Q4 2025 Becton Dickinson & Co Earnings Call
Speaker #1: At the request of BD , today's call is being recorded and will be available for replay on Bd's . Investor Relations website . Investors .
Speaker #1: Or by phone at 833 83 . For domestic calls and area code plus 14022207202 for international calls . For today's call , all parties have been placed in a listen only mode until the question and answer session .
Speaker #1: I will now turn the call over to Adam Reif , Vice President , Investor Relations .
Speaker #2: Good morning , and welcome to BD Earnings Call . I'm Adam Reif , vice president of investor relations . Thank you for joining us .
Speaker #2: This call is being made available via audio webcast at bd.com . Earlier this morning BD released its results for the fourth quarter and full year fiscal 2025 .
Speaker #2: The press release and presentation can be accessed on the IR website at investors Bd.com . Leading today's call are Tom Poland , chairman and chief executive officer and president and Crystal Griffiths , executive vice president and chief financial officer .
Speaker #2: 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 and the disclosures in our SEC filings on our Investor Relations website , unless otherwise specified , all comparisons will be made on a year on year basis versus the relevant fiscal period .
Speaker #2: Revenue percentage changes are on an adjusted FX neutral basis unless otherwise noted . Beginning October 1st , we began operating under our previously disclosed new BD segment structure that includes medical essentials , connected care , Biopharma systems , and interventional and a fifth life sciences segment comprised of biosciences and diagnostics solutions .
Speaker #2: Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation . With that , I am pleased to turn it over to Tom .
Speaker #3: Thank you , Adam , and good morning , everyone . As you saw in our press release , our Q4 and full year performance was in line with the preliminary results .
Speaker #3: We announced last month during our prepared remarks today . Chris and I will provide additional context on the drivers of our performance . I'll also provide an update on the immediate steps we are taking to accelerate our strategy .
Speaker #3: As we transition into new BD . And I'll conclude with our fiscal 26 guidance and outlook on Q1 , after which we'll take your questions .
Speaker #3: With that , let's jump in . Q4 revenue of $5.9 billion increased 7% , and 3.9% organic new BD delivered strong organic growth of 4.9% , accelerating 90 basis points sequentially .
Speaker #3: For the full year , record revenue of $21.8 billion increased 7.7% and 2.9% organic new BD grew 3.9% , organic . We delivered adjusted diluted EPs of $3.96 for Q4 and a record $14.40 for the full year , which represents 9.6% earnings growth , including a two point impact from tariffs .
Speaker #3: We also returned $2.2 billion to shareholders , inclusive of a $1 billion share buyback . Earlier this morning , we announced our 54th consecutive year of dividend increases .
Speaker #3: During the quarter , we had a greater than anticipated impact in macro areas . We've been closely monitoring specifically farm systems , vaccines and biosciences .
Speaker #3: Academic and government research . Vaccines are approximately 20% of our farm systems business . While we plan for a slowdown in Q4 , further reductions in demand evolved rapidly late in the quarter as most Q4 vaccine demand typically occurs in September and continues into Q1 and Q2 .
Speaker #3: In our biosciences business research funding remains subdued , but sales in the US and EMEA continued to improve sequentially , led by strong demand for our new facts discover platform in diagnostics solutions .
Speaker #3: The business returned to positive growth in the quarter as BD Bactec utilization continued to recover together , Biosciences and diagnostics solutions delivered flat growth for the quarter .
Speaker #3: Excluding the impact of discontinued platforms . Outside of these two areas , we delivered strong growth across a broad range of the portfolio , demonstrating new BDS attractive profile with over 90% consumables , revenue and a strong cadence of new innovation .
Speaker #3: This includes high single digit growth in BD , interventional driven by double digit growth in pure and advanced tissue regeneration . We delivered double digit pro forma growth in advanced patient monitoring , which in the first year of integration performed well ahead of our deal model and is on track to continue this momentum in fiscal 26 and beyond .
Speaker #3: In farm systems , biologics grew high . Single digits , driven by GLP one , and M-ms had a record quarter for Alaris Pump installations , including several new competitive wins , solidifying our leadership position .
Speaker #3: Now and for years to come . As we complete our fleet upgrade in FY 26 , our operating model helped to drive strong PNL leverage throughout the year with adjusted gross margin up 140 basis points , fueling 80 basis points of adjusted operating margin expansion .
Speaker #3: While we invested in selling and innovation , which will continue to be our engine for growth in the new BD , this supported robust 9.6% adjusted diluted EPs growth , inclusive of tariffs , while we also delivered on our full year goal to reach a record 25% .
Speaker #3: Adjusted operating margin . While we are navigating specific transitory market dynamics that are expected to continue into fiscal 2026 , we have strong business fundamentals , high confidence in our continued long term mid-single digit growth profile and a proven track record of delivering value through periods such as this .
Speaker #3: We are acting with speed to optimize our performance during this time and emerge stronger . We've already begun implementing decisive actions to accelerate our strategy as we create the new BD , with a focus on boldly advancing excellence across our commercial and innovation organizations .
Speaker #3: While identifying cost optimization opportunities to reinforce our commitment to long term profitable growth . Let me highlight three specific initiatives underway . First , as part of accelerating our focus on commercial excellence , we're re-architecting our operating model to build a more focused , agile , vertical organization .
Speaker #3: This includes commercial teams directly aligned with each business unit to best support customer needs . Drive , share gains , and accelerate growth .
Speaker #3: We're also taking immediate action to expand our sales force in targeted , high growth markets . Investing in incremental $30 million to capitalize in areas that either are or have the potential to grow in the high single digits or double digits .
