Becton, Dickinson and Company (BDX)

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Becton, Dickinson and (BDX)

Q1 2012 Earnings Call

February 07, 2012 8:00 am ET

Executives

Monique Dolecki -

Vincent A. Forlenza - Chief Executive Officer, President and Director

David V. Elkins - Chief Financial Officer and Executive Vice President

Gary M. Cohen - Executive Vice President

William A. Kozy - Executive Vice President

Tom Polen - President

Analysts

Lawrence S. Keusch - Morgan Keegan & Company, Inc., Research Division

Brian Weinstein - William Blair & Company L.L.C., Research Division

Jonathan P. Groberg - Macquarie Research

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

David R. Lewis - Morgan Stanley, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Amit Bhalla - Citigroup Inc, Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

William R. Quirk - Piper Jaffray Companies, Research Division

Bill Bonello - RBC Capital Markets, LLC, Research Division

Miroslava Minkova - Leerink Swann LLC, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Nandita Koshal - Barclays Capital, Research Division

Sara Michelmore - Brean Murray, Carret & Co., LLC, Research Division

Jeffrey Frelick - Canaccord Genuity, Research Division

Robert M. Goldman - CL King & Associates, Inc.

Presentation

Operator

Hello, and welcome to BD's First Fiscal Quarter 2012 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through Tuesday, February 14, 2012 on the Investors page of the bd.com website or by phone at (855) 859-2056 for domestic calls and (404) 537-3406 for international calls, using conference ID 42951440. [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 fiscal first quarter results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The 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 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, Chief Executive Officer and President. Also joining us are David Elkins, Executive Vice President and Chief Financial Officer; BD Executive Vice Presidents, Gary Cohen and Bill Kozy; and Tom Polen, President of Diagnostics Systems.

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

Vincent A. Forlenza

Thank you, Monique, and good morning. As we stated in our press release, we are off to a solid start this year and we are pleased with our performance in the first fiscal quarter.

Revenue growth was 2.4% currency neutral, which was slightly better than our expectations. Fully diluted EPS of $1.21 declined by 9.6% on a currency-neutral basis. This reflects a $0.04 favorable benefit relating to various tax settlements in multiple jurisdictions, which we expected later in the year.

Excluding the tax benefit, earnings per share would have been $1.17, which is in line with the expectations we outlined on our conference call in November.

We saw softer results in the U.S. due to an uncertain research spending environment and difficult pricing comparisons versus the prior year. David will provide more details around this later in his remarks.

We continue to see strong growth in emerging markets. Our initiatives around new product platforms and extensions and operational excellence programs continue to be on track with our expectations. We are also reaffirming our full fiscal year revenue and EPS guidance on a currency-neutral basis.

On a reported basis, we are lowering our revenue and EPS guidance to reflect the impact of a strengthening U.S. dollar. We expect reported revenue and EPS growth to be about flat.

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

David V. Elkins

Thank you, Vince, and good morning, everyone. I'd like to begin by discussing the key financial highlights for the quarter.

As Vince just stated, the quarter was in line with our financial projections with revenue growth coming in a little higher than our guided range. We saw good performance in our underlying business and with solid growth coming from Accuri and Carmel acquisitions. We experienced higher expenses in the quarter due to increased investments in our business. EPS of $1.21 reflects lower gross margin and higher SG&A costs. This includes the effects of pricing erosion, higher raw material costs, the rollout of investments in emerging markets, higher legal costs and some acquisition-related expenses from Accuri and Carmel. This is in line with our expectations we outlined on our year-end call in November.

As Vince also mentioned, we are on track to deliver our revenue and EPS guidance on a currency-neutral basis. We are lowering our full year guidance on a reported basis due to the strengthening of the U.S. dollar. Our revised guidance assumes a full year average euro exchange rate of $1.30.

Additionally during the first quarter, we completed about $400 million of our $1.5 billion share repurchase plan. Our guidance for the program remains unchanged at $1.5 billion.

Now let's move on to Slide 7 where we will review our revenue growth by segment, which I'll speak to on a currency-neutral basis. As I just mentioned, revenue growth was 2.4% for the total company. Pricing erosion was about 130 basis points, which is consistent with the guidance we provided on our year-end conference call.

BD Medical first quarter revenues increased 2.6%. The growth in this segment was primarily driven by Diabetes Care with continued strong sales of pen needles and solid international growth in our medical surgical systems unit. Pharmaceutical systems growth was 0.6% in the quarter. This resulted from strong 2011 U.S. sales due to biotech sampling and fiscal prior year comparison due to launch of low-molecular-weight heparin and adjustment in customer inventory levels. When excluding the onetime impact from these items, revenue growth in our pharmaceutical systems unit would have been about 4% in the quarter, which is in line with estimated global market growth.

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