Baxter Intl Q3 2026 Earnings Call Transcript

Baxter Intl (NYSE:BAX) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Baxter International reported third-quarter global sales of approximately $3 billion, an increase of 5% on both reported and organic bases, driven by growth in Advanced Surgery, Drug Compounding, and Infusion Systems.

The company raised its full-year outlook for organic sales growth to 3%-4% and adjusted earnings per share to a range of $2.05-$2.15, reflecting strong performance and confidence in ongoing strategic initiatives.

Strategic priorities focus on stabilizing the business, strengthening the balance sheet, and embedding continuous improvement through Baxter GPS, with significant progress in reducing complexity and improving operational efficiency.

The decision to discontinue cephalosporin products at the Round Lake facility aims to simplify operations and address FDA warning letter concerns, with no expected market shortage.

Baxter International reported strong free cash flow of $448 million for the quarter and completed a successful tender offer, advancing toward a net leverage ratio of approximately 3x by year-end.

Management highlighted ongoing M&A interests with a disciplined approach, focusing on strategic fit, market assessment, and expected financial returns, while maintaining a focus on internal investment and shareholder value creation.

Full Transcript

OPERATOR

Good morning, ladies and gentlemen, and welcome to Baxter Intl’s third quarter 2026 earnings conference call. Your lines will remain in a listen-only mode until the question-and-answer segment of today’s call. At that time, if you have a question, you will need to press star 1 on your touch-tone phone. If anyone should require assistance during the conference, please press star then 0 on your touch-tone phone. As a reminder, this call is being recorded by Baxter Intl and is copyrighted material. It cannot be recorded or rebroadcast without Baxter Intl’s permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Mr. Kevin Moran, the Vice President, Investor Relations at Baxter Intl. Mr. Moran, you may begin.

Kevin Moran (Vice President, Investor Relations)

Good morning and welcome. Today we’ll discuss Baxter Intl’s third quarter results along with our updated financial outlook for the full year 2026. This morning a press release was issued with our preliminary earnings results and updated outlook. The press release and investor presentation are available on the Investors section of the Baxter Intl website. Joining me today are Andrew Hider, President and Chief Executive Officer, and John Rogers, Executive Vice President and Chief Financial Officer.

During the call we will be making forward-looking statements, including comments regarding our updated financial outlook for the full year 2026; the anticipated drivers of the fourth quarter; the anticipated impact of various regulatory, operational and quality matters, including ones related to our infusion pump platform and ongoing supply challenges; and commentary regarding the global macroeconomic environment, including tariff impacts and broader inflationary pressures.

Forward-looking statements involve risks and uncertainties which could cause our actual results to differ materially from our current expectations. Please refer to today’s press release, the forward-looking statement slide at the beginning of our investor presentation, and our SEC filings for more detail. In addition, please note on the call all of our comments will be on a non-GAAP basis unless they are specifically called out as GAAP. Non-GAAP financial measures are used to help investors understand Baxter Intl’s ongoing business performance. GAAP to non-GAAP reconciliations can be found in the schedules attached to our press release and our earnings presentation. On the call we will reference organic growth, which excludes the impact of foreign exchange, MSA revenues from Vantive, and impacts associated with business acquisitions or divestitures.

Unless otherwise noted, all financial results on today’s call reflect continuing operations and exclude Baxter Intl’s former kidney care business, which is reported as discontinued operations. Finally, Andrew, John and I will take questions following the prepared remarks, and we kindly ask that you limit yourself to one question and one brief follow-up so that we can give as many people in the queue an opportunity. With that, I’d like to turn the call over to Andrew.

Andrew Hider (President and Chief Executive Officer)

Thank you, Kevin, and good morning, everyone. Before discussing the quarter, I want to welcome John Rogers to Baxter Intl as our new Chief Financial Officer. John joined us on October 1st and has a strong track record of leading multiple complex organizations through transformation and performance improvement. His deep financial and operational experience aligns well with our strategic priorities, and I look forward to partnering with him as we continue to advance our turnaround.

Now I will turn to the quarter. Our third quarter performance provides further evidence that our turnaround is gaining traction. We continue to advance our strategic priorities and delivered results ahead of our expectations. As a result, we have greater confidence in the full year and are raising our outlook for both organic sales growth and adjusted earnings per share. As I said last quarter, I am encouraged by the steady progress we are making.

