BECTON DICKINSON & CO Q1 FY2025 earnings call

• Q1 results showcased strong execution, with 9.6% revenue growth, 370 basis points of adjusted gross margin expansion, 340 basis points of adjusted operating margin expansion, and a 28% increase in adjusted diluted EPS to $3.43.
• Over $1 billion was returned to shareholders in Q1, including $300 million in dividends and a $750 million accelerated share buyback.
• The full-year currency-neutral and organic revenue growth guidance was affirmed, and the midpoint of the adjusted reported EPS guidance was increased despite translational currency impacts.
• Regarding innovation, BD Medical advanced its Connected Care strategy and submitted the next 510(k) for the BD Alaris Infusion System; advanced patient monitoring received 510(k) clearance for the next-gen HemoSphere Alta Monitor and new Swan IQ and ForeSight IQ smart sensors; BDI advanced its tissue regeneration strategy, received EU approval for the Phasix resorbable mesh, and enrolled the first patients in the GalaFLEX capsular contraction prevention clinical trial; Life Sciences was on track to launch the BD FACSDiscover Analyzer A8 and advance its molecular diagnostics portfolio.
• BD announced the plan to separate its Biosciences and Diagnostics Solutions business to unlock value. The new BD will be a pure-play MedTech company with four operating segments, and the Biosciences and Diagnostics Solutions business will be a pure-play Life Science Tools & Diagnostics business.

In the first quarter of Fiscal 2025, BD's revenue grew by 9.6% (3.9% organic). The MedTech business led organic growth with around 5% growth, driven by volume and share gains across core devices and strong performance in growth platforms such as PureWick, Peripheral Vascular Disease, and Phasix. Diagnostic Solutions saw modest growth, with strength in Lab Automation and momentum in the BD MAX molecular platform IVD assays being offset by respiratory season timing. Biosciences experienced a decline due to market dynamics and reduced research funding in China and the US. Regionally, the company's total organic growth was led by strong performance in the US, but was offset by a decrease in China, particularly in the Biosciences segment. Adjusted diluted EPS grew by 28% to $3.43. The adjusted gross margin was 54.8% and the adjusted operating margin was 23.6%, with year-over-year expansions of 370 basis points and 340 basis points respectively. Free cash flow was approximately $600 million. Cash and short-term investments at December 31st totaled $728 million, and net leverage was 2.9 times.

BD maintained its currency-neutral total and organic revenue growth guidance. It was expected that translational currency would create a headwind of approximately $250 million for the full fiscal year. Fiscal 2025 total revenues were projected to be in the range of $21.7 billion to $21.9 billion, and the adjusted effective tax rate was expected to be between 14% and 15.25%. The adjusted reported EPS was expected to be between $14.30 and $14.60, reflecting a 10% growth at the midpoint. Q1 revenue performance derisked the second half of the year's growth by about 25 basis points. The Q2 organic revenue growth expectation reflected sequential acceleration around the midpoint of the full-year organic guidance range. Strong gross and operating margins were expected in Q2 with solid sequential improvement in the adjusted operating margin, inclusive of absorbing the planned licensing comparison. The updated expectation for Q2 adjusted EPS considered timing impacts from updated translational FX assumptions and a tax rate of about 16.8%.

There are translational currency headwinds that could impact revenue. Market dynamics in China and biosciences research funding levels could affect performance. Tariffs and export controls could impact manufacturing and costs if not managed properly. The ban on the FACSDiscover portfolio in China was unplanned and is being monitored.

Q: Hi, congrats on the spin. Why now? How you're thinking about the different separation options, spin versus sell? And how you manage the dissynergies? And then, Chris, wanted to ask on the Q2 guide. Looks like 2.75% on revenue, but you've got the 150 basis point licensing headwind. And there is still the 50 basis points to 75 basis points from China Pharm Systems? Just trying to get the kind of the true underlying growth on Q2.

