Inve US ▾
BABAX

Baxter International (BAX) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Health Care· Jul 30, 2026

Source: earnings call transcript

Executive summary

Baxter International Q2 FY26 — Strong Organic Growth and Tariff Refund Boost Earnings

Baxter delivered strong Q2 FY26 results, driven by broad-based organic growth and a significant tariff refund, exceeding expectations. The company is making steady progress on its turnaround strategy, focusing on business stabilization, balance sheet strengthening, and continuous improvement through Baxter GPS, while actively managing supply chain challenges and the Novum IQ LVP hold. Management expressed confidence in achieving full-year targets and reducing net leverage.

Highlights

5

  • Organic revenue grew 5% in Q2, with broad-based operating performance across all segments and divisions.

  • Adjusted EPS was $0.56, exceeding expectations, including a $0.11 per diluted share benefit from a tariff refund.

  • Positive free cash flow generation of $181 million in Q2, bringing year-to-date total to $257 million.

  • Advanced Surgery segment revenue grew 12% due to strong demand for hemostats and sealants.

  • Drug compounding services achieved double-digit growth.

Concerns

4

  • Adjusted EPS decreased 5% year-over-year, reflecting the roll-through of higher cost inventory and an unfavorable prior-year comparison.

  • Infusion Systems sales were negatively impacted by the ongoing shipment and installation hold of Novum IQ LVP, customer returns, and transitions.

  • Injectable sales were lower due to supply constraints and continued softness in certain premixed products, particularly from a contract manufacturer.

  • Higher cost inventory produced at the end of 2025 created a headwind in the first half of the year.

Guidance & targets

CategoryTargetConfidence
Full-year 2026 Total Sales Growth
3% to 4%
high materiality
High
Full-year 2026 Organic Sales Growth
2% to 3%
high materiality
High
Full-year 2026 Adjusted EPS
$1.95 to $2.15 per share
high materiality
High
Full-year 2026 MPT Organic Sales Growth
low single digits
medium materiality
High
Full-year 2026 HST Organic Sales Growth
low single digits
medium materiality
High
Full-year 2026 Tariff Impact
approximately $40 million
medium materiality
High
Full-year 2026 TSA Income and Other Reimbursements
$155 million to $165 million
low materiality
High
Full-year 2026 Adjusted Operating Margin
13% to 14%
high materiality
High
Full-year 2026 Nonoperating Expenses
$260 million to $280 million
medium materiality
High
Full-year 2026 Adjusted Tax Rate
18.5% and 19.5%
medium materiality
High
Net Leverage Target
approximately 3x
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Medical Products & Therapy (MPT)
Growth driven by drug compounding and IV Solutions, partially offset by lower sales in infusion systems and injectables. Adjusted operating margin decreased 350 basis points, reflecting higher manufacturing costs, lower absorption, Section 122 tariffs, and unfavorable prior-year cost timing, partially offset by IEEPA tariff refund and increased sales volumes.
Infusion Therapies and Platforms (ITP) sales: $1.7 billionITP growth: 4%Advanced Surgery sales: $331 millionAdvanced Surgery growth: 12%
$2.1 billion5%—19.3%
Infusion Therapies and Platforms (ITP)
Growth was driven by drug compounding and IV Solutions. This growth was partially offset by lower sales within infusion systems and injectables. Demand for Spectrum IQ remains steady.
Drug compounding growth: double digitsIV Solutions performance reflects growth of new lower baselineInfusion Systems sales lower due to Novum IQ LVP hold, customer returns, transitions to Spectrum
$1.7 billion4%——
Advanced Surgery
Results reflect continued strong demand and increased volumes from the global portfolio of hemostats and sealants, strong commercial execution across regions, and steady procedure volumes.
$331 million12%——
Healthcare Systems & Technologies (HST)
Adjusted operating margin was flat compared to the prior year period, benefiting from the tariff refund and increased sales volumes, offset by unfavorable prior-year cost timing.
Care and Connectivity Solutions (CCS) sales: $502 millionCCS growth: 5%Frontline Care sales: $299 millionFrontline Care growth: 2%
$801 million4%—20.3%
Care and Connectivity Solutions (CCS)
Performance was driven by strong patient support systems volumes globally, including execution against the U.S. backlog and growth across international markets. Hospital capital spending has not shown changes.
$502 million5%——
Frontline Care
Performance reflects continued momentum from Connect 360 and the timing of large customer deals, partially offset by planned global product exits.
$299 million2%——
Other (Vantive MSA revenue)
These sales are included in reported growth but are not reflected in organic growth.
$83 million———

Product announcements

ProductTypeDetails
Peer Viewlaunch
BEST APX Acute Carelaunch
Dynamoexpansion

Risks & headwinds

Novum IQ LVP field actions and shipment/installation hold ongoing

Lower sales within infusion systems and injectables

Mitigation:Identified corrections, early stages of verification testing, working with regulatory authorities, supporting current customers with mitigations, continuing to serve market with broader pump portfolio.

