Joel Grade
Executive Vice President and Chief Financial Officer at Baxter International
Thanks, Heather, and good morning, everyone. I'm having to be joining the call this morning to provide some additional details on Baxter's 4th-quarter and full-year 2024 financial performance, as well as commentary on our financial outlook for 2025. As Brent mentioned, we are very pleased with our 4th-quarter results and how we ended the year. Our results came in ahead of our prior guidance on both the top and bottom-lines, driven by better-than-expected sales and solid operational performance. 4th-quarter 2024 global sales from continuing operations of $2.75 billion, increased 1% on a reported basis and 2% on a constant-currency basis and compared favorably to our previous guidance, which calls for sales to decline in low-single digits. Outperformance in the quarter was broad-based and reflected positive sales across most of our product divisions. As expected, during the 4th-quarter, Hurricane Holine negatively impacted our sales by approximately $110 million or approximately 400 basis-points. Although the overall magnitude is less than the previously anticipated, approximately $150 million, given the company's swift recovery efforts. For the full-year, reports sales from continued operations at $10.6 billion, increasing 3% on both a reported and constant-currency basis. Hurricane Heline negatively impacted growth for the full-year by just over 100 basis-points. On the bottom-line, 4th-quarter adjusted earnings per share from continuing operations were $0.58 and came in ahead of our prior guidance of $0.50 to $0.53 per share, driven by the favorable top-line results and solid operational performance. In addition, our tax-rate came in favorable to our expectations, which offset a negative impact from foreign-exchange. On a year-over-year basis, adjusted earnings per share from continuing operations declined 11% in the quarter, primarily due to the negative impact of Hurricane on our results. For the full-year, adjusted earnings per share from continuing operations totaled $1.89 per share and increased 11% over the prior year, reflecting solid underlying operational performance and a benefit from non-operational items, including lower interest expense and tax-rate. Now, I'll walk-through our results by reportable segments. Commentary regarding sales growth will reflect growth at constant-currency rates. Sales in our Medical Products and Therapies or MPT segment were $1.3 billion, increasing 1% in the quarter and coming in favorable with expectations. Full-year 2024 sales totaled $5.2 billion, advancing 5% and ahead of the prior guidance of 2% to 3% growth. Adjusting for the impact of William, MPT sales growth in the quarter would have been approximately 9% and approximately 7% for the full-year. Within MPT, 4th-quarter sales from our Infusion Therapies and Technologies division totaled $1.0 billion and decreased 1%. Sales in the quarter benefited from significant growth for our US infusion systems portfolio as the rollout of our Novum IQ pump platform continues to build momentum with orders coming in from both new and existing customers. Nutrition sales in the quarter advanced double-digits globally, reflecting strength in the US as we continue to build-out our alternate sites portfolio. Finally, as anticipated, IV solutions declined in the quarter due to the impact of Hurricane. Q4 sales in advanced surgery totaled $292 million and grew 6% globally. Results in the quarter reflected solid demand and positive pricing for our portfolio of hemostats and sealants across the globe. MPT's adjusted operating margin for the quarter was 16.5%, coming in better-than-expected due to the sales outperformance. Margins declined year-over-year, primarily reflecting the impact of the hurricane. In Healthcare Systems and Technologies or HST, sales in the quarter were in-line with expectations and totaled $784 million, decreasing 1%. Full-year 2024 sales totaled $3 billion and declined 2%. Within the HFT segment, sales in the quarter for our care and Connectivity Solutions or CCS division were $504 million, advancing 3% globally. Performance in the quarter was driven by 9% growth in the US for CCS due to continued momentum in our patient support systems or PSS business, which once again delivered strong growth and reflected a benefit from competitive wins in both our med search and ICU product lines as well as upgrades for existing customers. Total US capital orders for CCS rose 9% in the quarter and increased 15% for the full-year. We are exiting the year with a healthy backlog and strong funnel and look to build upon this momentum over the course of 2025. Performance for this division was partially offset by weaker sales outside the US, reflecting a difficult comparison to the prior year period, which saw growth of 12% as well as softness in both China and France in the current year. Frontline Care sales in the quarter were $280 million and declined 8%. Consistent with commentary over the course of this year, performance in the quarter was impacted by the backlog reductions, which positively contributed to sales in the prior year period. Results in the quarter also reflected the impact of certain market exits and supply constraints, which collectively impacted sales by approximately $15 million in the quarter. We expect the supply constraints that impacted the 4th-quarter to be largely resolved for most products in the first-quarter of 2025. We believe that performance for this division will also benefit from stabilization in the primary-care market over the course of 2025, as well as the launch of several new products in the second-half of this year that are expected to contribute to positive performance for FLC in 2025 and beyond. HSC 4th-quarter adjusted operating margins of 18.5% increased sequentially, continuing the trend of sequential margin improvements. Margins declined year-over-year, primarily reflecting higher investments. Moving on to our Pharmaceuticals segment. Sales in the quarter came in favorable to expectations and totaled $643 million, increasing 8%. Full-year 2024 sales were $2.4 billion, advancing at 7%. 