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Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

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The pharmaceutical and medical equipment company makes products that aid in the treatment of health conditions such as kidney disease and hemophilia.

This year's Fortune 500 marks the 66th running of the list.

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This Deerfield, Ill. company makes devices and other products to treat hemophilia, kidney disease, immune disorders, and other chronic and acute medical conditions.

This year's Fortune 500 marks the 65th running of the list.

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

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Through its subsidiaries, Baxter provides a portfolio of health care products in the U.S. through three segments: medical products and therapies, health care systems and technologies, and pharmaceuticals. Founded in 1931 with headquarters in Deerfield, Ill., it operates in Eastern Europe, the Middle East, Africa, Latin America, Asia, Western Europe, Canada, Japan, Australia, and New Zealand.

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Baxter International (BAX): Company Profile, Stock Price, News, Rankings

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Baxter International

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Good morning, ladies and gentlemen, and welcome to Baxter International's Fourth Quarter twenty twenty four Earnings Conference Call. Your lines will remain in a listen only mode until the question and answer segment of today's call. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Ms. Claire Trachman, Senior Vice President, Chief Investor Relations Officer at Baxter International. Ms. Trachman, you may begin.

Good morning, and welcome to our fourth quarter twenty twenty four earnings conference call. Joining me today are Brent Schafer, Baxter's Chair and Interim Chief Executive Officer Joel Grade, Baxter's Executive Vice President and Chief Financial Officer and Heather Knight, Baxter's newly appointed Chief Operating Officer. On the call this morning, we will be discussing Baxter's fourth quarter and full year 2024 results along with our financial outlook for the first quarter and full year 2025. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the first quarter and full year 2025, the anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters and the macroeconomic environment on our results of operations contain forward looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations.

Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non GAAP financial measures will be used to help investors understand Factor's ongoing business performance. A reconciliation of certain non GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and available in our earnings release issued this morning, which are both available on our website. As a reminder, continuing operations excludes Bactra's Kidney Care business and Baxter's former Biopharma Solutions business, which are both reported as discontinued operations. During the Q and A session this morning, Brent, Heather, Joel and I will be available to address questions.

Questions on our results and outlook will be addressed by me and Joel. Now I'd like to turn the call over to Brent. Brent?

Thank you, Claire, and good morning, everyone. I appreciate you joining us. As you know, I recently stepped into the role of Chair and Interim CEO at Baxter. Joel Mehta led the business through a period of significant evolution over his nine year tenure, and we're sincerely grateful for his dedication to the company. One of the Board's top priorities, of course, is the identification of a permanent CEO.

The Board is actively engaged in the search process with the support of a leading firm, evaluating both internal and external candidates. We're moving expeditiously, but most importantly, we're taking a rigorous approach to ensure we identify the right candidate to lead Baxter into the future. During the transition period, I'm committed to helping ensure we remain focused on a crisp execution of our priorities and delivering strong, consistent results. I'm pleased to be working with the entire leadership team on these shared goals. We're continuing to move the company forward into a new era.

And as recently announced, we closed the sale of Vantiv on 01/31/2025. This significant milestone was the final step of three strategic actions outlined in January of twenty twenty three to transform the business. You'll recall these actions included the implementation of a new verticalized operating model. As a director and in my role as interim CEO, I can confirm that this segment driven approach has created increased focus and execution related benefits, bringing greater clarity and agility to how we pursue opportunities globally. And as part of our transformation efforts, we completed the divestiture of Baxter's non core biopharma solutions business in 2023.

Since joining Baxter's Board in 2022, I've observed and supported these shifts in the company's strategic direction, and I'm extremely proud of the hard work and dedication of our teams to reach this stage. These actions have positioned Baxter to accelerate innovation for patients and customers and to drive profitable growth for our shareholders. Later in this call, Joel will provide details on our quarterly and full year performance as well as our outlook for 2025. As you have seen in this morning's release, we finished 2024 on a high note, beating our fourth quarter guidance for continuing operations on both the top and bottom lines. And we're starting 2025 building on this positive momentum.

