Joel Grade
Executive Vice President and Chief Financial Officer at Baxter International
Thanks, Joe, and good morning, everyone. As Joe mentioned, we are pleased with our second quarter, which came in ahead of our expectations and further our goal of consistently meeting and exceeding our financial objectives. Second quarter 2024 global sales of $3.8 billion increased 3% on a reported basis and 4% on a constant currency basis and as mentioned, compared favorably to our previously issued guidance.
Outperformance in the quarter benefited from better-than-expected sales in many product categories and particularly in patient support systems, infusion therapies, peritoneal dialysis pro compounding. As compared to the prior year period, sales excluding Kidney Care, increased approximately 5% on a constant currency basis. On the bottom line, adjusted earnings from continuing operations totaled $0.68 per share, increasing 24% versus the prior year and ahead of our prior guidance of $0.65 to $0.67 per share. Results in the quarter were driven by strong operational performance, with continued momentum commercially partially offset by a negative impact from non-operational items totaling $0.05 per share due to foreign exchange and a higher-than-anticipated tax rate.
Now I'll walk through our results by reportable segments. Commentary regarding sales growth will affect growth at constant currency rates. Sales of our Medical Products and Therapies, or MPT segment, were $1.3 were $1.3 billion increasing 5%. Within MPT, second quarter sales from our infusion therapies and technologies division totaled $1 billion and increased 5%. Sales in the quarter benefited from strong growth internationally across the division, particularly for our IV solutions and Infusion Systems products, which benefited from both volume and pricing gains. Solid demand for nutrition globally also contributed to growth in the quarter. Sales of Advanced Surgery totaled $277 million quarter and grew 4%, reflecting solid growth internationally. For our healthcare systems and technologies or HST segment, sales in the quarter were $748 million and increased 1% coming in ahead of our expectations. Within the HST segment, sales in our Care and Connectivity Solutions, or CCS, division were $452 million, growing 4%.
Performers rebounded in the quarter, driven by a significant growth in orders both sequentially and year-over-year for our CCS products. As Joe mentioned, the actions we are taking to enhance our operational rigor and improve execution are yielding results. These factors contributed to orders growth across our CCS division of more than 40% compared to the prior year and over 60% sequentially. Results in the quarter included upgrades to both existing customers and competitive gains within our patient support systems business. We are very encouraged by the growth of orders in the US this quarter, which will be phased in over the course of the second half of this year and into 2025.
Overall, we believe the initiatives we are implementing to improve commercial execution will continue to lead to improved performance both in the second half of this year and beyond. Frontline care sales in the quarter were $296 million, declining of 4% in line with our expectations and represented a double-digit improvement sequentially. Growth in the quarter continued to be impacted by a difficult comparison of the prior year as backlog reductions positively contributed to growth in the prior year period. Performance in the quarter was also impacted by ongoing softness in the primary care market, which negatively impacted growth in both our Connected Monitoring and Intelligent Diagnostics product portfolios.
The timing and release of government orders in the US also impacted growth in the quarter. We expect this division to return to growth in the second half of the year as growth for products in other settings, such as cardiology and acute, is anticipated to more than offset the continued softness in primary care and lower government orders. The anniversary of the prior year impact from the backlog reduction will also benefit performance in the second half of the year. Moving on to pharmaceuticals, sales in this segment were $602 million, increasing 11%. Performance in the quarter reflects double-digit growth in our US injectables portfolio, driven by new product launches, as well as strong demand for services within our drug compounding portfolio internationally, which has benefited from supply constraints for certain customers that are expected to ease in the second half of the year.
Performance in the quarter was partially offset by lower sales of inhaled anesthetics globally. Sales in the quarter for our Kidney Care segment totaled for our Kidney Care segment totaled $1.1 billion increasing 3%. Within Kidney Care, global sales for chronic therapies were $917 million, increasing 1%. Strong PD growth in the quarter was partially offset by the negative impact from certain product and market exits in our in-center HD business as well as lower sales in China due to government procurement initiatives. We estimate that these items negatively impacted sales by just over $50 million in the quarter. Sales in our Acute Therapies business were $201 million, representing growth of 9%, driven by strong demand and competitive conversions in the United States. Other sales, which represent sales not allocated to the segment and primarily include sales of products and services provided directly to certain of our manufacturing facilities were $22 million and declined 5% during the quarter.
