Joel Grade
Executive Vice President and Chief Financial Officer at Baxter International
Thanks Joe, and good morning everyone. I'm happy to be joining the call this morning to provide some additional details on Baxter's fourth quarter and full-year 2023 financial performance, as well as commentary on our financial outlook for 2024.
As Joe mentioned, we are pleased with our fourth quarter results, which represented another step forward in our ongoing business transformation. Fourth quarter 2023 global sales of $3.9 billion increased 4% on a reported basis and 3% on a constant currency basis and compared favorably to our previously issued guidance of 1% to 2% reported and approximately 1% constant currency. Outperformance in the quarter benefited from better than expected sales in many product categories and particularly in chronic therapies and drug compounding.
As compared to the prior year period, we reported solid quarterly growth in healthcare systems and technologies, pharmaceuticals and medical products and therapies. And collectively sales for these three businesses, which will comprise Baxter post the separation, increased approximately 5%. As expected, Kidney Care sales declined slightly in the quarter due to the factors Joe mentioned earlier.
On the bottom line, adjusted earnings totaled $0.88 per share, increasing 13% versus the prior year period. These results reflect the ongoing operational improvements we are recognizing both commercially as well as within our supply chain network, as that team successfully executes on its margin improvement programs. Lower interest expense and a benefit from foreign exchange also contribute favorably to the quarter, partially offset by the impact of a higher tax rate compared to the prior year. Adjusted earnings per share for the quarter came in at the high end of our expected range of $0.85 to $0.88 per share, primarily driven by better sales and operational performance.
Now I'll walk through performance by our reportable segments. Commentary regarding sales growth will reflect growth at constant currency rates. Sales in our medical products and therapy segments were $1.3 billion, increasing 4%. Full-year 2023, sales totaled $5 billion, also advancing 4%. Within medical products and therapies, fourth quarter sales from our infusion therapies and technologies division totaled $1 billion and increased 4%. Sales in the quarter benefited from strength in our IV solutions portfolio, particularly outside the United States, as well as solid performance in our infusion system portfolio. Sales from advanced surgery totaled $278 million and grew 6% coming in ahead of expectations and reflecting strong growth internationally.
For our Healthcare Systems and Technologies, or HST segment, sales in the quarter were $795 million and increased 7%. Full-year 2023, sales totaled $3 billion, advancing 3%. Within the HST segment, sales in our Care and Connectivity Solutions, or CCS division, were $492 million increasing 11%. Performance in the quarter benefited from double digit growth in all key product categories within the division, including our care communications, surgical solutions, and patient support systems product offerings. Growth in the quarter was partially offset by lower contribution from rental revenues.
Fourth quarter United States orders within CCS continued to improve sequentially, but notably also grew on a year-over-year basis for the first time in 2023. While we are encouraged by the improvement in capital spending we've seen from our US hospital customers, we continue to believe there may still be select pockets of cautiousness in the marketplace.
Frontline care sales in the quarter were $303 million, increasing 2%. Given the improvement in electromechanical component availability over the course of 2023, we were able to successfully address our elevated backlog and exited the year at more normalized levels. Sales in our Pharmaceuticals segment were $596 million, increasing 7%. For the full-year, sales were $2.2 billion, also advancing 7%. Performance in the quarter reflected double-digit growth in our US injectables portfolio driven by new product launches, as well as continued strong demand for our services within our drug compounding portfolio internationally.
Other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain of our manufacturing facilities were $18 million and declined 58% during the quarter, in line with our expectations. This lower level of sales reflects reduced demand for certain contract manufacturing volumes and the termination of a royalty arrangement.
Moving on to Kidney Care. Sales in the quarter were $1.2 billion and declined 1%. Full-year 2023, sales totaled $4.5 billion dollars and increased 1%. Within Kidney Care, global sales for chronic therapies were $950 million declining 3%, though as mentioned earlier came in better than expected. Sales growth in the quarter was impacted by a difficult comparison to the prior year period, which included certain discrete items in the US that totaled approximately $25 million.
Finally, performance in chronic therapies continues to be impacted by lower sales in China due to certain government based procurement initiatives and a lower patient census due to the pandemic. We estimate that collectively these country specific factors negatively impacted sales by approximately $35 million in the quarter. Sales in our acute therapies business were $206 million, representing growth of 6% with strength across most regions, including double digit growth in the United States, where we've now rebased this business following the pandemic related benefits we previously experienced.
Now moving through the rest of the P&L. Our adjusted gross margin totaled 42% and represented an increase of 80 basis points over the prior year. The year-over-year improvement in gross margin primarily reflects the stabilization of macroeconomic factors and inflationary pressures that previously contributed to higher costs for raw materials, overhead, and labor that impacted our margins earlier in the year. Margin improvement in the quarter also benefited from pricing initiatives in select markets and ongoing margin improvement programs in our integrated supply chain network. Performance for the quarter was in line with our expectations as top line outperformance in the quarter was driven by lower margin divisions, which drove a slightly negative gross profit mix in the quarter.
