The operator welcomes listeners to Baxter International's Third Quarter 2023 Earnings Conference Call and reminds them that the call is being recorded and copyrighted by Baxter. Ms. Clare Trachtman, Senior Vice President and Chief Investor Relations Officer, introduces the other speakers and explains that they will be discussing Baxter's financial results for the third quarter and outlook for the fourth quarter and full year 2023. She also notes that the sale of their BioPharma Solutions business has been completed and results have been adjusted to reflect this change. The restated schedules can be found on Baxter's website.

During the presentation, the speaker reminds the audience that their statements contain forward-looking information and that actual results may differ. Non-GAAP financial measures will be used and a reconciliation will be provided. The CEO will then discuss the company's third quarter performance and ongoing transformational initiatives, as well as the potential of their proposed Kidney Care spinoff.

Baxter reported strong third quarter results, with sales and earnings exceeding projections. The company's top line performance was driven by increased demand for products and improved supply chain operations. Adjusted earnings per share from continuing operations exceeded expectations, and the company remains cautiously optimistic about the current market environment. Progress is also being made in achieving the strategic priorities set earlier in the year.

The company has been working on initiatives to improve performance, including realigning the business into four global segments, streamlining operations, and divesting non-core businesses. This has resulted in a more agile company with better visibility and alignment. The company's diversified portfolio and strong brands help sustain demand and weather challenges. The recent divestiture of a business has allowed the company to pay down debt with the proceeds.

The third transformational action for the year is the planned separation of the Kidney Care Segment, which is expected to launch as an independent company by July 2024. The leadership of Chris Toth, the President of the Kidney Care Segment, has been praised for his progress in establishing the new company. The separation process involves various operational aspects, and the new company will be able to focus on its unique investment priorities. The company is keeping a close eye on developments in GLP-1 therapy and is open to new approaches that could benefit patients.

The article argues that despite the potential impact of new drugs on the demand for dialysis services, the global incidence of end-stage kidney disease is expected to continue rising due to factors such as an increase in diabetes prevalence and an aging population. The article also highlights the importance of raising awareness and empowering patients in making treatment decisions, and expresses optimism about the future of kidney care.

The author's thesis and sense of opportunity for an independent Kidney Care business remains unchanged since the spin was announced. The past year has been a period of investment, transformation, and difficult decisions to strengthen the company's present and redefine its future. Progress has been made in divesting BPS, implementing a new segment structure, and working towards the Kidney Care separation. The author thanks Baxter employees for their hard work and welcomes the new CFO, Joel Grade. Grade expresses his excitement to join Baxter during this important transformational journey.

The speaker is discussing their new position at Baxter and their excitement for the opportunities to increase long-term value for stakeholders. They turn the discussion over to Brian, who provides details on Baxter's third quarter financial performance and an updated financial outlook. Sales in the quarter exceeded expectations, driven by strong performance in medical products and therapies and pharmaceuticals. Adjusted earnings from continuing operations decreased slightly due to increased interest expenses.

The company's adjusted EPS from continuing operations for the quarter exceeded expectations, driven by sales and operational performance. Sales in the medical products and therapies segment increased by 4% on a constant currency basis, with strong growth in the infusion systems portfolio. Sales in the advanced surgery segment grew by 3%, while sales in the Kidney Care segment remained flat. The decline in sales for chronic therapies was due to a difficult comparison to the previous year and the impact of government procurement initiatives and the pandemic in China.

The company experienced negative impacts on sales of more than $40 million due to region-specific factors. Sales in the Acute Therapies business grew by 12% on a constant currency basis, while sales in the Healthcare Systems & Technology segment remained flat. Sales in the Care & Connectivity solutions division decreased by 4%, but orders improved sequentially. Frontline Care sales increased by 8% and the backlog is expected to decrease by the end of the year. Sales in the pharmaceutical segment increased by 9%, driven by new product launches and strong demand for services. Other sales, not allocated to a segment, declined by more than 50%.

