DEERFIELD, Ill., July 19 /PRNewswire-FirstCall/ -- Baxter International Inc. today reported stronger-than-expected financial results for the second quarter of 2007 and raised its full-year 2007 earnings guidance.
Baxter reported second quarter net income of $431 million, an increase of 39 percent over the $309 million reported in the second quarter of 2006. Net earnings per diluted share increased 38 percent to $0.65. These results include an after-tax charge of $46 million ($0.07 per diluted share) primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside the United States. On an adjusted basis, excluding special items in the current and prior-year periods, Baxter reported net income of $477 million or $0.72 per diluted share, an increase of 28 percent and 26 percent respectively. These results compare favorably to the earnings guidance previously provided for the quarter of $0.66 to $0.68 per diluted share, and were the result of solid revenue gains, strong operational performance led by margin expansion, as well as lower interest and income tax expense.
Baxter’s worldwide sales totaled $2.8 billion in the second quarter, an increase of 7 percent (or 3 percent excluding the impact of foreign exchange). Sales within the United States totaled $1.2 billion, an increase of 1 percent over the same period last year, while sales outside of the United States grew 12 percent (or 5 percent excluding the impact of foreign exchange) to $1.6 billion. As previously announced, the company completed the divestiture of its Transfusion Therapies business during the first quarter of 2007. Excluding Transfusion Therapies revenues from both years, Baxter’s worldwide sales increased 10 percent (or 7 percent excluding the impact of foreign exchange) to $2.8 billion from $2.5 billion recorded in the prior year.
Baxter’s BioScience business generated a 20 percent increase in revenues, with sales totaling $1.2 billion. This performance was a result of robust growth across multiple products, including ADVATE(R) [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method], a therapy used in the treatment of hemophilia A, antibody therapy products for the treatment of primary immunodeficiencies, and other specialty plasma therapeutics such as FEIBA (an inhibitor therapy indicated for the control of spontaneous bleeding episodes in patients with hemophilia A and hemophilia B) and ARALAST (a human alpha-1 proteinase inhibitor (A1PI) for patients with hereditary emphysema). This business also posted record vaccine sales in the quarter driven by continued demand in Europe for its vaccines that prevent tick-borne encephalitis and group C meningococcal meningitis.
In the second quarter, Medication Delivery revenues increased 3 percent as a result of strong international performance of anesthesia and parenteral nutrition products, and Renal revenues increased 7 percent to $553 million as the company continued to realize solid gains in the number of peritoneal dialysis patients, primarily in developing countries.
“We continue to meet or exceed our short-term financial objectives while investing to create long-term value for our shareholders,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “Our strong financial results in the first half of this year not only validate the strength of our diversified healthcare model, but also reinforce our confidence in achieving our longer-term objectives.”
Baxter’s investment in research and development increased 21 percent in the quarter, and the company achieved a number of commercial, clinical and regulatory milestones during the period, including:
-- Expansion of R&D capabilities through the acquisition of MAAS Medical, LLC, a design firm specializing in infusion systems technology. The acquisition of talent and certain assets from this private company based in Irvine, Calif. brings expertise in technology integration that will create value across a number of Baxter’s infusion systems platforms. -- Initiation of clinical trials comparing the safety, tolerability and pharmacokinetics of various injectable therapeutic agents administered subcutaneously with and without HYLENEX recombinant, and intravenously. HYLENEX is approved by the U.S. Food and Drug Administration (FDA) for use as a spreading agent to increase the absorption and dispersion of other injected drugs and for subcutaneous fluid administration. -- Receipt of FDA approval for the self-manufacturing of ARALAST by Baxter. ARALAST is a human alpha-1 proteinase inhibitor (A1PI) indicated for chronic augmentation therapy in patients with hereditary emphysema, a genetic condition caused by a deficiency of A1PI in the lungs. -- Launch of ADVATE in Argentina and receipt of FDA approval for a new 3000 IU dosage strength. ADVATE is used for the prevention and control of bleeding episodes in people with hemophilia A and is the only factor VIII therapy free of blood-based additives.
Six-Month Results
For the first six months of 2007, Baxter’s net income totaled $834 million and increased 41 percent, with earnings per diluted share increasing 40 percent to $1.26. On an adjusted basis, excluding special items, Baxter’s net income of $880 million increased 34 percent from $655 million last year. Adjusted earnings per diluted share for the six-month period of $1.33 increased 33 percent, from $1.00 per diluted share in the prior year period.
