Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Becton Dickinson & Co (BDX, Financial) reported mid-single-digit organic revenue growth of 5.2%, demonstrating the durability of their portfolio.
- The company achieved over 18% adjusted earnings per share growth and raised their earnings guidance for fiscal 2024.
- Strong execution led to over 100% year-to-date growth in free cash flow, with an 80% free cash flow conversion rate.
- The BD Excellence operating system contributed to significant sequential and year-over-year adjusted gross margin increases.
- The company is making progress with its BD 2025 strategy, including the successful integration of the critical care acquisition, which is expected to be immediately accretive to margins and earnings.
Negative Points
- Becton Dickinson & Co (BDX) faced transitory market dynamics in the BDB and PS segments, as well as macroeconomic factors in China.
- The company experienced a decrease in revenue from China due to continued market dynamics and anti-corruption measures affecting distributor inventory levels.
- There were lower market demands for instruments in the biosciences segment, partially offsetting growth in other areas.
- The pharmaceutical systems segment faced industry-wide customer inventory destocking, impacting overall performance.
- The company had to adjust its revenue guidance due to the latest market dynamics, reflecting a cautious outlook for the remainder of the fiscal year.
Q & A Highlights
Q: Can you provide more details on the guidance for the fourth quarter, particularly regarding revenue and margins?
A: (Thomas Polen, President, CEO & Chairman) We are pleased with our strong performance across most areas of the company, particularly in comparison to the market. We saw strong share gains and volume performance even in markets undergoing transitory dynamics. (Christopher DelOrefice, CFO & EVP) For Q4, we expect upper 6% organic revenue growth, driven by continued momentum in Alaris and favorable comparisons from last year. We also expect strong margin performance, similar to Q3, with slight increases in operating expenses.
Q: Can you elaborate on the expected EPS growth for fiscal 2025 and the factors contributing to it?
A: (Christopher DelOrefice, CFO & EVP) We are confident in delivering strong performance in fiscal 2025, with a starting point of 10% EPS growth on a reported basis. This includes contributions from the critical care acquisition and assumes continued strong performance across our portfolio. We expect to exceed our 25% adjusted operating margin goal, with significant contributions from gross margin improvements driven by BD Excellence initiatives.
Q: What are the main growth drivers for the MMS business beyond Alaris?
A: (Thomas Polen, President, CEO & Chairman) In addition to Alaris, we see strong growth in consumables driven by increased procedure volumes. We also have the next-generation Pyxis launching in the back half of next year, along with pharmacy automation solutions. (Michael Garrison, EVP, President - Medical Segment) We have about 10 additional releases across the connected medication management portfolio, including innovations in core pharmacy and long-term care settings. Our pharmacy automation business is also seeing strong customer interest and high double-digit growth.
Q: How are you addressing the challenges in China, particularly in the biosciences and pharma systems segments?
A: (Thomas Polen, President, CEO & Chairman) We continue to invest in China and see it as a long-term attractive market. In MDS, we are seeing strong volume growth despite price pressures. The lower research funding in biosciences is expected to be transitory, and we anticipate a recovery in research investment. In pharma systems, we continue to see strong demand for biologics, particularly GLP-1s, and expect destocking in other segments to normalize over time.
Q: Can you provide more details on the impact of BD Excellence and smart factory initiatives on margins?
A: (Thomas Polen, President, CEO & Chairman) BD Excellence has been a significant driver of margin improvements, with over 500 Kaizen events this year leading to reduced waste and improved productivity. Our smart factory strategy, which includes predictive analytics and automation, is also contributing to margin improvements. We expect these initiatives to continue driving gross margin improvements in fiscal 2025 and beyond.
Q: How should we think about the revenue growth needed to achieve double-digit EPS growth in fiscal 2025?
A: (Thomas Polen, President, CEO & Chairman) We are not providing specific revenue guidance at this time, but we expect continued strong performance across our portfolio. We are seeing strong volume growth and share gains in areas like MDS and PAS, and we expect continued momentum in our connected medication management and healthcare automation strategies. We also anticipate a recovery in the pharma systems and biosciences segments as market dynamics normalize.
Q: What are the underlying assumptions for discretionary expense spending in fiscal 2025?
A: (Christopher DelOrefice, CFO & EVP) We plan to drive more investment in R&D and business-building growth initiatives, including digital capabilities and commercial go-to-market strategies. We will continue to leverage our core infrastructure and drive natural expense leverage, particularly in G&A, through our global business services model.
Q: How are you managing the impact of transitory market dynamics on your guidance?
A: (Thomas Polen, President, CEO & Chairman) We are taking a conservative approach in our guidance, assuming that transitory market dynamics in areas like biosciences and pharma systems will continue through the balance of this year. We expect these dynamics to improve over time, particularly as destocking in pharma systems normalizes and research funding in biosciences recovers.
Q: Can you provide more details on the expected performance of Alaris in fiscal 2025?
A: (Thomas Polen, President, CEO & Chairman) We are not providing specific guidance for Alaris, but we expect to maintain at least the $100 million historical run rate per quarter. We have built a healthy backlog of orders and expect continued strong performance in fiscal 2025.
Q: How are you addressing investor concerns about the back-end weighted growth and margins in fiscal 2025?
A: (Christopher DelOrefice, CFO & EVP) We expect a more balanced margin rhythm throughout fiscal 2025, with significant contributions from gross margin improvements driven by BD Excellence initiatives. We also expect more ratable performance in Alaris, contributing to a smoother growth trajectory.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
