Q3 2019 Earnings Call
The request of BD today's call is being recorded it will be available for replay through August 13th 2019 on the investors page at the BD Dot Com website.
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Beginning today's call is Ms., Monique Dolecki senior Vice President of Investor Relations Mr. Lucky you may begin.
Thank you Laurie good morning, everyone and thank you for joining us to review our third fiscal quarter results.
As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at BD dotcom.
During today's call, we will make forward looking statements and it is possible that actual results could differ from our expectations.
Factors that could cause such differences appear in our third fiscal quarter press release and in the Mdna sections of our recent FCC filing.
We will also discuss some non-GAAP financial measures with respect to our performance reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found in our press release and it's really this financial schedules and in the appendix at the Investor Relations slides a copy of the release, including the financial schedules is posted on the BD Dot com website.
As a reminder to provide additional revenue visibility, we will speak to our physical 2019 third quarter revenue results and fiscal 2019 revenue guidance on a comparable currency neutral basis.
The comparable basis includes BD and Bard and the current and prior year periods and excludes intercompany revenues and revenues associated with divestitures among other adjustments.
Leading the call. This morning is Vince Forlenza, Chairman and Chief Executive Officer.
Also joining us are Chris Reidy, Executive Vice President Chief Financial Officer, and Chief Administrative Officer, Tom Polen, President and Chief Operating Officer, Alberto Mas Executive Vice President and President of the medical segment.
Simon Campion Executive Vice President and President of the Interventional segment, and Patrick Kaltenbach Executive Vice President and President of the Life Sciences segment. It is now my pleasure to turn the call over to Vince.
Thank you Monique and good morning, everyone.
Beady eye wear strategy excuse me our strategy is driven by our purpose advancing the world of health.
Our results this quarter demonstrate that our strategy is working and our core remain strong our progress with Bard is enabling us to deliver even more impactful comprehensive solutions for our customers.
Turning to slide five and our third quarter highlights our third quarter performance was strong revenue growth reflects the plant back half acceleration that we've been discussing with you throughout the year.
As expected growth was broad based and we drove mid single digit growth in all three segments.
Third quarter EPS was also in line with our expectation and our results through the first nine months of the fiscal year are right on track.
As we approach the final year of the deal model, we continue to successfully integrate board as evidenced by our sustained top line momentum cadence of new product launches and progress towards our cost in revenue revenue synergy capture.
We were also pleased with the level of engagement across the organization as our associates are highly motivated by a common purpose.
Looking forward to the remainder of fiscal year 2019, we expect the momentum from the third quarter to continue and are reaffirming our full fiscal year 2019 revenue and EPS guidance I'll now turn things over to Chris for a more detailed discussion of our third quarter financial performance and our fiscal year 2019 guidance. Thanks, Vince and good morning, everyone.
Moving on to slide seven I'll review, our third quarter revenue and EPS results as well as the key financial highlights.
Third quarter revenues grew 5.7% on a comparable currency neutral basis.
As Vince mentioned, our strong third quarter revenue growth was broad based and is a strong indicator of the health health of the business.
As we have discussed previously there are a number of drivers across our segments that gave us confidence in our plan second half acceleration.
I'll provide more color on the third quarter revenue growth in a moment when I take you through the results by segment and geography.
EPS was also in line with our previously communicated expectations for the quarter. Despite significant FX headwinds in the quarter, we delivered adjusted EPS of $3, an eight cents crossing the $3 per share Mark for the first time since closing the board acquisition.
On a currency neutral basis EPS grew 14.8%.
We also continue to de lever during the third quarter paying down approximately $450 million of debt gross leverage was 3.7 times as of June Thirtyth and we remain on track to achieve our commitment to de lever to below three times over three years.
Moving onto slide eight I'll review, our medical segment revenue growth.
BD Medical's third quarter revenues increased 6%.
As expected performance in the medical segment was driven by continued momentum and share gains medication management solutions and strength in pharmaceutical systems. In addition growth in medication delivery solutions normalized as anticipated and was driven by our leading vascular access portfolio, which also reflects our revenue synergy investments.
Growth in diabetes care was in line with our expectations driven by strength in emerging markets.
Now turning to slide nine and the BD life Sciences segment.
Revenues increased 5.4% in the third quarter with all three business units delivering strong growth of 5% plus.
As anticipated performance in the life Sciences segment was mainly driven by strength in our molecular platforms in diagnostic systems with continued double digit growth in BD, Max as well as our microbiology solutions for I.D.A.S.T., including our Phoenix panels.
And bio Sciences, we saw strong growth in research reagents and in research instrument sales in the U.S.
Growth in Preanalytical systems was driven by strong demand in emerging markets.
Turning to slide 10, and the BD interventional segments.
Third quarter revenues increased 5.2%, reflecting the diversity of the portfolio as anticipated Beady eyes results include a reduction of approximately 50% in plan DCB related sales in the quarter.
Excluding the DCB impact BT ice segment revenues would have grown over 7%.
Revenues in peripheral intervention grew in the low single digits in the third quarter, excluding the DCB impact revenue growth would have been in the high single digits.
Our wave length co Vera and been OVO products continued to perform extremely well.
Third quarter revenue growth in surgery reflects strong performance in biosurgery and the U.S. as Protocell sales continue to ramp and double digit growth in infection prevention and biosurgery in Europe , where we continue to see the benefits from our revenue synergy investments.
