The paragraph is a transcript from the opening of Baxter International's First Quarter 2025 Earnings Conference Call. The operator introduces the call, noting it's recorded and copyrighted, and hands it over to Clare Trachtman, the Senior VP and Chief Investor Relations Officer. She welcomes participants and introduces key executives who will discuss the company's Q1 2025 earnings results and provide a financial outlook for Q2 and the full year 2025. The presentation includes forward-looking statements with risks and uncertainties, and non-GAAP financial measures will be used for better understanding of Baxter's ongoing business performance.

The paragraph discusses Baxter's financial performance in the first quarter, highlighting that their continuing operations exceeded previous guidance in terms of sales and earnings. It notes that first-quarter sales from continuing operations, which exclude the Kidney Care business sold to Carlyle, grew by 5%. Sales increased across all segments, with particularly strong performance in Medical Products & Therapies and healthcare systems and technologies. The adjusted earnings per share from these operations were $0.55, driven by strong sales, operational efficiency, and reduced non-operational expenses. Baxter expresses confidence in its strategic direction and transformational efforts.

The paragraph addresses the current challenges posed by global macroeconomic volatility and tariffs, emphasizing the company's efforts to evaluate and mitigate these impacts while remaining optimistic about sales growth and margin expansion. The speaker highlights the strength of their operating model and product portfolio, which supports their long-term success. Additionally, an active search is underway for Baxter's next permanent CEO, with a leading search firm assisting the Board. The speaker expresses appreciation for the global team's dedication and contributions to the company's strong Q1 performance, before turning the discussion over to Heather Knight for a segment performance review.

The paragraph provides an overview of Baxter's first-quarter 2025 sales performance, highlighting a 5% increase in global sales from continuing operations, which surpassed previous guidance. All three company segments experienced year-over-year growth, with the Health System Technologies (HST) segment, particularly the Care and Connectivity Solutions division, leading the outperformance. The Medical Products & Therapies (MPT) segment achieved $1.3 billion in sales, a 6% increase that exceeded expectations. Notably, the Infusion Therapies & Technologies division reported $994 million in sales, driven by strong U.S. sales of the Novum IQ pump platform and mid-single-digit growth in nutrition sales. The results exclude impacts from foreign exchange, Vantive MSA revenues, and the planned exit from IV solutions in China.

The paragraph discusses the company's recent business progress, highlighting recovery in production levels at the North Cove IV solutions facility post-Hurricane Helene, which is leading to improved inventory and reduced product allocations. It notes continued conservation of IV fluids by U.S. hospitals, though utilization is expected to improve as supply normalizes. The paragraph also mentions increased inventory rebuilding by distributors and positive sales growth. Advanced Surgery sales grew by 4% globally, driven by international demand for hemostat sealants, though U.S. sales were slightly affected by fewer billing days. Additionally, Healthcare Systems and Technologies sales exceeded expectations, with Care and Connectivity Solutions showing a 7% global sales increase.

In the quarter, the company's U.S. CCS division experienced 14% growth, primarily driven by strong performance in the Patient Support Systems (PSS) business and competitive wins. U.S. capital orders for CCS increased by 20%, and international capital orders also picked up. However, sales outside the U.S. were weaker. Front Line Care sales increased by 5%, benefiting from a stabilizing primary care market in the U.S. In the Pharmaceuticals segment, sales rose by 3% to $581 million, with injectables and anesthesia growing by 4% due to strong international demand despite a decline in anesthesia sales. The drug compounding business grew by 2%, facing tough comparisons to the previous year.

The paragraph discusses the company's sales and revenue, highlighting $15 million in sales not attributed to any segment and $63 million in MSA revenue from Vantive for the quarter. These are included in reported growth but not operational growth. The company emphasizes its strong performance across segments and commitment to strategic objectives despite a challenging global economic environment. The leadership expresses confidence in navigating uncertainties with the help of their 38,000 employees and their mission to "save and sustain lives." Joel Grade takes over to discuss the rest of the financial performance, noting that first-quarter results exceeded expectations. The company remains focused on customer needs and optimizing the supply chain in response to new tariffs.

