Baxter Raises Full-Year EPS Guidance
DEERFIELD, Ill., October 19, 2006 – Baxter International Inc. (NYSE:BAX) today reported strong growth in earnings for the third quarter driven by accelerated revenue growth, continued improvement in operational performance, expansion of gross and operating margins, and lower interest expense.
Baxter’s third quarter net income of $374 million increased from $116 million in 2005. Earnings per diluted share of $0.57 increased from $0.18 per diluted share in the prior year period, and were at the high end of the guidance range previously provided by the company of $0.55 to $0.57 per diluted share.
On an adjusted basis, excluding special items recorded in the prior year period, third quarter net income increased 26 percent from $296 million in 2005 and earnings per diluted share increased 21 percent from $0.47 per diluted share. In the third quarter last year, the company recorded $180 million (or $0.29 per diluted share) for charges associated with the exit of hemodialysis instrument manufacturing and for the tax expense related to the repatriation of foreign earnings.
Baxter’s worldwide sales totaled $2.6 billion in the third quarter, an increase of 7 percent, or 6 percent excluding the benefit from foreign exchange. Sales within the United States totaled $1.1 billion, an increase of 3 percent over the same period last year, and sales outside of the United States increased 9 percent (or 7 percent excluding the impact of foreign exchange) to $1.5 billion in the quarter.
Contributing to sales growth was Baxter’s BioScience business, with sales of $1.1 billion, an increase of 15 percent. Driving this performance was growth from several products used for the treatment of hemophilia and immune disorders, including ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method (rAHF-PFM)] and Baxter’s portfolio of intravenous immunoglobulins (IVIG), as well as solid growth from other plasma-based therapies and biosurgery products.
Renal sales increased 6 percent to $519 million in the third quarter due to continued gains in peritoneal dialysis patients. Medication Delivery sales declined 1 percent to $950 million as a result of generic drug competition.
“I’m particularly pleased with the continued and balanced improvement in margins across all of our businesses. This is a strength of our diversified model, and provides leverage for us to continue to accelerate investments to grow our company,” said Robert L. Parkinson, Jr., chairman and chief executive officer of Baxter. “Over the company’s 75-year history, Baxter has pioneered many technological and therapeutic breakthroughs for the benefit of patients worldwide, and with our renewed investments in the company, we expect to continue to drive future benefits and value for both patients and shareholders.”
Recent Highlights
Baxter has recently announced several initiatives and milestones that leverage the company’s unique technology platforms, further expand its global presence and focus its resources and investments on areas that provide long-term strategic value. These include:
- Preliminary results from the company’s Phase I/II clinical trial of whole-virus H5N1 influenza candidate vaccine, which suggest that the vaccine is well- tolerated in humans and it can induce antibodies that neutralize widely divergent strains of H5N1.
- Approval from regulatory authorities in Canada and Australia to begin marketing ADVATE. ADVATE is now approved for use in 31 countries around the world.
- Re-launching the COLLEAGUE Infusion Pump in all key markets outside the United States. Baxter has now completed the remediation of the majority of infusion pumps currently in use outside the United States, and is awaiting FDA approval of its corrective action plan in the United States.
- Signing a definitive agreement for the sale of the Transfusion Therapies business for $540 million. Subject to regulatory approvals and other customary closing conditions, the company expects to close the transaction by the first quarter of 2007.
Nine-Month Results
For the first nine months of 2006, Baxter’s net income totaled $965 million and increased 45 percent, with earnings per diluted share of $1.47, which increased 39 percent. On an adjusted basis, Baxter’s net income of $1.0 billion increased 24 percent from $829 million last year. Adjusted earnings per diluted share for the nine-month period of $1.57 increased 19 percent from $1.32 per diluted share in the prior year period. Details related to charges recorded in both nine-month periods can be found on the supplemental schedule on page 10 of this release.
In the nine-month period, Baxter’s worldwide sales grew 3 percent to $7.6 billion, up from $7.4 billion last year. Excluding the impact of foreign exchange, organic sales growth for the first nine months of the year was 4 percent. Domestic sales totaled $3.4 billion, an increase of 3 percent over the same period last year, and international sales grew 4 percent (or 6 percent excluding the impact of foreign exchange) to $4.3 billion.
Cash flow from operations totaled $1.4 billion for the nine-month period, compared to $1.3 billion in the same period in 2005. Free cash flow (cash flow from operations, less capital expenditures of $336 million through the third quarter of 2006) was $1.1 billion, reflecting an improvement of $50 million from the same period last year.
Fourth Quarter and Full-Year 2006 Guidance
For full-year 2006, the company expects to achieve organic sales growth of approximately 6 percent, and earnings per diluted share of $2.17 to $2.19, before special items (or $2.07 to $2.09 on a GAAP basis). In addition, the company 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 fourth quarter of 2006, the company expects organic sales (excluding the impact of foreign exchange) to grow 7 to 8 percent, and earnings per diluted share of $0.60 to $0.62, before any special items.
A webcast of Baxter's third 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 October 19, 2006. On Friday, October 20, 2006, Baxter executives will be ringing The Closing Bell at the New York Stock Exchange as part of the company’s 75th anniversary celebration. To access a live webcast of The Closing Bell, go to www.nyse.com.
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: demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; 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; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; 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; reimbursement policies of government agencies and private payers; 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; failure to obtain necessary consents or to satisfy other closing conditions related to the sale of the Transfusion Therapies business; 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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