Full Press Release Details
Stacey Eisen, (224) 948-5353
Clare Trachtman, (224) 948-3085
BAXTER REPORTS THIRD-QUARTER 2018 RESULTS AND UPDATES FINANCIAL OUTLOOK
DEERFIELD, Ill., OCTOBER 31, 2018 Baxter International Inc. (NYSE:BAX), a leading global medical products company,
today reported results for the third quarter of 2018 and updated its full-year 2018 financial outlook.
third-quarter performance reflects the benefit of our ongoing efforts to enhance operational excellence and innovation at the company, said Jos (Joe) E. Almeida, chairman and chief executive officer. While we remain confident in
Baxter s longer-term financial outlook, we have experienced a slower-than-expected return to pre-Hurricane Maria purchasing levels across certain businesses, as well as an impact from distributor
destocking for select products that has depressed our top-line performance in 2018.
Continued Almeida, Our commercial teams are working diligently to address customer needs and recapture these sales, and we remain focused on relentless expense management across the company. In
parallel, we continue to pursue capital deployment opportunities to fuel organic and inorganic growth that will help drive increased value for patients, healthcare providers and investors.
BAXTER REPORTS 3rd QUARTER FINANCIAL RESULTS Page
Third-quarter Financial Results
In the third quarter, worldwide sales totaled approximately $2.8 billion, an increase of 2 percent on a reported basis, 3 percent on a constant currency basis and 3 percent on an
operational basis compared to the prior-year period. Operational sales in the third quarter adjust for the impact of foreign exchange and generic competition for U.S. cyclophosphamide, as well as the acquisition of two surgical products from
Mallinckrodt plc, which closed in March 2018, and approximately one month of sales from the company s acquisition of Claris Injectables, which closed in July 2017.
Sales in the U.S. totaled $1.2 billion, increasing 4 percent on a reported basis and 3 percent on an operational basis. International sales of $1.6 billion increased 1 percent on
a reported basis and 2 percent on both a constant currency and operational basis. Drivers of growth in the quarter included the company s Renal Care, Pharmaceuticals, Advanced Surgery and Acute Therapies businesses. Increased demand for
Baxter s contract manufacturing services also contributed to performance in the quarter. This strength helped offset declines in Baxter s Medication Delivery and Clinical Nutrition businesses. Performance in these businesses was impacted
by market disruptions caused by Hurricane Maria, which have resulted in longer-than-expected shifts in customer demand patterns as well as the impact of distributor destocking for select products.
Beginning in 2018, Baxter reports its operating results based on three geographic segments: Americas (North and South America), EMEA
(Europe, Middle East and Africa) and APAC (Asia Pacific) as well as by the company s six Global Business Units (GBUs). Please see the schedules accompanying this press release for more details on sales performance in the quarter.
Baxter reported income from continuing operations of $544 million, or $1.00 per diluted share, on a GAAP (Generally Accepted
Accounting Principles) basis for the third quarter. These results included special items totaling $108 million, primarily related to business optimization and intangible amortization and a $200 million benefit related to the company s
U.S. foreign tax credit deferred tax assets. On an adjusted basis, Baxter s third quarter income from continuing operations totaled $436 million, or $0.80 per diluted share. Adjusted earnings per diluted share advanced 25 percent in
the quarter, driven by solid operational performance, an ongoing benefit from the company s business transformation initiatives, and lower pension expenses.
BAXTER REPORTS 3rd QUARTER FINANCIAL RESULTS Page
In the third quarter of 2018, Baxter generated $489 million in operating cash flow, or $1,341 million year to date. As a result, the company generated $873 million in free cash flow
(operating cash flow less capital expenditures of $468 million) through the first nine months of the year.
Baxter continues to achieve key operational, pipeline and commercial milestones in support of its strategy to accelerate
profitable growth and advance innovation for patients and healthcare professionals worldwide. Among recent highlights, the company:
BAXTER REPORTS 3rd QUARTER FINANCIAL RESULTS Page
2018 Financial Outlook
For full-year 2018: Baxter expects adjusted earnings from continuing operations, before special items, of $2.98 to $3.00 per
diluted share. The company expects sales growth of approximately 5 percent on a reported basis, approximately 4 percent on a constant currency basis, and approximately 3 percent on an operational basis (as defined below).
For fourth-quarter 2018: The company expects sales growth of approximately 1 percent on a reported basis, approximately 3 to
4 percent on a constant currency basis, and 3 to 4 percent on an operational basis. The company expects adjusted earnings from continuing operations, before special items, of $0.71 to $0.73 per diluted share.