Revenue growth in urology and critical care continues to be driven by new product innovation in the acute urology as well as continued strength in our home care and targeted temperature management businesses.
Now moving to slide 11, and our geographic revenues for the third quarter.
Growth in developed markets was driven by strong performance in the medical and interventional segments in the U.S. and strength in Europe in the pharmaceutical systems MMS and surgery units.
Revenue growth in emerging markets was driven by broad based double digit growth in China and India may.
We expect continued double digit growth in China for the full fiscal year.
Turning to slide 12, which recaps the third quarter income statement.
As discussed revenues grew 5.7% in the quarter on a comparable basis.
Now moving down the PNM gross profit grew 2.4% year over year, excluding the impact of currency as our continuous improvement and cost synergy initiatives were partially offset by the impact of unfavorable mix.
The mix impact was driven by strong revenue performance in the quarter and products with lower relative gross margin profiles.
As well as lower DCB sales, which as you know have a heart a margin profile above the company average the mix impact mostly reflects timing within the year and we are maintaining our full year gross profit margin guidance as we continue to anticipate accelerated revenue growth continuous improvement and synergy capture to drive strong Q4 margins as FX headwinds abate.
[noise] ancestry DNA as a percentage of revenues was 24.7% SSG N.A. grew at a pace slower than sales, which reflects our disciplined spending as well as continued achievement of bard cost synergies.
R&D as a percentage of revenue was 5.6%.
For the full fiscal year, we will invest approximately $1 billion in R&D, which reflects our continued commitment to drive innovation.
Operating margin of 25.4% was in line with our expectation as pressure in gross profit was mitigated by favorability in operating expenses.
Our tax rate in the quarter was 12.8%, which is below our full year guidance range due to the timing of discrete items. We had anticipated. These items would occur throughout the fiscal year and as such these items are already reflected in our full year guidance range.
As expected, we paid preferred dividends of $38 million in the quarter as we've been discussing the preferred shares are not included in the shares outstanding calculation.
As previously discussed adjusted earnings per share of $3, an eight cents grew 5.8% versus the prior year and 14.8% on a currency neutral basis.
Now turning to slide 13, and our gross profit and operating margins for the third quarter.
Gross profit margin was 55.6% in the quarter. The decline in gross margin was driven primarily by unfavorable currency and mix as previously discussed.
Operating margin was 25.4% in the quarter on a performance basis operating margin was flat as a decline in gross margin was offset by operating expenses leverage as previously discussed.
Currency had a negative impact of 120 basis points on operating margin.
Now moving on to slide 15, and our full fiscal year 2019 revenue guidance.
As we discussed our third quarter performance was strong and in line with our expectations for accelerated revenue growth in the second half of the fiscal year.
We expect continued momentum across our businesses and regions in the fourth quarter. As a result, we have reaffirmed our total company and segment level revenue guidance for fiscal year 2019, as well as our expectations for growth in developed and emerging markets and China.
Moving on to Slide 16, we have also reaffirmed our full year fiscal year 2019, adjusted EPS guidance.
Our fiscal 2019 EPS growth expectations continue to reflect strong underlying performance driven by revenue growth and solid operating performance.
All in we expect to deliver adjusted EPS of 11 65 to 11 75.
Turning to slide 17, and our detailed PML guidance.
We have updated our expectations for interest other net to approximately $450 million to reflect proactive measures, we have taken to lower interest expense.
The balance of our piano guidance expectations for the full fiscal year 2019 remain unchanged.
We also continue to expect to achieve approximately $100 million in cost synergies in fiscal year 2019, and we're on track to fully realize $300 million in annualized cost synergies over the three year deal period.
We feel good about the momentum we have across our businesses and we're very confident that we will deliver on our commitments in fiscal year 2019 and beyond.
Now I'd like to turn the call back over to Vince will provide you with an update on our product portfolio. Thank you, Chris turning to slide 19 in our planned product launches by segment as we have been discussing with you we have a very robust pipeline across the company.
There are a number of things we're excited about I'll touch on just a few launch recent launches here.
Starting with the BD medical segment in May we launched a BD Pyxis Es system version, 1.6, which bring software and enhancements achieved through upgrades to the core EPS software as well as through system integration of three technologies BD Pyxis, Es refrigerator, BD pyxis track and deliver and BD health site data manager. These enhancements improved clinical workflow efficiency pharmacy flexibility and end to end medication safety.
Regarding our health site platform.
Feedback from customers continues to be very positive and we are gaining traction across.
Our applications.
Before we move on to our life Science segment, I would like to discuss the type two insulin patch pump.
As we discussed on our call last quarter. The feedback we received from the FDA was more comprehensive than we had anticipated based on this feedback and given the intricacies of this product category, we have decided to withdraw our FDIC application and have engaged a third party R&D partner with expertise in this space, while we work through our strategic options as a result, our previous timeline has been extended and we will provide you with additional information as we make progress.
Moving onto the BD life Science segment.
We are excited by the recent launch of BD corridor, our new high throughput molecular diagnostics platform aimed at providing automation of molecular testing in core and other large centralized labs.
Early customer interest and placement of our BD core units.
