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Text: And of course, our actual results could differ materially from our current expectations.
As usual, I will begin with an overview of Baxter's third quarter performance.
Jay would take a closer look at the financials and outlook for the rest of the year.
Clearly, the most notable highlight from the quarter is last month's announcement of our agreement to acquire Hillrom, subject to the approval of Hillrom shareholders and other customary closing conditions.
I recently made site visits to select Hillrom locations as part of our integration planning process and I was joined by other members of our senior leadership team, meeting face-to-face with Hillrom's dedicated employees and touring the facilities only underscored our confidence and enthusiasm for the proposed acquisition of Hillrom.
Upon closing of the transaction, we plan to bring a broader array of products and services to patients and clinicians across the care continuum and around the world.
We are focused on identifying opportunities to further accelerate innovation to address the rapidly evolving needs of our customers.
The teams are working diligently on plans to bring together these two complementary portfolios to deliver enhanced value for our stakeholders.
We look forward to updating you on these acceleration opportunities following the close of the deal.
Earlier this month, the Hart-Scott-Rodino or HSR waiting period in the U.S. expired with no issuance of a second request by the FTC.
While the FTC reserves its right to take further action, this is a key milestone to clear the way for a successful closing.
We are in the process of securing all remaining global regulatory approvals required for closing.
And the Hillrom shareholder meeting to vote on the transaction is currently scheduled for December 2.
In addition, our integration planning management office is up and running with teams from both organizations preparing for a swift, effective combination once the deal closes.
We will expect to close by early 2022.
Moving on to the third quarter financial performance.
I'm pleased to report solid ongoing momentum as we make our way toward the close of the fiscal year.
Baxter delivered third quarter sales growth of 9% on a reported basis, 7% at a constant currency and 6% operationally.
Like last quarter, growth was impacted by the continuing, if somewhat erratic, pace of COVID-19 pandemic recovery, while the pandemic still represented a headwind to top line sales in the quarter, the magnitude of this headwind has continued to decline, reflecting the improved rate of hospital admissions in the U.S. as well as ongoing pandemic recovery in international markets.
This resulted in a favorable comparison to the same period last year.
On the bottom line, third quarter adjusted earnings per share were $1.02, up 23% and exceeded our third quarter guidance.
Positive mix and disciplined expense management drove the favorability.
The pace of pandemic recovery continues to vary by both therapeutic and geographic market.
Our broad global footprint and diverse portfolio of essential products combined to help mitigate the variability and shore up the strength of our overall enterprise.
We also benefit from our resilience and agility, which have been greatly enhanced through our ongoing transformation.
Looking at performance by business, growth was led by BioPharma Solutions which advanced 45% at constant currency rates.
Performance was driven by revenues related to our manufacturing of multiple COVID-19 vaccines.
Medication Delivery grew at 11% constant currency, reflecting the improved rate of U.S. hospital admissions in new infusion pump contract with a large health system in the U.S. and increased demand for Baxter's small volume parenterals.
With respect to our NOVUM IQ 510(k) submission, we are continuing to work with the FDA to address their questions on our submission.
While we hope to receive clearance by the end of this year, it is possible it may shift into early 2022.
In Pharmaceuticals, 7% constant currency growth reflects the benefit of our acquisition of specified rights outside the U.S. to Caelyx and Doxil.
Adjusting results for the acquisition, operational growth rose 1%.
Year-over-year growth in the quarter reflects lower U.S. sales in part due to a large pandemic-related government order received in Q3 2020 and softness in inhaled anesthesia.
This challenging comparison was offset by strong growth internationally, driven by our pharmacy compounding business.
Our third quarter launch of premix norepinephrine was met with strong demand, part of an increasing trend as hospital pharmacies embrace premix formulated drugs and other products that improve efficiency, particularly in the wake of the pandemic.
During the quarter, advanced surgery performance in the U.S. was affected by lower surgical volumes, which remain depressed versus pre-pandemic rates.
Procedure volumes were unfavorable to our prior expectations as hospitals delayed elective procedures in light of the delta variant.
This was more than offset by growth in the international markets, which could slowly recover from the effects of the pandemic.
Growth in Clinical Nutrition reflected the benefit of our new product launches particularly in international markets.
Acute Therapies continues to perform very well.
A year-over-year decline in U.S. sales reflects a difficult comparison in the face of last year's surge in demand for continuous renal replacement or CRRT products.
Again, this was offset by international growth as an outcome of the pandemic, we now have many more CRRT devices in the food as well as heightened engagement immunization on the part of clinicians creating a platform for sustained momentum.
Growth in Renal Care was driven by our home-based peritoneal dialysis or PD products globally.
As I have mentioned on past calls, demand does continue to be dampened amid the pandemic due to higher mortality rates for patients with kidney disease and a slowdown in new patient diagnosis.