During this interim period, I'll be working closely with Heather, Joel and the rest of Baxter's strong leadership team to ensure we maintain that momentum. I've been very impressed by what I've experienced in the last few weeks, an engaged, talented, highly motivated team that is squarely focused on Baxter's mission to save and sustain lives, a truly collaborative spirit and an intense focus on delivering on our commitments. This includes initiatives focused on innovation and profitable growth to enhance performance, deliver increased value and to better serve the needs of our patients and customers. To support these efforts and as we've shared earlier this month, we've instituted a new Chief Operating Officer position as a next step in leveraging the potential

We're fortunate to have Heather Knight step into this role as COO. Heather brings extensive experience and a proven track record to this position after a successful tenure as head of our largest segment, Medical Products and Therapies, among other key leadership roles at Baxter and prior large healthcare companies. She'll be leading day to day operations across our three segments encompassing global commercial operations, R and D, supply chain and medical and regulatory affairs. Her leadership will be critical as we navigate the next phase of growth. Now, I'd like to turn it over to Heather to share her perspectives.

Thank you, Brent, and good morning, everyone. I'm very pleased to be joining today's call. I look forward to building upon what we've achieved to date and helping to launch a new chapter of accelerated performance for the company. As Brent mentioned, over the last two years, I've had the privilege of leading medical products and therapies or MPT, which is Baxter's largest segment with over $5,000,000,000 in sales and operations spanning the globe. During this time, I've spearheaded numerous vital initiatives with the support of my talented colleagues, including the recent successful launch of our Novum IQ infusion pump platform in The United States.

As the leader of MPT, I also helped oversee the Northcove recovery efforts following Hurricane Helene. Given the essential nature of the products that are manufactured in Northcove, we spared no expense in our efforts to help address product supply for patients and customers, including importing products from Baxter sites globally. Thanks to the incredible dedication and resilience of the Northcove and broader Baxter teams, we were able to restart production on eight of the site's 10 manufacturing lines in the fourth quarter. Our final two manufacturing lines came online in January and I'm very proud to report that we are now producing at pre hurricane levels. This is just another critical milestone in our recovery as we continue to work to replenish inventory and support our customers' and patients' needs.

Additionally, I've served as the lead interface to many of our key customers and have been deeply involved in successfully renegotiating the recent renewals of select U. S. GPO contracts, helping to ensure we continue to meet our customers' needs while also delivering positive movement in pricing. As COO, I'm excited to build upon my deep knowledge and understanding of our markets and operations to enhance collaboration across our segments and create a more holistic Baxter experience for our customers and the patients they serve. I'm confident that by harnessing our combined strength and expertise, we can unlock significant value and accelerate our efforts to drive customer inspired innovation for all of our stakeholders.

I look forward to partnering with Brent, Joel and the entire Baxter team as we work to achieve our strategic objectives and deliver exceptional results. I'll now turn it over to Joel to discuss our financial performance in more detail. Joel?

Thanks, Heather, and good morning, everyone. I'm happy to be joining the call this morning to provide some additional details on Baxter's fourth quarter and full year '20 '20 '4 financial performance as well as commentary on our financial outlook for 2025. As Brent mentioned, we are very pleased with our fourth quarter results and how we ended the year. Our results came in ahead of our prior guidance on both the top and bottom lines, driven by better than expected sales and solid operational performance. Fourth quarter twenty twenty four global sales from continuing operations of $2,750,000,000 increased 1% on a reported basis and 2% on a constant currency basis and compared favorably to our previous guidance, which called for sales to decline in low single digits.

Outperformance in the quarter was broad based and reflected positive sales across most of our product divisions. As expected, during the fourth quarter, Hurricane Helene negatively impacted our sales by approximately $110,000,000 or approximately 400 basis points. Although the overall magnitude is less than the previously anticipated approximately $150,000,000 given the company's swift recovery efforts. For the full year, Baxter reported sales from continuing operations at $10,600,000,000 increasing 3% on both a reported and constant currency basis. Hurricane Helene negatively impacted growth for the full year by just over 100 basis points.

