Earnings Scorecard: Baxter International

| About: Baxter International (BAX)
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Baxter International (NYSE:BAX) reported fourth quarter and fiscal 2010 adjusted (excluding one-time items) earnings per share of $1.11 and $3.98, respectively, thereby beating the corresponding Zacks Consensus Estimates of $1.10 and $3.97, and surpassing the year-ago results of $1.03 and $3.80.

The results were in line with Baxter’s earlier guidance in the range of $1.09 to $1.11 for the fourth quarter and $3.96 to $3.98 for fiscal 2010. Among the positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

Highlights from the Fourth Quarter

Reported net income dropped 26% year over year, in the fourth quarter, to $423 million (or 72 cents per share). This decline mainly resulted from special after-tax charges of $227 million for asset impairment and costs related to Baxter’s initiatives in the area of business optimization, higher reserves for litigation and in-process R&D expenses.

Total revenues were $3,498 million, up 1% year over year, beating the Zacks Consensus Estimate of $3,460 million. Domestic revenues for the quarter edged up 1% to $1,440 million while overseas sales were flat year over year (up 3% in constant currency) at $2,058 million.

The Plasma Proteins business, where Baxter had encountered structural problems in the past, performed well with revenues of $416 million, up 9% (up 13% in constant currency) year over year. Antibody Therapy also delivered good results with sales of $386 million, climbing 10% (up 13% in constant currency) year over year.

Agreement – Estimate Revisions

The overall trend in estimate revisions for fiscal 2011 is essentially static since the release of the fourth quarter results with none of the analysts (out of 19) raising or lowering their estimates over the past 7 days. A similar pattern applies to the estimates for 2012.

Average execution simply failed to evoke sentiment despite the company’s retention of market share in infusion pumps and ongoing turnaround of the Plasma Proteins business.

Magnitude – Consensus Estimate Trend

A lack of movement in estimates has led to magnitude hitting a plateau for both the current and subsequent fiscal year. The current Zacks Consensus Estimates for fiscal 2011 and 2012 are $4.20 and $4.64, respectively, reflecting an estimated 5.58% and 10.32% year-over-year growth.

Baxter Stays at Neutral

The news regarding Baxter remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases.

On the flip side, despite recent improvement in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a still somber outlook for some hospital spending and tightening of reimbursement.

The lingering bearishness surrounding the stock can be lifted by consistent execution. Baxter is a good bet for value investors willing to wait as fundamentals improve. Among others, it competes with Becton, Dickinson and Company (NYSE:BDX) and Talecris Biotherapeutics Holdings Corp. (NASDAQ:TLCR) in certain niches. We currently have a Neutral long-term rating on Baxter supported by a short-term Zacks #3 Rank.