Q1 2025 Becton Dickinson & Co Earnings Call
Please standby we're about to begin.
Good day, everyone and welcome to today's conference call to discuss Bd's first quarter fiscal 2025 earnings M. P. DS announcement of its intent to separate BD Biosciences, and diagnostic solutions business from the rest of the BD.
At the request of BD today's call is being recorded and will be available for replay on Bd's Investor Relations website investors that BD dot com or by phone at one 800 839 to 486 for domestic calls and area code four zero to 22072 to three for international calls.
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 Mr. Greg readiness Senior Vice President Treasurer, and head of Investor Relations. Please go ahead Sir.
Good morning, and welcome to Bd's earnings call Gregory Davis, Senior Vice President Treasurer, and head of Investor Relations. Thank you for joining US. This call is being made available via audio webcast at beauty Dot com.
We have a lot of exciting news to discuss today yesterday afternoon, we issued two press releases. The first discusses our first quarter results of fiscal 2025, the second announced is our intention to separate <unk> biosciences and diagnostic solutions business.
The press releases and accompanying presentation can be accessed on the IR website at investors diabetes Dot com.
For the purposes of today's call, we have posted a combined presentation and we'll be providing slide referenced accused to assist you in farming along with our prepared remarks.
In connection with the separation announcement the company has decided to postpone its investor day previously scheduled for February 26 2025.
To allow me to focus on the transaction the company expects to provide a comprehensive update on strategy and outlook and the future closer to the separation.
Tom Polen: Leading today's call are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal RFS Executive Vice President and Chief Financial Officer.
Tom Polen: 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 <unk> President of the life Sciences segment and brick Bergh president of the interventional segment.
Tom Polen: Before we get started I want to remind you that we will be making forward looking statements you can read the disclaimer in our earnings release any disclosures in our SEC filings available on the Investor Relations website.
Tom Polen: Unless otherwise specified all comparisons will be made on year over year basis versus the relevant fiscal period.
Tom Polen: Revenue percentage changes are on an FX neutral basis, unless otherwise noted.
Tom Polen: Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentations with that let's turn to slide five and I am very pleased to turn it over to Tom.
Tom Polen: Thanks, Greg and good morning, everyone. We have a number of significant updates to share on how we are creating value through our BD 2025 strategy.
Tom Polen: This includes yesterday's announcement of the planned separation of our Biosciences and diagnostic solutions business. Our strong Q1 results updated fiscal 'twenty twenty-five guidance and progress on our innovation pipeline, So let's jump right in.
Tom Polen: Starting with our Q1 results, we continue to demonstrate strong execution exceeding each of our financial goals. This.
Tom Polen: This includes $9, 6% revenue growth or three 9% organic we delivered 370 and 340 basis points of adjusted gross and operating margin expansion, respectively, and 28% growth in adjusted diluted EPS to $3.43.
Tom Polen: Chris will provide more color on our Q1 results.
Tom Polen: To take a moment to thank our team whose execution and momentum of BD Excellence is powering continued strong margin expansion earnings and cash flow performance.
Tom Polen: We returned over $1 billion to shareholders in Q1.
Tom Polen: This includes $300 million in dividends and $750 million accelerated share buyback, which we see as a value creating action based on our view of Bd's intrinsic value.
Tom Polen: With strong operational performance in Q1 and confidence in the year, we affirmed our full year currency neutral and organic revenue growth guidance.
Tom Polen: Our Q1 outperformance enables us to derisk growth expectations for the second half and also raised the midpoint of our reported EPS guidance, despite incremental translational currency impacts.
Tom Polen: Moving to slide six.
Tom Polen: Innovation is core to our growth strategy and we continue to make strong progress against our pipeline.
Tom Polen: Like to share an update on some key milestones.
Tom Polen: In BD medical we continued to progress our connected care strategy and as planned submitted the next five 10-K for our BD hilarious infusion system that enables over the air software updates and includes a new E. T C O two module.
Tom Polen: <unk> is the only infusion system with an integrated E. T. C O two module enhancing patient safety by monitoring their respiratory system and pausing the pump when necessary to reduce the risk of an opioid overdose.
Tom Polen: The pace and impact of innovation also continues to be strong in.
Tom Polen: In advanced patient monitoring, where we received five 10-K clearance on the Nextgen. He misfire Ulta monitor and the new Swan IQ and foresight IQ smart sensors.
Tom Polen: In BD I, we continued to advance our strategy and advanced tissue regeneration and expand into new applications.
Tom Polen: Most recently, we received EU approval for the prevention of incision Hernias using the physics resorbable mesh.
Tom Polen: This makes physics, the first resorbable mesh with a broad indication for preventing incision or hernias.
Tom Polen: Our U S trial remains underway.
Tom Polen: We also enrolled the first patients in our gala flex capsular contraction prevention clinical trial.
Tom Polen: This product is bd's first in a series of new innovations using our resorbable biomaterial to improve outcomes in patients undergoing breast surgery.
Tom Polen: Finally in life Sciences, we continue to advance our strong cycle of innovation and remain on track to launch the first BD facts discover analyzer. The 88 in the second half of this fiscal year.
Tom Polen: Additionally, in our molecular diagnostics portfolio, we're continuing to advance our position in the 2 billion dollar high volume molecular testing market.
Tom Polen: Our BD on clarity HPV assay is the only test with extended genotyping to be FDA approved for self collection, and we're seeing accelerating sales funnel momentum as a result of recent changes in U S cervical cancer screening guidelines and increased U S reimbursement.
Tom Polen: Before I turn it over to Chris to provide further color on our financials and outlook.
Tom Polen: I want to again express my appreciation of our team's strong work and advancing our BD 2025 strategy, a strong quarter and for what's ahead.
Tom Polen: Chris.
