Yahoo Finance Becton, Dickinson and Company (NYSE:BDX) Q1 2024 Earnings Call Transcript
Becton, Dickinson and Company (NYSE:BDX) Q1 2024 Earnings Call Transcript February 1, 2024
Becton, Dickinson and Company beats earnings expectations. Reported EPS is $2.68, expectations were $2.39. Becton, Dickinson and Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to BD's First Fiscal Quarter 2024 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website investors.bd.com or by phone at 800-688-7339 for domestic calls and area code +1 402-220-1347 for international calls. For today's call, all parties have been placed on a listen-only mode until the question-and-answer session. I will now turn the call over to Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations.
Greg Rodetis: Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2024. We also posted an earnings presentation that provides additional details on our business, strategy and performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's calls are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy.
Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 2024. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted.
When we refer to any given period, we are referring to the fiscal period unless we specifically noted as a calendar period. I would also call your attention to the non-GAAP reconciliations included in the appendices of the press release and earnings presentation. With that, I’m very pleased to turn it over to Tom.
Tom Polen: Thanks, Greg. Good morning, everyone, and thank you for joining us. Earlier today, we reported our results for the first quarter. Overall, we executed Q1 as expected. Total revenue growth was largely in line with our expectations. And on the bottom line, adjusted EPS was ahead of our expectations due to good execution on our margin goals through our BD Excellence operating system and the timing of discrete tax item. Also consistent with our plan, we delivered very strong growth in cash flow that positions us well to deliver another year of growing free cash flow double-digits. I want to thank our team of over 70,000 associates for the strong execution, agility and unrelenting determination to deliver for our customers, patients and shareholders.
These results give us the confidence to increase our FY '24 guidance. Turning to our BD 2025 strategy. During Q1, we continued to execute well against the five actions we outlined at our Investor Day to drive profitable growth and value creation. This includes continuing to advance our innovation pipeline which supports our durable 5.5% plus targeted revenue growth profile. We remain focused on advancing innovation in high growth areas, anchored against three irreversible forces we see reshaping healthcare today and over the next decade, connected care, new care settings and chronic disease. Specifically in Q1, we made meaningful progress achieving several key R&D milestones for technologies that position BD as key enablers of care shift in new settings.
In our PureWick portfolio, which is now the market's leading platform for non-invasive urine management in a billion dollar market growing double-digits. We started our randomized clinical trial pilots for PureWick Female to generate evidence to support future at-home reimbursement. Our PureWick program is progressing well and we remain on track to launch our next-generation Female External Catheter later this fiscal year, which will provide a better patient experience in a more dignified way for women to manage their urinary incontinence. In Q1, we received 510(k) clearance for our new BD MiniDraw Capillary Blood Collection System. Based on a recent study, two-thirds of patients prefer MiniDraw's finger-stick collection in a retail setting over a previous experience with the traditional Venous blood draw.
Since it does not require a phlebotomist, MiniDraw can expand access to sample collection for several routine blood tests to new settings such as retail clinics and pharmacies. And lastly, in molecular diagnostics, we initiated clinical trial enrollment for the BD Elience Point-of-Care Molecular platform. In our first assay, a rapid CT/GC test for in-office testing and treatment. BD Elience enables BD to enter into the high growth molecular point-of-care market. We continue to see molecular diagnostics as a strong growth catalyst as evidenced by double-digit growth this quarter in our BD COR and BD MAX platforms where we continue to leverage our growing installed base through menu expansion with more than 20 assays currently available on BD MAX.
Both NextGen PureWick and BD MiniDraw are on track to launch later this fiscal year and we anticipate our first 510(k) submission for the BD Elience system and our first assay this fiscal year as well. Regarding Alaris, servicing our customers and bringing all Alaris pumps in the field up to the cleared standard remains our priority. Customer response has been very positive with strong momentum, engaging with customers. And while it is still early in the process, I'm pleased with our progress and as we recently shared, we now believe $200 million as the floor on revenue in fiscal '24. We are also executing well on our broad simplification strategy to drive margin expansion and a double-digit base EPS CAGR through FY '25. This includes accelerating adoption of our BD Excellence Operating System, which focuses on the application of lean principles to drive excellence everywhere, every day across our plants and business and is driving productivity gains across our operations.
In FY '23, we held 18 week-long Kaizen events. And in Q1 FY '24 alone, we executed as many, a trajectory, which will continue through the rest of FY '24. We've deployed this mindset outside of our factories, driving greater efficiency through the organization at all levels. Our BD Excellence Operating System is an important new capability we're building to drive a world-class culture of continuous improvement and lean management throughout BD. We also progressed our Project Recode initiatives including our network optimization effort to drive plant efficiencies. We have multiple site consolidations either completed or underway to reduce our footprint by approximately 20%. The combination of BD Excellence with our recode network architecture program is supporting our FY '24 goals, contributing to our plan for 25% operating margins in FY '25.