On the bottom line, fourth quarter adjusted earnings per share from continuing operations were $0.58 and came in ahead of our prior guidance

$0.53 per share, driven by the favorable top line results and solid operational performance. In addition, our tax rate came in favorable to our expectations, which offset a negative impact from foreign exchange. On a year over year basis, adjusted earnings per share from continuing operations declined 11% in the quarter, primarily due to the negative impact of Hurricane Helene on our results. For the full year, adjusted earnings per share from continued operations totaled $1.89 per share and increased 11% over the prior year, reflecting solid underlying operational performance and a benefit from non operational items, including lower interest expense and tax rate. Now I'll walk through our results of our reportable segments.

Commentary regarding sales growth will reflect growth at constant currency rates. Sales of our Medical Products and Therapies, or MPT, segments were $1,300,000,000 increasing 1% in the quarter and coming in favorable to expectations. Full year 2024 sales totaled $5,200,000,000 advancing 5% and ahead of the prior guidance of 2% to 3% growth. Adjusting for the impact of Hulien, MPT sales growth in the quarter would have been approximately 9% and approximately 7% for the full year. Within MPT, fourth quarter sales from our Infusion Therapies and Technologies division totaled $1,000,000,000 and decreased 1%.

Sales in the quarter benefited from significant growth for our U. S. Infusion systems portfolio as the rollout of our NovoMyQ pump platform continues to build momentum with orders coming in from both new and existing customers. Nutrition sales in the quarter advanced double digits globally, reflecting strength in The U. S.

As we continue to build out our alternate sites portfolio. Finally, as anticipated, IV Solutions declined in the quarter due to the impact of Hurricane Haley. Q4 sales of Advanced Surgery totaled $292,000,000 and grew 6% globally. Results in the quarter reflected solid demand and positive pricing for our portfolio of hemostats and sealants across the globe. MPT's adjusted operating margin for the quarter was 15.5%, coming in better than expected due to the sales outperformance.

Margins declined year over year, primarily reflecting the impact of the hurricane. In Healthcare Systems and Technologies or HST, sales in the quarter were in line with expectations and totaled $784,000,000 decreasing 1%. Full year 2024 sales totaled $3,000,000,000 and declined 2%. Within the HFC segment, sales in the quarter for our Care and Connectivity Solutions or CCX division were $5.00 $4,000,000 advancing 3% globally. Performance in the quarter was driven by 9% growth in The U.

S. For CCS due to continued momentum in our Patient Support Systems or PSS business, which once again delivered strong growth and reflected a benefit from competitive wins in both our MedSurg and ICU product lines as well as upgrades for existing customers. Total U. S. Capital orders for CCS rose 9% in the quarter and increased 15% for the full year.

We are exiting the year with a healthy backlog and strong funnel and look to build upon this momentum over the course of 2025. Performance for this division was partially offset by weaker sales outside The U. S, reflecting a difficult comparison to the prior year period, which saw growth of 12% as well as softness in both China and France in the current year. Frontline care sales in the quarter were two eighty million dollars and declined 8%. Consistent with commentary over the course of this year, performance in the quarter was impacted by the backlog reductions, which positively contributed to sales in the prior year period.

Results in the quarter also reflected the impact of certain market exits and supply constraints, which collectively impacted sales by approximately $15,000,000 in the quarter. We expect the supply constraints that impacted the fourth quarter to be largely resolved for most products in the first quarter of twenty twenty five. We believe that performance for this division will also benefit from stabilization of the primary care market over the course of 2025, as well as the launch of several new products in the second half of this year that are expected to contribute to positive performance for FLC in 2025 and beyond. HFC fourth quarter adjusted operating margins of 18.5% increased sequentially, continuing the trend of sequential margin improvements. Margins declined year over year, primarily reflecting higher investments.

Moving on to our Pharmaceuticals segment. Sales in the quarter came in favorable to expectations and totaled $643,000,000 increasing 8%. Full year 2024 sales were $2,400,000,000 advancing 7%. Fourth quarter sales within Injectables and Anesthesia of $383,000,000 grew 8%. Performance in the quarter reflected mid teens growth in our Specialty Injectables portfolio and anticipated rebound from the third quarter, which was impacted by the timing of some orders.

