Becton, Dickinson and Company (BDX)

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Becton, Dickinson and (BDX)

Q2 2011 Earnings Call

April 27, 2011 10:00 am ET

Executives

William Kozy - Executive Vice President

Monique Dolecki -

Tom Polen -

Edward Ludwig - Chairman, Chief Executive Officer and Chairman of Executive Committee

Vince Forlenza - President and Chief Operating Officer

David Elkins - Chief Financial Officer and Executive Vice President

Gary Cohen - Executive Vice President

William Rhodes -

Philippe Jacon -

Analysts

Eric Gomberg - Thomas Weisel Partners

James Francescone - Morgan Stanley

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

Jonathan Groberg - Macquarie Research

David Roman - Goldman Sachs Group Inc.

Kristen Stewart - Deutsche Bank AG

Frederick Wise - Leerink Swann LLC

Robert Goldman - CL King & Associates, Inc

Lawrence Keusch - Morgan Keegan & Company, Inc.

Peter Lawson - Mizuho Securities USA Inc.

Doug Schenkel - Cowen and Company, LLC

Kimberly Gailun - JP Morgan Chase & Co

Unknown Analyst -

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 Second Fiscal Quarter 2011 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through Wednesday, May 4, 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 59468691.

[Operator Instructions] Beginning today's call is Ms. Monique Dolecki. Ms. Dolecki, you may begin your conference.

Monique Dolecki

Thank you, Jackie. Good morning, everyone, and thank you for joining us to review our second 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 second fiscal quarter press release and in the MD&A sections of our recent SEC filings.

We will also discuss some non-GAAP financial measures with respect 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 BD Biosciences; and Tom Polen, President of Diagnostic Systems.

It is now my pleasure to turn the call over to Vince.

Vince Forlenza

Thank you, Monique, and good morning, everyone. Before we discuss the results in the quarter, we would like to provide you with an update on the situation in Japan subsequent to the earthquake and tsunami. We are pleased to report that our business operations in Japan have stabilized more rapidly than we originally anticipated following the earthquake. Quarter volumes have returned to normal levels and customer service and distribution operations are now also operating at normal levels.

BD's manufacturing plant in Fukushima Province sustained some minor earthquake-related damage, but has recently restarted the production of prepared plated media. We expect the manufacturing of the BD Hypak Prefillable Syringes to resume during the third fiscal quarter. We also have a distribution center in Fukushima, which is now fully operational and immediately the following the earthquake, we established an additional distribution center near Tokyo, which is supplementing normal distribution operations in Japan.

Our plant and distribution center in Fukushima Province are located approximately 60 kilometers from the damaged nuclear plant facility. And because of this, we contracted with a company specializing in radiation testing to assess our facility. The test results today indicate that radiation levels in our Fukushima facilities are essentially normal and do not pose any reason for concern. Testing will continue over the coming weeks, and we will continue to closely monitor the situation at the nuclear power plant.

Overall, we are very pleased with the speed of the company's recovery in Japan, which is a testament to the hard work and dedication of our employees. Most importantly, we are thankful that all of our employees and their families are safe.

From a financial perspective, we did see an impact on our revenue growth from the earthquake in Japan. In our second fiscal quarter, the impact to our sales growth was less than $10 million. For the full year, we anticipate this having a $10 million to $20 million impact on revenue and about a $0.05 impact on EPS, which is built into the total year guidance. About half of the EPS impact occurred in the second quarter.

As a reminder, Japan accounts for approximately 5% of the company's overall revenues. About 1% of our revenues are derived from products manufactured and sold in Japan. Right now, it is difficult to assess whether there could be further underlying risk to our business in Japan such as environmental risk that could impact our long-term operations. We will continue to provide you with updates as the recovery process continues in Japan.

We would also like to provide you with an update on Accuri Cytometers. As we announced in our press release on March 18, we completed the acquisition of this Ann Arbor, Michigan-based company that develops and manufactures personal flow cytometers for researchers. The financial impact of the acquisition on fiscal year 2011 earnings has been incorporated into the guidance that we provided on our last earnings call in February with the dilution being less than $0.05 to earnings per share for the total year. The purchase price of the company was $205 million.

We see this acquisition contributing approximately 1 percentage point to Biosciences revenue in fiscal year 2011 and about 1 to 2 percentage points per year over the next 3 years. The Accuri acquisition allows us to bring affordable Flow Cytometry from this estimated 1,200 research core flow labs around the world to more than 70,000 life science researchers, who currently access those labs but who do not own flow cytometers. It will allow us to eventually bring affordable Flow Cytometry to hundreds of thousands of life science researchers around the world who are not currently using flow, but whose research might benefit from its power and utility. This acquisition is an excellent addition to our portfolio and is aligned with our strategy of driving revenue growth through innovation.

On Slide 5, we've outlined our Q2 revenue and EPS results. We are pleased with our results this quarter, which I will speak to on a currency-neutral basis. Revenues were solid, increasing by 4.6%. Fully diluted EPS came in at $1.38, growing at 7.4% over the prior period on an adjusted basis. For the 6-month year-to-date results, revenue growth was 1.5%. EPS growth was about 5% on adjusted basis due to the difficult comparisons we discussed last quarter.

Moving to Slide 6. I'd like to briefly summarize our outlook for fiscal year 2011, as David will provide more details later in his remarks. As I just mentioned and as Ed stated in our press release, we are pleased with our results in the quarter, which were in line with the company's expectations. The current macroeconomic environment, however, continues to be a challenge.

On the positive side given our presence outside of the U.S., we are favorably impacted by the weakening of the U.S. dollar. As a result, we are raising our reported EPS guidance to grow 12% to 14% on an adjusted basis. However, we are lowering our currency neutral revenue guidance to about 3%, 3.5%. This is a result of the challenging macroeconomic environment particularly in Western Europe. This new guidance continues to assume higher sales growth in the second half of the year but less than before, which we believe is prudent in this environment.

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