Bloomberg News

Baxter Drops After Factory Upgrades Weighed Down Margins

October 20, 2011

(Updates share price in second paragraph.)

Oct. 20 (Bloomberg) -- Baxter International Inc., the maker of blood products and intravenous drugs, fell 2.1 percent after higher costs and increased competition caused investor concern for the company’s 2012 outlook.

Baxter slipped to $53.86 at 4 p.m. New York time. Even a raised profit forecast for 2011 couldn’t overcome concerns about the Deerfield, Illinois-based company’s performance next year, said Junaid Husain, an analyst with Ticonderoga Securities in New York.

Baxter’s gross margin, the percentage of sales left after deducting the cost of goods and services, were lower than expected, due to the expense of upgrades at a plant in Ireland as well as shifting exchange rates, Husain said. That, along with climbing competition in the market, raised questions about Baxter’s prospects, the analyst said in an e-mail.

“Investors are spooked about headwinds going into 2012,” Husain said.

Earnings, excluding one-time items, for 2011 will be $4.29 to $4.32 a share, Baxter said in a statement today. The company previously forecast $4.27 to $4.32. Third-quarter profit beat by 1 cent the $1.08 average estimate of 14 analysts surveyed by Bloomberg.

High Expectations

“Expectations relative to the rest of the space for Baxter were relatively high coming into” the earnings announcement, so the weakness of the gross margin may have disappointed investors, said Aaron Vaughn, an Edward Jones & Co. analyst in St. Louis, in a telephone interview.

Husain, who has a “buy” rating on Baxter, said he still likes the stock. Baxter is developing new treatments for blood disorders and Alzheimer’s disease, which probably will boost the shares next year, he said.

Third-quarter profit was $576 million, or $1.01 per share, a 10 percent increase from a year earlier, the company said. Revenue of $3.48 billion was helped by a 13 percent increase in sales in emerging markets, the company said. That demand more than offset U.S. sales growth of 1 percent.

The company was helped by better-than-expected sales for immune-system treatments, said Rick Wise, a Leerink Swann & Co. analyst in New York.

“Baxter fared well in a seasonally weak quarter and a challenging economy,” Wise said in a note to clients. “We’re inclined to think that Baxter management is being conservative for Q4 given what seemed to be even weaker-than-usual macroeconomic trends” in the third quarter.

Before today, the shares had gained 8.7 percent for the year.

--Editors: Chris Staiti, Bruce Rule

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.


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