Baxter grew Q2 2026 sales 5% to $2.96B and continuing-operations EPS to $0.26, but adjusted EPS fell 5% to $0.56 (including a $0.11 tariff refund) as adjusted gross margin dropped 2.1 points; full-year guidance was raised.
Revenue
$3.0B
+5.3% YoY
Net income
$135M
+10.7% YoY
Diluted EPS
$0.26
+8.3% YoY
Operating margin
7.3%
Overview
Baxter's second quarter of 2026 (three months to June 30) grew sales 5% to $2.96 billion, and GAAP income from continuing operations rose 11% to $135 million, or $0.26 per diluted share. The picture underneath is less comfortable. Profit per dollar of sales from the core business fell, and the quarter was helped by a one-time ~$75 million refund of tariffs paid under the International Emergency Economic Powers Act (IEEPA), which the Supreme Court struck down. The 10-Q says the lower underlying margins were "primarily driven by increased manufacturing and supply costs... and product mix, partially offset by IEEPA tariff refunds recorded in the second quarter of 2026." By Baxter's own adjusted measure (which strips out one-off items and amortization), EPS from continuing operations fell 5% to $0.56, and the refund supplied $0.11 of that, according to the earnings release (Exhibit 99.1 to the July 30 8-K).
"Continuing operations" means the Baxter that exists today. The Kidney Care business (now called Vantive) was sold on January 31, 2025, and what is left of its results is reported separately as discontinued operations.
Operating margin is the share of sales left after running the business (production, selling, research), before interest and tax. The site's headline figures for this report (net income, EPS) are continuing operations. Adjusted figures and free cash flow come from the earnings release. Baxter did not give a Q2 2025 free cash flow figure in the release.
Where the sales came from
Starting this quarter Baxter reports two segments instead of three. The former Pharmaceuticals segment (specialty injectable drugs, inhaled anesthesia, drug compounding) is now part of the Infusion Therapies & Platforms division inside Medical Products & Therapies, and prior periods have been restated to match. Baxter also stopped allocating some shared corporate costs to the segments, which makes segment profit not directly comparable with older disclosures.
Division / segment
Q2 2026
Q2 2025
Reported
Organic
Infusion Therapies & Platforms
$1,745M
$1,649M
+6%
+4%
Advanced Surgery
$331M
$296M
+12%
+12%
Medical Products & Therapies
$2,076M
$1,945M
+7%
+5%
Care & Connectivity Solutions
$502M
$474M
+6%
+5%
Front Line Care
$299M
$293M
+2%
+2%
Healthcare Systems & Technologies
$801M
$767M
+4%
+4%
Other (supply sales to Vantive)
$83M
$98M
−15%
—
Total
$2,960M
$2,810M
+5%
+5%
Infusion Therapies & Platforms grew on international demand for pharmacy compounding and on an easy comparison: in Q2 2025, U.S. IV-solution sales were depressed by distributor destocking (distributors running down their inventories) and hospitals conserving fluids. Two things held growth back: injectable drugs, where supply is still constrained in the U.S. and abroad, and the Novum IQ large-volume infusion pump. Baxter has stopped shipping and installing that pump in the U.S. and Canada since July 2025 (except for medical necessity) after Class I recalls, and it expects "no meaningful sales of Novum LVP while these holds are in effect." About 2 points of the division's 6% reported growth came from currency.
Advanced Surgery (hemostats and sealants, products that stop bleeding and seal tissue during surgery) grew 12% on higher volumes worldwide, making it the fastest-growing unit.
Care & Connectivity Solutions grew as Baxter worked through its U.S. order backlog for hospital beds and other patient support systems.
Front Line Care (patient monitors, diagnostic devices) grew only 2%, and planned product exits held it back. This unit took a goodwill impairment in late 2025. Goodwill is the premium paid over book value in an acquisition, and "impairing" it means writing that premium down because the business is now expected to be worth less. The 10-Q warns that if the outlook worsens there could be further write-downs against the remaining $1.51 billion of goodwill and the $390 million Welch Allyn brand name.
Sales to Vantive under the supply agreement signed at the Kidney Care sale fell to $83 million from $98 million on lower volumes, and they are excluded from organic growth.
U.S. vs. international: U.S. sales rose 4% to $1,595 million. International sales rose 7% to $1,365 million, or 5% at constant currency (that is, at last year's exchange rates, which removes the effect of the dollar moving). Across the company, currency added about 1 point of growth and lower Vantive sales took away about 1 point, which is why reported and organic growth are both 5%.
First half: sales rose 4% to $5,661 million, but organic growth was only 2%. U.S. sales were flat ($3,030M vs. $3,026M), and 5 of the 9 points of international growth came from currency. The stronger second quarter followed a weak first.
Margins: the core business earned less per dollar of sales
Gross margin (sales minus the direct cost of making the products) was 34.9% against 35.3%. Excluding special items it fell 2.1 percentage points. Baxter gives three causes: higher manufacturing and supply costs, including overhead that used to sit in SG&A and is now counted in inventory cost after the Kidney Care separation; product mix; and the tariff refund as a partial offset. The release adds that the quarter absorbed "higher-cost inventory produced at the end of 2025."
Segment profit shows where the pressure sits. Medical Products & Therapies earned $400 million against $444 million a year earlier, a margin of about 19.3% against 22.8%, because of higher costs, price reductions, and a prior-year inventory cost adjustment. Healthcare Systems & Technologies rose to $163 million from $156 million, a flat margin of about 20.3%, with cost savings and the tariff refund offsetting higher manufacturing costs.
Operating costs came down. Excluding special items, SG&A fell 0.8 points as a share of sales because headcount was lower. R&D fell 0.6 points, which Baxter calls a timing effect and says full-year R&D should be flat.
