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spk13: Good morning, ladies and gentlemen, and welcome to Baxter International's first quarter 2022 earnings conference call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press the star 1 key on your touchtone phone. If anyone should require assistance during the conference, please press star 0. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Claire Trackman, Vice President, Investor Relations at Baxter International. Ms. Trackman, you may begin.
spk15: Good morning, and welcome to our first quarter 2022 earnings conference call. Joining me today are Joel Nava, Baxter's Chairman and Chief Executive Officer, Jay Saccaro, Baxter's Chief Financial Officer, Giuseppe Iacoli, Baxter's Chief Operating Officer, and Jim Borzi, Baxter's Chief Supply Chain Officer. On the call this morning, we will be discussing Baxter's first quarter 2022 financial results and full year financial outlook for 2022. On the call this morning, we will be discussing Baxter's first quarter 2022 financial results and full year financial outlook for 2022. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlets for the second quarter and full year 2022, the recent acquisition of Hillrom, new product development, business development, and regulatory matters, including ones related to the 510K review of the Novum IQ infusion platform, contain forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today's press release in our SEC filing for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand FACTA's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. On the call this morning, we will be discussing operational sales growth, which adjusts for the impact of foreign exchange and the acquisition of Hillrond. Before I turn the call over to Joe, I wanted to let everyone know that the registration link for our 2022 Investor Conference, which is being held on Wednesday, May 25th in Glenview, Illinois, is now available on our website. Please visit the Investor Relations section of Factor's website to register for the event. With that, I'll now turn the call over to Joe. Joe?
spk10: Thank you, Claire. Good morning, everyone, and thank you for joining today's call. I'll get started with an overview of first quarter performance trajectory and a quick preview of what you can expect our upcoming investor conference in May. Jay will take a closer look at our financials as well as our outlook for the current quarter and balance of the year. Then we'll close with your questions. As you know, first quarter 2022 represents our first full quarter since the close of Hill-ROM acquisition. I'm pleased to report solid results for the combined company on both the top and bottom line, reflecting the ongoing momentum of legacy Backstreet businesses, as well as the early promise and potential of our Hill-ROM integration. First quarter sales were 26% on a reported basis and 29% at a constant currency, with legacy Hiram sales contributing $755 million to our total $3.7 billion in reported sales for the quarter. Excluding the impact of Hiram and foreign exchange, first quarter sales rose 3% on an operational basis. On the bottom line, adjusted earnings per share of $0.93 increased 22%, exceeding our guidance of $0.79 to $0.82. Performance in the quarter reflects the contribution from Hiram. First quarter performance continued to reflect the ongoing erratic impact of the COVID-19 pandemic. which fuel demand in some of our businesses while dragging on performance in others. As ever, the diversity and durability of our portfolio, in combination with our global footprint, act as buffers that help us weather the extremes, and these factors are only bolstered with the added scope and opportunity created through the addition of HealROM. We continue to see solid demand across both legacy Baxter and here on businesses. We are still experiencing pockets of back orders and backlogs due to the significant supply chain challenges that have made it increasingly difficult at times to access a range of raw materials and components, particularly electromechanical components. Similarly, we continue to experience increased inflationary pressures and rising freight costs, which have only intensified in the wake of the war between Ukraine and Russia. Our focus on efficiency and discipline expense management has gone a long way to partially offset these challenges. And I'm proud of our integrated supply chain team for its strategic moves in procurement and logistics. They're helping us meet the needs of patients and clinicians while helping to support sustained value and growth of our shareholders. Taking a deeper dive by business, performance was led by biopharma solutions, which advanced 21% at constant rates. This was driven by a favorable year-over-year comparison related to revenues from the manufacture of multiple COVID-19 vaccines. Our medication delivery business increased 10% accounts and rates, driven by growth in IV therapies. As you saw in this morning's release, we shared a status update on our Novum IQ large volume infusion pump with those IQ safety software. which has been under review by FDA. We received a letter from the agency last Friday with a request for additional information. As a result, the 510K review window has been placed on hold so that our team can address accordingly. The team currently plans to respond to FDA within the calendar year. We remain on track to submit responses on the Novum IQ syringe pump filing to FDA in the second quarter of 2022. I want to emphasize why we can't speak for FDA or the eventual outcome of their review process. We are confident in our leading-edge NovoMyQ technology. We are committed to responding to FDA's request and to bringing the benefits of NovoMyQ to patients and clinicians in the U.S. and beyond. Advanced surgery performance was up 8% at constant rates during by year-over-year improvement in the rate of surgical procedures, following depressed rates due to the pandemic. Renal care rose 1% at