Baxter Reports Record Sales, Earnings and Cash Flow for Full-Year 2012

Increased Investments in R&D and Business Development Set Strong Foundation for 2013 and Beyond

Baxter Provides Financial Outlook For 2013

DEERFIELD, Ill.--(BUSINESS WIRE)--Jan 24, 2013 - Baxter International Inc. (NYSE:BAX) today announced financial results for the fourth quarter of 2012, and provided its financial outlook for the first quarter and full-year 2013.

Baxter reported net income in the fourth quarter of $494 million, which compares to $463 million reported in the prior-year period. Earnings per diluted share of $0.89 compares to $0.82 per diluted share reported in the fourth quarter of 2011, reflecting an increase of 9 percent. The fourth quarter 2012 results included special after-tax items of $206 million (or $0.37 per diluted share) primarily related to costs associated with settlement of certain U.S. pension obligations and business optimization initiatives. After-tax special items in the fourth quarter of 2011 totaled approximately $200 million (or $0.35 per diluted share).

On an adjusted basis, excluding special items in both periods, Baxter's net income of $700 million increased 6 percent in the fourth quarter from $662 million in the prior-year period. Adjusted earnings per diluted share of $1.26 advanced 8 percent from $1.17 per diluted share reported in the fourth quarter of 2011. These results were in line with the company's previously issued earnings guidance of $1.24 to $1.27 per diluted share.

Worldwide revenues grew 4 percent in the fourth quarter to $3.8 billion compared to $3.6 billion in the fourth quarter of 2011. Excluding the impact of foreign currency, sales increased 5 percent. Sales within the United States of $1.6 billion advanced 7 percent, and international sales increased 2 percent to $2.2 billion (or 4 percent excluding the impact of foreign currency).

BioScience revenues totaled $1.7 billion and rose 7 percent (or 9 percent excluding the impact of foreign currency) from the same period last year. Driving this performance was robust growth in demand, particularly in the United States, for ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method], and GAMMAGARD LIQUID [Immune Globulin Intravenous (Human)], as well as other plasma-based therapeutics including FEIBA, an inhibitor bypass therapy, and albumin. In addition, the company benefited from milestone payments related to the company's ongoing collaborations with governments on the development of influenza vaccines, and the acquisition of Synovis Life Technologies.

Medical Products sales totaled $2.1 billion and increased 2 percent over the prior-year period (or 3 percent excluding the impact of foreign currency), driven primarily by gains in peritoneal dialysis patients in the U.S., as well as growth in intravenous therapies (including the company's parenteral nutrition products), certain injectable drugs including oncolytics and critical care products, and a benefit from the company's acquisition of Baxa Corporation.

Full-Year 2012 Results

For the full year 2012, Baxter reported net income of $2.3 billion or $4.18 per diluted share, compared to net income of $2.2 billion or $3.88 per diluted share in 2011. On an adjusted basis, excluding special items in both years, Baxter's net income was $2.5 billion in 2012, which represents an increase of 2 percent over the prior year, and earnings per diluted share of $4.53 rose 5 percent from earnings per diluted share of $4.31 reported in 2011.

Baxter's worldwide sales totaled $14.2 billion for full-year 2012 and increased 2 percent versus the prior-year period (or 5 percent excluding the impact of foreign currency). Sales within the United States of $6.1 billion advanced 6 percent in 2012, and international sales declined 1 percent to $8.1 billion (but increased 4 percent excluding the impact of foreign currency). BioScience sales improved 3 percent (or 6 percent excluding the impact of foreign currency) to $6.2 billion, while Medical Products sales increased 1 percent to $8.0 billion (or 4 percent excluding the impact of foreign currency).

Baxter generated strong cash flows from operations in 2012 and returned significant value to shareholders in the form of dividends and share repurchases. Cash flows from operations rose 10 percent and totaled more than $3.1 billion in 2012, a record level. Baxter returned approximately $2.3 billion to shareholders during the year, through dividends totaling $800 million and share repurchases of approximately $1.5 billion (or approximately 25 million shares).

At the same time, Baxter increased its investments in research and development to $1.2 billion, reflecting an increase of 22 percent, as the company advanced a number of clinical programs in its pipeline, expanded its portfolio with several product launches and line extensions, and initiated several new programs and collaborations. In addition, Baxter announced investments to enhance future plasma production capacity with a new state-of-the-art manufacturing facility in Georgia and a collaboration with Stichting Sanquin Bloedvoorziening (Sanquin Blood Supply Foundation) in the Netherlands to support growth of its plasma-based treatments. The company also entered into a number of partnerships, such as a novel public-private partnership in Brazil to expand patient access to vital hemophilia therapies, and executed several business development initiatives to enhance future growth, including the proposed acquisition of Gambro AB, a global medical technology company focused on developing, manufacturing and supplying dialysis products and therapies for patients with acute or chronic kidney disease.