We have a lot of work ahead of us to realize the full potential of Baxter Intl. We are focused on executing in the fourth quarter and finishing the year strong while continuing to improve our SEIDU ratio and deliver more consistent performance. All of these efforts support our objective to create long-term shareholder value. With that, let me turn to a few highlights from the quarter. Third quarter global sales totaled approximately $3 billion, an increase of 5% on both a reported and organic basis. We saw broad-based growth, with every division contributing and both segments growing across the U.S. and international markets. Advanced Surgery, Drug Compounding, and Infusion Systems were the largest contributors in the quarter. Adjusted earnings were $0.58 per diluted share.

While this exceeded our expectations, it represents an expected year-over-year decline due to the discrete tax benefits recognized in the prior year. End-market demand remained generally steady during the quarter, with continued strength in Advanced Surgery and a healthy order book in Care and Connectivity Solutions, or CCS. We continue to closely monitor the external environment, including macroeconomic uncertainty. We are raising our full-year outlook for organic sales growth to a range of 3% to 4% from 2% to 3%. We’re also raising the bottom end of our outlook for adjusted earnings per diluted share to $2.05 to $2.15 compared with our previous range of $1.95 to $2.15. Throughout the year, we have communicated a consistent framework for 2026: known mechanical headwinds and more difficult comparisons in the first half, followed by improved performance in the second half.

Our third quarter results are a meaningful proof point that performance is progressing in line with that framework. Let me now turn to the progress we are making against our three strategic priorities: stabilizing the business, strengthening the balance sheet, and embedding continuous improvement across Baxter Intl. Our first priority: stabilizing the business. Across the portfolio we are seeing more consistent execution and further indicators of improved business performance. For example, in our CCS business, an on-time shipment metric improved 8% year over year.

Additionally, our Advanced Surgery business improved a quality measure by nearly 20% year over year. We also saw improvement related to the supply challenges with a contract manufacturer within Injectables and expect a more limited impact going forward. We are encouraged by this progress while recognizing there is more work to do to drive greater consistency across our portfolio and manufacturing operations. To that end, we have made the decision to discontinue production of cephalosporin products, which are currently manufactured at the Round Lake, Illinois specialty injectables facility. Importantly, this action is not expected to create a market shortage for these products, and by repositioning the facility exclusively for non-CEF production, we will simplify and streamline our operations while supporting supply continuity of the non-CEF portfolio.

An additional benefit of this action is that it helps address some of the complexities referenced in the recent FDA warning letter we received related to an inspection conducted at the Round Lake facility earlier this year. We have taken significant steps to strengthen quality systems and operations at the site and across our network, including implementing corrective and preventative actions and other enhancements designed to improve quality and operational performance.

Product quality, patient safety, and supply reliability are top priorities, and we are committed to addressing the observations and working closely with the FDA throughout the process. Our second strategic priority is strengthening the balance sheet, and we have made clear progress. In the third quarter, free cash flow was strong at $448 million in the quarter, bringing our year-to-date free cash flow to over $700 million. We also completed a successful tender offer in September, another meaningful step towards achieving our near-term net leverage objective. We remain confident in our ability to achieve a net leverage ratio of approximately 3x by year end.

Sustaining strong cash generation and further strengthening the balance sheet remain near-term priorities. Over time, a stronger balance sheet will increase flexibility, including the opportunity for additional internal investment, strategic tuck-in acquisitions, and share repurchases, while maintaining a disciplined approach to creating shareholder value. As a reminder, we would assess any potential acquisition using a disciplined framework focused on strategic fit, market assessment, our ability to operate and integrate the asset through Baxter GPS, and expected financial returns. Our cultivation process is ongoing, and our funnel remains strong for future potential additions.

Our third strategic priority is embedding continuous improvement across Baxter Intl. Baxter GPS is becoming increasingly integrated into how we operate, strengthening productivity, execution discipline, and accountability. Year to date, we have completed more than 700 continuous improvement initiatives across Baxter Intl. These events targeted all value creators. We have more than 200 currently in flight and approximately 350 additional initiatives planned.

