Today’s Headlines 7/22/2011
- Brown’s Chicken comes back to downtown Chicago
- Baxter benefits from hobbled competitor
- USG posts 2Q loss
- Venture investments leap in Chicago
- McDonald’s profit rises, beats Street
- Caterpillar shares tumble as earnings miss estimates
View All of Today’s News Headlines
— Baxter International Inc.’s second-quarter earnings shot past expectations, but the company shows some weakness in U.S. sales of a key blood therapy and faces the expected loss of a closely watched contract to supply hemophilia treatments.
The Deerfield-based medical products maker on Wednesday said net income climbed 15%, to $615 million, or $1.07 a share, from $535 million, or 90 cents a share, a year earlier. Analysts, on average, were expecting second-quarter earnings of $1.02 a share, Reuters reported.
Baxter “posted a very solid quarter as better organic growth and gross margin” drove earnings, analyst Rajeev Jashnani of UBS Securities LLC said in a report.
For the full year, Baxter raised its forecast earnings to $4.27 to $4.32 per share before one-time items, up from its previous outlook of $4.20 to $4.28.
Investors reacted warmly. Baxter’s stock price stock on Thursday rose 2.6%, to $62.41 a share, reaching its highest level since September 2008 before falling back on Friday morning, in trading on the New York Stock Exchange.
The company’s share price has climbed nearly17% since Baxter reported first-quarter financial results in April.
Second-quarter sales rose 11%, to $3.54 billion, from $3.19 billion in 2010’s second quarter. Baxter benefited from favorable exchange rates and lack of competition from Swiss drug company Octopharma A.G., which was forced to recall an immune system-boosting drug that competes with Baxter’s Gammagard.
Without the boost from the weaker dollar, Baxter’s sales were up just 6%.
The company’s edge over Octopharma is likely to be short-lived.
During a conference call with analysts, Baxter executives said they expect Octofarma’s IVIG drug to return to the U.S. market during the fourth quarter. Octopharma stopped selling its intravenous immunoglobulin treatment after it was linked to blood clots.
“Our diligence suggests that this is unlikely in the immediate term,” David Roman of Goldman Sachs Group Inc. said in a report.
That would give Baxter some breathing room.
“The big question remains whether Octopharma will get aggressive with prices when they enter the market,” analyst Lawrence Keusch of Morgan Keegan & Co. said in a report. In overseas markets where Octopharma already returned, the company has been “rational” in pricing, he noted.
Even while seemingly riding high, Baxter is not without challenges.
Sales of plasma protein in the U.S. fell about 6%, to $103 million, in the second quarter from $110 million a year earlier.
Domestic second-quarter sales were about $14 million less than predicted by health care investment bank Leerink Swann LLC. “Further plasma protein market growth slowdown . . . could pressure the stock,” Rick Wise of Leerink said in a report.
The weakness in the U.S. market was more than offset by sales overseas. Total plasma protein sales rose nearly 16%, to $363 million, vs. $314 million in last year’s second quarter.
Meanwhile, Baxter executives confirm they expect to lose a roughly $75-million-a-year contract to supply Australia with recombinant proteins used to treat the bleeding disorder hemophilia.
Although a relative small contract, the recombinant “business plays a crucial part in Baxter’s profitability, and we continue to watch sales here carefully,” said Ben Andrew, an analyst at Chicago-based investment firm William Blair & Co.
Baxter said the gross margin was 51.9% during the second quarter, up from 51% during the first quarter and better than some analysts expected.
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