In this paragraph, the operator is introducing the conference call and Baxter International's Vice President of Investor Relations, Clare Trachtman, who will be discussing the company's second quarter 2023 financial results and financial outlook for the third quarter and full year 2023. The results and outlook have been adjusted to reflect the pending sale of the biopharma solutions business, which is now reported as a discontinued operation. Baxter has provided restated schedules reflecting this presentation on their IR website.

In the second quarter of 2023, Baxter reported a 3% increase in sales on a reported basis and a 4% increase on a constant currency basis, both of which exceeded their prior guidance. Joe Almeida will provide an overview of their performance and progress, followed by Brian Stevens who will give more details on their quarterly performance and outlook. The company also wants to remind investors that their actual results could differ from current expectations due to certain risks and uncertainties.

In the second quarter, adjusted earnings per share from continuing operations totaled $0.55 and from discontinued operations totaled $0.11. This exceeded the outlook range of $0.59 to $0.61 due to solid demand across the portfolio and operational efficiencies. Positive signs are emerging in the health care marketplace with hospital admissions, procedural volumes, and alternate sites of care all contributing to a more stable inflationary environment. The availability of key electromechanical components has also improved.

In the second quarter of 2023, the company saw an increase in sales of 3% reported and 4% on a constant currency basis. The company has taken steps to improve the environmental impact and cost management of its supply chain, and has recently launched a new version of its ICU bed with enhanced features. Additionally, the company is making progress on its strategic actions, such as the spin-off of its renal care and acute therapies businesses, the sale of its BPS business, and the implementation of the remainder progress.

The company's sales performance in the quarter was better-than-expected across nearly all business lines, with Medication Delivery, Pharmaceuticals, and Patient Support Systems showing the most improvement. Sales were down 1% in Patient Support Systems due to lower rental revenues and reduced hospital capital spending, and BPS sales were lower due to a reduction in revenue from COVID vaccine manufacturing. Adjusted earnings decreased 24%, and adjusted EPS for the quarter was higher than expected due to sales and operational performance, offset by a lower-than-expected tax rate. Sales in the Americas, Europe, the Middle East, and Africa grew 5%, 3%, and 4% respectively on a constant currency basis, but APAC is expected to be negatively impacted in the second half of the year due to a decline in China sales.

Renal Care reported global sales of $936 million, a 2% increase from the previous year. The U.S. PD business grew mid-single digits, while U.S. in-center HD sales decreased due to the end of a distribution agreement. Medication Delivery sales increased 7% to $761 million, driven by IV solutions and infusion systems. Pharmaceutical sales increased 6% to $550 million, with strength in U.S. injectables and international hospital compounding. Clinical Nutrition sales rose 7% to $243 million, while Advanced Surgery sales increased 4% to $272 million.

In the quarter, Hill-Rom reported 6% growth in their Acute Therapies business, 1% decrease in their Patient Support Systems business, and 9% increase in their Front Line Care business. The Acute Therapies growth was driven by strength in the APAC region, while the Patient Support Systems decrease was due to lower rental revenues and hospital capital spending. The Front Line Care increase was due to demand for intelligent diagnostics, respiratory health, and connected monitoring products, with supply constraints improving but still having an elevated backlog level.

Global Surgical Solutions sales increased 9% on a constant currency basis in the quarter, while BPS second quarter sales decreased 7% due to lower COVID vaccine-related revenues. Adjusted gross margin from continuing operations totaled 40.4%, a decrease of 160 basis points due to increased cost of goods sold, partially offset by favorable pricing. Adjusted SG&A totaled $844 million or 22.8%, a decrease of 40 basis points due to ongoing transformation initiatives. Adjusted R&D spending totaled $165 million and represented 4.5% as a percentage of sales, an increase of 40 basis points versus the prior year.

The company increased its R&D investments and saw a decrease in adjusted operating margin of 150 basis points. Net interest expense increased due to higher interest rates, while adjusted other nonoperating expense was driven by losses in foreign exchange and marketable securities. The adjusted tax rate decreased due to changes in geographic earnings mix. In the first half of 2023, free cash flow was more than double what it was in the prior year period, and adjusted earnings from continuing operations totaled $0.55 and declined 25% year-over-year.

Baxter has provided updated guidance for the third quarter and full year 2023, taking into account their positive second quarter results. They expect total sales growth from continuing operations of 1-2% on a reported basis and approximately 2% on a constant currency basis. They also anticipate a 50 basis point headwind to reported results from foreign exchange on a full year basis, but this could change depending on the timing of the sale of VPS.

Baxter expects that if BPS remains a part of Baxter through the end of 2023, the company's sales growth and adjusted operating margin in the aggregate will remain the same. If the BPS transaction closes by the end of September as anticipated, there will be a reduction of interest expense of approximately $40 million and a full year adjusted tax rate of 20.5-21%. The company expects a diluted average share count of 508 million shares and an adjusted earnings total of $2.92 to $3 per diluted share, including $2.49 to $2.57 from continuing operations and $0.43 from discontinued operations.

Baxter International reported anticipated full year adjusted earnings in the aggregate, including discontinued operations, of $2.87 to $2.95 per diluted share. For the third quarter of 2023, global sales growth from continuing operations is expected to be approximately 2% on a reported basis and 1% on a constant currency basis. Adjusted earnings from continuing operations are expected to be $0.65 to $0.67 per diluted share, and adjusted earnings from discontinued operations are expected to be $0.13 per diluted share. This would result in an aggregate of $0.78 to $0.80 per diluted share. The question and answer session is now open.