Growth was driven by strong demand for U. S. Premix products and the continued rollout of new products as well as the benefit from targeted sales and marketing initiatives that have been implemented. As expected, lower sales of inhaled anesthesia, which declined mid single digits, slightly tempered overall performance for the injectables and anesthesia. Within drug compounding, continued demand for services resulted in strong growth of 9% for the quarter.

Pharmaceuticals adjusted operating margins were 15.9% for the quarter, increasing 600 basis points sequentially. Adjusted operating margins decreased three seventy basis points compared to the prior year, reflecting the impact from the MSA entered into following the BPS sale and increased operating expenses to support the new and upcoming launches. Pharmaceuticals team remains focused on expanding margins through improved mix, stabilizing the Amazilia business, driving cost improvements, compounding business and executing our margin improvement initiatives in integrated supply chain. Other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain of our manufacturing facilities, were $12,000,000 in the quarter and totaled $67,000,000 for full year 2024. Before moving on to the rest of the PDL results, I wanted to make some comments regarding our continued operations reporting going forward.

As mentioned last quarter, due to the change of moving Kidney Care business results to discontinued operations, corporate costs that have previously been allocated to the Kidney Care segment that would not convey with the Kidney Care business in the sale are now reported in unallocated corporate costs. As we previously commented, we plan to offset a large portion of these expenses in 2025 through incomes we receive from Vansive under the transition services agreements or TSAs as well as cost containment initiatives the company is already in the process of undertaking. Our goal remains to fully offset the impact of these stranded costs and the loss of TSA income by the end of twenty twenty seven. Fourth quarter adjusted gross margin from continuing operations was 44.5%, coming in favorable to expectations and reflecting a sequential improvement of 80 basis points. On a year over year basis, adjusted gross margins declined slightly by 10 basis points, driven primarily by the impact of Hurricane Aleve, higher spend within selected manufacturing plants to support product growth, as well as the impact of the manufacturing supply agreements following the sale of EPS.

Positive contributors to margin in the quarter were ongoing benefits from our margin improvement programs within our integrated supply chain network, as well as favorable product mix and pricing initiatives in select markets. Adjusted gross margin from continuing operations for the year totaled 43.5%. Fourth quarter adjusted SG and A from continuing operations totaled $679,000,000 or $24,700,000 as a percentage of sales, an increase of 190 basis points from the prior year period as we continue to make select investments to support our growth objectives and new product launches. This increase also included approximately $30,000,000 of select discrete items that are not expected to repeat, including increased employee healthcare expenses due to high class medical claims incurred during the quarter, fees associated with our tax optimization program and phasing of stock compensation expenses. These higher expenses were offset by benefit from lower stranded costs.

Full year 2024 adjusted SG and A totaled $2,660,000,000 and represented 25% of sales. Adjusted R and D spending from continued operations in the quarter totaled $131,000,000 and represented 4.8 as a percentage of sales, an increase of 10 basis points compared to prior year period and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our segments. 2024 full year adjusted R and D totaled $510,000,000 or $4,800,000 as a percent of sales. These factors resulted in an adjusted operating margin of 15.2% on a continued operations basis, coming in favorable to expectations and improving 70 basis points sequentially. Compared to the prior year, adjusted operating margins from continued operations decreased 190 basis points, driven by the factors I just discussed as well as the unfavorable impact from Board Exchange.

Full year 2024 adjusted operating margin from continued operations was approximately $1,500,000,000 or 13.9% of sales. Net interest expense from continuing operations totaled $90,000,000 in the quarter, an increase of 18,000,000 versus the prior year period, reflecting lower interest income. For the full year, net interest expense totaled $341,000,000 decreasing $98,000,000 and reflecting the benefit of our debt repayment initiatives. Adjusted other non operating income totaled $4,000,000 in the quarter compared to income of $10,000,000 in the prior year period. For the full year, adjusted other non operating income totaled $38,000,000 compared to $5,000,000 of income in the prior year period, primarily reflecting lower foreign exchange losses.