Let me give you a few recent examples of where our teams are applying Baxter GPS to improve both commercial execution and performance. In Frontline Care, teams improved blood pressure cuff manufacturing cycle times by more than 10%, expanding production capacity without additional capital investment. In our Advanced Surgery business, we have held events focused on strengthening inventory management and improving cash conversion. Across our global services teams, Baxter GPS is driving measurable improvements in execution and customer service.

Through cross-functional collaborations, teams streamlined key fulfillment processes, reducing alternative shipment backorders in certain areas of the business by more than 50%. This results in improved customer service and better inventory management. As I’ve shared before, no single initiative will define our future. The value of Baxter GPS will come from the accumulation of repeatable improvements that translate into better operating and financial performance over time. Innovation is another important element of our strategy and is essential to sustaining portfolio growth and strengthening Baxter Intl’s competitive position. We are seeing continued adoption and customer interest across several recently launched products.

For example, Connext360 continues to gain traction with customers and contributed to Frontline Care’s growth in the quarter. Additionally, the Dynamo Series Smart Stretcher was recently recognized for its user-centric design by the Human Factors and Ergonomics Society. These offerings enhance our portfolio and expand our ability to deliver differentiated solutions to customers. In summary, our third quarter results provide further evidence that Baxter Intl is moving in the right direction. We exceeded our expectations for sales, adjusted earnings, and free cash flow, and increased our full-year outlook. At the same time, we advanced each of our three strategic priorities. As we look ahead, our focus is on building greater consistency in how Baxter Intl operates and performs. That means addressing where we need to further improve and building on what is already working.

Disciplined execution will be key to driving stronger performance and sustainable value for shareholders. I will now turn the call over to John to provide more detail on our third quarter results, including segment-level performance and our updated 2026 guidance. John, over to you.

OPERATOR

Thank you. We will now begin the question-and-answer session. If you have a question, please press Star followed by the number one on your touchtone phone. If you wish to remove yourself from the queue, press Star one again. If you’re using a speakerphone, please lift the handset to ask your question. So that we may be respectful of everyone’s time, please limit your comments to one question with one brief follow-up question if necessary. We appreciate everyone’s consideration, as we would like to provide as many of you as possible the opportunity to ask a question.

We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at www.baxter.com. Your first question, from the line of Travis Steed with Bank of America. Your question, please.

Travis Steed (Analyst at Bank of America)

Hey, thanks for the question. I wanted to ask about the warning letter and the product discontinuation. I heard 50 million revenue and 30 million op income in 26. Maybe just help us understand more what’s going on there. Why the decision to discontinue the product and does this make it harder to grow EPS in 27 versus 26 and you take into account all the puts and takes on the model? I think it’s like a 2% headwind by our math on 27 on EPS.

Andrew Hider (President and Chief Executive Officer)

Yeah. Hey. Hey. Good morning, Travis. Let me walk through this and kind of outline the decision here. Look, this reflects our ongoing evaluation of our portfolio and manufacturing operations. And by doing this process of walking through this, we’re repositioning Round Lake exclusively for non-CEPH production. This will simplify operations and really support greater supply resiliency. And as we look at the remaining portfolio, it enables us to continue to drive that portfolio for the future.

An additional benefit is, as we look at this, by reducing this complexity, it does help address some of the issues referenced in the warning letter. So while we do see certainly some areas that the team is looking to offset with the reduction of the CEPH production line, it is an area that is allowing us and enabling us to streamline our approach, our process, and will enable us to really reduce complexity at this specific facility.

Travis Steed (Analyst at Bank of America)

Okay. And I don’t know if there was anything on 27, but I also wanted to ask about M&A. It seems like they’re talking about M&A a little bit. Just curious if you could kind of outline the areas you’re interested in, the size of deals you’re willing to do, and how you think about the ability for deals to be dilutive versus accretive to earnings.