Speaker Change: Thanks, Tom Echoing Tom's comments I'm truly excited about our plan to separate biosciences and diagnostic solutions. It's an exciting next step in our strategy that we believe can unlock significant value for both new BD.
Speaker Change: In Biosciences and diagnostic solutions.
Speaker Change: Both businesses will be positioned to thrive in their respective markets and deliver value for all stakeholders shareholders employees and of course, our customers and the patients they serve.
Speaker Change: Let me start on slide seven and our Q1 results strong execution drove revenue margin and earnings ahead of our expectations.
Speaker Change: Q1 revenue grew nine 6% were three 9% organic.
Speaker Change: Organic growth was led by our med tech business with about 5% growth driven by volumes and share gains across core devices and strong performance in our growth platforms, including double digit growth in pure work.
Speaker Change: Peripheral vascular disease and physics.
Speaker Change: Diagnostic solutions grew modestly as strength in lab automation and momentum in BD Max molecular platform IBD assays was partially offset by respiratory season timing.
Speaker Change: Q1 performance also reflects the expected decline in biosciences, given market dynamics, the reduced research funding in China and the U S.
Speaker Change: Regionally total company organic growth was led by strong performance in the U S and was partially offset by the decrease in China predominantly in Biosciences.
Speaker Change: To allow time to share our perspective on the separation of Biosciences, and diagnostic solutions and have sufficient time for Q&A. Please refer to the slides accompanying today's call for additional performance details by segment.
Speaker Change: Turning to our P&L results Q1, adjusted diluted EPS of $3 43.
<unk> grew 28% driven by strong operational performance ahead of our expectations and the timing of a discrete tax item that was contemplated in our full year tax rate.
Speaker Change: Consistent with our commitments, we delivered strong margin to start the year with adjusted gross margin of 54, 8% and adjusted operating margin of 23, 6%.
Speaker Change: 370, and 340 basis points year over year, respectively. Both ahead of our expectations and fueled by momentum in PD excellence.
Strong margin performance continue to enable outsized investments in selling and R&D to drive growth.
Speaker Change: Regarding cash and capital allocation free cash flow of approximately $600 million was in line with our expectations and was impacted by the timing of planned one time cash payments.
Speaker Change: Full year cash flow continues to be in line with our prior expectations.
Speaker Change: In the quarter, we returned over $1 billion to shareholders, including dividends and a $750 million accelerated share repurchase cash and short term investments at December 31 totaled $728 million, we ended the quarter with net.
Speaker Change: Average of two nine times and are on track to meet our deleveraging commitments.
Speaker Change: Turning to slide eight and our updated fiscal 'twenty five guidance as we look ahead to the balance of the year, we remain focused on driving areas of momentum and continue to monitor transitory market dynamics, notably in China, and Biosciences research funding levels.
Speaker Change: We're maintaining our currency neutral total and organic revenue growth guidance.
Speaker Change: Regarding foreign currency based on current spot rates for illustrative purposes, we expect a headwind to revenue from translational currency of approximately $250 million for the full fiscal year, which is an increase of approximately $200 million from our prior guidance view as a.
Speaker Change: We now expect fiscal 2025 total revenues to be in a range of 21 seven to $21 9 billion.
Speaker Change: For tax we now expect our adjusted effective tax rate to be between 14% and 15, 25%.
Speaker Change: On the strength of our Q1 performance, particularly our margin execution and our confidence in the full year, we are increasing the midpoint of our fiscal 2025 adjusted reported EPS guidance.
Speaker Change: We now expect adjusted reported EPS of $14 30.
Speaker Change: To $14 60.
Speaker Change: Which reflects growth of 10% at the midpoint.
Speaker Change: Our updated EPS guidance reflects an operational increase of $17.05 that is absorbing 15th of estimated incremental translational currency.
Speaker Change: As you think about phasing over the balance of fiscal 'twenty five the following are some considerations.
Speaker Change: Q1 revenue performance allows us to further de risk our second half growth by about 25 basis points.
Speaker Change: Our expectation for the first half organic revenue growth remains largely unchanged versus our prior expectations with some timing of revenues shifted into Q1.
Speaker Change: As a reminder, Q2 includes the comparison to prior year licensing revenue, which creates a headwind of nearly 150 basis points.
Speaker Change: Excluding licensing our Q2 organic revenue growth expectation reflects sequential acceleration it is around the midpoint of our full year organic guidance range.
Speaker Change: We expect strong gross and operating margins in Q2 with solid sequential improvement in adjusted operating margin were about flat year over year inclusive of absorbing the planned licensing comparison.
Speaker Change: Our updated expectation for Q2, adjusted EPS reflects timing impacts from our updated translational FX assumptions and a tax rate of about 16, 8%, which assumes a ratable rest of year tax rate.
Speaker Change: In summary, our strategy is demonstrating strong momentum and we are delivering on our commitments.
Tom Polen: I will now turn it back to Tom starting on slide 10 to provide further detail on the exciting news announcing our intention to separate our biosciences and diagnostic solutions business.
Tom Polen: Thank you Chris.
All of our strong performance in the quarter I'd like to share more details about our plan to separate BD Biosciences, and diagnostic solutions business to enhance strategic focus drive growth through targeted capital deployment and unlock significant value for what will become the new BD and the separated business.
Tom Polen: This separation decision was the result of a comprehensive business portfolio evaluation launched in early 2024 and this is the next natural step of our evolution.
Tom Polen: Building on our strong foundation and momentum of BD 2025, and the high growth platforms, we've built and have been scaling.
Tom Polen: The new BD will be well positioned as a pure play med Tech company with leading positions in large attractive end markets.
Tom Polen: With this added focus we're excited about the opportunity for new BD to drive concentrated capital deployment in high impact R&D as well as growth accretive M&A, which positions us to deliver differentiated and durable growth rates in med Tech.
