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We'll see lower than expected freight. And we are only targeting roughly 75 basis points or in excess of 75 basis points, because we don't have a big commodity easing assumption in the numbers that we're sharing. To the extent that materializes, certainly that could be an upside, but we're not banking on that at this point. We're banking on living in a challenging commodity world for for the most part, along with a supply constrained world. Those two items are very big uncertainties. I'm hopeful that we take a conservative decision and those break our way over the course of the year.
But we'll have to watch that very carefully. Rick Wise of Stifel is on the line with a question. Rick Wise. Good morning, Joe. Hi, Jay. I thought I'd focus on Hillrom which you described as down mid single digits. First, I wanted to understand is the decline -- if I think of Hillrom maybe as a mid single digit-ish kind of grower, it was a decline -- to what degree was it integration bumps with Baxter, to what extent was it components?
Was it all supplying components? And Joe, when do you think -- based on what you know today, Hillrom could return to being Hillrom for you? Is it going to take into '24? Do you think it's second half of next year? And then I have a follow-up question also related to Hillrom. Rick, I'm going to have Jay answer that.
And I'll close answering the question, but Jay should start. Yes, sure. And what's interesting is that the demand for Hillrom products remains incredibly strong. We've seen historic levels of backlog in our front line care business. We've seen backlog in our PSS business as well. So as we look at the portfolio of products, the innovation, the complementarity with the Baxter portfolio, we're incredibly excited.
And the environment for their orders has been fairly strong throughout the year, it's been fairly consistent. But we've had severe supply constraints. And so without supply constraints, Hillrom would have been probably flat in the third quarter, and on a year-to-date basis would be growing close to mid single digits, which I would characterize as kind of where we would have hoped it would have been.
But with these supply constraints that have been extremely challenging, in particular, in the case of front line care, it's been hard to get to the sales level that we hoped for. So Joe, maybe you want to add to that. Rick, we have done as a company a very thorough integration job here. Our synergies are coming higher, much higher than we had estimated in the first year of the integration. Our supply chain people had to come into Hillrom and do a lot of work to reestablish lines of supply into the business.
When the semiconductor prices hit, Baxter was better prepared to handle the Hillrom loss. And what we did is we put our best to handle issues, primary front line care. The supply chain really came through for us and today is doing a much better job as a matter of fact.
We had better performance that we planned in front line care in the third quarter, because we're able to get the products out of the door. We also have extremely competent management in both businesses. So we are very confident in the business we purchased.
The business has the ability to perform. We will fix the supply chain issues as we're currently doing. And we'll be able to get back the Hillrom that we made assumptions to buy. As you heard from Jay, our growth would have been ex supply chain what we had expected to be. So I think Baxter brought to Hillrom a combination of great portfolio. Hillrom brings with great management and discipline than Baxter has to replace the team that was there and was able probably to do in the long term a better job of this combination.
Got you. Maybe I'll change the topic, but for my follow up you talked about passing on the cost pressures and you're in the process or you're well along signing new price agreements. How do we think about the impact and just even touchy feely, Jay, how do we sort of factor that into our thinking as we look ahead to '23 that you could have another 50 basis points of price on half the portfolio? Any extra depth or color perspective would be great.
Thank you so much. Rick, they are great questions. So we're going to split Jay and me here. But let me start by saying that we do not comment in pricing on general course of business.
But as Baxter has taken so much into input costs that went up significantly in the last two years, we are very focused in recouping a portion of that, if all possible.
So we already had, as I mentioned, price actions throughout the year. But I would say that beyond what I have said, I'm not going to comment on any specifics about pricing discussions or agreements with our customers.
But I can say to you, in my opening remarks, as I said, we strongly prefer to build on our long-term relationships with our customers to reach agreements on how best to share an increased cost of delivering products to them, which causes a significant amount of more money, because the cost of oil, the cost of logistics, cost of raw materials, cost of labor and everything that goes in. But to the extent that we do not reach agreement with any customer, we will, of course, continue to evaluate the options in front of us to recover the increased costs of our delivering and on our mission to serve patients.
It is an incredible company. We would like there to be a partnership with our suppliers that continue to understand that for us to deliver what we're delivering to them and the innovation in the products, we need that partnership to continue on.
So I'll end there and pass on to Jay. Rick, I don't want to get into too much detail on specifics around price and what pieces of the portfolio and so on.
But it's safe to say we expect price will be a positive contributor to our numbers next year in The other thing I would say is it is something that we look at in every single market, in every product line. Because in every one of our areas, we have been challenged with very high levels of inflation, very high levels of incremental costs.
