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BAX May See Slight Rise in Net Profit Margins in Fiscal 2018

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A slight rise in net profit margins

In 4Q17, Baxter International (BAX) reported adjusted earnings per share (or EPS) close to $0.64, which represents YoY (year-over-year) growth of 12.0%. The company surpassed its previous adjusted EPS guidance of $0.56–$0.59, mainly due to robust operating performance, cost optimization, and favorable foreign currency fluctuations. Hurricane Maria had a negative impact of $0.06 on the company’s adjusted EPS in 4Q17.

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For fiscal 2017, Baxter International reported adjusted income from continuing operations of ~$2.48 per diluted share, which is 27.0% higher on a year-over-year basis. The company projects its adjusted diluted EPS to fall in the range of $2.72–$2.80. Its diluted average share count is expected to be ~550.0 million shares for fiscal 2018. The company expects to benefit from ongoing share repurchase programs in fiscal 2018.

Wall Street analysts have projected Baxter’s fiscal 2018 net profit margins to ~13.6%, which is a YoY rise of ~57 basis points.

Among its peers, Abbott Laboratories (ABT), Boston Scientific (BSX), and Becton Dickinson (BDX) are expected to report net profit margins of about 16.3%, 19.7%, and 18.1%, respectively, for fiscal 2018.

For fiscal 2017, Baxter International reported free cash flow of ~$1.2 billion. The company expects this to rise to almost $1.4 billion for fiscal 2018. Baxter International’s projected operating cash flow is ~$2.1 billion for fiscal 2018, and its capital expenditures are expected to remain close to $700.0 million.

Projections for 1Q18

Baxter International projected its 1Q18 revenues to rise 1.0%–2.0% YoY on a constant currency basis and to rise 5.0%–6.0% on a reported basis. However, the company’s revenues are projected to remain flat on an operational basis in 1Q18. 

The company has estimated its adjusted earnings per diluted share—which don’t involve the impact of special items—to fall $0.60–$0.62 in 1Q18.

In the final article in this series, we’ll discuss the growth prospects for Baxter International’s business segments.

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