Full-year and fourth-quarter operational sales have been adjusted for the impact of foreign exchange, generic competition for U.S.
cyclophosphamide and the benefit from the acquisitions of Claris (full-year only) and the two Mallinckrodt surgical products.
Please see the schedules accompanying this press release for a reconciliation between the projected 2018 adjusted earnings per diluted
share and projected GAAP earnings per diluted share.
BAXTER REPORTS 3rd QUARTER FINANCIAL RESULTS Page
A webcast of Baxter s third-quarter 2018 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 31,
2018. Please see www.baxter.com for more information regarding this and future investor events and webcasts.
Every day, millions of patients and caregivers rely on Baxter s leading portfolio of critical care, nutrition, renal, hospital and
surgical products. For more than 85 years, we ve been operating at the critical intersection where innovations that save and sustain lives meet the healthcare providers that make it happen. With products, technologies and therapies
available in more than 100 countries, Baxter s employees worldwide are now building upon the company s rich heritage of medical breakthroughs to advance the next generation of transformative healthcare innovations. To learn more, visit
This release includes forward-looking statements concerning the
company s financial results, business development activities, capital structure, cost savings initiatives, R&D pipeline, including results of clinical trials and planned product launches, and outlook for the fourth quarter and full year
2018. 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 of risks for
new and existing products; product development risks; product quality or patient safety concerns; continuity, availability and pricing of acceptable raw materials and component supply; inability to create additional production capacity in a timely
manner or the occurrence of other manufacturing or supply difficulties (including as a result of a natural disaster or otherwise); breaches or failures of the company s information technology systems, including by cyberattack; future actions of
regulatory bodies and other governmental authorities, including FDA, the Department of Justice, the New York Attorney General and foreign regulatory agencies; failures with respect to compliance programs; future actions of third parties, including
payers; U.S. healthcare reform and other global austerity measures; pricing, reimbursement, taxation and rebate policies of government agencies and private payers; the impact of competitive products and pricing, including generic competition, drug
reimportation and disruptive technologies; global, trade and tax policies; accurate identification of and execution on business development and R&D opportunities and realization of anticipated benefits (including the acquisitions of Claris
Injectables and two surgical products from Mallinckrodt plc); the ability to enforce owned or in-licensed patents or the patents of third parties preventing or restricting manufacture, sale or use of affected
products or technology; the impact of global economic conditions (including potential trade wars); fluctuations in foreign exchange and interest rates; any change in law concerning the taxation of income (including current or future tax reform),
including income earned outside the United States and potential taxes associated with the Base Erosion and Anti-Abuse Tax; actions taken by tax authorities in connection with ongoing tax audits; loss of key employees or inability to identify and
recruit new employees; the outcome of pending or future litigation; the adequacy of the company s cash flows from operations to meet its ongoing cash obligations and fund its investment program; and other risks identified in Baxter s most
recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on Baxter s website. Baxter does not undertake to update its forward-looking statements.
Baxter, Actifuse Flow, Altapore, Olimel and Prismax are registered trademarks of Baxter International Inc.
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Three Months Ended September 30, 2018
(in millions, except per share and percentage data)
| Three Months Ended September 30, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| NET SALES | $ 2,767 | $ 2,707 | 2% | |||||||||
| COST OF SALES | 1,531 | 1,577 | (3% | ) | ||||||||
| GROSS MARGIN | 1,236 | 1,130 | 9% | |||||||||
| % of Net Sales | 44.7% | 41.7% | 3.0 pts | |||||||||
| MARKETING AND ADMINISTRATIVE EXPENSES | 685 | 680 | 1% | |||||||||
| % of Net Sales | 24.8% | 25.1% | (0.3 pts | ) | ||||||||
| RESEARCH AND DEVELOPMENT EXPENSES | 166 | 150 | 11% | |||||||||
| % of Net Sales | 6.0% | 5.5% | 0.5 pts | |||||||||
| OPERATING INCOME | 385 | 300 | 28% | |||||||||