Baxter’s worldwide sales grew 9 percent in the first half of the year to $5.5 billion, up from $5.1 billion last year. Excluding the impact of foreign exchange, organic sales growth for the first six months of the year was 5 percent. Sales within the United States totaled $2.3 billion, an increase of 4 percent over the same period last year, and international sales grew 13 percent (or 7 percent excluding the impact of foreign exchange) to $3.2 billion. Excluding revenues related to the Transfusion Therapies business, Baxter’s worldwide sales increased 12 percent (or 8 percent excluding the impact of foreign exchange) to $5.4 billion from $4.8 billion recorded in the prior year.
Cash flow from operations totaled $946 million for the six-month period, compared to $848 million in the same period in 2006. Free cash flow (cash flow from operations, less capital expenditures of $258 million for the first six months of 2007) was $688 million, reflecting an improvement of $38 million from the same period last year.
Third Quarter and Full-Year 2007 Outlook
Given its strong financial results for the first half of the year, Baxter is raising its earnings outlook for full-year 2007. The company now expects to achieve earnings per diluted share of $2.65 to $2.70, compared to its previous range of $2.60 to $2.65, both excluding special items. Baxter continues to expect sales growth of 4 to 5 percent for the year, excluding the impact of foreign exchange. In addition, Baxter continues to expect cash flow from operations for full-year 2007 to total approximately $2.3 billion.
For the third quarter of 2007, Baxter expects sales growth of 3 to 4 percent, excluding the impact of foreign exchange, and earnings per diluted share, before any special items, of $0.64 to $0.66.
The financial outlook for the third quarter and full-year 2007 reflects the divestiture of the Transfusion Therapies business and excludes recommercialization of the company’s COLLEAGUE infusion pump in the United States, which may occur before the end of 2007.
A webcast of Baxter’s second quarter 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 July 19, 2007. Please visit Baxter’s website for more information regarding this and future investor events and webcasts, including investor presentations.
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma and other conditions. The company applies its expertise in medical devices, pharmaceuticals and biotechnology to make a meaningful difference in patients’ lives.
This release includes forward-looking statements concerning the company’s financial results. 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 risks for new and existing products, such as ADVATE, and other technologies; future actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts, that could limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; the impact of geographic and product mix on the company’s sales; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; reimbursement policies of government agencies and private payers; the availability of acceptable raw materials and component supply; the ability to enforce company patents; patents of third parties preventing or restricting the company’s manufacture, sale or use of affected products or technology; and other risks identified in the company’s most recent filing on Form 10-Q and other SEC filings, all of which are available on the company’s website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company’s website.
BAXTER INTERNATIONAL INC. Consolidated Statements of Income Three Months Ended June 30, 2007 and 2006 (unaudited) (in millions, except per share and percentage data) Three Months Ended June 30, ------------------------ 2007 2006 Change -------- --------- -------- NET SALES $2,829 $2,649 7% COST OF GOODS SOLD (1) 1,437 1,494 (4%) -------------------------------------------------------------------------- GROSS PROFIT 1,392 1,155 21% -------------------------------------------------------------------------- % of Sales 49.2% 43.6% 5.6 pts MARKETING AND ADMINISTRATIVE EXPENSES 621 582 7% % of Sales 22.0% 22.0% 0 pts RESEARCH AND DEVELOPMENT EXPENSES (2) 177 146 21% % of Sales 6.3% 5.5% 0.8 pts RESTRUCTURING CHARGES (3) 70 - 100% NET INTEREST (INCOME) EXPENSE (1) 10 (110%) OTHER EXPENSE, NET 17 19 (11%) -------------------------------------------------------------------------- PRE-TAX INCOME 508 398 28% -------------------------------------------------------------------------- INCOME TAX EXPENSE (4) 77 89 (13%) -------------------------------------------------------------------------- NET INCOME $431 $309 39% ========================================================================== BASIC EPS $0.66 $0.47 40% ========================================================================== DILUTED EPS $0.65 $0.47 38% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 650 654 Diluted 661 659 -------------------------------------------------------------------------- ADJUSTED NET INCOME (excluding certain items) (5) $477 $373 28% ADJUSTED DILUTED EPS (excluding certain items) (5) $0.72 $0.57 26% (1) Cost of goods sold in 2006 includes a $76 million pre-tax charge related to