Joel Grade
Executive Vice President and Chief Financial Officer at Baxter International
Thanks, Joe, and good morning, everyone.
Before I begin, I would like to reiterate Joe's remarks regarding the presentation of our financial results for the third quarter. Beginning this quarter, the Kidney Care business is now reported as discontinued operations. The company's prior period results have been adjusted to reflect the discontinued operations presentation and historical restated schedules are available on our website. For comparability purposes to previously issued guidance, commentary surrounding our third quarter performance will be provided on both a total company and continuing operations basis.
Now turning to some specific comments regarding the quarter. As Joe mentioned, in general, we're pleased with our third quarter results, which came in line with our expectations on the top line and compared favorably to our previously issued guidance on the top line.
Excluding the effect of BPS sales in the prior year period, third quarter 2024 global total company sales of $3.85 billion increased 4% on both reported and constant currency basis. Performance in the quarter reflected better than expected sales in infusion therapies, product therapies, drug compounding and U.S. patient support systems, which more than offset softness in Injectables & Anesthesia and HST.
Sales from continuing operations increased 4% on both a constant currency and reported basis with all segments contributing to growth. On the bottom line, total company adjusted earnings including continuing operations and discontinued operations were $0.80 per share, ahead of our prior guidance of $0.77 per share to $0.79 per share. Earnings growth in the quarter was driven by operational performance and lower interest expense as compared to the prior year period.
Adjusted earnings from continuing operations, which excludes Kidney Care and BPS from both periods totaled $0.49 per share and increased 14% compared to the prior year.
Now I'll walk through our results by reportable segments. Commentary regarding sales growth reflects growth at constant currency rates. Sales in our Medical Products & Therapies or MPT segment were $1.3 billion increasing 7% and coming in ahead of expectations. Within MPT, third quarter sales from our Infusion Therapies & Technologies division totaled $1.1 billion and increased 7%.
Sales in the quarter benefited from significant growth for our U.S. 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.
U.S. Infusion Systems sales in the quarter also benefited from strong customer demand for our Spectrum pump. IV Solutions internationally continued to deliver solid performance driven by favorable pricing and underlying volume demand. Mid-single-digit growth in nutrition globally also contributed to ITT performance in the quarter. Sales in Advanced Surgery totaled $272 million and grew 7% globally.
Results in the quarter reflect demand for our portfolio of hemostat and sealants as well as favorable pricing. Strong sales and operational performance in MPT resulted in adjusted operating margin of 20% for the quarter, which represented an improvement of 50 basis points year-over-year and 200 basis points sequentially.
For our Healthcare Systems & Technologies or HST segment, sales in the quarter were $752 million and increased 1%. Within the HST segment, sales in our Care & Connectivity Solutions or CCS division were $456 million growing 3%. Performance in the quarter was driven by continued strength in our U.S. Patient Support Systems or PSS business, which delivered double-digit growth. Orders for U.S. PSS capital increased mid-teens in the quarter driven by existing accounts and competitive wins.
Performance was partially offset by a weaker sales outside of the U.S. driven by softness in China due to ongoing government policy initiatives and the delay in the release of stimulus funding. In addition, sales in Western Europe declined on a year-over-year basis due to certain market exits and weaker demand due to delayed government funding. While year-to-date, we have seen strong order growth for our care, communications and connectivity business, sales performance has been impacted by the timing of installations as many of our hospital customers are delaying installs to future periods.
Our backlog is strong and we have a very low cancellation rate for this business. And as such, we see many of these installs phasing into 2025. Finally, sales for our Global Surgical Solutions or GSS business declined as compared to the prior year period due to ongoing supply constraints, which the company continues to quickly work to remediate and expects to be largely resolved by the end of the year.
Frontline Care sales in the quarter were $296 million and declined 2%. Growth in the quarter continue to be impacted by a difficult comparison in 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. We have been in close contact with our distributor partners, who have also acknowledged the challenging market dynamics in U.S. Primary Care market. Our current assumption is that the market begins to stabilize over the course of 2025.
Notably, HST recognized significant expansion in operating margins during the quarter driven by improved operational efficiency. HST third quarter adjusted operating margins of 18.1% increased 260 basis points year-over-year and 210 basis points sequentially.
Moving on to Pharmaceuticals. Sales in this segment were $588 million, increasing 1%. Sales within Injectables & Anesthesia declined high-single-digits. Performance in the quarter reflected a mid-single-digit decline in our injectables portfolio driven by a difficult comparison to the prior year period, which benefited from a competitor being out of the market.
In addition, sales in the quarter were impacted by some orders shifting to the fourth quarter and the delay of an anticipated new product launch. Supply constraints outside of the United States also impacted performance in the quarter.
