discipline throughout the company,” said Robert M. Davis, chief financial officer. “Given our strong balance sheet and cash flow generation, we have increased flexibility to balance business investments that enhance our longer-term growth with our continued commitment to return value to our shareholders using a disciplined capital-allocation framework.”
Third Quarter and Full-Year 2006 Guidance
Given the company's strong financial performance in the first six months of the year, Baxter is raising its full-year 2006 guidance. For full-year 2006, the company now expects to achieve organic sales growth of approximately 6 percent, and earnings per diluted share of $2.13 to $2.17, before special items (or $2.03 to $2.07 on a GAAP basis). Excluding special items and the impact of stock-option expense of approximately $0.08 per diluted share, Baxter expects adjusted earnings per diluted share of $2.21 to $2.25, which compares favorably to the company's most recent full-year earnings guidance of $2.10 to $2.16 on a comparable basis. In addition, the company now expects cash flow from operations for full-year 2006 to approach $2.0 billion, with free cash flow in excess of $1.4 billion (after approximately $550 million of anticipated capital expenditures).
For the third quarter of 2006, the company expects organic sales (excluding the impact of foreign exchange) to grow 6 to 7 percent, and earnings per diluted share of $0.55 to $0.57, before any special items.
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 20, 2006.
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma and other conditions. 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: future actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts that could limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; the impact of geographic and product mix on the company's sales; 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; the availability of acceptable raw materials and component supply; the ability to enforce company 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; 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 website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company's website.
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