constant currency rates with a mid-single-digit growth in the U.S., partially offset by a low single-digit decline internationally. Growth in the quarter was driven by global demand for our home peritoneal dialysis products, partially offset by lower sales of dialysis internationally. As we have discussed previously, PD patient demand has been constrained due to the pandemic during factors, including higher mortality rates for kidney disease patients, and the lower rate of new patient diagnosis. We remain confident of renewed uptake in pediatric therapy over the upcoming years, as well as in the health and lifestyle factors that make home-based therapy a compelling choice for patients and clinicians. Clinical nutrition also grew 1% at constant currency, reflecting improving demand for selected parenteral nutrition products. Growth in the quarter was dampened by ongoing supply constraints for vitamins globally. Pharmaceuticals declined 2% at constant currency, reflecting continued increased competitive activity for certain U.S. generics, as well as the impact of supply constraints that impacted production volumes during the quarter. We continue to focus on launching new molecules in complex formulations as well as embracing our international growth opportunities to help accelerate performance in the business moving forward. Finally, among our legacy business, acute therapies declined 7%, a constant currency, reflecting a challenging year-over-year comparison. due to the last year's surging demand for continuous renal replacement therapy, or CRRT, products amid the pandemic. Underlying performance in this product category continues to build momentum, with the pandemic only further highlighting the vital role of CRRT products in the ICU. As I stated earlier, our newly acquired Heron businesses contributed $755 million to sales in the quarter. Our global integration is proceeding on course, and we are starting to seize on key opportunities to expand global access to our growing portfolio, as well as uniting our capabilities to expand our presence in connected care. Looking ahead, I want to note that our original outlook for 2022 did not anticipate the tragic outbreak of a war in Ukraine. The conflict is partially disrupting our ability to serve patients locally, although we are working hard to serve Ukrainian patients and refugees directly and through our humanitarian aid partners. We are also, like many other companies, assessing our profile in Russia, although as a healthcare company, there are certain life-sustaining products that we are continuing to make available to patients in line with current sanctions. The conflict has also caused a ripple effect across the supply chain network globally, resulting in rising oil prices, which we expect to negatively impact freight, material, and utility costs this year. In addition, given the current timeline anticipated for Novo MyQ, we have made the decision to remove any related sales contribution in 2022. These factors, coupled with ongoing increased inflationary pressures, have resulted in adjustments to our guidance for the balance of the year, as Jay will review in a moment. Our teams are working diligently to find potential offsets to these increased expenses. And as we mentioned last quarter, we have identified opportunities where it may be possible to pass through some of these costs in select geographies. While the global macroeconomic landscape continues to present unique challenges, we are nonetheless excited about our overall prospects, momentum, and capacity to make a difference for our many stakeholders. We look forward to giving your deeper insights on our trajectory next month at our 2022 Investor Conference. We will share a broader look at our growth in connected care as well as our commitment to ongoing therapeutic innovation. We will also provide more detail on how expanded global access and uncompromising portfolio management should contribute to profitable growth. In addition, we will highlight the rapid evolution of our integrated supply chain function as we work to address today's operational challenges head on and continue to evolve for the future. You'll see Baxter's Healthcare Innovations firsthand at our interactive innovation hall. And as always, we'll be including plenty of time for your questions and informal networking with our senior leadership team. I look forward to seeing many of you in person, and the event will also be webcast for online viewing. Now I will pass it to Jay, who will take a closer look at our first quarter results and 22 outlook.
spk06: Thanks, Joe, and good morning, everyone. As Joe mentioned, we're pleased with our first quarter performance, especially in light of the geopolitics, inflationary pressures, and elevated freight costs. We're working through these headwinds with consistent focus on operational efficiency and disciplined expense management. Turning to our financial performance, first quarter 2022 global sales of $3.7 billion advanced 26% on a reported basis, 29% on a constant currency basis, and 3% on an operational basis. Sales came in at the high end of our guidance range this quarter, with growth reflecting recovery in hospital admission rates and elective surgeries to benefit from revenues associated with the manufacturing of COVID vaccines and strength in our medication delivery business, which benefited from growth of IV therapies as well as lower customer rebate costs during the quarter. On the bottom line, adjusted earnings increased 22% to $0.93 per share. This compared favorably to our guidance of $0.79 to $0.82 per share, driven by better-than-expected gross margins, which was driven by product mix as well as disciplined execution on cost synergies associated with the acquisition. Now, I'll walk through performance by our regional segments and key product categories for all global businesses. and Baxter's three legacy geographic regions. Starting with sales by operating segment, sales in the Americas increased five percent.