The paragraph outlines the company's commitment to accelerating innovation and supporting its growth aspirations by investing in targeted areas of the business. Their first quarter adjusted earnings per share exceeded expectations, driven by strong top-line results, lower SG&A expenses, and favorable tax rates. The company has reallocated corporate costs following the sale of its Kidney Care business and is implementing cost containment strategies to offset the impact of these changes by 2027. Additionally, certain functional expenses have been reclassified from SG&A to cost of goods sold after the Kidney Care business sale.

In the first quarter, the company experienced a decline in its adjusted gross margin by 160 basis points year-over-year due to MSA revenues from Vantive and increased planning and fulfillment expenses. However, adjusted SG&A decreased by 310 basis points due to cost reclassification, reduced stock compensation, and disciplined expense management. Adjusted R&D spending increased slightly, reflecting ongoing investment in product development. TSA income and reimbursements from Vantive were higher than expected at $40 million, aiding the adjusted operating margin, which improved by 260 basis points to 14.9%. The MPT segment saw an increase in its adjusted operating margin to 19.3%, aided by positive pricing and TSA contributions, despite facing elevated costs.

The paragraph reports on financial results for the first quarter, highlighting improved operating margins of 13.2% for HST due to better top line performance and TSA income, which partially offset rising corporate expenses. Pharmaceuticals saw a decrease in adjusted operating margins to 10.8%, impacted by one-time expenses and increased allocations. Net interest expense dropped by $14 million owing to debt paydown from selling Vantive. Adjusted non-operating income improved due to lower foreign exchange losses. The adjusted tax rate benefited from optimized tax strategies after selling Kidney Care, leading to a 53% boost in adjusted earnings per share to $0.55. For 2025, Baxter anticipates 7% to 8% sales growth, with minimal expected foreign exchange impacts.

The paragraph outlines Baxter's updated sales guidance, noting an increased impact from foreign exchange compared to prior expectations. Sales growth is projected at 4% to 5%, excluding factors like foreign exchange, MSA revenues, and exiting the IV solutions market in China, which negatively impacts growth by about 50 basis points. Specifically, sales growth in the MPT segment is expected to rise by 5% due to strength in Infusion Systems, while the HST segment is anticipated to grow by 3%. Pharmaceuticals are projected to increase by 5% to 6%. Additionally, guidance now includes the impact of tariffs, assuming a temporary 90-day suspension and a return to original tariff rates thereafter.

Baxter is addressing the impact of U.S. and retaliatory tariffs on its operations by implementing several mitigation strategies. These include assessing and adjusting their supplier base, carrying additional inventory, finding alternative suppliers and manufacturing locations, and exploring different shipping routes. They are also considering targeted pricing actions and working with trade associations to seek possible exemptions. Despite these efforts, the estimated net impact of tariffs on their 2025 results is projected to be $60 million to $70 million, primarily affecting the latter half of the year. Although China constitutes a small portion of their sales, the tariffs between the U.S. and China significantly contribute to this impact.

The paragraph outlines the financial expectations and assumptions for the company's performance. It mentions that current foreign exchange rates are beneficial for revenue but negatively impact adjusted operating margins and earnings per share due to the current infrastructure setup after selling Vantive. Despite these challenges, the company plans to optimize its global footprint over time. Full-year adjusted operating margins are expected to be between 16% and 16.5%, with TSA income anticipated to be $140 million to $150 million. Non-operating expenses are projected at $220 million to $240 million, and the full-year tax rate is expected to be around 19% to 19.5%. The average diluted share count is estimated at 515 million, and adjusted earnings per share are predicted to be between $2.47 and $2.55. For Q2 2025, sales growth is forecasted at 4% to 5% on a reported basis, with foreign exchange contributing positively and the China IV Solutions exit impacting growth. MSA revenues are expected to be around $80 million.

In this paragraph, during a Q&A session following an earnings call, Joanne Wuensch from Citi asks about tariffs and the impact on Baxter International's operations, specifically asking how the company plans to manage headwinds and long-term effects through 2026, as well as the recovery and sustainability of their HST business. Joel Grade from Baxter responds, explaining that they have several mitigation strategies for tariffs, including optimizing the supply chain, negotiating with and finding alternative suppliers, and optimizing freight routes. He mentions that their pricing approach is very targeted. Heather is expected to address the second part of Joanne's question about the HST business.