And also, now providing visibility for continued margin expansion beyond FY '25. We're also seeing our systematic focus on cash flow continuing to yield results. Through working capital efficiencies and our BD Excellence Operating System, driving more efficient CapEx spend, we delivered over $850 million in operating cash flows in Q1. This strong execution to start the year positions us well to deliver double-digit growth in free cash flows in FY '24 and positions us to capitalize on M&A opportunities in higher growth categories and opportunistically return cash to shareholders. Lastly, our teams around the world continue to make meaningful advancements on our ESG strategy. Just last week, we announced a collaboration with the Kenyan government to advance access to critical cancer diagnostics for women in Kenya through self-sampling, furthering our commitment to expanding health equity and access around the world.
We see the power of the cell sampling model is applicable across other underserved markets, as well as in the U.S. In summary, I'm pleased with the progress we made in Q1 and the solid margin execution, which enables us to raise guidance for fiscal 2024. With strong progress of our innovation pipeline and growing momentum from BD Excellence and our simplification programs, we believe we are well positioned to achieve our BD 2025 goals. With that, let me turn it over to Chris to review our financials, guidance and outlook.
Christopher DelOrefice: Thanks, Tom, and good morning, everyone. As Tom noted, we executed well against our performance goals in Q1. Q1 revenue growth was largely as we expected and I'm pleased to share we exceeded both our margin and earnings goals and delivered strong cash flow that positions us well to support our double-digit free cash flow growth goal. I'll now provide some insight into our revenue performance in the quarter. Additional detail can be found in today’s earnings' announcement and presentation. Q1 revenue was $4.7 billion with organic growth of 2.4% that was driven by high-single digit organic growth in BD Interventional and solid growth in BD Medical with China market dynamics playing out as expected, partially offset by a decline in BD Life Sciences, which was impacted by the comparison to the prior year respiratory season.
As expected, China and respiratory were the primary drivers of Q1 revenue growth under indexing our full year goal. The respiratory season alone impacted total company growth by about 150 basis points. Regionally, organic growth was driven by the U.S., EMEA and Latin America, partially offset by the expected decline in China. Total Q1 revenue growth of 1.6% reflects the divestiture of our surgical instruments platform. Turning to the segment performance. BD Medical revenue totaled $2.2 billion in the quarter, growing 2.4%, driven by growth and medication management solutions and pharmaceutical systems, min-single digit growth in MMS was led by strong performance in dispensing, driven by innovations in our BD Pyxis portfolio that are improving nursing workflows and efficiencies.
In our infusion business, we are pleased with our strong progress, bringing the BD Alaris Infusion System back to the market and continue to expect Alaris to ramp over the course of the year. Infusion also reflects strong demand for IV sets. Performance in Pharmacy Automation reflects the comparison to an outsized quarter in the prior year and the timing of planned capital installations. Growth of 3.4% in Pharmaceutical Systems was in line with our expectations and was led by strong double-digit growth in pre-filled devices for biologics and as expected, was partially offset by customer inventory dynamics, including a slowdown in demand for anticoagulants. Growth in Medication Delivery Solutions was about flat and slightly ahead of our expectations.
Our Vascular Access Management strategy continues to drive strong performance particularly in Catheter Solutions. As expected, MDS growth was impacted by market dynamics in China including volume based procurement, which continues to play out within our expectations. BD Life Sciences revenue of $1.3 billion declined 2.5% which reflects a decline in IDS as a result of a tough comparison in the respiratory season worth nearly 500 basis points. It was partially offset by strong growth in biosciences. Performance in IDS reflects the tough comparison in respiratory testing that was partially offset by high-single digit growth in our Microbiology platforms and double-digit growth in Molecular IVD assays on both our BD MAX and BD COR platforms. Biosciences grew 5.7% as expected despite a strong comparison in the prior year.
BDB performance was driven by strong mid-single digit growth in our research and clinical platforms that reflects double-digit growth in research instruments, driven by strong demand for our recently launched BD FACSDiscover S8 Cell Sorter and double-digit growth in Clinical Reagents as we continue to leverage our growing installed base of FACSLyric and FACSDuet solutions. BD Interventional revenues totaled $1.2 billion in the quarter, growing 4.7% and 8.4% organic, which excludes the impact of the surgical instruments divestiture. BDI organic growth was led by surgery and UCC. In surgery, double-digit organic growth was led by continued market adoption of our leading Phasix resorbable hernia products in our advanced repair and reconstruction portfolio and strong demand for our ChloraPrep infection prevention solution.
