The operator welcomes participants to Baxter International's First Quarter 2024 Earnings Conference Call and reminds them that the call is being recorded. Ms. Clare Trachtman, Senior Vice President of Investor Relations, introduces the speakers and mentions the topics that will be discussed. She also cautions that the presentation contains forward-looking statements that may differ from actual results.

Baxter's first quarter results exceeded expectations, with 2% revenue growth and adjusted earnings per share of $0.65. This was driven by positive demand and pricing for their products, as well as improved supply chain execution. The company's new operating model has also contributed to their success.

Baxter's margin improvement initiatives and focus on essential healthcare needs, along with a stable macroeconomic backdrop, have led to enhanced performance in their integrated supply chain operations. While Healthcare Systems & Technology underperformed, the strength of Medical Products and Therapies, Pharmaceuticals, and Kidney Care segments helped offset this. The recent clearance of their Novum IQ volume infusion pump and Dose IQ Safety Software has further strengthened their position in the market, with many customers already showing interest in the new technology. The Novum platform is now available to order in the U.S. and a large existing customer will begin implementing it in the next few months. This clearance was not included in their original FY 2024 outlook.

The company expects the contribution from the Novum launch to be more significant in the second half of the year, with the first quarter already showing strong performance. The FDA approval of an expanded indication for Clinolipid for use in pediatric patients is expected to positively impact the nutrition portfolio. The Pharmaceutical segment saw 11% growth in the first quarter, driven by new product launches and increased demand for drug compounding services. The Kidney Care segment also achieved growth, driven by pricing benefits and strong demand for Acute Therapies and peritoneal patients.

Despite growth in other segments, the Healthcare Systems & Technologies (HST) segment saw a decline in performance due to order timing and operational challenges. The company has implemented measures to address these challenges and expects improved performance in the second half of the year. The company also provided an update on the proposed separation of its Kidney Care business, stating that it is now considering selling the business to a private equity investor. The separation is expected to take place in the second half of 2024.

The writer expresses excitement about Baxter's overall trajectory and highlights their tenacious focus on execution and operational excellence. They mention the progress made against their strategic transformation initiative and the benefits of this progress in their outperformance for the quarter. The writer also mentions their recent innovation milestones and the progress of their proposed Kidney Care separation journey. They highlight their first quarter results, which exceeded expectations, and provide details on their global sales and adjusted earnings from continuing operations. The writer then breaks down their results by reportable segments and mentions the factors that drove their outperformance in the quarter.

Sales in the Medical Products & Therapies segment increased by 6% to $1.2 billion in the first quarter. This was driven by strong international growth in the Infusion Therapies & Technologies division, as well as solid demand for IV solutions in the U.S. Sales in the Advanced Surgery division also exceeded expectations and saw strong international growth. In the Healthcare Systems & Technologies segment, sales declined by 9%, mainly due to factors such as delayed product installations and lower rental revenues. However, the company expects to see significant improvements in orders and revenue in the second half of the year. Sales in the Front Line Care division declined by 12% due to a difficult comparison to the previous year.

The performance of the company in the quarter was affected by softness in the primary care market, leading to a decrease in sales for connected monitoring and intelligent diagnostics products. However, the company expects a significant improvement in the second half of the year due to anticipated easing of market conditions and an increase in customer orders. Sales in the Pharmaceuticals segment increased 11%, driven by new product launches and strong demand for drug compounding services. Sales in the Kidney Care segment increased 4%, with growth in chronic therapies offset by negative impacts from certain products and market exits. Sales in the Acute Therapies business grew 15%, while other sales declined 47% due to reduced demand for contract manufacturing.

The company's adjusted gross margin increased by 170 basis points compared to the prior year, driven by operational efficiencies and pricing initiatives. The closure of a dialyzer facility also contributed to margin improvement in the first quarter. SG&A expenses remained consistent with the prior year, but leverage is expected to improve as sales increase. R&D spending also remained consistent as the company continues to invest in new products. Overall, the adjusted operating margin increased by 180 basis points, and net interest expense decreased due to debt repayments.

