Q4 2023 Becton Dickinson & Co Earnings Call
[music].
Hello, and welcome to Bd's fourth quarter and full year fiscal 2023 earnings call.
At the request of BD today's call is being recorded and will be available for replay on Bd's Investor Relations website.
Investors Dot BD dotcom.
Or by phone at 800 688 <unk>.
And then 339 for domestic and area code, one sports Europe, Q Q2 01347 for international.
For today's call all parties have been placed in a listen only mode until the question and answer session.
I will now turn the call over to Greg Rokita, Senior Vice President Treasurer, and head of Investor Relations.
Good morning, and welcome to Bd's earnings call Gregory Good as senior Vice President Treasurer, and head of Investor Relations.
On behalf of the BD team. Thank you for joining us this calls being made available via audio webcast at P. D Dotcom earlier.
Earlier. This morning, <unk> released its results for the fourth quarter and full year of fiscal 2023.
We also posted an earnings presentation that provides additional details on our business strategy and performance.
The press release and presentation can be accessed on the IR website at investors diabetes dotcom.
Leading today's call are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal Oarfish, exactly Vice President and Chief Financial Officer.
Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide additional details on our Q4 and FY2023 financial performance and our guidance for fiscal 2024.
Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents, Mike Garrison President of the medical segment, Dave Hickey President of the life Sciences segment, and a rare bird president of the interventional segment.
Before we get started I want to remind you that we will be making forward looking statements.
I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website.
Unless otherwise specified all comparisons will be on a year over year basis versus the relevant period.
Revenue percentage changes are on an FX neutral basis, unless otherwise noted.
When we referred to in any given period, we're referring to the fiscal period, unless we specifically noted as a calendar period.
So call your attention to the basis of presentation slides, which defines terms such as base revenues and the non-GAAP reconciliations included in the appendix.
With that and very pleased to turn it over to Tom.
Thanks, Greg Good morning, everyone and thank you for joining us.
Earlier today, we reported our results for the fourth quarter and full year of FY2023 a year characterized by strong differentiated performance driven by our BD 2025 strategy and action impactful new innovations and our diversified business portfolio designed to help our customers navigate today's challenging environment.
The diversification of our portfolio offers both durability through our leading positions and consistent demand for products essential to everyday patient care and strong growth through a purposeful shift into higher growth markets and crude against three irreversible forces, we see shaping health care connected care new care settings.
And chronic disease.
Additionally, we have built capabilities and fostered a culture of operational excellence, where we make disciplined and strategic capital allocation choices proactively address macro headwinds through our simplification programs and execute with speed and agility.
All of which have and continue to play a key role in delivering strong consistent performance.
This unique profile can be seen in both our current and two year performance and where our purposeful shift into higher growth markets has enabled us to drive the plus side of our targeted five 5% plus revenue growth profile.
In FY 'twenty, three we delivered 7% base revenue growth with base organic growth of five 8%.
Our team drove significant margin expansion and delivered $12.21 and adjusted EPS, which represents double digit currency neutral growth of 11%.
Over the past two years, we have made excellent progress toward our BD 2025 financial targets, delivering a 7% base organic revenue CAGR and 390 basis points of operating margin expansion.
We are now over 70% of the way too and tracking ahead of our 25% adjusted operating margin target by FY 'twenty five.
As a result on the bottom line, we delivered an implied base EPS CAGR of 20% currency neutral.
We also ended FY2023 with strong execution of our strategic priorities.
First we delivered our number one priority obtaining FDA clearance for the updated BD Larish infusion system.
Post clearance, our priority remains remediation scaling up manufacturing and engaging with customers on the many benefits of the updated systems that include advanced cyber security wireless connectivity and other clinical and patient safety upgrades.
We are confident in our remediation plan and have begun the process prioritizing our existing customers.
We are making good progress with active contracting and shipments of our first units to customers taking place ahead of schedule at the end of September.
We're excited to deliver the benefits of the updated <unk> system to our customers and their patients, including the power of one integrated infusion platform with a centralized user interface for all major types of infusion.
As well as the value added through interoperability and other innovations that connect data from a laris pyxis and the rest of our medication management offering into the industry's only end to end solution for safer simpler and smarter medication management from the pharmacy to the floor to the bedside.
Right.
The clearance of the BDO Larish infusion system gives us further confidence in our ability to achieve our BD 2025 strategy and financial targets.
Second we significantly advanced our innovation pipeline.
<unk> 27 key new products that benefit researchers providers and patients integrating AI robotics and other advanced technologies.
Our products are helping researchers gain deeper insights faster like our facts discover S. H cell sorter with Selvey you image technology.
And facts do at premium sample preparation system, which apply novel technologies like high speed cell imaging and liquid handling robotics, and our BD horizon real yellow and real Blue reagents, which were developed using AI guidance.
Our pharmacy automation business continues to grow double digits, and it's helping our customers serve patients more efficiently and with fewer errors across the various care settings.
Our robotic microbiology platform BD keystroke hit record sales this year and we continued to drive strong double digit growth in our BD Cor and BD Max molecular platforms, leveraging our growing installed base through menu expansion that includes our new vaginal panel and are on clarity H P V.
Save for thin prep on BD, Cor and now greater than 20 assays on the BD Max.
We continue to enable the care shift to new settings, including at home through innovation, such as our pure week system franchise for urinary incontinence do we expand it to include solutions for male patients.
Pure week mail has been one of the fastest ramps of a new product in our history and continues to exceed our expectations give.
Given the strong adoption. We are now designated this has a greater than $50 million incremental growth opportunity.
Pharmaceutical systems, which achieved 13 consecutive quarters of double digit growth.
<unk> to empower the delivery of new biologics many administered by patients at home such as the growing drug class of G. O P ones for diabetes in weight loss and other molecules, which will be delivered through our self injection solutions.
We are playing an increasing role in addressing chronic diseases like peripheral arterial disease, and improving outcomes and tissue reconstruction.
This year, we expanded the impact of new products, such as our rotor ex atherectomy system for Novo venous stent system, and then close RF ablation catheter, helping to address an area of high unmet need for the 10 million patients each year, who are suffering from venous disease.
In surgery, our teams accelerated the growth of physics mesh to allow more patients to benefit from tissue repair performed with our resorbable synthetic biomaterial.
And of course, we continue to drive a relentless focus on improving clinician and patient satisfaction.
With Tivo Pro and BD next CEVA with near Port IV access.
Core element of our one stick hospital stay vision that enables needless blood draws which is a major satisfaction for patients and BD Pyxis Es, one dot seven dot for which now fully integrates our CTO safe system into the pyxis Es platform, enabling security and automated controlled substance.
<unk> for pharmacists.
I'm really pleased with how our R&D team executed in FY2023.
Again, reaching a new record level of on time milestones and launches.
Our enhanced focus on programs with the potential to move the needle in terms of growth.
Positioned us well to drive our wanger expansion.
We are on track to both achieve our target of over 100, new product launches by FY 'twenty, five and our new product revenue contribution target as outlined at Investor day.
A new wave of margin accretive growth for BD.