Andrew Hider (President and Chief Executive Officer)

So let me walk this a little bit first. Look, we’re pleased with our free cash flow performance, and that really puts us in the ability to start this conversation. And as a reminder, we reiterated our approach to be approximately 3x by year end. That was our target and alignment, which enables us to move to that next stage. I outlined this in my prepared remarks, but as a reminder, when we look at the criteria and our disciplined approach for M&A, it’s going to be under four areas. First, the strategic rationales. Oftentimes we’re looking for technology, we’re looking for geographic expansion, we’re looking for areas we can penetrate and bring the full breadth of Baxter Intl. Number two, the specific market areas to enable our ability to drive expansion, and we’re going to look at areas that we view over a long period of time are going to continue to align with the future of Baxter Intl.

Number three, how we’re going to integrate and operate the asset. So what do I mean by that? We look at management teams, we look at the ability to deploy Baxter Intl leaders in, we look at GPS enablement and how we can support the business to outperform to drive expansion in its market. And then lastly, and this gets to really the heart of the question, is around financial return. And of course we’re going to look at things like ROIC. We’re going to look at how earnings are going to perform over the period of time and margin profile and other things also like recurring revenue.

There are many areas we look at for potential additions. I did also reference how we view tuck-ins for this next phase, and that means that we like our position in many areas and tuck-ins could be a natural progression. Additionally, our funnels are growing. We have a mantra, ABC: always be cultivating, and our teams are cultivating key targets. Just to wrap this a little bit in a bow, we’ve also looked at our business and said there’s three major buckets. There’s the invest and grow—areas we want to continue to support on growth both organically and inorganically. For example, we like the cardiac monitoring space, we like the advanced surgery space, we like key areas across our portfolio that are going to enable us to really drive and support that longer-term growth profile. And then there’s a sustain, and then there’s also some areas we want to fix and improve.

This is, I would say, an evolution of our approach and process. We need to get to approximately 3x on our leverage ratio, and once we do that we can really start to look at the next phase in this journey.

Travis Steed (Analyst at Bank of America)

All right, thanks a lot.

OPERATOR

Your next question from the line of Larry Beagleson of Wells Fargo. Your question please.

Larry Beagleson (Analyst at Wells Fargo)

Good morning. Thanks for taking the question. Congrats on another nice quarter here. So John, you officially joined Baxter Intl just a few weeks ago. Where do you see the biggest opportunities at Baxter Intl? And it sounds like you played a big role in the initiatives to improve margins, cash flow, et cetera at your prior company. Will you run a similar playbook here at Baxter Intl? And lastly, just talk about your approach to guidance, and I’ll leave it at that, thanks.

John Rogers (Executive Vice President and Chief Financial Officer)

Morning, Larry. Look, in terms of what I’m going to be focused on in the coming weeks and months, I think first and foremost coming up to speed with the business, really understanding the business. Obviously, as you said, I have a med tech background, but this is very much a new product set for me. So I want to spend a lot of time with the business, with the management teams, out there in the field, really getting up to speed and understanding what makes this business tick.

I think in terms of the areas of focus, you’ve touched upon some of those already. One area, for example, is looking at our margin mix and some of the actions that we need to take and we are taking to drive improvement in that area. Also, I think, building on the great progress to date in driving both operational and functional efficiencies and how we continue to build a pipeline of medium- to long-term and very sustainable efficiencies to help offset some of the inflationary pressures that we are seeing.

I think thirdly, thinking about how we go about sharpening our capital allocation policy. As the Q3 results demonstrate and Andrew’s just talked about, we’re really starting now to generate free cash flow and the balance sheet is starting to de-gear very nicely. Andrew’s already mentioned, of course, the opportunity for M&A and that of course sits alongside other opportunities to reinvest back into our business to drive our organic growth, whether that be R&D or investment in our manufacturing sites, as well, of course, as the possibility for opportunistic share buybacks.

So one thing that Andrew and I will be working on over the coming weeks and months is how we hone our capital allocation policy, and of course there’ll be more to come in that regard. So those would be the sort of the key areas I suspect I’ll focus on over the coming weeks and months. In terms of the approach to guidance, the question you asked about, as we said on the call, we’re not going to set out our guidance for 2027 today. We’ll leave that to the usual timing of our Q4 earnings in February. That said, of course, there are a number of moving parts or dynamics I’m sure you should consider. First, of course, is inflationary pressures, and we do see those stepping up in 27 to a degree due to the cap and roll that we’ve talked about previously.

