CORRECTED-UPDATE 4-Baxter net beats Street view

(Corrects to remove extraneous words from paragraph two)

* Q2 shr 96 cents vs 85 cents year ago; beats Street view

* Quarterly sales dip 2 pct; foreign exchange rates weigh

* Raises full-year outlook

* First H1N1 vaccine batch ready by late July/early August

* Shares up 3.6 percent (Adds conference call, stock movement, byline)

By Debra Sherman

CHICAGO, July 16 (Reuters) - Baxter International Inc BAX.N, which makes blood therapy, kidney dialysis products and vaccines, reported higher-than-expected quarterly net earnings on Thursday, as improved margins helped outweigh the negative impact of foreign exchange rates.

The company also raised its profit outlook for the full year and disclosed details about its H1N1 pandemic flu vaccine program, calling it a “material opportunity” while saying it’s too soon to speculate on the financial upside.

Baxter shares were up nearly 4 percent after reaching their highest level since March.

The stock rallied after the company reported its net earnings rose to $587 million, or 96 cents per share, in the second quarter from $544 million, or 85 cents per share, a year earlier.

The average forecast on Wall Street was for a profit of 94 cents per share, according to Reuters Estimates.

Sales fell 2 percent to $3.12 billion from $3.19 billion, but would have risen 8 percent if not for the stronger dollar, which reduces the value of revenue from overseas.

Revenue in Baxter’s Bioscience business rose 2 percent to $1.4 billion. Excluding foreign exchange, revenue was up 13 percent, buoyed by growth in antibody therapies and other specialty plasma therapeutics.

Revenue fell 3 percent to $1.1 billion in Medication Delivery and dropped 8 percent to $550 million in Renal.

“Here’s another quarter where things are just clicking along,” said Edward Jones analyst Aaron Vaughn, who has a “buy” rating on the stock. “They don’t seem to have been impacted by macro economy, and we’re looking more of the same.”

In a conference call, Baxter Chief Executive Robert Parkinson said the company remained insulated from weak global economic conditions because of the medically necessary nature of its products.

For that same reason, he said he did not expect healthcare reform in the United States to hurt demand.

Baxter forecast full-year earnings of $3.76 to $3.80 per share, excluding items, up from an April outlook of $3.72 to $3.78.

For the third quarter, the company said it expected profit of 95 cents to 97 cents a share, before items.

Based on current foreign exchange rates, the company said it expected sales growth to be flat in the third quarter and for the year.

The outlook assumes no benefit from H1N1 vaccine sales.

Parkinson said he expected Baxter’s vaccines -- both seasonal and pandemic -- to be a sustainable business for years.

“I think what the world is in the process of recognizing is the threat of pandemic is with us and it will likely stay with us,” he said.

As recently as six months ago, the focus was on H5N1, or avian flu, he said. Then came H1N1.

“Clearly there is a high degree of concern that the strains are going to continue to evolve and manifest themselves in different ways,” he said. “It’s very possible that the vaccines that are being produced for H1N1 right now will not be effective as the strains mutate and evolve over time.”

He said Baxter should be ready to ship H1N1 vaccines by the end of July or early August, adding that the company cannot take any more orders.

Baxter has taken five orders for a total of 80 million doses, not all of which can be filled in 2009, Parkinson said.

Parkinson also said the company had putting a greater focus on acquisitions to support its growth.

Baxter shares were up 3.6 percent at $54.99 in morning New York Stock Exchange trading after rising as high as $55.35.