The continuing operations adjusted tax rate for the quarter was 10.8% and came in lower than expected. For the full year, the continuing operations tax rate was 17.5%. Both the full year and fourth quarter tax rates reflect the benefit of initiatives we have undertaken to optimize our global tax rate. And as previously mentioned, adjusted earnings from continuing operations were $0.58 per share for the quarter and decreased 11% versus the prior year. Positive contributions to earnings included improved commercial performance from new product launches and positive pricing.

In the quarter, these drivers were offset by the negative impact of Hurricane Aleen, which we estimate impacted our results by approximately $0.1 per share and an unfavorable impact from foreign exchange and interest expense of approximately $0.06 per share. Full year 2024 adjusted earnings per share from continuing operations totaled $1.89 per share, an increase of 11% as compared to the prior year period. Let me conclude my remarks by discussing our outlook for the full year 2025 and the first quarter of twenty twenty five, including some key assumptions underpinning the guidance. All guidance provided excludes the impact of Kidney Care discontinued operations. For full year 2025, Baxter expects total sales growth of 5% to 6% on a reported basis.

This guidance includes an approximate 200 basis points negative impact from foreign exchange based on current rates as well as approximately $345,000,000 of anticipated MSA revenues from Vantiv. Operationally, Baxter expects sales to grow 4% to 5%. This guidance excludes the impact of foreign exchange, FSA revenues and the planned exit of IV Solutions from China as the company continues to focus on driving profitable growth. The negative impact from exiting the IV Solutions business in China is approximately 50 basis points to growth. Operational sales guidance for the full year by reportable segment is as follows.

For MPT, we expect sales to increase approximately five percent, driven by continued momentum with our Novum LVP launch, the benefit of positive pricing in The U. S. And other underlying business momentum. This guidance excludes the impact of exiting the IV Solutions market in China, which is estimated to impact sales growth by 120 basis points. Sales in our HFC segment are expected to increase approximately 3% and is expected to be balanced across both CCS and FLC.

We expect Pharmaceuticals to increase approximately 5% to 6%, driven by mid single digit growth in both Specialty Injectables and Drug Compounding. Now turning to our outlook for other P and L line items. As previously shared, we expect full year adjusted operating margin from continued operations to total approximately 16.5% and includes TSA income of approximately $125,000,000 We expect our non operating expenses, which include net interest expense and other income and expense, to total between $250,000,000 to $270,000,000 On a continued operations basis, we anticipate a full year tax rate of approximately 19.5%. We expect our diluted shares count to average approximately five fifteen million shares for the year, which does not contemplate any share repurchases. Based on all these factors, we now anticipate full year adjusted earnings on a continuing operations basis of $2.45 to $2.55 per diluted share.

This outlook includes an estimated negative impact of approximately $0.03 per share from foreign exchange based on current rates. A couple of other quick comments I'd like to make regarding our outlook for 2025. First, I'd point out that our current guidance includes a slight impact from tariffs enacted in China, but does not reflect any impact from potential tariffs that are contemplated for Mexico and Canada given the fluidity of the situation and potential for further delays implementation and possible exemptions. Second, in 2024, costs that had previously been allocated to kidney care that did not convey with the discontinued operations presentation were reported in unallocated corporate costs. Starting in 2025, these costs will be allocated in the three segments along with related TSA income.

Specific to the first quarter of twenty twenty five, we expect continued operational sales growth of approximately 3% to 4% on a reported basis and approximately 4% on an operational basis. For the first quarter, foreign exchange is expected to negatively impact the top line by more than 200 basis points and MSA revenues are expected to total approximately $60,000,000 The China IoT Solutions exit is expected to impact top line growth by approximately 60 basis points in the first quarter. On a continued operations basis, we expect adjusted earnings per share of $0.47 to $0.5 per share. This guidance reflects the impact of closing Vantiv on January 31, which negatively impacted earnings per share by approximately $0.04 in the quarter as compared to the closing of the sale on December 31, and we've been able to close on that date. With that, we can now open up the call for Q and A.

Thank you. We will now begin our question and answer session.

the line of Robbie Marcus with JPMorgan. Please go ahead.