spk04: Europe, Middle East, and Africa grew two percent on a constant currency basis.
spk06: And sales in our APAC region were flat on a constant currency basis. Sales in our APAC region were negatively impacted in the quarter by the resurgence of COVID cases in the region, particularly in China. We're continuing to monitor the situation in China and the potential impact on our operations from further lockdowns. Moving on to performance by key product category, global sales for renal care were $894 million, increasing 1% on a constant currency basis.
spk04: Performance in the quarter was driven by growth in our PD business as global patient volumes increased on a year-over-year basis, despite persistent pressures from increased mortality rates in ESRD patients, delays in new patient diagnoses, and market-wide staffing shortages.
spk06: This growth is offset by lower dialyzer sales in our international in-center HD business. Sales and medication delivery of $706 million increased 10% on a constant currency basis. Strong U.S. growth in this business reflects continued recovery in the pace of hospital admissions compared to pre-COVID levels, as well as increased demand for IV administration sets and solutions. Sales also benefited from lower customer rebates in the quarter. For the quarter, we estimate that US hospital admissions were down low single digits compared to pre-COVID levels. Pharmaceutical sales at $521 million declined 2% on a constant currency basis. Performance in the quarter was negatively impacted by increased competition for select molecules in our U.S. generic injectables portfolio, lower sales of inhaled anesthetic, and pandemic-related supply constraints driven in part by labor shortages at certain of our manufacturing facilities. Moving to clinical nutrition, total sales were $227 million, increasing 1% on a constant currency basis. Performance in the quarter was driven by the benefit of new product launches within our broad multi-chamber product offering. Sales in advanced surgery were $228 million, advancing 8% on a constant currency basis. Growth in the quarter reflected elective procedure recovery in the U.S. and Europe. We've seen recovery stall in our Asia-Pacific region with Australia, Korea, Japan, and Taiwan experiencing somewhat depressed levels of surgical procedural volumes improving into February and March.
spk04: Our current assumption is for U.S. surgeons to remain above pre-COVID levels, for the remainder of the year.
spk06: Sales in our acute therapies business were $188 million, declining 7% on a constant currency basis and reflecting a difficult comparison to the first quarter of 2021 when we experienced heightened demand for CRRT given the rise in COVID cases. Biopharma solution sales in the quarter were 21% on a constant currency basis, reflecting incremental sales related to the manufacturing of COVID vaccines, which totaled approximately $45 million in the quarter. For the remainder of the year, vaccine sales are forecasted to be approximately $60 million lower than prior year sales. Hillron contributed $755 million in sales to the quarter, which included $383 million of sales in patient support services, $294 million of sales in frontline care, and $78 million of sales in global surgical solutions. On a constant currency basis, as compared to Q1 2021, when Hillrun was a standalone company, its sales were flat year over year, reflecting a challenging comparison, as sales in the first quarter of 2021 benefited from COVID-related sales of approximately $40 million. Moving through the rest of the P&L, our adjusted gross margin of 45% increased by 300 basis points over the prior year, reflecting the contribution of HILROM within the quarter and lower rebate costs. Adjusted SG&A of $855 million, representing 23.1 as a percentage of sales, an increase of 240 basis points versus prior year, driven by the addition of HILROM as well as higher freight expenses. Adjusted R&D spending in the quarter of $149 million represented 4% as a percentage of sales, a decrease of 30 basis points versus prior year. Increased levels of SG&A and R&D spend reflect the contribution from Hillron. We're on track with our cost synergies target for the year, and we're able to pull forward certain initiatives resulting in a benefit to operating expenses in the first quarter. Adjusted operating margin in the first quarter was 18%, an increase of 100 basis points versus the prior year, reflecting the various factors I just discussed. Adjusted net interest expense totaled $85 million in the quarter, an increase of $51 million versus the prior year, driven by higher outstanding debt balances related to the acquisition of Hill Run. Given the current interest rate environment, we now expect net interest expense to be higher than we had previously forecasted. Other non-operating incomes totaled $16 million in the quarter, an increase of $21 million compared to the prior year period, driven by foreign exchange gains and amortization of pension benefits. The adjusted tax rate in the quarter was 20.8% as compared to 16% in the prior period. The year-over-year increase was driven by the addition of Hill ROM as well as the prior year tax rate reflected a discrete benefit. The tax rate in the quarter was unfavorable to our expectations due to the mix of earnings within the quarter. And as previously mentioned, adjusted earnings of $0.93 per diluted share advanced 22% versus the prior year period. We made the decision to remove any Novum