BAX Q1 Earnings Call: Revenue Tops Expectations, Margins Face Tariff and Cost Pressures

Healthcare company Baxter International (NYSE: BAX) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 5.4% year on year to $2.63 billion. The company expects next quarter’s revenue to be around $2.82 billion, close to analysts’ estimates. Its non-GAAP profit of $0.55 per share was 14.8% above analysts’ consensus estimates.

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StockStory’s Take

Baxter International’s first quarter results were primarily driven by robust sales growth across all its business segments, with notable outperformance in Medical Products & Therapies (MPT) and Healthcare Systems & Technologies (HST). Management attributed the top-line beat to increased demand for infusion systems, a strong recovery in IV solutions supply, and competitive wins in patient support systems. In addition, distributors began rebuilding inventory earlier than anticipated, and the company benefited from operational efficiencies, which helped offset ongoing cost pressures.

Looking ahead, Baxter’s guidance reflects both confidence in underlying business momentum and caution regarding external factors. Management highlighted persistent macroeconomic uncertainty, the impact of new and proposed global tariffs, and the ongoing transition following the sale of the Kidney Care business. CFO Joel Grade emphasized a continued focus on operational efficiency and targeted investments in innovation, while noting that new tariffs and foreign exchange headwinds are expected to weigh on margins for the remainder of the year.

Key Insights from Management’s Remarks

Baxter’s leadership identified several key operational and market factors that shaped Q1 performance and set the context for the rest of the year. Strong segment growth, supply chain recovery, and competitive gains in core franchises were central themes.

• MPT Segment Outperformance: Medical Products & Therapies growth was supported by double-digit gains in U.S. infusion systems, led by the ongoing Novum IQ pump rollout. The business also benefited from improved supply and backorder clearance in nutrition products.
• IV Solutions Supply Recovery: The North Cove IV solutions facility returned to pre-disruption production levels, enabling removal of product allocations and prompting some hospitals and distributors to rebuild inventory ahead of schedule. Management expects continued conservation in hospital usage but anticipates normalization as allocations are lifted.
• HST Segment Momentum: Healthcare Systems & Technologies saw strong U.S. capital orders, particularly in Care and Connectivity Solutions. Management credited competitive wins in patient support and ICU product lines, as well as a healthy backlog supporting future growth.
• Tariff and Cost Mitigation Efforts: New global tariffs, particularly those affecting U.S. and China trade, emerged as a headwind. Management outlined mitigation strategies including supply chain optimization, selective pricing actions, and advocacy for product exemptions to offset estimated impacts.
• Ongoing Strategic Transformation: Baxter is transitioning following the sale of its Kidney Care business. Management highlighted ongoing cost containment efforts, reallocation of stranded costs, and investments in innovation, all intended to support long-term margin expansion and growth.

Drivers of Future Performance

Management’s outlook for the coming quarters hinges on navigating macroeconomic headwinds, capitalizing on backlog strength, and executing operational improvements to drive sustainable growth and margin recovery.

• Tariff and FX Headwinds: The company expects new tariffs and adverse foreign exchange rates to pressure operating margins, with mitigation efforts only partially offsetting these impacts in the near term.
• Backlog and Capital Demand: A strong order book in Care and Connectivity Solutions and ongoing recovery in healthcare capital spending are expected to support revenue stability, though management is monitoring for demand shifts due to customer reimbursement challenges.
• Operational Efficiency and Innovation: Baxter is prioritizing supply chain optimization, targeted pricing, and accelerated investment in new product development to offset cost pressures and lay the groundwork for future margin expansion.

Top Analyst Questions

• Joanne Wuensch (Citi): Asked about specific mitigation strategies for tariffs and the sustainability of HST growth. Management detailed supply chain adjustments and targeted pricing, while maintaining a conservative outlook despite strong backlog.
• David Roman (Goldman Sachs): Queried the impact of IV solution allocation removal and long-term changes in hospital inventory practices. Management expects ongoing conservation but predicts gradual normalization as allocations end.
• Travis Steed (BofA Securities): Questioned margin pressures from cost reclassifications and the trajectory back to pre-pandemic margins. Management cited temporary impacts from MSA income and planning costs, with long-term margin expansion tied to innovation and product mix.
• Vijay Kumar (Evercore ISI): Sought clarification on the deceleration in Q2 growth and Novum IQ’s market share gains. Management attributed Q2 guidance to ongoing IV solution conservation and built-in conservatism, while confirming Novum IQ has achieved low single-digit share gains.
• Pito Chickering (Deutsche Bank): Asked for a bridge between previous and updated EPS guidance given operational and tariff impacts, and probed drivers of U.S. CCS wins. Management pointed to strong operational execution offset by tariffs and FX, and highlighted commercial progress and digital enhancements in CCS.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will track (1) progress on tariff mitigation and supply chain adjustments, (2) evidence of sustained order growth and backlog conversion in the HST segment, and (3) normalization in IV solutions demand as hospital inventory practices adjust. We will also monitor execution on new product launches and any updates on permanent CEO selection, as both could significantly affect Baxter’s strategic direction.

Baxter currently trades at a forward P/E ratio of 12×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our free research report.

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