Great. Good morning and thank you for taking the questions. Two from me. First, Joel, how should we think about with all the moving pieces on the top and bottom line, the cadence for 2025?

Sure. Good morning, Ravi. Thanks for the question. So I'll start on the sales line. And as you know, we normally have some ramp of our business over the course of the year, but there's a couple of things I'd call out this year specifically.

First and foremost is, if the I'd say the first quarter, we're taking a somewhat more conservative approach in the sense that we're still recovering from the hurricane. And so we've given ourselves a little bit of, I'd say, conservatism to see how that all plays out. So I'd say despite what should be a relatively easier comp with HST, certainly, there's going to be an amount of that that's built into the first quarter from a conservatism standpoint. I would say the other thing I would call out over the course of the year is that in the fourth quarter, we do anticipate that being a larger quarter in the sense that obviously we're comparing up against the impact of Helene. So those are couple of things that I'd probably call out from a cadence perspective on the top.

From an earnings perspective of the OI, yes, I think the basic I'd call out there is that we do anticipate a continued ramp over the course of the year, mostly driven by the impact of our stranded cost work that will be kicking in and continued improvements over the course of the year. And so obviously, that's work we've already started to do, but obviously, that will continue to build over the course of the year. And so therefore, you can expect some ramp from a earnings perspective for that reason.

Great. Maybe a quick follow-up. The HST business, especially frontline care, was still negative growth this quarter. What's the latest you're seeing there? The confidence you could turn it around in 2025 in your level of visibility to it?

Yes. So I'd say a couple of things there. I mean, first of all, we are anticipating a stabilization of the primary care markets. And we certainly have seen some of that and are starting to see that even as we head into the first quarter. So I think that obviously had a substantial decline in 2024.

And so from that perspective, I think the stabilization of that market is an important piece of this. Certainly, as you know, we do anniversary some difficult comps over the course of the year, for example, things like some of the government orders, some of the things that were against some of the stimulus packages, some of the spending things in the backlog, we're up against in '24 versus '23. We don't have those headwinds to the extent that we did obviously as we ended the '25. So I think that's another important piece of this. And then I think some of the things that we called out in the prepared remarks around some of the things of supply constraints, I think that's we're looking to resolve that I think by Q1 of this year.

And so I think generally speaking, some of the impacts that we had last year, we won't be up against in the same way this year. And in addition to that, in a little bit of longer term perspective, we do have some interesting new product launches that are coming out with that will impact us certainly more later in the year than '26. But that's the reason we feel confident in that. And I know you asked about FLC, but just from the perspective of CCS as well. One of the other differences this year versus last year was, as you recall, we ended in the last year with an order book that actually had quite a bit of softness in it and had an impact in the early part of the year last year.

As we talked about in the second half of this year, our order book in CCS has remained quite strong, particularly in PSS US. And so we ended this year with certainly a lot better momentum in that business as well. So I think the combination of those things, Robbie, give us a perspective on how why we think there's a good opportunity for some recovery this year on HST overall.

Your next question comes from the line of David Roman with Goldman Sachs. Please go ahead.

Thank you. Good morning, everybody. Heather, congratulations Thank you. Good morning, everybody. Heather, congratulations on the new role.

I'm looking forward to working with you in this capacity. And Claire, thank you and the finance team for the extensive financial information here. Super helpful as we look at the company postvantiv. I answer my first question. The past several years for Baxter have been characterized by exogenous events like Hurricane Hilleen, elevated inflationary pressures, the transition with the Hill Rom deal and the strategic actions you've taken with DPS and Vantive.

Can you help us think about the direction of the company from here and how you're thinking about strategic priorities? And maybe at the same time, give us a flavor for how that fits into the profiling characteristics as you go through the CEO search?

Absolutely. I'll start and then Brent can add anything that he'd like to on the second piece of that. And obviously, maybe you're right, John, there certainly hasn't been a lot going on here at Baxter. But what I would say, first of all, this company has done an amazing job of working through these transformational efforts here over the last couple of years and really set us up in a good place for this company moving forward. And so how do I think about priorities for the company?