Speaker #3: These include opportunities such as the recent VA reimbursement for pure work at home and new surgery innovations launching in Europe , and a 15% increase in both the Pi and APM sales forces .
Speaker #3: Finally , we've announced that Mike Feld's role has been expanded to include the newly created position of Chief Revenue Officer . Michael apply his expertise in BD excellence to accelerate our initiatives to become a best in class commercial organization to deliver incremental growth .
Speaker #3: Mike will remain President of Life Sciences until the close of the RMT , with waters second . Over the last several years , we've built positions in multiple attractive markets and are investing to capture opportunities in new product innovation .
Speaker #3: Going into FY 26 , we've moved nearly $50 million of corporate costs into R&D in the businesses to fuel future innovation and growth in attractive , high growth markets such as tissue regeneration , pure adjacent markets , biologic drug delivery and connected care .
Speaker #3: Additionally , we focused investments behind planned new product launches , including our recently launched AI enabled platform that unifies BD device data into one intelligent ecosystem and our next generation BD Pyxis Pro medication dispensing platform , as well as new plan launches in APM and DS .
Speaker #3: UCC Surgery and Ms. . We are pleased we also recently received five 10-K clearance for Hemasphere stream . Our continuous non-invasive blood pressure monitoring module , an impressive clearance in less than 30 days paves the way for commercial launch in 2026 .
Speaker #3: Third , and finally , we initiated a two year , $200 million cost out program , proactively addressing stranded corporate costs with approximately half expected this year .
Speaker #3: Before I turn it over to Chris to provide additional color on our performance on behalf of the leadership team , I want to take a moment to thank Chris for his leadership , hard work and dedication to BD over the past four years .
Speaker #3: I am confident the CFO transition ahead will be seamless and wish Chris well in his new endeavors . With that , I'll turn it to Chris .
Speaker #4: Thanks , Tom . Before I begin , I want to take a moment to thank the entire team at BD . It has been a privilege and a career highlight to serve as the CFO of this company and getting to work hand in hand with our talented and committed colleagues to advance the world of health .
Speaker #4: I am proud of the accomplishments we achieved together that enabled us to deliver against our BD 2025 strategy , including the meaningful work to advance the margin profile of BD while simultaneously transforming our portfolio .
Speaker #4: That has us well positioned for the future . I look forward to partnering with detour , Roach , and my entire leadership team to ensure a seamless transition .
Speaker #4: As BD enters its next phase of value creation . Let's pivot to our performance results , starting with revenue . Organic growth was led by high single digit growth in BD interventional , with strong performance across our growth platforms .
Speaker #4: This includes double digit growth in UCC driven by pure and high single digit growth in surgery led by our advanced tissue Regeneration platform , including continued strong adoption of phase Resorbable mesh growth in PCI reflects strength across the oncology portfolio and Rotarex in BD medical .
Speaker #4: Mid-single digit organic growth was led by APM , which grew double digits on a pro forma basis with strong growth across all product lines .
Speaker #4: We feel really good about the momentum in APM continuing into FY26, which will be further supported by significant sales force expansion currently underway.
Speaker #4: MDS also delivered a strong quarter with solid mid-single digit growth in our vascular Access Management portfolio in Ms. , we achieved a record sales quarter for Alaris Pump installations and we feel good about our strong backlog of committed contracts in dispensing .
Speaker #4: Lastly , in farm systems , strong performance in biologics continued with high single digit growth driven by GLP one . This was offset by lower demand for vaccine products in BD Life Sciences .
Speaker #4: DS returned to positive growth in the quarter with a greater than 300 basis point improvement in growth sequentially , driven by our molecular platforms and continued recovery in BD Bactec utilization , which exceeded 85% of historical levels in the US .
Speaker #4: In BD . As Tom shared research spending remains subdued , with sales continue to improve sequentially in the US and EMEA , led by demand of our new facts discover platform .
Speaker #4: As a combined unit , BDB and DS increased approximately low single digits on a reported basis and was approximately flat on a currency neutral basis .
Speaker #4: Excluding the impact of discontinued platforms . Rounding out the life sciences segment , solid growth in specimen management was driven by the BD Vacutainer portfolio , partially offset by China market dynamics .
Speaker #4: Turning to the PNL in Q4 . As Tom shared , we continued strong execution down the PNL with momentum from BD excellence while investing in key growth areas .
Speaker #4: We delivered adjusted gross margin of 54.2% and adjusted operating margin of 25.8% , including an impact from tariffs of about 140 basis points .
Speaker #4: Adjusted diluted EPs of $3.96 grew 3.9% , including a six point tariff impact for the full year . Adjusted gross margin of 54.7% and adjusted operating margin of 25% increased by 140 and 80 basis points year over year , respectively , inclusive of absorbing about a 40 basis point impact from tariffs .
Speaker #4: We delivered adjusted diluted EPs of $14.40 , which represents strong growth of 9.6% , including a two point tariff headwind . We continue to execute against our cash flow and capital allocation strategy with fiscal 25 free cash flows of 2.7 billion .
Speaker #4: Underlying free cash flow was strong overall and in line with our long term target and inclusive of Alaris remediation , tariffs and other discrete payments .
Speaker #4: Free cash flow conversion was 64% . We ended the fiscal year with net leverage of 2.8 times and made progress towards our net leverage target of 2.5 times .
Speaker #4: With that , I'll turn it back to Tom .
Speaker #3: Thanks , Chris . As we look ahead , we remain focused on executing the waters transaction . The combination of our biosciences and diagnostics systems business with waters continues to be a significant strategic and financial opportunity to unlock value for our investors .