But we’ve actually done a great job in 2026 in offsetting those and have line of sight to further saving opportunities in 2027. We’re looking to mitigate the impact of those inflationary pressures. We then have tariffs. Of course, we won’t get the same refund benefit in 27 that we saw in 26, and we’re still, of course, awaiting clarity on Section 232. We should get that sometime in the fourth quarter, so we’ll have to see the net impacts of tariffs going into 2027. We also expect the TSA services related to Vantive to conclude by the end of January 2027, and the consequent headwind that that delivers will depend on how quickly we can take out stranded costs over the course of the year.

Of course, some costs will be very much marginal costs and they’ll come out immediately. There will be other costs which are more fixed in nature and they will take a little bit longer to come out. So we’ll have to work through that detail. We’re also going to expect an impact from planned product exits, particularly in our FLC portfolio that we’ve mentioned previously, and we talked on the call today about the CEPH products and we said that contributed 50 million of top line and 30 million of operating income in 2026. To the earlier question, I wouldn’t necessarily flow all of that through. There will be some mitigating factors with how we roll through inventory and some alternative products that we can offset there, but that will be overall a net headwind.

And we’ve also called out the sales mix and I talked about—that’s an area that I really want to focus on as we continue to evaluate the underlying trajectory of the various businesses like drug compounding and injectables. So look, I’m three weeks into the role. Obviously I understand why there’s going to be a lot of focus on 2027 right now, but I’m going to need a little bit of time just to thoroughly evaluate all these different moving dynamics. And we will of course come back to this in much more detail when we set out our detailed guidance at our Q4 earnings call in February of 2027.

Larry Beagleson (Analyst at Wells Fargo)

All right, thank you for the comprehensive answer and good luck in the new role.

OPERATOR

Your next question from the line of Vijay Kumar of Evercore ISI, your question please.

Vijay Kumar (Analyst at Evercore ISI)

Hi Andrew, good morning and thank you for taking my question. And John, congrats and welcome. Andrew, maybe my first one for you: is the implied guidance here for Q4 around mid-single, similar to 3Q? If that’s the case and you had three straight quarters of mid-singles top-line performance, how do you think about the sustainability of that 5%? What gets better, what gets worse for fiscal 27?

Kevin Moran (Vice President, Investor Relations)

Hey Vijay, this is Kevin. So I think it’s important context to think about. All year we’ve been talking about this step up in margins in the second half of the year relative to the first and we’ve had, you know, a clear framework cycling through some of the headwinds in the first half of the year like the higher-cost inventory that’s behind us, seeing the benefits from the cost actions taken earlier in the year. We saw a partial impact in Q2, we saw a full quarter’s impact in Q3, and then higher sales and getting some operating leverage from that.

And you can see that in our Q3 results. And so hopefully a nice proof point to that kind of framework we’ve been talking about all year as we think about Q4. Our updated guidance implies a similar level of growth in Q4. So to your point, it’s grown around 5% the last couple of quarters. We are expecting around that in Q4. And when you think year over year, similar type drivers that we called out in Q3: continued growth in our infusion systems portfolio, IV solutions growing off that new lower-demand baseline, HST growing, you know, advanced surgery and drug compounding, you know, perhaps not at the same magnitude.

They’ve been growing really well here lately. But expect continued growth in those businesses. So I’d say a very consistent story as we look ahead to Q4 on a top-line perspective. And I would say it’s the same story on operating margin as well. You know, the implied Q4 operating margin contemplates a similar magnitude as what we saw in Q3 and don’t expect any big call-outs sequentially Q3 to Q4, you know, similar strength in the top line, similar mix, you know, continued benefits from the cost actions that should continue in Q4. And so I think the takeaway is Q4 should be another quarter that supports this framework that we laid out at the beginning of the year.

As far as improved performance, I believe the second part of your question was how do we kind of think about that going forward? And you know, as John referenced, we’re not giving 2027 guidance here today. We’ll do that in February. But in general, I would just reiterate, you know, we’re predominantly in low single-digit type markets and in 2026 we’re performing a bit higher than that. You know, clearly benefiting from some favorable comparisons.