Lower sales in Injectables & Anesthesia continue to weigh our performance and declined mid-teens in the quarter. As Joe mentioned, we have seen sales rebound in this business to start the fourth quarter. In addition, the injectables team continues to enhance its new product launch playbook, given the volume of new products this team is targeting to launch over the coming months and years.
Within Drug Compounding, strong demand for services continued in the quarter, resulting in double-digit growth. Given lower sales in Injectables & Anesthesia in the quarter, Pharmaceuticals margins declined both year-over-year and sequentially. Pharmaceuticals adjusted operating margins were 9.9% for the quarter. The Pharmaceuticals team is keenly focused on expanding margins through improved mix with injectables growth accelerating, taking action to stabilize the anesthesia business, driving cost improvements in the compounding business and executing on margin improvement initiatives in the integrated supply chain.
Sales in the quarter for our Kidney Care segment totaled $1.2 billion, increasing 5%. Within Kidney Care, global sales for chronic therapies were $952 million, increasing 5%. Strong PD growth in the quarter was partially offset by the expected negative impact from certain product and market exits in our in-center HD business.
Sales in our Acute Therapies business were $203 million, representing growth of 9% driven by strong demand in the United States. Other sales, which represent sales not allocated to a segment and primarily includes sales of products and services provided directly through certain of our manufacturing facilities were $17 million and increased 12% during the quarter.
Before moving on to the rest of the P&L results, I wanted to make some comments regarding our continuing operations results. Given the reporting change moving Kidney Care business results to discontinued operations, corporate costs that had previously been allocated to the Kidney Care segment and will not convey with the Kidney Care business and the pending sale are now reported in unallocated corporate costs.
These stranded costs negatively impacted Baxter's results in the quarter and prior periods but are expected to be mostly offset in 2025 through income to be received from Vantive under transition service agreements or TSAs as well as cost containment initiatives the company is in process of undertaking. As we previously stated, we currently expect to fully offset the impact of these stranded costs and loss of TSA income by the end of 2027.
Third quarter total company adjusted gross margin, including discontinued operations from Kidney Care was 42.5% and represented an increase of 80 basis points over the prior year. The year-over-year expansion in gross margin primarily reflects the continued efficiencies within our integrated supply chain network as well as pricing initiatives in select markets.
Overall, product mix partially offset margin expansion in the quarter. Adjusted gross margin from continuing operations totaled 43.7% and declined 110 basis points versus the prior year period driven by mix in the quarter and the impact of the contract manufacturing agreement we entered into following the sale of BPS.
Adjusted SG&A, including discontinued operations from Kidney Care, totaled $871 million or 22.6% as a percentage of sales, an increase of 50 basis points from the prior year period as we continue to make select investments to support our growth objectives and new product launches.
Adjusted SG&A from continuing operations totaled $665 million or 24.6% as a percentage of sales, an increase of 20 basis points versus the prior year. This increase is partially offset in another P&L line item referred to as other operating income and expense, which reflects income the company has received from TSAs entered into following the BPS sales.
Total adjusted R&D spending in the quarter, including discontinued operations for Kidney Care, totaled $169 million and represented 4.4% 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.
Adjusted R&D from continuing operations totaled $129 million or 4.8% as a percentage of sales and decreased 20 basis points versus prior year. These factors resulted in an adjusted operating margin of 15.6%, inclusive of discontinued operations, an increase of 40 basis points versus the prior year driven by the factors of both as well as the favorable impact from foreign exchange.
Adjusted operating margin from continuing operations totaled 14.5% and reflects an approximate $55 million headwind for stranded costs, which negatively impacted operating margin by 240 basis points in the quarter. 2024 year-to-date continuing operations adjusted operating margins reflect approximately $200 million or 250 basis points of negative impact on stranded costs.
Net interest expense totaled $88 million in the quarter, a decrease of $40 million versus the prior year period driven by debt repayments completed with the proceeds from our BPS divestiture.
Adjusted other non-operating income totaled $9 million in the quarter compared to income of $7 million in the prior year period. Adjusted other non-operating income from continuing operations totaled $1 million in the quarter compared to income of $12 million in the prior year.
The total company adjusted tax rate for the quarter, including discontinued operations from Kidney Care was 13.8%, decreasing 100 basis points as compared to the prior year and came in slightly lower than expectations. The year-over-year decrease is primarily driven by changes in earnings mix and incremental R&D tax credit benefits in the U.S. versus the prior year.
And as previously mentioned, total adjusted earnings were $0.80 per share for the quarter and increased 18% versus the prior year primarily driven by improved commercial performance and a reduction in interest expense.