IQ infusion system sales in 2022. which is reflected in our updated sales outlook. At this time, we are not able to offset the expected note in sales with Spectrum as we are supply constrained on certain electromechanical parts for the Spectrum pump. In addition, the global macro disruptions emerging from new COVID outbreaks in China, the war between Russia and Ukraine, and contention Supply chain constraints across our network have created challenges to our ongoing operations. While we continue to evaluate opportunities to drive better efficiency on our integrated supply chain as well as pass through some of these costs to our customers, these factors have resulted in increased expenses which are expected to negatively impact our results throughout the remainder of the year. These incremental expenses, which are primarily related to higher oil prices and increased inflationary pressures, are reflected in our updated financial outlook. For the second quarter of 2022, we expect global sales growth of approximately 26% on a reported basis, 29% to 30% on a constant currency basis, and approximately 4% operationally. And we expect adjusted earnings excluding special items of 86 to 89 cents per diluted share. For full year 2022, we now expect global sales growth of 23% to 24% on a reported basis, 25% to 26% on a constant currency basis, and approximately 3% on an operational basis. As mentioned earlier, operational growth for Baxter excludes the impact of foreign exchange and Hill Run. Moving down to P&L, we expect full-year adjusted operating margin to be similar to the prior year period. For the full year, we now expect interest expense to total approximately $375 million, an adjusted tax rate of 19% to 19.5%, and a diluted average share count of 508 to 510 million shares. Based on these batches, we now expect 2022 adjusted earnings, excluding special items, of $4.12 to $4.20 per diluted share. With that, we can now open the call up to Q&A.
spk13: Thank you. We will now begin the question and answer session. If you have a question, please press the star 1 key on your touch-tone phone. If you wish to remove yourself from the queue, press the star 1 key again. If you are using a speakerphone, please lift the handset to ask your question. So that we may be respectful of everyone's time, please limit your comments to one question with one follow-up question if necessary. We appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question. We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at www.baxter.com.
spk02: Our first question comes from Travis Steed at Bank of America.
spk17: Good morning, everybody. Jay, I'd love just to get a bit more of a bridge on the guidance changes here for the full year, both in the top line and the bottom line. Looks like a one-point reduction in the revenue guidance. I'm just curious how much that's new in my queue, how much of it's supply shortages, and the same thing on the bottom line as well. Looks like 25 cents difference if you account for the Q1B.
spk06: standpoint, really the entirety of the reduction relates to Novum. We've taken out roughly $100 million in sales. Previous guidance was roughly 4% operational. Now we're approximately 3%. Of course, there's always puts and takes as we put together our forecast, but we thought it was prudent under the circumstances to remove Novum from the guidance, and so you see that reduction. As far as the forecast period goes, we did make some more significant adjustments to the bottom line in light of the circumstances we are currently faced with. Oil is one primary driver. That's roughly an 11-cent impact. We have freight headwinds excluding the impact of oil of roughly 11 cents. And what this really comes down to is it's an incredibly tumultuous supply chain environment today. And as the company looks to fulfill our mission to save and sustain lives, moving product around the world is increasingly complicated at the moment. And so the result of that is roughly 11 cents of incremental headwind from Q2 to Q4 outside of the oil impact that I just described. And then finally, securing parts and securing raw materials is also very, very challenging. You add to that the Novum impact, and you offset that by certain pricing actions we're taking, along with manufacturing optimization and improvements, and that really is what describes the change in guidance to the back portion of the year.
spk17: That's great. I'd love to hear a little bit more color on some of the pricing actions that you're taking that you just mentioned and kind of where in the portfolio you're getting freight costs that you're charging customers or actual price increases.
spk04: We have taken pricing actions to customers in different geographies where we can.
spk10: But we don't go into specifics where we did, how much, and what customer. But we have taken pricing actions.
spk06: Thanks, Travis.
spk13: We'll move next to Robbie Marcus at J.P. Morgan.
spk09: Hi. Thanks for taking the questions. Maybe to start, Jada, are trying to sift through the moving parts. There's a lot going on both on the top line and the bottom line. You know, at the same time, there's a big integration going on. So maybe you could just step back and walk us through, you know, how you feel about what's called the underlying and market fundamentals of versus transitory headwinds and, you know, all while doing the integration. How do you feel basically about the health of the markets and how Baxter's performing relative?