A: Tom Polen started by stating that the process began in the first half of FY '24 as BD reflected on its progress under the BD 2025 strategy. The separation is to unlock value, with the new BD being a pure-play MedTech. Chris DelOrefice said Q1 outperformance derisked the remaining portion of the year, and Q2 had a licensing headwind and market dynamics in China and BDB, with the core business operating at over 5% growth.

Q: Good morning. Thanks for taking the question, and congrats on the separation announcement. Hey, Tom, I'd love to get your thoughts on the tariffs and the export controls that were announced. So, the 10% China tariff, I think, went into effect. And then, if the 25% tariff on Mexico and Canada go into effect, what would be the impact on BD and your ability to offset that?

A: Tom Polen said BD's largest manufacturing footprint is in North America, and it is closely monitoring tariffs, with no confirmation on form or timing yet.

Q: Beautiful. Thank you so much for taking the question, and congrats obviously on the separation. I guess -- and apologies for the crackly voice. I guess, if you end up going down the sale route and with a cash injection, are there any areas that you particularly feel you'd like to bulk up on or parts of the business which you could throw a little bit of extra investment? And I guess, connected to that too is obviously the value of your time internally as a team. Are there any areas of the business where you're going to have a little bit more time on your plates once the process is done? Any areas you kind of get to spend a little bit more time on that you wish you could previously give it a bit more attention?

A: Tom Polen said high-growth accretive opportunities are a priority, the Interventional segment has attractive market opportunities, and BD will continue to invest in the R&D funnel and shift its portfolio into high-growth, high-margin accretive spaces.

Q: Great. Thanks for taking... Hey, good morning. So, the question I wanted to ask was really on the operational performance. A nice start to the year. And with the FX headwinds, you weren't able to raise guidance as much as maybe the performance deserved. I know you called out the ongoing headwinds from China and some of the funding that we've seen. And I was just hoping that you could give us some color on that. I know you didn't change the number, but maybe just talk about the trend in China and some of the headwinds that you've been seeing.

A: Chris DelOrefice said Q1 was a strong start, derisking the second half of the year's growth, and BD Excellence was playing out. Tom Polen turned to Mike Feld who discussed the impact of the ban on the FACSDiscover platform in China and monitoring research spending.

Q: Thank you, and good morning, everybody. I wanted just to dive in a little bit more on some of the end market performance here and what you're just observing as things evolve. I think for some of the sort of problem children businesses that you saw last year, whether that was Pharm Systems, Biosciences, China, you contemplated no improvement in the '25 guidance, but as we kind of start the year, it looks like both Biosciences and Pharmaceutical Systems deteriorated from where you exited 2024. So, maybe you could just give us an update on what's happening in these categories and the extent to which you think you can get back to consistent performance at least what you saw in '24 and which would imply an improvement to the balance of this year?

A: Tom Polen said Biosciences was impacted by research spending slowdown, with cautiousness on recovery timing, and Pharm Systems was expected to recover in the back half, with BD being well-positioned in the biologic space and GLP-1s.

Q: Great. Good morning, and congrats on this announcement. I'm sure there's been a lot of work put behind it. Either Chris or Tom, you talk about in the slides the desire, this will allow for better streamline and focused capital allocation. Maybe you could give us some examples of how you're thinking about what that might entail versus the limitations as a combined company today?

A: Tom Polen said on the Life Science side, BD has leading positions in attractive markets and opportunities to invest in near-adjacent spaces, while on the new BD side, it will focus on shifting its portfolio into high-growth, high-margin accretive spaces for capital allocation to drive growth.

Q: Hey, thanks so much for taking the question. Can you hear me okay? Great. Good morning. So, back to the separation for a sec. Congrats on all the work that went into this. Wanted to get a sense of what's your -- you mentioned two or three different mechanisms of separation. And maybe if you could talk a little bit about the process and was there a process run for these assets before this point, and what are some of the factors that might drive you towards one of those options or with the other?

A: Tom Polen said more details on the separation process would be shared as it advances, with BD focused on transaction structures that maximize shareholder value creation, which could take forms like RMT, sales, or spin.