Tom Polen: At the same time, we're also excited about the opportunity for Biosciences, and diagnostic solutions to realize its full market potential as the pure play leader in life science tools and diagnostics.
Tom Polen: <unk> to accelerate growth through a strong innovation pipeline and industry leading solutions.
Tom Polen: As we turn to slide 11, let.
Tom Polen: Let me start by setting some context on why this is the next natural step in our evolution building on the strong foundation and momentum of BD 2025.
Over the past five years, we've been transforming into a faster growing more profitable organization.
Tom Polen: <unk> at the forefront of long term growth trends.
Tom Polen: We have been systematically increasing our <unk> and long term growth by intentionally shifting our portfolio mix towards higher growth markets and executing against a strong innovation pipeline.
Tom Polen: In fact by the end of this year, we're on track to have more than doubled new product revenue since the launch of <unk> 2025.
Tom Polen: We established an honed our M&A and divestiture capabilities deploying about $7 billion in capital to complete 20 value creating transactions. Since 2020. These include the spin off of and vector the sale of our surgical instruments business fee Mueller and the acquisitions of the Edwards life Sciences critical care product group.
Tom Polen: Brian systems, Straub medical T cell and others.
Tom Polen: We created an embedded BD excellence, simplifying our operations and enabling us to deliver an aggressive long term margin expansion targets.
Tom Polen: Through our disciplined capital deployment strategy, we've built significant balance sheet capacity and strengthened cash flows, allowing us to both invest in our business and return capital to shareholders through competitive dividends value, creating tuck in M&A and share repurchases.
Tom Polen: This was all achieved while advancing our quality systems and putting customer centricity at the heart of how we plan and operate throughout BD.
Tom Polen: We've achieved 70% reduction in Nonconformance is in a 25% reduction in field actions since launching BT <unk> 2025.
Tom Polen: Moving on to slide 12.
Tom Polen: We have also built and have been scaling multiple new growth platforms as part of <unk> 2025.
Tom Polen: These platforms are directly linked to the most critical areas of health care.
Tom Polen: Such as connected care, new care settings, and addressing chronic diseases and are some of the platforms, which will reshape our growth profile for the long term.
Tom Polen: Over 25% of BD revenue now comes from platforms that are growing high single digits or more and this is just the beginning as we continue to expand our exposure to higher growth categories.
Tom Polen: Moving to slide 13.
Tom Polen: We are well on track to exceed every financial target established at our 2021 analyst day.
Tom Polen: And we have outperformed historical averages.
Tom Polen: In November 2021, we targeted a base organic revenue CAGR of five 5% plus through 2025.
Tom Polen: Based on the midpoint of this year's guidance, we expect to deliver five 9%.
Tom Polen: We targeted an increase of base operating margins by 400 basis points through 2025 and in fiscal year 2022, we increased the target to 540 basis points.
Tom Polen: We are on track to deliver 560 basis points of margin expansion to margins of 25% plus.
Tom Polen: We also targeted double digit base adjusted EPS, CAGR and now expect to be well over double digits at 13, 8%.
Tom Polen: On to slide 14.
Tom Polen: This track record creates momentum as we move into our next phase of value creation and physicians, both new BD and the biosciences and diagnostic solutions business to focus and win in attractive growth categories.
Tom Polen: Let me start by sharing our perspective on the profile of the new BD.
Tom Polen: The new company will be a med tech leader with scale and global reach across the $70 billion plus addressable market growing at about 5%.
Tom Polen: Each day, new BD will touch more patients than any other med Tech company in the world, including over 90% of patients admitted to our U S Hospital.
Tom Polen: We expect new BD will have an accelerating growth profile attractive margins and a best in class recurring revenue profile of over 90%.
Tom Polen: The separation will also enable enhanced focus with targeted investment and a tailored capital deployment strategy towards attractive high growth categories.
Tom Polen: This will be complemented by our strong execution driving continued margin expansion and cash generation through BD excellence.
Tom Polen: As I look over at the Biosciences and diagnostic solutions business is expected to be a leader across an attractive $22 billion plus addressable market.
Tom Polen: Growing at mid to high single digits.
Tom Polen: We expect the business to have a highly attractive growth and margin profile with more than 80% recurring revenue.
Tom Polen: You will also have an opportunity to further accelerate its strong innovation pipeline in markets with significant growth potential and realize its full market potential as a pure play life science tools and diagnostics business.
Tom Polen: Turning to slide 15, let's go deeper on the new BD.
Tom Polen: $17 8 billion dollar Med Tech leader.
Tom Polen: On to slide 16.
Tom Polen: We plan to organize new BD into four operating segments.
Tom Polen: Each being market leaders in attractive end markets with significant headroom for growth.
Tom Polen: First medical Essentials will consist of our medication delivery solutions and specimen management businesses that truly represent the backbone of health care delivery.
Tom Polen: These are our products such as IV catheters ticks flush syringes, IV sets and blood collection systems.
Tom Polen: We are the market leader in each of these spaces manufacturing tens of billions of devices each year.
Tom Polen: <unk> and durable recurring revenue and strong cash generation.
Tom Polen: Second connected care will include our medication management solutions business, which includes our pharmacy automation platform.
Tom Polen: And our advanced patient monitoring business with millions of smart devices. They use automation artificial intelligence and analytics to improve the efficiency and effectiveness of patient care and creates compelling growth potential in new areas.
Tom Polen: Third.
Tom Polen: <unk> systems will bring a new name and increased focus to our pharmaceutical systems business unit.
Tom Polen: Which is the global leader in biologic drug delivery, developing and manufacturing drug delivery devices for the pharmaceutical industry.
Tom Polen: Biopharma systems is uniquely positioned to enable the transition to more biologics, including <unk> treatments and capitalize on the large growth potential a pharmaceutical industry trends as more drugs launches rely on patient self injection.
