The operator introduces the Baxter International Second Quarter 2024 Earnings Conference Call and reminds listeners that the call is being recorded and copyrighted. Ms. Clare Trachtman, Senior Vice President and Chief Investor Relations Officer, will lead the call with Baxter's Chairman and CEO, Joe Almeida, and CFO, Joel Grade. They will discuss Baxter's second quarter results, financial outlook, strategic actions, regulatory matters, and the use of non-GAAP financial measures. The call contains forward-looking statements and listeners are directed to the press release and SEC filings for more information.

In the second quarter of 2024, Baxter's performance exceeded expectations, demonstrating the success of their strategic transformation and redesigned operating model. This has resulted in increased confidence and improved visibility in their markets, leading to increased sales and earnings. The company's centralized and streamlined operating model has allowed for better identification of growth opportunities and increased operational rigor. As a result, Baxter has increased its full year sales outlook and adjusted EPS guidance.

In the second quarter, Baxter's sales from continuing operations grew 3% on a reported basis and 4% at constant currency rates. This excludes the impact of their BioPharma Solutions business, which was divested in the third quarter of 2023. All four Baxter segments experienced growth above expectations, driven by positive demand and improved pricing. Adjusted earnings per share from continuing operations were $0.68, with strong operational performance offsetting negative impacts from foreign exchange and a higher tax rate. The Medical Products and Therapies segment saw 4% sales growth, fueled by demand and the launch of the Novum IQ large volume pump. The Pharmaceuticals segment grew 9% at reported rates and 11% at constant currency rates.

The company's performance was driven by double-digit growth in their specialty injectables portfolio and a 1% increase in their Healthcare Systems and Technologies division. The Care and Connectivity Solutions division had mid-single-digit growth, while the Front Line Care division saw a decline due to a difficult comparison and softness in the US primary care market. Kidney Care was flat year-over-year but saw growth in acute therapies and peritoneal dialysis products. The company is confident in their future growth and potential to drive innovation for their stakeholders.

In January 2023, Baxter launched a strategic transformation to simplify and focus the company. As part of this plan, they will be separating their Kidney Care business to improve strategic clarity and flexibility. The separation is expected to occur in late 2024 or early 2025. Baxter's success is attributed to their life-sustaining mission, focus on essential healthcare, commitment to innovation, and dedicated employees. The company's second quarter results exceeded expectations, with a 3% increase in global sales, driven by strong sales in patient support systems, infusion therapies, peritoneal dialysis, and drug compounding.

In the second quarter, sales for the company increased by 5% on a constant currency basis, with adjusted earnings from continuing operations increasing by 24%. The growth was driven by strong operational performance, with some offset from non-operational factors such as foreign exchange and a higher tax rate. Sales in the Medical Products and Therapies segment increased by 5%, with solid growth in international markets. Sales in the Healthcare Systems and Technologies segment increased by 1%, with significant growth in orders for Care and Connectivity Solutions products. These results are attributed to the company's efforts to improve operational rigor and execution.

The company has seen growth in both its patient support systems and pharmaceuticals business in the quarter. The US market has shown promising growth, but the primary care market and government orders have had a negative impact. However, the company expects growth to return in the second half of the year due to new product launches and easing supply constraints. Sales in the Pharmaceuticals segment have increased, but were partially offset by lower sales in inhaled anesthetics.

In the quarter, sales for the Kidney Care segment increased by 3% to $1.1 billion, with Chronic Therapies showing strong growth due to PD. However, there was a negative impact on sales due to product and market exits and lower sales in China. Acute Therapies also saw strong growth of 9% in the United States. Adjusted gross margin improved by 80 basis points due to operational efficiencies and pricing initiatives. Adjusted SG&A increased slightly as investments were made to support growth objectives and new product launches. SG&A leverage is expected to improve over the year as sales increase.

In the quarter, Baxter's adjusted R&D spend was $175 million, representing 4.6% of sales. The adjusted operating margin was 13.7%, driven by investments in new products and innovation. Net interest expense decreased due to debt repayments. Baxter finalized a bank finance bridge loan to fund debt maturities. Adjusted other non-operating income was $20 million. The adjusted tax rate for the quarter was 23.9%.