And again, certainly, we're on the Capital Markets Day sometime after the CEO has been named. But we're starting, I would say it starts with customer inspired innovation. These are things that we as a company want to make sure that we are driving innovative products and opportunities, obviously, inspired in by our customers. We're certainly going to have a focus on targeted markets. I would say it's one of the kind of the grow with the growers.

How do we find those opportunities where we can actually invest our capital in places that's ultimately going to drive growth for the organization? I'd say the third thing really I think about it is how do we optimize the structure of our company. Obviously with the sale of the kidney business, optimizing both our cost structure from a standard certain cost perspective, but also optimizing our supply chain and some of the things that allow us to take advantage of some of the more simple supply chain opportunities without having to have our home deliveries in the kidney business. So that's the third thing. Yes, I'd say fourth is really around this concept of commercial excellence and how do we drive consistent execution as a company as again a key focus.

Lars, the last I'd say is really around disciplined capital allocation, those things that allow us to both focus on driving growth, both organically and again in a fold in, tuck in way inorganically, but that also balance with returning value to shareholders. And so I would call those things really out as how to think about our company moving forward. And again, I'll turn it over to Brent in terms of just how does that really fit into the process of the CEO search. Brent?

I'd just add, in this transition period, certainly, I'm looking for stability, predictable, consistent, strong results. And like Joel, I give tremendous credit to this organization for all the things they have worked through, many of them very complex projects, time consuming, etcetera. So directionally starting to move the organization to more of an emphasis on growth, both through innovation and through commercial execution is, in the short term, moves we can make that accelerate progress in the company. And as far as CEO search and how we're looking at that at the Board level, that work is already underway. And as you can imagine, there's a pretty good profile of Baxter's portfolio where we are at this point in time.

So, the experience that we're looking for would be appropriate with the company's situation and opportunities in front of us. So the candidates need to have that experience and a vision that can lead the company forward to its next chapter. And having been here and now been on the board and just working with this management team, I just think there is phenomenal opportunity here because so much heavy lifting has been done over the last few years to streamline and to put this new vertical organization in place, which I think is a real winner, honestly. It's a great opportunity.

Thank you. And maybe just a quick follow-up on the financial side. Joel, can you walk us through the post Vantiv sale capital structure of the company and maybe update us on target leverage ratios and the timeframe to achieve that?

Yes, absolutely. So maybe I'll start with the leverage ratio. Certainly, what we've talked about, we're continuing to be committed to is a term leverage ratio around three times net debt to EBITDA. I think that is a level that gives us again this opportunity to both balance strategic investments as a company and as well, again, return value to shareholders in a way that I think balances on our capital structure. We anticipate being able to achieve that term of leverage by the end of twenty twenty five.

We'll certainly have it sometime in the later part of the second half of the year. Feel good about that. Obviously, since the deal closed with Vantiv, we paid down, it was $3,000,000,000 of debt. The first part of it was taking out our delayed draw term loan that we had taken out earlier in 2024. And then we also paid off a portion of $1,000,000,000 with 2026 term loan that was actually our highest coupon debt.

So I guess I would say between that work and our continued efforts in terms of driving free cash flow out of the organization, I feel comfortable with the fact that we're heading towards that target. That will allow us then again really to be to adjust our capital allocation priorities from what's been mostly paying down debt to those areas that would allow us to get to invest in get continued investments in driving organic growth, continued opportunities for folding tuck in opportunities, will that make sense? And the opportunity to restart buyback program, certainly initially the offset option dilution and then I'd say opportunistically from there.

Your next question comes from the line of Matt Miksic with Barclays. Please go ahead.

Great. Thanks so much for taking the questions. Congrats on a nice end to this busy, busy year. So I wanted to follow-up on some of the comments you've made on new product investments and product pipeline. If you could talk a little bit about which business lines those which you'd highlight and then maybe timing as to when we might start to see some of the benefits of these investments?

Sure. So really, let me start with the fact that it's really across our portfolio where we actually have, again, really some innovation happening. And again, certainly, I would start with Heather's business and FPT. Obviously, the Noble Pump has been a resounding success. It's a differentiated product that, again, has gotten a great customer response.

