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Can Hospital-Products Unit Aid Baxter (BAX) in Q1 Earnings?

Zacks

Baxter International Inc. BAX is scheduled to report first-quarter 2018 earnings on Apr 26, before the market opens. Positive tidings on the regulatory front, expanding product portfolio, strategic collaborations and strong presence in the international markets are key positives at the moment.

We expect the company to witness steady growth in Hospital Products sales — one of the major revenue components. While this is projected to drive first-quarter 2018 earnings, an expected improvement in revenues in other sub-segments will generate impressive results.

Last quarter, Baxter posted adjusted earnings per share of 64 cents, which beat the Zacks Consensus Estimate by 5 cents and improved from the year-ago quarter’s figure of 57 cents.

For the current quarter, the Zacks Consensus Estimate for revenues is pegged at $2.62 billion, reflecting a rise of 5.9% year over year. The Zacks Consensus Estimate for adjusted earnings per share is pegged at 62 cents, indicating an increase of 6.9% year over year.


Baxter International Inc. Price and EPS Surprise

Let’s delve into other factors which are likely to impact Baxter’s first-quarter 2018 results.

Hospital Products to Drive Q1 Results

Baxter has an impressive product portfolio with improved existing products and new product development. Recently, the company announced a distribution agreement for the U.S. launch of the Arisure Closed System Transfer device.

In the last quarter, Hospital Sales were driven by solid demand for injectable pharmaceuticals and hospital pharmacy compounding services. Sales in the segment benefited from solid demand for the company’s advanced surgery products and cytotoxic contract manufacturing services.

Overall, the Zacks Consensus Estimate for Hospital Products revenues is pegged at $1.67 billion. This reflects an increase of 5.6% from the year-ago quarter.

Here we take a sneak peek at the major sub-segments within the Hospital Products and how are they poised to gain in the to-be-reported quarter:

Surgical Care:Surgical Care (includes anesthesia and BioSurgery) sales recorded year-over-year sales growth in the last quarter, on low double-digit growth for anesthesia and critical care products, driven by growing demand for inhaled anesthetics internationally as well as increased U.S. sales of BREVIBLOC — a fast-acting IV beta blocker.

On Mar 19, Baxter completed the acquisition of two hemostat and sealant products from Mallinckrodt plc to expand the existing surgical portfolio of hemostats and sealants, especially for intraoperative bleeding. Notably, the company bought RECOTHROM Thrombin topical and PREVELEAK Surgical Sealant product lines from Mallinckrodt.

Baxter’s surgical portfolio includes products like FLOSEAL Hemostatic Matrix, TISSEEL Fibrin Sealant, COSEAL Surgical Sealant and VASCU-GUARD Patch among others. The portfolio is composed of hemostasis (addressing bleeding), tissue sealing and hard tissue regeneration as well as soft tissue repair and microsurgery with products available in nearly 60 countries.

The company consistently strives to improve its Advanced Surgery business. For 2018, the company expects advanced surgery business to increase 3-4% on a constant-currency (cc) basis.

Baxter announced plans to focus on launching advanced surgery products in Japan in the coming days.

The Zacks Consensus Estimate for the segment’s sales is pegged at $576 million, reflecting a rise of 1.1% from the year-ago quarter.

Fluid Systems: Within Hospital Products, sales in Fluid Systems is expected to be solid on robust IV solution sales in the United States. We expect Fluid Systems to maintain the trend in the first quarter.

This is evident from the Zacks Consensus Estimate for Fluid Systems of $621 million for the first quarter, reflecting 6.2% rise from the year-ago quarter.

Integrated Pharmacy Solutions (IPS): Global sales of IPS, another sub segment within Hospital Products, increased by a formidable margin in the last quarter, partly on the back of increased sales for premixed injectable drugs.

However, Baxter’s cyclophosphamide performance over the last five years has lacked luster, majorly. Lower cyclophosphamide sales pose threats to the Integrated Pharmacy Solutions franchise business. For 2018, Baxter expects U.S. cyclophosphamide sales to be approximately $95 million, reflecting a decline from $185 million in 2017. For the upcoming quarterly result, lower cyclophosphamide sales are expected to impact the top line by low single digits.

For the first quarter of 2018, the Zacks Consensus Estimate for IPS is pegged at $598 million, showing an increase of 8.3% from the year-ago number.

Other Factors at Play

Guidance: Baxter expects first-quarter adjusted earnings in the range of 60-62 cents. However, net sales in the first quarter is expected to be affected by approximately $25 million due to disruptions in the Puerto Rico facility. For 2018, Baxter estimates sales growth of approximately 6-7% at cc. Adjusted earnings for 2018 are expected in the band of $2.72-$2.80.

Regulatory Approvals: Baxter has been witnessing positive tidings on the regulatory front. Recently, Baxter announced the approval of Bivalirudin in 0.9 percent Sodium Chloride Injection (bivalirudin).

Management confirmed that the FDA has granted two new approvals for temporary importation of certain drugs from the facilities in Canada and Mexico. With this development, Baxter now has four operational sites approved to address demand in the U.S. markets.

Dull Projection for Pharmaceutical Unit: For 2018, the pharmaceutical business, which includes Baxter’s broad generic injectables portfolio, anesthesia and critical care products as well as hospital pharmacy compounding services conducted outside the United States is expected to be flat on a year-over-year basis. The lackluster performance is primarily driven by increased competition for select products in the segment.

Further, in the Other business segment, which primarily includes Baxter’s contract manufacturing services, management expects low single-digit decline in 2018. Per management, sales in the segment benefited from a customer stockpile order in 2017. Baxter expects lower manufacturing revenues from Shire, which it acquired two years ago.

What Our Model Predicts

Our quantitative model does not predict an earnings beat for Baxter this quarter.

This is because a stock needs to have a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: Earnings ESP for Baxter is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Baxter carries a Zacks Rank #2.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories BIO has an Earnings ESP of +20.43% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardinal Heath CAH has an Earnings ESP of +0.33% and a Zacks Rank #2.

Abbott Laboratories ABT has an Earnings ESP of +0.75% and a Zacks Rank #3.

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