Becton, Dickinson and Company (NYSE: BDX) had a tough second fiscal quarter. Some of it was expected: There was a difficult comparison given a couple of one-time factors that benefited the year-ago quarter. Some of it wasn't all that important: Distributors adjusted their inventories, which lowered sales in the quarter, though demand is what's important in the long term. And some of it could be a bigger deal: The Food and Drug Administration warned about the long-term effects of a class of products that the company has exposure to.
Fortunately, the second half of the fiscal year should be easier, with growth in adjusted earnings far outpacing revenue growth -- the medical device company looks to continue cutting costs as it enters its second year after the acquisition of C.R. Bard.
BD results: The raw numbers
Income from operations
Earnings per share (EPS)
Data source: Becton, Dickinson.
What happened with BD this quarter?
- Changes in currencies affected the top line. Revenue was up 3.4% year over year on a comparable currency-neutral basis.
- The medical segment saw growth of 0.4%, or 3.8% on a comparable currency-neutral basis. The medical management solutions, diabetes care, and pharmaceutical systems businesses are growing well, but the segment was negatively affected by distributors adjusting inventory levels.
- Revenue from the life sciences segment dropped 4.2%, although on a comparable currency-neutral basis it was up 2.7%. The slow growth was expected given the strong flu season in the year-ago quarter.
- The interventional segment saw revenue increase 1.1%, or 3.5% on a comparable currency-neutral basis. The segment also had a tough comparison to the year-ago quarter, when there was a bolus of sales that were pushed from the first to second fiscal quarter of 2018, because of disruptions caused by Hurricane Maria. Peripheral intervention, which treats things such as end-stage renal disease, was the star of the segment with revenue up 3.8%.
- In mid March, the FDA warned about potential increases in long-term mortality in patients treated with balloons and stents coated with paclitaxel. Becton Dickinson sells Lutonix drug-coated balloons (DCBs), which were affected by the warning. Given the late-quarter news, it didn't have a major effect on the quarter, but will affect subsequent quarters.
Image source: Getty Images.
What management had to say
Chairman and CEO Vincent Forlenza talked about future cost synergies from the Bard integration, as the company works on saving $300 million over three years:
As we look out into 2020, we would be looking at more of the operational kind of synergies like plants and distribution centers and that kind of thing. So, we're right on track where we expected to be from a cost standpoint. The same is true on the revenue synergies; as we said, we invested to get some revenue synergies.
Forlenza also talked about the new BD FACSDuet flow-cytometry system used for diagnostic testing:
The BD FACSDuet system raises the bar on flow-cytometry automation, offering a fully integrated sample-to-answer solution with the BD FACSLyric clinical flow cytometer. This is a new fully automated sample preparation instrument; [it] enables clinical laboratories to improve their efficiency by reducing errors and limiting the manual user interactions required to run assays on the BD FACSLyric. We also started shipping the new 12-color FACSLyric, further enhancing the capabilities of this platform
Management is sticking with its 2019 revenue guidance of 5% to 6% on a comparable, currency-neutral basis. That factors in expected lower sales of DCBs, so the low end of guidance seems like a reasonable assumption. On a reported basis, revenue growth was ratcheted down, but that was just due to changes in currency exchange rates, which are out of the company's control.
The DCBs will affect the bottom line, though, and management now thinks adjusted diluted EPS will fall between $11.65 and $11.75; that's growth of around 12% on a currency-neutral basis, down from previous guidance of growth in the 13% to 14% range. Nevertheless, 12% is still solid earnings growth, boosted by cost savings.
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