The launch has gone extremely well. Obviously, we got a partial year of that growth last year in 2024. We'll have a full year of that growth heading forward here in 2025. So certainly Novoib is obviously a huge key part of our innovation and again really a great success story. Certainly in pharma, one of the things that you heard from us talk about is the our need and our opportunity to continue to accelerate with new product launches at pharma.

This past year, we launched nearly 10 and we anticipate another double digit year heading into 2025. That is something you should expect from us to continue to do. And while there's not necessarily one large molecule that you can tie something to, that level of activity is something that we are committed to and have a great pipeline of opportunities ahead of us. I would tell you that the effect of that, you see the growth we've had in our pharma business. And so you're seeing the impact of some of that that's already happened.

And we anticipate as we head into next year, again, another solid year from pharma in terms of their innovation as well.

Great. Yes. That's super helpful. The one other comment I wanted to make is maybe a follow-up on, Robbie, on HST HSV is just the environment for sort of capital and some of the patient support devices and other things that you're selling fleets and beds etcetera that you're selling in hospitals. Just maybe a general comment on that environment demand cycles, sector trends, anything that can help us gauge where that business is going?

Yes, absolutely. Thanks for the question. Yes, so I would say generally speaking, the capital environment

I think as we've talked about this year, our capital orders particularly in PSS in The U. S, especially the second half of the year have actually been very consistent. And over year over year, we've had about a 15% growth in those orders, which obviously there's a timing element in terms of when the orders turn into cash or turned into a sale. But we certainly headed this next year with some good momentum. We expect to continue to build on that momentum as we head into 2025.

So I would say generally speaking, the capital environment is quite good, both from the I'd say the monitoring the patient monitoring devices as well as from a beds perspective. Obviously, we've had continued success with our Progressive Plus model as well. So I think overall, the environment is healthy. We're encouraged by some of the competitive wins that we've had in those areas. And I said, we're anticipating some new products coming up that will benefit us as we get to go to that area as we have in 2020.

And maybe Joe, this is Brent just had a comment here. I believe from what I've seen, there's been a significant improvement in the commercial organization in The U. S. Particularly, in those categories. And so I think we're seeing the benefit of upgrades made in that area and real rigor around the commercial processes there.

Your next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.

Hi guys. Good morning and thank you for taking my question. Joel, maybe my first question on OS and margins here. I know the optics, these are apples to oranges comparison rate, but the year on year, it does look margins were up two fifty basis points. If you can just break that down rate, what is TSA?

How much of this was stranded costs, which were there in fiscal twenty twenty four and that's going away? What is pricing elements here? And did the China IV Fluid exit? Is that a headwind or a tailwind to margins?

Okay. Thanks for the question, Vijay. Let me start with the I guess, I think the easiest way to bridge our what ended the year at our 13.9% to our target that we've talked about and guided to a 16.5%. I think the way to think about that is that if you take the 13.9 and you add about 40 basis points for the 2024 impact of Helene and then you add about two twenty basis points of what would be a, the stranded cost impact And then you think about 100 basis points, what I'm going to call operational improvements as we head into 2025, those are things like light pricing, particularly in The U. S.

In our MPT business. Those are things like product mix. One of the things that we talked about is the improvement of our injectables portfolio, the higher growth in our advanced surgery, the improvement in HST, all of our mix elements that add to the are positive there. We talked about some of the leverage from that we get from volume growth. And so I think and again obviously some of the things we talked about new product launches, that's where you get that 100 points of benefit.

And obviously we're reinvesting some of that, but that's a key element of it. And then there's two elements of the stranded cost and the MSA is that are in the opposite direction. So there's 40 basis points, I'll call the net impact of stranded cost that hasn't yet been addressed in 2025 and about a 60 basis point impact of dilution from MSA revenues that are obviously generating a lower margin low single digit margin from a gross profit perspective. So that really is the bridge. And so that takes you from the 13.9 to the 16.5.

So hopefully that gives you some perspective on that.

Baxter International (BAX) Q4 2024 Earnings Call Transcript

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