The lower sales in 2023 are due to reduced demand and the termination of a royalty arrangement. The adjusted gross margin decreased by 70 basis points due to higher costs, but was partially offset by pricing and margin improvement programs. Adjusted SG&A and R&D expenses also increased slightly due to ongoing transformation initiatives and higher employee incentive accruals. As a result, the adjusted operating margin decreased by 50 basis points compared to the prior year but improved by 200 basis points sequentially.

The company's operating margin exceeded expectations in the quarter due to strong top line performance and improved operational efficiency. Net interest expense increased due to higher interest rates on variable rate debt. Adjusted other non-operating income was unfavorable due to losses in foreign exchange. The adjusted tax rate decreased compared to the prior year, driven by changes in geographic earnings mix. Adjusted earnings from continuing operations declined 4% due to inflation, higher interest expense, and foreign exchange headwinds. Total company adjusted earnings were flat compared to the prior year period. Free cash flow more than doubled in the first nine months of 2023 compared to the prior year. The company is on track to more than double its free cash flow in 2023 from prior year levels. The company provided guidance for the fourth quarter and full year 2023, including key assumptions.

Baxter expects a 1-2% sales growth for 2023, with a 50 basis point currency headwind. They also anticipate a 14.3-14.5% adjusted operating margin and a $45 million reduction in net interest expenses in the fourth quarter. For the full year, they expect net interest expenses to be around $450 million. They also expect a 20.5-21% adjusted tax rate and a diluted average share count of 508 million shares. For the fourth quarter of 2023, they anticipate a 1-2% global sales growth and adjusted earnings of $0.85-$0.88 per diluted share. They are now accepting questions from analysts. The first question is from Matt Miksic from Barclays, who congratulates them on a strong quarter and asks about the progress and challenges of the spin of Kidney Co.

Joe Almeida, CEO of Baxter International, discusses the progress of the proposed spin-off of the company's Kidney Care segment into a separate company called Vantive. The preparations are going well and the organization has been designed and personnel have been allocated. However, the Board will continue to evaluate the financials to ensure it is in the best interest of shareholders. The spin-off is currently planned for July 2024. In terms of the Hill-Rom business, which has faced challenges in the past year, Almeida notes that progress has been made with the redesign of the organization and hiring of new key positions. He also mentions that Reaz Rasul has been appointed as segment President.

The company has seen steady momentum in their front-line care business due to a new team and improved supply chain availability. However, their CCS division has been impacted by lower rental revenues and softness in capital expansion. They expect improved orders in the fourth quarter and increased investments in HST. The company's overall business is expected to have a large fourth quarter and increase profitability. The caller also asked about the company's interest expense and implied operating margins.

In the fourth quarter, the company expects interest to decrease by $45 million, and the operating margin to increase to over 16%. This increase is due to higher sales and cost savings from supply chain and operational efficiency initiatives. The company is optimistic about the market stability and growth rates in admissions for the upcoming fiscal year. The street is currently modeling 100 basis points of margin expansion for the company.

Joe Almeida, CEO of Baxter, discusses the company's stable top line growth and expectations for continued growth in 2024. He highlights the success of their Kidney Care business and cost reductions in manufacturing facilities. Almeida also mentions the positive impact of new product launches and a stabilization of their HST business. He expresses confidence in the company's top and bottom line for 2024. When asked about his priorities as the new CEO, Joel shares that he is focused on continuing the company's success and bringing his own unique skills to the role.

The speaker discusses the process of selecting a CFO for the company and outlines the qualities they are looking for, including the ability to understand and navigate the complexity of the company's operations, drive operational efficiencies, and lead cultural and talent development. The CFO should also have experience in M&A to help transform the company's portfolio and create value for shareholders. The incoming CFO, Joel Grade, expresses his excitement for the role and the opportunities at Baxter.

