Baxter Intnl. (LSE:BAX)
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Baxter International Inc. (BAX) posted a stronger-than-expected 7.9% rise in second-quarter profit with help from improved margins and product sales that continued to avoid any hits from the economic downturn.

The medical-products maker boosted its 2009 earnings guidance while saying the increase doesn't reflect at this point any contribution from making a vaccine for the H1N1 flu strain.

But Baxter does expect a modest sales boost this year linked to vaccine orders from a handful of countries. While other factors like production costs will offset that benefit for now, the company believes this will be a long-running issue and sees future financial benefits linked to vaccine demand.

"Clearly we believe this demand has the potential to translate into a significant opportunity," Robert L. Parkinson, Jr., Baxter's chairman and chief executive, said on a call with analysts.

Shares of the Deerfield, Ill., company moved higher Thursday and recently traded up 3.7% to $55.04, marking the highest point since February, when share prices in the entire medical-technology sector dropped amid worries about the impact of health-care reform.

Overall, Baxter appeared to remain relatively unscathed despite economic pressures that have hurt hospitals, caused cutbacks in elective surgery and weighed on sales of many medical products. The company's key products target serious conditions such kidney failure, hemophilia and immune system disorders that can't be ignored.

"To date, we've not experienced any meaningful macroeconomic impact on the underlying demand for our products," Parkinson said.

Baxter reported a second-quarter profit of $587 million, or 96 cents a share, up from $544 million, or 85 cents a share, a year earlier.

Earnings came in just above the range Baxter projected in April and 2 cents ahead of the average of analysts' forecasts tracked by Thomson Reuters. Improved margins helped, as did a lower share count due to a stock buyback program.

Gross margin rose to 52.4% from 51%.

Net sales slid 2.1% to $3.12 billion, but rose 8% excluding currency fluctuations, which exceeded the company's forecast. Sales were also better than Wall Street's forecast despite what JPMorgan analyst Michael Weinstein said was a much greater-than-expected currency hit.

International sales fell 8%, but rose 9% excluding currency impacts. U.S. sales rose 7%.

A big part of Baxter's business involves refining donated plasma, which is the liquid component of blood, to make products that treat problems such as immune-system disorders.

There have been worries that a recession-induced rise in plasma collections - people in the U.S. receive a small fee for donations - would cause a supply glut that would hurt the business. But that hasn't been an issue thus far, as evidenced by Baxter's move to lift full-year guidance for plasma products.

"For those concerned about the health of the plasma proteins market, we think there simply couldn't be a stronger statement than Baxter's decision to raise guidance today," analyst Weinstein said in a note to investors.

Baxter's Bioscience business, it's biggest, posted a 2% sales rise, or 13% minus foreign exchange, helped by strong results for antibody therapies and other specialty plasma therapeutics. The Bioscience gains came despite weak sales of a tick-borne encephalitis vaccine in Germany.

Sales in Baxter's medication-delivery business fell 3%, but rose 8% excluding currency impacts. Sales in the Renal business, which includes products for managing advanced kidney failure, fell 8%, but were up 4% excluding currency.

Elsewhere on the vaccine front, Baxter said it has orders from five countries for 80 million doses of vaccine for the H1N1 flu strain. It won't come close to meeting that demand this year and isn't taking other orders, Parkinson told analysts.

He said there will be demand for however much vaccine the company can produce.

Looking ahead, Baxter said it now expects sales to grow by 7% to 8% this year excluding currency, up from a prior 7% target. It raised its forecast for full-year earnings to $3.76 to $3.80 per share, up from April's $3.72 to $3.78 forecast. Analysts had targeted $3.77.

For the third quarter, Baxter forecast earnings of 95 cents to 97 cents on sales growth of 7% to 8%, excluding currency.

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

(Mike Barris contributed to this report.)