Unidentified Analyst:
Great. Thank you.:
Operator: Vijay Kumar of Evercore ISI is on the line with a question. Please state your question.
Vijay Kumar: Hey, guys. Thanks for taking my question. Joe, maybe my first one for you. High level when I just look at the business ex Kidney Care. 3% to 4%, that’s a reasonable number, but it’s still below MedTech, right? When I look at the utilization environment, what some of your peers are talking about? Like why is Baxter 3% to 4%? Are there any one-offs in that 3% to 4% ex-Kidney Care? When I look at the legacy Hillrom business, Q4 was really strong. Why should that business slowdown of capital order book is turning around in fiscal ‘24?
Jose Almeida: Vijay, let me give you a perspective on 3% to 4% for this business. It’s still growing above its market growth rate because we expect to be on the high end of that guidance. What breaks that business go 100 basis points above that? We have, first of all, this business has pharmaceutical in it. We still have price erosion there, but pharmaceutical is going to be punching 4% to 5%. Our NPT is going to be between 3% and 4% and probably with the opportunity to go above that. Now becomes HST. What is happening in HST? We have significant amount of launches going in, the end of ‘24 and ‘25. We have new monitors. We have new cardiology device and we continue to be successful on Progressa+. So a lot of that has to do with our – to get to the 4% to 5%, it has to be new product launches in 2025.
Not for pharmaceutical because then you can see already is making a difference to their growth rate – is now for MPT, which is – continues to do extremely well in infusion systems. We’re going to have more than 40% growth between ‘24 and ‘23 in our infusion pumps. It’s going to be new products in HST primarily in Front Line Care and CCS with care communications, new versions of Voalte. There is the two new – three new versions will be launched this year as well as our new wireless communication device that we plan to launch in 2025. So monitors, wireless communication and cardiology, that is what’s going to drive that business to go above 4%. And if we execute well, you will do it.
Joel Grade: I would also say too, if you think about the as we separate the Kidney business and we talk about later on in this year, having an Investor event. What you’re going to hear us talk about is how we think about capital allocation. How we think about the opportunity for, again, the portfolio ultimately to – because think about – we have a lot of products with very high market share businesses. And so the opportunity to accelerate that growth is something we’re going to talk about later on. But again, that’s part of the benefit of the kidney. Separation is the ability to actually really focus our capital allocation on accelerating the growth to the levels you’re thinking about there.
Vijay Kumar: Understood. And then maybe one on the guidance question. What is – is inflation still a headwind to margins? What is price versus inflation and interest expense Q4? You didn’t note the sequential step down in debt payments. Is that a sustainable number? Thank you.
Clare Trachtman: So you want me to –, I’ll start with interest. What I would say, Vijay, on interest is that in the first half of the year, it’s probably, I’d say, first quarter, probably similar. It steps up likely a little bit in the second quarter, and then we’ll step up in the second half of the year. We are planning to pay down some low coupon debt in the second quarter. And so right now, we’re earning some cash – or earning interest income on the cash that we have. And so that will go away in the second half of the year. So that’s why you’ll see a bit of a higher interest expense in the second half of the year as compared to the first half.
Joel Grade: Yes. And on the debt paydown, I mean, again, we – of the $3.7 billion of proceeds after tax we got from the sale of EPS, we actually used $2.8 million of that to pay down debt in the fourth quarter. Again, we have some debt coming due that’s maturing in 2024 that will use some of the rest of that for, particularly the Euro bond as Clare talked about. And then obviously, we have some debt during later in the year that we’ll actually address at that point in time.
Clare Trachtman: And then to your other question, kind of just on overall the inflationary environment and pricing. What I would say, and we referenced this earlier, is that our integrated supply chain team is executing on their margin improvement program. And so those programs and the savings we will generate this year will positively contribute to our margin expansion. So they will more than offset any sort of normalized inflation that we have. In addition, we are getting pricing will be a benefit this year as well. So we are getting pricing, particularly in markets outside the US as well, so we are going after all of those all of those – our businesses are targeting price in all of those markets as well. Still pricing will be positive for the year as well.