| % of Net Sales | 13.9% | 11.1% | 2.8 pts | |||||||||
| NET INTEREST EXPENSE | 11 | 14 | (21% | ) | ||||||||
| OTHER INCOME, NET | (32 | ) | (4 | ) | NM | |||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 406 | 290 | 40% | |||||||||
| INCOME TAX (BENEFIT) EXPENSE | (138 | ) | 42 | NM | ||||||||
| % of Income from Continuing Operations before Income Taxes | (34.0% | ) | 14.5% | (48.5 pts | ) | |||||||
| INCOME FROM CONTINUING OPERATIONS | 544 | 248 | 119% | |||||||||
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | 3 | NM | ||||||||||
| NET INCOME | $544 | $251 | 117% | |||||||||
| INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE | ||||||||||||
| Basic | $ 1.02 | $ 0.46 | 122% | |||||||||
| Diluted | $ 1.00 | $ 0.45 | 122% | |||||||||
| INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE | ||||||||||||
| Basic | $ 0.00 | $ 0.00 | NM | |||||||||
| Diluted | $ 0.00 | $ 0.00 | NM | |||||||||
| NET INCOME PER COMMON SHARE | ||||||||||||
| Basic | $ 1.02 | $ 0.46 | 122% | |||||||||
| Diluted | $ 1.00 | $ 0.45 | 122% | |||||||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||
| Basic | 534 | 545 | ||||||||||
| Diluted | 546 | 557 | ||||||||||
| ADJUSTED OPERATING INCOME (excluding special items) | $ 505 | A | $ 449 | A | 12% | |||||||
| ADJUSTED PRE-TAX INCOME FROM CONTINUING OPERATIONS (excluding special items) | $ 526 | A | $ 439 | A | 20% | |||||||
| ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special items) | $ 436 | A | $ 356 | A | 22% | |||||||
| ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special items) | $ 0.80 | A | $ 0.64 | A | 25% |
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended September
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(in millions, except per share and percentage data)
The company s GAAP results for the three months ended September 30, 2018 and 2017 included special items which impacted the GAAP measures as follows:
| Three Months Ended September 30, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| Gross Margin | $ 1,236 | $ 1,130 | 9% | |||||||||
| Intangible asset amortization expense 1 | 42 | 38 | ||||||||||
| Business optimization items 2 | 21 | 12 | ||||||||||
| Hurricane Maria (benefits) costs 6 | (23 | ) | 21 | |||||||||
| Acquisition and integration expenses 3 | 7 | 4 | ||||||||||
| Product-related items 4 | (3 | ) | 21 | |||||||||
| Adjusted Gross Margin | $ 1,280 | $ 1,226 | 4% | |||||||||
| % of Net Sales | 46.3% | 45.3% | 1.0 pts | |||||||||
| Marketing and Administrative Expenses | $ 685 | $ 680 | 1% | |||||||||
| Business optimization items 2 | (59 | ) | (39 | ) | ||||||||
| Separation-related costs 5 | (2 | ) | ||||||||||
| Acquisition and integration expenses 3 | (4 | ) | (11 | ) | ||||||||
| Adjusted Marketing and Administrative Expenses | $ 622 | $ 628 | (1% | ) | ||||||||
| % of Net Sales | 22.5% | 23.2% | (0.7 pts | ) | ||||||||
| Research and Development Expenses | $ 166 | $ 150 | 11% | |||||||||
| Business optimization items 2 | (10 | ) | (1 | ) | ||||||||
| European medical devices regulation 7 | (3 | ) | ||||||||||
| Adjusted Research and Development Expenses | $ 153 | $ 149 | 3% | |||||||||
| % of Net Sales | 5.5% | 5.5% | 0.0 pts | |||||||||
| Operating Income | $ 385 | $ 300 | 28% | |||||||||
| Impact of special items | 120 | 149 | ||||||||||
| Adjusted Operating Income | $ 505 | $ 449 | 12% | |||||||||
| % of Net Sales | 18.3% | 16.6% | 1.7 pts | |||||||||
| Pre-Tax Income from Continuing Operations | $ 406 | $ 290 | 40% | |||||||||
| Impact of special items | 120 | 149 | ||||||||||
| Adjusted Pre-Tax Income from Continuing Operations | $ 526 | $ 439 | 20% | |||||||||
| Income Tax (Benefit) Expense | $ (138 | ) | $ 42 | NM | ||||||||
| Impact of special items 8 | 228 | 41 | ||||||||||
| Adjusted Income Tax Expense | $ 90 | $ 83 | 8% | |||||||||
| % of Adjusted Pre-Tax Income from Continuing Operations | 17.1% | 18.9% | (1.8 pts | ) | ||||||||
| Income from Continuing Operations | $ 544 | $ 248 | 119% | |||||||||
| Impact of special items | (108 | ) | 108 | |||||||||
| Adjusted Income from Continuing Operations | $ 436 | $ 356 | 22% | |||||||||
| Diluted EPS from Continuing Operations | $ 1.00 | $ 0.45 | 122% | |||||||||
| Impact of special items | (0.20 | ) | 0.19 | |||||||||
| Adjusted Diluted EPS from Continuing Operations | $ 0.80 | $ 0.64 | 25% | |||||||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||
| Diluted | 546 | 557 |
The company s results in 2017 included a charge of $52 million ($36
million, or $0.06 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $31 million related to restructuring activities and $21 million of costs to implement business optimization
programs which primarily included external consulting and project employee costs. The $31 million of restructuring charges were comprised of employee termination costs.