4th-quarter sales within injectables and anesthesia of $383 million grew 8%. Performance in the quarter reflected mid-teens growth in our specialty injectables portfolio and anticipated rebound from the 3rd-quarter, which was impacted by the timing of some orders. Growth was driven by strong demand for US premix products and the continued rollout of new products as well as the benefit from targeted sales and marketing initiatives that have been implemented. As expected, lower sales in inhaled anesthesia, which declined mid-single digits, slightly tempered overall performance for injectables and anesthesia. Within drug compounding, continued demand for services resulted in strong growth of 9% for the quarter. Pharmaceuticals adjusted operating margins were 15.9% for the quarter, increasing 600 basis-points sequentially. Adjusted operating margins decreased 370 basis-points compared to the prior year, reflecting the impact from the MSA entered into following the BPS sale and increased operating expenses to support the new and upcoming launches. The pharmaceuticals team remains focused on expanding margins through improved mix, stabilizing the anesthesia business, driving cost improvements, compounding business and executing on margin improvement initiatives in integrated supply-chain. Other sales, which represents sales not allocated to a segment and primarily includes sales of products and services provided directly to certain of our manufacturing facilities were $12 million in the quarter and totaled $67 million for full-year 2024. Before moving on to the rest of the PDOW results, I wanted to make some comments regarding our continuing operations reporting going-forward. As mentioned last quarter, due to the change of moving Kidney Care business results to discontinued operations, corporate costs that have previously been allocated into the Kidney Care segment that would not convey with the Kidney Care business in the sale are now reported in unallocated corporate costs. As we previously commented, we plan to offset a large portion of these expenses in 2025 through income to be received from Vantib under the Transition Services Agreements or TSAs as well as cost-containment initiatives the company is already in the process of undertaking. Our goal remains to fully offset the impact of these stranded costs and the loss of TSA income by the end of 2027. 4th-quarter adjusted gross margin from continuing operations was 44.5%, coming in favorable to expectations and reflecting a sequential improvement of 80 basis-points. On a year-over-year basis, adjusted gross margins declined slightly by-10 basis-points, driven primarily by the impact from Hurricane, higher spend within selected manufacturing plants to support product growth as well as the impact of the manufacturing supply agreements following the sale of DPS. Positive contributors to margin in the quarter were ongoing benefits from our margin improvement programs within our integrated supply-chain network as well as favorable product mix and pricing initiatives in select markets. Adjusted gross margin from continuing operations for the year totaled 43.5%. 4th-quarter adjusted SG&A from continuing operations totaled $679 million or 24.7% as a percentage of sales, an increase of 190 basis-points from the prior year period as we continue to make select investments to support our growth objectives and new product launches. This increase also included approximately $30 million of select discrete items that are not expected to repeat, including increased employee healthcare expenses due to high-cost medical claims incurred during the quarter, fees associated with our tax optimization program and phasing of stock-compensation expenses. These higher expenses were offset by benefit from lower stranded costs. Full-year 2024 adjusted SG&A totaled $2.66 billion and represented 25% of sales. Adjusted R&D spending from continued operations in the quarter totaled $131 million and represented 4.8 as a percentage of sales, an increase of 10 basis-points compared to the prior year period and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our segments. 