Baxter plans to continue repaying debt in 2024 and had a strong first quarter with increased adjusted earnings and sales growth. They expect total sales growth of approximately 2% on a reported basis and 2% to 3% on a constant currency basis for the full year 2024. The MPT segment is expected to see sales growth of 4% to 5%, while the Healthcare Systems & Technologies segment is expected to be flat compared to the previous year. The company expects performance to improve in the second half of the year due to factors such as timing of installations, order phasing, and improved operational execution.

The company expects strong pharmaceutical sales growth of 6% to 7%, higher than previous guidance of 4% to 5%, driven by new product launches. Sales for other businesses are expected to increase by 3% to 4%. For Kidney Care, sales are expected to be flat to 1%, also outperforming previous guidance. The company expects adjusted operating margin to increase by at least 50 basis points and nonoperating expenses to total $350 million. The adjusted tax rate is expected to be between 22.0% and 22.5%, and diluted share count is expected to increase slightly. Full year adjusted earnings, excluding special items, are now anticipated to be $2.88 to $2.98 per diluted share. For the second quarter of 2024, global sales growth is expected to be 1% on a reported basis and 2% to 3% on a constant currency basis. Adjusted earnings are expected to be $0.65 to $0.67 per diluted share. The call is now open for Q&A.

In the first quarter, the Hillrom portion of Baxter's healthcare tech business underperformed, but all other segments performed as expected. CEO Joe Almeida is confident that the company will reach a 4-5% growth rate by the end of fiscal year 2024, with a recovery in the HST business due to improved orders and operational issues being addressed. Margins in the first quarter were also above expectations, driven by a combination of factors.

The speaker answers a question about the company's margins in the first and second quarters. They mention that the first quarter had strong performance from the ISC and pricing, as well as some timing elements and a mix impact. They also note that the second quarter had some favorable factors, but also a pharma MSA that is impacting margins.

Pito Chickering asks for more detail on the operational factors that impacted the first quarter for Healthcare Systems & Technology. Joe Almeida explains that the issues were related to integrating enterprise accounts and field staff, but they have since caught up and are seeing large orders being signed. Changes have been made to improve sales systems and management. Almeida also mentions the positive impact of Baxter's connectivity with HST's products.

The company experienced operational issues in both the Frontline Care and CCS businesses, with the former being affected by government orders and payment system issues. However, the company has seen some improvement in both areas, with the CCS business gaining market share and the Frontline Care business starting to rebound. The company remains cautiously optimistic about their actions and the overall strength of their portfolio. Joel will provide further information on the revenue.

Joel Grade, from Baxter, is answering a question about the company's growth prospects for the second half of the year. He explains that the first quarter saw a sharp decline, but they are optimistic about new product launches and improvements in Frontline Care. They do not expect to fully make up for the first quarter's impact, but they have taken actions to improve execution. Regarding gross margin, they saw improvements in Q2 and the closure of a dialyzer facility had an impact. The split between inflationary pressures, pricing, and operational efficiencies is not quantified, but inventories rolling through the balance sheet may be a tailwind to margins this year.

In response to a question about seasonality and inflation, Clare Trachtman explains that the key to maintaining margins is executing on their margin improvement initiatives. She also mentions that pricing has been a benefit and that they are driving targeted actions in international markets. However, she notes that the favorable manufacturing variances seen in the first quarter will not continue into the second quarter, leading to slower growth in all segments.

Clare Trachtman and Joe Almeida discuss the performance of Baxter International Inc. in the first half of the year and their expectations for the second half. They mention that the Kidney Care and Pharmaceuticals businesses have performed well, but they anticipate a slowdown in the second half due to government pricing initiatives and market exits. They also mention that the hospital pharmacy compounding business outside the U.S. is seeing strong demand, but they are focused on improving its profitability. Almeida adds that the business is accelerating and they are seeking profitability ahead of sales growth, which may involve making decisions to improve the bottom-line.