We expect the ESRD market to gradually recover to pre-COVID growth rates over the next one to two years.
Our Renal Care team's global safer at home campaign is dedicated to helping clinicians, patients and other stakeholders learn more about the benefits of home-based PD care, especially in the context of today's pandemic conditions.
From an ESG perspective, I'm pleased to highlight a new partnership between UNICEF USA and the Baxter International Foundation to improve access to safe water in La Guajira, Colombia, one of the country's most water-challenged regions.
A $1.5 million foundation grant is helping fund the multifaceted 3-year program.
This quarter, we also honored to be included on Forbes latest list of the World's Best Employers and America's Best Employers for women.
In addition, we are recognized as a leading organization on Seramount's 2021 inclusion index.
Looking forward, we continue to navigate with some uncertainty on the horizon.
The overall trajectory of pandemic recovery appears more clear but the new geographic contours remain inconsistent.
New variants may take an unknown toll on our business and our employees, and we will continue to contend with the effect of macroeconomic issues.
Related to this last point, we are not immune to inflationary pressures and the rising cost of raw materials, commodities, components, fuel and ongoing supply chain disruptions.
While we are actively working to address these rapidly rising costs, we recognize these factors may continue to impact our operations into 2022.
Amid these challenges, we are on pace very strong close to the year.
This translates into momentum as we get set to execute on the vast potential of our proposed Hillrom acquisition and launch the next phase of our transformation journey, fueled by the commitment of our outstanding global team.
Now I will pass it to Jay for a closer look at our financial results and outlook.
As Joe mentioned, we're pleased with our strong third quarter performance.
Third quarter 2021 global sales of $3.2 billion, advanced 9% on a reported basis, 7% on a constant currency basis and 6% operationally.
Sales growth this quarter reflects the benefit from revenues associated with the manufacturing of COVID vaccines, strength in medication delivery and OUS sales of Caelyx and Doxil, which totaled approximately $32 million in the quarter.
On the bottom line, adjusted earnings increased 23% and to $1.02 per share, exceeding our guidance range, driven by a favorable product mix, primarily from better-than-expected sales of Acute Therapies and BioPharma Solutions as well as disciplined operational execution.
Now I'll walk through performance by our regional segments in key product categories.
Starting with our regional segments.
Sales in the Americas increased 7% on both the constant currency and operational basis.
Sales in Europe, Middle East and Africa grew 7% on a constant currency basis and 3% operationally.
And sales in our Asia Pacific region advanced 8% on both a constant currency and operational basis.
Moving on to performance by key product category.
Note that for this [Indecipherable] constant currency is equal to operational sales growth for all global businesses, except for the Pharmaceuticals business, for which we will provide both constant currency and operational growth, adjusting for the acquisition of rights in select territories outside the U.S. for Caelyx and Doxil.
Global sales for Renal Care were $981 million increased 1% on a constant currency basis.
Performance in the quarter was driven by global growth in our PD business where we experienced year-over-year improvement in global patient volumes despite the negative impact on volumes resulting from the pandemic, including increased mortality rates in ESRD patients, delays in new patient diagnoses and marketwide staffing shortages.
PD growth was partially offset by declining international sales in our In-center HD business and Renal Care clinics.
We continue to monitor the impact of excess mortality among ESRD patients and delays in new patient diagnosis resulting from the pandemic and expect the market to return to pre-COVID growth rates over the next 12 to 24 months.
Medication delivery of $747 million increased 11% on a constant currency basis.
Strong global growth in this business reflects continued recovery in the pace of hospital admissions as well as increased demand for large volume infusion pumps, IV solutions and small volume parenterals.
During the quarter, we estimate that U.S. hospital admissions were down approximately 4% compared to pre-COVID levels, a significant improvement from the same quarter last year, which saw U.S. admissions down approximately [Technical Issues] versus pre-Covid levels.
In addition, during the quarter we executed and began delivering infusion pumps under a contract with a large health system in the U.S. which resulted in our highest number of quarterly pump placements in over five years.
Pharmaceutical sales of $589 million advanced 7% on a constant currency basis and 1% operationally.
Performance in the quarter was driven by demand for our international pharmacy compounding business and the contribution from OUS sales of Caelyx and Doxil.
Growth in the quarter also benefited from increase sales of the Dexmed and our portfolio of premixes as hospitals continue combating the COVID-19 pandemic and look toward premix formulations and workflow efficiencies.
This growth was partially offset by declines in our U.S. business related to lower surgical procedures and a government order of approximately $20 million in Q3 2020.
Moving to Clinical Nutrition, total sales were $244 million, increasing 3% on a constant currency basis.
Performance in the quarter was driven by the benefit of new product launches within our broad multichamber product offering.
