Baxter Announces SEC Query, Posts Drop in Profit - TheStreet

Baxter Announces SEC Query, Posts Drop in Profit

Regulators have asked the company about revisions to its growth and earnings forecasts.
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Updated from 9:42 a.m. EDT

Baxter International

(BAX) - Get Report

posted a drop in quarterly profit Thursday, and said the Securities and Exchange Commission has queried the company about recent downward revisions to its growth predictions for 2003. The company has revised its sales growth estimates downward three times since October.

Still, the company's stock gained 52 cents, or 2.2%, to close at $24.51.

"As an organization, we highly value integrity and transparency," said Thomas J. Sabatino, Baxter's senior vice president and general counsel, in a press release before the markets opened. "Certainly, we will cooperate fully and responsively with the SEC in this matter."

Sabatino pointed out that the SEC letter states that the agency's request "should not be construed as an indication ... that any violations of law have occurred, or as a reflection upon any person, entity or security."

Separately, the Deerfield, Ill.-based company reported that second-quarter sales from continuing operations rose 11% to $2.16 billion from $1.95 billion for the same period last year.

For the three months ended June 30, the company earned $49 million from continuing operations, or 8 cents a share. That compares with income of $204 million from continuing operations, or 33 cents a share, from the same period last year.

The second-quarter earnings figure includes a special charge of $337 million -- $202 million after-tax, or 33 cents a share -- for a recently announced restructuring, which will include the dismissing of 3,200 employees, or 6% of the company's worldwide workforce.

About 40% of the job cuts will take place in the U.S. The job cuts represent 700 more firings than when the company announced a major restructuring earlier this month.

The restructuring includes the closing of 26 plasma collection centers across the U.S. and a plasma processing plant in Rochester, Mich. "There will be no impact on the company's ability to provide current products to customers," the company asserted in a press release.

Baxter also announced that its cost cutting would include discontinuing research on its recombinant hemoglobin protein program "because it did not meet the expected clinical results."

And the company said it would consolidate vaccine research and development in California and Austria, as well as consolidate certain activities in Germany, France and Italy.

"We are confident that our recently announced actions will drive greater profitability, cash flows and shareholder returns over the long term," said Harry M. Jansen Kraemer Jr., the company's chairman and chief executive.

Still, Jan David Wald, who follows the company for A.G. Edwards & Sons in St. Louis, pointed out some hurdles the company faces, noting, "They have to get their costs in line with their revenue. For the last four or five quarters, this company has done nothing but disappoint

investors." He added, "It has gone from a company growing 20% to a company growing at 8% to 10%. The company has come back down to earth."

Wald and other analysts say the next big test for Baxter's growth prospects is Advate, a drug that improves blood clotting in hemophiliacs. "They have said Advate would be approved in the second half of this year," Wald said. "The company says it's in labeling discussions with the FDA; that means they're close. The stock will continue to move sideways until they can prove that Advate is a strong performer."

Wald, who has a hold rating on the stock, doesn't own shares; he said his firm doesn't have any investment-banking relationship with Baxter.