Third in addition to our investments in R&D are tuck in M&A strategy has been very impactful.
Targeted in higher growth markets M&A is complementing the plus side of our five 5% plus growth profile.
And also contributing to growth and on an organic basis as we anniversary those assets.
This includes our acquisition of Peratis systems, which is part of our pharmacy automation business that is growing double digits.
At nearly $700 million in revenue BD pharmacy automation as one of the largest robotics in health care process automation businesses in Med Tech.
Focused on improving pharmacy labor efficiency, and reducing errors theres never been a greater need for these solutions.
Fourth we continued our simplification initiatives in FY 'twenty, three and actively managed our portfolio divesting, our surgical instrumentation business and executing a program of strategic portfolio exits, allowing us to continue to reallocate our resources into more strategic higher growth areas.
And further reduce complexity across our company.
We also progressed, our project Rico network and S. SKU rationalization programs exiting more than 2300 incremental skus in FY2023 and are pleased that we have now streamlined our portfolio by 20% compared to 2019, achieving our goals laid out at Investor day two years.
Early.
We are seeing the benefits in our manufacturing plants and in our simplified portfolio with customers. We will continue to advance. This initiative as we keep executing BD <unk> thousand 25.
In addition, we initiated our operating model simplification initiatives to reduce our organizational complexity and increase agility.
As a result, we were able to absorb continued outsized inflation during the year as planned and advanced operating margins towards our 25% target.
And lastly, we strengthened our balance sheet inclusive of executing on our planned inventory reductions and maintaining a disciplined and balanced capital deployment framework.
This allows us to support organic and inorganic investments in growth.
Turning capital to shareholders.
We just announced our 50 <unk> consecutive year of dividend increases.
<unk>, our longstanding recognition as a member of the S&P 500 dividend aristocrats index, a distinction that reflects the consistency and reliability of our dividend policy.
Lastly, I am also very pleased with how we've advanced our ESG strategy and goals.
In July we published our 2022 ESG report.
Which provides details about our strategy and progress against our 2030 plus commitments highly.
Highlights include progress in health equity and diversity.
As well as improving our environmental footprint, which included a reduction of scope, one and two greenhouse gas emissions by 10% and having generated 34% of our electric power from renewable energy.
In FY 'twenty, three we submitted our G. H G emission reduction targets to the science based target initiative for verification.
I'm quite excited by our innovative circular economy pilots, we did this past year.
So we're the first of their kind in our industry recycling medical waste like used syringes and vacuum painters and converting these materials back into usable resins.
We'll be advancing this work further in FY 'twenty four as we continue to tackle end of life G. H G emissions and seek to lead circular circular economy innovation within our industry.
We also continue to pioneer products and solutions that address health and equities like our efforts to detect HPV infections and diagnosed cervical cancer through at home sample collection.
We're proud that our progress continues to be recognized externally.
With BD most recently named among the 100 best corporate citizens by three B L and among the top two in the health care equipment and services industry.
Before I turn it over to Chris I'd.
I'd like to provide some perspective on the macro environment and BD 2025, as we look forward to FY 'twenty four.
Starting with the macro environment.
The complexity facing all companies will likely persist and in some cases is accelerating.
With China, responding to economic pressures and elevated levels of geopolitical uncertainty occurring in multiple markets.
Inflation has moderated from the peak high levels overall, but remains elevated compared to pre pandemic norms, including higher labor rates in transportation and.
Manufacturing higher cost of energy and certain raw materials.
While there continues to be a heightened degree of macro uncertainty as we head into FY 'twenty four.
System with what we have done in the past several years, we have positioned <unk> to deliver strong performance through this environment.
As we move forward you can expect to see continued execution of BD 2025, with a focus on the bold actions that position BD strategically for the future.
These include continuing to advance our strong organic portfolio of programs and higher growth spaces that are transforming health care.
This includes launching another 25 key new products.
Including our phase six S. T umbilical product that will provide patients a reliable alternative to permanent mesh, bringing the benefits of our bio resorbable basics material into one of the most common abdominal wall hernia procedures.
The BD multi modality vacuum assisted biopsy device, which is expected to be the first V. A b system designed to work across all three imaging modalities of ultrasound C T and MRI.
Allows our customers to consolidate capital equipment standardized consumables and simplify physician and nurse training.
Our next generation pure wake in continent solution for the hospital in the home will be launching in.
In FY 'twenty four.
And our facts discover S. H cell sorter, three and four laser configuration that will expand our new to world cell sorting instrument to the mid parameter segment to help more researchers drive new discoveries.
We're also launching our Liberty <unk> five ml device that will provide a wearable option for higher viscous drugs they tend to require a longer dosing times.
And finally, our BD Nexis next generation infusion pump for Europe.
These are just a few examples of the 25 key new product launches planned for FY 'twenty four.
We will also continue to simplify our organization this year to enable operational excellence and agility fuel investment and deliver on initiatives that will help us achieve our 25% adjusted operating margin goal in FY 'twenty five.
This includes our project re code initiatives, where our network optimization efforts will start generating savings in FY 'twenty four as we drive plant efficiencies in our operating model efforts, where we are seeing positive early results from outsourcing certain back office functions.
As we accelerate our focus on BD excellence, our unique business performance system, we will increase the adoption of lean principles beyond manufacturing with pilots outside of operations. This year.
I see our BD excellent system as an important new lever. We're building as we look ahead and think about our strategic plans beyond <unk> 2025.
And lastly, we expect to continue our balanced approach to capital deployment. This includes ongoing transformation of our portfolio by deploying capital towards larger tuck in acquisitions and in higher growth categories that we can scale and leverage to support our growth and margin goals.
As I said at the top of the call in fiscal 2023, our teams demonstrated exceptional agility and strong execution.
Advancing our BD 2025 strategy we.
We are delivering consistent durable performance in a challenging environment, which we expect to persist for several years to come.
Our continued track record combined with our growing pipeline and shift into higher growth markets is propelling us into a more innovative leader it is making a profound impact on advancing health care globally.
We are advancing into FY 'twenty, four with clarity focus and a growth mindset as we seek to do great things for those who rely on us our customers patients associates and shareholders.
With that let me turn it over to Chris to review, our financials and guidance and outlook.
Thanks, Tom we delivered strong consistent results this fiscal year, which reflects the diversity of our portfolio and our BD 2025 strategy in action.
Beginning with our revenue performance, we delivered $5 $1 billion in revenue in Q4 <unk>.
Exceeding our expectations with base organic growth of 7% and total base growth of six 3%, which reflects the impact from the surgical instrumentation divestiture.
For the full fiscal year, we delivered $19 $4 billion in revenue with base organic revenue growth of five 8% that is 100 basis points higher than our initial guidance.
Total base revenue growth was 7% driven by strong performance in BD medical and BD interventional.
Base revenue growth with strong regionally as well with high single digit growth in EMEA.
Latin America, and mid single digit growth in the U S.
Greater Asia, despite low single digit growth in China.
Our revenue performance continues to be supported by our durable core portfolio and an increasing contribution from higher growth spaces that are driving the plus side of our targeted five 5% plus revenue growth profile.