Are exceeding our expectations. We also continued to see strong growth on the BD Max platform supported by the commercial success of recently introduced assets such as the BD Max that you know panel as well as our enteric panel suite. In addition, we have seen success with our with our Phoenix and 50 idea Sta instruments, along with our recently launched CPL detect asset.
Preanalytical systems continues to benefit from cat capacity investments in our ultra touch push button blood collection sets Ultra touch has been very well received by our customers and is driving continued conversion from conventional solutions.
Within bio Sciences, we continued to see strong performance in our Facsymphony high parameter instruments and flow reagents as well as the BD Rhapsody App seek single cell multi omics solution that improves our in a and protein analysis. In addition, our backs lyric clinical instrument continues to do well and when combined with the recently launched facts to wed automated sample prep instrument provides a solution for clinical laboratories to improve the accuracy and repeatability of their test.
Within the BD Interventional segment, we are excited that we recently launched Optifix 80, and articulating fixation device for laparoscopic and robotic compatible use and basic Phasix SP, Oh, PHR, which is a mesh designed specifically for open hernia repairs that leverages, our existing Phasix technology and the newly developed positioning system. In addition, our wavelength Q Endovascular Avi Fistulas system as well as our the Novo and kundera products that launched earlier this year as part of our stent product category. All continued to see positive momentum in the market.
Regarding our FDA PMA submission for Lutonix below the knee as you are all aware, we have been working with the FDA in a collaborative review process subsequent to the FDA Fast Advisory Committee meeting on packed with tax. So the statutory review time for our BTK PMA submission concluded and the FDA notified us that RPM may was not approvable in its current form.
Well this determination was based on the clinical evidence provided to date, we continue to review collaborate and aligned with the FDA on the path forward regarding our submission, including the need to potentially provide additional clinical data.
As a result, the approval process timeline has extended out from our previous expectations and we no longer expect approval. This calendar year, we will keep you informed as we work with the FDA and make further progress.
Before I move on I would like to speak for a moment about our commitment to sustainability, which is a key component of our strategy.
We're pleased to have recently published RF why 2018 sustainability report, which provides an update on our progress towards achieving our 2020 sustainability goals. These goals provide the framework for how we manage and make an impact on the most relevant social and environmental issues for our company.
We are pleased with the progress we have made towards our 2020 goals and believe there are opportunities ahead to make a real difference as we work to address global global challenges such as climate change and anti microbial resistance.
In addition, we received several acknowledgements in 2018, including CRM magazine's 100, best Corporate citizen list and the Human Rights Campaign Foundation Best places to work for LGBTQ equality.
More recently, we were proud to have been named as one of the 2019 best places to work for disability inclusion by disability in.
These awards. These awards highlight the success of our business.
Our responsibility to the environment, our commitment to inclusion and diversity and our ethical standards.
Looking forward, we now have a broader more impactful portfolio and we'll continue to refine our sustainability strategy and set new ambitious goals that will not only ensure our resilience over the long term, but also consider the expect the expectations of our shareholders around and stakeholders around the world.
In the appendix of todays presentation. We have again included a slide that provide you with some more details on our sustainability initiatives.
We hope you find this information useful in understanding Bds commitment to this important topic.
Moving on to slide 20, I would like to reiterate the key messages from our presentation. Today, we delivered strong revenue growth in the third quarter in line with our planned second half acceleration growth was broad based across the businesses and regions, which reflects the breadth and diversity of our portfolio.
The integration of BARDA is on track and we are confident in our ability to achieve our cost and revenue synergy commitments.
Looking forward to the remainder of fiscal year.
2019, we expect our momentum to continue and have reaffirmed our full year revenue and EPS guidance. In summary, we are confident that our core remained strong.
Our progress with BARDA is enabling us to deliver even more impactful comprehensive solutions for our customers.
Thank you and we'll now open the call to questions.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question is answered you may remove yourself from the queue by pressing the pound key.
In order to allow for broad participation. Please limit your questions to one we ask that while you pose your question. Please pick up your handset to provide optimal sound quality.
Our first question comes from the line of Kristen Stewart of Barclays.
Hey, good morning, everybody good morning Kristen.
So I guess.
Just want to kind of start off with.
Yes, just kind of longer term expectations I can appreciate that you guys, probably don't want to give any specific color around 2020 and guidance in that respect, but heading into the call. I think 2020 outlook was definitely one of investors top concerns and.
Given the update on Lutonix below the knee and not being approvable I think thats only to kind of increase the concerns on the streets I was wondering if you could just maybe help.
Provide your thoughts on puts and takes for how we should think about fiscal year 20, I know that you had talked about the deal model being kind of mid teens growth.
Obviously, there's been some changes with lutonix, but also more royalties just how should we think about that and the arrowhead and the puts and takes thanks.
So kristen thanks very much for the question I have to say.
We're not surprised to get the question, but I'm surprised that you hit it right off the bat.
But.
Let's get it on the table, we're making good progress on 2020 is what I want you to know whenever everyone to know we're making good progress on the budget. We're a little early on we are not finished yet but with knowing that we had the gore royalty going away. We started this process earlier I feel really good about the process that.
That we are running in the progress, we're making there so with that I'm going to turn it over to Chris is going to give you a little more more detail, we're not going to completely guide today, but we'll give you a good sense of the progress we're making.
