Executive Summary / Key Takeaways

• Strategic Transformation Nears Completion: Baxter has fundamentally reshaped its business through significant divestitures (Kidney Care, BioPharma Solutions) and a verticalized operating model, creating a more focused and agile medtech company poised for profitable growth.
• Differentiated Technology Driving Growth: The Novum IQ infusion platform is a key technological differentiator, demonstrating strong market share gains and driving significant revenue growth in infusion systems, positioning Baxter for long-term pull-through revenue.
• Operational Resilience Amidst Headwinds: Despite challenges like Hurricane Helene's impact on IV solutions supply and the Novum IQ LVP voluntary pause, Baxter has demonstrated robust operational recovery and is actively mitigating dis-synergies from its portfolio transformation.
• Improved Financial Health and Outlook: Debt reduction is a top priority, with a target of 3x net debt-to-EBITDA by year-end 2025. While Q2 2025 results were at the low end of guidance due to temporary demand softness, management's updated full-year outlook reflects prudent assumptions and a commitment to margin expansion.
• Focused Capital Allocation and Innovation: With a streamlined portfolio, Baxter is shifting towards disciplined capital allocation, prioritizing organic and tuck-in inorganic growth, and a renewed emphasis on customer-inspired innovation to accelerate time to market for new solutions.

A Transformed Medtech Powerhouse Emerges

Baxter International Inc., incorporated in 1931, has long been a foundational provider of essential healthcare products. The company has recently undergone a profound strategic transformation, shedding non-core assets and streamlining its operations to emerge as a more focused and agile medtech leader. This strategic evolution, initiated in January 2023, culminated with the sale of its Kidney Care business (now Vantive Health LLC) on January 31, 2025, following the divestiture of its BioPharma Solutions (BPS) business in September 2023.

The core of this transformation lies in the implementation of a new verticalized operating model in the third quarter of 2023. This structure organizes Baxter into three distinct segments: Medical Products & Therapies (MPT), Healthcare Systems & Technologies (HST), and Pharmaceuticals. This realignment aims to enhance operational effectiveness, accelerate innovation, and drive increased stockholder value by bringing greater clarity and agility to global opportunities.

Technological Edge: Driving Innovation and Market Share

Baxter's ability to innovate and deliver differentiated technology is central to its competitive strategy. A prime example is the Novum IQ infusion platform, a cornerstone of the Medical Products & Therapies segment. This platform, including the large volume pump and syringe pump with IQ safety software, is recognized for advancing pump connectivity and intelligent infusion therapy. It offers tangible benefits over alternatives through its sophisticated digital capabilities and EMR integration, which enhance workflow efficiency and support personalized patient care.

The Novum IQ platform has already demonstrated significant commercial success, contributing to a remarkable 50% growth in infusion hardware in 2024. This strong uptake has translated into substantial market share gains, with Baxter expecting to capture 2% to 2.5% market share by the end of 2025, notably outpacing historical gains. The syringe pump, in particular, has seen its market share double, allowing Baxter to reclaim accounts previously lost due to lack of syringe availability. This technological leadership creates a powerful competitive moat, driving not only hardware revenue but also consistent pull-through revenue from consumables over the life of the pump.

Beyond infusion systems, Baxter is actively investing in research and development across its portfolio. Recent innovations include the launch of the Voalte Linq device powered by Scotty assistant in March 2025, a voice-activated technology aimed at streamlining communication for care teams. In April 2025, the company introduced the new room temperature Hemopatch Sealing Hemostat, optimizing accessibility and providing an immediate solution for surgeons. In the Pharmaceuticals segment, Baxter is committed to an aggressive cadence of new product launches, targeting 10 to 12 new complex molecules annually, which are expected to bolster growth and improve segment margins. These R&D initiatives and new product introductions are critical for sustaining Baxter's competitive position, enhancing its financial performance through higher-margin products, and driving long-term growth.

