Baxter International's fourth quarter 2023 earnings conference call featured executives Clare Trachtman, Jose Almeida, and Joel Grade, as well as analysts from various securities firms. The call discussed Baxter's financial results and outlook for 2024, including new product development, regulatory approvals, strategic actions, and the macroeconomic environment. The presentation also included forward-looking statements and potential risks and uncertainties.

Baxter's actual results may differ from their expectations, and factors that could cause this are outlined in their SEC filings. Non-GAAP financial measures will be used on the call, and a reconciliation to GAAP measures is provided. CEO Jose Almeida will discuss the company's performance for the quarter and year, progress on their transformational actions, and the planned separation of their Kidney Care business. CFO Joel Grade will provide more detail on the results and outlook. Baxter reported strong performance for the fourth quarter, with sales exceeding projections and bottom line results meeting guidance. Sales from continuing operations increased 4% on a reported basis and 3% on a constant currency basis, both ahead of their guidance.

In the fourth quarter, the company saw broad-based growth in the Healthcare Systems and Technologies, Medical Products and Therapies, and Pharmaceuticals segments, with a slight decline in Kidney Care. Adjusted earnings per share from continuing operations were at the top end of their guidance range. The company has focused on consistently meeting and exceeding their financial outlook, despite supply chain and macro environmental challenges. Sales for the full year increased by 2% on a reported basis and 3% on a constant currency basis, driven by growth in all segments. New product launches and a more stable supply chain and macroeconomic environment contributed to this performance.

The company saw improvement in hospital capital spending and growth in their Care and Connectivity Solutions division. However, their Kidney Care segment declined due to various factors such as government initiatives and the pandemic. Despite this, the company remains optimistic about the future and is making progress towards separating Baxter and Vantive into separate entities. They have also realigned their businesses to improve operational efficiency and innovation.

The company has divided into segments, each led by an experienced executive with a team responsible for different aspects of the business. The sale of a business has allowed the company to focus on its core operations and pay off debt. The company is also making progress towards separating another business, with a designated CEO and CFO already in place. The company has been meeting milestones and making progress in various areas, and is optimistic about future opportunities.

The speaker expresses gratitude for the hard work of employees in achieving the company's objectives. They then hand over to Joel to discuss the company's financial performance in the fourth quarter and full year of 2023, which exceeded expectations and showed growth in various product categories. The speaker also mentions a decline in Kidney Care sales. Adjusted earnings increased by 13% compared to the previous year.

The company's operational improvements in both commercial and supply chain areas, as well as lower interest expense and foreign exchange benefits, contributed to a strong fourth quarter. Sales in the Medical Products and Therapies segments increased by 4%, with IV Solutions and infusion systems driving growth. Advanced Surgery also saw strong international growth. In the Healthcare Systems & Technologies segment, sales increased by 7%, with double-digit growth in all key product categories within the CCS division. This was partially offset by lower rental revenues. Overall, full year 2023 sales totaled $5 billion, with a 4% increase.

In the fourth quarter of 2023, United States orders within CCS improved sequentially and grew on a year-over-year basis for the first time. Front Line Care sales increased by 2% due to improvements in electromechanical component availability. Pharmaceuticals segment sales increased by 7% in the quarter and for the full year. Other sales declined by 58% due to reduced demand for contract manufacturing and termination of a royalty arrangement. Kidney Care sales declined by 1% in the quarter and increased by 1% for the full year, with global sales for chronic therapies declining by 3%. This decline was impacted by a difficult comparison to the prior year period which included certain discrete items in the US.

The company's performance in chronic therapies was impacted by lower sales in China and a decrease in patient census due to the pandemic. However, their Acute Therapies business saw growth, particularly in the United States. The company's adjusted gross margin increased due to stabilization of macroeconomic factors and pricing initiatives. Adjusted SG&A and Research & Development spending also increased slightly compared to the previous year.

The company has increased its investments in research and development, resulting in a 30 basis point increase in adjusted operating margin. Net interest expense decreased due to debt repayment and the company plans to continue repaying debt in 2024. Adjusted other non-operating income improved due to lower foreign exchange losses. The adjusted tax rate increased compared to the prior year, primarily due to statute expirations on certain tax positions. Adjusted earnings increased by 13% due to higher sales and operational efficiencies, offset by a higher tax rate.

In 2023, Baxter's adjusted earnings decreased due to higher costs and non-operating expenses, but they were partially offset by operational and supply chain savings. The company generated over $1 billion in free cash flow and improving working capital is a priority. Despite these challenges, Baxter's teams were able to achieve consistent progress and momentum. For 2024, the company expects 2% sales growth on both a reported and constant currency basis, with a minimal impact from foreign exchange. Sales in Medical Products and Therapies, Healthcare Systems and Technology, and Pharmaceuticals are expected to increase by 3-5%.

Baxter expects sales to increase for its remaining businesses in 2024, with a decline in growth for Kidney Care due to market and product exits. Non-operating expenses are expected to total $350 million, with an adjusted tax rate of 22.0% to 22.5%. The company anticipates adjusted earnings of $2.85 to $2.95 per diluted share for the full year, and $0.59 to $0.62 per diluted share for the first quarter of 2024. The call is now open for Q&A.

The speaker is responding to a question about the company's revenue and margin guidance. They mention sequential improvement and conservatism in the 2024 revenue guidance. They also discuss the momentum in the business and the growth of 3-4% outside of the Kidney division. They mention exiting products and markets, leading to double-digit EPS growth. The speaker also talks about operational cost improvements and pricing as factors in the margin guidance.

