Q4 2024 Becton Dickinson & Co Earnings Call
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Speaker Change: Hello and welcome to BD's fourth quarter and full year fiscal 2024 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.
and besters.bd.com
or by phone at 800-839-1337 for domestic calls and area code plus 1-402-220-0489 for international calls.
Speaker Change: 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 Rodetis, Senior Vice President, Treasurer, and Head of Investor Relations.
Please go ahead.
Good morning and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer, and Head of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com.
Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President, and Chris DelOrefice, Executive Vice President and Chief Financial Officer.
Speaker Change: Following this morning's prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents. Mike Garrison, president of the medical segment, Mike Feld, president of the life sciences segment, and Rick Byrd, president of the interventional segment.
Speaker Change: Before we get started, I want to remind you that we'll be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings available on the Investor Relations website.
Speaker Change: Reconciliations between GAP and non-GAP measures are included in the appendices of the earnings release and presentation. With that, I am very pleased to turn it over to Tom.
Thanks, Greg, and good morning, everyone.
Tom Polen: First, I'd like to take a moment to welcome Mike Feld, president of our Life Science segment, who joined BD in August from Veralto. Mike is known for building innovative, high-performing teams, and his leadership principles are well aligned with BD's culture. Mike also brings deep experience in Shinkijutsu Kaizen, which is the heartbeat behind BD Excellence.
Speaker Change: There is no individual more suited to lead the Life Sciences team as they continue to expand the value BD brings to our customers, and I look forward to Mike's partnership as we deliver on our strategy.
Speaker Change: Earlier today, we reported strong Q4 results with 7.4% revenue growth or 6.2% organic, 120 basis points of margin expansion, and adjusted diluted EPS up 11.4%.
Speaker Change: For the full year, we delivered solid organic revenue growth of 5%.
Speaker Change: Despite fiscal 24 revenue growth that was below our initial expectations, we were pleased with how we navigated complex market dynamics in China and bioscience pharma.
Speaker Change: Breaking things down, our medtech and biopharma businesses grew about 1%, roughly in line with the end markets.
Speaker Change: Over the long term, we see Bioscience Pharma as a durable, higher growth contributor to our portfolio, and we remain confident in gradual market recovery, our competitive position, and the team's execution.
Speaker Change: We consistently executed on margin expansion at FY24, increasing adjusted EPS guidance each quarter, and delivering full year EPS of $13.14, adjusted operating margin of 24.2%, and free cash flow of $3.1 billion.
Speaker Change: all ahead of our original plan and positioning us well moving into FY25.
Speaker Change: I'd like to thank our global team of associates whose passionate commitment and focused execution of our strategy is making meaningful impact for the customers and patients we serve.
Speaker Change: Reflecting more broadly on our strategic direction and progress this past year, we made important advancements on each of our top three priorities.
Speaker Change: which are one, drive sustained top-line growth through high-impact innovation and commercial excellence, two, execute on BD excellence to drive operational performance, and three, effectively deploy capital.
First on growth.
Speaker Change: We advanced multiple new growth platforms that put BD in the middle of the most significant trends reshaping healthcare, including the use of AI and automation in connected care to transform efficiency and outcomes.
Speaker Change: the shift to new care settings, and the application of medical technology to improve treatment of chronic disease.
Speaker Change: Starting with our BD Medical segment, new biologic drugs promise to have the most significant impact on chronic disease in the history of modern medicine.
Speaker Change: In FY24, we passed $1 billion of annual revenue in biologic drug delivery sales, driven by our leading prefillable devices and increased manufacturing capacity to serve growing GOP1 demand.
Speaker Change: As the leader in biologics drug delivery, and with a growing pipeline of targeted innovation such as our Libertas and Evolve wearable devices, we believe no company is better positioned than BD to capitalize on this significant growth opportunity.
Speaker Change: We continue to advance our platform for pharmacy robotics, which now ranks as one of the largest robotics businesses in medtech, and is enabling the transformation of retail, online, and hospital pharmacies, with significant opportunity for future growth.
Speaker Change: We're also extremely pleased with the first year of the ALARIS Return to Market and its role in our connected medication management strategy.
Speaker Change: We exited the year at our historical revenue run rate and continue to see strong customer preference for the hilarious power of one.
Speaker Change: Our acquisition of advanced patient monitoring in FY24 expands our connected care solutions in a high-growth market and enables future innovation opportunities in breakthrough closed-loop monitoring and treatment, which BD is uniquely positioned to deliver across our platforms.
Speaker Change: Integration is going as expected and the commercial teams are fully engaged in maximizing the benefits of APM for our customers.
Speaker Change: In BD Interventional, we had a fantastic year advancing our Pure Wick Urinary Incontinence platform.
Speaker Change: launching our next-gen PureWick Flex and expanding PureWick male into the home. In our advanced tissue regeneration portfolio, Phasics and Galiflex are additional examples of how our tuck-in M&A strategy is now driving strong organic growth.
