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Baxter International (BAX) is slated to report third quarter 2010 results on Thursday, October 21, 2010. The current Zacks Consensus Estimate for the third quarter is 97 cents per share, representing an estimated 0.66% annualized deceleration.

For the third quarter, Baxter’s sales growth, excluding the impact of foreign currency, is expected to range from 1% to 3%. Further, the company expects sales growth in the same range, in constant currency, in fiscal 2010. The current Zacks Consensus Estimate for thrid quarter sales is $3.16 billion.

Second-Quarter Recap

Baxter reported second quarter fiscal 2010 earnings per share of 93 cents, in line with the Zacks Consensus Estimate and lower than the year-ago quarter’s earnings of 96 cents.

Net sales in the quarter increased 2% year over year to $3.2 billion. Excluding the favorable foreign currency translation, net sales were flat year over year.

BioScience revenues decreased 4% year over year to $1.4 billion. Medication Delivery sales upped 9% year over year to $1.2 billion. Renal sales escalated 6% year over year to $585 million.

On a geographic basis, domestic sales accounted for 44% of total sales and inched up 2% year over year. International sales also rose 2% year over year (down 2% in constant currency).

Estimate Revision Trend

Agreement

The overall trend in estimate revisions for Baxter is marked by a relative lack of activity. Out of the 14 analysts covering the stock, only 1 analyst raised his/her earnings estimate for the third quarter in the last 30 days. There was no downward activity during the last 7 and 30 days.

With regard to earnings revisions for fiscal 2010, 2 out of 18 analysts raised their estimates over the last 7 days and 4 analysts increased their estimates over the past 30 days. There were no downward estimate revisions during the same time frames. The current Zacks Consensus Estimate for 2010 is $3.94, reflecting a 3.86% estimated year-over-year growth.

Magnitude

For the upcoming quarter, the magnitude of earnings revisions was static over the last 7 and 30 days. For fiscal 2010, there was an increase of a penny over the last 7 days.

Baxter had a small positive earnings surprise of 1.09% in the second quarter. It matched estimates in the previous two quarters. The company produced an average positive earnings surprise of 1.59% over the last four quarters, implying that it beat the Zacks Consensus Estimate by that measure.

Our Take

We are slightly concerned that the company lowered the upper end of its earnings guidance for fiscal year 2010. Earnings per share are now expected to be in the range of $3.93 to $3.98 for 2010 versus the prior guidance of $3.92 to $4.00. Among other factors, the adjustment was partly due to the impact of health care reform.

The plasma proteins market is growing more slowly than previously estimated by the company. Baxter experienced a loss of market share and still faces pricing pressure. In addition, the antibody therapy sub-segment is experiencing a weakness in sales.

Baxter’s performance in the BioScience division was primarily fueled by sales of ADVATE, for the treatment of hemophilia, and ARALAST, for the treatment of hereditary emphysema. We expect this business segment to do better in future.

Among long-term positive factors, Baxter’s focus on life-sustaining or chronic care products ensures a recurring revenue stream. Its products are not commodity-like in nature, thereby insulating it from an economic downturn. The product pipeline is robust with several products in late stage clinical development. The company has a large cash balance, strong operating cash flow and backup lines of credit providing ample liquidity.

We currently have a long-term Neutral recommendation on Baxter. The stock currently retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.

Source: Baxter Earnings Preview