Yahoo Finance Becton, Dickinson and Company (NYSE:BDX) Q2 2024 Earnings Call Transcript
Becton, Dickinson and Company (NYSE:BDX) Q2 2024 Earnings Call Transcript May 2, 2024
Becton, Dickinson and Company beats earnings expectations. Reported EPS is $3.17, expectations were $2.97. 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 Second 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 1800-723-5792 for domestic calls, and area code +1 402-220-2664 for international calls. For today's call, all parties have been placed in 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. 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 second quarter of fiscal 2024. 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. Following this morning's 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. You could read the disclaimer in our earnings release and the disclosures in our SEC filings, available on the Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-over-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I am very pleased to turn it over to Tom.
Tom Polen: Thanks, Greg. Good morning, everyone, and thank you for joining us. Second quarter revenue growth accelerated significantly, as expected, driven by the strength of our portfolio, increasing volumes across our consumables, and Alaris. Margin performance drove adjusted EPS ahead of our expectations. And consistent with our plan, we delivered very strong cash flow, and are on track to deliver another year of double-digit free cash flow growth. These results give us the confidence to once again increase our FY'24 adjusted EPS guidance. Turning to our BD 2025 strategy, we continue to execute well on the actions we outlined at our Investor Day to drive profitable growth and value creation. This includes advancing our innovation pipeline which supports our durable 5.5%-plus targeted growth profile.
One such area is the strong cadence of new innovation across our connected Medication Management suite, which delivers many unique benefits to our customers. Q2 was the second full quarter since clearance of our new Alaris system. And first-half Alaris sales have already eclipsed our total FY'23 performance. Our return to market is ramping faster than initially planned, which wouldn't be possible without our manufacturing team who have executed extremely well in scaling Alaris production. Q2 set an all-time record in both the number of BD Alaris pumps manufactured, and the number of pumps shipped in a quarter to upgrade our customers to the cleared version of the pump. We have also seen acceleration of committed contracts inclusive of competitive conversions as health systems value the capability of Alaris and look to standardize their fleet.
This offers confidence in the planned second-half contribution to growth, and will support momentum heading into FY'25. The Alaris 510(k) clearance is just the beginning. As we have shared, we are excited about our innovation roadmap, and we are planning upcoming Alaris 510(k) submissions to further strengthen our capabilities, like best-in-class interoperability, with over 800 live sites, introduce a steady flow of new customer innovations, and ensure continuous compliance. Examples such as over-the-air technology for efficient software updates, and continued advanced cyber security are planned in the next submission later this calendar year. Beyond Alaris, we have a market-leading connected medication management portfolio across inventory management, compounding, pharmacy automation, medication dispensing, and infusion, and are excited about future innovations and development.
This includes new medication dispensing and informatics innovation, including the next generation of our Pyxis dispensing platform, which innovates on our hardware design, and will advance our cloud connectivity. We continue to scale our BD HealthSight informatics platform, now live in over 1,000 sites, and have upcoming launches to integrated hospital medication data from Pyxis with non-acute medication data from our MedBank and MedKeeper platforms to bring visibility to medication flows across the customer's care network. In Q2, we made meaningful progress achieving other key R&D milestones, including several in our peripheral vascular disease platform, which is one of our key growth areas. Longer-term, these technologies are each expected to deliver over $50 million in incremental fifth-year revenue, and will broaden our leadership in the $5 billion PVD category that is growing high single digits.
In our venous portfolio, we have now enrolled over 60 patients in our ARCH pivotal IDE for our BD Liverty TIPS Stent Graft. This novel, self-expanding covered stent improves the standard of care for portal hypertension, building on our success in launching venous products that help deliver better clinical outcomes for patients, and strengthening our presence in the venous market. In our arterial portfolio, we enrolled the first patient in our AGILITY pivotal IDE study for our low-profile arterial stent graft, a differentiated technology that minimizes access site complications with precise stent placement that could provide an important new treatment option for over 18 million patients with peripheral arterial disease in the U.S. alone. We also filed our SCION SFA pivotal IDE submission with the FDA for our new Sirolimus DCB for the treatment of PAD.
We see this new alternative drug platform as a key growth catalyst for both SFA and below-the-knee applications. We are also executing well on our simplification strategy to drive margin expansion. We are seeing growing momentum as we scale our BD Excellence operating system and build world-class lean management systems and cultures throughout BD. This drove strong Q2 performance in areas such as waste reduction and production efficiency contributing to our margin goals. Our focus on cash flow also continues to deliver positive results, generating about $1.1 billion in free cash flow in the first-half. This strong start to FY'24 positions us to deliver double-digit growth in free cash flow for the full-year. It also enables continued execution of our disciplined capital allocation strategy, including accretive M&A opportunities in higher-growth categories, and opportunistically returning cash to shareholders.
Lastly, our teams around the world continue to make advancements on our corporate sustainability strategy. We were recently named among Fortune magazine's Most Innovative Companies list, a testament to our 70,000 associates who work every day to deliver innovation that meaningfully advances the standard of care around the world. We continue to forge partnerships that expand access to these critical innovations. And most recently, we announced the first ever option, in Singapore, for women to self-collect a sample for cervical cancer screening in the privacy of their own home. In summary, we are delivering accelerated revenue growth, are executing ahead of our plan on Alaris, and driving strong margin performance, with a growing contribution from BD Excellence.
We once again raised our adjusted diluted EPS guidance for fiscal 2024, and believe we are well-positioned to achieve our BD 2025 goals. I'll now turn it over to Chris to review our financials and outlook.