We also continue to benefit from the organic contribution from tuck in acquisitions, we Anniversaried, which was about 40 basis points for the full year.
Over a two year period, we drove a strong base organic revenue CAGR of about 7%, which is well above our long term target.
Let me now provide some high level insight into each segment's performance in the quarter.
Further detail can be found in today's earnings announcement and presentation.
BD medical revenue totaled $2 6 billion in the fourth quarter growing six 2% with strong performance in medication management solutions in pharmaceutical systems.
BD medical performance reflects.
A decline in medication delivery systems, resulting from softness in China, driven by market dynamics, including some impacts from volume based procurement.
This was partially offset by strong performance in catheter solutions in North America, and Europe through continued execution of our vascular access management strategy.
MMS delivered exceptional growth of 13, 7% driven by double digit growth in both dispensing and pharmacy automation as customers focus on solutions, which improve workflows and efficiencies and help pharmacies address rising costs and labor shortages.
Pharmaceutical systems delivered another quarter of double digit growth of 10, 6% driven.
Driven by continued strong demand for <unk> solutions for biologics.
Partially offset by a slowdown in China exports of anticoagulants.
BD life Sciences revenue totaled $1 3 billion in the fourth quarter.
Excluding COVID-19 only testing Lifesciences base revenues grew three 8% driven by strong double digit growth in biosciences.
Life Sciences base business growth reflects.
Ibs base business growth of 6% driven by continued adoption of our BD Keester Microbiology lab automation solution and strong I D. I S. T instrument placements and continued growth of our molecular IBD assays.
Bridging the BD Cor system, and our expanded BD Max installed base.
Growth was partially offset by the comparison to prior year Covid related recovery in China, and a decline in specimen management. It was driven by distributor and customer stocking in the prior year.
DDB grew 11, 7% driven by strong demand for our recently launched BD facts discover assay cell sorter that is enabling an entirely new level of biological death of speed ease of use and solution integration for researchers across fields like immunology.
Cancer research and cell biology.
<unk> performance also reflects strong growth in clinical reagents, leveraging our increasing installed base effects lyric analyzers and facts to add automation.
BD interventional revenues totaled $1 2 billion in the fourth quarter growing nine, 6% and 12, 8% organic.
This strong double digit organic growth was driven by.
Surgery growth of 5% or 15, 5% organic which excludes the impact from the divestiture of the surgical instrumentation platform of 10 five percentage points.
Organic growth reflects strong market adoption of our leading physics hernia products in our advanced repair and reconstruction portfolio and strong demand for our core prep infection prevention solution.
Ti grew 11, 7%, which reflects strong performance in peripheral vascular disease, driven by global penetration of the rotor ex atherectomy system in our venous portfolio in China.
Growth was aided by improved supply and distribution stabilization in EMEA following a new ERP implementation in fiscal 'twenty two.
Urology grew 11, 7%, primarily driven by continued strong demand for our pure Wick chronic incontinence solutions in both the acute care and alternative care settings.
Now moving to our P&L Q.
Q4, adjusted diluted EPS of $3 42 reflects strong double digit growth of 24% were 25% on a currency neutral basis.
Gross margin increased 20 basis points to 52, 6% and as anticipated we delivered very strong margin improvement with adjusted operating margin of 25, 4% up 340 basis points.
As expected margin improvement was driven by leverage on our strong revenue performance, our ability to offset outsized inflation lower SG&A driven by our simplification initiatives.
Moderated R&D expense as a percentage of sales due to investment timing.
And a favorable comparison to last year's Covid profit reinvestment.
Full year adjusted diluted EPS of $12 21 grew seven 6% or 11% currency neutral.
This includes delivering an additional 14th of currency neutral earnings versus our original guidance.
Additionally, we absorbed almost 400 basis points associated with reduced co, but only testing implying based currency neutral EPS growth of approximately 15%.
For the full year gross margin of 53, 5% was flat to the prior year, despite absorbing over 200 basis points of outsized inflation in cost of goods sold.
Operating margin of 23, 5% was up about 90 basis points or 110 basis points when excluding the 20 basis point impact from the accounting treatment of an employee benefit related item exceeding our margin goal for the year.
The employee benefit items recorded in G&A and is fully offset in other income with no resulting impact to EPS.
While delivering our margin goals. We also maintained investment in R&D at 6% of sales or about $1 2 billion.
To advance our pipeline of innovation programs that will support our strong growth profile in.
In fiscal year, 'twenty four and beyond.
As anticipated we've made significant progress towards achieving our pre pandemic margin improvement goals. Our FY2023 adjusted operating margin is ahead of our 2019 spin adjusted margin.
Which is particularly significant given it includes overcoming 500 basis points.
We're almost $1 billion of outsized inflation in the past three years.
Over the next two years, we remain well positioned to return to our targeted 25% operating margins.
Regarding our cash and capital allocation.
Cash flows from operations totaled approximately $3 billion in <unk>.
Why twenty-three as expected cash flow accelerated over the back half of the year and was strongest in Q4 due to normalization of working capital, including continued moderation of our inventory balances.
We remain focused on free cash flow conversion.
And as anticipated delivered a step up in FY 'twenty, three with free cash flow increasing by over $600 million.
We are planning another step improvement in FY, 'twenty, four and expect free cash flow to increase double digits.
This will be achieved through further moderation of inventory levels by the end of the year and continued discipline around capex investments through focused prioritization in areas of targeted reduction.
Of which we expect to more than offset cash investments to support the <unk> remediation.
As we execute against our BD 2025 strategy, we remain well positioned to achieve our long term cash conversion target of around 90%.
Beyond our investments in growth, we paid down over $700 million in debt this fiscal year and returned $1 $1 billion in capital to shareholders through dividends.
We ended the year with a cash balance of $1 4 billion and a net leverage ratio of two six times. This is our strongest net leverage position since FY, 'twenty, one which positions us well to capitalize on opportunities to accelerate our investment in higher growth categories through our tuck in M&A strategy.
Moving to our guidance for fiscal 'twenty four for your convenience the detailed assumptions underlying our guidance can also be found in our presentation.
As demonstrated by our results over the past two years.
<unk> has the ability to deliver strong performance in the most challenging times.
Our performance reflects strong execution of our BD 2025 strategy the benefit of our diversified and durable portfolio, our simplification, an outsized cost improvement programs.
And bold purposeful capital allocation and investment decisions all further optimized by our ability to execute with agility.
As we look to fiscal 'twenty four while the macro landscape has evolved since our last earnings call I'm pleased to share we remain committed to the revenue growth profile, we previously outlined and at the midpoint of our guidance, we expect to deliver another year of organic growth above our five 5% plus profile.
Let me share some of the key puts and takes contemplated in our guidance.
First we see strong momentum in many parts of our business. We have six key areas in our portfolio now totaling over $5 billion or 25% of our sales. So we expect to deliver high single to double digit growth.
These include our Pharm systems, Prefill level, syringes, which are benefiting from the strong trends in biologics are.
Our bioscience business.
Our peripheral vascular disease platform.