Speaker #3: Our teams are partnering exceptionally well to set up a successful combination and momentum for the new company . Last month , we received FTC clearance and remain on track to close around the end of the first quarter of calendar year 2026 .
Speaker #3: Subject to obtaining required regulatory approvals and customary closing conditions . We've begun executing our new BD strategy and the work we've done since establishing BD 2025 has set the foundation for the long term , sustainable success of the new BD .
Speaker #3: During this period of strategic progress , we delivered $5.4 billion of organic growth , the most substantive period of organic growth in BDS history .
Speaker #3: We created multiple new growth platforms , achieved best in class adjusted gross and operating margin expansion near the top of our peer group , and increased adjusted operating margin to 25% in FY 25 .
Speaker #3: A record level for BD with more room ahead . We see a clear opportunity to drive further commercial momentum . New BD will be a pure play medtech company with a deep innovation pipeline and attractive markets , and a best in class consumables revenue profile of over 90% .
Speaker #3: Our growth strategy is supported by BD excellence , a differentiated capability we've created that is driving gross margin improvement , operating effectiveness , cash generation and fueling reinvestment in innovation and commercial capabilities to give some color on the benefits we're seeing in fiscal 2025 , consumables quality hit record highs with a 50% reduction in manufacturing Non-conformances .
Speaker #3: Further , we delivered world class gross productivity improvements of over 8% in our plants this past year . These productivity gains enabled more production with less CapEx achieving the lowest CapEx to revenue ratio in over a decade .
Speaker #3: We expect momentum to continue in FY 26 . We also plan to deliver an enhanced capital allocation strategy that prioritizes internal investment , share repurchases , and a reliable and increasing dividend .
Speaker #3: With focused tuck in M&A in targeted high growth markets , all with a focus on steadily increasing ROIC . We expect a significantly improve free cash flow conversion , excluding one time impacts resulting from the waters transaction , including US tax payments .
Speaker #3: We continue to see share repurchases as a value creating opportunity . Given our view of the intrinsic value of BD . We plan to execute another $250 million share buyback this quarter .
Speaker #3: In addition to using at least half of the $4 billion in cash proceeds from the waters transaction . Following the closing . With the balance for debt repayment , in summary , we see new BD delivering consistent mid-single digit revenue growth over the long term , with margin expansion driven primarily by gross margin , fueled by our BD excellence business system .
Speaker #3: Moving to our fiscal 26 guide . I'll start with our guidance for whole BD and then provide color on our expectations for new BD post .
Speaker #3: The waters transaction . We're taking a prudent and transparent approach with our guidance framework . This includes low single digit revenue growth as our starting point for the year , and includes the following assumptions .
Speaker #3: First , regarding Alaris Capital installations , fiscal 2026 is the last year of our three year remediation commitment . We expect sales to remain strong and above our historical run rate .
Speaker #3: However , compared to FY 25 , record install levels . This creates a headwind to growth of over 100 basis points . Second , we expect China to decline in the mid-teens as government policies , including volume based procurement continue , which will impact growth by about 100 basis points .
Speaker #3: Our assumptions include China reaching 80% coverage of our portfolio by the end of FY 26 . Third , we are assuming reductions in vaccination rates will continue to drive conservative ordering patterns in farm systems , vaccines .
Speaker #3: As we've said , vaccines are about 20% of farm systems revenue , and our guidance assumes a decline of approximately 25% , which is an impact to growth of about 50 basis points , excluding vaccines .
Speaker #3: We expect farm systems to grow mid to high single digits , supported by continued strong growth in biologics . As you can tell , our guidance includes a thoughtful approach to the macro environment .
Speaker #3: The combined headwinds from these three factors impacts about 10% of BD revenue across the remaining 90% of the portfolio . We expect to drive mid-single digit growth , including continued strength , across our BD connected care and medical .
Speaker #3: Essentials portfolios fueled by commercial investments and our strong innovation pipeline . We're confident in delivering overall mid-single digit growth over the long term as these dynamics exit and we continue to advance our strong core business fundamentals .
Speaker #3: Based on current spot rates , currency is estimated to be a tailwind to revenue of about 90 basis points . Moving down the PNL , we expect continued strong adjusted operating margin consistent with FY 25 of about 25% .
Speaker #3: This includes absorbing an incremental $185 million , or 80 basis points year over year headwind from tariffs in line with what we've previously communicated .
Speaker #3: Excluding tariffs . The primary driver of margin expansion is expected to continue to come from gross margin powered by BD excellence , along with some leverage in shipping and gas .
Speaker #3: For tax . We expect our adjusted effective tax rate to be between 14 and 15% . Given these considerations , we are setting our initial adjusted diluted EPs guidance in a range of $14.75 to $15.05 , excluding the year over year tariff headwind .
Speaker #3: We expect EPs growth at the midpoint to be high . Single digits , which is the right way to think about our business longer term .
Speaker #3: As you think about fiscal 2026 phasing , we expect Q1 revenue to be down low . Single digits due to the items we covered .
Speaker #3: This includes a tough year over year comparison Biosciences , which also reflects prior year licensing revenue dynamics . Before we move to easier comparison periods beginning in Q2 and order timing in our medical Essentials portfolio , we expect Q1 adjusted diluted EPs to be in the range of $2.75 to $2.85 , inclusive of tariffs , which we anticipate will be most prominent in Q1 and continue through Q3 .
Speaker #3: And about a five point headwind to the tax rate due to a prior year comparison . I'll now provide some context for how to think about new BD .