COLLEAGUE infusion pumps. (2) Research and development (R&D) expenses in 2007 include an $11 million in-process R&D (IPR&D) charge related to the acquisition of MAAS Medical, LLC. (3) Restructuring charges in 2007 are primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States. (4) Income tax expense in 2007 includes a $15 million benefit related to an audit settlement and the extension of tax incentives in jurisdictions outside the United States. The effective income tax rate in 2007 was also favorably impacted by the restructuring charges described in Note 3 above. (5) Adjusted net income and adjusted diluted EPS exclude the charges described in Notes 1 and 3 above. See page 8 for description of adjustments and reconciliation to GAAP (generally accepted accounting principles) measures. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings and per-share earnings, excluding certain items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information. BAXTER INTERNATIONAL INC. Consolidated Statements of Income Three Months Ended June 30, 2007 and 2006 Description of Adjustments and Reconciliation of GAAP to Non-GAAP (unaudited) (in millions, except per share and percentage data) 2007 description of adjustment and reconciliation of GAAP to Non-GAAP --------------------------------------------------------------------- The company’s GAAP results for the three months ended June 30, 2007 included restructuring charges, primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States, which impacted the GAAP results as follows: Income Pre-tax Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $508 $77 $431 $0.65 Restructuring charges 70 24 46 0.07 ------------------------------------------ Excluding specified items $578 $101 $477 $0.72 ========================================== 2006 description of adjustment and reconciliation of GAAP to Non-GAAP --------------------------------------------------------------------- The company’s GAAP results for the three months ended June 30, 2006 included a charge related to COLLEAGUE infusion pumps, which impacted the GAAP results as follows: Income Pre-tax Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $398 $89 $309 $0.47 COLLEAGUE infusion pump charge (A) 76 12 64 0.10 ------------------------------------------ Excluding specified items $474 $101 $373 $0.57 ========================================== (A) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding this item, adjusted gross profit is $1,231 million and the adjusted gross profit percentage is 46.5%. BAXTER INTERNATIONAL INC. Consolidated Statements of Income Six Months Ended June 30, 2007 and 2006 (unaudited) (in millions, except per share and percentage data) Six Months Ended June 30, ------------------------ 2007 2006 Change -------- --------- -------- NET SALES $5,504 $5,058 9% COST OF GOODS SOLD (1) 2,846 2,851 0% -------------------------------------------------------------------------- GROSS PROFIT 2,658 2,207 20% -------------------------------------------------------------------------- % of Sales 48.3% 43.6% 4.7 pts MARKETING AND ADMINISTRATIVE EXPENSES 1,204 1,108 9% % of Sales 21.9% 21.9% 0 pts RESEARCH AND DEVELOPMENT EXPENSES (2) 336 284 18% % of Sales 6.1% 5.6% 0.5 pts RESTRUCTURING CHARGES (3) 70 - 100% NET INTEREST EXPENSE 4 28 (86%) OTHER EXPENSE, NET (4) 7 35 (80%) -------------------------------------------------------------------------- PRE-TAX INCOME 1,037 752 38% -------------------------------------------------------------------------- INCOME TAX EXPENSE (5) 203 161 26% -------------------------------------------------------------------------- NET INCOME $834 $591 41% ========================================================================== BASIC EPS $1.28 $0.91 41% ========================================================================== DILUTED EPS $1.26 $0.90 40% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 650 648 Diluted 660 654 -------------------------------------------------------------------------- ADJUSTED NET INCOME (excluding certain items) (6) $880 $655 34% ADJUSTED DILUTED EPS (excluding certain items) (6) $1.33 $1.00 33% (1) Cost of goods sold in 2006 includes a $76 million pre-tax charge related to COLLEAGUE infusion pumps. (2) R&D expenses in 2007 include an $11 million IPR&D charge related to the acquisition of MAAS Medical, LLC. (3) Restructuring charges in 2007 are primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States. (4) Other expense, net in 2007 includes income of $23 million, reflecting a gain on the sale of the Transfusion Therapies business of $58 million less related charges of $35 million. The after-tax impact of these items was $6 million of income, or $0.01 per diluted share. (5) Income tax expense in 2007 includes a $15 million benefit related to an audit settlement and the extension of tax incentives in jurisdictions outside the United States. The effective income tax rate in 2007 was also favorably impacted by the restructuring charges described in Note 3 above. (6) Adjusted net income and adjusted diluted EPS exclude the charges described in Notes 1 and 3 above. See page 10 for description of adjustments and reconciliation to GAAP measures. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings and per-share earnings, excluding certain items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information. BAXTER INTERNATIONAL INC. Consolidated Statements of Income Six Months Ended June 30, 2007 and 2006 Description of Adjustments and Reconciliation of GAAP to Non-GAAP (unaudited) (in millions, except per share and percentage data) 2007 description of adjustment and reconciliation of GAAP to Non-GAAP --------------------------------------------------------------------- The company’s GAAP results for the six months ended June 30, 2007 included restructuring charges, primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States, which impacted the GAAP results as follows: Income Pre-tax Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $1,037 $203 $834 $1.26 Restructuring charges 70 24 46 0.07 ------------------------------------------ Excluding specified items $1,107 $227 $880 $1.33 ========================================== 2006 description of adjustment and reconciliation of GAAP to Non-GAAP --------------------------------------------------------------------- The company’s GAAP results for the six months ended June 30, 2006 included a charge related to COLLEAGUE infusion pumps, which impacted the GAAP results as follows: Income Pre-tax Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $752 $161 $591 $0.90 COLLEAGUE infusion pump charge (A) 76 12 64 0.10 ------------------------------------------ Excluding specified items $828 $173 $655 $1.00 ========================================== (A) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding this item, adjusted gross profit is $2,283 million and the adjusted gross profit percentage is 45.1%. BAXTER INTERNATIONAL INC. Condensed Consolidated Balance Sheets (unaudited) ($ in millions) June 30, 2007 December 31, 2006 ------------------- ------------------ Assets ------ Cash and equivalents $2,486 $2,485 Receivables 1,993 1,838 Inventories 2,186 2,066 Other current assets 520 581 ------------------- ------------------ Total current assets 7,185 6,970 ------------------- ------------------ Property, plant and equipment, net 4,110 4,229 Other long-term assets 3,364 3,487 ------------------------------------------------------------------------ Total assets $14,659 $14,686 ======================================================================== Liabilities and Shareholders’ Equity ------------------------------------ Short-term debt $666 $234 Other current liabilities 3,126 3,376 Long-term debt 2,051 2,567 Other long-term liabilities 2,127 2,237 Shareholders’ equity 6,689 6,272 ------------------------------------------------------------------------ Total liabilities and shareholders’ equity $14,659 $14,686 ======================================================================== BAXTER INTERNATIONAL INC. Cash Flows from Operations and Changes in Net Debt (unaudited) ($ in millions) ------------------------------------------------------------------------ Cash Flows from Operations ------------------------------------------------------------------------ (Brackets denote cash outflows) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2007 2006 2007 2006 -------- -------- -------- ------- Net income $431 $309 $834 $591 Adjustments Depreciation and amortization 147 146 287 285 Deferred income taxes 31 16 18 18 Stock compensation 36 20 63 38 Restructuring and infusion pump charges 70 76 70 76 Other 33 4 37 22 Changes in balance sheet items Receivables (56) (23) (154) 15 Inventories (42) 13 (170) (50) Accounts payable and accrued liabilities 67 (32) (91) (137) Restructuring payments (3) (6) (6) (25) Other 17 20 58 15 ------------------------------------------------------------------------ Cash flows from operations $731 $543 $946 $848 ======================================================================== ------------------------------------------------------------------------ Changes in Net Debt ------------------------------------------------------------------------ Increase (decrease) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2007 2006 2007 2006 -------- -------- -------- ------- Net debt, beginning of period $336 1,524 $316 $2,497 Cash flows from operations (731) (543) (946) (848) Capital expenditures 165 122 258 198 Dividends 109 - 489 363 Proceeds from sale of Transfusion Therapies business - - (421) - Issuances of common stock - - - (1,249) Proceeds from stock issued under employee benefit plans (227) (31) (428) (75) Purchases of treasury stock 544 221 814 392 Other, including the effect of exchange rate changes 35 5 149 20 ------------------------------------------------------------------------ Decrease in net debt (105) (226) (85) (1,199) ------------------------------------------------------------------------ Net debt, June 30 $231 $1,298 $231 $1,298 ======================================================================== ------------------------------------------------------------------------ Key statistics, June 30: Days sales outstanding 56.0 52.1 56.0 52.1 Inventory turns 2.6 2.7 2.6 2.7 ------------------------------------------------------------------------