Sure, Thanks, Vince and good morning Kristen.
You are right, it's too early to give a level of precision to guidance for next year there'll be some things that we're watching but what I would say is that the message essentially remains the same as last quarter with the one exception being BTK, but if you think about it on the revenue side, we still expect to drive 5% to 6% growth for 20.
Despite the DCB status quo and the BTK delay so we'll still be able to drive that five to six and then on hps.
At worst the BTK impact even if we don't have it for the full year is about 1% and we would intend to mitigate as much of that is possible a little bit of pressure on FX, we will watch that but despite all of this barring anything that.
Unforeseen changes.
From here, we're very confident in our ability to deliver double digit earnings growth next year, where we are in the double digit will depend on on things that transpired between the next couple of months. So.
But we feel good with that that floor of double digit and we'll we'll see where BTK BTK plays out where FX goes but everything else is pretty consistent with what we've said before.
So all in all good progress and maybe I'll just ask Simon to comment Simon you know you are having some really good performance on some new products that give us this confidence on the five to six so you want to talk about some of the other products that are offsetting some of these things and the DCP area sure Vin. So so I think Chris earlier on the statements.
Mentioned Denovo club era, and we've linked within the within the Pi business.
And I'm sure you've seen the.
The recent.
Trump proclamation on kidney disease, which which will only serve to help the visibility of this of this element.
And.
Another great quarter in end stage renal disease domestically and internationally.
I think also very significantly for for the BTI segments.
Is is our performance globally as we as we begin to leverage the scale of BD.
Particularly in areas, where we're bad was only commencing its investments investment profile. So for example, biosurgery on infection prevention and Europe had a tremendous tremendous quarter.
And that was driven by the investments, but that we made as part of the parts of the acquisitions.
And and urology continues to to to perform terrifically, well driven by driven by home care internationally on new products domestically and we we foresee that that great progress continuing.
In all three businesses within that within VDI. So thanks, Simon so the bottom line of what Simon is saying is we're right on the deal model mix and new products is a little different we didnt expect the DCB situation, but as Simon just detail for you. There's a whole series of other new products, including in urology that is that is going quite well, so thats, enabling us to hold that.
Great. So thanks, Chris for the for the question we appreciate it.
Your next question comes from the line of David Lewis of Morgan Stanley .
Good morning, just a two quick ones from me.
On for Chris and one for Simon.
Chris just thinking about the fourth quarter, you, obviously, you've maintained 20, 526% margins, but it sort of implies 20% fourth quarter margins to get to the midpoint. So.
Should we thinking about the low end of the range for the year on margins and how do you get that two and a half point step up.
And same question on growth, Chris you talked about acceleration into the fourth quarter.
But it's a pretty significant momentum step up into the fourth quarter just to get to the low end of the five to six so based on your confidence top and bottom for the fourth quarter and is cooking for Simon.
Post the panel and now with the BTK update have you made any commercial decisions about the DCB commercial organization in terms of its size is it right sized for the opportunity and the level of growth.
Thanks, so much guys.
Sure I'll start so clearly.
We have been saying that the revenue is going to accelerate in the second half of the year you saw that starting to happen in Q3, we see that accelerating even further.
In Q4.
Again, it's the continued strength and new CCN surgery, the MMS momentum that we have.
Mds is accelerating and strong growth and bio sciences, and DS, which is essentially across the business. So.
We have strong confidence in that and then on operating margins, we do see.
Acceleration in the operating margins in the fourth quarter.
Don't forget we don't have the FX drag that goes away in the quarter, we continue to see revenue synergies.
As cost synergies and see.
Continuing to build.
And again FX abates, there. So we have a lot of confidence in being able to get solidly within that 25% to 26% range that we.
That we gave guidance on.
Sam.
Hi, David.
So certainly we've been preparing for for all eventualities respect to Dcbs, and and BJ as well and while we won't provide you any detail too I think it's important to recognize that the the territory manager managers for example, within the preference of engine business. They so far more than the than Dcbs.
And and we have seen positive positive uptake.
In the instance, and and other areas. So two to begin to affect those I think would be it would be.
Not not a great move, but obviously as part of this process. We have we have sought to offset as much of this is as possible without impacting the commercial performance of the organization.
And we're still waiting to see where the FDA come side of the course on labeling changes and the letter to physician. So we'll stay tuned for how that that works out. Thanks for the question.
Your next question comes from the line of Bob Hopkins of Bank of America Merrill Lynch.
Yes, Thank you and good morning.
Bob This is.
Just a lot of questions one could ask but I can't help but just one more on on Paclitaxel.
Curious if you could elaborate just and however, you can on kind of whats your heard from from FDA. After the panel meeting.
Do you have a sense at this point, whether you think you might need a whole new trial or just longer term data or any any incremental senses.
What you heard from that would be helpful. You're asking on the T.K.
Yes.
Yes, what I thought.
On BTK, well I don't think.
Bob It's on I don't think would would provide the specific information here.
We did we did provide the six month data and interim 12 month data in the in the Pmeight that we filed.
And we continue to to cooperate and worked with that with the FDA.
As we work as we work through this but to provide any specifics about it I think would confer competitive advantage on on others and.
I'm loads to do that so it.
