Baxter International Inc.
CEO : Mr. Jose E. Almeida
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 10.6% YoY | -7.8% | -25.0% | 2023-02-09 |
James Saccaro says,
2022, we continue to anticipate supply chain challenges, including component sourcing and freight constraints, to persist in 2023. With these factors in mind, we are expecting 2023 sales to grow in the low to mid-single digits on a constant currency basis and operational sales growth to be relatively flat. We anticipate adjusted earnings per share in the range of $3.70 to $3.90 for the full year 2023. Additionally, we expect adjusted operating margin to be in the range of 17.5% to 18.5%, reflecting the benefits of our cost savings initiatives, partially offset by inflationary pressures and continued supply chain challenges. Our guidance also assumes an adjusted tax rate of approximately 16% and a share count of approximately 540 million shares. Lastly, we anticipate generating approximately $1.2 billion in operating cash flow, with free cash flow conversion in the range of 80% to 90%. Overall, we remain focused on executing on our strategic priorities and driving sustainable growth and value creation for our shareholders.
Actions to improve future performance
- Taking a number of actions to improve performance and accelerate future performance, along with cost reduction program and operating model redesign.
- Actions expected to deliver more than $300 million in savings in 2023
Q4 2022 sales performance
- Q4 2022 global sales of $3.9 billion, advanced 11% on a reported basis, 17% on a constant currency basis and 2% operationally.
- Supply for select products remains constrained and estimated to have impacted revenues by approximately $50 million in the quarter or approximately 140 basis points.
- Renal global sales for Q4 were $981 million, increasing 3% on a constant currency basis.
- Medication Delivery sales of $745 million declined 2% on a constant currency basis.
- Pharmaceutical sales of $552 million declined 1% on a constant currency basis.
Adjusted financials
- Adjusted gross margin of 41.6% decreased 270 basis points versus the prior year, reflecting increased cost of goods sold, primarily driven by the factors we’ve discussed around inflation, freight and supply chain constraints.
- Adjusted operating margin in the quarter of 17.1%, a decrease of 310 basis points versus the prior year.
- Adjusted net interest expense totaled $117 million in the quarter, an increase of $73 million versus the prior year, driven by higher outstanding debt balances related to the acquisition of Hillrom and the impact of interest rates on the variable rate debt.
- Adjusted earnings of $0.88 per share declined 15% versus the prior year period.
Full year 2022
- Sales of $15.1 billion increased by 18% on a reported basis, 23% on a constant currency basis and 2% operationally.
- Baxter’s adjusted earnings decreased 3% to $3.50 per diluted share.
- Operating cash flow from continuing operations of $1.2 billion and free cash flow of $532 million.
Outlook for 2023
- Expecting 2023 sales to grow in the low to mid-single digits on a constant currency basis and operational sales growth to be relatively flat.
- Anticipate adjusted earnings per share in the range of $3.70 to $3.90 for the full year 2023.
- Expect adjusted operating margin to be in the range of 17.5% to 18.5%.
- Anticipate generating approximately $1.2 billion in operating cash flow, with free cash flow conversion in the range of 80% to 90%.
José Almeida says,
Financial Results Summary
- Sales for Q4 2022 were $3.9 billion, growing 11% on a reported basis, 17% at constant currency and 2% on an operational basis.
- Adjusted earnings per share for Q4 2022 were $0.88, below expectations, primarily driven by foreign exchange losses and product mix in the quarter.
- Full year sales of $15.1 billion advanced 18% on a reported basis, 23% at constant currency and 2% on an operational basis.
- Adjusted earnings per share for the year were $3.50.
Strategic Road Map and New Business Model
- Baxter announced plans to spin off a new kidney care company, explore options for their BioPharma Solutions contract manufacturing business and implement a new operating model for their remaining businesses.
- The new operating model is focused on 4 vertically integrated global business units (GBUs) grouped along general therapeutic areas encompassing multiple sites of care.
- GBUs will have their own President, reporting directly to the CEO, full global P&L accountability, and dedicated R&D, manufacturing, supply chain, and functional support teams.
- The new GBU structure will promote more agile decision-making across sales, marketing, manufacturing, distribution, and innovation.
- Preparation for the new operating model is expected to deliver more than $300 million in total savings during 2023 and a workforce reduction of less than 5%.
- The redesign being contemplated, coupled with additional actions the company has undertaken to enhance performance, are expected to help meet critical market needs and accelerate business performance.
2023 Outlook
- Baxter expects to continue navigating a challenging operational environment in 2023, hand-in-hand with their transformation effort.
- The company has been taking a hard look at their forecasting models and processes as they reflect on their performance last year and the lessons learned in an era of unprecedented macroeconomic challenges.
- Baxter plans to incorporate more financial downside risks into their financial outlook for 2023.
- Further details on the outlook and various assumptions included will be provided by Jay.
Q & A sessions,
Performance in 2022
- Disappointed with performance in 2022 due to highly volatile and dramatic environment
- Continued supply constraints in things like electromechanical components
- Added margin of safety in terms of contingency to offset
- Removed $100 million related to sales for large volume pump not approved yet
Free Cash Flow
- Expectation of more than doubling free cash flow relative to the 2022 level
- Improvements in working capital balances expected
- Days inventory on hand expanded due to missing components and longer lead times for products
Reduction in Sales Outlook
- Reduction from 4% to flat to 1% due to several primary drivers
- Lower sales outlook impacting absorption and higher-margin areas
- Reduced weighted average market growth by approximately 100 basis points for 2023
- Exited approximately $100 million or 70 basis points worth of sales
Operating Margins
- Anticipate reduction due to lower sales outlook and supply chain headwinds
- Incremental savings program and FX is a modest headwind overall
- First half of the year will be challenging for operating margin, but expect improvement in Q3
Hillrom Integration
- Mid-single-digit growth expected this year
- Ahead of expectations for cost synergy
- Optimism about the portfolio and interaction with Baxter products
No bad stock 