Our medication management systems business, including pharmacy automation and infusion given the recent cleared a <unk> pump.
Urinary incontinence supported by our pure Wick franchise, and finally, our molecular diagnostic platforms.
This allows us to deliver strong results. Despite some heightened macro dynamics affecting many industries, most notably in China.
Along with increasing risk and complexity as the result of the war in the Middle East and other geographies.
Specific to the health care industry providers continue to feel the pressure of elevated inflation and labor dynamics.
And while they remain very focused on cost and working capital management, our portfolio has proven to be more resilient.
This type of environment, given BD has a central role in the healthcare ecosystem and our ability to transform health care processes and drive efficiencies.
As it relates to BD the largest headwind we anticipate from these macro dynamics as in our China business, where we see market softness and increasing levels of volume based procurement.
Dominic impacting our Mds business, along with some impact in Pharm systems from reduced demand as our Chinese pharmaceutical customers export business slow.
As a result, we are projecting China to be flat to modest growth in FY, 'twenty, four which creates nearly a 75 basis point headwind to our revenue growth this year.
Taking these factors into account, we expect to deliver base organic growth of about 6% at the midpoint, which is consistent with the view we provided on our last earnings call.
We still expect Covid only testing to step down from the $73 million reported this year and result in a headwind to organic growth of over 25 basis points.
This brings the midpoint of our total organic growth to 575% within our 525% to 625% range.
To help simplify our reporting unless there is a significant change in the cobot only testing market.
Effective this year, we will no longer be reporting base organic growth that excludes COVID-19 only testing. However, it was important to give us context with our initial guidance.
As a reminder, while the sale of the surgical instrumentation platform that closed in Q4, FY2023 does not impact our organic growth. We will have nearly a 75 basis point impact to total revenue growth in FY 'twenty four and is accounted for in our total currency neutral revenue growth guidance of four 5% to five 5%.
Moving to margins and earnings we plan to deliver another year of strong profitable growth.
<unk> progressing our adjusted operating margin towards our FY 'twenty five goal of 25%, while generating cash flow improvements to support our strong and reliable growth profile.
Okay.
On gross margin, we expect to be about flat year over year on a reported basis.
Including the impact of currency headwinds of approximately 75 basis points.
Excluding the impact of currency, we expect gross margin to improve with our simplification strategy more than offsetting a 150 basis points of headwinds from outsized inflation of about 100 basis points and another 50 basis points from inventory reduction efforts that occurred in FY2023 and then we plan to further moderate.
<unk> by the end of FY, 'twenty, four which will improve cash flow.
Yeah.
The value from our simplification programs continued to be driven by our re code network optimization, SKU rationalization and operating model simplification programs.
Additionally, our BD excellence program, which focuses on the application of lean principles is driving productivity gains across our operations.
As it pertains to Opex, we anticipate SG&A expense leverage on strong revenue performance and continued benefit from our operating model simplification programs.
After three consecutive years of investing in R&D at over 6% on average in FY 'twenty four we anticipate a consistent year to year dollar spend in R&D that is needed to advance our pipeline, which will result in some modest leverage.
As a result, we expect adjusted operating margin to improve by around 50 basis points on a reported basis over the 23, 5% reported in FY2023.
Primarily driven by SG&A leverage.
This puts us well on track to achieve our 25% margin goal by FY 'twenty five.
For tax assuming no major legislative or regulatory changes.
We expect our adjusted effective tax rate to be between 13% and 15%.
As a reminder, would not be unusual for our tax rate to fluctuate on a quarterly basis, given the timing of discrete items.
Given all of these considerations, we expect adjusted EPS growth before the impact of currency of $8, two 5% to 10, 2% and 5%.
Or nine 5% at the midpoint.
This includes absorbing about a 75 basis point headwind from the divestiture of the surgical instrumentation business.
And as a result implies double digit earnings growth excluding the divestiture.
Of 10% at the midpoint and within a range of approximately 9% to 11%.
Let me now walk you through the estimated impact from currency as a reminder, we manage our business and provide guidance on a currency neutral basis to best represent underlying performance.
To provide perspective on currency using current spot rates.
Consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger U S. Dollar.
Along with normal FX translation, given our global manufacturing and distribution footprint. We also faced the impact of currency fluctuations in our P&L, including the impact from the sourcing and timing of inventory production movements throughout our network.
Since our last call in August the U S dollar significantly strengthened against most major currencies.
And the change over this time period accounts for nearly two thirds of the expected FX impact <unk>.
Additionally, as it relates to sourcing from Mexico, where we have a large manufacturing footprint. The dollar weakened versus the peso by about 10% taking the average rate over the last four months ending in October versus the average over the first nine months of fiscal year 'twenty three.
With the peso achieving peak rates that in that timeframe has not been seen in well over five years.
Based on current spot rates for illustrative purposes currency is estimated to be a headwind of approximately 75 basis points to total company revenues and approximately 375 basis points to adjusted EPS growth on a full year basis.
Yeah.
All in including the estimated impact of currency, we expect revenues to be between approximately 21 to 23 billion and adjusted EPS to be in a range of $12 70.
The $13.
Which represents growth of four to six 5%.
As a reminder, currency can fluctuate over time and it would not be prudent to deviate from our investment profile that is resulting in consistently strong base organic growth, which is delivering an expected three year base organic CAGR of about six 8%.
Well above our five 5% plus growth profile.
We continue to deliver margin improvement, resulting in earnings growing one three times the rate of sales and with our focus on improved cash conversion, we expect to deliver double digit free cash flow growth.
As you think of fiscal 'twenty for facing the following or considerations for Q1 and context on how revenue and margin will index through the remainder of the year.
As it relates to Q1, we expect organic revenue growth to under index to the full year by over 200 basis points and we expect a decline in adjusted EPS versus the prior year of about 55 to 60.
There are three key items to consider.
First sales is driven by their prior year base and cobot only respiratory testing comparison.
Along with the market dynamics in China.
These impacts are about equally weighted and primarily impact the ibs and Mds business.
With a modest impact in Pharm systems associated with China.
We also expect <unk> revenues to ramp over the year would be weighted to the second half.
Second we expect operating margin to decline by around 350 basis points on a reported basis in Q1 with 200 basis points driven by inventory related FX dynamics, and another 200 basis points from the negative absorption impact from our planned inventory reductions.
Which we expect to partially offset through our simplification and cost mitigation initiatives, while also overcoming outsized inflation.
Lastly, we had a discrete tax item in Q1 of last year that creates a negative comparison.
As you think about the remainder of the year, we expect organic sales growth to be higher than our full year range in the second half, partially driven by the ramp up of awareness.
We expect our Q2 margins to expand significantly on a sequential basis.
Resulting in year over year operating margin be nearly flat on a reported basis were slightly up on a currency neutral basis.
In closing we are very pleased with our performance this past year, particularly given our ability to navigate another year of significant macro complexity and inflationary pressure the.
The momentum in our durable and strong portfolio, along with our track record of successfully executing and delivering against our commitments gives us confidence in our ability to continue this momentum into FY 'twenty four and create long term value for all of our stakeholders.