Adjusted SG&A totaled $829 million or 21.3 as a percentage of sales, an increase of 20 basis points versus the prior year period. Performance in the quarter benefited from our ongoing transformation initiatives to enhance operational efficiencies offset by higher bonus accruals under our annual employee incentive compensation plans compared to the prior year and select investments in sales and marketing initiatives.
Adjusted research and development spending in the quarter totaled $172 million and represented 4.4 as a percentage of sales, increasing 20 basis points versus the prior year. We have ramped up our R&D efforts, particularly increasing our investments in advancing new products across the portfolio. And like SG&A, R&D expenses include the impact of higher employee incentive accruals as compared to the prior year period. These factors resulted in an adjusted operating margin of 16.2%, an increase of 30 basis points. Overall, we are very pleased with the second half margin expansion we are able to realize, with operating margins improving approximately 300 basis points in the second half of the year as compared to the first half of 2023.
Net interest expense totaled $73 million in the quarter, a decrease of $44 million versus the prior year and down $55 million sequentially, driven by debt repayment of approximately $2.8 billion associated with utilization of the proceeds from our BPS divestiture. We plan to continue to repay debt in 2024, consistent with our stated capital allocation priorities. Adjusted other non-operating income totaled $11 million in the quarter compared to an expense of $11 million in the prior year period, year-over-year improvement was largely due to lower foreign exchange losses incurred as compared to the prior year period.
The adjusted tax rate in the quarter was 21.0% compared to 14.6% in the prior year period. The year-over-year increase is primarily driven by statute expirations on certain tax positions benefiting the prior year period. The tax rate in the quarter came in higher than expected, primarily driven by changes in geographic earnings mix.
And as previously mentioned, adjusted earnings totaled $0.88 and increased 13% versus the prior year, primarily driven by better than expected sales and operational efficiencies, as well as lower interest expense partially offset by the tax rate in the quarter. For the full-year, Baxter's adjusted earnings from continuing operations decreased 14% to $2.60 per diluted share, reflecting the impact of higher cost of goods sold, driven primarily by the macro environmental factors we've previously discussed, greater annual employee bonus accruals as well as increased non-operating expenses. These factors were partially offset by our operational and supply chain savings initiatives.
With respect to cash flow, we generated free cash flow for the year of over $1 billion from continuing operations, compared to $411 million in the prior year period. Going forward, cash flow generation and in particular improving our working capital metrics is a key priority both for me and the Baxter team.
To close on our full-year results, we were pleased with our operating performance through 2023, which reflected both consistent progress and building momentum. And it is important to note that our teams were able to achieve this performance while also making meaningful progress against our strategic initiatives designed to enhance our future performance and drive incremental value for all stakeholders. We look forward to building on that positive momentum as we enter 2024.
Let me conclude my remarks by discussing our outlook for the first quarter and full-year 2024, including some key assumptions underpinning the guidance. For full-year 2024, Baxter expects total sales growth of 2% on both reported and constant currency basis, as the impact from foreign exchange is currently expected to be minimal on a full-year basis. Constant currency sales guidance for the full-year by reportable segments is as follows. For Medical Products and Therapies, we expect sales growth of 3% to 4%. Sales in our Healthcare Systems and Technologies segments are expected to increase approximately 3%. We expect Pharmaceuticals sales growth of 4% to 5%. Collectively, sales for these remaining Baxter businesses are expected to increase 3% to 4% in 2024. For Kidney Care, we expect sales growth to decline 1% to 2% as compared to 2023. Factors impacting year-over-year growth are primarily driven by select market and product exits, in connection with our margin expansion initiatives for this segment, which we estimate will negatively impact sales by approximately $150 million. Additionally, the incremental impact from the ongoing government procurement initiatives in China is expected to total approximately $70 million in 2024.
Now turning to our outlook for other P&L line items. We expect adjusted operating margin to increase by at least 50 basis points in 2024. We expect our non-operating expenses, which include net interest expense and other income and expense to total approximately $350 million in aggregate during 2024. We anticipate a full-year adjusted tax rate between 22.0% and 22.5%, which reflects an approximate 100 basis point impact to the 2024 tax rate from the implementation of pillar two. We expect our diluted share count to increase slightly and average 510 million shares for the year. Based on all these factors, we anticipate full-year adjusted earnings, excluding special items of $2.85 to $2.95 per diluted share.
Specific to the first quarter of 2024. We expect global sales growth of approximately 1% on a reported basis and 1% to 2% on a constant currency basis. And we expect adjusted earnings excluding special items of $0.59 to $0.62 per diluted share.
With that, we can now open up the call for Q&A.