''The progress we have made during 2012, together with our solid financial performance, sets a very strong foundation for 2013 and beyond. We remain very confident in the long-term growth prospects for our company,'' said Robert L. Parkinson, Jr., chairman and chief executive officer. ''Baxter's core portfolio continues to benefit from our focus on life-saving therapies, and the increased level of R&D investment has transformed our new product pipeline into a robust portfolio of products and therapies directed at improving the quality of care while addressing key, high-potential areas of unmet medical need. We've also entered into a number of partnerships and executed business development initiatives that align with our core strengths, position Baxter for future success, and enhance shareholder value.''

Recent achievements reflecting these priorities include the following:

 

  • Announcement of pivotal Phase III study results evaluating the efficacy and safety of routine prophylaxis compared to on-demand treatment of FEIBA NF [Anti-Inhibitor Coagulant Complex], Nanofiltered and Vapor Heated, in patients with hemophilia A or B that develop inhibitors. Top-line results from the study showed a reduced median annual bleed rate from 28.7 during FEIBA NF on-demand treatment to 7.9 during FEIBA NF prophylactic treatment (a 72.5 percent reduction). The Phase III study will form the basis of a biologics license application to be filed with the U.S. Food and Drug Administration (FDA) in the first quarter of 2013.
  • Submission of an Investigational New Drug application for hemophilia A treatment BAX 855 with the FDA, following positive results from a Phase I trial. BAX 855 is a full-length longer-acting recombinant factor VIII (rFVIII) that was developed to increase the half-life of ADVATE [Antihemophilic Factor (Recombinant) Plasma/Albumin-Free Method] – the most widely chosen rFVIII in the world. Baxter expects to start enrollment of adult patients in its Phase II/III study in the first quarter of 2013.
  • Execution of an exclusive 20-year partnership with Hemobrás (Empresa Brasileira de Hemoderivados e Biotechnologia) to provide hemophilia patients in Brazil greater access to recombinant factor VIII (rFVIII) therapy for the treatment of hemophilia A. Hemophilia A is a genetic condition in which the body does not produce enough clotting protein factor VIII. It is estimated that more than 10,000 people in Brazil are living with hemophilia A, and today the vast majority are treated with plasma-derived FVIII therapy. Through this innovative partnership, Baxter will be the exclusive provider of Brazil's recombinant FVIII treatment over the next 10 years while the companies work together on a technology transfer to support development of local manufacturing capacity by Hemobrás.
  • Completion of the first U.S. study of the company's home hemodialysis system and initiation of a nocturnal in-center trial in Canada. Data from both trials will support the company's submission for CE Mark in Europe in 2013.
  • Conclusion of Baxter's first Phase III trial evaluating IG therapy in mild to moderate Alzheimer's disease patients. Initial data from the trial are expected to be released in the second quarter of 2013, and the company continues enrollment in a second, confirmatory Phase III trial.

Outlook for First Quarter, Full-Year 2013

Baxter also announced today its outlook for the first quarter and full-year 2013. The company's full-year guidance includes the impact of the Gambro AB acquisition, which is projected to close at the end of the second quarter and dilute full-year 2013 earnings by $0.10 to $0.15 per diluted share. Including Gambro, Baxter's guidance reflects sales growth for the full-year 2013 of approximately 10 percent, before the impact of foreign exchange. Also, for the full year, Baxter expects earnings of $4.60 to $4.70 per diluted share, before any special items, and cash flows from operations of approximately $3.3 billion.

For the first quarter of 2013, the company expects sales growth of approximately 2 to 3 percent, excluding the impact of foreign currency. Baxter expects earnings of $1.03 to $1.05 per diluted share in the first quarter, before any special items.

A webcast of Baxter's fourth quarter conference call for investors can be accessed live from a link on the company's website at www.baxter.com beginning at 7:30 a.m. CST on January 24, 2013. Please visit www.baxter.com for more information regarding this and future investor events and webcasts.

Baxter International Inc., through its subsidiaries, develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a global, diversified healthcare company, Baxter applies a unique combination of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.

This release includes forward-looking statements concerning the company's financial results, business development activities, R&D pipeline and outlook for 2013. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; future actions of regulatory bodies and other governmental authorities that could delay, limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; the ability of the company to obtain required regulatory approvals, satisfy closing conditions and close the Gambro AB transaction in a timely manner; future actions of governmental authorities and other third parties as U.S. healthcare reform legislation and other austerity measures are implemented globally; additional legislation, regulation and other governmental pressures, which may affect pricing, taxation, reimbursement and rebate policies of government agencies and private payers or other elements of the company's business; product development risks, including satisfactory clinical performance; the company's ability to realize the anticipated benefits from its business development and R&D activities; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; the impact of geographic and product mix on the company's sales; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; the availability of acceptable raw materials and component supply; fluctuations in supply and demand and the pricing of plasma-based therapies; the ability to enforce company patents; patents of third parties preventing or restricting the company's manufacture, sale or use of affected products or technology; the impact of global economic conditions on Baxter and its customers, including foreign governments in certain countries in which the company operates; foreign currency fluctuations and other risks identified in the company's most recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on the company's website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company's website.