The speaker discusses their early impressions of the company and the talented and passionate people working there. They plan to focus on learning the business, accelerating growth, and understanding the organization. They also mention their background in finance, ops strategy, M&A, and transformation and how they will bring those skills to the company. In response to a question about the impact of the spin on future numbers, the speaker says they will need to assess the situation and make any necessary adjustments.

The company is in the process of spinning off a division and will provide more information on the cost estimates and synergies in connection with their 2024 guidance and Investor Day. The CEO emphasizes that the company will continue to see progress and growth in their top and bottom line despite the dis-synergies. In regards to their Novum IQ pump, they have not lost any market share to their competitors and have seen strong demand. There is no update on the pump approval process.

Baxter's infusion hardware growth has increased significantly, with solid demand for their product. They are working with the FDA to get their Novum pump approved, but in the meantime, their current pump continues to gain market share. Baxter is also implementing operational efficiencies to offset any potential headwinds from rising energy costs.

During the analyst call, Joe Almeida, CEO of the company, discussed the impact of rising oil and diesel prices on the company's initiatives. He stated that the initiatives are expected to offset any negative impact and mentioned that the company's long-term goal is to achieve 4-5% organic growth. He also shared that the company's pharmaceutical business has seen improvement due to successful product launches. He did not provide specific guidance for 2024, but expects the company's growth to be in line with market expectations. He also shared the segment margins and stated that the company's objective is to achieve 4-5% growth in the mid to long term.

Joe Almeida and Brian Stevens discuss the potential impact of the four segments and increased leadership ownership on improving margins for Baxter. They mention various initiatives such as manufacturing, logistics, pricing, and new product launches that could positively affect margins. They also express confidence in their ability to continue improving margins in the future. Additionally, they plan to provide supplemental information on historical data to provide better comparability.

The speaker discusses the direction of Baxter margins and how they will increase in the second half of the year due to selling higher cost inventory and higher sales. They also mention ongoing preparations for the Renal division spin-off and the need to pressure test and analyze market conditions to maximize shareholder value.

The speaker emphasizes that their top priority in Baxter is to ensure that every step is carefully analyzed and checked. He also mentions that the team is working on a strategic rationale for a bid and that part of the process is helping a colleague get up to speed on the financial implications. The speaker is confident in accelerating growth in 2024, citing the anniversary of past headwinds and upcoming launches in the pharmaceutical business. He also mentions continued demand for a pump and clarifies that the 1% to 2% growth rate mentioned earlier includes impacts from one-time payments received last year.

The margin for medical products and therapies was down 190 basis points year-over-year, and there is concern about whether this trend will continue into next year.

Clare Trachtman and Brian Stevens address two questions on Baxter's third quarter earnings call. Trachtman discusses the Medical Products Therapies (MPT) business, stating that there was a mix of factors that led to a slight decrease in this quarter, but they expect to see improvement in the fourth quarter. Stevens adds that the strong market for pumps has helped the MPT business and they will continue to focus on it next year. On the topic of GPO contracts and pricing, Stevens mentions that they will be negotiating pricing that reflects current costs and is fair to both parties, as some temporary price increases are rolling off. Joe Almeida adds that they are currently negotiating two out of three GPO contracts for 2025 and are looking at opportunities to compensate for cost increases experienced in 2022. The final question on the call is about restructuring or renegotiating GPO contracts for potential higher prices.

The speaker, Danielle Antalffy, asks a question about the new operating model and how it will affect Baxter's investment in R&D. CEO Joe Almeida explains that the main benefit of the new model is increased accountability for segment presidents, who are responsible for profit and loss and investment decisions within their business. The model also allows for better communication and coordination between manufacturing and supply chain, leading to cost reductions and optimization. Overall, the new operating model simplifies decision-making and allows for a more unified approach to achieving growth targets.

The speaker discusses how the company does not have a specific region that determines growth, but rather a global business line that negotiates numbers. This has made the process of creating their annual operating plan easier and better. The conference call with Baxter International has ended.

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