Baxter Is Expected to Witness Lower Revenues in 1Q16

On April 26, 2016, Baxter International (BAX) will announce its fiscal 1Q16 earnings for the period ending March 31, 2016. Wall Street has estimated Baxter’s 1Q16 revenues to be about $2.4 billion, a marginal decline as compared to last quarter’s revenues of ~$2.5 billion.

The graph above shows the analyst estimates as compared to the actual revenues reported by the company in previous quarters. The revenue estimates for 1Q16 account for the following:

• strategic initiatives by the company to improve its profit margins and profitability
• new product launches such as AMIA PD cycler
• SIGMA Spectrum in the US fluid system franchise and hospital products segment
• enhanced investment opportunities driven by increased cash flows generated through the spin-off of Baxalta and resulting consolidation of the company

Analysts projected a fall in currency-adjusted revenues in 1Q16 on account of continued currency headwinds, generic competition for cyclophosphamide in the United States, and weak emerging markets.

Baxter has provided guidance of 2%–3% growth in annual sales on a constant currency basis for 2016, whereas for 1Q16, the company expects to generate constant currency sales growth of 3%–4%. This is significantly lower than the sales expectations of its major competitors Becton Dickinson (BDX) and C R Bard (BCR) at 4.5%–5% and 4.5%–5.5%, respectively.

Baxter’s revenue growth estimates of 2%–3% for 1Q16 include the impact of generic competition on cyclophosphamide. On excluding the same, the company is expected to report revenue growth of 3%–4%. Moreover, Baxter is implementing a number of capacity expansion plans that are expected to contribute significantly to the company’s sales growth in the years ahead.

Baxter expects its core businesses to register significant organic growth in 1Q16. The renal business segment is expected to grow by ~3% in 2016 as compared to ~1% growth reported in 2015. The hospital products segment and the US fluid systems business are expected to grow by 6%–8% and around 27%, respectively. The relaunch of SIGMA Spectrum is a significant growth driver for the US fluids business segment. Abbott Laboratories (ABT) is one of Baxter’s major competitors in the infusion pumps category.

Investors can gain exposure to Baxter by investing in the PowerShares S&P 500 Low Volatility Portfolio (SPLV), which holds ~1% its total holdings in Baxter.