What’s Driving Baxter International’s Cash Flow Growth



Baxter International’s 2017 cash flow

Between 9M16 (the first nine months of 2016) and 9M17, Baxter International’s (BAX) cash flow rose by $514 million to $933 million, exceeding its cash flow of $905 million in fiscal 2016. In fiscal 9M17, Baxter had operating cash flow of ~$1.3 billion, up $405 million from fiscal 9M16.

In fiscal 2017, Baxter expects to register operating cash flow of ~$1.9 billion and free cash flow of ~$1.2 billion. Investors could consider the Vanguard Growth ETF (VUG) for exposure to Baxter. BAX accounts for ~0.15% of VIG’s total portfolio.

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Major drivers of cash flow expansion

The company has stated that cash flow performance has been its core area of focus. The company has been generating higher cash flow, driven by its strong operational performance, focus on working capital performance, and lower capital expenditure. Between 9M16 and 9M17, Baxter’s capital expenditure fell ~$109 million.

Baxter International is focused on improving its working capital performance in inventory management, days payable, and days sales outstanding. The company is working towards rebuilding its standard inventory levels, which have fallen due to the hurricanes experienced in 3Q17.

Peers Boston Scientific (BSX), Abbott Laboratories (ABT), and BD (BDX) reported free cash flow of ~$225 million, ~$3.1 billion, and ~$1.8 billion, respectively, at the end of their latest reported quarters. Next, we’ll discuss Baxter International’s capital allocation strategy in detail.


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