Speaker Change: We continue to transform hernia surgery and are expanding this platform into new applications for plastic and reconstructive procedures, driven by trends in aging and GLP-1 weight loss, which increasingly call for soft tissue support to restore function and improve appearance.
Speaker Change: Across BD Life Sciences, we continue to reinvent the field of flow cytometry with the launch of the 3-in-4 laser FACTS-DISCOVER S8 sorter and multiple new reagents using unique AI algorithms to optimize dye designs that are enabling new scientific insights.
Speaker Change: In diagnostics, our new high-throughput molecular platform, BD-COR, and our Clarity HPV assay continue to gain traction with self-collection and new care settings for cervical cancer screening now available in many countries around the world.
representing a meaningful new growth opportunity for BD.
Speaker Change: While these and other new BD innovations are playing a key role in transforming care.
Most every significant health care procedure uses a BD-Core device.
Speaker Change: Whether robotic surgeries, a valve transplant, new cancer treatment, or advanced vascular procedures, BD syringes, catheters, pumps, surgical prep, blood collection, and other products are there.
Speaker Change: In FY24, we saw strong growth across our core devices driven by share gains and procedural volumes.
Speaker Change: Turning to operational performance, we launched BD Excellence about 18 months ago. And it's been incredible to see the momentum behind simplifying our company, improving quality and accelerating margin progression.
Speaker Change: Through BD Excellence, our team has made strong progress on network optimization, increasing plant productivity, and delivering double-digit improvements in waste and operating equipment efficiency, or OE.
Speaker Change: All of this drove margins, EPS, and cash flow above plan.
Speaker Change: We have much more headroom going forward through BD Excellence, and it positions us well to deliver on our goals for FY25 and beyond.
Speaker Change: On our third priority of strong stewardship of value-creating capital deployment, our focus on cash generation enabled strong growth in free cash flow, increased free cash flow conversion, and allowed us to return capital to shareholders through dividends and share buybacks.
Speaker Change: Earlier this morning, we announced our 53rd consecutive year of dividend increases.
Speaker Change: extending our long-standing recognition as a member of the S&P 500 Dividend Aristocrats Index, a distinction that reflects the consistency and reliability of our dividend policy.
Speaker Change: Beyond those priorities, in FY24, we expanded our position as a leader in corporate responsibility, with significant progress towards our 2030 Corporate Sustainability Goals.
Speaker Change: We became one of a handful of medtech companies to have near and long-term greenhouse gas emissions reduction targets and net zero targets approved by the Science-Based Target Initiative.
Speaker Change: We surpassed both our Scope 1 and Scope 2 greenhouse gas emissions targets, and as part of our ongoing health equity strategy, we advance partnerships around the world in areas such as improving access to cervical and breast cancer screening.
Speaker Change: We are pleased to be recognized for our efforts, most recently being named to 3BL's list of the 100 Best Corporate Citizens and ranking in the top two in healthcare.
Speaker Change: Looking ahead to FY25, we will continue to execute in alignment with each of those three priorities.
Speaker Change: We have more than 25 planned new product launches this year.
and calling out just a few.
Speaker Change: In BD Medical, we're launching our next generation PIXIS platform, which includes a cadence of hardware and software upgrades and releases which will begin to roll out by the end of calendar year 25 and continue for the next several years.
Speaker Change: This will be the first system to use BD's new advanced AI platform that will integrate data across BD smart devices.
Speaker Change: We have a number of new launches planned in our Advanced Patient Monitoring business to revolutionize hemodynamic monitoring.
Speaker Change: The next-gen Hemisphere Alta monitor will feature a full range of sensors enabled with predictive IQ algorithms that provide comprehensive pressure, flow, and tissue oxygenation insights for varying acuities.
Speaker Change: New SWANiQ and ForesightiQ smart sensors will provide new patient insights including new-to-world right heart pressures and cerebral oxygenation.
Speaker Change: In Beady Life Sciences, we plan to launch the first BeadyFax Discover Analyzer, the A8, to provide customers high-throughput sample analysis with the same innovative technologies as our breakthrough self-sorter.
Speaker Change: And lastly, in BD Interventional, in our PureWIC platform, we're advancing the pivotal study for at-home reimbursement and expect to continue the cadence of innovation with the launch of PureWIC Portable, a solution that restores mobility to people's lives.
Speaker Change: We look forward to sharing a full portfolio update at our Investor Day on February 26th at the New York Stock Exchange.
Speaker Change: We believe we are well positioned heading into FY25 with the strength of our portfolio enabling us to effectively navigate market dynamics and the momentum of BD Excellence driving margin expansion to deliver a strong earnings and cash profile.
Speaker Change: I'll now turn it to Chris to provide further color on our financials and outlook.
Thanks, Tom, and good morning, everyone.
Chris DelOrefice: As Tom noted, we delivered competitive organic revenue growth for the fourth quarter and full year, even while navigating market dynamics in China.
Speaker Change: and Bioscience Pharma. And importantly, with strong execution of our BD Excellence programs, we exceeded our full year margin, earnings and cashflow goals.
Speaker Change: I'll now provide some further insight into our Q4 revenue performance.