The paragraph discusses a targeted approach in specific areas without a broad strategy, focusing on seeking exemptions with government and industry groups for various products. It addresses mitigation impacts expected to phase in through 2026. Heather Knight responds to Joanne, expressing satisfaction with the first quarter's performance, particularly in the U.S. market. The PSS business shows strong order growth and customer program success. Supply recovery efforts are noted, and although there's no current slowdown in the capital environment, they chose not to raise the guidance for HST this year. Overall, the team and business momentum and leadership are positively acknowledged.

In the paragraph, a discussion occurs about the balanced growth seen in the CCS and Front Line Care (FLC) sectors, noting a stabilization in the primary care market and reduced headwinds in FLC. The backlog levels in FLC have normalized. Additionally, there were favorable year-over-year comparisons contributing positively. David Roman from Goldman Sachs then questions the impact of hospitals implementing conservation programs on the IV side of the business and whether hospitals will return to pre-hurricane inventory management levels or if these changes are structural. Heather Knight responds, indicating that not all hospitals are conserving, but they do anticipate a 10% to 12% conservation level by the end of the year in the U.S.

The paragraph discusses the recovery and adjustment of customer usage levels post-hurricane, indicating that some customers are using more solutions than prior to the hurricane. The company has accounted for this trend in their forecasts, drawing on experiences from Hurricane Maria. They emphasize their efforts to stabilize inventory and IV for customers and distributors, noting a successful recovery led by their North Cove teams. The discussion also touches on concerns and uncertainties regarding potential pharma tariffs, with a request for clarity on how such tariffs might impact their operations or forecasts.

In the paragraph, Joel Grade addresses a question about the impact of importing finished goods from the Claris plant, noting that it is not significant. He mentions that while there is potential exposure, specifically related to litigation and product exemptions in industry conversations with governments, it is still uncertain how these issues will develop. The focus is on scenario planning and proactive measures to mitigate potential impacts. Following this, Travis Steed from BofA Securities asks about the short-term and long-term gross margin considerations, particularly in relation to a reclassification of expenses from COGS to SG&A, and how it might affect the margins over the current and next year. Joel Grade's response does not offer specific details but emphasizes mitigation strategies and ongoing assessment.

In the paragraph, Brent Shafer discusses factors affecting the gross margin of the business, including reclassification, dilution from MSA income, and planning and fulfillment costs in North Cove. Although some of these factors are expected to mitigate over the year, the long-term path involves the Temporary Service Agreements (TSAs) and Master Service Agreements (MSAs). TSAs are anticipated to remain for 18 to 24 months with preparations in place for their eventual phase-out, impacting costs by 40 basis points this year. Despite a smaller MSA income than expected, which slightly reduces its margin impact, the $310 million related to these will be relevant for the next few years.

The paragraph discusses the company's strategies for long-term margin expansion, highlighting key areas such as continued strong growth, investment in innovation, and new product launches. Pricing adjustments and renegotiations, particularly upcoming GPL renegotiation, are also considered factors for margin impact. The focus on product and business mix, selling more high-margin areas, and margin improvement programs, especially in the supply chain, are emphasized. Additionally, the removal of stranded costs by 2027 is considered a factor in improving margins. Vijay Kumar from Evercore ISI asks about guidance, specifically the deceleration in core Baxter's growth from Q1 to Q2, noting the impact of harder comps.

In the second quarter, operating margin deceleration was influenced by several factors. Joel Grade highlights that revenue impacts stemmed from hospitals conserving IV fluids and a conservative approach to performance in certain areas, like HST. Despite fluctuations between Q1 and Q2, overall first-half performance aligned with expectations. Additionally, changes in operating margins were affected by tariffs and foreign exchange impacts.

The paragraph discusses the impact of foreign exchange on the company's financials, noting a positive effect on revenue but a negative effect on the bottom line due to operations outside the U.S. Vijay Kumar asks Heather Knight about the strong performance of Novum and its market share gains. Heather responds that Novum has shown strong performance with low single-digit market share gains, a robust innovation pipeline, and excitement from customers about its new technology and capabilities. Additionally, there is a discussion about the implications for consumables and IV solutions associated with these trends.