Speaker #3: For the full fiscal year following the deal closing , which is expected to be around the end of the first quarter of calendar year 2026 , subject to obtaining required regulatory approvals and customary closing conditions , we expect new BDS , FY 26 revenue growth and margin profiles to be similar to HoCo .
Speaker #3: This includes BB and DS revenue and operating income moving to waters along with conveyed costs and a half a year of TSA income below operating income on a pro forma basis .
Speaker #3: We expect new coast tax rate will be about 200 basis points higher , driven largely by mix collectively , including the use of the cash distribution proceeds associated with the transaction and a higher tax profile based upon projected close timing .
Speaker #3: We expected . New BD pro forma adjusted EPs growth to be over 200 basis points higher than HoCo . In summary , as we close out fiscal 2025 , we are excited to start the next chapter of BD as we navigate transitory headwinds and contained areas .
Speaker #3: Our broader portfolio is doing well , and we are actively investing in high growth , high margin areas combined with actions underway to unlock the untapped commercial potential in the new BD portfolio and reallocate resources .
Speaker #3: We are building the mechanisms to emerge stronger. We are confident in our long-term, mid-single-digit growth profile and our ability to outperform our served markets.
Speaker #3: With the upcoming combination of biosciences and diagnostics solutions , with waters as a near-term catalyst and an attractive capital allocation strategy , we are well positioned to deliver value for our shareholders both in the near and long term .
Speaker #3: With that , let's start the Q&A session . Operator , can you please assemble our queue ?
Speaker #1: Yes , sir . At this time , if you would like to ask a question , please press star one . If at any time your question is answered , you may remove yourself from the queue by pressing star two .
Speaker #1: In order to allow for broad participation , please limit yourself to one question and one follow up question only . Lastly , to provide optimal sound quality , please pick up your handset while you ask your question .
Speaker #1: And our first question will come from Travis Steed with Bank of America . Please go ahead .
Speaker #5: Hey , good morning everybody . Thanks for the question . I guess I'll start with , first of all , kind of bigger picture this guidance for , for , for for new BD here .
Speaker #5: How does that kind of reflect the conservatism you've kind of put in place . You can have confidence that this is a year that you can deliver on , on the initial guide .
Speaker #5: And is that going to be kind of the same for for EPs and margins as well , that you have kind of the same confidence to , to deliver on this guidance ?
Speaker #3: Hey , Travis , good morning and thank you for the question . Yeah , I think you as you just described , what we want to make sure we're doing is , is clearing the table on the macro dynamics and taking a prudent approach to our guide framework as we launch into the new BD .
Speaker #3: And so what you're seeing is , is we're incorporating , you know , our updated view on the operating environment , including a sharper view on certain areas of the portfolio .
Speaker #3: Particularly vaccines . As we've seen , vaccine patterns , as I outlined on the call . Obviously , you know , the Alaris success of Alaris over the last , last year and how we've been running ahead of of performance there .
Speaker #3: And that just creates a headwind as we go into 26 . Still a very strong year in 26 , a year that we expect continued share gains built into that plan as well .
Speaker #3: But a natural lapping of the success of being ahead of the of our commitment to the FDA on remediation and then obviously , China , we've built in a prudent approach to China .
Speaker #3: And what we've seen in terms of vwbp . And so what we what we haven't done is we haven't built any improvements in the macro environment into our outlook .
Speaker #3: We think that's , again , the most prudent thing to do . If things improve , that could be an opportunity . But again , we think it's really important to clear the table on those macrodynamics have them built into our plan in a very prudent way .
Speaker #3: As we start and launch the new BD . And as you said , we have a very strong track record on continued margin expansion .
Speaker #3: BD excellence , you saw this past year . It has very strong momentum . We're continuing that momentum into FY 26 . You saw the margin expansion in 25 .
Speaker #3: You're continuing to see that strong margin expansion underlying in 26 . Fully offsetting tariffs . And that flows through EPs performance is driven largely by that continued gross margin expansion from from BD excellence .
Speaker #5: Great . Thanks a lot . I don't know if there's anything you want to point out on kind of the Q1 guide versus the full year and how to get confidence that that this is not a ramp year .
Speaker #5: And , you know , the Q1 is kind of fully baked as well .
Speaker #3: Yeah , sure . Good question . So as we think about obviously , the factors that I described Alaris vaccines , China , we're building those into Q1 Q1 guide reflects the full year , those full year headwinds , as well as the BD comp and timing that we talked about .
Speaker #3: And some of the areas , particularly vaccines , their greatest weighting is in Q1 . So you have a disproportionate impact of vaccines in the quarter .
Speaker #3: I think we then expect growth to step up in Q2 and Q3 , which will likely be our strongest quarters in the year .
Speaker #3: And so I think very unique this year is the phasing doesn't rely on any back half heroics , right ? We're not assuming the end of the year and we're not assuming macro relief that at in the base either , as we describe that .
Speaker #3: So we're confident in the step ups . We also see comps easing in Q2 and Q3 as well as we continue to drive the continued strong momentum in areas like APM , advanced tissue regeneration , pure dispensing Biologics , right ?
Speaker #3: That 90% of the portfolio that we still see continuing to grow strong mid-single digits . And that you heard us announce some incremental selling investments behind those areas of both high growth but also higher margin areas , which fuels our strategy as well .
Speaker #3: So thank you for the question , Travis .
Speaker #1: Thank you . Our next question will come from Patrick Wood with Morgan Stanley . Please go ahead .
Speaker #6: Beautiful . Thanks so much . Tom , you know , in the in the remarks , you guys were opening with , you mentioned capital allocation a bunch of times and incremental investment in the base business as well .