The company s results in 2017 included acquisition and integration costs of $15 million ($10 million, or $0.02 per diluted share, on an after-tax basis) related to the company s acquisition of
Claris Injectables Limited.
The company s results in 2017 included a net charge of $21 million ($14 million, or $0.02 per diluted share, on an after-tax basis) related to SIGMA SPECTRUM infusion pump inspection and remediation
activities, partially offset by a benefit related to an adjustment to historical product reserves.
The company s results in
2017 included charges of $21 million ($21 million, or $0.04 per diluted share, on an after-tax basis) related to the impact of Hurricane Maria on the company s operations in Puerto Rico. The costs primarily include inventory and fixed asset
impairments as well as idle facility costs.
For more information on the company s use of non-GAAP financial
measures in this presentation, please see the company s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this presentation.
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Nine Months Ended September 30, 2018
(in millions, except per share and percentage data)
| Nine Months Ended September 30, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| NET SALES | $ 8,286 | $ 7,787 | 6% | |||||||||
| COST OF SALES | 4,697 | 4,481 | 5% | |||||||||
| GROSS MARGIN | 3,589 | 3,306 | 9% | |||||||||
| % of Net Sales | 43.3% | 42.5% | 0.8 pts | |||||||||
| MARKETING AND ADMINISTRATIVE EXPENSES | 1,988 | 1,874 | 6% | |||||||||
| % of Net Sales | 24.0% | 24.1% | (0.1 pts | ) | ||||||||
| RESEARCH AND DEVELOPMENT EXPENSES | 480 | 432 | 11% | |||||||||
| % of Net Sales | 5.8% | 5.5% | 0.3 pts | |||||||||
| CLARIS SETTLEMENT | (80 | ) | NM | |||||||||
| OPERATING INCOME | 1,201 | 1,000 | 20% | |||||||||
| % of Net Sales | 14.5% | 12.8% | 1.7 pts | |||||||||
| NET INTEREST EXPENSE | 34 | 41 | (17% | ) | ||||||||
| OTHER (INCOME) EXPENSE, NET | (81 | ) | 35 | NM | ||||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 1,248 | 924 | 35% | |||||||||
| INCOME TAX (BENEFIT) EXPENSE | (28 | ) | 139 | NM | ||||||||
| % of Income from Continuing Operations before Income Taxes | (2.2% | ) | 15.0% | (17.2 pts | ) | |||||||
| INCOME FROM CONTINUING OPERATIONS | 1,276 | 785 | 63% | |||||||||
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | 3 | NM | ||||||||||
| NET INCOME | $ 1,276 | $ 788 | 62% | |||||||||
| INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE | ||||||||||||
| Basic | $ 2.38 | $ 1.45 | 64% | |||||||||
| Diluted | $ 2.33 | $ 1.42 | 64% | |||||||||
| INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE | ||||||||||||
| Basic | $ 0.00 | $ 0.00 | NM | |||||||||
| Diluted | $ 0.00 | $ 0.00 | NM | |||||||||
| NET INCOME PER COMMON SHARE | ||||||||||||
| Basic | $ 2.38 | $ 1.45 | 64% | |||||||||
| Diluted | $ 2.33 | $ 1.42 | 64% | |||||||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||
| Basic | 536 | 543 | ||||||||||
| Diluted | 548 | 554 | ||||||||||
| ADJUSTED OPERATING INCOME (excluding special items) | $ 1,440 | A | $1,291 | A | 12% | |||||||
| ADJUSTED PRE-TAX INCOME FROM CONTINUING OPERATIONS (excluding special items) | $ 1,487 | A | $1,248 | A | 19% | |||||||
| ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special items) | $ 1,245 | A | $1,022 | A | 22% | |||||||
| ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special items) | $ 2.27 | A | $ 1.84 | A | 23% |
A Refer to page 9 for a description of the adjustments and a reconciliation to GAAP measures.