Speaker Change: BD Medical organic growth was led by MMS with another quarter of exceptional performance in infusion systems driven by the BD Elaris return to market.
Speaker Change: Higher pull-through and utilization of infusion sets also contributed to MMS growth.
Speaker Change: The unit's performance was partially offset by a tough prior year comparison in dispensing.
Speaker Change: Our MDS consumable portfolio also contributed to the segment's Q4 growth.
Speaker Change: We continue to advance our position in the U.S. with broad volume growth and share gains, particularly in our hypodermic and vascular access management portfolios, where our quality and agility to meet increased demand has positively benefited healthcare delivery across our markets.
Speaker Change: Farm systems performance reflects another quarter of double-digit growth in pre-filled devices for biologic drugs, primarily GLP-1s, which was partially offset by market dynamics across the industry, including expected customer inventory destocking.
Speaker Change: Rounding out the BD medical segment, in early September, we closed the acquisition of Edwards Critical Care, now Advanced Patient Monitoring, or APM, which contributed $74 million to BD medical revenue.
CD Life Sciences performance was led by IDS.
Speaker Change: Strong mid-single-digit growth in specimen management was driven by volume growth as investment in our U.S. direct sales team drove increased demand and customer upgrades to higher value products to provide an enhanced patient experience.
Speaker Change: Within our Diagnostics business, our results reflect some tough prior year comparisons in lab automation and ID AST. Offsetting these impacts was good traction leveraging our molecular platform installed base with double digit growth in both BD-Max and BD-Core.
Speaker Change: Media life sciences growth was partially offset by transitory market dynamics and biosciences that resulted in lower market demand for research instruments and reagents.
Speaker Change: Clinical Solutions Group double-digits led by our FACTS Lyric cell analyzer in cancer reagents.
Speaker Change: We continue to outperform our life science peers, given our portfolio mix of leading instruments, including the BD FACTS-DISCOVER antibodies, dyes, and software.
Speaker Change: We remain excited about the growth opportunities in BDB as a number of new innovations are driving share gains.
Speaker Change: Strong organic growth in BD Interventional was led by double-digit growth in UCC. We continue momentum in our PureWhick franchise.
Speaker Change: Purwick female grew double digits and Purwick male delivered its strongest quarter since its launch in acute care.
Speaker Change: We are also very pleased with the mail direct-to-consumer launch, where the first few months of revenues exceeded our expectations.
Surgery delivered another quarter of above-market growth.
Speaker Change: With an advanced repair and reconstruction, continued strong market adoption of Phasic's hernia resorbable scaffold drove double-digit growth. It was partially offset by a tough comparison of the prior year and synthetic mesh.
Speaker Change: Performance in surgery was also driven by double-digit growth in infection prevention due to increased demand for chloroprep related to strong procedural volumes.
Speaker Change: BDI performance was also supported by peripheral intervention with double-digit growth in peripheral vascular disease and high single-digit growth in end-stage kidney disease.
Speaker Change: Growth was partially offset by a decrease in oncology due to prior year distributor inventory stocking in the U S.
Speaker Change: P&I growth is partially offset by a decrease in oncology due to prior-year
Speaker Change: Now moving to our P&L Q.
Speaker Change: Q4, adjusted diluted EPS of $3 81.
Now moving to our PML.
Speaker Change: It reflects double digit growth of 11, 4% <unk>.
Speaker Change: Q4 Adjusted Diluted EPS of $3.81 reflects double-digit growth of 11.4%.
Speaker Change: Consistent with our commitments, we delivered strong margin progression in Q4 with adjusted gross margin up 30 basis points sequentially, and 200 basis points year over year to 54, 6% and adjusted operating margin up 140 basis points sequentially and 120 basis points year.
Speaker Change: Consistent with our commitments, we delivered strong margin progression in Q4 with adjusted gross margin up 30 basis points sequentially and 200 basis points year-over-year to 54.6%.
Speaker Change: and adjusted operating margin up 140 basis points sequentially and 120 basis points year-over-year to 26.6%.
Speaker Change: Year over year to 26, 6%.
Speaker Change: Margin expansion was driven by strong leverage on our revenue performance and simplification and efficiencies from BD excellence.
Speaker Change: Margin expansion was driven by strong leverage on our revenue performance and simplification and efficiencies from BDX homes.
Speaker Change: For the full year, we delivered adjusted diluted EPS of $13.14, which represents growth of 7.6%.
Speaker Change: Adjusted gross margin of 53.3% was in line with our expectations.
Speaker Change: As planned, strong execution of DD Excellence enabled us to absorb outsized inflation, transactional effects, and about 50 basis points from inventory optimization and carryover that supported strong fiscal year 24 cash flow.
Speaker Change: Adjusted operating margin expanded 70 miles per hour margin goal for the year, driven by shipping and SG&A leverage.
Speaker Change: While delivering strong margin performance, we also invested $1.1 billion in R&D to advance our pipeline of innovative programs that will support future growth.
