Baxter grew fourth-quarter sales 8% (3% operationally) to $3 billion with growth across all segments, but adjusted EPS of $0.44 from continuing operations missed expectations on unfavorable mix, roughly $40 million of inventory and other non-recurring items, higher manufacturing and tariff costs, and a higher tax rate. Advanced Surgery (+11%) and Drug Compounding (+18%) were bright spots, while Pharmaceuticals stayed weak and IV Solutions and infusion pumps remained pressured by the post-Helene fluid-conservation shift and the ongoing Novum IQ ship hold. Management advanced its turnaround through a new operating model and the Baxter GPS system, postponed its Investor Day, flagged Q1 2026 as the most challenging quarter with earnings skewed to the second half, and reaffirmed eliminating stranded costs by end of 2027.
Good morning, and welcome. Today, we will discuss Baxter's fourth quarter results, along with our 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 website. Joining me today are Andrew Hider, President and Chief Executive Officer, and Joel Grade, Executive Vice President and Chief Financial Officer.
During the call, we will be making forward-looking statements, including comments regarding our financial outlook for the full year 2026 and anticipated timing and impact of our deleveraging efforts, the amount and timing of charges related to recent operating model and cost structure actions, the anticipated impact of various regulatory and operational matters, including ones related to our infusion pump platform and to clinical practice changes following Hurricane Helene, and commentary regarding the global macroeconomic environment, including tariffs and proposed mitigating actions. 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 details.
In addition, please note that on today's call, all 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's ongoing business performance. GAAP to non-GAAP reconciliation can be found in the schedules attached to our press release and off our investor presentation. On the call, we will reference operational growth, which excludes the impact of foreign exchange, MSA revenues from Vantive, and the previously announced exit of IV Solutions from China.
We will also reference organic growth, which excludes the impact of foreign exchange, MSA revenues from Vantive, and any impact from future business acquisitions or divestitures. We plan to utilize the organic growth measure going forward. Finally, as a reminder, continuing operations excludes Baxter's Kidney Care business, which is now reported as discontinued operations. With that, I'd like to turn the call over to Andrew.
Thank you, Kevin, and good morning, everyone. Fourth quarter 2025, global sales from continuing operations totaled $3 billion and increased 8% on a reported basis and 3% on an operational basis. Total company adjusted earnings from continuing operations were $0.44 per diluted share. While the top line exceeds our expectations, adjusted EPS fell short. Joel will get into greater detail on the results, but there were a few areas that differed from our expectations we provided in October. On top line, we saw a more modest net impact from Novum IQ Large Volume Pump customer returns, which was favorable to results. While responses have varied, in general, customers are waiting for additional clarity on the nature and timing of the additional corrections that we will look to deploy.
Margins were pressured by both an unfavorable mix of sales as well as some non-recurring items, including inventory adjustments. Finally, we saw a higher tax rate. The results in the quarter are disappointing and underscore the work ahead to improve performance and execute more consistently. I stepped into this role in August with confidence in the potential of the business, given the central role Baxter plays in healthcare, but also with a practical sense of the hurdles before us. As I've continued to visit our sites and engage directly with the team and customers, I've deepened my understanding of both the challenges and opportunities facing Baxter. We're in the early stages of a turnaround and have more work to do to deliver strategically, operationally, and commercially, and recognize that it will take time to implement real long-term solutions.
That said, there's a strong thesis on where we can take this business, and we saw some examples of this in the quarter's results. For example, the Advanced Surgery business capped off a great year with a strong quarter, growing 11%, with contributions both across the portfolio and around the globe. The Healthcare Systems and Technologies segment had another quarter of consistent performance, including a contribution from the recently launched Connex 360 monitor in the Front Line Care division. We're also preparing for the launch of the recently announced Dynamo Series Stretcher. The latest innovation in our portfolio of smart beds, services, and connected care solutions. Innovation will be a critical element to our success, and we recognize the importance of bringing new innovation into the market.
Accordingly, you should expect a heightened focus going forward and continued investment in R&D at or above historical levels. As I said during our last earnings call and reiterated last month, I am focused on three main priorities. These are stabilizing the areas of the business that require increased focus, strengthening our balance sheet, and driving a culture of continuous improvement and efficiency. We are moving with focus and urgency on each of these, and our teams are driving relentlessly to improve execution and performance across the enterprise. It is with this in mind that we have decided to hold off on our Investor Day.
Let me share a few updates on our priorities and the actions we have taken. Stabilize. Just a few weeks ago, we internally announced a new operating model that is designed to simplify our organization, accelerate innovation, and improve performance. Most significantly, we are delayering levels of leadership, including removing the segment management layer and embedding critical functional roles directly in each of our businesses. This will allow each leader to have full P&L responsibility for their business with fully aligned commercial, R&D, manufacturing, medical, and targeted functional support, and importantly, full accountability to the results.