Let me take a moment to thank our talented employees across BD grew through growth mindset, and an unwavering commitment to our purpose.
Quarter delivering this performance.
With that let's start the Q&A session. Operator can you assemble our queue. Please.
At this time, if you have a question please press star one.
If at any point. Your question is answered you may remove yourself from the queue by pressing star Q.
In order to allow for broad participation. Please limit yourself to one question one related follow up.
Lastly to provide optimal sound quality. Please pickup your handset while you ask your question.
Thank you and our first question comes from Robbie Marcus with JP Morgan.
Okay. Good morning, Thanks for taking the questions.
I wanted to start on how you think about reported EPS growth.
The range of 12 70 to $13 is just slightly higher than the original guidance for fiscal 'twenty.
12.
I believe $12 50 to 265, so just thinking about how youre managing reported EPS versus underlying organic constant currency EPS and how we should think about your ability to deliver at the double digit reported EPS growth going forward.
Hi, Ravi Thanks for the question.
First of all our guide range.
Obviously reflects.
We basically try and match the top line. So if you look at the top line you've got about.
A point on the range in total I mean, your dollar is that take the dollar sales.
Take margin drop through on that.
It basically mirrors kind of the number of earnings that you have on either side, so theres symmetry between the sales.
The drop through at some margin level, that's between call it GP and EPS. So it contemplates both upside on sales and reinvesting back into the business where vice versa.
On the downside basically the opposite so I mean thats the logic for the range I think it's pretty consistent with it modifies year over year, depending on how you actually set those points on what each point is worth.
I think more importantly.
Look our commitments, we can't control currency first of all so we always think of things on our FX and basis.
If you look at our FY 'twenty four guide this year I think there is a lot of strong things the underlying performance of the business is really strong.
Let's start with the top line. So if you remember last quarter, we talked about delivering 6% organic growth that is excluding the impact of the COVID-19 only testing, which we expect a step down by about 25 basis points.
Debit establish a midpoint range of call it 575%.
Which is very strong it's above our five 5% plus average our two year average heading into this year plus this year at the midpoint would imply a CAGR of just under 7% organic growth when.
When you think about from the time that we mentioned kind of the direction we're heading.
Three months ago to where we are now looking at the topline the macro environment has certainly gotten more complex I think for US China was one of the dynamics that will be called out there is about a 75 basis point headwind that we're contemplating in our guide that's actually absorbed in that growth rate. So it actually implies.
Excluding that organic growth of north of 6%, so really strong to be able to absorb that and I think this shows the resiliency of the BD portfolio, the diversified nature and all the work that we're doing to drive growth in these transformative spaces.
We've talked about six key areas.
That is we think of our guide can both one theyre, helping deliver the midpoint there and can create opportunity for upside. So that's pharm systems, that's our MMS portfolio, including pharmacy automation on the back of Perata, Our ROA business infusion, obviously with the clearance of <unk> now our Bioscience research peripheral.
Vascular disease, molecular diagnostics and urinary incontinence.
From an earnings standpoint, again on an FX basis.
Extremely consistent with what we shared last quarter.
There's a couple of small puts and takes in here, but basically excluding our divestiture of <unk> Mueller, we're anchored right at double digit growth at the midpoint at the top end were actually 11%, excluding the V. Mueller divestiture, so even even with that divestiture, we have double digit EPS growth in the top end of our Earth.
<unk> range.
Again, Theres two things that I would say that are different from last time that includes us again absorbing the China headwind, which actually comes with some some pricing dynamics, so really think of stronger underlying earnings to offset and absorb that.
Plus we've been very focused on cash so with our strong margin profile. We made an intentional decision to continue to drive inventory levels down.
Especially in an environment, where you have cash earning at high interest.
It creates an opportunity and you have inflation flowing through inventory keeping your inventory levels lower create strong value creation.
That creates a 50 basis point headwind through the year on margin, but that's an intentional choice and we're doing that because we have a strong cost of wind program leverage on our topline growth.
We've consistently been driving and we can still drive towards our 25% goal by 2025.
I think that focus on cash one thing that even despite the FX remember FX, we don't control FX.
I think a couple of the dynamics to think about we literally had a 5% FX move and across our five major currencies since the last guide it's unprecedented that they all go the same way on top of that we have a dynamic where some of our core call. It expense only sourcing locations think of Mexico, where we have a.
Huge manufacturing organization, we saw a 10% movement in that currency, where the peso actually strengthened against the dollar we're not alone in this every company has been talking about it in Q4 adjusting their Q4 were one of the first to report a full fiscal year many of our signal that that will be coming in their results.
Well the good news is one of the reasons that we focus on underlying is FX is not a true cash for cash impact. Some of this FX is pure translational it does not affect our underlying cash as a matter of fact, when you think of the cash flow for BD that we're thinking of it in 2024 because of that strong FX and Ernie.
<unk> growth profile on the back of strong topline growth and the continued cash conversion that we want to improve we're going to drive double digits cash flow from a free cash flow standpoint, so ultimate value creation happens with cash.
And it's one of our core focus areas going forward. So I think FY 'twenty four again, it's actually outsized versus our top line commitments that we've made as part of our Investor Day, We continue to drive margin improvement, we continue to deliver double digit FX and earnings growth and we actually have outsized cash flow growth.
The FX is unfortunate it is unprecedented we don't control that.
I think we're focused on continuing to drive long term value.
It would actually be value destructive to take outsized actions and try and cover that so hopefully that context all helps.
Yeah very helpful and you talked a lot about operating margins came in below the street and fourth quarter and just below the fiscal 'twenty three guide.
And first quarter is coming in pretty far substantially.
Sequentially down how do we think about your confidence levels for being able to achieve the stated operating margin guidance in the back half of the year. Thanks a lot.
Yes, great question.
So first of all 23, I mean look we delivered exactly against our commitments from the beginning of the year as matter of fact, we increased organic growth by over 100 basis points from our original guide we increased our earnings 14 on an FX and basis, taking out the currency noise, which actually was favorable as we advance through the year margin.
Margin, we fully delivered remember theres, a small accounting adjustment from employee benefits that actually gets adjusted in another line item, we're actually over our commitment when you think of that so we're really pleased with what we did on FY2023 I think the last I looked there's there's maybe.
Less than a handful of companies two or three that are able to drive margin improvement from.
The start of this outsized inflation so over the last three years.
We've absorbed a $1 billion of outsized inflation, while improving our margin by almost 400 basis points. So.
Really proud of the organization and strong commitment to executing against that.
It's a great question on 24.
Actually view 24.
In some ways Derisk so here's.
Here's the here's the criteria as you think of 24 so one.
We have another 100 basis points of outsized inflation.
Most of that is in labor theres, some other input costs some packaging fuel.
Have 50 basis points that we've actually made the choice around this absorption from lowering our inventories to drive outside cash. So that's an intentional choice. That's in our plan because we do have such a strong.
Cost improvement program in place to offset those and still achieve our long term margin goals.
And then we have 75 basis points of FX.
We're going to more than absorb that with.
