Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Baxter International Inc (BAX, Financial) exceeded its first quarter guidance with a reported sales growth of 2% and 3% at constant currency rates.
- Adjusted earnings per share for continuing operations were $0.65, surpassing the guidance range of $0.59 to $0.62.
- The Medical Products and Therapies segment showed robust growth of 6% at both reported and constant currency rates, driven by pricing and volume gains.
- The Pharmaceuticals segment grew by 11% in the first quarter at both reported and constant currency rates, benefiting from new product launches in the U.S.
- The Kidney Care segment reported growth driven by pricing benefits and strong demand for Acute Therapies portfolio.
Negative Points
- The Healthcare Systems & Technologies segment declined by 9% at both reported and constant currency rates due to order timing and operational factors.
- Operational challenges in integrating enterprise accounts affected the performance in the Healthcare Systems & Technologies segment.
- Reduced volumes in China due to government-based procurement initiatives and a lower patient census impacted the Kidney Care segment.
- Certain product and market exits tempered growth in the Kidney Care business.
- Lower rental revenues negatively impacted sales by approximately $5 million in the Healthcare Systems & Technologies segment.
Q & A Highlights
Q: When I look at the business here, the Hillrom portion health care tech part of the business underperformed, all other segments came in about right. And Joe, when you think about this exiting fiscal '24, can Baxter get back to like 4% top line, like when does Hillrom normalized? And perhaps talk about what gives you confidence that this business is actually growing? Is there any reason to fear share loss within that part of the business?
A: Vijay, we are committing to a 4% -- around 4% exit rate for the year. We see what happened in HST in the first quarter as a postponement of orders and some operational issues that we have, that we're addressing very diligently. We're starting to see good results coming out of it.
Q: That's helpful comments, Joe. One on maybe margins here. Q1, both gross margins and operating margins came in above. What drove that gross margins? Are we seeing benefits of cost actions or is this any timing element? Are we seeing pricing contribution? Because when I look at the second quarter EPS, it's below 3. So was there any timing element here on that margins?
A: Yes. This is Joel. And so a couple of things on the Q1 margins, I would call out. Number one, the ISC drove a substantial portion of that. We had strong operational efficiencies. We had positive manufacturing variances that flowed through. And so I think just in general, our ISC performance was a strong contributor there.
Q: Going back to the softness in Healthcare Systems & Technology, can you give a little more detail on what exactly were the operational factors that impacted the first quarter? And why it should ramp sort of in the back half of the year? And also on the capital orders, I guess, why did those not flow through in the quarter as you guys were expecting?
A: I will take the first part of your question and Joel will take the second part of your question. We saw the operational issues were more related to how we were integrating our enterprise accounts and our folks who are every day in the field. We had made significant changes halfway through the quarter but did not catch up fast enough.
Q: Joe, there was a lot of strength in Q1 outside of HST, but the guidance implies growth slows in all segments. Why would growth slow so much relative to Q1 in Q2 through Q4 in those other segments? And I had one follow-up.
A: So Larry, maybe I'll start with that and let folks. I would say most of it -- we did see some strength within our Kidney Care that came in favorable to our expectations. So I think that we are still anticipating that to slow in the second half of the year as we get the impact from some of the government-based pricing initiatives in China.
Q: Maybe one on R&D. This is one of the first years in a while that R&D is growing slower than sales. How do you think about your R&D investment and where it's going? And are we just seeing some of the benefits of the Hillrom integration here?
A: I want to start by saying that we actually increased R&D in HST, the former Hillrom business, we call HST in Baxter now. We increased R&D there. We are very, very judicious about capital allocation within the business and what put money in R&D. We also have plans in '24, but also in '25 to continue to increase the dollar's value, not as a percentage of sales, the dollar's value that we put there.
Q: Congrats on a good start to the year here. I just wanted to ask about Novum. Obviously, that's probably the biggest event that has happened now since we were all asked on the phone together. So just curious what you're seeing. I know it's early days, but with Novum, how much of that is factored into the Q1 outperformance or maybe drove some of the Q1 outperformance and into the higher guide?
A: Thank you for the compliment. Opening the question, it was very nice of you to recognize that, we agree with you. Novum has had no impact in the first quarter. As a matter of fact, that performance is driven by strong volumes all around the MPT portfolio, but Novum.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
