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    BAX
    Earnings call· Jun 2026(Q2 FY26)

    BAXTER INTERNATIONAL Q2 FY26 earnings call BAX

    Jul 30, 2026 Source

    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

    11
    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

    7
    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———

    Operational metrics

    9
    Adjusted Gross Margins
    38.6%decreased 210 basis points
    Q2 FY26

    Driven by previously discussed headwinds and cost of goods sold, partially offset by the tariff refund benefit.

    Adjusted SG&A
    $648 milliondecrease of 80 basis points
    Q2 FY26

    Reflects benefits from previously implemented cost actions.

    Adjusted R&D Spending
    $125 million
    Q2 FY26
    Adjusted Operating Margin
    14.2%decrease of 90 basis points
    Q2 FY26

    Reflects higher manufacturing costs and unfavorable prior year comparison, partially offset by tariff refund benefit.

    Net Interest Expense and Other Expense
    $59 million
    Q2 FY26
    Adjusted Tax Rate
    19.9%
    Q2 FY26

    Driven primarily by the mix of earnings across jurisdictions.

    Continuous Improvement Events (Baxter GPS)
    over 400
    YTD

    Baxter GPS has taken hold in the company culture, supporting working capital, commercial, manufacturing and R&D priorities.

    Diluted Share Count
    approximately 518 million
    FY26

    Expected average for the full year.

    Tariff Refund
    $75 million
    Q2 FY26

    Not contemplated in original guidance, related to an IEEPA tariff.

    Industry KPIs

    5
    MetricValueDetails
    Tariff impact$75 millionUSD
    New product launch rampDynamo
    Procedure volume growth—
    FCF conversion leverage guidanceapproximately 3xx
    Segment franchise organic growth5%%

    Product announcements

    3
    ProductTypeDetails
    Peer Viewlaunch
    BEST APX Acute Carelaunch
    Dynamoexpansion

    Risks & headwinds

    6
    Novum IQ LVP field actions and shipment/installation holdongoing

    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 productsongoing

    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-throughH1 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 EPSQ2 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 tariffsongoing

    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 pricesongoing

    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

    5

    Novum IQ LVP verification testing progress

    next quarter
    CurrentEarly stages of verification testing
    TargetFurther 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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.