Speaker Change: Regarding our cash and capital allocation, our strategic choices and strong execution on cash flow optimization drove a $1 billion or 47% increase in free cash flow to $3.1 billion.
Speaker Change: and a larger-than-expected improvement in free cash flow conversion by 22 percentage points to 82%.
Speaker Change: Broad-based improvements in working capital, including our strategic choice to optimize inventory levels, continued expense management, and our ability to leverage capital expenditures from BD Excellence productivity gains, were all key factors driving strong execution this year.
Speaker Change: We also benefited from the timing of certain discrete cash items.
Speaker Change: Our strong cash position supported our acquisition of APM while also returning 1.6 billion dollars of capital to shareholders through dividends and share repurchases.
Speaker Change: Cash and short-term investments at September 30th totaled 2.2 billion dollars inclusive of about 900 million in proceeds from February's debt refinancing.
Speaker Change: After closing the advanced patient monitoring acquisition, we ended the year with net leverage of three times, which was in line with our expectations.
We believe we are well positioned to
We remain focused on underlying cash flow improvements.
Speaker Change: Despite the timing impact of some discrete cash items, we expect next year's organic free cash flow conversion to be consistent with this year due to strong execution and working capital.
Speaker Change: However, we expect this will still result in another strong year of free cash flow dollars which will support investments in growth, debt repayment, and returning capital to shareholders.
Speaker Change: given the outperformance this year and our confidence in next year's plans.
Speaker Change: We believe we are in a strong position to execute our net leverage commitments and plan to deploy about $1 billion towards share repurchases over the next 12 to 18 months, while still delivering on our deleveraging target of about two five times within this timeframe.
Speaker Change: We believe we are in a strong position to execute our net leverage commitments and plan to deploy about 1 billion dollars toward share repurchases over the next 12 to 18 months while still delivering on our deleveraging target of about 2.5 times within this time frame.
Speaker Change: We see this as a value creating opportunity based on our view of <unk> intrinsic value.
Speaker Change: We see this as a value-creating opportunity based on our view of DDE's intrinsic value.
Speaker Change: Moving to our guidance for fiscal year 'twenty five.
Speaker Change: Our initial fiscal year 'twenty five guidance is anchored on high single digit revenue growth driven by the contribution from APN.
Moving to our guidance for fiscal year 25.
Speaker Change: Our initial fiscal year 25 guidance is anchored on high single-digit revenue growth driven by the contribution from APN.
Speaker Change: In a broad based competitive organic revenue growth profile, the captures a prudent view of market dynamics in China and Bioscience pharma.
Speaker Change: and a broad-based competitive organic revenue growth profile that captures a prudent view of market dynamics in China and bioscience pharma.
Speaker Change: We expect increasing momentum from BD Excellence to drive significant margin expansion, which will enable delivery of strong adjusted EPS growth of about 10% at the midpoint.
Speaker Change: This growth includes increased acquisition-related interest expense and a higher tax rate inclusive of Pillar 2.
Speaker Change: We expect to deliver total revenues in the range of $21.9 billion to $22.1 billion in fiscal year 25.
Speaker Change: which reflects a modest foreign currency translation impact of 25 basis points and currency neutral adjusted revenue growth of 8.8 percent to 9.3 percent.
Speaker Change: This includes strong performance from our newly acquired ATM business, consistent with what we previously shared, plus organic revenue growth of four to four and a half percent.
Speaker Change: This includes absorbing about 125 basis points impact from China and bioscience pharma with China expected to decrease by mid-single digits.
Speaker Change: Across the balance of our portfolio, which represents about 75% of our total organic revenue, we expect to deliver mid-single-digit growth around our 5.5% plus growth profile.
Moving to margins and earnings.
Speaker Change: We are confident in delivering another year of strong operational performance, particularly our ability to expand adjusted operating margins by about 100 basis points and exceed our 25% margin goal we set over two years ago.
Speaker Change: The primary driver of margin expansion in fiscal year 25 is expected to come from gross margin with an increasing benefit from accelerating BD excellence momentum.
Speaker Change: Below gross margin, we expect some leverage, primarily in shipping and G&A, offset by increasing investments in selling and R&D to further support our growth profile.
Speaker Change: We expect interest other to be up year over year primarily due to the debt issued in connection with the advanced patient monitoring acquisition.
Speaker Change: For tax, we expect our adjusted effective tax rate to be between 14 and 15.5%, which includes the impact of Pillar 2.
Speaker Change: As a reminder, it would not be unusual for our tax rate to fluctuate on a quarterly basis given the timing of discrete items.
Speaker Change: Given these considerations, we expect to deliver adjusted diluted EPS of $14.25 to $14.60, inclusive of a modest foreign currency translation headwind.
Speaker Change: As you think about fiscal 2025 phasing, we expect first half revenue growth to be modestly below the low end of our total revenue guidance and the second half to be modestly above the high end.
Speaker Change: This includes our expectation of a heavier impact to first-half revenue growth from the expected decrease in China revenues, a larger impact from bioscience pharma dynamics in Q1, and a comparison to prior year licensing revenue in Q2.