Speaker #6: You know , give me a stock is appreciate that . You know , the extra you know being done in Q4 of the buybacks and things like that .
Speaker #6: Is there not a temptation just to get off to the RMT even more aggressive in returning capital to shareholders , just given where the yield on the stock is and the fact that you guys get swung around so much by small differentials in organic growth , why not just get extra aggressive even beyond what you're suggesting now ?
Speaker #6: And just buy back a ton of stock ? Is there any reason not . Is it just the payback on the base business ?
Speaker #6: Is critical . Help us understand that capital allocation framework .
Speaker #4: Yeah .
Speaker #3: Go ahead .
Speaker #4: Yeah . Hi , Patrick , it's Chris . Yeah , thanks for the question . Look , what we've said is we're going to continue to focus on cash generation .
Speaker #4: And as we generate cash above our plan , we're going to be in the market based on what we see as the intrinsic value of the stock and be aggressive with share buybacks .
Speaker #4: Thus , the incremental 250 million . It's important to note that we're trying to be disciplined around kind of a net leverage ratio .
Speaker #4: We did show progress through the year . We went from three times down to 2.8 times . I think importantly , the waters transaction here is a huge value creation .
Speaker #4: Unlock . And as you know , there's 4 billion of proceeds there of which we said at least half of those will go to the share buybacks .
Speaker #4: That actually creates an opportunity post spin where you're going to see our earnings profile increase in terms of the growth rate by over 200 basis points .
Speaker #4: I think importantly , the value that BD shareholders will get on the earnings that moves to waters as part of the spin is coming at a significant premium , multiple almost two times where it's trading at BDX approaching 20 times .
Speaker #4: And then I think importantly , when you look at kind of newbie DD and the EPs , it would imply a trading multiple of about ten times against an extremely attractive financial profile .
Speaker #4: When you think of the leadership positions , we have a mid 20% margin profile and earnings profile . That's going to be high .
Speaker #4: Single digits , right ? We're having the impact of tariffs this year . If you . Extract that our guide implies high single digits .
Speaker #4: Plus it's going to improve by 200 basis points . Strong cash generation . So we're definitely going to be in the market with those cash proceeds .
Speaker #4: And see this as a significant value creation opportunity .
Speaker #3: Hey , that's Patrick . Maybe just to add on to Chris's good , very good comments . There is as you said , we see the intrinsic value of the company .
Speaker #3: You know , significantly higher than as trading today . And a real value disconnect , which is why we also announced the incremental $250 million buyback effective .
Speaker #3: Essentially , immediately . This early this quarter . And we'll continue to obviously , as we close the transaction , execute at least half of the 4 billion into a share buyback , which will by itself then accelerate , as I mentioned on the call , at least 200 basis points higher , EPs growth for new BD .
Speaker #3: Because of that than the initial guide for HoCo . I think just maybe to give a little bit more color on what Chris shared .
Speaker #3: If you look at , you know , we're really pleased with the transaction with waters . Both teams are working phenomenally well together .
Speaker #3: As I shared , we just got FTC clearance on the transaction . We're moving forward to our timeline and the pace and progress of the separation and integration is certainly very much on on track .
Speaker #3: If you look at at the current waters share price and obviously our percent ownership in the transaction that translates to about $50 per share .
Speaker #3: That's embedded in our current share price . And so obviously what that means is , is that if you take that $50 of value , that's , that's that's just for that part of the business that's embedded in our price .
Speaker #3: The remaining piece then is trading at a ten times multiple . And obviously , as you think about the new BD , we have a presence in a wide range of attractive markets .
Speaker #3: There's 10% of the portfolio that's going through some cyclical dynamics that we made very clear . They're contained dynamics . The other 90% of the portfolio is continuing to grow solid mid-single digits .
Speaker #3: We're number 1 in 90 percent of the markets we play in mid to high 20s margins . Mid 20s today going we see continued expansion going forward and a strong recurring cash flow profile with a shareholder friendly capital allocation policy .
Speaker #3: And we don't see that as a profile of a ten times stock , which is to your point why we're buying in with now in Q1 .
Speaker #3: And will continue to do so . Obviously , as cash proceeds come in . And it's an area that we've prioritized our capital allocation strategy for .
Speaker #3: So we certainly see , you know , from a shareholder perspective , you've got new BD , EPs . There's buyback accretion , there's some interest benefits .
Speaker #3: You've got the waters ownership . You know being very accretive all while providing improving strategic clarity . Capital allocation . And a long term value creation setup for our shareholders .
Speaker #3: So we appreciate the question . And happy to provide that additional color .
Speaker #6: I'll leave it there . Thanks guys .
Speaker #1: Thank you . Our next question will come from Larry Biegelsen with Wells Fargo . Please go ahead .
Speaker #7: Hey guys . Good morning . Thanks for taking the question . One on China . The expectation that fiscal 26 is down mid-teens .
Speaker #7: I was a little bit weaker than I would have expected . Just remind us of what China was in in Q4 on an organic basis .
Speaker #7: And full year 25 . I apologize if I missed that in the slides .
Speaker #3: Thanks , Larry , for the question . We were down high single digits organic in the in the quarter in Q4 . And again , we want to take a prudent approach to our guide going forward .
Speaker #3: As we think about where Vwbp could play out . Continued primarily in the BD interventional segment , as we've described before . And I think really that just continuing to to watch that and recognizing it is difficult to to really call China and how that market will evolve .
Speaker #3: And so we also still believe that it will have progressed through at least 80% of our portfolio, and will have gone through Vwbp in '26.
Speaker #3: We also recognize that post separation , China will be about 4% of our revenue , which sets us up in future years for , you know , an easier base .
