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Recall Weighs on Baxter

Third-quarter sales totaled $2.4 billion, up 3%.

WASHINGTON -- Charges took a chunk out of

Baxter International's

(BAX) - Get Free Report

earnings in the latest quarter as the company put product development on hold in order to manage a serious recall of some of its infusion pumps.

Baxter reported sluggish sales but managed to beat earnings estimates by a penny.

The Deerfield, Ill., health care and bioscience company on Thursday reported earnings of $116 million, or 18 cents a share, in the third quarter. Excluding charges, Baxter earned $296 million, or 47 cents a share, up 12% from the third quarter of 2004, beating analysts' estimates of 46 cents a share.

The company recorded charges of 29 cents a share for the quarter, consisting of 26 cents from the repatriation of foreign earnings under the American Jobs Creation Act and 3 cents a share from costs related to the decision to stop making hemodialysis instruments.

Baxter recorded sales of $2.4 billion in the third quarter, up 3% from last year, including a 1% benefit from foreign exchange. However, domestic sales fell 2% to $1.1 billion. Plasma protein sales were down 5%, and sales in the biosurgery business dropped 14%. International sales grew 9%.

Shares fell 50 cents, or 1.3%, to $37.83.

Baxter's total sales suffered after the company's

recall of its Colleague volumetric infusion pump in July. The infusion pump recalls were classified by the Food and Drug Administration as Class I, the most serious type of recall, which means the product could cause a serious injury or death.

"Clearly there's issues with Colleague," said CEO Robert Parkinson during the company's conference call. Last week, the FDA seized almost 6,000 of the pumps from two Illinois warehouses as part of an investigation.

"Our commitment first and foremost is to the patients and the hospitals that use Colleague." Parkinson said. "We will repair the pumps as quickly as possible."

Parkinson said the development of new products is on hold as it increases its resources in order to fix the device. Excluding added recall costs, expenses related to the discontinued hemodialysis instrument business and repatriation charges, Baxter expects to earn 56 cents to 58 cents a share in the fourth quarter. Sales are expected to decline.