spk06: We feel very good about the durability of the business, the long-term potential to outgrow our markets. If you think about the first quarter performance, that really is a classic illustration of how we perform, right? We delivered solid sales growth, 3%. We were able to deliver ahead of our expectations on the bottom line, which was great. All the way to the integration, which as Joe described, and I'm sure we'll get into later, is going quite well. of Hill Rum, very happy with the opportunities that it opens up to us in terms of synergies and some of the end markets that it exposes us to. So all of that is really a nice story. We are faced with one of the most complicated supply chain environments I have personally seen. The war in Ukraine, coupled with an already fraught supply chain, creates very significant short-term factors impacting our performance. Do I think we'll be talking about supply chain in two years? I certainly hope not, nor do I expect that that will be the case. But at least for the next nine months as we see it, there will be continued pressure on the supply chain. And if you think about our mission, you know, that's our primary focus, but it's more costly to do that in the short term. I think over time we'll see oil prices ease. I think over time the complexity of moving product around the world will decrease. And all of those things will accrue to the benefit of the long-term story for Baxter. Right now, it's some choppy waters that we're navigating. And I think all of the teams, including in particular our supply chain team, are doing a tremendous job working through all of that. Joe, I don't know if you want to add anything to that.
spk10: I would add that we see our demand, our top-line backorder, our backlog, very healthy. Backlog very healthy. Our backorder is all-time high, meaning that we have strong demand. feel all the demand because the shortage of chips and microprocessors and other electronics. As a matter of fact, that has consumed our top executives a great deal of their time, either by speaking to company CEOs in this area or trying to get product shipped more often to our factory. So this is not a unique problem to Baxter, but he shows that the top line, when I see that level of demand, he sees that our business has a resilience that Jay just outlined. So I don't see a problem with the market dynamics I see underlying issues that Jay outlined. They are somehow not short-term, temporary, will be with us throughout this year. And I said that in the previous call, that this will take time. quarters to be fixed. And we think towards the end of the year, we may see some progress in that area. We also are redesigning some of our boards. We're getting secondary raw material suppliers in place. So there's a significant amount of work to shore up the company, not only for the short term, but also for the long term and create a resilience that will be with us for a long time.
spk09: Great, and maybe one more to follow up on pricing. Your business has a lot of different products that go through a lot of different channels and contracts. Some are capital items, some are drugs, some are more supplies. Historically, this has been a very difficult market to take pricing in, but given the the inflation, the shipping, et cetera, what's the ability, you know, by each of the different businesses you participate in to put through pricing? And do you foresee any change in the go-forward pricing environment due to this? Thanks.
spk10: Clearly, the inflationary pressures on Baxter are very clear displayed here, and we have taken pricing actions in selective markets. Why do I say selective markets? Because some markets we have contracts that are long-term that take price action. Sometimes you have to break the contracts. And we evaluate case by case. This is not a blanket. We're not a consumer company, and neither we are selling staple products out and known to direct the consumer. So we can't just blanket raise prices everywhere. What we do is we raise prices where we think is just and fair, and we try to do it in a way that is fair. that is also considered to the customer, and legally possible. So there's all those considerations that we put in place. It is a tough market at the moment, and it's a tough market for everyone. So we do what we can, and we're taking pricing where it's possible.
spk09: Great. Thanks, guys.
spk06: Thanks, Robbie.
spk13: Larry Bagelson with Wells Fargo has our next question. Please go ahead.
spk05: Larry Bagelson Good morning. Thanks for taking the question. Just one on the margins this year and one on, excuse me, kind of the upcoming analyst meeting. Jay, on the margins, It looks like the guidance implies second quarter margins down sequentially, and then to get to the full year guidance, it implies kind of a ramp in the second half. So what drives that ramp, and are we thinking about the cadence correctly? And I have one follow-up.
spk06: Larry, you are thinking about the cadence of margins correctly. If you think about Baxter overall, historically we see first half margins lower than second half margins. Looking at 2021, the margin went from 17% first half to 20% second half. despite some significant issues with respect to inflation that impacted the second half of last year. And a lot of that comes down to significant incremental revenue that we see in the second half of the year. So as we fast forward to 2022, you're right, we'll see several hundred basis points step up from first half to second half. And there's really a few contributing factors. One, the revenue step up that we anticipate seeing in the second half Second, incremental synergy capture that accrues to the benefit of the second half. And then finally, our manufacturing team is hard at work accelerating the pace of what we call VIP programs, but what are really about is increasing the efficiency of our manufacturing facilities And really, we'll see some of those benefit more the second half than the first half. So you add those three factors together, and the cadence of margin, as you correctly point out, will be similar to what it's been in past years.
