Baxter (NYSE:BAX) showed more tangible signs of recovery on Thursday with the announcement of its first-quarter earnings. The medical products outfit doesn't expect runaway growth for 2005, but the company's presence in both branded drugs and specialized services may make it an interesting play in the health-care segment.
Baxter announced that first-quarter revenue increased 8% to $2.38 billion compared to the same period last year, although that rise included a 3% gain from currency benefit. Income from continuing operations, meanwhile, rose 20% to $224 million from $187 million. The improvement in profitability was in part due to the firm's internal efforts to trim down. Baxter has cut 2,900 employees out of a planned 4,000 in cuts, and the restructuring has had a noticeable impact on operating margins, which increased 1.6% year over year to 14.8%. Baxter expects that figure to improve next quarter.
The quarter's solid results were also the product of strong performances in two segments -- biosciences and drug delivery services. In the biosciences division, Baxter is enjoying robust sales from its ADVATE treatment for hemophilia A. ADVATE is on sale in 13 countries, and the firm expects to launch in seven more. The market is apparently embracing ADVATE with open arms. After achieving nearly $300 million in sales in 2004, Baxter expects 2005 sales of $500 million.
As for the drug delivery area, sales grew 9% in the quarter after rising 13% in the 2004 quarter. Baxter is almost doubling its manufacturing capacity in drug delivery at its Bloomington, Indiana, facility. The company is enjoying the fruits of deep relationships with a broad spectrum of pharmaceutical and biotech clients. Baxter expects to provide services such as manufacturing, packaging, and formulation for eight to 10 products in 2005. The company is especially well-positioned to support biotech clients, which often don't have large manufacturing capacity and need specialized manufacturing and packaging for their fragile drugs.
Baxter's projection of top-line growth of 2% to 4% for 2005 isn't likely to blow anyone away. What's more, the stock has enjoyed a steady climb since late 2004, so its shares aren't exactly cheap. Still, the firm's long-term positioning and diversified business may make it worth a closer look.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