You know, IV solutions, this new baseline, you know, we’re annualizing the impact of the Novum ship and installation hold. Again, advanced surgery and drug compounding, their comps are going to get increasingly difficult going forward. You know, we’ve referenced some product exits are going to have some impact on the top line. But we will come back in February with a comprehensive view on what we expect 2027 to be. But right now I’d say we’re just focused on the continued execution in Q4.

Vijay Kumar (Analyst at Evercore ISI)

Understood, that’s helpful. Kevin and John, one quick one for you. Thanks for laying out all the moving pieces and margins. You know, by my math between TSA, inflation, tariffs, and SEP discontinuation, it almost feels like it’s a couple of hundred basis points margin headwinds in ’27. I’m just curious on, am I thinking about margin headwinds for ’27 the right way, the magnitude of impact? Thank you.

John Rogers (Executive Vice President and Chief Financial Officer)

Yeah, look, I set out in my response briefly, you know, that there are clearly some margin headwinds. There are also some margin tailwinds and we’ve got good visibility of cost-saving opportunities in the business. You know, I’ve been very impressed actually with the level of detail and the rigor and the discipline that the organization is already deploying in driving efficiencies through the business. So like in any situation there are puts and takes and that is the case for 2027.

I’m not going to get drawn at the moment on what the net impact of those is going to be. We’ll set that out in a little bit more detail in February. But as I said, look, there are clearly puts and takes. I set out some of the headwinds, but equally there are some tailwinds and some very good progress already made and a good pipeline of saving opportunities going into 2027.

Vijay Kumar (Analyst at Evercore ISI)

Thank you.

OPERATOR

Your next question from the line of Patrick Wood of UBS. Your question please.

Patrick Wood (Analyst at UBS)

Beautiful. Thanks, guys. Welcome. Two quick and dirty ones up front. The generic injectables business, obviously there’s a lot going on there in general. You know, one of your peers also has a warning letter. Some of us remember what happened in the 2000-teens for drug shortages and given it’s such a high-margin business, you know, general outlook there for you guys. You know, obviously one of your peers is going to be capacity constrained. Is there a tailwind from that or are you restricted?

And anything around there would be amazing for question one. And then just quickly, question two. Sorry if I missed it. You mentioned the contract manufacturer effect, any rough sizing of that and whether that situation has been resolved going forward. Sorry if I missed it.

Andrew Hider (President and Chief Executive Officer)

Look, I’ll walk through a couple items. First, by going to the non-ceph production, it really does allow us and enables us to simplify our operations. And I mentioned a little bit earlier, but it supports greater supply resiliency and therefore by making this decision, and these are never easy decisions, it aligns well with really the future of that site, that organization, and we do view it gives us capability by reducing that complexity to continue to drive this product for our customer base in the non-ceph space.

On the second piece of the question around the contract manufacturer, we’ve made good progress and we’re staying very close with this manufacturer to ensure that we are front and center on this production process and capability. And so while we’re not giving an overall impact, what I can say is that we’ve made progress and we’re going to continue to keep this front and center to ensure this is something that we can work to mitigate over time.

Patrick Wood (Analyst at UBS)

Thank you, Andrew.

OPERATOR

Your next question from the line of Joanne Wunsch of Citi, your question please.

Joanne Wunsch (Analyst at Citi)

Good morning, thank you for taking the question and John, welcome. Can we pause on the advanced surgery? Can you hear me okay?

John Rogers (Executive Vice President and Chief Financial Officer)

You went out there for a second, and if you could repeat that, that’d be great.

Joanne Wunsch (Analyst at Citi)

I was just getting through the welcome to John part. Here we go. Advanced surgery. Double-digit growth in the quarter, nice acceleration, doesn’t appear to be an easy comp per se. What can we understand what’s driving that, the consistency of it, and anything to call out in terms of a one-time item in there to be aware of? Thank you.

Andrew Hider (President and Chief Executive Officer)

Yeah, so look, you know, let’s start with the fundamental. We’re pleased with the progress and this team has been really focused around driving execution in our core markets. And so just as we piece this apart, we’ve continued—so the market’s growing first, and that’s a positive for our business and it’s a strong growth area, but it’s still in the, call it, single digits, call it low- to mid-single digits. Number two, we’ve really aligned this team on how we can expand on a global scale.

