Struggling Baxter sets job cuts of up to 4,000

Health-care giant hopes profits grow out of restructuring

April 23, 2004|By Bruce Japsen | Bruce Japsen,CHICAGO TRIBUNE

CHICAGO - Baxter International Inc. disclosed plans yesterday to eliminate up to 4,000 jobs - nearly 8 percent of the company's work force - as the next phase of an extensive restructuring that the struggling global health-care company hopes will strengthen its profit margins.

The Deerfield, Ill.-based maker of medical products announced the latest retrenchment nine months after it began cutting 3,000 jobs.

Half of the 4,000 additional job cuts will be borne by U.S. workers.

Baxter is cutting back in a turbulent period marked by investor dismay over a series of quarterly earnings disappointments.

Those miscues punished Baxter's share price, damaged its credibility with Wall Street and led to the downfall of its chief executive, Harry Kraemer.

Kraemer, 49, who said in January that he would step down, will be replaced Monday by Robert Parkinson Jr., 53, dean of Loyola University's business school and a former No. 2 executive at the region's other health-care giant, Abbott Laboratories.

Analysts are unclear what the future holds for the 73-year-old maker of blood-disease medicines, medication delivery devices and kidney treatments. Some indicated that more cuts could be in the offing when the new leadership becomes established.

"Reviving Baxter is likely to require further financial surgery," analyst David Lothson of UBS in New York said in a report yesterday.

In the last year of Kraemer's tenure, pricing pressures hurting its lucrative plasma business repeatedly prevented Baxter from getting a handle on its financial results.

The division had been hampered by a decline in industry prices of at least 20 percent for some blood therapies, analysts said.

Yesterday, Baxter said the market for plasma products has stabilized, but it emphasized that the company is looking to improve profits and cash flow by reducing plasma production. Baxter plans to cut that by 400,000 liters, or 13 percent annually, and close an unspecified number of plasma collection centers.

Other problems remain. Currency issues are squeezing margins because the weak U.S. dollar is hurting the company's offshore manufacturing sites. And demand for Baxter's smallpox vaccine and certain other products is declining.

"It is broader than just plasma," said Brian Anderson, Baxter's senior vice president and chief financial officer. "What we are really trying to do is leverage the infrastructure across the entire company."

Yesterday, Baxter said first-quarter profit was down 18 percent, to $178 million, or 29 cents a share, from $216 million, or 35 cents a share, a year earlier. Sales rose 11 percent, to $2.21 billion, largely because of a weaker dollar against other currencies.

Baxter said it would take a charge in the second quarter of $350 million to $400 million, or 55 cents to 65 cents a share, related to the job cuts.

The changes will add about 5 cents a share to earnings in the second half of this year, as much as 25 cents next year and 35 cents in 2006, the company said.

The company wants to spare its research and development budget, which it counts on for future products.

"There have been no major R&D programs that have been eliminated," Anderson said.

But Baxter isn't spending more on research, which is critical for any maker of drugs and medical products. The company will spend more than $500 million on R&D this year, about the same as it spent last year, Anderson said.

The Chicago Tribune is a Tribune Publishing newspaper.

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