Baxter International Inc. (NYSE:BAX) Q4 2022 Earnings Call Transcript

José Almeida: Listen, when I look at 2023, coming from 2022, we saw an incredible pressure in our manufacturing base. If you think about us, we’re disproportionately affected by the significant increase in energy cost, transportation. Remember, Baxter’s transportation as a percentage of sales is the high single digits. And go into some of our markets, it’s even higher than that for some of the renal products. So what I think is remarkable is how we’re able to get very quickly. Once we start seeing those things coming up so fast, we went on the other hand, we have created significant programs to offset — the offset is not what transformed, what transforms Baxter is the amount of automation that we are putting into our manufacturing operations.

The amount of plants we’re going to be able to consolidate because of that. And this is all will take place in 12 to 24 months. We also looking at disproportional allocation of capital into businesses that are connected and have the possibility for growth. The market is very anxiously waiting for our pump. We feel optimistic where we are with the pump today. We don’t speak on behalf of the FDA. Neither we’re making a prediction about that but we’re saying that we’re enthusiastic because we know the products are doing very well in Canada. We just closed another — a few thousand pumps deal in one of the provinces. So we are excited about the portfolio. So, when I look — all in all, ’23 is the year that has 2 different stories. The first half, the story of paying for some of the incremental cost and significant cost that we had in ’22 coming through the inventory selling of the inventory that was produced with that incremental cost.

I see the second half of the year becoming more focus on what Baxter used to be which is time to see leverage of the bottom line in bringing back the things that used to be part of Baxter. But this crisis brought to surface a lot of weaknesses in some of our supply chain operations. And while we took the opportunity was to regroup and understand how to modify this permanently and take away some of this variability from our future. I’m going to get out of being in the resin-based business, no. But we’re going to make sure that our plants are in the right place. Our plants are automated and we have the ability to get really efficiency out of our system. So the cost reduction that we’re putting, for instance, into 2023 are over $300 million. So that efficiency will pan out in ’24 with another $300 million in ’24 coming to our supply chain.

So, all those things that we’re doing is a transition year for Baxter. One that we reset, we regroup, look at our portfolio, restructure our capital structure with the selling of PPS, getting that to help us take the debt down but also feel future inorganic tuck-in opportunities. So this is the year that Baxter will execute in its final stage of the transition that we started 7 years ago.

Operator: We’ll take our final question from Lawrence Biegelsen at Wells Fargo.

Lawrence Biegelsen: Jay, maybe it would be helpful to give us an update on the standup cost and the stranded cost. Is the right assumption about 1% of the respective company sales and the onetime disentanglement cost of 3% to 4% of total company sales? What’s the timing on that? And will some of that impact non-GAAP earnings? And any — Jay, I mean you know it’s early but people are looking at ’24 for valuation. Any framework on — could margins get back to 2022 levels?