Tom Polen: Fourth.
Tom Polen: Is the interventional segment.
Tom Polen: Which will include our urology and critical care peripheral intervention and surgery businesses.
Tom Polen: That advance the treatment of high burden chronic conditions, such as urinary incontinence peripheral vascular disease cancer and tissue reconstruction.
Tom Polen: All of which are high growth categories with attractive margin profiles and meaningful headroom for new innovation.
Tom Polen: We will share more about timing of this new segment structure as we near completion of the transaction.
Tom Polen: On to slide 17.
Tom Polen: We have an exciting and robust innovation pipeline across the new BD segments with a significant number of $50 million plus revenue opportunities.
Tom Polen: Fueling above market performance.
Tom Polen: The new BD, we will have a meaningful runway for additional new innovation in growth both.
Tom Polen: Both organically and through growth accretive tuck in M&A.
Tom Polen: In conclusion, as we turn to slide 18.
Tom Polen: <unk> will deliver a durable and differentiated mid single digit growth profile supported by attractive end markets and best in class recurring revenue.
Tom Polen: We will continue to systematically increase wanger through disciplined capital allocation.
Tom Polen: And our BD excellent operating system will continue to enable investments in growth and meaningful margin expansion with the majority being realized from gross margin.
Tom Polen: And our targeted financial profile will support strong earnings growth and value creation.
Tom Polen: Let's move to Biosciences, and diagnostic solutions on slide 19.
Tom Polen: We're excited by the opportunity this separation has to unlock meaningful value for customers the business and shareholders.
Turning to slide 20.
Tom Polen: The opportunity here is an attractive $22 billion plus addressable segment.
Tom Polen: The businesses have strong portfolios and pipelines and are positioned well for growth.
Tom Polen: Biosciences and diagnostic solutions operate in a market growing mid to high single digits with more than 80% recurring revenue and expected, 30% adjusted EBITDA margins.
Tom Polen: Now turning to slide 21.
Tom Polen: Each of these businesses are leaders in large attractive markets.
Biosciences had $1 $5 billion in FY 'twenty, four revenue addressing a $7 billion plus market with 6% to 7% category growth.
Tom Polen: Diagnostic solutions at $1 $8 billion in FY 'twenty for addressing a $15 billion plus market with about 6% to 7% category growth.
Tom Polen: As we turn to slide 22.
Tom Polen: Biosciences is the undisputed pioneer that created the modern field of flow cytometry.
Tom Polen: Helping scientists revolutionize our understanding of cell biology in the fields of cancer infectious disease and immune health.
Tom Polen: And enabling countless breakthrough therapies.
Tom Polen: Scientists and clinicians around the world continue to rely on our flow cytometry platforms and reagents to enable the next generation of discoveries, including through our new facts discover flow cytometry platform.
Tom Polen: Biosciences has a very strong innovation pipeline of future facts discover instruments, new antibodies dyes and assays.
Tom Polen: This includes continuing to scale, our single cell multi omics platforms.
Tom Polen: With a significant increase in commercial head count to support strong double digit growth.
Tom Polen: Moving to diagnostics solutions.
Tom Polen: This business is a pioneer in microbiology research and clinical diagnostics with multiple world first in advancing the diagnosis of conditions, such as sepsis, TB COVID-19 and other infections.
Tom Polen: And in applying robotics, and AI to advanced infectious disease testing.
Tom Polen: This is primarily comprised of our microbiology and molecular diagnostics platforms, which both have strong innovation pipelines.
Tom Polen: Our molecular portfolio is among the leaders in the high growth molecular market.
Tom Polen: And is anchored by the BD Cor high throughput and BD Max medium throughput systems.
Tom Polen: Our BD core plus around clarity HPV assays.
Tom Polen: Offer a complete paradigm shift.
In cervical cancer screening and it starts with the ease of self collection.
Tom Polen: Overall this business is well positioned to create value under multiple types of separation structures, where the investments and deployment of capital are entirely focused on the life science industry.
Tom Polen: Turning to slide 23 now.
Tom Polen: Now I want to talk more about the milestones of the separation.
Tom Polen: Moving to slide 24.
Tom Polen: In terms of the form the separation could take we are committed to exploring all opportunities to execute the separation in a manner that maximizes shareholder value.
Separation options include a reverse Morris trust sale spin off or other transaction.
Tom Polen: We expect to announce more specifics on the separation plans by the end of fiscal 2025 and are targeting to complete the transaction in fiscal 2026.
Tom Polen: As the company pursues the separation, we will remain focused on execution and continuing to operate the biosciences and diagnostic solutions businesses and.
Tom Polen: And the other BD businesses consistent with our <unk> 2025 strategy, including continued investments in commercial growth.
Tom Polen: Innovation M&A and other initiatives that are part of the company's multi year strategic operating plan.
Tom Polen: Finally <unk>.
Tom Polen: Turning to slide 25.
Tom Polen: We are excited about what the future holds for new BD and the Biosciences and diagnostic solutions businesses as we establish two strategically aligned entities with mission critical portfolios to maximize impact.
Tom Polen: In summary, we believe the separation has the potential to unlock value through simplification.
Tom Polen: Enhanced focus and tailored investment and capital allocation.
Tom Polen: We believe new BD will have an enhanced strategic focus and growth oriented portfolio that positions the company for long term value creation.
Tom Polen: And as a pure play life science tools and diagnostics business.
Tom Polen: We believe biosciences and diagnostic solutions will realize its full market potential while continuing to accelerate growth.
Tom Polen: In the meantime, we continue to execute against our fiscal year 2025 plan as seen in our Q1 performance.
Tom Polen: Thank you for joining and for your continued interest and support.
Tom Polen: I look forward to our next chapter and are sharing more specific details upon formalizing the columba transact GTI.
