Becton, Dickinson and Company (BDX)

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Becton, Dickinson and (BDX)

Q1 2011 Earnings Call

February 08, 2011 10:00 am ET

Executives

William Kozy - Executive Vice President

Zachary Nagle - Vice President of Investor Relations

Tom Polen -

Vince Forlenza - President and Chief Operating Officer

David Elkins - Chief Financial Officer and Executive Vice President

Gary Cohen - Executive Vice President

William Rhodes -

Analysts

William Quirk - Piper Jaffray Companies

Brian Weinstein - William Blair & Company L.L.C.

Jonathan Groberg - Macquarie Research

David Roman - Goldman Sachs Group Inc.

Michael Weinstein - JP Morgan Chase & Co

Peter Lawson - Mizuho Securities USA, Inc.

Kristen Stewart - Deutsche Bank AG

Jeffrey Frelick - Canaccord Genuity

David Lewis - Morgan Stanley

Frederick Wise - Leerink Swann LLC

Paul Choi - Caris & Company

Lawrence Keusch - Morgan Keegan & Company, Inc.

Doug Schenkel - Cowen and Company, LLC

Jon Wood - Jefferies & Company, Inc.

Charles Butler - Barclays Capital

Bill Bonello - RBC Capital Markets, LLC

Amit Bhalla - Citigroup Inc

Presentation

Operator

Hello, and welcome to BD's First Fiscal Quarter 2011 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through Tuesday, February 15, 2011, on the Investors page of the bd.com website or by phone at (800) 642-1687 for domestic calls and area code (706) 645-9291 for international calls, using conference ID 37117544. [Operator Instructions] Beginning today's call is Mr. Zachary Nagle, Vice President of Investor Relations. Mr. Nagle, you may begin.

Zachary Nagle

Thank you, Jackie. Good morning, everyone, and thank you for joining us to review our first fiscal quarter results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The slide presentation is posted on the Investor Relations page of our website at bd.com.

During today's call, we will make forward-looking statements, and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our first fiscal quarter press release and in the MD&A sections of our recent SEC filings. We will also discuss some non-GAAP financial measures, relative to our performance. A reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release including the financial schedules is posted on the bd.com website.

Leading the call this morning is Vince Forlenza, President and Chief Operating Officer. Also joining us are David Elkins, Executive Vice President and Chief Financial Officer; BD Executive Vice Presidents, Gary Cohen and Bill Kozy; as well as Bill Rhodes, President of Biosciences; and Tom Polen, President of Diagnostic Systems.

And now, it's a pleasure to turn the call over to Vince.

Vince Forlenza

Thank you, Zack, and good morning, everyone. I'd like to start off today's presentation by covering the key messages we'd like you to take away from our earnings call. First, I want to provide an update on what we're seeing from a macro perspective.

Healthcare utilization remains constrained due to lower levels of government spending, elevated unemployment rates and higher out-of-pocket expenses. In the U.S., hospital admissions, physician office visits and lab volumes continued to show signs of stabilization. However, we did see pricing pressure in certain medical device markets in the first quarter.

In total, the market remains challenging, and we continued to manage the company accordingly, focused on execution around strengthening the quarter, delivering on new product platforms and extensions, growing in important emerging markets and delivering on our operational excellence programs.

Moving on to our performance in Q1, we're pleased with our results. Revenue was slightly softer than we expected, and EPS was in line with the company's expectations, relative to where we expected to start off the year. As we outlined on our year-end earnings call in November, revenue growth was significantly impacted by an unfavorable comparison to a very strong first quarter of fiscal year 2010, where revenues were up more than 9% year-over-year. This tough comparison included strong pandemic sales and U.S. stimulus spending in Q1 fiscal 2010.

We continued to see solid growth in emerging markets and our initiatives around new product platforms and extensions and operational excellence programs continue to be on track with our expectations. We see the back part of the year strengthening, and we are maintaining our 2011 guidance of 4% currency-neutral revenue growth. We are confident in our ability to deliver 10% to 12% currency-neutral EPS growth on an adjusted basis.

On Slide 5, we've outlined our Q1 revenue and EPS results. Currency-neutral revenue declined by 1.5%. Excluding pandemic flu and stimulus impacts, revenues were up 2.8%. Fully diluted EPS was $1.35, including approximately $0.07 related to the timing of certain tax benefits. These benefits were reflected in our previous full fiscal year guidance.

Now I'd like to turn things over to David for a more detailed discussion of our first quarter financial performance.

David Elkins

Thank you, Vince, and good morning, everybody. I'd like to begin by discussing the key financial highlights for the first quarter. First, as Vince stated, the quarter was mostly in line with our financial projections, with revenue coming in a little lighter than expected. We continue to experience some volatility in customer-ordering patterns. However, that does not change our outlook for underlying demand. As we managed the business for these challenging times, we are confident for the full year that we've delivered the EPS guidance we provided on our year-end earnings call.

Next, as we outlined when we communicated our expectations for 2011 on the year-end call, we experienced the bulk of the impact of our tough comparisons for 2011 in the first quarter, overcoming the majority of the pandemic flu orders in 2010 and a smaller portion of the stimulus orders. Excluding the pandemic flu and stimulus impacts, BD grew 2.8% year-over-year, with all three segments experiencing positive both. I'll provide more details about segment and regional performance in a minute.

R&D increased 17% as several research products were accelerated in the quarter. This is in line with our expectations as we are continuing to invest in new products and platforms. During the quarter, the company's earnings of $1.35 also included approximately $0.07 of favorable impact related to the timing of certain tax benefits including the retroactive extension of the U.S. R&D tax credit. This $0.07 benefit will be offset during the balance of the year. Additionally, during the first quarter, we completed $837 million of our $1.5 billion share repurchase plan. Our guidance for the program in 2011 remains unchanged at $1.5 billion.

Turning to Slide 8 and our revenues by segment, I'll start with the total company performance. As I mentioned earlier, revenue growth declined by 1.5% currency neutral. However, underlying growth was 2.8%, excluding the impact of flu and stimulus. BD Medical first quarter revenues decreased about 4% currency neutral. When you normalize for the pandemic flu orders, growth was about 2%. The growth in this segment was primarily driven by Diabetes Care, with continued strong sales of pen needles. This was more than offset by a decline in pharmaceutical systems, which was negatively impacted by the absence of flu-related orders and an unfavorable comparison from large shipments to a single customer in the first quarter of fiscal year 2010. When excluding the impact of flu-related orders and the large shipment in the Pharmaceutical Systems business, underlying growth in the Medical segment would be even greater.

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