The speaker discusses the key assumptions and opportunities for the company in the upcoming year, highlighting the strong sales momentum in the previous quarter. They anticipate continued growth, with margin expansion in the first half of the year. However, they expect a negative impact from FX and a slower start to the year due to backlog recovery in the previous quarter. The speaker acknowledges the easy comp in the first quarter but does not provide a specific reason for the conservative growth outlook.

The quarterly cadence for sales is driven by the HST business, which has accelerated growth in the second half of the year. Momentum from 2023 is expected to continue into 2024, with product launches and new accounts boosting performance. The capital equipment environment is expected to continue improving, with some pockets of weakness in smaller systems due to high interest rates.

The company is seeing a recovery in capital orders and expects to see a full recovery by 2024. They have been seeing sequential improvement in capital orders every quarter and expect orders to be up on a year-over-year basis. The company also saw a pickup in their Hill Rock business and expects to see a strong Q4 due to hospitals spending their budget for the year.

Baxter is working to reduce seasonality in their business, but it still exists. They are focusing on strengthening their beds in the fourth quarter and targeting large accounts for conversions. Bringing Baxter together as one company has been successful in penetrating partially penetrated accounts. The first quarter is typically lighter than the rest of the year. The Front Line Care business has less seasonality due to consistent procurement in doctors' offices. The MPT business is also less seasonable and has been successfully growing. There will be a sequential ramp up in sales over the course of the year for the HSD business.

The speaker is discussing the growth of Front Line Care in 2023 and mentions a potential early headwind in the first part of the year. They also mention a sequential ramp-up in the business. An analyst asks about the 3% to 4% growth rate for the business and the speaker explains that it is still above market growth rate and gives some factors that could potentially increase it, such as pharmaceuticals and new product launches in 2025.

The company is seeing significant growth in its infusion systems business, with plans to launch new products and devices in 2025. They are also planning to hold an Investor event to discuss capital allocation and the potential for accelerated growth. Inflation is still a headwind to margins, but interest payments are expected to remain similar in the first half of the year before increasing in the second half.

The company plans to pay down some low coupon debt in the second quarter, which will result in higher interest expenses in the second half of the year. They used a portion of the proceeds from the sale of EPS to pay down debt in the fourth quarter and will use the rest to address debt maturing in 2024 and later in the year. The company's integrated supply chain team is executing a margin improvement program that will offset any inflationary costs and generate savings. They are also implementing pricing strategies in markets outside the US. However, the company's tax rate will increase due to the implementation of Pillar Two, and there will be negative effects from foreign exchange rates on the operating margin.

The non-operating expenses of Baxter have had a negative impact on the company, but they are working on improving their margins through cost reduction initiatives, particularly in their supply chain and procurement areas. The new CEO, Joel Grade, sees potential for margin expansion in these areas and believes they can offset inflationary pressures. He also mentions that the company will not rely solely on reducing SG&A expenses for growth.

The speaker discusses opportunities in the shared services space and the focus on cash and working capital. They also mention the opportunity for reinvestment in innovation and new product development to drive growth. The speaker then mentions segment level margins for 4Q in 2023 and the company's market share for pumps, which has seen 40% growth this year.

Baxter has received its seventh award for its pump and is focused on gaining market share. The operating margin guidance for 2024 will not be given by segment, but all actions are aimed at improving both segment and total margins. The divestment of the BioPharma Solutions business will have a negative impact on pharmaceutical margins. There is no update on the status of Novum IQ, but the company has answered all questions and is cautiously optimistic for potential approval in 2024.

The speaker discusses the company's recent award for their pump and their success in winning new and competitive accounts. They also mention their plans for a Capital Markets Day later in the year where they will discuss long-term growth expectations. The goal is to grow ahead of the weighted average market growth rate. They also mention the recent exits in China and their focus on setting the business up for success as a stand-alone entity. The fundamentals for the business are improving, with solid patient growth and a rebound in the Acute Therapies business.

The speaker believes that the business will see significant growth once they make certain adjustments. They have made purposeful decisions to exit certain markets and products, which could result in low single digit growth. They have also made progress in pricing in 2023, with plans to continue this in 2024. The speaker also mentions that some contracts with GPOs will not kick in until 2025.

The speaker discusses the company's efforts to increase flexibility in pricing and pass along cost increases to customers. They also mention their progress in securing larger contracts and expanding market share, which will contribute to their overall value and profitability. However, they cannot disclose specific details about these contracts for competitive reasons. The company is focused on both pricing and volume to achieve their goals.

Baxter's objective in 2024-2025 is to add value and accretion to the bottom line by signing contracts, and they are in a good position to do so. They will not disclose specific details on pricing or volume. After the spin-off of Kidney Care, Baxter's focus will be on advancing and improving the intrinsic value of the company through organic and inorganic growth, including innovation, expanding their commercial footprint, and improving operations. They plan to reinvest in research and development to accelerate innovation.

The company is planning to focus on capital allocation and innovation post-spin, with a focus on accelerating growth in commercial areas such as alternate sites of care. Within the Kidney Care division, there will be a focus on increasing PD penetration and expanding into multi-organ support therapies. The strategic rationale for the separation is to allow both entities to focus on their respective growth opportunities, with the company targeting a specific debt level to support this.

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