Speaker Change: As revenue dollars increase sequentially throughout the year, we expect the benefit from BD excellence and strong FX leverage to result in increasing adjusted gross and operating margin throughout the year.
This results in strong year-over-year growth in OIBT each quarter.
Speaker Change: Based on a routable tax rate, we expect first half and second half adjusted EPS growth rate to be routable, which implies about 10% growth at the midpoint of our full year guidance range and is a nicely balanced phasing profile.
Speaker Change: In closing, our strategy is demonstrating positive amounts. We expect to deliver competitive growth that appropriately plans for market dynamics in China and bioscience pharma.
Speaker Change: Accelerating Momentum and BD Excellence is supporting strong margin expansion, enabling investment in R&D to support further growth.
Speaker Change: This, coupled with strong cash generation and a disciplined approach to capital allocation, is expected to drive continued value creation for all of our stakeholders.
Speaker Change: With that, let's start the Q&A session. Operator, can you please assemble our queue?
Speaker Change: Thank you and at this time if you have a question please press star 1. If at any point your question is answered you may remove yourself from the queue by pressing star 2.
Speaker Change: In order to allow for broad participation, please limit yourself to only one question. Lastly, to provide optimal sound quality, please pick up your handset while you ask your question. Thank you. And our first question is from Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Hey guys, thanks for taking my question and good morning to you Tom. Maybe on this guidance question here, thanks for all the details. The 125 basis months of headwinds on
Vijay Kumar: farmer, biosciences in China. It looks like you're assuming essentially those three segments are flattish.
Speaker Change: Yeah, you know, for the year, I know China's down, but when you look at Alt-C, it's that flat edge.
And the reason I ask is...
Speaker Change: Looks like those three segments together maybe group slightly here in Q4. I'm going to look at this comparison versus some of your Life Science tools peers.
Speaker Change: They're all declining mid to high singles, given some of these dynamics, so just want to understand.
Speaker Change: that your trends in those three segments are coming in a bow, Pierce, but the guidance does feel like conservative. And related to that, on phasing here, is Q1 going to be still in that 4 to 4.5, any impact on Hurricane Ike fluids? Thank you.
Okay, good morning BJ, I appreciate that.
Speaker Change: the comments there. So I'll start off with just some comments on some of our assumptions for the year and then I'll turn it over to Chris to speak to the phasing. So, you know, stepping back more broadly as we think about the life science and bioscience space, as you said,
Speaker Change: We recognized for the full year, we obviously had to make an adjustment mid-year that was below our initial guide to reflect the dynamics that are going on in that market, and while we had a very strong Q4,
Speaker Change: You know, we also recognize that while it was within our range, it was both the organic number was modestly below the street expectation given those dynamics.
Speaker Change: Now, what I think as we step back, you know, we're really pleased with how our teams have navigated those spaces. If you just break out.
Speaker Change: FY24, we grew 5% overall as a company. That's 5.9% in our med-tech diagnostics business and about 1% in that biopharma or biosciences pharma space.
Speaker Change: in the bioscience pharma space. So as you mentioned, Q4 was a little bit of an uptick in the bioscience pharma versus the full year.
Speaker Change: Both of those obviously very strong in the med tech diagnostic core businesses and even even out one for the full year of the one three for the quarter. It was very competitive versus what youre seeing more broadly in the market in those spaces. So we're pleased with our portfolio. We are pleased with how our teams are executing and as we look forward.
Speaker Change: You know, period. But both of those obviously very strong on the medtech diagnostic, you know, core businesses.
Speaker Change: and even that one for the full year or the one, three for the quarter, it was very competitive versus what you're seeing more broadly in the market in those spaces. And so we're pleased with our portfolio. We're pleased with how our teams are executing. And as we look, you know, forward,
Speaker Change: <unk>.
Speaker Change: I think Ben let me start with maybe just a comment on China. Since you commented on that too and how we've built that into our assumptions for FY 'twenty five and I think I've been consistent in taking a cautious view on China in the near term, but also being very positive on the long term given the loss the.
You know, I think we've been...
Speaker Change: Let me start with maybe just a comment on China, since you commented on that too.
Speaker Change: and how we've built that into our assumptions for FY25. I think I've been consistent in taking a cautious view on China in the near term, but also being very positive on the long term, given the large structural unmet healthcare needs and the opportunity for our local capabilities and portfolio to help serve those.
Speaker Change: The large structural unmet healthcare needs and the opportunity for our local capabilities and portfolio to help serve those.
Speaker Change: So in China, you are seeing value based procurement dynamics pretty broad across the industry.
and so you know in China you're seeing
Value-Based Procurement Dynamics.
Speaker Change: We continue to see.
pretty broad across the industry.
Speaker Change: We continue to see, all throughout FY24, and we expect it to continue, very strong volume growth in China, but offset by the impact of VBP on price. Long term, we...
because we're holding a very strong position in the market.
Speaker Change: You know, we think that's the right thing to do long-term and we feel good about our long-term strategic position.