Tom Polen: With that we.
Tom Polen: We will open it up to questions.
Tom Polen: Thank you ladies and gentlemen at this time if you do 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 two in order to allow for broad participation. Please limit yourself to only one question lastly to provide optimal sound quality. Please pickup your handset while you ask your question.
Speaker Change: First this morning to Travis Steed of Bank of America.
Speaker Change: Hi, good morning Travis.
Speaker Change: Hey, good morning, Congrats on the spend I guess one question for Tom on the spend why now how youre thinking about the different separation options spend versus sell in how you manage the dis synergies and then Chris I wanted to ask on the Q2 guide it looks like 275% on revenue, but you've got the 150 basis point licensing head.
Speaker Change: One and is there still the 50 to 75 basis points from China Pharm systems, just trying to get the kind of the true underlying growth on Q2.
Speaker Change: Yes.
Speaker Change: Hey, Thanks, Travis I'll start and then turn it to Chris.
Chris: So obviously, we're really we're really excited about both the performance in Q1 as well as the announcement today on the new BD and the separation and the opportunities ahead for our life science business.
Chris: Just as we step back this process started in the first half of FY 'twenty four as we really took time to reflect on the strong progress that we've had been making against our <unk> 2025 strategy is that we are coming into our last year as I.
Chris: I discussed on the call BD 2025 has really transformed BD into more faster growing portfolio more profitable organization positioned at the forefront of multiple long term growth trends and those are obviously indicated by a number of the new growth platforms that we've built whether or not that.
Chris: Our advanced patient monitoring business are urinary incontinence business peripheral vascular our tissue reconstruction business that we've built.
Chris: Biology drug delivery, which we are now the world leader in.
Chris: And pharmacy automation at the same time of course.
Chris: Over the last several years, we created and have embedded BD excellence across the company and Youre seeing over the last number of quarters, how that's impacting accelerated gross margin performance and cash generation in this quarter was certainly no exception to that with very strong performance.
Chris: In that camp.
Chris: So as we reflected on that.
Chris: We've looked at how we've meaningfully increase the intrinsic value of the company through execution of that strategy and looked at ways that we could further unlock that in the next phase and we believe that the separation that we're announcing today.
We're extremely excited about this as a next step in unlocking significant value for all of our stakeholders. We believe that the separation both positions new BD as a scaled pure play med Tech leader with leading positions in large attractive markets. We see this as the added focus creates an exciting opportunity for new BD to drive.
Chris: Traded investments not only in high impact R&D, but continued disciplined capital allocation, that's allowing us to continue accretive growth and value, creating transactions, perhaps an even in an accelerated way.
Chris: As we move forward all while continuing exceptional progress on our margins and cash generation that will fuel that as well at the same time right.
Chris: BTB in DFS are operating from a position of strength. This is a decision based on portfolio and it really a tremendous opportunity we see to unlock value from these great businesses to create a pure play life science tools and diagnostics leaders across the large $22 billion market.
Chris: Growing high mid to high single digits.
Chris: With a very attractive revenue and margin profiles. So in terms of the form that the transaction will take place obviously, that's still to be determined.
Chris: And we will share more information.
Chris: As that advances, which we described should be by the end of FY 'twenty five.
Chris: He is we're open to the transaction formats that best maximize shareholder value creation that is our number one decision criteria.
Chris: And we will keep that at the top of our mind as we go through that process.
Chris: Yes, Travis on the question on sales in Q2, maybe just bigger picture on topline performance one it was great to see outperformance.
Chris: In Q1, so really strong start to the year, we're exiting ahead of our plan.
Chris: If everyone recalls kind of at the start of the year. There was some some questions about the ramp.
Chris: So a couple of things just nicely de risks the remaining portion of the year in each quarter.
Chris: The second half by about 25 basis points. So I think you have a much more balanced top line profile first half to second half.
Chris: As you think about Q2, you called it out I mean think of it as a very discrete.
Chris: One time kind of headwind with the prior year licensing comp if you take that out we're right at the midpoint of our guidance at four in a quarter and if you think about more broadly.
Chris: You do have those market dynamics that are still playing out in the first half of the year, most notably in China, DDB little bit Pharm systems.
Chris: Those are directionally worth about that 125 basis points for the year, it's probably similar in that range in the quarter. So it puts kind of the core business is operating at sort of a five plus level.
Chris: So right in line if not ahead of plan in a more de risked revenue profile that we feel good about.
Speaker Change: Thanks Travis.
Thank you. We'll go next now to Larry <unk> of Wells Fargo.
Larry: Good morning, Thanks for taking the question and congrats on the separation announcement.
Speaker Change: Tom.
Speaker Change: To get your thoughts on the tariffs.
Speaker Change: On the export controls that were announced so the 10% China tariff I think went into effect and then if the 25% tariff on Mexico and Canada.
Speaker Change: What would be the impact on BD and your ability.
Speaker Change: To offset that thanks for taking the question.
Speaker Change: Yeah. Thanks for the question, Larry So our largest footprint by far is in North America from a manufacturing perspective, and particularly in the U S is by far our largest footprint Mexico would be playing an important role after that followed by Europe, and then Asia, obviously as we think about tariffs. It was it was positive to see the leaders in the.
Speaker Change: U S, Mexico, and Canada advanced our discussions and achieve a temporary resolution this past week and we continue to monitor this closely inclusive of if any future potential tariffs could include carve off for carve outs for medical devices to prevent what could be risks of shortages.
Speaker Change: Wanting to prevent negative impacts to health care costs and make sure that public health is protected.
Speaker Change: I think it's it's at this point there is no.
Speaker Change: Really confirmation in the form or timing of when any tariffs would take place and so that's something we'll monitor very closely and we can then frame any potential impact of that at that time, but but too early at this point and something that we're managing very closely.
