Baxter signals 2026 dividend reduction and updates full-year 2025 earnings guidance amid operational challenges

Earnings Call Insights: Baxter International Inc. (BAX) Q3 2025

MANAGEMENT VIEW

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Andrew Hider, President, Chief Executive Officer, addressed his first earnings call, emphasizing both the foundational strengths and the urgent need for improvement at Baxter. He noted, "We are not satisfied with our current performance. There is a recognition that challenges must be met head on with both immediate actions as well as real long-term solutions."

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Hider highlighted three immediate priorities: stabilizing underperforming business areas, strengthening the balance sheet, and driving a culture of continuous improvement and efficiency. He announced the intent to reduce the quarterly dividend to $0.01 per share starting January 2026, stating this would "free up cash to accelerate deleveraging, consistent with our prior commitments."

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He discussed the ongoing hold on deliveries and installations of the Novum IQ Large Volume pump, clarifying, "We expect the current hold to remain in place beyond year-end. We are working tirelessly to evaluate and test potential corrections to fully resolve the flow rate issues."

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Joel Grade, Executive VP & CFO, reported, "Third quarter 2025 global sales from continuing operations totaled $2.8 billion and increased 5% on a reported basis and 2% on an operational basis." He further noted, "Total company adjusted earnings from continuing operations were $0.69 per share."

OUTLOOK

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Baxter updated its full-year 2025 guidance, expecting total sales growth of 4% to 5% on a reported basis, incorporating approximately $320 million of anticipated MSA revenues from Vantive and a 50 basis point positive impact from foreign exchange.

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The company now expects operational sales growth of 1% to 2% for 2025, reduced from previous expectations of 3% to 4%.

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Full year adjusted earnings per share guidance has been revised to $2.35 to $2.40 per diluted share, compared to prior guidance of $2.42 to $2.52.

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For Q4 2025, continuing operations sales growth is projected at approximately 2% on a reported basis and a 2% decline operationally. The anticipated adjusted EPS is $0.52 to $0.57.

FINANCIAL RESULTS

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Third quarter performance showed challenges in the Infusion Therapies and Technologies division and the Injectables and Anesthesia division, while the Healthcare Systems & Technologies segment improved.

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The Medical Products & Therapies segment reported $1.3 billion in sales, down 1%, with ITT division sales at $1 billion, declining 4% due to Novum LVP shipment holds and IV solutions softness.

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Advanced Surgery delivered $306 million in sales, an 11% increase, and MPT adjusted operating margin was 20.5%.

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The Pharmaceuticals segment reached $632 million in sales, up 7%, with Drug Compounding growing 11% but overall operating margin decreasing due to unfavorable mix and higher costs.

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Healthcare Systems & Technologies sales were $773 million, up 2%, with strong performance in Care and Connectivity Solutions.

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Adjusted gross margin was 39.4%, down 430 basis points year over year. Adjusted SG&A expense was $629 million, 22.2% of sales, down 240 basis points.

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Third quarter free cash flow was $126 million, with year-to-date free cash flow roughly flat.

Q&A

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Robert Marcus, JPMorgan Chase & Co: Asked about Hider's vision and future changes for Baxter, referencing the notably low fourth quarter guidance. Hider responded, "Our focus is on 3 areas: First, stabilizing the areas of the business that need focus and really driving our business around execution... Second, strengthening our balance sheet... And then third, driving a culture of continuous improvement."

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David Roman, Goldman Sachs Group, Inc.: Sought clarity on Baxter's future identity and capital allocation. Hider indicated, "You will often hear me talk about capital allocation as the framework for our success."

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Travis Steed, BofA Securities: Inquired about the Novum IQ hold and its impact on guidance. Hider confirmed the hold would continue into 2026 and emphasized supporting customers and offering alternatives, such as Spectrum IQ.

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Larry Biegelsen, Wells Fargo Securities: Asked how Hider's prior experience at ATS would help Baxter. Hider explained, "Having launched and driven a continuous improvement culture at several businesses, look, it takes time, yet it drives impact at every level of the business."

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Joanne Wuensch, Citigroup Inc.: Queried about IV fluid conservation post-Hurricane Helene. Hider noted, "We certainly believe our customers' buying patterns still continue to reflect fluid conservation."

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Vijay Kumar, Evercore ISI: Questioned Q4 pharmaceutical sales and margin implications. Grade said, "We continue to experience softness there in certain premix products, which is fairly consistent with what we -- the dynamics we discussed last quarter related to IV infusion protocols and the increased use of IV push in select hospital settings."

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Matthew Taylor, Jefferies LLC: Sought qualitative commentary on near-term and long-term actions. Hider positioned GPS (Growth and Performance System) as central to driving improvement.

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Matthew Miksic, Barclays Bank PLC: Asked about reconciling surgical demand with IV solutions softness. Grade reinforced, "There’s no question that the recovery to some degree has come in below our expectations. It’s taking longer."

SENTIMENT ANALYSIS

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Analysts expressed a neutral to slightly negative sentiment, pressing management on delayed Novum resolution, IV fluid demand, and the sustainability of cash flow improvements. Questions often sought clarity on the depth and duration of business headwinds.

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Management maintained a realistic yet cautiously optimistic tone in prepared remarks, but became more defensive and careful in responses to analyst skepticism, particularly regarding Novum and fluid conservation. Hider used phrases such as, "We are not satisfied with our current performance," and Grade noted, "We recognize the importance of improving our balance sheet and are continuing to prioritize deleveraging."

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Compared to the previous quarter, management’s tone shifted from cautious optimism to greater urgency and realism about operational and market challenges.

QUARTER-OVER-QUARTER COMPARISON

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Guidance for full-year operational sales growth was reduced from 3%-4% to 1%-2%.

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Adjusted EPS guidance lowered from $2.42-$2.52 to $2.35-$2.40.

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Dividend reduction to $0.01 per share for 2026 signals a strategic shift toward deleveraging and cash conservation.

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Management’s tone moved from measured optimism to a more urgent and action-oriented approach, with increased transparency about ongoing challenges.

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Analysts’ focus remained on Novum IQ, IV fluid demand, and overall margin trajectory, but skepticism increased regarding the pace of recovery and effectiveness of new initiatives.

RISKS AND CONCERNS

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Extended hold on Novum IQ Large Volume pump deliveries, with no clear timeline for resolution, continues to pressure infusion therapy sales.

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Ongoing IV fluid conservation in U.S. hospitals remains a headwind, with management expecting only a gradual recovery.

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Pharmaceuticals segment faces continued softness in select premix products, particularly in the U.S.

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Dividend reduction may impact investor sentiment but is framed as necessary for accelerated deleveraging.

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Management cited higher manufacturing and supply chain costs, unfavorable product mix, and exposure to tariffs as ongoing risks.

FINAL TAKEAWAY

Baxter management signaled a new phase of operational focus under CEO Andrew Hider, with immediate actions targeting business stabilization, deleveraging, and operational efficiency. The announced reduction of the quarterly dividend to $0.01 per share in 2026 underscores a strong commitment to balance sheet repair. While core segments like Advanced Surgery and Healthcare Systems & Technologies showed some resilience, ongoing challenges in infusion therapies, pharmaceuticals, and hospital IV demand led to lower guidance for both sales and earnings. Management remains focused on navigating these challenges through disciplined execution, cost controls, and a renewed emphasis on continuous improvement, promising further strategic clarity in the coming quarters.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/bax/earnings/transcripts]

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