Becton Dickinson & Co (NYSE:BDX) exceeded adjusted EPS growth expectations, delivering strong performance down the P&L.
The company achieved adjusted gross margins of 54.9%, increasing year-over-year by 190 basis points.
BD Excellence continues to drive gross margin expansion, with four consecutive quarters of strong performance.
The company announced its intent to invest $2.5 billion in US manufacturing over the next five years, strengthening its position.
BDX is making meaningful pipeline advances, including the launch of new products like Phasix ST Umbilical and BD Nexus.
Negative Points
Revenues came in below expectations, growing only 0.9% organically, due to market dynamics in life sciences and diagnostics.
The company adjusted its full-year revenue guidance, now expecting 3% to 3.5% organic growth, down from previous expectations.
Bioscience performance was impacted by a reduction in global research funding, affecting research instrument sales.
The diagnostics segment faced challenges with slower-than-expected recovery in blood culture testing levels.
Tariff expenses are expected to impact the company, with an estimated $90 million expense in FY25, predominantly in Q4.
Q & A Highlights
Q: Chris, regarding the $0.25 tariff impact, is that net after mitigation? How should we think about this for fiscal '26? A: Yes, the $0.25 is net after significant mitigation efforts. We've been proactive with inventory movements and sourcing alternatives. While you can't simply annualize it, it's fair to consider some annualization factor for fiscal '26. We're not done with mitigation efforts, and despite the challenges, we're still delivering strong EPS growth. - Christopher DelOrefice, CFO
Q: Can you elaborate on how organic growth improves in the second half of the year? A: We expect Q3 growth to be similar to the first half at around 3%, with Q4 improving to over 5%. Key drivers include Pharm Systems' growth, high single-digit growth in BDI, and the launch of FACSDiscover A8. These factors contribute to the sequential step-up from Q3 to Q4. - Christopher DelOrefice, CFO
Q: What are the main drivers for the 100 bps reduction in organic sales growth guidance? A: The reduction is mainly due to market-driven factors, with 60% from BDB and China. China is now expected to decline high single digits, and BDB is impacted by changes in research funding. Additionally, the diagnostics business faced challenges due to slower recovery in blood culture testing. - Christopher DelOrefice, CFO
Q: What mitigation actions are you taking regarding tariffs, and what can be done in different scenarios next year? A: We've positioned inventory strategically and are optimizing our global sourcing footprint. For example, we're shifting production of certain products from the US to Europe or China to avoid tariffs. BD Excellence helps protect margins, and we may consider pricing adjustments if tariffs persist. - Thomas Polen, CEO
Q: How do you ensure effective market and competitive intelligence gathering, and do you have the right people in place for this? A: Our business teams are closest to the markets, supported by a central strategy group and external perspectives. We've been proactive in identifying trends like VOBP and inflation. We continue to challenge ourselves to improve in areas like research spending and pharma. - Thomas Polen, CEO
Q: How are you leveraging AI for internal optimizations and innovation? A: We're applying AI in both innovation and internal systems. For example, AI is used in manufacturing for scheduling and inventory management. We've launched AI-based platforms like APM and Pyxis Pro, and we have an AI incubator for rapid prototyping and business model validation. - Thomas Polen, CEO
Q: Can you provide an update on the Life Sciences separation process? A: The separation process is on schedule with strong interest in the assets. We're evaluating transaction options to maximize shareholder value and expect to announce the transaction this summer. - Thomas Polen, CEO
Q: How do you balance efficiency initiatives with maintaining employee engagement and innovation? A: Our Kaizen events are highly engaging and energizing for employees, allowing them to improve processes and focus on creativity and strategy. BD Excellence frees up time for more value-added activities, enhancing the work experience and driving results. - Thomas Polen, CEO and Michael Feld, EVP
