At Baxter, Covidien's Almeida looks to cut costs, fuel innovation and do smaller acquisitions

Jose Almeida

Former Covidien head Jose Almeida, who seized the reins at Baxter ($BAX) at the start of the year, offered an early glimpse of his long-term strategy for the company after spinning off the biopharma Baxalta ($BXLT) last year. On a Feb. 2 earnings call, he laid out his priorities as trimming operating expenses, reallocating capital to support innovation and growth, and making smaller acquisitions.

Almeida held back on the details, but promised to put all his cards on the table at Baxter's upcoming investor day on May 9--including specific long-term financial targets for three years and 5 years out. He didn't take large acquisitions off the table, but said that they would require at least a couple of years so they aren't in any near-term picture.

Up first is likely cost-cutting, as Almeida prioritizes Baxter's businesses by their revenue growth potential. He made it clear that he thinks there's plenty of fat to be trimmed--"We can take additional cost out of our business without compromising our commitment to quality and safety."

Almeida highlighted a couple of positive examples of high-growth products including recently launched infusion pump and a new peritoneal dialysis system as among the top growing products.

"Key growth drivers in the quarter include add strong performance in our U.S. fluid systems franchise where our newly launched Sigma Spectrum infusion pump continues to build momentum as well as increase the demand and favorable pricing for our IV solutions. Performance was also augmented by strength in our U.S. dialysis business which report the highest quarterly growth of the year," Almeida said.

He added, "The U.S. APD (automated peritoneal dialysis) business is seeing very promising early results on the recent launch of our Amia APD which features our ShareSource two-way connectivity platform, and we look forward to expanding this launch in 2016."

Currently, the company's businesses include Hospital Products, which had $6.2 billion in 2015 sales and that was an increase of 5%, and Renal Products, which reported $3.8 billion in 2015 sales that grew by 1%.

Overall, Almeida framed his near-term task this way: "Our objective is to further accelerate an increase to impact the impact of our margin improvement plans to support our goal of top quartile shareholder return to successfully achieve this outcome we will execute on three distinct strategic factors including portfolio optimization, operational excellence and capital allocation."

Baxter set none too ambitious goals for 2016, though. It guided to a decline in sales of 1% for this year with full-year EPS of $1.46 to $1.54.

Almeida was clear that Baxter is on the lookout for potential acquisitions, with smaller, adjacent deals a possibility in the near-term and larger deals in the long-term.

"We want to buy business that they're growing faster than our current base business. … The second thing is if we can combine that with good synergistic deal, we'll do it as well. And why do I put a bracket around very large deals? Because very large deals are very difficult to find. We can keep looking for a deal like that. It will take a couple of years versus just creating really good strategy by looking at adjacencies and good businesses with acquisitions that make sense," he said

- here is the announcement and webcast