225 basis points of cost of when price mix in GP. So gross margin through the year will be about flat.
And then we have about 50 basis points coming from SG&A leverage in some of the benefits from our operating model simplification plan.
That's kind of the full year dynamic in the quarter to your point, we talked about a 350 basis point headwind in the quarter, but you have two large one time items almost all of the FX is indexed towards Q1, and almost 100% of that inventory choice.
Is also happening in Q1, those are about 200 basis points respectively.
The 100 basis points of outsized inflation is over indexed in Q1 at about 175 basis points.
That implies as we're actually driving underlying without.
About 225 to 250 basis points of.
Cost improvement that are offsetting those items.
The other thing to think of is if you look at last year as an analog and for eight quarters now we've been very predictive and what our margin would do quarter over quarter and we fully executed against the commitments we have made externally.
So one there is credibility and that gives us confidence.
But if you look at last year, we needed a little over 200 basis points on average in the back half and as everyone knows it was weighted towards Q4.
This year Youll see a little bit more balanced in the second half, but we do need another year of a little over 200 basis points.
Of margin improvement in the second half.
By Q2, we get back to flat.
The good news is last year, we were absorbing 200 basis points of outsized inflation. This year, it's only a 100 basis points of outsized inflation in a lot of that is happening in the front end right. So the backend gets easier.
It's half of the challenge that we had last year. When you think of outsized inflation. So it's the same amount of margin improvement we need in the back half with half of the outsized inflation in the back half and given the fact that we're already delivering about 225 to 250 basis points of <unk>.
Cost of when pricing mix benefits in Q1, if that continues throughout the year, which we have strong plans that execute against that we feel really confident with our margin goals for the year Hey.
Hey, Ravi this is Tom good morning, and thanks for the good questions I'd, just add to Chris's excellent summary, there just to call out.
Feel great about the performance in FY 'twenty, three as well as our outlook for 2004, and just to give a little bit more detail on that inventory number. So in Q3, you saw meaningful improvements in our cash flow, including a $200 million reduction in inventory in Q4, if you haven't seen yet it's a $300 million reduction in our inventory in Q.
For that we just achieved obviously that that the inventory reduces within that quarter.
Variances, then from producing less inventory from manufacturing caps and rolls into the first half of next year and so just to put in perspective, the scale that we've been taking inventory down that and obviously that has a meaningful benefit to cash flow and why we see such strong cash flow growing nice double digits next year, all in which is.
<unk> really enables our continued strategy on our tuck in M&A strategy investing behind growth and continuing to drive the flywheel.
Thanks again for the questions. Thank you.
Our next question will come from Vijay Kumar with Evercore ISI.
Hey, guys. Thanks for taking my question good morning, Tom.
There were a lot of numbers being thrown around but if you can just start let's talk about Q1 on the topline com.
Q4 guide performance is pretty impressive I think for Q1, you said 200 basis points below the annual guide.
Comps don't seem crazy away, that's pretty easy so what's changing here.
What are you assuming for pricing.
China headwinds <unk> for Q1.
Sure. Thanks for the question Vijay and Chris will take that.
P. J. Thanks for the question Yeah on sales, we indicated that our organic growth in Q1 with under index by 200 basis points Theres really two factors, maybe maybe three.
The key factors are one that the respiratory testing dynamics, both both in our base and the Covid only which we're going to announce this report as our base business right. It was still more indexed in Q1 of last year, so as that normalizes year over year. The other one is some of the China slowdown that I noted, which is mostly in our medical business.
Still seeing strong performance in particular in PDI, which has been a source of strength for us.
The good news is we've baked that into our planning by the time that we ramp up to the back of the year that.
That normalizes throughout the year. So those are the two small items. The third one I would point to of course that we've articulated as.
<unk> as that comes back we talked about that being a ramp throughout the year. So those are probably the key three considerations.
To your point I think.
Especially on the back of absorbing 75 basis points of China headwind in our growth rate $5 75 really implies.
<unk> organic growth of six north.
So it's another year of really strong performance.
I think it's.
When you think of BD, we're not dependent on one area of growth.
I think that offers a source of confidence in complex times like this and I think the growth is broad based we talked about these six key areas within our portfolio that offer opportunity to deliver that outsized growth of either high single digits to double digits. So we continue to focus on that transforming our portfolio.
<unk> through organic investments in R&D.
And the tuck in work we've done if you noticed 23 the impact from our tuck in acquisitions are now contributing 40 basis points to growth after having anniversary them for one year.
And Vijay just to add on.
Obviously with our Laris, we've always said of course typically from when we start.
Booking installations.
Get contracts its a three to six months from them that we actually start doing the installations et cetera, and obviously, we started just a little over 90 days ago engaging with customers and so we're really pleased we're making solid progress with soliris.
Very constructive discussions we started shipping we've gotten our first contracts in place, but those will just take time to move through and therefore, we see the the bigger ramp in the back half of the year, that's natural for that selling cycle. The other thing is that as Chris mentioned, we've made some assumptions for Q1 on respiratory testing and.
And COVID-19 levels, being notably lower than last year, obviously, that's to be determined that could be an opportunity there depending on how the respiratory season plays out.
Understood.
Yep.
On the Satcom and then one on margins here I think.
Q1, gross margin 250 basis points below by just maintained our opex dollars I still end up with an operating margin of close to 21 and a half I think our guidance is implying sub 20% for Q1. So if there are some investments that's being pulled forward into Q1, and I think you mentioned gross margins flattish.
Year on year.
Are you planning to exit at 55% like what drives that gross margin from 51 to 55 as the year progresses.
Yes, youre talking specifically about Q1.
Q1, op margins, yes, and not gross margin progression.
Yes, So again I mean Q1 has theres really two onetime dynamics in there you have FX, that's 200 basis points and you have the inventory take down right. So the onetime impact of taking on.
Increased absorption in your cost base, it's 400 basis points all happening in Q1 that basically goes away the FX becomes much smaller and more normalized throughout the year.
The inventory is predominantly done in Q1 that goes away.
You also have the outsized inflation that on average through the year is 100 basis points for Q1 is more elevated because you have a carryover effect from last year, it's about 175 basis points.
The good news again is we have really strong underlying cost improvements I mean at this point re code right, which is supposed to deliver about $300 million savings as we enter into FY 2025.
We're achieving about two thirds to 70% of that savings in this year. So we've made significant progress we've actually fully completed the SKU rationalization program in terms of simplifying our SKU portfolio, we're not stopping there we're going to actually increase that gold or theres more opportunity to go so.
You have kind of two discrete one time items in Q1, but the underlying and cost improvements are driving we just need to maintain that throughout the year and we'll be fine.
Similar to what I shared before on Robbie's question was last year, we had to deliver 200 basis points of margin improvement a little bit north of that in the back half.
We have to do the same thing this year, but last year. There was 200 basis points of outsized inflation. This year theres half of outsized inflation. So.
We actually feel really strong that's whats afforded us the opportunity to actually look at our inventory harder and maybe take some more aggressive goals driving that down and driving improved cash again, FY 'twenty four years thats going to have double digit free.
Free cash flow growth year over year.