In terms of kind of all of those pieces, what I would say on the non-op side is that you have a positive on interest, but you will see that our tax rate is increasing. We did comment on that because of the implementation of Pillar Two. FX – so we have some FX. I talked about it being kind of negative on the operating margin. So all in, our non-op is probably a couple of cents negative impact for us on the year.
Vijay Kumar:
Thank you, guys.:
Operator: Pito Chickering of Deutsche Bank Securities is on the line with a question. Please state your question.
Pito Chickering: Hey good morning guys. Joel, like you’ve been in that seat for very long, but I just think a fresh set of eyes on the operations of Baxter. Can you walk us where you think the most margin upside is over the next several years? And what you need to do to take those cost reductions in the areas that you want to hit like procurement or any other sort of low hanging fruit?
Joel Grade: Sure. Absolutely. Thanks for asking the question. Yes, I think one of the biggest opportunities we have from a margin perspective is to continue the work that we’re doing in our independent supply chain group. I think the team has got a lot of really good margin improvement programs going that are designed specifically around things like automation. They’re designed around things like how do we enhance our procurement abilities. They’re around – continuing around things about how do we optimize our network and some of the logistics opportunities. I think some of the areas that are the most impactful over time sit in that space, again, and that’s – as the team has gotten off to, again, a really good start on that.
You’ve heard Clare talk about the fact that as we continue to see some inflationary pressures coming out, I think the work that they’ve done has gotten us to a place where we have the ability to offset that. But to continue the expansion of the margins, to your point, fall into some of those categories that I just referred to. I think the other piece of some of you heard me say this already. We’re not going to SG&A ourselves to prosperity. But nonetheless, there are still opportunities in that space as well around things like again, how do we think about a shared services environment that actually allows for consistent execution of operations across the business. And I know this is not a margin question, but the other part of what we’re going to focus on heavily is our – is cash that we will continue to – how do we drive an improved use of working capital.
How do we improve our cash conversion ratio again? I know that’s not specifically what you asked. But again, that’s going to be a – some in area I see the opportunity. And what that all leads to is then the opportunity for us to continue to reinvest some of that back into our business around innovation, around new product development. And back to the question that was asked earlier, how do we continue to accelerate growth. That’s what I call a flywheel that allows us to continue to grow, continue to invest and continue to grow, etcetera, etcetera, which is where we want to get to the company.
Pito Chickering: Great. And then for a follow-up, you opened Pandora’s box, a little bit here by providing segment level margins for 4Q in 2023. Now we’re going to be looking possibly to rebuild their models. Can you break out sort of the margins in each division for what you’re seeing for 2024? And then a quick pump question here, how is market share for pumps and 4Q as you compete against next-gen pumps and any update on Novum?
Jose Almeida: Let me start with the pumps and then Clare is going to answer the first part of your question. Yesterday, we just got awarded best-in-class KLA for our Sigma Spectrum pump, which is a great honour. That pump continues to do a great job nonetheless, we’re looking forward to get Novum approved. But in terms of market share, we continue to advance our market share. This year, we have 40%-plus growth in our pumps versus last year. That’s our forecast. So we continue to do well, and we look forward to continue to gain market share and now with a nice award to our pump is the seventh award that, that pump received since it was launched. So, back to Clare now to answer the first part of your question.
Clare Trachtman: Yes. Pito, in terms of the 2024 operating margin guidance, we aren’t going to give that by segment. But obviously, all of our actions are aligned to improve both the segment and total Baxter margins. The one caveat I would point out is that within our Pharmaceuticals business. As you’re aware, we did divest our BioPharma Solutions business last year. And so as a result, we entered into some MSAs, which will have a negative impact on the pharmaceutical margins and obviously on total Baxter margins for the year as we’ve now entered into the MSA. So you will see that impact in the pharmaceuticals margins.
Pito Chickering: Great. Thanks so much.
Operator: Lei of Wells Fargo is on the line with a question. Please state your question.
Unidentified Analyst: Hi. It’s Lei calling in for Larry. Thanks for taking my question. I just want to make sure I didn’t miss it. Did you comment on the status of Novum IQ, the resubmission, and your thoughts on potential approval in ‘24? And I have a follow-up.
