uploads///PROFITABILITY

Baxter’s 2Q16 Profitability and 2016 Guidance

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Jul. 29 2016, Updated 8:08 a.m. ET

Baxter International’s profitability

Baxter International (BAX) reported YoY (year-over-year) revenue growth of ~4% for 2Q16. The company’s margins improved even more, due to the favorable sales mix, a lower impact of currency headwinds, better pricing in some of its businesses, and demand in Anesthesia, Fluid Systems, and Acute Renal Therapy. Moreover, the company’s cost-cutting measures and lower interest burden helped improve Baxter’s profitability.

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Baxter’s adjusted operating margin came in at ~12.3% in 2Q16, driven by strategic business alignment, portfolio optimization, and cost containment measures. Further, the reduced tax burden due to the use of the stake in Baxalta to pay off ~$3.7 billion in debt helped drive the operating margin expansion. The company’s 1Q16 operating margin came in around 10.5%. Baxter’s adjusted gross margin for 2Q16 was reported to be around 42.1%.
Baxter’s selling, general, and administrative expenses decreased 11% in 2Q16, while its research and development expenses increased by ~1% as a percentage of sales.

Revised 2016 financial guidance

Baxter revised its 2016 guidance following a strong 2Q16 performance. Sales guidance for the year is updated from approximately 3% to the range of 3%–4%. On a reported basis, after adjusting for the impact of currency headwinds and the US cyclophosphamide business, Baxter expects to realize revenue growth of approximately 1%–2%.

Baxter also revised its EPS (earnings per share) guidance from $1.59–$1.67 to a range of $1.69–$1.74. The company also updated its operating margin guidance from 11.5% to 12%.

For diversified exposure to Baxter, you can consider the iShares U.S. Medical Devices ETF (IHI). IHI invests approximately 4.4% of its holdings in Baxter and 4%, 5.1%, and 3.1% of its holdings in its peers St. Jude Medical (STJ), Boston Scientific (BSX), and C. R. Bard (BCR), respectively.

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