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Nine Months Ended September
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(in millions, except per share and percentage data)
The company s GAAP results for the nine months ended September 30, 2018 and 2017 included special items which impacted the GAAP measures as follows:
| Nine Months Ended September 30, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| Gross Margin | $ 3,589 | $ 3,306 | 9% | |||||||||
| Intangible asset amortization expense 1 | 127 | 112 | ||||||||||
| Business optimization items 2 | 30 | 42 | ||||||||||
| Acquisition and integration expenses 3 | 16 | 4 | ||||||||||
| Litigation 4 | 8 | |||||||||||
| Product-related items 5 | (3 | ) | 17 | |||||||||
| Separation-related costs 6 | 1 | |||||||||||
| Hurricane Maria (benefits) costs 10 | (23 | ) | 21 | |||||||||
| Adjusted Gross Margin | $ 3,744 | $ 3,503 | 7% | |||||||||
| % of Net Sales | 45.2% | 45.0% | 0.2 pts | |||||||||
| Marketing and Administrative Expenses | $ 1,988 | $ 1,874 | 6% | |||||||||
| Business optimization items 2 | (122 | ) | (74 | ) | ||||||||
| Separation-related costs 6 | (16 | ) | ||||||||||
| Acquisition and integration expenses 3 | (14 | ) | (16 | ) | ||||||||
| Historical rebate and discount adjustments 7 | 12 | |||||||||||
| Litigation 4 | (2 | ) | ||||||||||
| Adjusted Marketing and Administrative Expenses | $ 1,850 | $ 1,780 | 4% | |||||||||
| % of Net Sales | 22.3% | 22.9% | (0.6 pts | ) | ||||||||
| Research and Development Expenses | $ 480 | $ 432 | 11% | |||||||||
| Business optimization items 2 | (23 | ) | ||||||||||
| European medical devices regulation 11 | (3 | ) | ||||||||||
| Adjusted Research and Development Expenses | $ 454 | $ 432 | 5% | |||||||||
| % of Net Sales | 5.5% | 5.5% | 0.0 pts | |||||||||
| Claris Settlement | $ (80 | ) | $ | NM | ||||||||
| Claris settlement 8 | 80 | |||||||||||
| Adjusted Claris Settlement | $ | $ | 0% | |||||||||
| % of Net Sales | 0.0% | 0.0% | 0.0 pts | |||||||||
| Operating Income | $ 1,201 | $ 1,000 | 20% | |||||||||
| Impact of special items | 239 | 291 | ||||||||||
| Adjusted Operating Income | $ 1,440 | $ 1,291 | 12% | |||||||||
| % of Net Sales | 17.4% | 16.6% | 0.8 pts | |||||||||
| Other (Income) Expense, Net | $ (81 | ) | $ 35 | NM | ||||||||
| Venezuelan deconsolidation 9 | (33 | ) | ||||||||||
| Adjusted Other (Income) Expense, Net | $ (81 | ) | $ 2 | NM | ||||||||
| Pre-Tax Income from Continuing Operations | $ 1,248 | $ 924 | 35% | |||||||||
| Impact of special items | 239 | 324 | ||||||||||
| Adjusted Pre-Tax Income from Continuing Operations | $ 1,487 | $ 1,248 | 19% | |||||||||
| Income Tax (Benefit) Expense | $ (28 | ) | $ 139 | NM | ||||||||
| Impact of special items 12 | 270 | 87 | ||||||||||
| Adjusted Income Tax Expense | $ 242 | $ 226 | 7% | |||||||||
| % of Adjusted Pre-Tax Income from Continuing Operations | 16.3% | 18.1% | (1.8 pts | ) | ||||||||
| Income from Continuing Operations | $ 1,276 | $ 785 | 63% | |||||||||
| Impact of special items | (31 | ) | 237 | |||||||||
| Adjusted Income from Continuing Operations | $ 1,245 | $ 1,022 | 22% | |||||||||
| Diluted EPS from Continuing Operations | $ 2.33 | $ 1.42 | 64% | |||||||||
| Impact of special items | (0.06 | ) | 0.42 | |||||||||
| Adjusted Diluted EPS from Continuing Operations | $ 2.27 | $ 1.84 | 23% | |||||||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||
| Diluted | 548 | 554 |
results in 2017 included a net charge of $116 million ($83 million, or $0.15 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $50 million related to restructuring activities, $58
million of costs to implement business optimization programs which primarily included external consulting and project employee costs, and $8 million of accelerated depreciation associated with facilities to be closed. The $50 million of net
restructuring charges included $40 million of employee termination costs, $5 million of contract termination costs, and $5 million of asset impairment charges primarily related to facility closures.