3rd UPDATE: Baxter Targets Long-Term Double-Digit EPS Growth
September 16 2009 - 4:27PM
Dow Jones News
Baxter International Inc. (BAX) issued long-range financial
goals on Wednesday that continue to target double-digit earnings
growth over the next five years while the company ramps up spending
in research and development.
Some of that research has gone into developing a vaccine for the
H1N1 flu virus, also known swine flu, for which Baxter said it has
recently had success increasing production.
The maker of medical products targeting serious conditions such
as hemophilia and kidney failure held an all-day investor
conference in Chicago on Wednesday to review its financial goals
and research efforts. Baxter said it expected to boost sales by
about 7% to 8% over the next five years, excluding the impact of
foreign currency, while boosting earnings per share by about 11% to
13%.
Baxter officials described this as a "base-case" forecast that
the company could exceed if certain key "wild card" development
efforts that aren't factored into guidance - such as development of
a treatment for Alzheimer's disease - bloom.
"Obviously our aspiration is to grow sales at a faster rate than
our base-case plan," Robert M. Davis, Baxter's chief financial
officer, said during the conference.
Davis noted that the company's financial goals assume a higher
corporate tax rate and the buyback of $750 million to $1 billion in
shares each year.
Shares of the Deerfield, Ill., company recently traded up seven
cents to $56.03.
The new sales and earnings targets are similar to those
announced in early 2007, and Credit Suisse analyst Kristen Stewart
said ahead of the conference that earnings growth at the rate
Baxter again cited "seems like a reasonable target."
The company's latest long-range forecasts also call for
generating annual cash flow of about $4 billion by 2014 and
increasing investment in research and development by at least an 8%
to 10% compound annual rate.
"We believe we have a balanced outlook and are well-positioned
to achieve our results while making appropriate investments to
enhance future growth and delivering value to shareholders," Robert
L. Parkinson Jr., the company's chairman and chief executive, said
in a release.
Among Baxter's business units, the company expects over its
long-term plan to grow annual sales in Bioscience - which includes
products for treating hemophilia and immune-system disorders - by
7% to 9%.
The company sees sales growth in its medication-delivery
business, which includes drug infusion pumps and intravenous access
systems used in hospitals, of 7% to 8%. The renal business, which
includes products to manage advanced kidney failure, is seen
growing by 6% to 8%.
Regarding Baxter's investment in research, some of this will
take a long time to pay off. But Parkinson noted the progress
Baxter has already made, with 14 late-stage clinical trials
underway, compared with just two late-stage studies in 2006.
The company highlighted a number of developments, including a
home hemodialysis system for patients with kidney failure. The
company is also working on next-generation infusion pumps - Baxter
has struggled in this area due to long-running problems with older
Colleague-brand pumps that the company is still working to
resolve.
Vaccine for the H1N1 virus represents another area of
opportunity for the company. It has developed a cell-based vaccine
it called Celvapan and has shipped this to four countries, said Joy
A. Amundson, president of the Bioscience unit.
She noted that the company has increased its production yield
for this vaccine three-fold compared with early production batches.
In July the company said it was facing some production
challenges.
It also said then that the H1N1 flu vaccine would provide a
sales boost this year, but no earnings benefit due to offsetting
factors such as the cost of scaling up production. Parkinson added
on Wednesday that he increasingly believes this represents a
sustainable opportunity for the company.
"I think net net it represents an upside to our base-case,
long-range plan," he said.
During his presentation, Parkinson said Baxter is less
vulnerable than many medical companies to potential changes in U.S.
health-care policy, although he noted there is ambiguity about how
this process will evolve. Regarding potential acquisitions,
Parkinson said Baxter continues to focus on smaller-scale "bolt-on"
deals.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com