Baxter posts profit drop on impairment charge
The medical-products maker swung to a $729 million operating loss in the latest period.
Baxter International (BAX) reported a sharp decline in second-quarter profit after taking a $485 million goodwill impairment charge and booking a $330 million valuation allowance on deferred tax assets. The medical-products maker swung to a $729 million operating loss from a $66 million profit in the prior quarter.
The quarter marked a reversal in reported sales momentum, with worldwide revenue rising 8% year-over-year to $2.97 billion, accelerating from 5% growth in the first quarter. Operational sales growth, however, slowed to 3% from 5% over the same period, as currency fluctuations shaved 2 percentage points off the top line.
U.S. sales turned positive, climbing 3% to $1.55 billion after a 4% decline in the prior quarter, while international revenue jumped 14% to $1.42 billion, up from 12% growth in the first quarter. The Medical Products & Therapies segment led the recovery, with sales up 5% to $2.06 billion, while the Advanced Surgery unit maintained double-digit growth at 12%.
Adjusted earnings fell 24% to $0.44 a share, extending a 35% drop in the first quarter. Gross margin compressed to 19.4% from 33.0% in the prior quarter, driven by unfavorable product mix and non-recurring inventory adjustments. Segment operating income declined 1% to $588 million, following a 14% drop in the first quarter.
The company reiterated its full-year outlook, expecting reported sales growth of flat to 1% and adjusted earnings of $1.85 to $2.05 a share, unchanged from prior guidance. Organic sales declined 1% in the quarter, matching the first-quarter decline, as currency shifts swung from a 3% tailwind to a 3% headwind.
Baxter also disclosed a $485 million goodwill impairment tied to its Front Line Care unit and a $330 million valuation allowance on U.S. deferred tax assets, both new charges in the quarter. Unallocated corporate costs rose to $241 million from $159 million in the prior quarter.