Hi.
Opex dollars are you expecting it to be constant sequentially or is that stepping up.
Chris.
I mean, there is one.
We can follow up there are timing time, if you remember last year I mean, there are some timing dynamics youre going to see R&D youre going to see is much more normalized this year. That's one area I would point to so I think you should expect to see opex actually down a little bit in the first half of the year, partially because of that when youre looking at pure <unk>.
SG&A spend in R&D spend.
And then that will re normalize in the back half of the year, we were very front end loaded with R&D this year.
In 'twenty three.
And then we moderated it back in the second half due to timing of program milestones and things like that this year is more normalized and we're going to spend about the same in R&D year over year from a dollar base, that's probably the one key thing I would point to.
Thanks, guys.
Thank you Vijay.
Our next question will come from Larry <unk> with Wells Fargo.
Larry.
Morning, Thanks for taking the question just I'd love to focus on China, a little bit 13% decline in Q4, what were the drivers of that how much was the anti corruption initiative versus V BP and how our sales going to be flat to up in fiscal 'twenty four given the Q4.
Decline in just one follow up on fiscal 'twenty for Chris.
The tax guidance does that include the pillar two changes and how should we think about the tax rate going forward.
And the FX headwind of 75 bps to sales how can that be a 375 basis point impact to EPS. Thanks, guys. That's it for me.
Yes, Thanks, Larry I appreciate the question, let me, let me take the <unk>.
Two first I guess.
First of all BD, we start our fiscal year before everyone else.
Pillar two is not contemplated nor applicable to us in fiscal year 'twenty four we continue to assess those dynamics, we expect a lot more information as this year progresses, we will share more on that at a future date, obviously, our tax rate we are planning for <unk>.
A step up in tax that we've absorbed in our guidance but.
More to come on pillar, two and we'll see how this plays out.
For us so we have time on that one.
The FX. So again you have a combination of when every currency moves.
So quickly in such a short period of time by a high degree and I had mentioned these examples of where you have pure sourcing locations think of them as basically a cost center Mexico is a good example, where actually the peso strengthened against the dollar you end up with.
Cost dynamics that are also going the wrong way. So literally every currency went the wrong way and you also have timing of how that FX flows through inventory and started last year. So it does create this disconnect that we have it does normalize over time within our portfolio.
And certainly by the time, we get out of Q1, you'll see a more normal drop through on FX I'll turn it over to Tom on China, just one high level comment because remember last year.
We did have a.
Comp from the recovery. So if you look at the two year growth, it's more normalized closer to that double digit range with that said, we have contemplated some some of the headwinds we're seeing in terms of the market dynamics playing out there but.
I think the Q4 result was also impacted by the comparison to last year.
And specifically on China, I'd really focus on two key areas. One is <unk> and then the topic related to Pharm systems, which Chris mentioned, which obviously, we overcame at a global level that you see at acute the topic within within China, and we ended up reallocating the.
The supply to other customers that were outside of China. So on the farm system as one as Chris mentioned in the prepared remarks.
We're just seeing specifically within China.
Basically a slowdown in exports.
Pharmaceutical product, specifically anti coagulant from China, and so lower demand.
As those companies are seeing significant drops in their exports. So that that's really one again that ended up showing up in our it'll show up in our China numbers as a decline, but that same volume that would have gone to them gets reallocated to other customers globally, who are.
Still have that business and their pre filled syringes for anti coagulant until we make.
You didn't see it at a pharmaceutical systems level. So that's one and was notable within the quarter I think the other one is really more Vod P.
And again, primarily focused within the Mds business.
Continue to see strong high single digit double digit growth strong double digit growth in interventional and in high end in life Sciences. So.
Really they continue at our historically expected growth rates not only in 'twenty three but through as we look ahead towards 24, that's our outlook there as well, it's really acute within specifically the Mds business and then the continuation annualized <unk> of what we're seeing in China, Rana anti Coagulants and exports.
So when it comes to anti corruption campaign.
That's obviously a macro topic, we feel very strong about our compliance system et cetera.
We're worried about I think we saw some stabilization in the market on that versus maybe when it first came out and customers' reactions, but I wouldnt overly attributed to.
To that topic as much as the other two that I mentioned.
Alright, thanks for taking the question.
Our next question comes from Travis Steed with Bank of America.
Hey, Travis.
Good morning, Thanks for taking the question.
<unk> question are you still penciling out $200 million for the full year and any any help on maybe what you've expected in kind of Q1.
Just to help with the route for less and is that when you think about margins is that one of the drivers of the second half margin ramp.
Yes.
I'll start and then turn it over to Mike just maybe start with the margin ramp it's not part of the margin ramp it's not accretive to the Bds marginally and we've shared that in the past.
The capital itself is not obviously, the consumables associated with that tend to be but not the.
Not the capital itself as we think about.
The $200 million and I'll turn it to Mike to just share some broader context again at this point, we're a little over 90 days in.
Making solid progress we're at or ahead of our expectations, there, but again as we said it's it's typically.
Three six months.
It's a three plus month process once you get a purchase order to get the installs, but then it's even it's more like a six month plus sales process, which we started 90 days ago right and so some we are getting in earlier, we're getting contract signed we have already started shipments but.
What we'll do is we'll continue to share our progress on that.
We're not changing the 200 number now and I think that was also just keep in mind that was something that we shared to give some color as it related to clearance, but for competitive reasons.
I wouldn't expect that we will share a specific.
Revenue number for <unk> going forward, just like we don't for any other product line, but we will make sure that we share color on our progress in terms of where we are relative to that that absolute number so maybe like other things to add.
Really pleased that.
We were able to.
Manufacture and ship product to the first customers ahead of schedule.
Had been sort of planning for that more in Q1 of this year, but our team was able to execute to.
To be able to ship product.
End of September.
Overall, I think that our discussions with the customers are going well and we're able to start to line up.
For focusing on our existing customers for remediation.
Out in the field.
Yes, the other the other point that I would make is that.
We continue to.
To sort of make solid progress just working with the customers and we've mentioned before how important interoperability was during COVID-19 and certainly for a lot of our customers. So that's a key consideration in the discussions that we're having with them. So yeah. That's good for health care I think that's good for <unk>.
Public health and so we're really happy that Thats, a key consideration from their perspective.
We're well positioned in that area.
Thanks for the question, but thanks a lot.
Thank you.
Our next question comes from Matt Mcclintock with Barclays.
Morning, Matt.
Hey, Good morning can you hear me okay.
Loud and clear yet.
Great. Thanks.
So.
With all the swing in FX and dominating.
Rob Mackay.
One follow up on that.
Hi, Mike.
Okay.
Okay.
Priorities and other sort of investments, you're making around here, but on the FX.
Just wondering obviously is affecting everybody.
Add to that.
Our next year.
If you could maybe highlight.
Wade.
Europe P&L.
Now at all.
What I'm, saying.
Right.
Okay.
The space.
Sure.
Excellent.
Right.
Okay.
Hey, Matt you were cutting out just a little bit there at the end it was clear during the intro, but I think the question just correct me if I'm wrong is kind of an FX swing, how it's managed through our P&L do we hedge at all et cetera is that the question.
