Baxter (NYSE: BAX) continues its turnaround, not by increasing revenue so much as by becoming more efficient and shedding lower-margin products, resulting in a nice increase in the bottom line in the fourth quarter.
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Baxter results: The raw numbers
Data source: Baxter. YOY = year over year.
What happened with Baxter this quarter?
- Most of the increase came from Baxter's renal segment, which increased 5% year over year, with peritoneal dialysis growing 7%. In-center hemodialysis fell year over year, but the decline seems to have stabilized.
- Sales in Baxter's hospital products segment were up just 1% year over year in the fourth quarter, but there was a bright spot in fluid systems that increased 8% year over year. Unfortunately, that was mostly negated by a 4% decline in integrated pharmacy solutions as cyclophosphamide sales continue to fall, and a 5% decline in manufacturing services revenues as services provided for Shire ramp down through the middle of this year.
- Despite the lackluster growth in revenue, Baxter made the most of what it could sell with adjusted gross margin increasing 200 basis points to 44.5%. And the company spent 10% less on marketing and administrative expenses compared to the year-ago quarter.
- Adjusting for activities associated with restricting and the separation of Baxalta, adjusted earnings were $0.57 per diluted share, shooting past management's guidance of $0.49 to $0.52 per share and up 33% compared to the year-ago quarter.
What management had to say
Joe Almeida, Baxter's chairman and CEO, noted that the company isn't done restructuring the product portfolio: "Some of these decisions will impact our top line growth in 2017, but position Baxter for accelerated growth as we redirect resources to higher growth, higher margin opportunities."
When asked about the company's strategy of using cash for acquisitions versus share repurchases and dividends, Almeida wants it all: "So, for us, it's not a matter of one versus the other; it's we can do them all." That being said, he's not willing to overpay. "Some assets are expensive, and we want to make sure that we can extract value because our first priority is to really return the top quartile total shareholder returns," Almeida said.
Management is guiding for a 2% to 3% increase in revenue in the first quarter and adjusted earnings of $0.50 to $0.52 per share. For the year, guidance is for flat revenue with a 2% headwind due to currency changes and adjusted earnings of$2.10 to $2.18 per share, a 7% to 11% increase over last year, reflecting Baxter's continued moves to be more efficient.
The guidance doesn't include the acquisition of Claris Injectables, which is expected to close in the second half of this year. Combined with its current pipeline, adding Claris will result in the launch of 100 new products over the next three to five years, and management hinted that it plans to sign additional collaboration and partnership agreements to increase its injectable drug portfolio perhaps within the next month.
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