spk05: That's helpful. And then on the upcoming analyst meeting, you know, my question is, one, you know, it's a volatile environment. So how are you going to factor that in? And, you know, when you did the Hill-Rom deal, you know, you got into Baxter standalone, you know, sales character of 4% to 5%, you know, 300 basis point margin expansion. And obviously we know the Hill-Rom synergies you've assumed. But my question is kind of, you know, what has changed, Jay or Joe, you know, that you can share with us today?
spk10: to just help us calibrate going into that meeting and how are you going to going to approach kind of the long-term outlook given the volatile environment that we're in thanks for taking the question sure um i can i can start jay and uh you can please come in um we have a long-range plan in the company that is drawn and takes into account several different factors including the short-term disruptions that are affecting 2022 in terms of supply chain. We have a forecast, and we're going to tell you what our assumptions are going into the meeting. We're going to tell, this is what we're assuming things are happening. So what we present to you has all the numbers. We'll have a footing on what are the assumptions that we are making in this world today in terms of supply, demand, pricing and other things, including commodities and other things. So we will be prepared to disclose that at the time of the meeting. Okay.
spk06: No, that's exactly right, Joe, and I think we're going to try to put forth conservative assumptions, but what we see today is an incredibly volatile world, and to that effect, we'll want to share some details around what are we assuming around the price of oil over the years, and we're going to try to have the best intelligence around that assumption as possible. As far as what's changed, really the integrity of the businesses that we have and acquired, that's fully intact and we feel very good about the long-term potential of both platforms and I should say the combined platform. We look to feature that and we're very excited to share our perspective on that when we sit down. In the short term, we've seen massive supply chain disruption. That really is the most significant factor that is different from September to today. Things like oil price, things like freight and logistics challenges, the global supply chain, really those are the issues that we're contending with at this point, and we'll try to have a point of view on that as well. So really that's the approach that we're going to take, Larry, and we look forward to seeing you in Chicago in a month.
spk05: Thanks for taking the question.
spk13: We'll go next to Peter Chickering with Deutsche Bank.
spk12: Hey, good morning, guys. Just taking my questions. Just sort of going back to the question on the impact from oil, you quantify 11 cents of oil, 11 cents of freight, 8 cents of material pressures. Can you sort of give us some more color on sort of the cadence of the timing throughout the year and these ceilings updated guidance and your relief sort of in the back half of the year versus the prices we're seeing today?
spk06: We really have not forecasted relief this year. We've taken roughly a $100 barrel of oil and are looking at that through the rest of the year. And we're also anticipating some level of complexity with respect to the supply chain, along with challenges procuring components and raw materials for the balance.
spk04: We think probably that benefits more 2023 than 2022.
spk06: The other fact that you have to keep in mind is there is a lag between alleviation of oil price and when we see that in the... Our Q1 was not that negatively impacted by the movement in oil price that occurred during Q1. That really impacts the period from Q2 to Q4.
spk04: So I think the way we see it, PETA, we're going to assume challenging levels for the balance of the year.
spk06: And then we're optimistic that this sorts itself out towards the end of 22 and into 23. But we're cautious about that.
spk12: Okay. And then for a follow-up, you talked about backlogs for sourcing microchips and other products. Can you sort of size up the size of the backlog? Has it gotten bigger in April? What do you see in the guidance in terms of working down that backlog? And then any call that you can give us on China, on both revenues and manufacturing in China with all the COVID lockdowns occurring there? Thanks so much.
spk06: Sure. We don't really get into backlog by specific product area. What I can tell you, and nor do we get into product line availability and components impacting specific product lines. What I will tell you is we're very tight in terms of spectrum parts, as I commented within my prepared remarks. And as a result of that, we're not able to see some of the offsets that perhaps we've seen in the past with respect to Novum delay. So that's with respect to the Hill ROM products. We expect those things to sort out over the course of the coming months. But again, with availability of product, we're always careful and cautious about watching this closely. As it relates to China, The lockdowns that we've seen there, we expect roughly a $15 million to $20 million impact to sales. Obviously, our hearts go out to all of our employees in China who are really doing yeoman's work, trying to ensure that we get product out of the manufacturing facilities, and we have folks that are staying in plants overnight so that they can secure a demand standpoint and a supply. We're seeing roughly 15% in impact as it relates to those measures. We expect some of that occurred in Q1. We expect some more of that to impact Q2. And then we are expecting that to alleviate later in the year.
spk04: That's really the story on China.
spk12: Great. Thanks so much.
spk04: Thanks, Peter.