These changes are significant and are designed to reduce complexity, eliminate barriers for decision-making, bring us closer to our customers, and help us to improve our say-do ratio. We've also taken actions within our IV Solutions business to rightsize a support footprint to align to the lower demand environment, which we believe is a new baseline in the market. In Pharma, in addition to market demand softness, supply and backorder challenges have impacted revenue and driven unfavorable product mix. Specific initiatives to address these are in progress.
However, it will take some time to bear fruit. Overall, across the enterprise, we are taking actions to further strengthen our focus on quality and improving on-time delivery, our two customer value creators. Balance sheet. We continue to focus on improving our cash generation and leverage. In line with our expectations, free cash flow generation exceeded $450 million in the quarter, and continuous improvement. As a reminder, operational efficiency is at the center of what we are driving. As you know, a key element of this is our Baxter Growth and Performance System, Baxter GPS, which we rolled out in October to ensure continuous improvement, enterprise efficiency, and a growth and performance mindset are integrated into our day-to-day work.
We recently held our first annual President's Kaizen, where I was impressed by the resolve each of our leaders demonstrated in driving change for the better, with a focus on 10 events that will drive cross-business impact. Through focused, week-long sprints, teams tackled critical opportunities aligned to our 8 value creators. The work underway is helping us reduce complexity, better anticipate customer needs, accelerate innovation, commercialize faster, and deliver value sooner. We are focused on improving every aspect of our operations, and we will be consistently measuring our performance to deliver just that.
Importantly, this is not a one-off event. It's how we're building a continuous improvement culture where everyone is empowered to make things better every day. Before I turn it over to Joel, I just wanted to reiterate the key steps we're taking. We have streamlined the organization for greater accountability. We have launched GPS to drive continuous improvement, and we have heightened our focus on innovation to better meet customer needs, all to drive improved performance and long-term shareholder value creation. Now I will turn it over to Joel. Joel, over to you.
Thanks, Andrew, and good morning, everyone. Fourth quarter 2025 global sales from continuing operations totaled $3 billion and increased 8% on a reported basis and 3% on an operational basis. Performance in the quarter reflects growth across all segments. On the bottom line, total company-adjusted earnings from continuing operations were $0.44 per share. Results in the quarter reflect unfavorable product and geographic mix, some non-recurring items, including inventory adjustments and a higher tax rate, partially offset by the positive impact from pricing in select segments. Now I'll walk through our results by reportable segment. Commentary regarding sales growth in 2025 will be on an operational basis. Sales in our Medical Products and Therapies segment, or MPT, were $1.4 billion and increased 4% in the quarter.
Performance in the quarter reflects growth in Infusion Therapies and Technologies, or ITT, as well as continued strength in Advanced Surgery products. Within MPT, fourth quarter sales from our ITT division totaled $1.1 billion and grew 1%. Performance in the quarter was driven by growth in IV solutions, which benefited from a favorable comparison to the prior year period, partially offset by lower infusion pump sales due to the previously discussed shipment and installation hold of Novum IQ LVP. Within IV Solutions, underlying U.S. demand remained below historical levels.
As previously discussed, fluid conservation practices embedded with clinical practice changes in the market following Hurricane Helene remained and continued to weigh on volumes. In infusion systems, results in the quarter reflected the net impact of lost sales due to the ongoing shipment and installation hold of the Novum IQ LVP, customer returns, and transitions to Spectrum. Relative to our prior guidance, this net impact was more modest in the quarter. While customer responses have varied, in general, many are understandably waiting for additional clarity on the nature and timing of additional corrections that we will look to deploy and of the release of the ship and installation hold. Sales of Advanced Surgery totaled $328 million and grew an impressive 11%. Results in the quarter reflect continued solid demand for our portfolio of hemostats and sealants, strong commercial execution across regions, and steady procedure volumes.
MPT's adjusted operating margin totaled 15.4% for the quarter, decreasing 110 basis points over the prior year period, and reflects increased manufacturing and supply costs, unfavorable product mix, inventory adjustments, and higher costs related to tariffs. These factors were partially offset by positive pricing in the quarter. Kidney Care TSA income positively contributed as well. In Healthcare Systems and Technologies, or HST, sales in the quarter totaled $827 million, increasing 4%. Within HST, sales of our Care and Connectivity Solutions, or CCS division, were $537 million and grew 4% globally. Performance in the quarter was driven by double-digit growth in our Surgical Solutions business and continued momentum across our Patient Support Systems portfolio.