So we’ve seen some regions actually drive stronger growth on a global scale. Number three, there’s been—and this is not a small piece—there’s been a competitor that’s had a challenge with supply and because of our performance on our operation, we’ve been able to really maximize this impact. And I would say that’s where it becomes a little bit of a challenge on a year-over-year comp perspective. But that said, you know, going back to the initial, we’re pleased with the progress.

This team is focused on finishing the year strong, getting ready for next year. And as we think about the business into the future, certainly it’s going to be, you know, year over year, it’s going to be a more challenging comp. But the team is ready to continue to drive this business. We just view that the single piece of the supply challenge on a competitor is to be something we’re going to stay very close to.

OPERATOR

Your next question from the line of Robert Marcus of JP Morgan, your question please.

Lily (Analyst at JP Morgan)

Hi, this is Lily on for Robbie. Thanks so much for taking the question. Following up on margins, I’m hoping you can talk a bit more about what you’re seeing on the macro side. You called out greater inflationary pressure in 2027. So what’s latest in terms of what you’re seeing on cost pressures from oil, freight, et cetera, since you last updated us on the 2Q call? And what’s baked into guidance in terms of pressures and your ability to offset them?

John Rogers (Executive Vice President and Chief Financial Officer)

Yeah, I’ll pick that one up early and maybe Kevin will add to it. Look, as we said, there are clearly inflation inputs going into 2027 and arguably a slight step up that we’ve seen from 2026 due to the flow-through of costs from inventory. But the key ones are actually, in order of impact, things like salary inflation, the electronics and materials costs, and then a distant third is things like utilities and energy and plastics and transportation and metals and packaging.

So there are definitely inflationary costs coming through and they’re probably slightly more pronounced than they would ordinarily be. But that said, we’ve done a great job in 2026 of offsetting those with efficiency savings. We’ve got a good pipeline of savings programs going into 2027. And I’ve always operated with a philosophy of whatever inflationary pressures the business is facing, you have to look for an equal and opposite efficiency savings to neutralize those inflationary pressures.

So that’s certainly something that we will be aiming to do through 2027. But we’ll set this out in a lot more detail, of course, when we give our detailed guide in February in terms of the puts and takes. But that’s the way that we’re thinking about it organizationally, if that helps.

Kevin Moran (Vice President, Investor Relations)

And Lily, just to add on a little bit to this, as a reminder, our exposure to fuel and oil is much less with the divestiture of our kidney care business. And, you know, to John’s point, we’ve taken a very proactive approach and our teams are aligned around mitigating cost actions, driving engagement with suppliers, looking at efficiencies in the business. And so overall, again, pleased with the progress. We’ve got more work to do here.

Lily (Analyst at JP Morgan)

Great. And then just—

OPERATOR

Your next question from the line of Rick Wise with Stifel. Your question please.

Rick Wise (Analyst at Stifel)

Good morning. I think we cut off Lily there. Just to start, Ron, you highlighted your focus on improving cost structures. I was hoping you would expand on that comment but also touch on the lower price contribution comment. Maybe I missed it. What was it? And how do we think about the impact of price on mix going forward?

Andrew Hider (President and Chief Executive Officer)

Let me pick up on the question on cost structures and then I’ll hand over to Kevin to comment on price. Look, I think on cost structures, as I said, there’s already a tremendous amount of really good work going on in the business driving out cost, driving efficiencies right across our business from our operations and supply chain to our functions. And some really, really, really good work in the detail. And I’ve been incredibly impressed, actually, with the way that GPS is really being embedded into this business and the discipline as to how we drive efficiencies through the organizations is really coming into effect.

That said, I did highlight in my opening remarks that there remains a lot of complexity in this organization. There remain a lot of processes that are not standardized. It’s not unusual. In fact, pretty much every business I’ve ever come into, of course of our scale and size naturally has this embedded complexity and has perhaps not standardized processes as much as it can. So if you look at the headline level at some of our functions, for example, like IT, we’ve got an incredible number of applications that we run in our business and there’s definitely opportunity there to simplify and stand.