Chris DelOrefice: Thanks, Tom, and good morning, everyone. As Tom noted, we executed well on our performance goals in Q2. As expected, we delivered strong acceleration in our revenue growth. We exceeded both our margin and earnings goals, and delivered very strong free cash flow growth. I'll now provide some insights into our revenue performance in the quarter. Q2 revenue was $5 billion, with organic growth of 5.7% driven by strong volume. Growth was led by double-digit growth in BD Interventional, with low single-digit growth in BD Medical, and BD Life Sciences. Total Q2 revenue growth, of 4.7%, reflects the divestiture of our Surgical Instruments platform. Regionally, organic growth was driven by the U.S., partially offset by expected market dynamics in China.
In BD Medical, growth was led by Medication Management, with strong performance in infusion systems driven by the BD Alaris return to market, and mid single-digit growth across our Medication Delivery Solutions portfolio in the U.S. and EMEA. Strong demand in our Pharmaceutical Systems pre-fill devices for biologic drugs offset transitory market dynamics across the industry, including customer inventory destocking. BD Life Sciences performance was led by Integrated Diagnostic Solutions, with high single-digit growth in our microbiology platforms, and mid single-digit growth in specimen management, which offset a comparison to the prior year, and transitory market dynamics in select segments in biosciences. BD Interventional organic growth was led by continued strong growth in UCC, with continued momentum in our PureWick franchise delivering another quarter of double-digit growth, along with related licensing revenue.
Surgery delivered another strong quarter with double-digit organic growth, supported by global adoption of our Phasix resorbable scaffold. Lastly, growth was supported by Peripheral Intervention, with double-digit growth in our peripheral vascular disease platform where we continue to drive market penetration with our Rotarex Atherectomy System and our venous portfolio. The quarter's performance reflects the breadth of the BD portfolio that delivers adorable growth profile. Now moving to our P&L, we realized strong sequential margin improvement with adjusted gross margin of 53% and adjusted operating margin of 24.3%, both above our expectations. Adjusted gross margin, our simplification and BD Excellence initiatives are continuing to drive net cost improvement.
And sequentially as planned, we saw reduced impact from prior-year inventory reductions that increased cash flow, driven by strong SSG&A expense reductions and leverage, our adjusted operating margin increased sequentially by 410 basis points, and year-over-by 160 basis points with Q2 being above our fiscal year '23 full-year margin. As a result of these items, we exceeded our Q2 operating income and adjusted diluted EPS expectations resulting in adjusted diluted EPS of $3.17, which grew double digits or 10.8% on a reported basis. Regarding our cash and capital allocation, year-to-date free cash flow increased more than $900 million year over year to over $1.1 billion. This reflects continued improvements around working capital, including our actions to optimize inventory levels, continued discipline around capital investments, and leveraging our fixed asset base as a result of the benefit from our BD Excellence Operating System.
We remain focused on free cash flow conversion and are on track to deliver another double digit step improvement in FY '24 and remain well-positioned to achieve our long-term cash goals. With our strong cash flow, year to date we returned over $1 billion in capital to shareholders, including dividends and $500 million in share repurchases. We improved our net debt position ending Q2 with a net leverage ratio of 2.6 times. Our cash and short-term investments balance was almost $3.2 billion inclusive of about $2 billion in proceeds from debt refinancing during the quarter that will be utilize to repay maturing debt over the balance of the calendar year. Collectively, this positions us well to capitalize on accretive value-creating tuck-in M&A.
Moving to our updated guidance for fiscal year '24, the detailed assumptions underlying our guidance can be found in our presentation. As we look ahead for the balance of the year, we remain focused on driving areas of momentum including Alaris and continue to monitor transitory market dynamics. For the full-year, we are maintaining our organic revenue growth guidance range of 5.5% to 6.25%. Based on our Q2 margin performance, we are raising our adjusted diluted EPS guidance range to $12.95 to $13.15 on a reported basis which is an increase of $0.11 at the midpoint. Strong delivery in Q2 positions us well to achieve our second-half earnings growth targets. Regarding foreign currency, based on current spot rates the impact of currency has moved modestly since our last update.
And for illustrative purposes, we see an additional headwind of approximately 40 basis points to full-year revenue from translational currency impacts. As you think of the second-half of fiscal '24, the following are some considerations. First, regarding revenue the midpoint of our guidance reflects about 7.5% second-half organic sales growth with nearly 250 basis points contribution from Alaris and just over 5% growth in the remainder of the BD portfolio. We expect Q3 organic growth of at least 6% with Q4 further accelerating driven in part by Alaris momentum and improving rollover dynamics in China. For the full-year, our assumptions imply just over a 100 basis points revenue contribution from Alaris or at least $300 million in FY '24 revenues.
Second, we are well-positioned to achieve our updated adjusted operating margin guidance of at least 50 basis points improvement, which implies full-year operating margins of at least 24%. We expect Q3 adjusted operating margin will be modestly higher than Q2 given the strong performance in this quarter. We continue to expect margin acceleration in Q4 driven by our BD Excellence and continuous improvement efforts and continued expense leverage on expected strong revenue performance, including Alaris. Lastly, we expect our tax rate to be ratable across Q3 and Q4 at about 15% when considering the midpoint of our updated full-year guidance range. In summary, based on the strength of our portfolio and momentum in Alaris, we have clear line of sight to deliver our fiscal year '24 revenue guide and another year of strong growth.
Our teams' execution supported over-delivering on our margin expectations and, as a result, as we enter the second-half, we are on track to achieve our full-year margin improvement goals, and once again increased our fiscal year '24 earnings outlook. Additionally, 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. Our strategy is demonstrating positive momentum, and we remain well-positioned to continue to deliver on our BD 2025 growth objectives. With that, let start the Q&A session. Operator, can you please assemble our queue?
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