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 DEERFIELD, Ill., Sept. 7 /PRNewswire/ -- Baxter International (NYSE: BAX) announced today that it is undertaking a series of actions to enhance its leadership position in health care worldwide and to address the sweeping economic changes anticipated in the U.S. health- care system.
 "Baxter enjoys leadership positions in nearly all of its core businesses," said Vernon R. Loucks Jr., chairman and chief executive officer. "Our long-term strategy is clear. We will provide the best mix of products and services to help our customers reduce their total costs, we will emphasize innovative technology and research, and we will expand our international presence."
 The effects of managed-care initiatives and the anticipation of health-care reform already have caused revenue growth to slow in the health-care products and supplies industry. With adjusted patient days continuing to decline, the S&P Medical Products and Supplies Index has shown a decline in revenue growth. Sales for all the companies in that index increased 11.6 percent from 1991 to 1992, but growth slowed to 5.4 percent in the first quarter of 1993 and slowed further to 3.6 percent in the second quarter. "Baxter did show revenue growth
of 6.5 percent for the second quarter of 1993," Loucks said. "But in taking actions to increase our market share, our mix of lower-margin distributed products has been higher than expected. This, along with continued pricing pressure, has put added pressure on our gross margins."
 Baxter said that, considering current market conditions, it expects good relative sales growth in the third quarter, which ends Sept. 30. However, neither the increase in sales nor the improvement in gross margins has been as strong as expected. Therefore, operating income and earnings per share for the third quarter are expected to be below the year-earlier period.
 "Leaders must react quickly to impending market changes, and the changes in health care will be profound, whether federally mandated, state initiated, market driven, or most likely all of the above," Loucks said. "We emphatically support the need for improved access to affordable, high-quality health care in the United States, in spite of any short-term pressure it may impose on our markets. Our job is not to resist changes within the health-care delivery system, but to position Baxter to extend its market leadership in a more competitive environment."
 Baxter said it would take several steps to address changing market conditions and customer needs:
 -- The company will accelerate its program to reshape its U.S. sales-and-service force to meet changing customer requirements and the unique needs of a more regionally integrated health-care delivery system. The objective is to expand the company's teamwork approach to all of its hospital customers. Baxter currently has about 640 teamwork accounts, where sales and service people from all of its divisions work together to address a hospital's unique requirements instead of calling on the customer as separate divisions representing individual product lines. "Customer satisfaction in these teamwork accounts has increased significantly," Loucks said, "and sales have grown at twice the rate of our average account." By year-end 1993, the entire domestic sales organization will have been trained for this team-oriented approach.
 -- Baxter will continue to invest in its powerful distribution, systems and logistics capabilities while focusing on ways to lower its total distribution costs. The company will continue to execute a plan under which it expects to reduce the number of distribution centers it operates in the United States, in part by investing in large, state-of- the-art new centers in carefully selected areas. Baxter also will continue to invest in cost-saving logistics and consulting services, which saved U.S. hospitals an estimated $190 million last year.
 -- While the company has been successful at containing sales, general and administrative expenses to a ratio of less than 22 percent of total sales, Baxter will accelerate programs to reduce this level of expenses further. "Our employees have done an exceedingly good job at improving productivity," Loucks said. "Between 1988 and 1992, operating income per Baxter employee increased 70 percent, while sales per employee rose 34 percent. Those are impressive improvements, but the changes in our market will require all competitors in the industry to initiate actions to increase productivity further. We intend to continue to be a leader in driving down costs."
 -- The company will reassess its technology and R&D productivity, with the goal of reallocating investments to areas that hold the greatest promise to produce new products, while reducing health-care system economics and enhancing clinical care. The company also will seek additional ways to finance important R&D initiatives through strategic alliances or selected public offerings. "Our research-and development programs are among the most productive in corporate America," Loucks said. "Products that we have developed and introduced in the last five years constitute 34 percent of total sales of products we manufacture. We are reaffirming our commitment to research and technology and redoubling our efforts to prioritize behind those projects offering the greatest long-term potential."