In the paragraph, a discussion takes place regarding the rebuilding of inventory and consumption patterns following a hurricane. There was an uptick in customers readjusting their inventory in the first quarter, fulfilling expectations for consumption and conservation. Some customers used more inventory due to high market volumes, while others were concerned about low inventory. The situation is stabilizing, and allocations are expected to normalize by mid-May. Heather Knight addressed Robbie Marcus's questions regarding the company's performance, stating that approximately 1.5 points of distributor stocking shifted from the second to the first quarter. The priority has been ensuring product availability to resume normal patient care, and having inventory adjustments in Q1 is viewed positively.

The paragraph discusses the performance and future outlook of Baxter's Healthcare Systems and Technologies (HST) division. The company saw a positive impact, with strong order growth and competitive gains, particularly in its Communication and Connectivity Solutions (CCS). This includes successful nurse call installations and a favorable response to the launch of Voalte Linq with Scotty. The division is seeing growth both in the U.S. and internationally, with stabilization in the FLC division and recovery in vital signs monitoring. Despite being cautious about the capital environment and reimbursement challenges faced by customers, Baxter is optimistic about HST's future. The integration of HST had initial challenges, but significant efforts over the past year have put the business back on track, leading to a positive internal outlook.

In the paragraph, Robbie Marcus and Larry Biegelsen ask Joel Grade and Brent Shafer questions about their company's financial outlook and future plans. Joel Grade discusses the company's commitment to operating margin expansion despite tariff impacts and ongoing mitigation activities, emphasizing a positive business momentum. Larry Biegelsen congratulates the company on a successful quarter and inquires about the timing of a permanent CEO announcement and the impact of falling oil prices on the company. Brent Shafer responds that he doesn't have a specific date for the CEO announcement, while the company had previously been negatively affected by rising oil prices.

The paragraph discusses a company's ongoing efforts to maintain progress in a process involving a search firm, with no specific completion date provided but optimism about its progress. Joel Grade then comments on the decreasing oil prices, noting that their company experiences less variability related to oil prices because the kidney business, linked to high supply chain consumption, has been exited. Larry Biegelsen thanks Joel, and the discussion shifts to Pito Chickering of Deutsche Bank, who asks about the changes in EPS (earnings per share) guidance. Joel explains that while there is strong operational performance, the downside comes from tariffs and foreign exchange (FX) impacts, which together account for a $0.15 reduction in EPS.

The paragraph discusses the company's strong operational performance, better-than-expected interest and tax benefits, and strategic optimizations. Pito Chickering inquires about the CCS (Customer Care Solutions) successes in the U.S. and the backlog size. Joel Grade responds, indicating a robust backlog and consistent order growth of about 20% since the previous year. He mentions the cautious approach amid market uncertainties and the absence of capital purchasing impact yet. Heather Knight adds to his comments, highlighting confidence in the business despite some conservatism in their assumptions.

The paragraph is from a conference call discussing a company's current progress and future plans. The speaker, Joel Grade, talks about the company's focus on digital enhancements and product launches in their connected care agenda. He mentions strong backlog and competitive wins, contributing to optimism about the business's future. Another speaker, Danielle Antalffy from UBS, commends the company's performance and inquires about future investment strategies, particularly regarding organic versus inorganic growth and debt repayment plans following a sale. Joel Grade acknowledges her question and the positive quarter, indicating an openness to strategic investments, but acknowledges that plans may evolve with the upcoming appointment of a new CEO.

The paragraph discusses Baxter International's strategic focus on investments for growth after the kidney segment, highlighting both organic and inorganic opportunities. They plan to achieve a net debt-to-EBITDA ratio of three times by the end of the year despite some negative cash impacts from tariffs. Once this goal is reached, they intend to invest in inorganic growth opportunities and potentially reinstate a stock buyback program to address dilution and regularly repurchase shares. The overall capital allocation strategy is expected to change, with confidence in hitting their financial targets. The dialogue concludes with thanks from Danielle Antalffy and Joel Grade, and the operator ends the conference call.

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