And again, you know, even with our finance function, if you look at our overall cost base across finance and across IT, if you benchmark that, it definitely has opportunities to drive out more efficiencies going forward. So one of the key things I said that I’m going to be focused on is how do we continue the great work that’s already underway but build a very much sustainable pipeline of efficiency savings not just in the next 12 months, but looking forward over the next three years. And I believe it’s early days yet. I’ve been in the organization for three, but I believe there is the opportunity to do that.

John Rogers (Executive Vice President and Chief Financial Officer)

And Rick, with respect to pricing, so the commentary was when you think about operating income dollars year over year there was less contribution from pricing and it’s really a prior year story. So if you recall last year we saw the benefit from two of our GPO renewals. So this mostly impacted the MPT segment. And so this year it’s really kind of the absence of that outsized benefit. When you think about the year over year, this was an expected headwind when we entered the year.

We called it out last quarter and we again saw that in Q.

Rick Wise (Analyst at Stifel)

And just as a follow-up question, infusion systems obviously contributed to this quarter. Injectables, as we’ve heard, remained a drag. But how much of the pump improvement reflects Spectrum demand versus easier comps? Perhaps what’s going on there and what milestones remain now before LVP can get to market? Thank you.

Andrew Hider (President and Chief Executive Officer)

Yeah, and I guess, you know, I’ll kind of work backwards on this. You know, we’re making, we’re continuing to make good progress with Novum LVP and we’re working closely with the regulatory authorities in this process and when there’s an update we’ll certainly provide it. As far as our pump portfolio with our Spectrum LVP as well as our Novum Syringe, and now it’s communicating through our IQX Solutions software platform, we’ve continued to evolve and really align around innovation in this space with PureView as well as other areas.

We’re feeling good about our offerings and our value proposition. And even earlier this week I had a chance to sit down with a customer and walk through our pump portfolio, where it sits in their ability to drive high care, how they look at efficiencies, and our ability to support that. And so we’re pleased with where we sit. Again, we’ve got opportunity for the future and we’re going to continue to focus on making progress.

Rick Wise (Analyst at Stifel)

Thanks so much, Andrew.

OPERATOR

Your next question from the line of Jason Bedford of Raymond James and Associates. Your question please.

Jason Bedford (Analyst at Raymond James)

Good morning and congrats on the progress. I don’t mean to put you on the spot with this question, but one of your Med Tech peers announced an agreement with the administration to onshore production in exchange for tariff relief. And I’m just wondering, is this something you’re looking into?

Andrew Hider (President and Chief Executive Officer)

Yes. So, good morning. And, you know, as far as tariffs go, you know, we continue to look at opportunities that we can, I would say, maximize or minimize the impact. And we have certainly opportunities when we, you know, and we saw, you know, as this year, we saw a bit of a benefit here. We’re going to continue to look at that as an opportunity. And as you know, we’ve got a strong footprint in the US. We’ve got strong demand in the US, and so no headline discussion as of now.

That said, we’re continuing to look at areas that we can minimize overall tariff impact on the business.

Jason Bedford (Analyst at Raymond James)

Okay, thanks. And just maybe just as a quick follow-up, is there any way to frame the impact of the supply chain challenges in the pharma business this year? And it sounds like it’s getting better, but specifically I’m wondering how much of an offset it could be relative to the discontinuation of the SEP products.

Andrew Hider (President and Chief Executive Officer)

Yes. So we’re not outlining that in totality. That said, you’re picking up on one of the areas of focus is certainly with our CEPH business and that product set going away, and it was a conscious, proactive decision of discontinuing that product. There are offsets that we’re looking at. One of them is the continued support of the product that we talked about with the contract manufacturer. There’s also other products that we are enabling and working with customers on within that space that will support the ability for them to have the capability in their patient care sites of care.

And so while we’re not outlining the offsets today, we’re going to continue to show that as we go into next year.

OPERATOR

There are no further questions at this time. I will now turn the call back to Mr. Hyder for closing remarks.

Andrew Hider (President and Chief Executive Officer)

Thanks, operator. And thank you for your questions today. As I’ve shared, we are encouraged by the progress we’re making. While we have more work ahead, execution is improving, we are delivering against our priorities and we’re building a stronger Baxter. Thank you and have a great day.

OPERATOR

Ladies and gentlemen, this concludes today’s conference call with Baxter International. Thank you for participating.

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