Speaker Change: Thank you.
Patrick Wood: Thank you and now to Patrick Wood of Morgan Stanley.
Speaker Change: Beautiful. Thank you so much of the question.
Speaker Change: And congrats obviously on the separation.
Speaker Change: I guess I apologize for the Crackly voice I guess.
Speaker Change: If you end up going down the sale route with cash injection.
Are there any areas that you're particularly feel you'd.
Speaker Change: You'd like to bulk up on all parts of the business, which you could throw a little bit of extra investment and I guess connected to that too is obviously the values you will time and timely as a team are there any areas of the business, where youre going to have a little bit more time on yoplait.
Speaker Change: Once the process is done any areas you kind of get to spend a little bit more time on that you wish you could previously give it a bit more attention I'd love there. Thanks.
Tom Polen: Yes, great question Patrick.
Tom Polen: I think in terms of priority, let me start with the last component first if you look at each of our businesses, we have been performing extremely well versus the markets and peers in each of the sectors in which we participate and so as we look at the fundamental question of how we've been operating each of the businesses, whether or not it's our core medical.
Tom Polen: <unk> is our interventional businesses, our life science businesses each of them are performing at or above their market growth rates and peer groups. So we feel really strong about how were performing some of those markets of course are in different cycles like the research spending at this point or last year, but we've been navigating that extremely well.
As you look at the broader market growth overall and peer sector. So.
Tom Polen: As we think about.
Tom Polen: From a capital allocation perspective, obviously high growth accretive opportunities.
Tom Polen: Our priority for us it's been a priority for us as you can see how we've been deploying capital over the last several years, we think our interventional segment of course overall has a number of tremendous.
Tom Polen: <unk> opportunities in it that we have a right to play and win on.
Tom Polen: That we would look to continue to invest behind I think certainly there are others, but that whole sector overall.
Tom Polen: Is quite attractive and that we certainly spent a lot of time focusing in building our funnel is in that category.
Tom Polen: We will continue to focus as you know we have been.
Tom Polen: On accelerating our R&D funnel organically as well and that's something we'll continue to allocate our time towards which is making sure that we maximize the value of our new product launches. We've got some really exciting things that we've launched over the last many years and many more things to come as we've discussed whether or not those are an APM more.
Tom Polen: In cotton space maximizing our penetration of biologics in the Wearables category with new launches we have coming.
Tom Polen: There are two further new launches in surgery and in peripheral vascular and so making sure that we maximize growth in the sectors that we're in today and then continuing to shift our portfolio into those high growth high margin accretive spaces.
Tom Polen: Good news is we find ourself in new come in newco in being in large very attractive markets, where we have very much of a right to win in and.
Tom Polen: Look forward to that.
Tom Polen: Great stuff. Thank you so much.
Matt Taylor: Thank you well go next now to Matt Taylor of Jefferies.
Tom Polen: Okay.
Matt Taylor: Great good morning for taking it.
Tom Polen: Good morning.
Speaker Change: The question I wanted to ask was really on the operational performance.
Tom Polen: Nice start to the year.
Speaker Change: And with.
Speaker Change: With the FX headwinds you weren't able to raise guidance as much as maybe the performance deserved I know you called out the ongoing headwinds from.
Speaker Change: China and some of the funding that we've seen and I was just hoping that you could give us some color on that I know you didn't change the number but maybe just talk about the trends.
Speaker Change: In China, and some of the headwinds that you've been seeing.
Speaker Change: Yes. Thanks for the question, let me maybe just start bigger picture to your point on Q1, and just the guide and how we were.
Speaker Change: Thinking about that I touched on topline already obviously, it's early in the year really strong start into Q1. We're ahead of plan we over delivered on all of our financial metrics.
Speaker Change: The first point, we addressed was this question that was out there at the start of the year on the ramp.
Speaker Change: And we're nicely derisking, the second half of growth by 25 basis points.
Speaker Change: And actually even in Q2, a little bit so that provides for a nicer glide path as you think of moving top line throughout the year.
Speaker Change: The market dynamics to date has been playing out as planned as part of that.
Speaker Change: We will come back to your question those are areas that of course, we continue to monitor I think the other just two points is when you look down the P&L I mean, this was an exceptionally high quality P&L and operating income gross margin of 54, 8% up 378 basis points.
Speaker Change: Actually above where we exited last year, so youre seeing the benefit of BD excellence play out as expected.
Speaker Change: Even slightly better than plan, so really strong performance there that all translated into strong operating income.
Speaker Change: It gave us the confidence to increase operational EPS by nearly 18.
At the midpoint and then to your point look Theres translational FX that everyone's been talking about we actually have this nicely dialed in this is pure translation.
Speaker Change: It's over a full point on our earnings and despite that we're delivering strong double digit EPS growth of 10% at the midpoint. So I think a good start of the year, we increased our guide at the midpoint and we remain focused on.
Speaker Change: Executing against that.
Speaker Change: Before.
Mike Garrison: China, Let me turn it to Mike felt make some comments there. Thank you Tom as many of you I'm sure have read our high end facts discover platform was recently impacted by a ban as it directly targets spectral analyzers and analyzers with 26 plus colors.
Mike Garrison: That said it is important to remember that while the fact discovery portfolio as our newest offering we do have the most robust lineup of flow cytometry in the world with many models that are not impacted by this band. The band also does not impact our clinical and research reagent portfolio or our clinical instrumentation offering anchored by our <unk> platform.
Mike Garrison: Additionally, while we appreciate the U S government's national security concerns, we believe the previous administration erred in its risk assessment in this case and we are actively engaging with policymakers. During the 60 day commentary period to advocate for a different approach tied to this band.
Mike Garrison: While not material at the Bds level. This ban was unplanned we will continue to give updates related to this matter. Once we know more post the conclusion of the commentary.