So from our perspective, we really have to challenge every sale to make sure that we're garnering enough profit from it and offsetting some of the significant costs that we've had. Pito Chickering of Deutsche Bank is on the line with a question. Pito Chickering. Good morning, guys. Thanks for taking my questions. You mentioned that you haven't seen any cancellations due to hospital CapEx pressures and that the backlog remains full here. How do you look at new orders on that backlog versus supply issues sort of keeping that backlog high?
And are you seeing any impact to new sales versus stroke levels as hospitals struggle with lower margins and lower cash flows? We have seen sporadic cancellations of orders in institutions that are small and have labor issues in implementing CapEx projects that sometimes are large.
But for the most part, we haven't seen that wave of retraction of capital programs. As a matter of fact, if we could make 3x, 4x more infusion pumps, we would have sold I believe those pumps.
If we had made twice as many of our monitors, we would have sold the monitors. So it becomes a little different when it comes to beds. Beds are a larger implementation. And software, software like nurse call buttons, software like phones becomes more elaborate. Those are the ones that sometimes we see postponement. Not because the price for more, because of the labor, not because of the cost, I should say, but more because of the labor. So at the moment in time, I don't believe we're seeing a retraction in the capital market.
We're seeing a high cost of labor for hospitals and a shortage of labor that makes difficult for them to undertake large programs sometimes. Okay, fair enough. And then on the semiconductor side, the macro data shows that the pressure peaked sort of into 2Q, has been improving sort of during 3Q. So curious if you see any semiconductor shortage improvement from July versus October? So a couple of things I would say related to this question.
First, the vast majority of the sales impact relates to semiconductors. There are other select areas where we have seen meaningful impact. For example, in our nutrition business, there are certain ingredients and vitamins that we're unable to secure due to supplier challenges. And that's had an impact as well, but the majority relates to semiconductors.
Now, as it relates to your semiconductor question, the type of semiconductor used in medical devices is a little bit different than standard semiconductors that are used in the highest tech products available today. And so while there has certainly been a curtailment of demand for some of these consumer products, the size of the semiconductor that we use does not benefit from this curtailment of demand and normalization of supply.
And I would even say, for some semiconductor manufacturers, they are seeing inventory levels build of the super thin semiconductor. And so we just have not yet seen this normalize in our case where we are all hands on deck working to secure the components that we need. And we'll continue to do that. But this is something that, as I've said, we don't have a pathway for this getting resolved in the immediate term.
Joe, I don't know if you'd like anything to that. More so what we're doing is because we're seeing this issue with the semiconductor manufacturers, not all chips are created the same. So you hear Intel sales are down quite a bit in PCs. This is good news for our chips, it's not. We don't use the same chips at all. We actually use very little, very few chips from Intel, for instance.
Our chips are IoT, Internet of Things. They are much thicker and they are chips that are using better software. So because of that, we work very close now directly with companies. We're being very successful with few companies who are working very well with us.
But what we also do is start a redesign program for our boards. We have identified critical components and we have started a process in our Reno business to redesign 30 of our boards with one of our suppliers and we have front line care programs started by now to replace six key semiconductors that may be constrained in the next 18 months with a redesign of boards.
So redesign of boards is not as simple as everybody think. It is not a plug and play, because the form and fit and function of the semiconductors change.
We have to redesign the board. We have sometimes to revalidate and clinically revalidate the board. So saying just that we're redesigning boards [indiscernible] is not. It is all hands on deck is finding new ways to deal with our current suppliers, it is buying directly from them, buying through brokers throughout the world, inventory there is available as well as redesigning the boards so we can have alternates that can be put in, in the future.
So we became a much more sharp company when it comes to semiconductors and boards and this process in fact is very painful. We had to acquire significant expertise in this area. And Joe, just to sort of follow up on the first question just to make sure I have this right.
You're saying that new orders for capital equipment in the last 90 days in is in line or better than it was at this time in for new orders? Thanks so much. No, I'm saying that in , this time of the year and last year in , we were not -- we did not own Hillrom, but their orders were extremely high.
What I'm saying to you is we have not seen our book of business be affected by capital constraint. Now and going forward, what we see is delays in some accounts due to labor shortages in primary large installations.
But we have continued dialogue with everyone about our orders. As a matter of fact, I'm planning to see in the first quarter next year a large installation that we're going to probably be doing in hospitals in the U. So I don't see -- we don't see today a significant change in the order pattern in capital. That's what I meant. I'm not comparing to , which has significant high rental revenue into Hillrom, because the COVID effect primarily as you know coming out of the summer is going to Omicron in October and November of last year.