But for FY25, we built in mid-single-digit decline in China.
Speaker Change: into our guide assumption. That assumes continued very strong volume growth, continued holding our position, you know, very nicely there, but overall that combination still resulting in mid-single-digit decline that we've built into our guide. We think that's prudent.
on the bioscience pharma space.
We've seen some uptick, as you mentioned, in Q4.
Speaker Change: I think it's still too early to forecast with high certainty what a recovery curve and timing looks like there, and so we're taking a prudent position on our guide and have that continuing at a rate similar to 24.
Speaker Change: Again, we really like our position in both the pharma space and in biosciences. We've got a lot of great innovation. We're extremely well-positioned in the biologics. You know, it's interesting, those two spaces.
Speaker Change: that are going through transitory market dynamics. Of course, those two have been two of the fastest-growing businesses for BD over the last several years.
Speaker Change: And we expect they'll return to being two of the fastest-growing businesses in BD over the more mid- and long-term. But we do think, given those dynamics that you mentioned, it's prudent for us to take a position that we've built into our guide.
Speaker Change: Just on the hurricane, and then I'll turn it over to Chris on phasing, on the hurricane, we're not seeing any impact of that today. I'd say we're monitoring closely the, you know, any impacts that it could have on procedure volumes.
Speaker Change: I'm not seeing that, you know, broadly at this point. That's just something we're watching and we'll monitor as we see the recovery of that. There's some modest and small. We're focused on servicing our customers.
Greg Rodetis, Christopher DelOrefice
Speaker Change: People are using maybe larger volume syringes a bit more as replacements or some other products that could help substitute for those where there's gaps in IDs. But overall, we're focusing on servicing our customers during this period of time, but we don't see a significant impact to the business. It's something we're monitoring.
Speaker Change: Relative to where we were last year, like to Tom's point, we've taken a very prudent posture as it relates to the market dynamics that are real. We're not alone there, to your point. We have businesses competing.
Speaker Change: there. As you think of our total phasing and balance across the year,
Speaker Change: It's actually pretty balanced, certainly on earnings, first of all. I shared in the script, first half, second half, very balanced relative to the midpoint of the growth rate of our guide at about 10 percent.
Speaker Change: So you don't see a lot of fluctuation there. You're going to see
Greg Rodetis, Christopher DelOrefice
Speaker Change: I think as it relates to kind of TML dynamics, very strong. On revenue, we did share that you're going to have a first half, second half dynamic where the growth rate will be below the low end of the total guide range for the first half.
Speaker Change: Covid testing in there. It's been quite strong right north of six percent underlying growth for the company, our core business.
Speaker Change: and then obviously we've got some transitory dynamics here that are affecting two of our strongest growing businesses over that period of time which are extremely well positioned in fast-growing spaces, right, biologic drug delivery and life science research on single cell or on cell analysis.
Speaker Change: So, you know, as we think about going forward, we continue to view the overall WAMGRA of our space at about 5%.
Speaker Change: We don't change that for the short-term transitory dynamics that one sees happening in destocking and pharma on the life science research side. And so we feel good about that. A number of the, if you step back and I look at BD 2025 and how we've progressed there.
And we've got multiple.
Speaker Change: growth platforms and levers now, many of which didn't exist at the start of BD2025.
Speaker Change: You know, our growth in biologics and GLP-1s, which just crossed the billion-dollar side this past year now, billion dollars of biologic drug delivery, the largest of any.
in the space and we're really well positioned there.
to Pharmacy Automation.
Speaker Change: to advanced patient monitoring now, a strong growth business, our tissue reconstruction and infection prevention that you're seeing do really well in surgery, a PUREWIC platform which
Speaker Change: As we've shared, we view it as a billion-dollar business opportunity by 2030, now high-throughput molecular on the diagnostic side. So we really like our position and the portfolio.
Thanks a lot.
Speaker Change: Thank you. And we will take our next question from Patrick Wood with Morgan Stanley. Please go ahead.
Patrick Wood: Beautiful, thank you. Just given it's kind of topical at the moment, question around, you know, potential tariffs, supply chain impact, you know, do you benefit from on-shoring relative to any potential tariffs could go in and how you thinking about pricing as it interrelates within all of that?
Speaker Change: Thanks for the question, Patrick. From a tariff perspective, when we saw this
Patrick Wood: dynamic that happened in the past, we didn't see significant impacts from that.
Patrick Wood: China perspective. Our strategy has always been strong local manufacturing in China for China. There's actually only really one product that we export from China today.
Patrick Wood: and it's quite small in the grand scheme of BD. So, you know, as we go forward, that's something we'll certainly watch, but our strategy has been across the board.
Patrick Wood: and particularly given the volumes that we talk about when we're moving billions of units.
Patrick Wood: Right, our network is set up to serve local markets with heavy local manufacturing in many cases. We're a very strong domestic manufacturer in the U.S. Obviously many things in Europe are served out of Europe, etc.
Patrick Wood: but that's a space that we'll continue to obviously monitor that, but we did well navigating it the last time.