Speaker #3: Compare there . So that's what we've built in . Again to our assumptions . And having included any improvements in that macro environment in our prudent guide .
Speaker #7: One follow up and also I'm I'd be remiss if I didn't say , Chris , congratulations on the new role . I enjoyed working with you and good , good luck .
Speaker #7: Hey , Tom , I'd love to hear your your updated thoughts on the new BD strategy and the earnings algorithm , because I think it's unique in medtech .
Speaker #7: You know , you talked a lot about it in the during the conference season in September . About the mid-single digit growth . You know , some leverage and at least 50% of free cash flow going to share buybacks , which I think is unique .
Speaker #7: Talk about the rationale . And if the new BD can grow EPs double digits . You know , you talked about 200 basis points faster than than the current BD .
Speaker #7: Thanks for taking the question .
Speaker #3: Yeah . Thank you Larry . Really really good question . And as I just described a little bit as part of Patrick's response , we're really excited about the new BD as a focused medtech leader .
Speaker #3: Again , with presence in a wide range of very attractive markets that you're seeing us lean into heavily in an up tempo way , taking actions around our commercial excellence to really drive optimal performance in in areas , we're putting additional sales investments behind those , and we're doubling down , reallocating costs within our cost structure from corporate into the businesses , into R&D , into fast growing , high margin spaces .
Speaker #3: Areas like urinary incontinence , adjacent spaces to that connected care areas , tissue reconstruction , biologic drug delivery , all markets that are attractive , and that we also have leading positions in .
Speaker #3: And we do see we're very confident . I think we've said that ten times on the call . We remain very confident in our long term mid-single digit growth profile .
Speaker #3: We're delivering that in 90% of the business , even in the near term . We have , again , a portion of the business in a contained way that is going through dynamics , some of which are a result of our own success .
Speaker #3: Alaris . And we're continuing to to increase our free cash flow conversion as , as Chris shared in his remarks . And so we think that profile is , as you mentioned , is there's a really unique opportunity within the medtech industry to to take that profile and translate it into a continual compounder , utilizing that cash generation to continue to buy back shares , create compounding earnings growth , take on top of all of that , our BD excellence business system , which you've seen us build over the last several years , and you've seen us start doing things that are setting records for the company right ?
Speaker #3: Record productivity , best in class productivity , not just in our industry , but across most all industries . At 8% , you're seeing us hit strides in our capital use of capital and getting more out of those investments again .
Speaker #3: We hit a more than ten year high capital as a percentage of revenue this past year . You're seeing safety at a record level .
Speaker #3: You're seeing quality at a record level . You're seeing our service levels at a record level . All because of the excellence . And we think we're still in early innings .
Speaker #3: There from a margin expansion opportunity , which fuels that profile . So as you mentioned , we think we have a very prudent , thoughtful approach to value creation going forward that fits really well with who BD is from a portfolio perspective , what that means from a margin and cash flow generation perspective , and how we create maximal value in a steady , durable way for our shareholders .
Speaker #1: Thank you . Our next question comes from Robbie Marcus with J.P. Morgan . Please go ahead .
Speaker #8: Oh , great . Good morning and thanks for taking the questions . I wanted to ask on Alaris . It's set to be over 100 basis point headwind in fiscal 26 .
Speaker #8: How should we think about what kind of benefit it was in fiscal 25 ? Were there any quarters that it really benefited ? And I remember 4 to 450 million is the normal run rate .
Speaker #8: So, is that still a good normalized run rate now that the installed base has pretty much been upgraded after the relaunch? And then I have a follow-up.
Speaker #4: Yeah , Robbie it's Chris . Yeah , thanks for the question . I guess as you think of 26 right . Versus 2025 , the so so two comments .
Speaker #4: One , as you think of how we relaunched Alaris , which has been extremely successful , right ? When you look at this and it's given us the opportunity to not only lock up but enhance leadership position in the market .
Speaker #4: Really proud of the team . There . The relaunch really started progressing through 25 , right at the beginning . The front end of 25 has the more difficult growth comp .
Speaker #4: When you think of the contribution versus 24 and then it moderates as you go back through the end of 25 . So actually that's part of the Q1 dynamic .
Speaker #4: Alaris is actually the one of the highest comps that we're cycling over in terms of contribution to growth in 26 , because it was a favorable comp in in 25 from a full year standpoint , I think just think of what we shared on the call around 26 .
Speaker #4: Was about 100 basis point headwind heading into 26 . That's kind of largely what played out in 25 . With that said , as you think of Alaris contribution to performance in 25 , all the other market headwinds that we had experienced in 25 were actually slightly above the total benefits we got from Alaris .
Speaker #4: So hopefully that helps give you some color as you think of one Q1 and 26 being the hardest comp with with Alaris in terms of contribution to growth .
Speaker #4: And then the full year impact .
Speaker #3: And Robbie , maybe let me give you a little bit of color on on how we think about it going forward . So first off , as we shared , we're really pleased with how the team has executed .
Speaker #3: They've done an outstanding job remediating ahead of commitment on a massive scale . We've locked in our install base and leadership for many years to come , and that's really allowing us to pivot heavily to share gains and growth opportunities , not only in in Alaris , which of course , as the market leader , the remaining market is smaller , but we're going to be very focused on share gains there as well as driving using our sales team and RMS to drive growth in additional areas of the portfolio .
Speaker #3: We've got the perfect timing with the launch of Pyxis Pro . Obviously , we've got pharmacy automation there , a number of new launches including Incarda , that they'll be able to pivot focus to .