Strategic Realignment and Operational Resilience

The strategic transformation has not been without its operational challenges. In September 2024, Hurricane Helene severely impacted Baxter's critical North Cove manufacturing facility, a major source of IV and peritoneal dialysis fluids for the U.S. market. Despite the unprecedented devastation, Baxter demonstrated remarkable operational resilience. Through rapid recovery efforts, including activating nine global manufacturing sites and prioritizing repairs, the North Cove facility was fully operational by the end of the first quarter of 2025, producing at pre-hurricane levels. This swift recovery, which outpaced initial expectations, underscores Baxter's robust global manufacturing network and its ability to manage significant supply chain disruptions.

More recently, Baxter initiated voluntary corrections for the Novum IQ Large Volume Pump (LVP) in April and May 2025, leading to a Class I recall and a temporary pause in shipments and planned installations in July 2025. This decision, made in careful consideration of customer feedback and quality procedures, reflects Baxter's commitment to patient safety. While this pause is expected to impact Novum LVP sales in the near term, management views it as transient, emphasizing that a permanent fix is not required to resume shipments and that interim mitigations are actively being implemented. The company continues to offer its Spectrum infusion pump as an an alternative to customers during this period.

Competitive Landscape: A Refocused Battleground

Baxter operates in a competitive healthcare landscape, vying with diversified giants and specialized players. In renal care, prior to the divestiture, Baxter competed with Fresenius Medical Care AG & Co. KGaA (FMS). While FMS boasts an extensive global network of dialysis clinics providing integrated service ecosystems, Baxter's strength lay in its broad portfolio of peritoneal and hemodialysis products. Post-divestiture, Baxter's direct competition with FMS is primarily through its Manufacturing and Supply Agreement (MSA) with Vantive.

In infusion systems and hospital supplies, Baxter directly competes with companies like Becton, Dickinson and Company (BDX). While BDX may offer efficiency in certain high-volume devices, Baxter's Novum IQ platform differentiates itself through advanced connectivity and intelligent therapy, leading to competitive wins and market share gains. Baxter's broader portfolio in infusion and surgical devices offers greater versatility in hospital settings compared to BDX's more specialized focus.

Against diversified healthcare companies like Abbott Laboratories (ABT) and Medtronic plc (MDT), Baxter positions itself with its essential product portfolio and integrated solutions. While ABT excels in diagnostics and MDT in implantable devices, Baxter's strength lies in its comprehensive critical care offerings, including organ support therapies and surgical products. Its Advanced Surgery division, with its hemostat and sealant portfolio, continues to demonstrate solid demand and positive pricing globally.

Baxter's competitive advantages, or moats, include its strong brand recognition in medical devices, proprietary technologies in infusion and surgical systems, and a resilient global distribution network. These factors contribute to enhanced customer loyalty and efficient global reach. However, vulnerabilities exist, particularly in supply chain dependencies and the need for continuous technological advancement in rapidly evolving areas like digital health. The company is actively addressing these by optimizing its supply chain and accelerating R&D in connected care solutions, as evidenced by the Voalte Linq device.

Financial Performance: A New Chapter Unfolds

Baxter's financial performance in the second quarter of 2025 reflects a company in transition, managing both the benefits of its strategic transformation and the impact of recent operational headwinds. For the three months ended June 30, 2025, total net sales from continuing operations were $2.81 billion, representing a 4% reported growth and 1% operational growth compared to the prior year. For the first six months of 2025, total net sales were $5.435 billion, up 5% reported and 3% operationally.

Profitability metrics show the impact of this transition. The adjusted gross margin from continuing operations was 35.3% in Q2 2025 and 34.1% for H1 2025. Excluding special items, the gross margin ratio decreased by 1.70 percentage points in Q2 2025, primarily due to the Kidney Care MSA's impact and unfavorable manufacturing variances. Adjusted SG&A expenses as a percentage of sales decreased to 25.6% in Q2 2025 and 26.1% for H1 2025, reflecting benefits from functional cost reclassification and disciplined expense management. Adjusted R&D spending remained consistent at 4.8% of sales in Q2 2025, reflecting continued targeted investments in new product development.