Jose Almeida and Brian Stevens discussed the sale of BPS and the impact it will have on their earnings. They noted that the sale would result in discontinued operations reporting, and they adjusted their investor presentation to reflect this. They also discussed the expected interest expense savings, which would offset the $0.43 impact from discontinued operations. Finally, they reported that their adjusted operating margins for the quarter were 14.4%, which was slightly above expectations.

The company expects a 300 basis point margin expansion in the second half of the year due to sales growth, integrated supply chain savings, and cost savings initiatives. These initiatives have already benefited the company in the first half of the year and will continue to do so in the second half.

Jose Almeida provides an update on the company's infusion pump platform, which has been resubmitted to the FDA in June. He states that they have resolved the open issue that the FDA had requested and have proactively implemented software changes. They are in constant communication with the FDA and are cautiously optimistic that the product will be approved. Additionally, the company's SIGMA Spectrum pump is doing extremely well and they are augmenting the supply chain to make sure it remains available.

Novum has been steadily gaining market share year-over-year and is exceeding expectations for the year. They have upped their forecast twice since the beginning of the year and are looking forward to having a normal LVP in the U.S. market. They are guiding for 1% growth in the third quarter, but are assuming improving trends in the second half.

The company reported a 4% growth in constant currency for the third quarter, driven by strong performance in MPT, Pharma, Frontline Care, and Intelligent Diagnostics and Respiratory Health. However, the growth is expected to slow to 1% due to headwinds from lower rental revenues and excess mortality in the Kidney Care business in China, as well as some discrete items that happened in the prior year period. Despite this, the company has been able to offset the headwinds with strong performance across the rest of its portfolio.

Jose Almeida discussed the success of Progressive Plus, which has resulted in competitive conversions and market share. He also noted that Baxter has the opportunity to benefit from the recent damage to the Pfizer injectable plant, with the potential to make up to $10 million in the second half of the year. He concluded by emphasizing that Baxter will be there to serve customers with the products they have.

Jose Almeida discussed the potential growth drivers for the RemainCo business, excluding renal, over the next 12 months. He highlighted HST, frontline care, and advanced surgery as potential drivers for growth. He mentioned the potential of gaining market share in beds due to the performance of their new bed launch, as well as the demand for their per cloud product which has been seen to have superior performance in side-by-side testing.

Baxter is looking to add a second supplier in 2024 and has seen success with new product launches in their pharmaceutical business. They are also excited about the launch of their Progressive Plus ICU bed and the new features of their Centrella bed platform. They are transitioning to a vertical-focused organization with CEOs that own the entire business, including the supply chain.

Jose Almeida discussed the recovery of Baxter's PD business, which has seen mid-single digit growth in some geographies and low single digit growth in others, and the optimization of the HD business. He mentioned initiatives to augment the PD business and optimization of the HD business, including the dialyzer business and HD monitors, to make it a supplemental, profitable, and growing business. Finally, he mentioned the transition to a new segment reporting system in the second half of the year.

Jose Almeida is discussing the upgrades to the Nova pump in Canada and the FDA application. He states that they have software updates available and other changes that will be made in the next couple of months. Almeida also mentions that they are looking for a new CFO and hope to announce the update by the end of the year.

Jose Almeida and Clare Trachtman discussed the new NOVUM syringe platform, which has advanced safety features. Almeida expressed confidence in the technology and optimism that it would be approved by the FDA and Health Canada. They also commented on the 30% orders growth for the PSS segment and the double digit growth in U.S. pharma, noting that pricing appears to be stable in the U.S.

Jose Almeida and Clare Trachtman discussed the growth of PSS, which showed a 30% sequential improvement in the third quarter. Hill-Rom had their year-end in the third quarter, creating a challenging comp from an overall sales dollar perspective. However, order rates are improving and the second half of the year is expected to have more momentum than the first. In terms of pricing, Baxter is launching new products called specialty generics which have significant gross margins.

Jose Almeida explains that the operating margin improvement is largely due to sales growth, supply chain cost savings, and cost savings initiatives. He states that these three items are offset by the impact of foreign exchange. Clare Trachtman adds that there is time for one more question.

Baxter has been successfully selling their Sigma Spectrum and Spectrum IQ pumps, and is ramping up production of them. They have been able to convert market share from their competitors due to the benefits of the pumps. They are looking forward to the approval of their new pump, NOVUM, which has safety features and integration that will be beneficial to customers. Joe Almeida adds that they have greater opportunity with NOVUM than with their current pumps.

Joe Almeida and Clare Trachtman of Baxter discussed the potential for growth in the Hill-Rom business in the back half of the year and into 2024. They expect the business to accelerate from low single digits in the first half to mid-single digits in the back half, driven by improvements in Front Line Care and new product launches.

Baxter International is looking forward to growth in their PSS, cardiology, and Frontline Care product launches for 2024, and they are expecting to reach mid-single digit growth rates through their portfolio moves. They are also excited about their GSS business, which has potential for further growth. This quarter was focused on supply chain resiliency, and Baxter is looking forward to transforming their business with more growth opportunities.

This summary was generated with AI and may contain some inaccuracies.