Thanks for the question, Patrick.
Speaker Change: Thank you. And we will take our next question from David Roman with Goldman Sachs. Please go ahead.
David Roman: Thank you. Good morning everybody. I wanted just to dig in a little bit more here on the P&L, and as we look at FY25, there are some sort of discrete items here. You have a year over year kind of gross margin normalization.
as well as the creation from M&A.
Patrick Wood: offset by tax headwinds and higher interest expense and at the same time as we look at Q4 we did see a turn in operating expense growth after kind of many quarters
Speaker Change: of year-over-year decline. So can you just help us think about the construct of the P&L here, both in FY25 and how we should think about it beyond that point in terms of normalized growth drivers across the various line items?
Speaker Change: Yeah, thanks for the question. Appreciate it. So we couldn't be more excited about kind of how we're shaping the P&L to focus on DD excellence.
Speaker Change: You saw it in the back half of FY24, all the progress we're making on gross margin.
Speaker Change: So, we talked about year-over-year delivering about 100 basis points of operating margin improvement, however, this will be the first year that it's predominantly coming from gross margin, allows us to kind of reshape the P&L. We have differentiated levels.
Speaker Change: that will enable growth as you think of selling specifically and R&D, so both shorter term, long term. And so we view this as a very healthy P&L. Obviously, if you go back to BD 2025, when we first rolled that out,
At the time, the market complexity and...
Speaker Change: significant outsized inflation was not there. So we've been doing great things in gross margin, but a lot of it has been covering those headwinds.
Speaker Change: Now you're seeing that play out. Twenty-five is the first year that shows up. As we talk more in our upcoming investor day, that strategy will certainly continue, and we see that as a key value driver on a go-forward basis.
Thanks for the question, David.
Speaker Change: Thank you. And we'll move next to Matt Miksek with Barclays. Please go ahead.
Matt Miksek: Hi, thanks so much for taking the question. You know, Tom, I just wanted to circle back. You mentioned—and congrats on the quarter and the kind of really well-thought and thoughtful and put-together guide. I thought I'll move on.
Matt Miksek: on taking into account this market dynamics is super helpful, but for my question, I just wanted to drill down a little bit more into what you're doing in AI. You mentioned the first of a series of products or technologies or enabling systems that you
Matt Miksek: that you're rolling out, or just anything you can flush out on your strategy there. Maybe how you're putting some of that data that you're generating at CD to work to kind of fuel those strategies. Thanks.
Thank you for the question, Matt.
Speaker Change: You're kind of teeing us up for Investor Day on February 26th, where we'll actually get to highlight and demo some of what we're doing there, which we're really excited about.
Speaker Change: So if you just step back, you know, BD's been focused in this space for quite a number of years. We have several products on the market today that they utilize AI, whether or not that started with algorithms that we use for basically automating
creating autonomous microbiology where there's...
Speaker Change: software reading the petri dishes and determining is there growth or not, and in some cases what the bacteria is.
Speaker Change: And that's been built into our Keystro platform. We then partnered with Microsoft and utilized that technology to be looking at all the data across our platforms to determine where narcotic diversion could be happening in a health care system and identifying specific clinicians that are at risk.
Speaker Change: describing why we believe that they were at risk and then helping, you know.
Speaker Change: hospital systems get them help and stop that from occurring. Of course our new new to BD business that we're really excited about, Advanced Patient Monitoring, has been doing a great job using AI building into their algorithms to help predict
Speaker Change: and we're really excited about how that can integrate in now with our infusion pump technology.
Speaker Change: to help create closed loops in the future using AI combined with the devices that actually can impact patient care and be able to predict something's going to occur, adjust therapy, and help prevent it from ever occurring. It's really exciting concepts that we're working on.
Speaker Change: We did mention, as you said also on the call, the application of AI in a new platform that will be cutting across all BD devices. We'll be sharing more of that at...
our investor day on February 26th, but its first launch.
Speaker Change: our new TXAS platform, and so think about new series of BD devices as we're launching them, with TXAS being the first.
Speaker Change: of AI-enabled devices that will be able to connect into an AI...
cloud-based platform that will be able to take
data from devices across our businesses.
and be able to use that.
Speaker Change: to create better outcomes, create better efficiencies for clinicians and for staff that are analyzing that data. Again, we'll go much deeper on that hands-on at our investor day coming up in February, but a little bit of a sneak preview.
Speaker Change: Great, thanks so much. I'd say just one other maybe comment, Matt, is we are...
Speaker Change: You know, we certainly see a significant opportunity on the innovation side, particularly given, you know, we have millions.
Speaker Change: Chris mentioned earlier is actually in this space as well creating a new incubator focused on AI and our products.
Speaker Change: But more broadly, we're also applying it in operations, of course, our large operational footprint.
Speaker Change: There's a real opportunity to use it from a forecasting perspective, optimizing line OEE and performance. And we have initiatives applying it there on the efficiency side as well.
Thanks again for the question.
Thank you, Chris.
Speaker Change: Thank you. And we will take our next question from Matt Taylor with Jeffries. Please go ahead.