Interest expense rose to $64 million from $58 million, because of senior notes issued in Q4 2025.
Tax rate was 15% against 8%. The 10-Q cites earnings mix, partly offset by a valuation allowance on U.S. deferred tax assets, which means Baxter is not counting on using those future tax savings after years of U.S. losses.
Special items: smaller than last year, but still large
Special items reduced continuing-operations net income by $155 million ($0.30 per share) this quarter, against $182 million ($0.35) in Q2 2025. The main pre-tax items:
Special item (pre-tax)
Q2 2026
Q2 2025
Intangible asset amortization
$145M
$151M
Business transformation (systems, operating-model redesign)
$23M
—
Separation-related costs (Kidney Care sale advisers)
$22M
$14M
Business optimization / restructuring
$7M
$17M
Hurricane Helene costs
$3M
$17M
Infusion pump warranty/remediation
—
$23M
GAAP operating income rose 14% because these charges shrank, mainly the pump remediation and Helene costs. On an adjusted basis, operating income was flat ($421M vs. $423M). The GAAP gain in profit therefore reflects fewer one-off costs, not a stronger core business. Year to date, restructuring charges reached $75 million, $58 million of it severance tied to cutting costs after the Kidney Care sale.
Litigation: shareholder class actions over Novum LVP disclosures (class periods from February 2022 to October 2025) are pending in federal court in Illinois. A lead plaintiff was appointed in June 2026, and the related derivative suits are stayed. No reserve or charge for these cases is disclosed.
Discontinued operations (Kidney Care / Vantive)
The loss from discontinued operations was $9 million, against $31 million in Q2 2025. The 10-Q attributes this mainly to changes in tax indemnification liabilities, meaning Baxter's promises to cover certain pre-sale taxes. For the first half, discontinued operations lost $7 million, against a $31 million profit in H1 2025 that included the gain on the sale. First-half income from continuing operations still fell to $118 million from $186 million ($0.23 vs. $0.36 per share), even though first-half GAAP operating income rose to $283 million from $249 million. The main reason is tax: in H1 2025 Baxter recorded a $56 million tax benefit (driven by a one-off U.S. tax election), while in H1 2026 it paid $34 million of tax expense.
Balance sheet, cash and debt
Debt did not come down in the first half. Total borrowings were about $9.46 billion on June 30 ($844M current plus $8,615M long-term), against about $9.48 billion at year-end. Cash rose to $2.15 billion from $1.97 billion, so net debt (debt minus cash) fell by about $200 million to roughly $7.3 billion. The $844 million now classed as current falls due within 12 months.
Cash generation improved. Operating cash flow from continuing operations was $510 million in H1, against $118 million, because inventory and prepaid expenses fell and collections improved. After $253 million of capital spending, first-half free cash flow was $257 million, against −$144 million a year earlier (per the release).
Dividend cut to a token amount. Dividends declared were $0.01 per share for the quarter, against $0.17 a year earlier. No shares were bought back.
Credit pressure. S&P and Moody's moved Baxter's outlook to Negative in Q1 2026. After the quarter ended, Baxter took two steps. On August 18 it amended its revolving credit facility to raise the maximum net-leverage ratio allowed for the five quarters through September 2027 (net leverage is net debt relative to earnings). It also ran a tender offer, enlarged to $600 million, to buy back long-dated senior notes due 2032–2051 (8-Ks filed August 4 and August 18, 2026). Loosening a covenant, the borrowing limit in the loan agreement, means Baxter expects leverage to stay higher than its lenders originally allowed.
Takeaway: The 11% jump in GAAP profit came from fewer one-off charges and a ~$75 million tariff refund, not from the core business. Adjusted EPS fell 5%, and the refund supplied $0.11 of the $0.56. Adjusted gross margin dropped 2.1 points and profit in the main Medical Products & Therapies segment fell 10% while its sales rose 7%. Sales are growing again, but Baxter is keeping less of each dollar of them.
Guidance and outlook
Management raised full-year 2026 guidance on July 30 (earnings release):
FY2026 guidance
New
Previous
Reported sales growth (continuing ops)
+3% to +4%
Flat to +1%
Organic sales growth
+2% to +3%
About flat
Adjusted EPS (continuing ops)
$1.95–$2.15
$1.85–$2.05
The $0.10 increase at both ends of the EPS range is about the size of the $0.11 tariff refund that CEO Andrew Hider said was "not previously contemplated in our guidance." The raise therefore mostly passes through the one-off gain rather than signalling better underlying earnings. First-half adjusted EPS was $0.92, so the range implies $1.03–$1.23 in the second half, a clear step up from the first-half pace. That depends on the costly late-2025 inventory working its way out of cost of sales. It is also at risk from the Section 122 and Section 301 tariffs the 10-Q says will keep hurting results, and from any Front Line Care impairment.
Our read: 5% organic growth in the quarter, with every division growing in both the U.S. and abroad, is the best sign in some time. But part of it came from an easy IV-solutions comparison, and the first half grew only 2% organically. Three things to watch: whether gross margin recovers in the second half as management expects, whether the Novum pump returns to market, and whether the leverage waiver turns out to be a bridge or a sign of lasting balance-sheet strain.
Source: Baxter International Form 10-Q for the quarter ended June 30, 2026 (filed July 30, 2026). Adjusted EPS, adjusted operating income, free cash flow and guidance are from the Q2 2026 earnings release (Exhibit 99.1 to Form 8-K filed July 30, 2026). The debt tender and credit amendment are from 8-Ks filed August 4 and August 18, 2026. Segment margins are calculated from reported figures.