Sales in Advanced Surgery were $249 million, increasing 5% on a constant currency basis.
Within the quarter, we saw a strong growth from our international business and estimate surgical procedures improved both sequentially and on a year-over-year basis in many international markets.
This growth was partially offset by performance in the U.S. with surgical procedures estimated at 95% of pre-COVID levels, a sequential and year-over-year decline in surgical procedure volumes due to the impact of the Delta variant and staff shortages.
This was below our previous procedures returning to pre-COVID levels during the third quarter.
Sales in our Acute Therapies business were $185 million, advancing 3% on a constant currency basis and were favorable to our expectations.
Performance in the quarter continued to benefit from elevated demand for CRRT, particularly given the rise in COVID cases associated with the Delta variant.
BioPharma Solutions sales in the quarter were $206 million, representing growth of 45% on a constant currency basis, reflecting incremental sales related to the manufacturing of COVID vaccines, which totaled more than $50 million in the quarter.
Moving through the rest of the P&L.
Our adjusted gross margin of 44% increased by 140 basis points over the prior year, reflecting a favorable product mix and operational improvements in manufacturing.
Adjusted SG&A of $640 million increased 11% as compared to the prior year period and was favorable to expectations, driven by disciplined expense management, which more than offset increased supply chain and logistics expenses recognized in the quarter.
Adjusted R&D spending in the quarter of $129 million increased 6% versus the prior year period.
Both adjusted SG&A and R&D spending reflect a somewhat more normalized level of spend as certain expense categories were depressed last year as a result of the pandemic, particularly those related to employee bonus accruals.
This improvement in gross margin, coupled with the continued opex management resulted in an adjusted operating margin in the quarter of 20.2%, an increase of 100 basis points versus the prior year.
Adjusted net interest expense totaled $32 million in the quarter and other nonoperating expense was $12 million in the quarter.
The adjusted tax rate in the quarter was 14.8%, a decrease over the prior year, driven primarily by a favorable change in earnings mix.
And as previously mentioned, adjusted earnings of $1.02 per diluted share exceeded our guidance of $0.93 to $0.95 per diluted share.
With respect to cash flow, year-to-date, we've generated $1.5 billion in operating cash flow.
Free cash flow totaled over $1 billion and represented growth of nearly 50% as compared to the prior year period.
I would like to take a moment to reiterate our excitement around our recent announcement to acquire Hillrom.
We believe the strategic rationale and underlying financials of the combination are compelling and provide us with a meaningful opportunity for value creation.
Our integration teams are hard at work and we look forward to finalizing this combination by early 2022.
In the meantime, we continue to follow a strategic approach to capital allocation that is founded on accelerating growth, driving innovation and returning value to our shareholders.
Let me conclude my comments by discussing our outlook for full year 2021.
For full year 2021, we expect global sales growth of 7% to 8% on a reported basis, 5% to 6% on a constant currency basis and 4% to 5% on an operational basis.
This assumes a benefit of approximately 100 basis points to both reported and constant currency revenue growth for the acquisition of Caelyx/Doxil and over 200 basis points of positive top line impact from foreign exchange on reported growth.
Our expectation remains that on a full year basis, hospital admission rates in the U.S. will remain below pre-COVID levels exiting the year down low single digits.
Although surgical procedure data in the U.S. declined sequentially Q2 to Q3, our current expectation is that U.S. surgical procedures will improve sequentially and return to pre-COVID levels in the fourth quarter.
We are continuing to monitor this assumption in light of potential impacts from COVID outbreaks and hospital staffing shortages.
Moving down the P&L, we now expect adjusted operating margin to expand more than 60 basis points.
For the year, we now expect an adjusted tax rate of 16.5% to 17% and a full year diluted average share count of approximately 510 million shares.
Based on these factors, we now expect 2021 adjusted earnings, excluding special items, of $3.58 to $3.62 per diluted share.
For the fourth quarter of 2021, we expect global sales growth of 3% to 4% on a reported basis, 4% to 5% on a constant currency basis and 3% to 4% on an operational basis.
And we expect adjusted earnings, excluding special items, of $1 to $1.04 per diluted share.
With that, we can now open the call up to Q&A.

user
sees fy adjusted earnings per share $3.58 to $3.62.
sees q4 adjusted earnings per share $1.00 to $1.04 excluding items.
q3 revenue rose 9 percent to $3.2 billion.
now expects full-year u.s. gaap earnings per share of $2.82 to $2.86 and adjusted earnings per share of $3.58 to $3.62.
expects full-year 2021 sales growth of 7% to 8% on a reported basis.
baxter international - worldwide sales in q3 totaled about $3.2 billion, a year-over-year increase of 9% on a reported basis.

assistant