Now, moving on to the rest of P&L. Our adjusted gross margin totaled 41.2% and represented an increase of 80 basis points over the prior year. The year-over-year improvement gross margin primarily reflects the strong operational efficiencies we are realizing within our integrated supply chain network, resulting from execution of the margin improvement programs we're implementing and the anniversary of the negative margin impacts from inflationary pressures that drove higher cost of goods sold in the prior year period. Pricing initiatives in select markets also positively contributed to margin improvement in the quarter. Product mix and foreign exchange partially offset margin expansion in the quarter. Adjusted SG&A totaled $873 million or 22.9% as a percentage of sales, an increase of 10 basis points from the prior year period as we are making select investments to support our growth objectives and new product launches. SG&A leverage is expected to continue to improve as sales ramp over the course of the year. Adjusted R&D spend in the quarter totaled $175 million, and represented 4.6% as a percentage of sales, an increase 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. These factors resulted in an adjusted operating margin of 13.7%, an increase of 50 basis points versus the prior year driven by the factors above, which more than offset a negative impact on operating margins of approximately 70 basis points due to foreign exchange. Net interest expense totaled $85 million in the quarter, a decrease of $39 million versus the prior year period, driven by debt repayments in the fourth quarter of 2023 associated with the proceeds of our BPS divestiture. We plan to continue to repay debt in 2024, consistent with our stated capital allocation priorities. During July, faster finalized a bank finance bridge loan in the form of a delayed draw term loan or DTTL and move a public bond financing with a total size of $2.05 billion.
The DTTL provides certainty and ability to fund debt maturities coming due in the fourth quarter and the events we haven't completed the Kidney Care separation by that time. We expect to utilize proceeds from the separation to repay the loan, if outstanding. We felt this was a better option as compared to bond financing given the more temporary nature of the cash need and the high cost of issuance in new term debt in current markets. Adjusted other non-operating income totaled $20 million in the quarter compared to an expense of $22 million in the prior year period, which included losses on both foreign exchange and marketable securities. The adjusted tax rate for the quarter of 23.9% came in higher than expectations and increased as compared to the prior year tax rate of 17.8%. The year-over-year increase is primarily driven by the geographic mix earnings, decreased utilization of foreign tax credits in the current year period and a non-recurring foreign tax incentive in the prior year period. And as previously mentioned, adjusted earnings from continued operations totaled $0.68 per share and increased 24% versus prior year primarily driven by improved commercial performance and a reduction in interest expense, offset by the impact of foreign exchange and a higher tax rate. Let me conclude my remarks by discussing our outlook for the third quarter and full year 2024, including some key assumptions underpinning the guidance. For the full year 2024, Baxter now expects total sales growth of approximately 3% on both reported and constant currency basis, which is an increase from prior guidance of 2% to 3% on a constant currency basis. This increase reflects the outperformance we realized in second quarter and continued momentum for our businesses.
Constant currency sales guidance for the full year by reportable segment is as follows: For MPT, we now expect sales growth of approximately 5%. This is an increase from the prior guidance of 4% to 5% and reflects the outperformance year-to-date and continued momentum for our Novum platform. Sales in our Healthcare Systems & Technologies segment are expected to be approximately flat to prior year, consistent with prior guidance. This guidance reflects improved performance in the second half of the year, but also assumes the installation of some CCS orders are phased to 2025. In addition, our guidance assumes FLC performance also improves in the second half of the year, put that both primary care and government orders declined in 2024, neither of which we believe represent market share losses. We expect both the primary care market and orders for the government will improve in 2025. We now expect pharmaceutical sales growth of approximately 7%, which compares favorably to prior guidance of 6% to 7% and reflects the strong start to the year and continued momentum for our new product launches as well as increased contribution from drug compounding. The contribution from drug compounding is expected to meaningfully slow in the second half of the year as supply constraints for certain hospital customers ease and the business focuses on driving more profitable growth. Collectively, sales for these three remaining Baxter segments are now expected to increase approximately 4% in 2024 and exit the second half of the year at the higher end of our prior expectation of 4% to 5%. For Kidney Care, we now expect sales growth of 1% to 2% as compared to 2023. This also compares favorably to prior guidance and reflects the underlying momentum of this business. Now turning to our outlook for other P&L line items. We continue to expect adjusted operating margin to increase by more than 50 basis points in 2024. We expect our non-operating expenses, which include net interest expense and other income and expense to total approximately $330 million in aggregate during 2024. We now anticipate a full year adjusted tax rate of approximately 23%. We expect our diluted share count to average 511 million shares for the year. Based on all these factors, we now anticipate full year adjusted earnings excluding special items of $2.93 to $3.01 per diluted share, which also compares favorably to prior guidance of $2.88 to $2.98 per diluted share and reflects the outperformance we realized in the second quarter and expect for the remainder of the year, and includes an incremental headwind from non-operational items totaling approximately $0.02 per share. Specific to the third quarter of 2024, we expect global sales growth of 3% to 4% on a reported basis and 4% to 5% on a constant currency basis. And we expect adjusted earnings, excluding special items, of $0.77 to $0.79 per diluted share.
With that, we can now open up the call for Q&A.