The year-over-year increase in earnings is due to a variety of factors, including geographic mix and tax credits. Adjusted earnings from continuing operations increased by 24%, driven by improved commercial performance and lower interest expenses. For the third quarter and full year of 2024, Baxter expects total sales growth of approximately 3%, reflecting strong performance in the second quarter and continued momentum. Sales in the MPT segment are expected to grow by 5%, while sales in the Healthcare Systems and Technologies segment will be flat. The guidance also takes into account the potential phasing of orders and improved performance in the second half of the year.

Baxter's Pharmaceuticals sales growth is expected to be around 7%, higher than previously expected, due to strong performance and new product launches. The contribution from Drug Compounding is expected to slow in the second half of the year. Sales for the remaining segments are expected to increase by 4% in 2024. Kidney Care sales are expected to grow by 1-2%. Adjusted operating margin is expected to increase by more than 50 basis points. Non-operating expenses are expected to total $330 million. The adjusted tax rate is expected to be 23%. Adjusted earnings per share are expected to be $2.93-$3.01, higher than previous guidance. Third quarter sales growth is expected to be 3-4% on a reported basis and 4-5% on a constant currency basis.

The company expects adjusted earnings of $0.77 to $0.79 per diluted share and has opened up the call for Q&A. The first question asks about the revised guidance, which is higher than the previous quarter and above the Street's expectations. The company attributes this to strong operational performance in the second quarter and continued momentum in their businesses. Sales are expected to improve in HST, MPT, and Pharma, while margins will also see improvement through pricing and margin improvement programs.

The company is making investments in sales, marketing, R&D, and new product launches, which is impacting their operating margin. They also have an offset from an MSA in Pharma and a headwind from FX and tax rates. The HST business had operational issues in the first quarter but is improving, and the CCS business had strong orders in the second quarter. The FLC business is facing challenges due to changes in the primary care market.

The company believes that their market share is growing and that business will return to normal by the end of the year. They also mentioned government orders being low and the impact of last year's comparison. The company sees potential for growth in the third and fourth quarters. The analyst on the call asked about the company's plans for the KidneyCo separation and if there were any changes in their thinking regarding selling or spinning off the business. The company responded that they are making progress on both options and the timing may shift slightly, but they still plan to complete the separation by the end of 2024 or early 2025. An impairment charge was also mentioned, but no details were given.

The speaker explains that the company has recently reassessed its goodwill and there will be a negative impact on its value. However, if the company is sold, there will be a gain recognized. The speaker then discusses the drivers of the company's margin expansion, including top-line growth, new product launches, and pricing opportunities. The speaker also mentions that the company is confident in its ability to expand margins by 50 basis points per year in the long term, excluding the renal division.

The company expects to see revenue growth in the US next year due to GPO contracts and pricing increases. They are also focused on expanding margins through efficiency gains and investments in automation. The company has refined its allocation methodology and is continuing to invest in R&D and new product launches, which may impact operating margins. The revenue outlook for the remainder of the year is expected to be in line with the 4-5% growth range, with Q4 growth potentially below 1%. The company did not provide specific drivers for the phasing of revenue for the rest of the year.

In response to a question about the company's strategic capital allocation, Joel Grade explains that the primary driver of movement in the fourth quarter was product mix, particularly in the Pharma division. He also mentions that there have been increases in discretionary spending on SG&A and R&D, which are being used to drive innovation. CEO Joe Almeida adds that a specific event in the first and second quarter caused volume to dwindle in the third and fourth quarter, leading to the squeeze math in the fourth quarter.

The highest innovation driver for the company will be infusion technology, with investments being made in new categories of pumps and software, including intelligence software with artificial intelligence. There are also plans for five new product launches in the next 12 months. The company will allocate money towards research and development, regulatory affairs, and commercial launch for these products, as well as for molecules in Pharmaceuticals. The focus is on products with higher margins and contribution to the company. The company has done internal work to understand the major drivers of shareholder value and is confident in its capital allocation decisions. When it comes to the Kidney Care sale or spin, the company will consider tax basis, margins, stranded costs, and use of proceeds. The first half of the year saw margins of 10.9%, higher than in previous years.