             
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Three Months Ended December 31, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
               
      Three Months Ended    
      December 31,    
      2012   2011   Change
               
NET SALES   $3,753   $3,594   4%
               
COST OF SALES   1,848   1,829   1%
               
GROSS MARGIN   1,905   1,765   8%
% of Net Sales   50.8%   49.1%   1.7 pts
               
MARKETING AND ADMINISTRATIVE EXPENSES   1,040   886   17%
% of Net Sales   27.7%   24.7%   3.0 pts
               
RESEARCH AND DEVELOPMENT EXPENSES   291   254   15%
% of Net Sales   7.8%   7.1%   0.7 pts
               
NET INTEREST EXPENSE   22   15   47%
               
OTHER (INCOME) EXPENSE, NET   (22) A 71 A N/M
               
PRE-TAX INCOME   574   539   6%
               
INCOME TAX EXPENSE   80   76   5%
% of Pre-Tax Income   13.9%   14.1%   (0.2 pts)
               
NET INCOME   $494   $463   7%
               
BASIC EPS   $0.90   $0.82   10%
DILUTED EPS   $0.89   $0.82   9%
               
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING            
Basic   548   562    
Diluted   555   566    
               
ADJUSTED PRE-TAX INCOME (excluding special items)   $894 B

 

$834 B 7%
ADJUSTED NET INCOME (excluding special items)   $700 B $662 B 6%
ADJUSTED DILUTED EPS (excluding special items)   $1.26 B $1.17 B 8%
     
A   Other (income) expense, net includes the net results attributable to noncontrolling interests, which had been reported separately in the prior year. The prior period consolidated statement of income presented above, the reconciliation of GAAP (generally accepted accounting principles) to non-GAAP measures presented on page 9, and the cash flows from operations schedule presented on page 12 have been conformed to the current period presentation.
     
B   Refer to page 9 for a description of the adjustments and a reconciliation to GAAP measures.
             
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended December 31, 2012 and 2011
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
               
The company's GAAP results for the three months ended December 31, 2012 and 2011 included special items which impacted the GAAP measures as follows:
           
      Three Months Ended    
      December 31,    
      2012   2011   Change
Gross Margin   $1,905   $1,765   8%
Business optimization items 1   62   95    
Adjusted Gross Margin   $1,967   $1,860   6%
% of Net Sales   52.4%   51.8%   0.6 pts
               
Marketing and Administrative Expenses   $1,040   $886   17%
Business optimization items 1   (60)   (97)    
Pension settlement items 2   (170)   -    
Asset impairment and other items 3   -   (41)    
Adjusted Marketing and Administrative Expenses   $810   $748   8%
% of Net Sales   21.6%   20.8%   0.8 pts
               
Research and Development Expenses   $291   $254   15%
Business optimization items 1   (28)   -    
Adjusted Research and Development Expenses   $263   $254   4%
% of Net Sales   7.0%   7.1%   (0.1 pts)
               
Other (Income) Expense, Net   $(22)   $71   N/M
Asset impairment and other items 3   -   (62)    
Adjusted Other (Income) Expense, Net   $(22)   $9   N/M
               
Pre-Tax Income   $574   $539   6%
Impact of special items   320   295    
Adjusted Pre-Tax Income   $894   $834   7%
               
Income Tax Expense   $80   $76   5%
Impact of special items   114   96    
Adjusted Income Tax Expense   $194   $172   13%
% of Adjusted Pre-Tax Income   21.7%   20.6%   1.1 pts
               
Net Income   $494   $463   7%
Impact of special items   206   199    
Adjusted Net Income   $700   $662   6%
               
Diluted EPS   $0.89   $0.82   9%
Impact of special items   0.37   0.35    
Adjusted Diluted EPS   $1.26   $1.17   8%
               
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING            
Diluted   555   566    
     
1   The company undertook business optimization initiatives resulting in charges totaling $150 million ($101 million, or $0.18 per diluted share, on an after-tax basis) and $192 million ($128 million, or $0.22 per diluted share, on an after-tax basis) in 2012 and 2011, respectively.
     
2   Marketing and administrative expenses in 2012 included a charge totaling $170 million ($105 million, or $0.19 per diluted share, on an after-tax basis) primarily related to the settlement of certain pension obligations in the United States.
     
3   Marketing and administrative expenses and other (income) expense, net in 2011 included charges totaling $103 million ($71 million, or $0.13 per diluted share, on an after-tax basis) primarily related to a contribution to the Baxter International Foundation and the write-down of Greek government bonds.
     
For more information on the company's use of non-GAAP financial measures in this press release, please see the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this press release.
             
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Twelve Months Ended December 31, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
               
               
      Twelve Months Ended    
      December 31,    
      2012   2011   Change
               
NET SALES   $14,190   $13,893   2%
               
COST OF SALES   6,889   6,847   1%
               
GROSS MARGIN   7,301   7,046   4%
% of Net Sales   51.5%   50.7%   0.8 pts
               
MARKETING AND ADMINISTRATIVE EXPENSES   3,324   3,154   5%
% of Net Sales   23.4%   22.7%   0.7 pts
               

Posted: January 2013


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