Supply constraints for injectables and premixed products ongoing

Lower injectable sales

Mitigation:Taking specific actions to improve supply conditions for select products, working closely with contract manufacturer to improve operational efficiency and quality. Built into full-year guidance.

Higher cost inventory roll-through H1 FY26

Adjusted EPS decreased 5% YoY; 210 bps decrease in adjusted gross margins

Mitigation:Higher cost inventory produced at the end of 2025 has now rolled through the P&L, expected to improve sequentially in H2.

Unfavorable prior-year comparison for adjusted EPS Q2 FY26

Adjusted EPS decreased 5% YoY

Mitigation:Prior year benefited from a change in estimate reclassifying between SG&A and cost of sales; this is a mechanical headwind that has now been lapped.

Section 122 tariffs ongoing

Impacted MPT adjusted operating margin by 350 bps decrease; approximately $40 million impact (net of mitigating actions) expected in H2 FY26

Mitigation:Partially offset by IEEPA tariff refund in Q2. Mitigating actions are in place for H2.

Broader macroeconomic uncertainty and volatility in oil prices ongoing

Discussed, not quantified

Mitigation:Closely monitoring the environment; impact has been manageable and within guidance. Lesser impact on business after Vantive spin.

What to watch in Q3 FY26

Novum IQ LVP verification testing progress

next quarter
Current Early stages of verification testing
Target Further progress or resolution with regulatory authorities

Why it matters

Resolution of the Novum IQ LVP hold is critical for Infusion Systems sales recovery and market confidence.

With respect to Novum IQ LVP, we have identified corrections to address the field actions and are in the early stages of verification testing. We continue to work closely with the regulatory authorities and support our current Novum LVP customers, who continue to operate with the available mitigations while also continuing to serve the market with our broader pump portfolio.

Find out whether BAX delivers this. Inve re-checks your case every morning.

Q&A highlights

What drove the Q2 acceleration and confidence in the guidance raise? Given one-time items, how should we view H2 EPS and confidence in 2027 EPS growth?

Andrew Hider highlighted broad-based strength across segments, including double-digit growth in drug compounding and strong Advanced Surgery performance. He noted the $0.11 tariff refund was a one-time benefit. For 2027, he stated the path is through strong 2026 execution and more color will be provided later.

“As we look at '27, the path to '27 is through execution in '26 and especially the second half of 2016.”

asked by Robert Marcus · answered by Andrew Hider

2 min read 6 chapters

Detailed narrative

Turnaround Progress and Strategic Priorities

Baxter is making steady progress on its three strategic priorities: stabilizing the business, strengthening the balance sheet, and driving continuous improvement. The company reported broad-based operating performance and positive free cash flow generation, indicating positive momentum in its turnaround efforts. Management acknowledged that significant work remains but expressed increased confidence in achieving financial goals and long-term shareholder value creation.

Novum IQ LVP Update and Pump Portfolio

The company is actively working with regulatory authorities to address field actions related to Novum IQ LVP and is in the early stages of verification testing for identified corrections. Current Novum LVP customers continue to operate with available mitigations. Baxter emphasized the strength of its overall pump portfolio, including Novum syringe and Spectrum LVP on the IQX platform, and recently launched Peer View to enhance its digital offerings for infusion systems.

Baxter GPS Driving Continuous Improvement

The Baxter Growth and Performance System (GPS) is becoming deeply embedded in the company culture, with over 400 continuous improvement events completed year-to-date across various functions. An additional 200 events are in flight, and 400 more are planned. This initiative is supporting improvements in working capital, commercial execution, manufacturing efficiency, and R&D, with early examples of increased efficiency and simplification.

Innovation and New Product Momentum

Baxter is making focused investments in innovation, evidenced by several recent developments. The company launched Peer View, a digital benchmarking application for infusion data, enhancing the IQX platform. In Front Line Care, a limited market release of BEST APX Acute Care, an airway clearance device, received positive feedback, with a full market release planned for Q3. The Dynamo smart hospital stretcher continues to build momentum, with strong order growth and its first international expansion into Canada.

Supply Chain and Macroeconomic Environment

While supply chain challenges persist, particularly affecting certain injectable products due to constraints with a contract manufacturer, management stated these issues are manageable and factored into the full-year guidance. The company observed steady demand across its end markets, with no material impact from IV solution restocking and stable hospital capital spending. Baxter continues to closely monitor broader macroeconomic uncertainties and oil price volatility.

Organizational Realignment for Efficiency

To support stronger coordination, execution, and innovation, Baxter has consolidated its Pharmaceuticals and Infusion Therapies and Technologies businesses. This combined entity is now reported as Infusion Therapies and Platforms (ITP) within the Medical Products and Therapy segment. This realignment aims to leverage common customers, capabilities, and workflows in the pharmacy space.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.