Matt Taylor: Hi, good morning, thanks for taking my question. I was wondering, now that you've closed APM, if you could give us some additional thoughts on...
Matt Taylor: How you think that segment could grow over time, and just how it's going to contribute to the margins going forward, and you were just talking about your connected strategy.
Matt Taylor: So I was wondering if you had additional thoughts on how you could develop that and perhaps integrate it with some of the other segments there that are smart and connected in generating the data.
Speaker Change: Yeah, thanks for the question, Matt. We couldn't be more excited about, you know, APMs coming into BD. We're really happy having Katie lead.
Matt Taylor: lead that team, I'd say the integration could be going better, really an immediate cultural fit.
Speaker Change: and they're staying head down, executing. That's our focus is making sure that as we integrate, they can stay focused on servicing customers, driving the great innovation momentum that they've got and capitalizing on the opportunities ahead.
Speaker Change: As we think about, you know, we did highlight for the first time in our deck and in the discussion just some of the products that they're launching this year that we're excited about. We had shared, you know, long-term we view them as at least a six to seven percent growth business.
Speaker Change: We certainly see that well intact, and again, the business isn't missing a beat coming into the BD. They didn't miss it at all in the month that they've been part of us, and that's continuing as we go into this fiscal year. I think on the integration side, we had shared this when we announced the deal.
One of the key rationales for
us coming together was the fact that
Speaker Change: You know, one of the things when we talk to our customers on medication management is that for their most critically ill patients,
There's a really important connection between understanding
Speaker Change: and the medications, because that's what's managing that hemodynamic. It's being managed by medications and fluid intake and outtake.
Speaker Change: And so if you can combine the two, what's happening in the patient's body.
Speaker Change: with what's going into the patient's body, which we know what's going into the patient's body through ALERIS.
Speaker Change: and they know what the impact of that is in the patient's body.
You can.
And that's
Speaker Change: That's one of the top three things that our customers were asking for in that space. And so we've actually, as Chris mentioned, part of our P&L this year includes some additional investments in selling, reinvestments from the gross margin expansion, also in R&D. That's a project that we funded for 25 that will be led by our APM business.
Speaker Change: And, you know, so it's early, but we're already getting after it right from the start. And our teams are really excited about the opportunities to innovate in that space. So thank you for the question.
Thanks, Tom.
Speaker Change: Thank you. And we will take our next question from Rick Wise with Stiefel. Please go ahead.
Rick Wise: A couple of things should we be interpreting this as a becton, taking maybe a momentary stepped back from your tuck in acquisition.
Speaker Change: A couple of things, should we be interpreting this as Vectin taking maybe a momentary step back from your tuck-in acquisition strategy near-term as you integrate APM?
Speaker Change: Strategy near term as you integrate APM.
Speaker Change: Is it their value lack of value a lack of compelling candidates.
Speaker Change: Is it their value, lack of value, lack of compelling candidates? And again, more broadly on capital allocation related to dividends and anything else you want to talk about.
Speaker Change: And again more broadly on capital allocation related to.
Speaker Change: Two dividends or and anything else you want to talk about.
Chris DelOrefice: Yeah, Hey, Rick Thanks, It's Chris I appreciate the question.
Yeah.
Speaker Change: Hey Rick, thanks. It's Chris. Appreciate the question. I guess first, before we get into capital allocation, this starts obviously with strong margins and healthy cash flow. We've been extremely focused on cash flow progression. We had a really strong year in FY24. We grew our free cash flow by a billion dollars and exceeded our goal of free cash flow conversion, ending at about 82%.
Speaker Change: This gives us more financial flexibility is the way I think of it. I think our capital allocation priorities are largely unchanged. You did see us announce a dividend increase at nine and a half percent. That's something that's reliable that you can continue to rely on.
Speaker Change: We've always said that we're going to prioritize remaining free cash flow for Tuck and M&A, but we're in a position where we just digested over four billion dollar acquisition.
Speaker Change: We're focused on capitalizing the value out of APM. It's an extremely exciting opportunity. Adorable high single-digit grower.
Speaker Change: And so we're very excited about that. So we want to remain disciplined about our net leverage glide path down to 2.5 times, which we'll do in 12 to 18 months.
Speaker Change: With that said, with the stronger cash flow position we have and continued momentum in driving a strong cash flow
position in 25.
Thanks for the question, Rick.
Speaker Change: Thank you. And that will conclude today's question and answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing comments.
Tom Polen: Well, thank you for joining us on our call today. I'd like to take a moment and again thank our global team of associates who are advancing our strategy, supporting our customers, and improving the lives of the patients we serve.
Tom Polen: We believe we are well-positioned heading into FY25 with multiple growth drivers across our portfolio, enabling us to effectively navigate market dynamics and momentum in BDX on striving margin expansion to deliver a strong earnings and cash profile.
Tom Polen: We look forward to connecting with everyone on our Q1 call in February and again at our Investor Day. Thank you for your continued support of BD.
Speaker Change: Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time and have a wonderful day.