Speaker #3: And now with that success of refreshing our fleet , we will see that of course , we've got the 26 headwind of about 100 basis points .
Speaker #3: And then for modeling purposes , as you think about beyond FY 26 , given , that will be the the last year of remediation , you'll see the comps then roll after that would lead to about a 200 basis point headwind for Alaris in a sequential year .
Speaker #3: And then what happens is longer term . Then you're now at a normalized run rate , and the fleet replacement cycle will turn into a tailwind again , essentially , as you move into the 2030s and the fleet that we've just installed in the marketplace starts hitting that , you know , eight year or so replacement cycle again , and we see it .
Speaker #3: Then more normalizing thereafter .
Speaker #8: Great .
Speaker #3: Thanks for the . question .
Speaker #9: I'll .
Speaker #3: And .
Speaker #8: A quick follow up and Chris , I'll also wish you the best at your new role . But I wanted to ask on margins .
Speaker #8: And I appreciate the slide in the bridge . You got there . Historically , it's been difficult for medical device companies to show positive operating margin expansion when they're kind of 3% or below on on organic growth .
Speaker #8: Just walk us through some of the levers you can pull to drive . You know what feels like underlying operating margin expansion , offsetting tariffs given there's not a lot of revenue growth to offset it .
Speaker #8: Thanks .
Speaker #4: Yeah , thanks . Yeah . Thanks , Robbie I appreciate that . Look , this is the this is the power of BD excellence , right ?
Speaker #4: I mean , we just executed FY 25 . We had 140 basis points improvement in gross margin 80 basis points on operating margin .
Speaker #4: That included absorbing 40 basis points of tariffs . So this is what exactly we said . What would happen . It started at the end of 24 into 25 .
Speaker #4: Importantly that becomes an opportunity for us to compound earnings at an attractive rate , right . We almost delivered double digit growth in 25 .
Speaker #4: Despite the absorbing the tariff impact , which was which was two points . But most importantly , reinvest back in the business right .
Speaker #4: And drive incremental investment in selling , most notably , which we did deliver in the back half of 25 . You saw that .
Speaker #4: So as you think of 26 , we're basically going to have three quarters of the year with a tariff impact in their despite that , we are still going to be about flat .
Speaker #4: It implies basically an 80 basis point improvement in in operating margin . The significant majority of that is going to play out exactly the same way .
Speaker #4: It's coming from gross margin . And we're doing the same , same thing . We're going to invest . We're starting these investments , building on what we did in Q4 .
Speaker #4: You're going to see selling deleverage in the first quarter . Most notably , and slowly moderate throughout the year as we cycle the investments we put in in Q4 , we will get a little bit of leverage in Ghana and shipping is something that we consistently strive for with the incremental cost out program that we announced as well , that will start in the front end of the year .
Speaker #4: But as we build through the year , that will become more prominent as we move through the back half of the year . So I do think you can look at this as a very attractive profile .
Speaker #4: The power of BD excellence reinvesting back at the business . If you look at the midpoint of our EPs growth rate of our guide and take the three and a half point plus tariff impact , the midpoints basically high single digits , right ?
Speaker #4: Just about 7% . And so even as you think of 27 , as we shared in the script , right , high single digit is the profile of earnings .
Speaker #4: You should think about . And so we think this is one of the exciting things . It goes back to Tom point around great opportunity to invest .
Speaker #4: And in a company that can compound earnings despite macro environment .
Speaker #1: Thank you . We'll take our last question from Rick Wise with Stifel . Please go ahead .
Speaker #10: Good morning . Tom . Hi , Chris , I . Was reflecting listening to you , Tom . You know , just gosh , I think I've covered now , maybe 30 years .
Speaker #10: I mean, that Beckton has always done an amazing job on consistently reducing costs. And you talk about the $200 million this year, but I'm more fascinated and hoping to dig in further on the three major initiatives.
Speaker #10: The operating model change and the commercial team alignment or realignment . The targeted sales team focused Mike Feld's new role . I was hoping you could expand on your comments and you know , beyond just the cost reduction stuff .
Speaker #10: I mean , these seem like meaningful moves . And maybe with longer term implications . Talk about the impact . If you would for new BT as a whole , when do we start to see the benefits of these initiatives ?
Speaker #10: And maybe talk us through the implications if there are by for divisional growth or margins ? Just if you could dig into all that , then do you feel like I'm characterizing it right here ?
Speaker #3: I do , Rick , and good morning and thanks for the question . Yeah , I'd love , love to share a little bit more about those .
Speaker #3: And as I said , we're we're really focusing on up tempo and leaning in heavily to the launch of of new BD and capitalizing on the opportunities that we have there .
Speaker #3: So first , we're starting with a really strong foundation , having built multiple growth platforms and creating and embedding BD excellence over the last several years in our operations , as we executed our 2025 strategy , we want to take that excellence and that that performance that you're seeing happen in our operations .
Speaker #3: We want to take that now into commercial and into innovation . We want excellence everywhere , every day . And that includes right , not only in our delivery side , within our operations , but within our commercial side and our and our innovation agenda .
Speaker #3: And you're seeing us take action against that . And so as we think about the new BD post , the waters close , as I said , we're really up tempo in the new BD moving at a pace and taking actions to accelerate that strategy .
Speaker #3: And reinforce our commitments to delivering long term , profitable growth . So building off of BD excellence , momentum and the success in operations , as I said , we're extending that core competency to the commercial side .
Speaker #3: That starts with expanding . Mike Feld's role as we get to the the the close of of the waters transaction as he takes on the role of Chief Revenue Officer , first time will have had that role in the company .
