Thousands of jobs at Baxter are potentially on the line as the medtech giant embarks on a cost-cutting plan in the wake of a year that CEO José Almeida said had “disappointed” the company.
Alongside the publication of its 2022 earnings report Thursday, Baxter suggested that a combination of its previously outlined restructuring plan and an additional “cost reduction program” could save the company more than $300 million this year.
Those cost savings, however, will come at a cost of their own: a workforce reduction of “less than 5%,” according to the announcement. As of the end of 2021, per its most recent annual report (PDF), Baxter employed around 60,000 people around the world—10,000 of whom had joined the company in its blockbuster merger with Hillrom that year—meaning the layoffs could reach up to 3,000 employees.
“While the opportunities ahead are clear, the journey will involve some difficult decisions. We will take these necessary steps with the utmost care and sensitivity, in full knowledge that the passion and commitment of our Baxter team drives our success,” Almeida said. “We are poised to emerge transformed for a new era, better positioned to compete in the dynamic healthcare marketplace and create value for our stakeholders.”
In January, Baxter laid out a restructuring plan that aims to simplify a sprawling corporate structure, helping the company run more efficiently and therefore cutting extraneous costs.
The plan is slated to be finalized and take effect early in the second quarter of this year. It will group Baxter’s operations into four core business units, each with their own leadership team, R&D and commercial departments and dedicated manufacturing sites.
The four segments have been dubbed medical products and therapies, healthcare systems and technologies—comprising the operations formerly known as Hillrom—pharmaceuticals and kidney care. Not long after the separation is complete, however, the last of these businesses will be further set apart: Baxter is planning to spin off the kidney care segment into a standalone public company within the next 12 to 18 months.
The company is also in the process of conducting a strategic review of its biopharma solutions business—housed within the pharmaceuticals segment—which could potentially culminate in a sale of the business.
In the 2022 earnings report, Baxter reported an 18% increase in global sales, which reached $15.1 billion for the year. That year-over-year growth rate fell to just 2%, however, when the impacts of the first year of the Hillrom acquisition and of foreign exchange rates were left out of the equation.
The sales growth was further tempered by the net loss of $2.4 billion that Baxter reported for 2022, a drop of nearly 300% from the almost $1.3 billion net income the company earned the previous year. The company fell into the red thanks in large part to the $3.1 billion in goodwill and intangible asset impairment charges it took in the third quarter related to the Hillrom buy, as interest rates soared, equity valuations plummeted and supply chain shortages raged on.
During a call with investors Thursday, Almeida cited the “highly volatile and dramatic environment” of the previous year, noting, “We were disappointed with performance in 2022.”
And, while the cost-cutting measures are expected to gradually improve Baxter’s bottom line, it won’t happen right away: The company is predicting total sales growth of just 1% to 2% in 2023, starting with a decline of about 3% in the first quarter, primarily because of the inflated costs of producing some inventory in the second half of 2022.
“While we are confident the actions we are undertaking will set us on force for improved performance longer term, we have recognized that 2023 will be a transition year on our path to achieving this objective,” Chief Financial Officer James Saccaro said on the call.