Mike Garrison: Maybe any commentary on just overall research spending hours, yes, overall research spending it's a cautious scenario for US we continue to monitor very closely NIH spending specifically, how that impacts grants and the funding of research in the U S. Market. Additionally, it's great to remember that we do have a very robust clinical portfolio.
Mike Garrison: <unk> as well as many research projects go on for years, where we will continue to serve those customers with our research reagents.
Mike Garrison: Okay. Thanks, Mike.
Speaker Change: All that color.
Speaker Change: Thank you well go next now to David Roman of Goldman Sachs.
Speaker Change: Okay.
Speaker Change: Thank you and good morning, everybody.
Speaker Change: Wanted just to dive in a little bit more on some of the end market performance here and what you're just observing.
Speaker Change: As things evolve I think for some of the sort of problem children businesses that you saw last year, whether that was Pharm systems Biosciences, China, you've contemplated no improvement in the 25 guidance, but as we kind of start the year. It looks like both biosciences in pharmaceutical systems deteriorated from where you exited 2024. So maybe you can just.
Speaker Change: Give us an update on what's happening in these categories and the extent to which you think you can get back to consistent performance.
Speaker Change: What you saw in 'twenty, four and which would imply an improvement to the balance of this year.
David: Yes, thanks for the question David.
David: Let me start with BBB, and then Pharm systems. So biosciences. It just as you recall, we had not seen the slowdown in research spending at the start of FY 'twenty four so and we have commented on that as being a dynamic that we would expect creates more challenging comps in the first half of this year and that was a major.
Contributor to our phasing.
David: As we had easier comps in the back half.
David: And that was based upon the strength of the pipeline that we had in BTB saw us be impacted by slowdown in research spending.
David: On a lag versus peers, probably our sixth.
David: Up to nine to 12 month lag versus other peers were seeing because of the strength of that funnel that we had built.
David: That's the number one factor there I think in terms of so that's a fundamental question of what is the timing of research spend recovery and we still want to be cautious on that and we have a cautious outlook built into our budget for the year.
David: That's something we'll continue to monitor very closely both in the U S and in China, which are the two major markets that we have seen that research spending.
David: Slowdown impact those markets.
David: So that's something again that we are.
David: Poised to capitalize on with a very strong position when those markets do recover.
David: And that's our focus at this time in Pharm systems, we expect that too to begin to to recover in the back half of this year as you've seen a number of companies announce right. There is still some destocking happening, particularly in vaccine categories is theres been some slower vaccine uptake in a number of areas this past year.
David: Those are factors that youre seeing across.
David: The market overall, we continue to be extremely well positioned in the biologic space and <unk> ones I think our number of <unk>. One biosimilar contracts is now up to 50 plus.
David: We continue to make really strong progress there as well as on signing.
David: New molecules overall, as we think about the number of biologic drugs that have been cleared here in the last several years, we're winning about 80% of those are ending up in BD devices and Thats. A fact that we had shared at the beginning of in the middle of last year and as we think about molecules approved even to date since then.
David: We continue to maintain that very high win rate there so but that's what we're focused on as those markets recover we feel very confident in our position to capitalize on those and.
David: Again, the timing of those is as I described.
David: Thanks, David Thank you.
Speaker Change: Thank you well go next now to Robbie Marcus of Jpmorgan.
David: Great.
David: Morning.
David: Congrats on this.
Speaker Change: This announcement I'm sure there's been a lot of work.
David: Find it.
Tom Polen: Either Chris or Tom you talk about in the slides.
Speaker Change: The desire at this will allow for better streamline and focus capital allocation, maybe you could give us some examples of how youre thinking about what that might entail versus the limitations as a combined company today. Thanks a lot.
Speaker Change: Yeah, Great question Robin and thanks for your comments I think as we look at across these businesses.
Speaker Change: And let me start on the life science side.
Speaker Change: We're present in a number of extremely attractive markets with market, leading positions and as you think about immunology research and what's happening there around cell therapy and immuno oncology.
Speaker Change: Our position in that marketplace is we are the undisputed leader.
Speaker Change: And as we have to make tradeoffs between continuing to advance and near adjacent spaces, there whether or not that's single cell, which we have made investments in is there opportunity to make further investments to even grow that faster.
Speaker Change: Same thing as we look at the infectious disease space and near Adjacencies that we're in including an oncology screening for example, now with our leading position in HPV screening.
Speaker Change: We really look at that space is of course, it's not one that we've been allocating huge amounts of capital to right. If you just step back and look over the last 10 years of how the company has deployed capital companies deployed about $43 billion of capital towards M&A over the last 10 years, obviously, the vast majority of that $36 billion of that being.
Speaker Change: The acquisition of Bard and Carefusion, followed by the acquisition of advanced patient monitoring product and other tuck ins, but the 99, 5% plus of that has gone towards building our position on the med Tech side.
Speaker Change: With that said.
Speaker Change: Two of the three.
Speaker Change: Highest businesses with R&D as a percentage of revenue our diagnostics in biosciences, and so we've been investing organically there, but there's certainly opportunities for that business as a focused entity.
Speaker Change: To accelerate capital deployment in a way to create value. There, we think off of extremely extremely attractive markets, an extremely attractive core businesses.
Speaker Change: On new BD.
Speaker Change: As I described earlier.
Speaker Change: We are now in a number of extremely attractive areas and I described some of those before.
Speaker Change: Our ability to just continue to double down on shifting our portfolio, both organically and inorganically through tuck in M&A into higher growth high margin accretive growth spaces for us is really the opportunity ahead that this transaction, we think will afford.
Speaker Change: And it's that focus that we're excited about.
Speaker Change: We think we've got a great portfolio in the four segments that we outlined.