It remains it remains a very active DNA. Our teams our teams are collaborating with that with the FDA and we expect to have face to face meetings here with them in the not too distant future to really nail down what of what that data requirement will be and we have more data to bring to the table too so.
You know we continue to work on it.
But thanks for the question Bob.
Your next question comes from the line of Robbie Marcus from Jpmorgan.
Great. Thanks for taking the question.
I was I was hoping you could talk about it.
Your strategy around M&A in general.
Youre down at three seven times leverage should we saw you now wait until you got all the way to your target last time with the Bard deal.
Just how you're thinking about where to add what to amortize valuations in the space and then also if you could just touch on maybe.
Your thoughts on M&A, specifically in diabetes. This is an area.
I think back to the last analyst day, there was a long list of product innovations you were hoping to bring to market I don't think.
And now it probably turned out as positive as you hoped just your thoughts in diabetes and your plans for the future. There. Thanks, a lot yes sure and.
Happy to answer the question first just a little bit of a correction, we did hit our de leverage target.
On the Carefusion deal before we did the the Bard deal and we are.
Yes.
Out of that let's say January very politic in the way you asked the rest of the question. So no problem at all but.
But anyway. So we are really focused on meeting our leverage target as we go forward now what we've been saying and remain committed to is that we must do plug in M&A is an important part of the strategy and as we put the deal model together, we made allowance for that and you've seen us do stuff like wafer linked Q because it's an important part of the growth strategy. You should expect you know over the next year that we will continue doing that.
As as we move forward towards.
De leveraging and getting down below three times and then you know as we look forward, we have tremendous capability in terms of our ability to do M&A, but.
We're not a serial acquirer, we are a strategically driven company.
And you should expect us to be thinking about plug in M&A and then looking at to the dividend and share repurchase share repurchase as as we move forward. So Chris anything else you want to just to that point you back to the presentation I made a tour.
Your conference back in January Robbie, where we talked about future cash flow considerations in the bottom line is that as we throw off a lot of cash we happen to be using it to pay down $6 billion a debt.
But at the same time when that is done which is within the next year.
We will have a lot of cash.
To allocate and we started giving some sense of that we'll be talking more about that as we move on but again it gets back to what what Vince said is we're not going to let it build up on the balance sheet. We are.
Going to be more active in tuck in M&A on a strategic level across the whole portfolio.
And likely to to start going back to two share buybacks.
Once we start building up the cash balances and.
I have gotten down to that three times leverage and we are you know we made that correction because we are very proud about the fact that we live up to our commitments. We committed that we would get down to three times leverage and the Carefusion deal.
And we did that before moving into the bar transaction, we're going to get down to the three times leverage this time as well.
So as Chris said plug in M&A across the entire portfolio and that could include diabetes, obviously any other business here in the short run we remain committed to the patch pump you heard me comment that we have taken on a development partner for doing that and.
We'll continue to work on that as the number one priority as well as investing in the core of that business, where we see some nice opportunities so but thanks for the question.
Your next question comes from the line of Vijay Kumar of Evercore ISI.
Hey, guys. Thanks for taking my question.
The general housekeeping questions Chris.
At one Don.
Q4.
Implied at the low end of the second.
The annual.
In place Q4, 6% organic.
Where's the acceleration coming from just given.
The tougher comps if you can walk us through that and second on Q.
The you Andy on regulation incremental cost is that sort of an ongoing.
Below the line in completion cost service.
Annualizing that.
Thank you.
Yes, so it's a little hard to hear you BJ, but at the same time I think I got it.
We're looking for a little bit more on Q4 revenue.
And we're not talking about accelerating much more from the five seven it's a little bit and I went through before where we're seeing strength in some of the new products that we've brought.
To market. The Novo cover wavelengths are very helpful continued to strengthen and you'll see.
We're seeing great momentum and MMS as you saw from the results this quarter.
Mds is.
Accelerating as we expected it to and we see strong growth and bio sciences and diagnostic systems don't forget we have some revenue synergies that kick in towards the back end of this year, particularly in the fourth quarter, So thats where were seeing it come from.
And I think I talked about the.
Margins.
Gross profit as I as I mentioned in my prepared remarks.
We saw some onetime kind of timing items.
That that go away.
In the fourth quarter and rebound.
Not to mention FX, not being a headwind both on gross profit and operating margin.
We see Cie and synergies ramping.
So we're very comfortable with the direction.
And very similar message to what I said last quarter you saw that.
I'll move in that direction in the third quarter, and we expect that to continue in the fourth quarter. So PJ. The only thing I would add to that.
Is the emerging markets growth is going to continue to be strong I mentioned already that you know in China. We were double digits, we expect to be double digits for the rest of the year you know that we have a great business, they're a great team there and a strong partnership.
With the Ministry of Health that is all going extremely well, we don't expect this environment with the tariffs on retail products and stuff to be impacting that business. So we expect that to do double digits for the for the entire year.
Feel good about that we feel good about the rest of Asia and of course M&A. You saw was very strong this quarter and we expect that to continue to so there's a lot of drivers both from the business side and from the geography site I think just for clarity I would add two other points VJ, we do expect lower interest other.
To be about 450 million as we mentioned in our prepared remarks, and then I would expect tax to be closer to the middle of the range. There is a lot of intricacies and tax but you saw it was lower in this quarter at 12.8%.
