2nd UPDATE: Baxter Posts 1Q Profit, Raises Full-Year Outlook

Baxter International Inc. (BAX) swung to a first-quarter profit, following a charge-addled period last year, while posting better-than-expected sales helped by "robust demand" for a plasma-based drug for treating immune system disorders.

That drug, known as Gammagard, is a closely watched product in a market that showed unexpected softness early last year. But Baxter cited recent strength there as a driver behind sales growth in its bioscience business--which has been helped by a competitor's recall--and it topped company and Wall Street forecasts for the quarter.

The Deerfield, Ill., medical-products company also boosted its sales and earnings expectations for the full year. Shares traded up 1.1% to $55.10 early Thursday.

Leerink Swann analyst Rick Wise said the first-quarter performance "leaves us even more encouraged that BAX is successfully moving past last year's" issues in the plasma market.

Baxter is also coming off a challenging year due to economic weakness, costs pegged to the U.S. health-care overhaul and some product-quality and regulatory challenges. "We continue to implement measures to improve our commercial, operational, and scientific effectiveness in response to an evolving and challenging environment," Chairman and Chief Executive Robert L. Parkinson Jr., said in a release.

The company reported a first-quarter profit of $570 million, or 98 cents a share, from a prior-year loss of $63 million, or 11 cents a share. The year-earlier results were stung by charges, including a $588 million charge pegged to a recall of "Colleague" infusion pumps. Excluding these impacts, Baxter said earnings rose to 98 cents from 93 cents.

The company in January projected first-quarter earnings of 92 cents to 94 cents, below analysts' estimates at the time.

Revenue increased 12% to $3.28 billion. Excluding a sales adjustment linked to the Colleague pump issue, revenue was up 5%. Analysts recently expected $3.17 billion.

Sales in Baxter's bioscience unit, which includes plasma-based medical products such as drugs for treating hemophilia and immune disorders, grew 3% and were up 4% excluding currency fluctuations, as sales increased 12% in the U.S. The company has benefited from a recall at Octapharma AG, for a product that competes with Gammagard, and Baxter officials said on a conference call Thursday they are assuming a mid-year relaunch for Octapharma.

William Blair analyst Ben Andrew said Baxter looks like one of the "largest winners" following that recall, but added "we remain cautious in the near term as the return of its competitor into the market over the next two quarters makes us question whether the company will be able to sustain this growth rate."

The company's other big unit, medical products, posted a 20% sales gain due to the Colleague hit last year. Excluding that issue and the impact of foreign currency rates, sales rose 5%. Though Baxter had planned to divest its U.S. generic injectables business through a sale to Hikma Pharmaceuticals PLC (HIK.LN) in the first quarter, the sale didn't happen as soon as expected, giving Baxter an unexpected extra $40 million in first-quarter sales.

"We now expect to close the transaction within the next few weeks," Parkinson said on the call. The company said there was little earnings contribution from the delayed sale because this is a low-margin business.

Baxter raised its 2011 per-share earnings forecast to $4.20 to $4.28 on revenue growth of 3% to 4% from its January estimate of $4.15 to $4.25 on sales growth of 2% to 3%, excluding currency impacts.

For the current quarter, the company expects per-share earnings of $1.01 to $1.03 on revenue growth of 4% to 5%, excluding currency.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

-Tess Stynes contributed to this article.

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