Baxter International's CEO Joe Almeida and CFO Joel Grade discuss the company's performance and plans for the future. They mention the impact of market exits on their kidney business and their goal to maximize shareholder return when they separate the business in the second half of 2024. They also mention that R&D investment has grown slower than sales, but they have increased R&D in the former Hillrom business and are judicious about capital allocation.

In 2024 and 2025, the company plans to increase the dollar value of R&D, not just as a percentage of sales. They are not cutting back on R&D and are actually hiring more people. Their goal is to drive top line growth through innovation. The drug compounding business has consistently grown in the high-teens and the company expects it to continue to do so, as it is a key part of their pharmaceutical offerings.

Baxter's drug compounding business is not a strategic area, but it is important in specific markets. The company is focused on growing new products, which have higher gross margins. Compounding is a good business in certain countries, but it is not the main driver of the pharmaceutical business. The recent acquisition of Novum may have contributed to the company's strong performance in the first quarter, and the company is monitoring competitive dynamics in the market.

Novum has not had an impact in the first quarter, but it is expected to have an impact in the second half of the year when it starts shipping. The company has two large accounts that have ordered the product and there is potential for competitive conversions. The Spectrum pump continues to see strong performance and there may be some cannibalization with the rollout of Novum, but the company has included $25 million in the fourth quarter as an anticipation of incremental impact.

The speaker thanks the questioner for keeping the question short due to the busy morning. They discuss the strong growth in the pharmaceuticals business and the potential opportunities in the long-term, such as onshoring and addressing drug shortages. They mention their two technologies, Calix and another unnamed one, that allow for safe and quick deployment of drugs to hospitals. The speaker also talks about their revamped portfolio and plans for new molecule launches in 2024 and 2025. They emphasize the importance of quality innovation and continued investment in technology.

In this paragraph, Joe Almeida discusses the production of Baxter's products in various locations, including Illinois, Puerto Rico, and Ireland. He mentions the importance of providing a good value proposition for customers who prioritize security of supply. Joel Grade then responds to a question about segment margins, explaining that the strong margins in the Renal business were due to increased production and are not expected to continue in the next quarter. He also discusses the potential for continued margin expansion in the core Baxter business, which could be driven by a combination of factors such as cost reductions and revenue growth.

The company is anticipating continued opportunities for pricing and margin expansion due to various factors such as favorable contracts, strength in the IFC sector, operational efficiencies, and hiring for global business services. The geographic expansion initiative for the Hillrom portfolio may be taking longer than expected or facing challenges in bringing their technologies into international geographies where Baxter is present.

In response to a question about international performance, Joe Almeida, CEO of Hillrom, stated that the company has seen good performance in Western Europe and Latin America due to the combined efforts of Baxter and Hillrom. The company is also making changes in their Asia-Pacific organization to focus on capital sales. However, China has not been a strong market due to restrictions. Almeida also mentioned that the Novum IQ smart beds are adding to the company's Connectivity Solutions technology and there are pipeline initiatives in place for future sales growth in 2025 and 2026.

The speaker discusses the connectivity between Baxter's devices, such as the pump, bed, and Volt, through their overall gateway called Canexus. This connectivity is important to customers and Baxter is seeking to continue innovating and providing specific solutions to improve productivity in hospitals. With the addition of Novum IQ, the connectivity puzzle is complete. The question of where the significant single growth driver for Baxter lies is raised, and the speaker mentions that they will showcase a demo of the connected devices at their Investor Day later in the year. They also mention that the end of 2025 could see growth and leverage in certain product lines or business lines, but do not specify which ones.

Joe Almeida, CEO of Baxter, discusses the advantages of the company's diverse portfolio, which includes products for the acute market, IV solutions, pharmaceuticals, and capital equipment. He highlights the company's drivers of growth, including innovation in every aspect of Baxter's business, particularly in pharmaceuticals and pumps. Almeida is optimistic about the future of the company, with several significant product launches planned for the next few years. He concludes by stating that the company is well-positioned for 4-5% growth, with a wide range of products that reduce risk.

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