That will rebound upwards and in the fourth quarter.
Putting us right towards the middle of the guidance range that we gave.
Okay. Thanks for the question.
Your next question comes from the line of Larry Biegelsen of Wells Fargo.
Good morning, Thanks for taking the question just one on Lutonix one on China. So on Lutonix had been a lot of questions on BTK, but my question is on the current indications and kind of what you're seeing since the FDA panel and your expectation once the updated FDA guidance comes out and just Vince I heard your comments on China and your confidence there, but there were getting questions from investors about potential backlash in China again.
US products given all the the the rhetoric here.
Maybe you can help us.
I understand why you're confident in that growth continuing and why some of this noise will have an impact domestically. Thanks for taking the question, yes, sure I'll I'll handle that and then Simon can handle the intricacies of what's going on in Dcbs.
Okay. So on China.
As I was mentioning just a minute ago.
Our experience through this whole situation with what's going on with trade has been today.
They've been keeping very separate whats happening in healthcare versus what's happening on the trade side and then I think that reflects number one a strategic priority to continue to develop the health care system in this environment and that's what we hear from a from the Ministry of Health and in fact more recently over the past six months, we've had conversations where they've explicitly told us that.
So that's the first part of it. This is the second part of it is.
We had our team in here and the Chinese healthcare system is now better funded than it was a year ago or three years ago and so there is some positive momentum going on in China as the rest of the economy slows down did I think.
It is important to them and then thirdly, we are really well positioned with the portfolio in the organization that we have in China.
And it's not just the fact of our commercial organization, but it's what we do in terms of investing in China. We have four plants in China, we continue to invest behind that we continue to invest in innovation for China as well and I know Tom is excited about the portfolio has been working very closely with John to Ford and our team in Asia. So we've built the partnership over 25 years, there and so we do think that.
Different aspects of the environment will be difficult and we are ready for that but we also expect that with what we've done to fully.
Invest in China, and not just a commercial organization, we're very very well positioned that's what we hear and Tom Scott.
Another one or two things you'd like to add Larry. This is Tom good that good morning, maybe just one one small thing to add to it to vinces. Good overview. There is is that those investments that we've made over the last 25 years, particularly in that localized highly automated manufacturing today. The majority of the high volume disposable medical devices that we sell in China, we make in China locally so we're actually importing.
Relatively low percentage, particularly of our our high volume disposable devices, where there can be local competition, we're actually behaving as a local.
In that employing local.
Local associates, acquiring our raw materials locally et cetera.
And engaging in those local communities and much more on the job.
Some of the unique areas, where there's actually not local competition.
In areas, such as BTB DS et cetera.
Or VDI, where we would be doing importing and we're actively moving some more of that manufacturing into China as well yes.
Okay. So Simon is going to get it.
On Dcbs in the intricacies, there sort of morning, Larry Simon So.
So I think as as you obviously know the panel happened happened in June and.
I think in industry really did put put the best foot forward here in a collaborative nature I think many of the main the physicians that spoke were speaking on.
On behalf of the role of Paclitaxel not only within Phd, but also these are paclitaxel in other areas.
And not seeing a signal associated with that.
And everyone continues to work with the FDA as they look to as they look to refine their their doctor later, but what we've seen.
Is approximately 50% reduction I think we communicated that on the last call. It has remained.
At about that point.
In in the last in the last quarter.
And barring any unforeseen.
Upsides.
I think we should expect that to continue as we as we roll forward here, but.
Once again.
Dcbs are just about 1% of the total BDX business.
As Chris has spoken to and I spoken to with new products and pie with new products and.
In in surgery that are just another just launched and with the outstanding performance and former within within Urology I think we're well placed to to offset as much of that headwind as we can move forward.
Thanks, guys.
Sure. Thanks.
Your next question comes from the line of Bill Quirk of Piper Jaffray.
Great. Thanks, good morning, everyone.
Well couple of questions for Chris just can you.
Maybe just elaborate on the lower interest expense does look like it should be additive to earnings for the full year. So I'm just trying to figure out where the offset is just given the overall earnings guidance didn't change and then secondly.
Would you.
Care to elaborate on I guess, the durability of the BD Max growth, we've seen several very strong quarters now thank you.
Yes.
Sure. So you already saw some of the interest reduction in the third quarter.
And that was actually used to offset the additional pressure we saw about five cents of pressure more than we expected to an FX. We thought it would be about 20 cents. It was more like 25 cents a pressure so you've already seen some of that and that's why I pointed to the fact that the.
Tax rate goes back would back up in the fourth quarter to get to the middle of the range for the year. It's 13.3 year to date through the third quarter and we expect it to be closer to the 15% are for the year. So obviously that is an offset that you see and it was a much lower so.
When you put all that together and your model I think you get back to.
Right, where we are.
And there is no question that the.
No that FX has put pressure it was real in the third quarter.
But we are holding our range for the year despite that pressure.
Okay Patrick.
Now, let me comment quickly on BD, Max and as we said in the quarters before we saw growth north of 20% and again this quarter. It was north of 20% and that's driven by the strong access we have to enteric panel. The MVP panel etcetera. So we are pretty confident so this has a long runway building out more panels on BD Max.
And again this strong demand and we are pretty happy with the business Patrick anything you want to add on BD core I mentioned it as one of the new product launches, maybe a little more color on that yes. So we just launched BT corn in Europe .