Yes, that's the first question and how it might be changes that youre, making or not making Christopher.
Chris reference.
Yes.
Yeah, Matt So a couple of things I mean I think.
No different from anywhere there's many ways that we mitigate currency dynamics right one week, netting where you have cross currencies.
Two is we actually try and.
Match sourcing.
Location wise to look at our manufacturing footprint.
With that said and there's hedging that we do of course in particular to preserve cash is the way we think of it right.
Translational has no impact to underlying economic value of the currency in a local market. It always really becomes a strategy of how do you match sources and uses of cash.
And so those become some of our principles when we think of FX at the end of the day, what we can control is the underlying business and Thats. What we presented here was an extremely strong topline growth again, another year of margin improvement. Despite FX by the way right 75 basis points of FX headwind on <unk>.
Margin. So we've committed to the at least 50 basis points. So it's it's really north of 100, when you think of it that way.
And then again, we're being super focused on cash which is the ultimate.
Thing to create value and we expect to have double digit free cash flow year over year.
What was the was there another part of the question that was to close the question and I know you had a part two to that maybe unrelated to us.
Actually dovetails nicely into the part two which is when youre, making some choices that are impacting your margins as you talked about inventory take downs, which are have an absorption effect, which I think everyone would agree is those.
Those are solid.
Uneventful cash generative decisions.
And just with the questions as I think everyone is.
There will be some there is some pressure here on the opening day.
Question about that.
Company guidance.
Under some pressure or defensive.
Posture, but.
Your actions, obviously are saying the opposite and I was wondering if you could talk a little bit about.
Okay.
Continued efforts.
Either invest inorganically or some of the highlights some of the some of the drivers that you think are going to be significant.
Both leaders in the early and mid part of the year in 2024.
And then Tom can expand on this to maybe on how we're thinking of tuck in M&A, but to your point.
Throughout this timeframe in addition to navigating significant complexity.
Absorbing outsized inflation, we've actually been leaning in and making bold choices that are paying off on growth and creating kind of a virtual cycle of strong growth.
Margin improvement so inventory as an example, it's an intentional added sort of pressure that we're putting on ourselves in terms of absorption because we know it actually creates net positive from a cash flow standpoint, and yet we're absorbing that because we know we have a strong portfolio of cost of wind programs like re code.
Et cetera, so we're doing that from a position of strength.
Actually you should view that as a sign of confidence.
Especially in a high interest rate environment right cash is worth a lot more.
We're also setting ourselves up from a tuck in M&A right we've talked about.
Really to execute against larger tuck in sized deals our net leverage is down to two six times, we built strong cash throughout this year.
So we feel really well positioned from that standpoint, and we will continue to be disciplined but.
Strike loan opportunities as they become available.
And that I think as Chris said, we just set set the inventory piece aside create awareness in that but it's really irrelevant at the end of the day in terms of we're delivering 6% top line organic growth and we're delivering double digit EPS growth organic and then it's really FX.
What gets flowed through right, we're not going to cut R&D or cut other investments that we're making to drive our strong growth profile, which is a 7% CAGR over the last couple of years, we're not going to cut that to Tim to do FX wind and particularly when we look at the cash flow, which is what we used to invest behind that growth is at zero impact from FX really that we see.
To drive actually outsized free cash flow think about in FY2023 we grew free cash flow by $600 million in the in the year that strong free cash flow growth and we expect continued strong growth as we look at at 24 and beyond I think in terms of.
And we are extremely excited by our portfolio and what we have today and I think youre seeing outsized performance across our different segments. I mean, if you look at BD interventional yeah. The strong growth in surgery with our bio absorbable materials really taking off and you can see theres been several quarters of strong growth there.
Doing well and obviously pure wake now with the mail product you heard us in our prepared remarks actually.
That's going to be a bigger product than we thought it was going to be when we originally put out our guide and declared which products, we're going to be over $50 million. We just increased.
Pure wake mail to be one of those products, that's going to be over $50 million quite clearly it's on one of the fastest ramps of any product we've ever seen at the company was doing extremely well and we are adding capacity as fast as we can really strong adoption by by our nurses in particular in our life science business great growth in Bioscience.
<unk> I think youre seeing us be a standout.
Within 80 peers in that area the strength of our facts discover platform combined with our dies.
Got it really well you saw that continue through Q4, and we expect continued strong growth, we see strong demand for that platform and our combination with unique type.
To allow really another level of.
Multiplex testing as well as whole new insights into the cells that you can now visually see.
And two to fluorescence obviously when it comes to.
The BD medical that bold investment that we made in capacity right in the middle of Covid, we're seeing pay off with another very strong performance in Pharm systems, and we see just the durable trends there whether or not it's a G. L. P. One other biologics that we're very well positioned from not only a.
Folio offering and technology perspective, but from a capacity perspective, because of those bold investments, we're well positioned to continue to capitalize on those and of course in MMS. What we've built now with a $700 million pharmacy robotics business really if you look across med tech it's hard to name.
Many automation or robotics business is larger than our franchise that we've now built there and finally in the pharmacy and.
And that's growing strong double digits, we expect that could continue through 'twenty four and obviously the return of <unk> has been.
Our number one goal here for a couple of years and we couldn't be more pleased to achieve that goal at the end of 'twenty three and that gives us another tailwind and confidence in our long term plan and are confident in this year. So a lot of really good things happening as we think about M&A you did ask that question, yes, as Chris also mentioned we ended 2003.
He at strong leverage to six times leverage strong.
Strong cash flow increasingly strong cash flow as we go into 'twenty four and so we have a strong robust M&A pipeline, we're still focused on larger sized tuck in M&A, which is still our priority as we've shared we're not changing from that we're going to continue to be very disciplined on the targets that we go after as we have.
Ben to make sure that they drive.
Accretive growth and profitability for the company and we see a number of opportunities to do that and so and I think we're really pleased with how we've executed on the M&A that we've done were really pleased with the track record that we've built there you can see as Chris shared 40 basis points of underlying organic growth.
Driven through.
The acquisitions that we've done over the last couple of years.
That's a lever we're going to continue to pull in a very systematic way.
Youre seeing all the other actions that we're taking including optimizing cash flow.
Fit into that growth algorithm.
For the question.
I appreciate the color.
Thank you.
Okay.
Alright.
This concludes the question and answer portion of our call. So I would like to turn the floor back over to the speakers for any closing or additional remarks.
Okay. Thank you operator, and thanks to everyone for your time today I would like to take a moment and again, thank our global team of BD Associates, who are advancing our strategy and who are making meaningful impacts for our customers and the patients we mutually serve by.
<unk> 2025 strategy is demonstrating strong momentum, we're exceeding our commitments and have outlined our strong outlook for fiscal 2024, we look forward to connecting with everyone again on our next call and thank you very much and have a great rest of the day.
Thank you. This does conclude the audio webcast on behalf of BD. Thank you for joining today. Please disconnect. Your lines at this time and have a wonderful day.
Yeah.
Okay.
[music].
Yeah.