Baxter International Inc. (BAX) reported strong second quarter of 2009 results and raised its outlook for the full year 2009.

Net income in the quarter was $587 million, an increase of 8% y/y. EPS was $0.96, an increase of 13% y/y and higher than the company’s guidance of $0.93-$0.95. Growth in EPS can be attributed to higher gross margin and share repurchases. Gross margin increased 1.4% y/y to 52.4% in the quarter. The diluted number of outstanding shares declined roughly 4% y/y to 612 million.

Total revenue in the quarter was $3,123 million, a decline of 2% y/y. The decline was primarily due to an unfavorable foreign exchange (FX). Excluding FX, total revenue increased 8% y/y.

In terms of business segments: Bioscience revenue increased 2% y/y to $1,418 million. Growth was driven by higher sales of antibody and other specialty plasma therapies, ADVATE and Plasma/Albumin Free Method (rAHF-PFM), and increased demand for biosurgery products. Excluding FX, sales increased 13% y/y in this category.

Both Medication Delivery and Renal businesses declined due to an unfavorable foreign exchange. Medication Delivery sales declined 3% y/y to $1,134 million. Excluding FX, sales increased 8% y/y in this category. Renal sales declined 8% y/y to $550 million. Excluding FX, sales increased 4% y/y in this segment.

Baxter also provided guidance for the third quarter. The company expects total revenue to be roughly flat with that in the year-ago quarter. Excluding FX, it expects total revenue to increase roughly 7% to 8% y/y. EPS is expected to be in the range of $0.95 to $0.97 excluding extraordinary items.

In light of the company’s strong performance, management has also raised EPS guidance for full year 2009. It now expects EPS, excluding any extraordinary items, to be in the range of $3.76 to $3.80, compared to its prior guidance of $3.72 to $3.78. However, the company has kept its total revenue guidance unchanged which is roughly flat with that in 2008. Total revenue is expected to increase approximately 7% to 8% over that in the last year, excluding FX. Operating cash flow is expected to be in excess of $2.6 billion.

Baxter is a global medical products and services company with expertise in medical devices, pharmaceuticals and biotechnology. The company’s main competitors include Becton, Dickinson and Co. (BDX) and Johnson & Johnson (JNJ).

Baxter’s products are primarily life-sustaining, an insulation against the current economic turmoil. We believe that investors will benefit by adding this stock to their portfolios. As such, we continue to rate Baxter a Buy.
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