 -- Baxter will accelerate the review of its current business portfolio, with the goals of finding partners for selected businesses, identifying opportunities to make acquisitions during a period of expected consolidation of suppliers in the industry, evaluating public offerings for certain operations, and continuing to divest non-strategic businesses.
 -- Baxter will continue to accelerate its investments and partnerships outside the United States. Baxter's sales in Europe already exceed $1 billion annually. Sales in the Pacific Rim grew 23 percent in 1992 and sales in China increased 25 percent. The company opened its first Russian manufacturing facility near Moscow earlier this year, sales offices are being established in a number of Eastern European countries, and the company has broken ground for new dialysis plants in Singapore and China. In Latin America, Baxter's sales have continued to show double-digit growth, and sales in Japan, Baxter's largest international subsidiary, continue to grow, and are expected to exceed a half-billion dollars in 1993.
 The company is taking these actions to address the anticipated impact of health-care reform. Baxter said it expects these actions would allow it to sustain growth in earnings per share from continuing operations at a rate roughly equal to the rate of the company's sales growth. This projection excludes the future impact of special items such as significant foreign-currency fluctuations or non-recurring items. The company also expects that its sales, general and administrative expenses will be reduced significantly as a percentage of sales, and that it will increase its investments in international expansion and focused research and development.
 The company said it also will take several immediate actions to reduce expense levels for the remainder of the year. These actions include hiring freezes for salaried employees in U.S. and Puerto Rico operations, although transfers and promotions within the company will continue; restraining spending on discretionary travel and outside consulting services; and reducing the salaries of the company's senior executives. "Our outlook for 1993 is not what we would like it to be," Loucks said. "As a result of this immediate need and in reflection of our commitment to Baxter's long-term leadership in health care, the senior managers of this company, including myself, will take reductions in salary of as much as 25 percent, effective immediately."
 In addition, the company announced that it will incur a $13 million charge to operating expenses in the third quarter to restructure its diagnostics subsidiary. The subsidiary is consolidating eight divisions into one, combining sales staffs and streamlining administrative functions. The restructuring may involve the elimination of approximately 350 positions out of a total of about 7,000 positions in that business worldwide. The unit's product and service offerings will not change.
 Loucks said he intends to devote more time directly to the operating management of Baxter in the face of impending health-care reform. Loucks and James R. Tobin, president and chief operating officer, have agreed to split operating responsibility for the corporation. Loucks will assume responsibility for the domestic hospital business. Reporting to him will be Lester B. Knight, executive vice president for Baxter's Hospital Business. Tobin, who will continue to report to Loucks, will increase his focus on operating and financial goals to enhance shareholder value. He also will continue to oversee the company's significant expansion in international markets. Tony White, executive vice president for Baxter's Global Businesses, will continue to report to Tobin.
 "The long-term and immediate actions announced today are intended to enhance shareholder value, improve our ability to meet customer needs, and continue to help improve the cost and quality of health care," Loucks said.
 Separately, Loucks said Baxter Healthcare Corp., a company subsidiary, and other companies are moving closer to a global settlement of litigation involving breast implants. While Baxter Healthcare Corp. never manufactured or sold breast implants, it assumed liability for those products when, in 1986, it merged with American Hospital Supply Corp., which from 1974 to 1984 owned a division that manufactured implants. The comprehensive settlement, if approved, could have a material adverse effect on Baxter International's net income in the period in which it is recorded, but is not expected to have a material effect on the company's overall financial condition.
 Through its subsidiaries, Baxter is the leading manufacturer and marketer of health-care products, systems and services worldwide. The company reported 1992 sales of approximately $8.5 billion.
 -0- 9/7/93
 /CONTACT: Geoffrey D. Fenton, 708-948-3436, Baxter International/

CO: Baxter International ST: Illinois IN: HEA SU:

LD -- NY072 -- 9539 09/07/93 18:01 EDT
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Publication:PR Newswire
Date:Sep 7, 1993

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