spk13: We'll move next to Danielle Antelfi at SVB Larynx.
spk14: Hey, good morning, everyone. Thank you so much for taking the question. Just one question on the Novum platform. I'm just curious, Joe, if you, this delay here, if that changes your view of the potential longer term or even in the midterm once the platform does launch in the market share gains that Baxter should be able to get. And then I have warnings.
spk10: We have received the letter. We understand what needs to be addressed, and we plan to address towards the end of the year, like we just said in our prepared remarks. Addressing the request does not change the faith I have in the product line. We have this product currently working in Canada and is, from my perspective, a great product. We have tremendous respect for what the agency says, and I don't speak on behalf of the FDA. So we're working very closely to make sure that we can address the outstanding main issue as soon as we can, and that's towards the end of the year. I have faith in the platform. We designed that from scratch. It was the first product, electromechanical product, designed by Baxter from scratch. We put the resources in place, and we're still very optimistic about what it can do in the marketplace. So it's a great technology, but this is my opinion, and I hope that we can get this cleared towards the end of the year.
spk14: Okay, got it. That's good to hear. And then just on Hillrom, I was wondering if you could touch a little bit more. I know it's early days still, but how it's been from a sales synergy side or maybe how you guys are seeing any changes in the sales process with Hillrom and as part of the product portfolio today, just broadly speaking. Thanks so much.
spk06: Great. Danielle, thanks for the question. We're really pleased with how things are going with respect to Hillrond. I think what we're finding is a company whose culture aligns very well with Baxter. As we explore the products more, we're increasingly excited about the product line and portfolio that they have, some of the innovation that they're undertaking. As we think about our ability to commercialize their products and drive things like synergies, We're also really excited about those kinds of opportunities. And then finally, from a cost synergy standpoint, things are going as well or better than we originally anticipated. So from our standpoint, all signs are up with respect to Hill-ROM, and we feel very excited about the deal that we put in place. As far as revenue synergies go, I think we'll outline when we see you in May a few categories that we're increasingly excited about. Things like geographic expansion, things like product synergies, some of the promotional opportunities that we see, some of the new products that we can develop. There's a number of categories that we'll outline for all of you at our investor day, but it's safe to say that there's real opportunity. I just recently spent some time with some of our international teams talking about the distribution opportunities that exist. The reality is they're there. We have a global footprint. We sell products around the world in over 100 countries with direct presence in most of those countries. Hillrub doesn't have that level of footprint in place. There are select products that can really benefit. from that kind of promotional effort. So we're excited about it. I hope to see you in May again. We'll talk about all of these categories in more detail, but I think it's a really nice long-term story that we're putting together here.
spk13: Thanks, Paul.
spk06: Thanks, Danielle.
spk13: Joanne Winch with Citi has our next question. Please go ahead.
spk16: Good morning, and thank you for taking the question. I actually have two. I'm curious about your thoughts on the pathway for the renal recovery. It sounds like you do expect it to come, but over time, and I'd love to know how you plan to get there.
spk10: Danielle, Joanne, how are you?
spk15: I'm well.
spk10: We are experiencing a moment of reduction in the patient's in renal due to the two years of COVID that affected the number of patients who died who were at risk and were ESRD patients or potential patients. So, we started to see the pickup of the patients in PD at the moment. We see that continue on primarily in the U.S. and Americas. We still need to see that coming in through Europe. The HD patients, we see that more as a more lingering effect of the pandemic. So, PD, separate PD from HD or peritoneal dialysis from hemodialysis, we see PD recovering throughout this year and picking up full momentum probably in 2023.
spk16: Thank you. And as a follow-up, I'm curious what you're thinking about hospital volumes for the remainder of the year.
spk10: We see that recovery coming in, and it's going to be a rebound. So we project to see a rebound in surgical volumes and hospital volumes in most places that we do business today. Ex-Asia, I think in China we need to watch what's happening in terms of their lockdown and how we're able to react to that, as well as, in Japan. But X, those two large markets, we see other markets picking up momentum and the demand that was suppressed coming back up with volumes above last year and probably at or above pre-COVID times.
spk16: Thank you very much.
spk10: Thank you.
spk13: We'll move next to Joe Ranieri at Morgan Stanley.
spk08: Hi, Joe and Jay. Thanks for taking the question. Just to go back on Hill-Ram for a second, if you adjust out for the COVID benefit, it's 5% growth. And even in the patient support systems business, it looks like it was closer to 7% growth. So kind of better than expected. But within PSS, can you maybe go into some detail about what you're seeing from the hospital bed component and the connected care component as well? Just kind of given the light that some hospitals might be pulling back on capital expenditures, just kind of curious what you're seeing in this quarter and kind of what you're expecting for the remainder of the year in those franchises. Thank you.
