Probing Baxter’s 3Q17 Earnings Growth: Key Drivers

Baxter’s 3Q17 earnings results

Baxter International (BAX) released its 3Q17 earnings results on October 25, 2017, reporting adjusted diluted EPS (earnings per share) of $0.64, which represented a YoY (year-over-year) growth of ~14%.

The company’s EPS results exceeded Wall Street’s estimate of $0.59 as well as the company’s expected EPS range of $0.58–$0.60. Baxter cited its top-line growth and strong gross margins in 3Q17 as a major growth driver.

Probing Baxter’s 3Q17 Earnings Growth: Key Drivers

Baxter’s stock price rose ~0.05% on the day of its 3Q17 results release. The iShares US Medical Devices ETF (IHI) gained ~0.01% the same day. BAX accounts for ~4.2% of the total portfolio holdings of IHI.

Peers Abbott Laboratories (ABT), Thermo Fisher Scientific (TMO), and Edwards Lifesciences (EW) registered adjusted EPS growth of ~11.9%, ~13.8%, and ~23.5%, respectively, in their most recent quarters.

How were Baxter’s margins in 3Q17?

Baxter has been undergoing a strategic transformation that includes strategic acquisitions, divestments, partnerships and collaborations, cost transformation initiatives, and operational efficiencies.

The company reported an adjusted gross margin of 45.2% of the total sales for 3Q17, representing a YoY (year-over-year) improvement of 40 basis points. This gross margin growth was mainly driven by favorable product mix, business transformation initiatives, pricing improvements in some businesses, and a lower tax rate.

Baxter’s SG&A (selling, general, and administrative) expenses and R&D (research and development) investment rose 4% and 16%, respectively, on a YoY basis in 3Q17. The company has accelerated its efforts to enhance its product portfolio and improve its commercial capabilities to drive higher growth.