Baxter CEO Describes Three-Pronged Strategy To Accelerate Growth
By Jof Enriquez,
Follow me on Twitter @jofenriq
Baxter is implementing a three-pronged approach to achieve profitable growth as a standalone medical products company, its outgoing chief executive told analysts in an earnings call Tuesday.
“We’re executing a three-pronged strategy to accelerate profitable growth focused on rebasing our cost structure, optimizing our existing products and services through rigorous portfolio management and, finally, expanding our offering of high-valued, differentiated products through execution of our robust new product pipeline,” Bob Parkinson, CEO and Chairman of Baxter, said in prepared remarks, according to a call transcript from The Street.
During the earnings call — Baxter’s first since spinning off pharmaceutical arm Baxalta in July — Parkinson expressed confidence that the three-pronged plan would steer Baxter to profitable growth in the coming years.
For the first element of the plan, cost reduction, measures are being taken immediately. Parkinson unveiled plans to reduce Baxter’s global work force by 1,400 by the end of the year, eliminating about 5 percent of the non-manufacturing payroll. The program would result in a projected $130 million in annual savings. In addition, he said the company is implementing an “array of expense controls targeting discretionary spending categories.”
Second, on improving operating performance, Parkinson disclosed that the company decided to forego certain low-margin international tenders because they did not align with profit-improvement goals. According to him, they are adopting a disciplined approach continually for each product area and all markets, including emerging markets currently impacted by currency volatility. He said the “medically essential” nature of Baxter’s products would soften the impact of foreign exchange headwinds in the longer term.
Third, Parkinson touted Baxter’s expanding pipeline of products, including the FDA-cleared AMIA automated peritoneal dialysis (APD) system with Sharesource web-based remote connectivity, the CE-marked HomeChoice Claria APD system, and the next generation Sigma Spectrum Infusion Pump.
“Innovation has and will always remain a cornerstone of our success and we’re committed to a future of ongoing advances in areas of clear medical need. Looking out over the months and years ahead, we’ll launch a number of highly advanced new products, make significant life cycle improvements to existing offerings, and expand penetration of our current products into new geographies,” Parkinson told analysts, per the call transcript.
The costs related to the spinoff of Baxalta, and persistent foreign currency volatility, impacted third quarter results. Baxter reported third quarter net income fell to $1 million, compared to $468 million a year ago, according to the Chicago Tribune. Earnings fell seven percent to $225 million, and total sales declined eight percent to $2.49 billion. In other metrics, revenues from hospital products dropped 7 percent on a year-over-year basis to $1.54 billion, while revenues from renal products declined 11 percent to $943 million, according to Zacks. Despite contraction this third quarter, Baxter still projects total sales to increase about 1 to 2 percent in the upcoming quarter, and approximately 1 percent for 2015.
Parkinson, who will be replaced by former Covidien CEO Jose Almeida next year, expressed confidence that the three-pronged strategy would allow Baxter to post better numbers in the coming quarters.
“We’re making meaningful advances across our overall margin improvement framework and this is only the start,” he concluded in his remarks.