spk10: We're going to ask Giuseppe to answer that.
spk01: Yeah, so I think when it comes to DSS, what we see is continuous and strong demand on the care communication side. Care communication is a very strong platform with unique unique features that span from the nurse call system to the vault system so over there we see a strong demand this demand is difficult to implement it's been difficult to implement due to the COVID So our access to the hospital has been impacted by COVID, but what we see is a very healthy backlog when it comes to care communication and to the overall PSS business.
spk06: Okay, thank you. Thanks, Drew.
spk13: We'll move next to Mac Miksic at Credit Suisse.
spk07: Great. Good morning. Thanks so much for taking the questions. Just a couple of follow-ups, if I could, Jay or Joe, on how you're thinking about some of these factors in your guidance. One is China. You talked about it a couple times. Maybe you could give us a sense of what assumptions you're baking into the sort of easing of the lockdowns there. Does that happen in the second quarter? Is that sort of? you know, happen in the back half by your estimation and guidance. And then the other is FX. You know, we've seen significant moves in FX, expected some folks in our universe more than others, and just would love to get a sense. You have some other major moving parts that you described, Jay, that make up the guide change, but maybe talk a little bit about how you're managing through or what the impact of changing FX has been. Thanks.
spk06: Sure. As it relates to China, our expectation is that the situation improves not in the second quarter, but into the third and fourth quarters. Obviously, it's a complicated situation that they're dealing with, and we do expect some improvement occurring later in the year. Just for your benefit, the impact of the lockdown in Q2, we expect roughly around $10 million to and similar impact level in Q1. So we don't have any improvement baked in until later in the year. As it relates to foreign exchange, we are expecting relative to prior year, we're talking about, you know, roughly five, six cents of impact, maybe a little bit more than that. And relative to our previous expectations, which we shared with you in February, we're off several cents from that. Really volatile situation. And even as of yesterday, we were seeing substantial movements in the euro. We'll watch this.
spk13: And we'll take our final question from .
spk02: Mr. Kumar, your line is open. You may be muted.
spk11: Mr. Hey, guys. Thanks for squeezing in here. Again, I had a two-part. One, when I look at the guidance here, you know, first half is 3.5 on the half in the back half. Given that utilization is improving in the back half, why is 2.5 the right number? And I understand no one was put out. If we didn't have no IQ in first half, maybe talk about first half versus second half cadence. And on the supply chain cost, is there a simplistic way of thinking about when I look at um you know all the cumulative costs uh that baxter has incurred uh over the course of the pandemic is there a way to quantify uh the cost versus pre-pandemic levels and what are the different buckets that they went into raw materials versus uh in any manufacturing investments versus transportation thank you great thanks for the question vj the uh as it relates to the second half versus first half sales guidance
spk06: What I will tell you is that the primary drivers are a reduction in vaccine sales as anticipated, along with the removal of Novum with no offset, because if you think about last year, we had very strong spectrum sales in Q3 and Q4 of last year, and we don't have We don't have that available, that lever available to us as we look at the second half of this year, which is why Joe's comments around our intense focus to get Novum approved, that's really a core focus of our organization and our R&D team. So those are really the drivers as far as changing of cadence. Most other factors, I would say, are kind of moving along similarly, although we did see some heightened level of medication delivery sales in the first quarter of this year. That was a bit anomalous, and we do expect that to lower as we approach the back portion of the year. So really that's the story on the sales line. As it relates to supply chain costs that we're experiencing, inflationary pressures that we're experiencing, over the last several years, from 2019 or 20 through to today, we're talking about half a billion dollars of incremental costs that we're experiencing. And really, it's things like increased labor costs, increased material costs, and freight costs, that is driving this substantial uptick. What's interesting is, despite that very significant number, we've been able to offset an enormous amount of that through manufacturing VIPs, as I described earlier, through operational mechanisms that Joe described earlier. So, Vijay, this is a really significant number that we're faced with. And, frankly, what I am somewhat optimistic and even excited about is as those pressures alleviate, you'll get to see the momentum with respect to all of the operational efficiencies and enhancements that we're undertaking.
spk04: As Joe and I mentioned, I don't think we're going to contend with some of these pressures. pressures for the rest of the year, but I am hopeful that we start to see some benefit as we move to next year. So thank you very much for the question.
spk11: That's extremely helpful, Jay. Thank you.
spk13: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.
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