Speaker Change: Not only from a growth opportunity perspective, but it's with a really unique cash flow generation profile, 90% plus recurring revenue the momentum of BD excellence on gross margin expansion.
Speaker Change: Both cash flow and continued op margin expansion that can be invested back behind fueling growth.
Speaker Change: We think both are going to be in great positions.
Speaker Change: To unlock value in new ways.
Speaker Change: Yeah.
Speaker Change: I appreciate it thanks, a lot thanks, Robbie for the question yes.
Speaker Change: Thank you we'll go next now to Joanne Wuensch of Citibank.
Joanne Wuensch: Good morning, Thank you for taking the question.
Joanne Wuensch: Two brief ones I want to make sure I understand the EPS, gaining I think remainder of the year.
Joanne Wuensch: Particularly with the lower tax rate in the first quarter on how that Brian.
Joanne Wuensch: Brian's outs are there, meaning a year and then I just want a few comments if you can on how critical parents being integrated in what you're seeing from those early days.
Joanne Wuensch: Thanks.
Speaker Change: Yes, Thanks, Joanne yeah on the on the EPS Guide.
Speaker Change: It was really the simple way to think of the all the operating strength that we had in Q1 has already been delivered right and as reflected in our updated guide. So we have 18 cents roughly rounding up 18% increase at the midpoint of the guide on an operational basis.
Speaker Change: As you think of.
Speaker Change: Rolling through kind of the balance of the year.
Speaker Change: The core kind of operating plan then remains in.
Speaker Change: In fact, we derisked the topline a little bit the two big changes that you need to roll through is just the translational FX on the top line, which is roughly ratable through the remaining three quarters Q2s the highest of the three.
Speaker Change: So cumulatively that we had said there was about $250 million.
Speaker Change: And then the second thing was on the tax rate.
Speaker Change: We actually moderated our tax rate down slightly by a quarter point for the full year.
Speaker Change: We had a favorable discrete item that was timing in Q1.
Speaker Change: So I would just take the balance to go tax rate and.
Speaker Change: Just just spread that ratably over the remaining quarters you can have other discrete items that may play out well.
Speaker Change: We'll share those as they occur, but you will end up with a higher tax rate as a result of favorable.
Speaker Change: Favorable discrete item.
Speaker Change: Through the back half of the year.
Speaker Change: I think it's.
Speaker Change: About 16, 8% is what the averages for the balance ago. So very straightforward I mean basically the strength of the operating results already delivered in Q1 reflected in our guide just need to true up for the translational FX and the tax rate on the back half of the year and you have a more de risked.
Speaker Change: Sales growth profile in the second half.
Tom Polen: And Joanne Great question on APM, we're off to a fantastic start.
Tom Polen: With the APM part of BD, the past quarter grew high single digits ahead of of our deal model. The teams. There I was just with the team out in Irvine last week at the sales meeting extremely high energy.
Tom Polen: Call. It a great cultural fit our integration planning is at or ahead of schedule, we've invested a bit more in selling already as they've come into the organization as well as in R&D.
Tom Polen: Teams are already focused on revenue synergy planning ex U S, where which has been our focus, particularly in Asia and parts of Europe and as we look at R&D, We've already got the core team stood up.
Tom Polen: Working on the integration of the APM technology with our infusion platform have already seen some initial work that's been done there really excited by how fast the team has been able to move and get that team together and are they start on advanced prototyping et cetera. So we're doing exactly what we said.
If anything teams off to a bit of a stronger start so.
Tom Polen: Great to have the APM team part of BD.
Speaker Change: Thank you for the next now to Matt <unk> of Barclays.
Tom Polen: Question.
Tom Polen: So much for taking the question.
Tom Polen: Can you hear me okay.
Matt Taylor: Again, good morning, Matt Great. Good morning, so.
Tom Polen: Okay.
Tom Polen: So the separation for a SEC.
Tom Polen: Congrats on all the work that went into this.
Tom Polen: Wanted to get a sense.
Tom Polen: Sure.
Tom Polen: You mentioned, two or three different mechanisms of separation.
Tom Polen: Could you talk a little bit about.
Tom Polen: It's a process where they are processed.
Tom Polen: Before this point.
Some of the factors that might drive you towards one of those options are.
Tom Polen: Got it thanks.
Tom Polen: Yeah, Thanks, Matt for the for the question, obviously as we said.
Tom Polen: We'll be sharing more as the as that process advances and we expect to to conclude that process and announce the final form of the transaction within FY 'twenty five obviously that timing can vary based on some of those transaction formats can happen sooner than later.
Tom Polen: At the end of the day.
Tom Polen: Stick to what I shared earlier, which is we're focused on.
Tom Polen: Transaction structures that maximize shareholder value creation and that can take a number of forms which we've we've communicated can range from RMT structures to outright sales to spin.
Tom Polen: We think there's multiple different ways to unlock value there.
Tom Polen: Again, we will be focused on doing so in a way, which maximizes value creation for our shareholders in the company.
Greg Readiness: Thanks, Greg.
Tom Polen: Thanks.
Thank you and ladies and gentlemen that does conclude today's question and answer session. At this time I would like to turn the floor back over to Mr. Tom Polen for any additional or closing comments.
Tom Polen: Thank you and thanks, everyone for joining today and for your continued support of BD.
Tom Polen: I couldn't be prouder of our team who is execution of our strategy has positioned us for the journey ahead is an exciting time for BD and we look forward to sharing more about the separation plan as we progress.
Tom Polen: Thank you and have a great rest of the day.
Tom Polen: Thank you again this does conclude the audio webcast on behalf of BD. Thank you for joining US today. Please disconnect. Your lines at this time and everyone have a wonderful day goodbye.
Tom Polen: Yeah.
Tom Polen: Yeah.
Tom Polen: Sure.
Tom Polen: Yeah.
Tom Polen: Yes.