High-single digit growth in urology was led by strong double-digit growth in our PureWick chronic incontinence solutions with continued strong demand in both the acute care and home care settings. Mid-single digit growth in PI was in line with our expectations and reflects growth across the portfolio. It was partially offset by the expected timing of distributor orders. In our peripheral vascular disease platform, we continue to drive market penetration with our Rotarex Atherectomy System and our Venous portfolio. Performance in our oncology business was driven by growth in biopsy, including strong market acceptance of our recently launched BD Trek powered bone biopsy system. Now moving to our P&L. Adjusted gross margin of 51.1% and adjusted operating margin of 20.2% were ahead of our expectations due to good execution on our margin improvement goals across our portfolio of simplification initiatives and strong SSG&A expense leverage.
R&D spend was in line with our expectations. In addition, as we previously shared a discrete tax item that was contemplated in our full-year tax rate was realized in Q1. As a result of these items, we exceeded our Q1 operating income and our adjusted diluted EPS expectations, resulting in an EPS of $2.68. Regarding our cash and capital allocation, Q1 cash flows from operations totaled over $850 million. This reflects continued improvements around working capital, including good management of inventory levels, continued discipline around CapEx investments and leveraging our fixed asset base as a result of the benefit from our simplification programs and BD Excellence Operating System. We remain focused on free cash flow conversion and expect another step improvement in FY '24.
As we execute against our BD 2025 strategy, we also remain well positioned to achieve our long-term cash conversion target of around 90%. Beyond our investments in growth, we returned $775 million in capital to shareholders, including dividends and $500 million in share repurchases. We ended Q1 with a cash balance of $1.2 billion and a net leverage ratio of 2.7 times. Moving to our updated guidance for fiscal '24. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Based on our Q1 performance, including the strong momentum in many parts of our business and progression of our margin improvement initiatives, we raised the midpoint of our FY '24 organic revenue growth guidance, and raised our adjusted EPS guidance, increasing the midpoint by $0.09.
The increase to adjusted EPS reflects Q1 operational outperformance and a small improvement in FX. As a result, we now expect to deliver organic revenue growth of 5.5% to 6.25%, which increases our midpoint to slightly above 5.8%. We now expect adjusted diluted EPS, including the impact of currency to be in a range of $12.82 to $13.06, which reflects about $12.94 at the midpoint. Regarding foreign currency based on current spot rates, for illustrative purposes, currency has improved modestly and for the full year is now estimated to be a headwind of approximately 25 basis points to total company revenues and approximately 360 basis points to adjusted EPS growth on a full year basis. As you think of phasing over the balance of fiscal '24, the following are some considerations.
First, we continue to expect organic sales growth to be higher than our full year range in the second half, partially driven by the expected ramp in Alaris along with the easing of prior year comparisons, such as China. Second, our updated guidance reflects an improved margin cadence over the balance of the year. Specific to Q2, adjusted gross margin is in line with our prior expectation and continues to reflect significant sequential improvement given the lessening impacts from inflation, prior year inventory reductions and FX. We now expect Q2 adjusted operating margin to expand by 25 basis points to 50 basis points year-over-year, driven by our continued margin improvement efforts and continued leverage in SSG&A. Third, the discrete tax item realized in Q1 was largely a shift from Q2 and results and revised phasing of our full year effective tax rate.
Based on this timing dynamic, we currently expect our Q2 tax rate to be nearly 17%. We expect strong operating performance to offset the tax phasing impact, and as a result, there are no changes to our expectations for Q2 adjusted earnings per share. Lastly, we remain confident in delivering about 50 basis points of adjusted operating margin improvement for the year. As a reminder, the first half inventory impact is transitory and behind us as we exit Q2. And as FX and inflation moderate at a meaningful rate to the back half, coupled with a continuation of the first half margin improvement, we expect to deliver from our strong simplification portfolio, we can naturally achieve our second half margin goals. In summary, based on the strength of our portfolio and new innovation, we have clear line of sight to deliver our FY '24 revenue guide which at the midpoint is above our 5.5% plus target and results in a three year CAGR of nearly 7% growth.
I'm pleased with the continued strong execution by our talented organization to start the year, which supported over delivering on our margin and operating income goals and increasing our earnings outlook. With a strong quarter of cash flow, we remain well positioned to deliver another year of double-digit free cash flow growth, which increases our capacity to support additional value creating opportunities including M&A. We remain well positioned to continue to deliver against our BD 2025 strategy and financial targets. With that, let's start the Q&A session. Operator, can you assemble our queue?
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