Baxter Warns of Job Cuts and Profit Shortfall
Baxter International Inc. said Wednesday that it would cut 2,500 jobs and miss its 2003 earnings forecast, marking the third time in four months it reduced estimates as intense competition hobbled its blood therapy business.
Baxter said it would take a second-quarter charge of $200 million for plant closures and the job cuts, which represent about 5% of its workforce. It will close 26 blood plasma collection plants and one plasma manufacturing plant.
Plasma, an essential part of blood, is used to treat trauma victims and patients who can’t produce adequate blood because of immune disorders.
Competitors’ lower prices have prevented Baxter from raising its prices high enough to sustain earnings growth. Blood plasma prices fell as much as 40% last year as new competitors, including Bayer, CSL Ltd. and Alpha Therapeutics, entered the U.S. market. Baxter had hoped prices would stabilize or even rise this year.
“It has been consistently more negative than they had expected,” said analyst Ben Andrew of William Blair & Co. “They keep looking for it to stabilize and recover, and there are some indications that it is, but clearly not working its way through the market to Baxter.”
The Food and Drug Administration in April sent Baxter a warning letter regarding its alleged failure to meet quality control standards in the production of an intravenous tubing system.
In March, Baxter said the federal government subpoenaed documents from the company in connection with the deaths of patients who were on its kidney dialysis machines that became contaminated. It said it was already a defendant in six civil lawsuits.
Baxter, which makes treatments for a range of diseases, said it would cut its annual plasma production to 4 million liters from 4.6 million liters.
After the charge, second-quarter earnings are expected to be 10 cents to 12 cents a share. Excluding the charge, earnings will come in at 40 cents to 42 cents a share, in line with analysts’ expectations.
But earnings in the second half of the year will fall short. Baxter estimated 2003 earnings of $1.65 to $1.75 a share including the charge, or $1.95 to $2.05 a share excluding the charge. In April, Baxter estimated full-year earnings of $2.10 to $2.20 a share.
Baxter trimmed its 2003 sales projection, saying sales would rise 8% to 10%, compared with a previous forecast of 8% to 12%.
Baxter fell 57 cents to $25.01 on the New York Stock Exchange. Analysts attributed the small decline to investors who already assumed that weakness in the blood products business would further erode 2003 profit.