Joanne Wuensch of Citi is on the line with a question. Joanne Wuensch. Thank you for taking my question. Briefly, it sounds like you have significant back orders and backlogs. What is happening to those orders? Are they being fulfilled by somebody else? Are they just piling up so that at some stage in the future, they get met?
And I'll toss my second question at the same time? It sounds like you're also working to get better expense synergies out of Hillrom. Is there a way to quantify what you think those may be now versus what you thought they would be before? So from a backlog standpoint, overall, we are seeing those orders for the most part stay in place.
We're not seeing others take share as a result of these constrained supply environment that we have in place. Frankly, a number of manufacturers have similar challenges. Now, the question is how long will those orders remain? In some cases, if they're short-term needs, then those are things that perhaps might be impacted. But as we think about longer term for the most part, I think that these sales will represent some level of opportunity in the future.
As it relates to Hillrom, we feel very good about where things are trending with the exception of the constraints that we have in place. And so we highlighted increased incremental cost capture at the May Investor Day and we're still trending along those lines, very much in line with that with increasing confidence.
I think it's important because we have some big step ups as we move to and in terms of incremental cost synergies. What's great at this point is, as we sit here today, we feel we have clear line of sight and continue to make progress towards those numbers. So I think, as far as that goes, it's a very good story. We have Joshua Jennings of Cowen on the line with a question. Joshua Jennings. Good morning. Joe, I wanted to ask just about connected care initiatives and just how -- anything you can share just on progress post the Hillrom acquisition on developing these connected care technologies or programs?
And how should we be thinking about updates and tracking the progress? And then maybe just a second question for Jay, just thinking about the target of getting down to 2. Just help us think through some of the puts in takes and your confidence level in terms that you are on pace to hit that target?
Thanks for taking the questions. Josh, good morning. So we are seeing several programs where we are working across divisions in the connected care. And we are seeing several programs from basic creating unified portals to access EMR systems in hospitals, to features that can be enabled by commonality and connecting the devices.
So there's a lot going on. I think we should give an update to investors probably in the first quarter of about where we are with this connected care programs. So we have a brand new group that is now across Baxter that is looking at this and creating opportunities. So we're making good progress in this area.
As you know, we're really focused on maintaining solid investment grade credit ratings. We define that as BBB. So the rating that we currently have is one that we're maintaining. And in order to do that, we want to make very good progress towards the 2.
I would say that from a cash flow standpoint, this year has fallen short of our expectations. And I would say that, of course, we've had some challenges on the income statement. But as we look at inventory, we've had a fairly substantial inventory build over the course of the year, which is interesting, because of what's happening is you have a pump, which is lacking one critical component. And so you're unable to sell that pump until you get that critical component.
For example, we also saw extended shipping lane times over the course of the year and increases in the cost of our inventory due to our suppliers. And so for all those reasons, we've had a very challenging year from an inventory standpoint. I would note that in the third quarter, we did see a decline in inventory.
And we are expecting a fairly substantial improvement in free cash flow in the fourth quarter, as is typically the case. But here's the interesting thing. While net income growth next year is low, free cash flow growth we expect to be substantial. And so we're still finalizing our plans. But you're going to start to see a very significant acceleration of free cash flow growth as the inventory situation normalizes over the next one to two years. And that will really support some of the work that we're doing to get to 2.
Ladies and gentlemen, that is all the time we have today for questions. This concludes today's conference call with Baxter International. Thank you for participating. SA Transcripts Clare Trachtman Good morning, and welcome to our third quarter earnings conference call. James Saccaro Thanks, Joe, and good morning, everyone. Question-and-Answer Session Operator Thank you.
Travis Steed Hi. James Saccaro Sure. James Saccaro Okay, great. James Saccaro Thanks, Travis. Travis Steed Thanks. James Saccaro So as it relates to EPS, I think there's a little bit of EPS growth as we look at it based on some of the non-operational items impacting us, but we do expect some level as we look at it. James Saccaro Okay. Travis Steed Really helpful color. Robbie Marcus Great, thanks.
Robbie Marcus Great. James Saccaro Thank you. Operator Rick Wise of Stifel is on the line with a question. Rick Wise Good morning, Joe. James Saccaro Yes, sure. Rick Wise Got you. Rick Wise Thank you very much. James Saccaro Thanks. Operator Pito Chickering of Deutsche Bank is on the line with a question.
Pito Chickering Good morning, guys. Pito Chickering Okay, fair enough. Pito Chickering Okay, great. Pito Chickering Great. Thanks so much, guys. Is this an emergency? Will this replace an existing piece of equipment?
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