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Bad, Bad Baxter

By Jeff Hwang
December 23, 2003

Shares of Baxter International (NYSE: BAX) were down 6% to $29 after the latest in a series of earnings warnings this year that have shaken investor confidence.

This morning, the medical products company said fourth-quarter earnings from continuing operations would come in between $0.62 and $0.65 per share, resulting in full-year earnings from continuing operations in the range of $1.52 to $1.55 per share. Back in October, the company had forecasted fourth-quarter earnings of $0.75 to $0.85 per share and reiterated full-year earnings of $1.65 to $1.75 per share.

Full-year 2003 sales growth will still be in the 8%-10% range due to positive growth trends for its recombinant factor VIII and medication delivery products. Baxter also expects gross margins to rise sequentially from the third quarter. However, earnings will be reduced by an "unfavorable geographic mix" and a lower-than-expected gain from the sale of the company's investment in Acambis (Nasdaq: ACAM), a U.K.-based vaccine developer. A gain of $0.03 per share from that sale is included in the company's forecast.

At the beginning of 2003, Baxter had forecast full-year earnings of $2.22 to $2.29 per share. But slow sales and intense competition for its blood plasma products caused the company to lower its estimates in March. As a result, the stock fell from near its current level to under $20 per share. Then in July, the company lowered its outlook again to between $1.65 and $1.75 per share, taking a $0.33-per-share restructuring charge.

The stock had since rebounded on hopes for Advate, Baxter's new hemophilia treatment. However, a weaker-than-expected third-quarter report put an end to that, and today's warning does not help.

Baxter's frequent earnings warnings put a serious question mark on the credibility of its management's forecasts. You almost have to wonder why they even bother to give them in the first place. Expect continued pressure on Baxter's stock until the company's management can gain some level of consistency.

Discuss busted forecasts on the Baxter discussion board -- only at Jeff Hwang can be reached at
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