The company's first quarter with Kidney had a high margin due to one-time impacts, but they expect a lower margin going forward. They are working on reducing stranded costs and have not yet given guidance on this. The company is considering both a sale and a spin-off of Kidney in order to maximize shareholder value, and taxes will also play a role in the decision.

In a recent conference call, Baxter executives discussed the company's performance and outlook for the fourth quarter. They mentioned that the fourth quarter organic growth rate is expected to be around 1%, primarily due to a slowdown in the Drug Compounding and Kidney businesses. However, the overall exit rate for the year is still expected to be in the range of 4%-5%, with the biggest impact coming from value-based procurement in the Kidney business. In response to a question about Baxter's market share, CEO Joe Almeida stated that the company has seen a rebound in orders and expects sustainable organic growth of 4% or more in the future, with no significant one-off events to affect performance.

Joe Almeida discusses various factors that may affect Baxter's outlook, including VBP in Kidney Care and potential share losses in the HST and pump markets. He notes that VBP is not a significant factor for Baxter as a whole, and that the company is working to address execution issues in HST. Almeida is confident that Baxter will see share gains in the future due to its strong product offering and ability to convert customers from competitors. He also mentions that Kidney Care will have a negative impact on sales in Q4.

Baxter's CEO, Joe Almeida, and President, Joel, discuss the company's successful execution and restructuring efforts in a recent earnings call. Almeida highlights the company's progress in bringing together a life-saving portfolio of products and improving commercial execution. He also mentions that the company has turned the corner in terms of supply chain and cost optimization. Joel adds that they are working on reducing stranded costs in G&A.

The company plans to optimize their shared services organization in the next 12-24 months to improve operating income margins. They have negotiated two large GPO agreements and are now in talks with IDNs, with the expectation that they will close these negotiations in the next four months. The launch of their new product and their strong supply chain resilience give them confidence in the negotiations.

Baxter has seen positive results from their pricing strategy, with a 100 basis point contribution in Q2 2024 and an expected 100 basis point contribution for the full year. The company is also evaluating their network and infrastructure in preparation for their separation. Regarding Novum, there is high customer interest and a healthy backlog of orders, with potential for growth in the second half of 2024 and into 2025. The company is seeing more orders than expected.

The company has unexpectedly had sales of their product Novum in the second quarter and is seeing great interest and momentum for it. They believe it will help them compete in the market due to its syringe pump feature. The company is confident in the technology and believes it will help them gain market share. The CEO also discusses the Front Line Care division and their optimism for improvement in patient care and government, as well as their successful divisions in cardiology and acute care. They believe they can catch up on backlog and fulfill orders in the primary care physician office market.

The speaker discusses the company's performance in the primary care and government markets, noting a slowdown in churn due to market changes and backlog. They express confidence in the demand for primary care and government orders, and anticipate a turnaround in 2025 with the launch of new technology. They also mention plans to compete in the monitoring market and potential for market share growth in the infusion pump market.

During a Q&A session, Pito Chickering asks about the strong pricing gains for infusion and whether there will be an acceleration in pricing for 2025. Joel Grade responds that they expect a similar pricing bump next year, primarily in the US due to GPO contracts. Joe Almeida adds that they are gaining market share in infusion pumps and expect to continue with the launch of Novum. Pito also asks about revenue growth for the year, but the company declines to provide a specific answer.

Joel Grade is asked about the revenue growth compounding in the fourth quarter and the headwinds and tailwinds for 2025 revenues. He mentions that the HST business will continue to accelerate and there will be a strong exit rate for that business. The compounding business will drag due to customer reasons, but the MPT business has solid momentum going into 2025. Overall, the company is heading into next year with a 4% to 5% growth rate.

During a conference call, Baxter International's CEO Joe Almeida and Pito Chickering discussed the company's momentum and plans for the future. Almeida mentioned their strong momentum, particularly in the ex-Kidney sector, and how they are excited for 2025. He also mentioned that their exit rate is at 4-5% and they are comfortable with that, with plans to drive further growth in 2026 and 2027. The call concluded with thanks from the operator.

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