Welcome and we are really really happy to have the initial demand. We are seeing interest received from our customers in Europe .
It's still early days because we have.
Just one.
I'd say so far on it but we are building out a panel and we think we have a very competitive platform and that will drive future growth within.
Within our business here.
You will have the same.
As I said, we have from BD Max rate reported mobile and beauty core build out a complete platform approach. So we can.
Couple of both the acute and to call out so thats, a very strong driver for the business. Okay. Thanks, Patrick and thanks for the question.
Your next question comes from the line of Rick Wise of Stifel.
Hi, Good morning, Vince Hi, Chris how are you doing wanting are doing great.
One quick question one guidance I'm, just Vince as always I'm curious to hear your thoughts about politics, and med Tech tax I always like to hear your thoughts about that but I'd like to ask.
A guidance question.
I think you're making it abundantly clear and for multiple reasons why fourth quarter fiscal fourth quarter is going to look good and accelerate and sort of sounds like at a minimum look a lot like the growth we saw in the in the fiscal third quarter, but you have you do have your dramatically most challenging comp of the year, maybe help us understand how you would hit the upper end or get.
Toward the upper end of guidance, what would have to happen.
It would seem to me to get to that full year guidance more towards 6% you'd have to post an upper single digit fourth quarter is that remotely possible or are there some variables that im not understanding any color would be much appreciated.
We have provided guidance in the in the past calls that.
Because of DCB because of the the flu season as it played out.
Those are the biggest drivers that we would be towards the lower end of our guidance range of five to six in spite of those those pressures.
So the guidance for Q4 really implies the low end of that five to six range.
So that as well.
Did you just mentioned it would take a real blow out to get up to the to the top and the businesses are performing strongly but.
As you said with the comp there that makes it really difficult, yes, I mean, we feel really good about the fact that the businesses are delivering well, we've talked about BTI and the performance and.
This quarter with been well over 6%.
But for the DCB impact and.
As I said, even with the DCP impact and the potential BTK impact.
We feel strongly about the ability to drive five to six next year as well so.
We're feeling good about that momentum.
In order to get to the high ends of the range.
We would have had to have a blow out flu season, and a because they know that was a tough compare against last year's flu season.
And DCP was incredible yes, Tom Hey, Rick This is Tom Good morning, maybe just one other comment to add there you mentioned the comp in last years Q4, and you're right as as Chris mentioned, we feel really good about the momentum from Q3 going into Q4, and one of the biggest comp areas last year. I believe was in MMS. We saw very strong growth and I think one of things that I'm surprised we haven't got the question of and really strong number in MMS this quarter.
As well, which is reflecting the continued momentum that we see in that business and less Alberto has any other comments to add there, but I think what we're.
Continue to be pleased that growing significantly above market in the NMS business.
Which we expect to take rate continue so yes.
Very good quarter for MMS, clearly growing at 9% plus and.
It just reflects an ongoing momentum for this business, yes, we have been favorably impacted by some timing of installations.
What will be at least.
On the land side on the pump side.
But that will normalize over time, we do have a very strong we had a very strong fourth quarter last year in Q4, we will jump over that and we won't grow at the 9% growth rate clearly, but we are expecting good performance given the high the high quarter and the drivers are the ones that we had mentioned in the past.
In terms of our core platforms and to Alaris fixes yes.
The the health site analytics that is really driving.
The integrated platform approach to the <unk> and interrupt our inter operability, where we all ready have 475 sites.
Live.
And it just shows that momentum and that.
That accepted by the market of what we are offering as an integrated platform. Yes. The business is performing great very went really well. Thanks Alberto thank thanks for the question.
Your next question comes from the line of Richard Newitter of STB Leerink.
Hi, Thanks for the questions I have two here one on molecular.
The double digit growth trend is very strong.
You also had some competitors put up and continue to put up strong double digit growth I guess my question here is how much of the performance of the momentum in that business is something happening in terms of improvement in the underlying market versus share and then the second question would just be on drug coated balloons I'd love to just hear following the FDA panel. What are you what are your customers and dock, saying in terms of what is going to take to kind to either get back to levels or close to levels of utilization and implantation, where they were pre panel and the study and where do they think that level is it half of what it used to be or what are your customers, saying with respect to.
Ted to that view post panel. Thanks, all right, let's do molecular first they will come back to deal I'll take that thanks, Richard for the question. So on molecular answers as you said growth is pretty strong not only driven by BD, Max but thats about it.
One of the big contributors there if you look at our growth rate compared to market growth I would say clearly indicates that we are taking some share right now.
Given the strong growth rates for you have you have for Andrea again confident.
On our in our assets that they are hitting the right market segments and as a.
Also for the Port for example on Tehrik, you're not using multiplexed as we're using a more targeted approach and that is also in terms of the reimbursement model very beneficial for us. So I would say I would say definitely points toward taking market share for us Okay. Simon Dcbs. So so we're expect to respect to dcbs.
I think the the the FDA needs to.
Come out with a statement to and says that the benefits outweigh the risks in summary.
For for the market to begin to begin to rebound I think our customers feel like their hands are tied right now with the Doctor letter from from marks the 15th and Thats reflected in the in the current 50% there or there about a decline in business, not just with us, but but with others too so.