Adjusted earnings from continuing operations totaled $0.49 per share, increasing 14% versus the prior period and reflected an $0.11 per share headwind related to stranded costs. Year-to-date adjusted earnings from continuing operations totaled $1.31 per share, increasing 25% versus the prior period and reflecting an approximate $0.30 per share headwind related to stranded costs.
Let me conclude my remarks by discussing our outlook for the fourth quarter and full year 2024, including some key assumptions underpinning the guidance. First, given the unprecedented impact of Hurricane Helene on the company's North Cove operations and related production. We have adjusted our full year 2024 financial outlook to reflect the estimated impact of the hurricane on our fourth quarter results.
We expect the effects from the hurricane to negatively impact total company fourth quarter sales by approximately $200 million, including an estimated $40 million to $50 million impact on Kidney Care sales and approximately $150 million to $160 million impact on MPT sales.
Total company adjusted earnings per share, including discontinued operations, are expected to be negatively impacted by $0.15 per share to $0.20 per share. In addition, all guidance provided on a total company basis includes the impact of Kidney Care discontinued operations and excludes the impact of BPS discontinued operations.
Based on these factors, for full year 2024, Baxter now expects total sales growth of 1% to 2% on a reported and approximately 2% on a constant currency basis, reflecting the 100 plus basis point negative top line impact from Hurricane Helene. On a continuing operations basis, Baxter expects sales growth of approximately 2% on both reported and constant currency basis, inclusive of an approximately 150 basis points negative impact from Hurricane Helene.
Constant currency sales guidance for the full year of our reportable segments is as follows. For MPT, we now expect sales to increase 2% to 3%, reflecting a 300 plus basis point negative impact from Hurricane Helene. Sales in our HST segment are now expected to decline low-single-digits, reflecting year-to-date results and the continued slow market recovery in U.S. Primary Care.
We continue to expect Pharmaceuticals to increase approximately 7%, which reflects the phasing of some Injectables & Anesthesia sales in the fourth quarter and better than expected sales in Drug Compounding.
For Kidney Care, we now expect sales growth of approximately 2%, inclusive of an approximate 100 basis point headwind from Hurricane Helene. This 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 full year adjusted operating margin to increase by more than 50 basis points in 2024, inclusive of an approximate 50 basis point headwind to full year adjusted operating margin from Hurricane Helene.
On a continuing operations basis, Baxter expects adjusted operating margins to decline 90 to 100 basis points. The headwind from stranded costs is expected to impact full year 2024 adjusted operating margin by approximately 250 basis points.
Full year 2023 adjusted operating margins of 14.7% reflected approximately 300 basis point negative impact from stranded costs. We expect our non-operating expenses, which include net interest expense and other income expense to total approximately $320 million in aggregate during 2024 or approximately $300 million on a continuing operations basis.
We now anticipate a total company's full year adjusted tax rate of approximately 22%. On a continuing operations basis, we anticipate a full year tax rate of approximately 18.5%. We expect our diluted share count to average 511 million shares for the year.
Based on all these factors, we now anticipate full year total company adjusted earnings, excluding special items and inclusive of discontinued operations of $2.90 per diluted share to $2.94 per diluted share. This guidance reflects the $0.15 per share to $0.20 per share headwind from Hurricane Helene.
Additionally, given that the Kidney Care business met the criteria to be classified as a discontinued operation in the quarter, U.S. GAAP guidance requires the company to cease the reporting of certain depreciation and amortization on Kidney Care assets. This accounting change is a full year benefit of approximately $0.10 per share, which will be reflected in adjusted discontinued operations.
On a continuing operations basis, we expect full year adjusted earnings per share before special items of $1.81 to $1.84 per share, reflecting the negative impact from Hurricane Helene and an approximate $0.42 per share headwind from stranded costs. 2023 full year continuing operations adjusted earnings per share of $1.70 reflected approximately $0.48 per share headwind from stranded costs.
Specific to the fourth quarter of 2024, we expect total company and continuing operation sales to decline low-single-digits on both reported and constant currency basis. This guidance is inclusive of a 500 basis point negative headwind from Hurricane Helene.
We expect total company adjusted earnings, excluding special items and inclusive of discontinued operations of $0.77 per diluted share to $0.81 per diluted share. This outlook reflects a headwind of $0.15 per share to $0.20 per share related to the hurricane and an approximately $0.08 per share depreciation benefit.
On a continuing operations basis, we expect adjusted earnings per share before special items of $0.50 per share to $0.53 per share, reflecting the negative impact from Hurricane Helene and an approximately $0.12 per share headwind for stranded costs.
With that, we can now open up the call for Q&A.
