Baxter Beats Fair and Square - Analyst Blog
April 21 2011 - 2:05PM
Zacks
Baxter International
Inc. (BAX) reported first-quarter 2011 adjusted (excluding
one-time items) earnings per share of 98 cents, beating the
corresponding Zacks Consensus Estimate of 93 cents, and surpassing
the year-ago results also of 93 cents. The results exceeded
Baxter’s earlier guidance of 92 cents to 94 cents.
Baxter reported profit of $570
million (or 98 cents a share) in the quarter versus a loss of $63
million (or 11 cents a share) a year ago. Its first quarter results
in 2010 included after-tax special items aggregating $627 million
(or $1.04 per share) arising from the Colleague infusion pump and a
change in certain tax treatment.
The forecast-topping results,
coupled with the company’s upward revisions to guidance, pushed up
its shares $1.48 (2.71%) to $56 in early trading on April 21.
Revenues
Total revenues were $3,284 million
in the first quarter, up 12% year over year, beating the Zacks
Consensus Estimate of $3,178 million. Revenues in the prior year
included an adjustment of $213 million for the Colleague infusion
pump. Excluding this adjustment, worldwide sales grew 5% year over
year. Domestic revenues for the quarter jumped 10% to $1,422
million while overseas sales were higher 1% to $1,862 million.
Segment-wise Revenue
Analysis
With regard to segment performance,
Bioscience revenues totaled $1,408 million, up 3% (up 4% in
constant currency) year over year. The better performance was
attributable to higher demand for Gammagard Liquid, several
specialty plasma-based therapeutics and biosurgery products.
The largest sub-segment,
Recombinants, had sales of $512 million, flat in reported terms (up
1% in constant currency) year over year. The Plasma Proteins
business, where Baxter had encountered structural problems in the
past, performed well with revenues of $308 million, up 5% (up 8% in
constant currency) year over year. Antibody Therapy performed
sharply better with sales of $374 million, climbing 16% (up 18% in
constant currency) year over year.
Revenues from Medication Delivery
went up steeply by 20% year over year (up 19% in constant
currency), to $1,868 million, riding on growth in intravenous and
nutritional therapies as well as a broad range of generic and
pre-mixed injectable drugs. This segment now includes Renal
products.
The three prominent sub-segments
were Renal with revenues of $587 million, down 1% in constant
currency; IV Therapies with sales of $428 million, up 10% in
constant currency basis; and Global Injectables with revenues of
$517 million, up 14% in constant currency.
Margins
Gross margin was 51% in the first
quarter, down from 51.9% in the year-ago quarter. Marketing and
administrative expense, expressed as a percentage of sales, was
flat at 21.8% while research and development expense dropped to
6.5% from 7.2% in the year-ago quarter.
Balance Sheet
Cash and cash equivalents totaled
$2,168 million, as of March 31, 2011, down 18.9% year over year.
Net debt totaled $2,206 million, up 6.1% year over year.
Outlook and
Recommendation
Baxter issued its guidance for
second-quarter fiscal 2011 and raised its estimates for 2011. For
the second quarter, the company expects growth in revenues in the
range of 4% to 5% in constant currency, and adjusted earnings per
share in the range of $1.01 to $1.03.
Baxter anticipates growth in
revenues in the range of 3% to 4% (earlier 2% to 3%), in constant
currency, and adjusted earnings per share of about $4.20 to $4.28
(earlier $4.15 to $4.25) for fiscal 2011. The current Zacks
Consensus Estimates are $1.01 and $4.20 per share for the second
quarter and fiscal 2011, respectively.
The news regarding Baxter remains
mixed. Its pipeline remains strong. On the positive side, Baxter’s
focus on life-sustaining products, which are not commoditized,
partly insulates it from an economic downturn. The company is able
to generate recurring revenues, and consistent cash flow, due to
its focus on chronic diseases.
On the flip side, despite recent
improvement in Plasma Proteins and Antibody Therapy sub-segments,
we are concerned about stagnation in sales, a still somber outlook
for some hospital spending and tightening of reimbursement.
The lingering bearishness
surrounding the stock can be lifted by consistent execution. Baxter
is a good bet for value investors willing to wait as fundamentals
improve. Among others, it competes with Becton, Dickinson
and Company (BDX) and Talecris Biotherapeutics
Holdings Corp. (TLCR) in certain niches. We currently have
a Neutral long-term rating on Baxter. The stock currently retains a
Zacks #2 Rank, which translates into a short-term Buy
recommendation.
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
TALECRIS BIOTHR (TLCR): Free Stock Analysis Report
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