Baxter International Inc. (BAX) posted a 19% jump in fourth-quarter net income, propelled by double-digit sales growth in a business that makes products to treat serious problems such as immune-system disorders and hemophilia.

The company's management has noted that its big markets include these and other medical problems, such as kidney failure, where the status of the economy isn't a sales driver. Baxter's guidance for the year ahead did factor in some potential economic fallout, although the full-year earnings view still topped Wall Street's outlook.

"We thought it prudent as we pulled our plan together to reflect something there" regarding the economy, said Robert L. Parkinson, Jr., Baxter's chairman and chief executive, on a call with analysts Thursday.

Meantime, the Deerfield, Ill., company's earnings guidance for the first quarter came in slightly below analysts' consensus expectations. JPMorgan analyst Michael Weinstein said in a research note that Baxter management is likely to continue its pattern of beating and raising guidance, as it did in 2008.

Analysts said the fourth-quarter looked solid, as did the outlook for the new year. Leerink Swann's Rick Wise noted that Baxter's fourth-quarter operating margins improved faster than expected - fueled by sales growth in the company's high-margin Bioscience business - and helped Baxter top Wall Street's quarterly earnings estimates.

The company's shares recently traded up 1.2% to $56.16.

Baxter posted net income of $569 million in the fourth quarter, or 91 cents a share, up from $478 million, or 74 cents a share, a year earlier. Excluding charges, earnings rose to 91 cents a share from 76 cents a share, above the forecast Baxter issued in October.

Earnings topped the average outlook from analysts surveyed by Thomson Reuters by 2 cents.

Fourth-quarter net sales rose 4% to $3.13 billion, with the stronger dollar taking a big hit - sales grew 9% excluding the currency impact. This outpaced Baxter's view for sales growth of about 7% excluding currency.

Gross margin rose to 51.2% from 49.4%.

Among Baxter's business units, Bioscience, which is the biggest, grew sales by 12% to $1.36 billion. Sales were up 17% excluding the foreign currency impact, helped by Baxter's "Advate" hemophilia treatment, plasma-based therapies, biosurgery products and vaccines.

Sales in the Medication Delivery business rose 2%, or 7% excluding currency, to $1.17 billion.

Sales in the renal business sank 7%, or 3% excluding currency, to $557 million. Baxter noted a decline in sales of lower-margin hemodialysis products and a difficult year-over-year comparison due to the loss of a tender in Mexico in early 2008. Also, 80% of Renal sales are overseas, creating significant currency exposure.

 
   Currency To Hamper Sales

Looking ahead to 2009, Baxter projected earnings excluding items of $3.70 to $3.78 a share, which brackets Wall Street's $3.74 view.

The company expects sales growth will be flat this year due to the unfavorable currency environment. But excluding currency, the company expects sales will rise 7%, which Parkinson compared with an 8% organic growth rate seen in the last year or so.

This slight reduction in expected growth "reflects some modest impact" from the tough economy, he said.

Parkinson noted questions about whether the business for intravenous solutions could reflect a slow-down in surgical procedures in which such products are used, for example, although he also said Baxter hasn't seen anything like that thus far. And in general, he noted that the company's big markets are driven by the needs of sick patients.

"Frankly people are not going to go off dialysis therapy or therapy for hemophilia or immune disorders because of the economy," Parkinson said on the call.

The Bioscience business is expected to grow the fastest in 2009, with sales seen rising more than 10% excluding currency. Sales in both the medication delivery and renal businesses are expected to growth by 4% to 6%, excluding currency.

For the first quarter, Baxter expects earnings per share of 80 to 82 cents, excluding items; analysts forecast 83 cents. The company also projected revenue growth of 7% excluding foreign currency for the quarter.

Baxter's new full-year sales outlook continues to exclude any expected revenue associated with the U.S. re-commercialization of the company's Colleague brand of intravenous fluid pump, which was pulled from the market in 2005 amid a host of problems. Parkinson said Baxter remains in active dialogue with the U.S. Food and Drug Administration regarding its plan to fix pumps and get them back on the market.

He didn't say when that will happen, but said the company hopes to have more details to share in the coming months.

The irony for Baxter is that having Colleague sidelined already may protect it from a downturn this year caused by a recession-induced slide in hospital spending. Pump maker Cardinal Health Inc. (CAH) lowered its fiscal-year outlook earlier this month, while citing a delay in hospital capital spending and a softness in capital-equipment sales.

The Cardinal forecast triggered forecasts on Wall Street that Hospira Inc. (HSP), another maker of infusion pumps, will also be pinched by hospital spending cuts.

For Baxter, which has seen some erosion in its customer base while Colleague has been sidelined, slower hospital spending may even help.

"It may even serve to secure our Colleague base longer," Parkinson said.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

(Mike Barris contributed to this report.)

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