US HEALTHCARE: Baxter: 3Q25 Earnings
Oct-30 15:11
(BAX; Baa2 Neg/BBB Neg/NR)
#MNI #Healthcare
Baxter Cuts FY25 Guidance and Cuts Dividend. Committed to 3x Leverage by FYE2026. Slight Credit Negative
- 3Q25 sales were up 5% to $2.8bn with 2% organic growth with decent strength in the Pharma segment offset by continued weakness in Infusion Therapies. BAX saw lower infusion pump sales due to weakness in the US hospital market and ongoing hold of its Novum LP product. BAX expects this product hold to last beyond year-end which likely impacts guidance.
- 3Q25 adjusted operating margin was up 40bps y/y to 14.9% as SG&A and R&D expenses were lower y/y but slightly offset by a 430bps contraction in gross margins.
- For FY25, BAX reduced adjusted EPS guidance from $2.42-$2.52 to $2.35-$2.40 which compares to Bloomberg estimates of $2.44. Guidance was lowered on reduced sales growth for the year (1%-2% down from 3%-4%) and lower operating margins on reduced volumes.
- 3Q25 FCF was $126mm which brings YTD FCF to ~flat and BAX expects positive FCF generation in 4Q. To help achieve deleveraging targets, BAX reduced their dividend to $0.01/share which should reduce dividend payments by ~$300mm annually.
- BAX's CFO commented that the Company is still committed to reaching its 3x net leverage target but this has been delayed to the end of 2026. Moody's and S&P both have Negative Outlooks and Moody's noted that BAX leverage is ~5x at 2Q25 and they still expect BAX to reduce leverage to a Moody's gross adjusted level of mid/high-3x. S&P has a 3.75x downgrade threshold.
- Given the delay to de-leveraging, we think it's likely BAX falls to Baa3/BBB-; however, we do expect the Company to maintain IG ratings given the de-leveraging commitment and reduction in the dividend to support those efforts.
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US TSYS/SUPPLY: Treasury Ups Bill Sizes To New Records
Sep-30 15:11
Treasury's bill auction sizes for this week were unexpectedly upped: 4-week by $5B to a record $105B, 8-week also by $5B to a joint-record $90B, and 4-month by $2B to a record $67B. See chart below for size history.
- Instead of raising $5B in net cash if they had been unchanged, these will raise $17B on next Tuesday Oct 7's settlement.
- Most expectations we'd seen were for bill sizes to remain relatively steady until later in October so this is coming a little early.
- While it's not clear this was the reasoning, Treasury's TGA cash position had been seen as a little weaker than had been expected in September, and likely to fall short of the $850B targeted for today's end-quarter date (was $786B as of the last Treasury statement date on Sept 26).
SOFR OPTIONS: Dec'25 SOFR Call Buy, Strangle Sale Update
Sep-30 14:55
- +15,000 SFRZ5 96.75 calls, 1.75 ref 96.31
- -12,000 SFRX5 96.12/96.62 strangles, 1.75-2.0
BOE: Breeden due to speak on monetary policy at 16:30BST
Sep-30 14:48
- Deputy Governor Sarah Breeden rarely speaks on monetary policy but her speech scheduled for today at 16:30BST at Cardiff University is provisionally entitled “The Monetary Policy Outlook”.
- This will certainly be a key speech. She sounded slightly more dovish than Governor Bailey in our view following her testimony ahead of the TSC on 3 June but hasn’t really spoken on monetary policy since.
- Her tone is likely to be pivotal for markets, particularly if she strikes a dovish tone given current market pricing.
- We think that markets are underpricing the probability of a Q4 cut with less than 1bp priced for November and less than 5bp cumulatively priced for December.
- Note that yesterday, Deputy Governor Ramsden did not rule out voting for a cut in November but was generally considered the most dovish member to not dissent at the September MPC meeting. In order to reach the five members needed for a cut we would need the two September dissenters (Dhingra and Taylor) and then likely all of Ramsden, Breeden and Bailey. That leaves the four members who hawkishly dissented in August continuing to favour a skip.