Total U.S. capital orders for CCS increased nearly 30% compared to the prior year, driven by broad-based strength across Patient Support Systems, Care Communications, and Surgical Solutions, and our order book remains strong. To date, we have not observed a slowdown in U.S. hospital capital spending. However, given the broader macroeconomic uncertainty, we continue to closely monitor the situation.
Front Line Care sales in the quarter were $290 million, an increase of 3%. Performance in the quarter reflects increased demand in our cardiology and patient monitoring portfolios, which includes our recent launch of Connex 360. HST adjusted operating margin totaled 15.2 for the quarter, decreasing 330 basis points compared to the prior year. These results reflect unfavorable product and geographic mix, increased corporate allocation expenses, and higher costs related to tariffs. TSA income partially offset these increased expenses. Moving on to our Pharmaceuticals segment. Sales in the quarter totaled $668 million, increasing 2%. Within Pharmaceuticals, sales of our Injectables and Anesthesia division were $352 million and declined 9%.
Performance in the quarter reflects a decline in our injectables portfolio, driven by a difficult comparison to the prior year period, as well as softness in certain pre-mix products, largely consistent to the dynamics discussed last quarter related to IV infusion protocols and increased use of IV push in select hospital settings. Our anesthesia portfolio declined high single digits, reflecting softer demand for select inhaled anesthesia products. Drug Compounding grew 18% and reflects continued strong demand for our services outside the U.S. Pharmaceuticals adjusted operating margin totaled 5.8 for the quarter. These results reflect increased manufacturing and supply costs, an unfavorable product mix, price erosion, inventory adjustments, and increased corporate allocation expenses following the sale of Kidney Care.
These expenses were partially offset by Kidney Care TSA income. Finally, other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain manufacturing facilities, were $7 million in the quarter. MSA revenue from Vantive totaled $84 million. As a reminder, these sales are included in our reported growth. However, they are not reflected in our operational growth for the quarter. Before moving on to the rest of the P&L, an important reminder on our continuing operations reporting. Following the sale of our Kidney Care business, certain corporate costs that did not convey with the business are now allocated across our segments in both cost of goods sold and SG&A, along with income from the TSA, which is currently recognized within other operating income.
In addition, as previously discussed, we reclassified certain functional expenses from SG&A to cost of goods sold beginning earlier this year. These costs support manufacturing and are now treated as indirect expenses, subject to inventory capitalization and recognized in cost of sales when sold. Fourth quarter adjusted gross margins from continuing operations were 35.5%, a decrease of 900 basis points compared to the prior year. Fourth quarter adjusted SG&A from continuing operations totaled $637 million or 21.4% of sales, a decrease of 330 basis points from the prior year period. Results reflect disciplined expense management and the benefit from the reclassification of certain functional costs.
Adjusted R&D spending from continuing operations in the quarter totaled $116 million, or 3.9% of sales, which came in lower than our expectations. This reflects the reclassification of certain product support and sustaining activities into cost of sales, and therefore does not reflect our anticipated level of R&D spend going forward. TSA income and other reimbursements totaled $50 million in the quarter and came in line with our expectations. As previously discussed, the associated expenses related to this income are reflected in other lines of the P&L, including cost of goods sold and SG&A. Altogether, these factors resulted in an adjusted operating margin of 11.8% on a continuing operations basis, a decrease of 340 basis points compared to the prior year period.
Results reflect unfavorable product mix and non-recurring items, including inventory adjustments, partially offset by positive pricing in select segments and the benefits of TSA income. Net interest expense from continuing operations totaled $58 million in the quarter, a decrease of $32 million versus the prior year period, reflecting lower interest expense following the paydown of existing debt with proceeds from the Vantive sale. Adjusted other non-operating income totaled $15 million, driven primarily by amortization of pension benefits compared to the prior period. The continuing operations adjusted tax rate for the quarter was 27.2%, driven primarily by mix of earnings across jurisdictions. In total, adjusted earnings from continuing operations were $0.44 per share for the quarter. Before turning to our 2026 outlook, I want to comment on cash flow and liquidity.
Fourth quarter free cash flow was $456 million, bringing full-year free cash flow to $438 million. Performance in the quarter reflects improved cash flow generation and seasonality, including progress across select areas of working capital, as well as continued focus on execution as we close out the year. We continue to focus on strengthening cash flow generation and maintaining discipline around working capital, foundational elements of our financial strategy. Improving the balance sheet continues to be a key area of emphasis, and we intend to deploy cash towards reducing leverage in line with our capital allocation framework. Now, our outlook for the full year of 2026, including some key assumptions underpinning the guidance. For full year 2026, we expect total sales growth to be flat to 1% growth on a reported basis.