Adjusted operating income from continuing operations was $191 million in Q2 2025, resulting in an adjusted operating margin of 15.1%. For H1 2025, adjusted operating income was $249 million. This performance reflects the lower gross margin, offset by operational execution and the benefit of Transition Services Agreement (TSA) income from Vantive, which totaled $52 million in Q2 2025 and $92 million in H1 2025. Net interest expense decreased significantly due to debt repayments, totaling $58 million in Q2 2025 and $122 million in H1 2025.

Net income attributable to Baxter stockholders was $91 million in Q2 2025, or $0.18 per diluted share. For H1 2025, net income was $217 million, or $0.42 per diluted share. These figures include special items that adversely impacted earnings, such as business optimization charges ($17 million in Q2 2025, $62 million in H1 2025) related to cost structure reduction post-Kidney Care sale, and Hurricane Helene costs ($17 million in Q2 2025, $115 million in H1 2025).

Liquidity remains a focus. Baxter repaid $3.81 billion of short- and long-term debt in H1 2025, primarily using the $3.30 billion net after-tax proceeds from the Kidney Care sale. The company aims to achieve a target leverage ratio of approximately 3x net debt-to-EBITDA by the end of 2025. While year-to-date free cash flow was negative $144 million, Q2 2025 saw positive free cash flow of $77 million, and management is intensely focused on improving cash flow generation in the second half of the year, particularly through inventory management.

Outlook and Risks: Charting the Path Forward

Baxter's updated full-year 2025 guidance for continuing operations reflects a prudent approach to anticipated headwinds. The company now expects total sales growth of 6% to 7% on a reported basis, translating to 3% to 4% operational sales growth (reduced from a prior 4%-5% outlook). Adjusted earnings per share are projected to be $2.42 to $2.52 per diluted share (adjusted from a prior $2.47-$2.55). The adjusted operating margin is anticipated to be between 15% and 16%.

This revised outlook incorporates several key assumptions. The low end of the guidance assumes no resumption of Novum LVP shipments prior to year-end and that IV fluid conservation levels remain similar to the first half of 2025 (around -20%). While management believes these are temporary issues, the guidance builds in potential downside risk. The net impact from tariffs is now estimated at approximately $40 million for 2025, a reduction from prior estimates, though potential pharmaceutical tariffs are not included. Anticipated MSA revenues from Vantive are approximately $320 million, and TSA income is expected to range from $170 million to $180 million.

Key risks to monitor include the duration and impact of the Novum IQ LVP voluntary pause, the pace at which hospitals reduce IV fluid conservation practices, and broader macroeconomic uncertainties, including inflationary pressures and geopolitical events that could affect supply chains and demand. Regulatory compliance, particularly concerning the Novum LVP recall and ongoing FDA scrutiny of facilities, also presents a risk. Baxter is actively pursuing cost savings initiatives to mitigate dis-synergies from the Kidney Care sale, with a goal to fully offset stranded costs and lost TSA income by the end of 2027.

Conclusion

Baxter International is undergoing a profound transformation, shedding complexity to emerge as a more focused and agile medtech leader. The strategic divestitures and the new verticalized operating model are foundational to its future, enabling a renewed emphasis on innovation and profitable growth. Despite recent operational headwinds, including the Hurricane Helene recovery and the Novum IQ LVP pause, the company has demonstrated resilience and a commitment to patient safety and operational excellence.

The strength of its differentiated technology, particularly the Novum IQ platform, positions Baxter to capture market share and drive long-term revenue. While the near-term outlook reflects a cautious stance on certain market dynamics, management's clear strategic roadmap, aggressive debt reduction targets, and focus on cost optimization provide a compelling investment thesis. The appointment of a new CEO signals a fresh perspective to build on this established foundation, aiming for sustained margin expansion and accelerated growth in its essential healthcare markets. Investors should watch for continued progress on cost mitigation, the resolution of the Novum LVP pause, and the realization of growth from new product launches as key indicators of Baxter's successful strategic rebirth.