2024 full-year adjusted R&D totaled $510 million or 4.8 as a percent of sales. These factors resulted in an adjusted operating margin of 15.2% on a continuing operations basis, coming in favorable expectations and improving 70 basis-points sequentially. Compared to the prior year, adjusted operating margins from continued operations decreased 190 basis-points, driven by the factors I've just discussed, as well as the unfavorable impact from foreign-exchange. Full-year 2024 adjusted operating margin from continuing operations was approximately $1.5 billion or 13.9% of sales. Net interest expense from continuing operations totaled $90 million in the quarter, an increase of $18 million versus the prior year period, reflecting lower interest income. For the full-year, net interest expense totaled $341 million, decreasing $98 million and reflecting the benefit of our debt repayment initiatives. Adjusted other non-operating income totaled $4 million in the quarter compared to income of $10 million in the prior year period. For the full-year, adjusted other non-operating income totaled $38 million compared to $5 million of income in the prior year period, primarily reflecting lower foreign-exchange losses. The continuing operations adjusted tax-rate for the quarter was 10.8% and came in lower-than-expected. For the full-year, the continuing operations tax-rate was 17.5%. Both the full-year and 4th-quarter tax rates reflect the benefit of initiatives we have undertaken to optimize our global tax-rate. And as previously mentioned, adjusted earnings from continuing operations were $0.58 per share for the quarter and decreased 11% versus the prior year. Positive contributions to earnings included improved commercial performance from new product launches and positive pricing. In the quarter, these drivers were offset by the negative impact of Hurricane, which we estimate impacted our results by approximately $0.10 per share and an unfavorable impact from foreign-exchange and interest expense of approximately $0.06 per share. Full-year 2024 adjusted earnings per share from continuing operations totaled $1.89 per share, an increase of 11% as compared to the prior year period. Let me conclude my remarks by discussing our outlook for the full-year 2025 and the first-quarter of 2025, including some key assumptions underpinning the guidance. All guidance provided excludes the impact of kidney care discontinued operations. For full-year 2025, Baxter expects total sales growth of 5% to 6% on a reported basis. This guidance includes an approximate 200 basis-points negative impact from foreign-exchange based on current rates as well as approximately $345 million of anticipated MSA revenues from. Operationally, expects sales to grow 4% to 5%. This guidance excludes the impact of foreign-exchange, MSA revenues and the planned exit of IV Solutions from China as the company continues to focus on driving profitable growth. The negative impact from exiting the IV solutions business in China is approximately 60 basis-points to growth. Operational sales guidance for the full-year by reportable segment is as follows. For, we expect sales to increase approximately 5% driven by continued momentum with our LDP launch, the benefit of positive pricing in the US and other underlying business momentum. This guidance excludes the impact of exiting the IV solutions market in China, which is estimated to impact sales growth by 120 basis-points. Sales in our HSP segment are expected to increase approximately 3% and is expected to be balanced across both CCS and FLC. We expect pharmaceuticals to increase approximately 5% to 6%, driven by mid-single-digit growth in both specialty injectables and drug compounding. Now turning to our outlook for other P&L line items. As previously shared, we expect full-year adjusted operating margin from continuing operations to total approximately 16.5% and includes TSA income of approximately $125 million. We expect our non-operating expenses, which include net interest expense and other income and expense to total between $250 million to $270 million. On a continued operations basis, we anticipate a full-year tax-rate of approximately 19.5%. We expect our diluted shares count to average approximately 550 million shares for the year, which does not contemplate any share repurchases. Based on all these factors, we now anticipate full-year adjusted earnings on a continuing operations basis of $2.45 to $2.55 per diluted share. This outlook includes an estimated negative impact of approximately $0.03 per share for foreign-exchange based on current rates. A couple of other quick comments I'd like to make regarding our outlook for 2025. First, I'd point out that our current guidance includes a slight impact from tariffs enacted in China, but does not reflect any impact from potential tariffs that are contemplated for Mexico and Canada given the fluidity of the situation and potential for further delays to implementation and possible. Second, in 2024, costs that had previously been allocated to kidney care that did not convey with the discontinued operations presentation were reported in unallocated corporate costs. Starting in 2025, these costs will be allocated into the three segments along with related TSA income. Specific to the first-quarter of 2025, we expect continued operations sales growth of approximately 3% to 4% on a reported basis and approximately 4% on an operational basis. For the first-quarter, foreign-exchange is expected to negatively impact the top-line by more than 200 basis-points and MSA revenues are expected to total approximately $60 million. The China IoD Solutions exit is expected to impact topline growth by approximately 60 basis-points in the first-quarter. On a continuing operations basis, we expect adjusted earnings per share of $0.47 to $0.50 per share. This guidance reflects the impact of closing Vantiv on January 31, which negatively impacted earnings per share by approximately $0.04 in the quarter as compared to the closing of the sale on December 31 had we been able to close on that date. With that, we can now open up the call for Q&A.