Speaker #3: Mike brings deep domain expertise , expertise in Kaizen , in Lean In BD excellence , where he'll be using that and applying it to the commercial organization to accelerate our initiatives .
Speaker #3: There . And taking what is a good organization today . You don't get to market leadership in 90% of your markets without being good commercially , but we think there's another level of world class that we're going to be driving for , just like we've done to build true world class performance within our operations side .
Speaker #3: And so having a single point of responsibility and Mike , he's going to be working with our segments and our businesses , advancing commercial rigor and pace , arming our teams with the latest tools and analytics .
Speaker #3: There's a lot of great technology to apply to to drive that next level of world class performance . Today . And Re-architecting our commercial operating model .
Speaker #3: Moving sales direct line into the businesses . Like we talked about . We also talked about we're putting increased dollars , about $30 million more than the normal run rate behind selling in very specific targeted high growth markets .
Speaker #3: They happen to be high margin markets as well . And I shared some examples . There . Markets like PCI , APM , which is tracking well ahead of our deal model in in 25 .
Speaker #3: It delivered well ahead of our deal model . Continue to deliver well ahead of the deal model in 26 . We're doubling down there 15% increase in their sales force , 15% increase in the Pi sales force .
Speaker #3: And we're putting more money behind . Right . We got a great win with the the VA , the Veterans Administration . Now fully reimbursing Purick at home .
Speaker #3: The first big contract that we have with full at home reimbursement . We're putting sales forces behind that to help make help veterans access that technology .
Speaker #3: We've got some great new launches in surgery happening in Europe . We're putting investments behind those , doubling down to accelerate already strong , high single digit double digit growth areas of momentum .
Speaker #3: And then we constantly , as you said , look at our cost structure and say are all the are we spending in the ways that give us the best return .
Speaker #3: And so we we went through that look and we said , we're going to move $50 million of corporate costs into the businesses to further fund innovation in some of the really exciting areas that we have .
Speaker #3: In some cases , that's investing behind launches like Pyxis Pro or Pure Portable or Hemisphere Stream . Or others , or in other situations .
Speaker #3: And the majority of of that money is going into the next phase of innovations . We see attractive spaces adjacent to pure , which that we want to capitalize on and create .
Speaker #3: The next pure wick . We see opportunities to expand in tissue regeneration . We're having great growth in biologic drug delivery . It's now more than half of farm systems .
Speaker #3: We want to continue that innovation leadership in that category and double down on some innovation opportunities there . And with Bilal now on board , we've actually rotated all of our our software development from the corporate team under Bilal .
Speaker #3: And he's got a whole series of innovations that he wants to to really invest behind that . We're excited by . So like most R&D investments , those will take a couple years to bring new products to market .
Speaker #3: I think we'll see the commercial investments certainly start paying off within this year . Starting to see some some benefits of that . And scaling up into the next years .
Speaker #3: But you know , I think what we're really focused on is balancing looking through a microscope to drive the quarter and the year in the very near term .
Speaker #3: We talked about some of those accelerated actions we're taking on the commercial side to do that . But we're also keeping our eye on the telescope to ensure that we emerge stronger from this near-term environment that we're navigating and drive a durable growth profile that's led by commercial excellence , led by innovation , to make sure that that , again , we deliver a strong , durable , long term profile that we've talked about here on the call today .
Speaker #10: That's a great answer . I'll just say a quick follow up more quickly . Just when you , Chris , highlighted the . 20 or I think you did the 25% operating margin targets and you're not that far away .
Speaker #10: You said quote , I think there's more room ahead . Just maybe expand on your thinking . There . I mean , what are you dreaming ?
Speaker #10: You know , longer term , over the next , whatever , 3 to 5 years . Thank you so much .
Speaker #3: Yeah , thanks for the question . We won't certainly put out the number that we're heading towards on operating margin , but maybe some of the color I could share is we are at 25% .
Speaker #3: We ended 25% just in line with our Analyst Day commitment that we made in in 2021 . We're really pleased to have delivered on that 25% by the end of 25 commitment .
Speaker #3: And that includes jumping over a , you know , a kind of a last minute , 40 basis point headwind from tariffs and still delivering on that .
Speaker #3: And so great work by our team in that . And had a really important role to play there . BD excellence is going to continue to be a major driver of our margin expansion strategy .
Speaker #3: As we think about OP margin expansion , we do see room ahead and we see that continuing to be driven by gross margin expansion , BD and the investments that we're making in our manufacturing network consolidation and our operational excellence and productivity improvements will continue to fuel that .
Speaker #3: But also our innovation pipeline and markets that we're investing in . And it's not by accident . You're talk about investing in higher growth and higher margin spaces , both in where we're putting additional channel resources , but also where we're putting additional R&D dollars .
Speaker #3: So we see mix as having an important role as we think about margin progression continuing to go forward . And we see that as a real opportunity from a gross margin perspective .
Speaker #3: If we look at us versus peer groups , our portfolio in general hearing me has a lower gross margin profile . We have an extremely efficient cost base , but we see opportunities to continue to grow that gross margin line .
Speaker #3: We've been doing it the last two years . We see good runway ahead there . So really appreciate the question , Rick .
Speaker #1: That does conclude today's question and answer session at this time , I'd like to turn the floor back over to Tom Poland for any additional or closing remarks .
Speaker #3: Okay . Thank you . Operator . And thank you , everyone , for your questions and for joining us today . We look forward to updating you on our progress next quarter .
Speaker #1: Thank you , ladies and gentlemen . This does conclude today's audio webcast on behalf of BD . Thank you for joining today . Please disconnect your lines at this time and have a wonderful day .