I think in one sentence benefits need to what really outweigh the risks.
And the vet demand the benchmark for for recovery profile.
If you if you reflect back on the on drug eluding stent in the coronary system you can see the recovery profile that they experienced over over a prolonged period of time. So yes, we took a few years right.
A few years, but we saw the wait to see what the content of this letter holds for for us.
And more importantly for the patients that we serve remains the same way than.
Patients that we serve will not have a lot of the treatment option available to them to the scale was before the doctor letter so.
Just to add to that a little bit.
It's probably not a black and white situation Theres a lot of degrees of gray and what the FDA can say here and so.
We don't know exactly where that will come out Simon mentioned before industry has given a lot of input. We expect DKL wells are also giving input on that and we think very shortly we will get an updated letter the FDA I should say will be coming forth with an updated letter in terms of exactly what Simon was talking about so we're waiting to see where that comes out and I would agree with Simon industry more more so with the health care providers had made some great arguments as to why this product is important for patients and so we'll see how that plays out over the next couple of days.
Thanks, Thanks for the question.
Your next question comes from the line of Matt Taylor of VBS.
Hi, Thanks for taking the question.
So I just had a clarification question on your commentary on Dcbs.
And next year in synergy so.
It sounds like when you're talking about being able to grow 5% to 6% that is not predicated on any real snap back in the core PCB business is that correct and then also.
When you reiterated the Bard revenue synergies.
Right on track there certainly is no major impact or and Surmountable impactful can dcbs is that right.
Yes, so you're right as we think about 2020, we're assuming that that 50% holds through.
Through 20.
So no snap back and that.
And our synergy there.
The on the synergies the cost synergies were right on target.
We did mention that we will do 100 million this year and we're well on our way to the 300.
I think from a revenue synergies were were.
On track as well so.
Yes.
Thomas I'll, Matt just said this is Tom like just give me a little bit more color on the revenue synergy. So we are seeing.
The three areas that we shared before we're seeing very good momentum across both the vascular access area, we brought the bard pick and and midline business in an integrated with our catheter team I'd say in the last two quarters, we're really seeing an increase in the number of competitive conversions, which was exactly our strategy and that gives us confidence going forward in that continuing to fuel performance, particularly in the Mds business.
You see that now in the back half of this year going into next year.
We're seeing the benefits in our surgery business, you're seeing some of that play out actually this quarter that the investments that we made in the combined biosurgery and Chloraprep infection prevention Salesforce in Europe .
We're seeing our biosurgery and infection prevention now growing strong double digits.
In Europe because of those that those synergy investments that we've made and then of course, the third area of just geographic expansion in markets, particularly beyond China that Bart had invested in significantly we're seeing strong growth in VDI in those other geographies as well and so we feel very confident in our revenue synergies being on track this year and continuing that momentum into 2000.
Thanks, Tim.
And then just one follow up it sounds like the VT core product could be a really interesting drivers and you add some comments on it today, but they are a little general.
Could you talk a little bit more about how big you think that product over time as it builds on your success with that.
Yes good.
Yes, I can take that look it's again current revenues are still its early days for I guess, we are ramping to products growing interest remicade in Europe .
Murphy HPV panel on it as a business for as a revenue driver in 21.
22, where I think we will see launch revenue contributions coming from the platform.
When you also were heavier debatable worldwide, we think its a very attractive platform given the automation capabilities that it has a specialty also taking care of the preeminent step into platform. So we think we will you will see a very nice revenue contribution and growth contribution diagnostics orders.
In the years 2021 and 22.
This year its different on making a huge contribution.
Okay right. Thanks.
Thanks, Patrick.
Your final question will come from the line of Josh Jennings of Cowen.
Hi, good morning, Thanks for taking the questions sure Josh you said that.
Appreciate it just two questions first on the.
Peripheral business.
Just in terms of determining to leverage the sales force even more so on the DCB pull back I was wondering about your views on the need for an atherectomy platform I think prior to the acquisition. There was rumblings that part had had a.
System in development in the pipeline I just wanted to hear is that that's that's still the case within backed its pipeline.
And secondarily.
Just wanted to hear some updated thoughts on the hernia business, if any phasix seems to be doing very well there is some controversy around synthetic non reservable mesh.
Just wanted to hear your views on the market and the and Phasix positioning thanks for taking the questions. So so its Simon here there's no.
I wouldn't comment specifically in Watson, our NPD funnel until we're ready to actually give a give a commercial launch date.
You know as you know.
Pie plays and in every category within within the Phd space with the exception of <unk> with the exception of atherectomy.
So it's obviously something we keep a close eye on internally and externally, but its company further on that.
I wouldn't do so.
And then with respect to.
With respect to hernia.
At long last I couldn't stop referring to the the hurricane.
Because Q3 saw the last comp again versus the hurricane.
I haven't heard believe two years ago.
So we had a very strong very strong underlying quarter in the in Q3, we continue to grow above above the market.
And Youll Phasix performance within our conflicts our ball business continues to do.
Really well.
We've we've just released three or data on the on Phasix was content continues to do really well. We just released a another version of physics, as Vince mentioned, Phasix, Estee, OVH, or which is which incorporates a new and new positioning system and that's off to a great start and and again, we just we just released a new articulating fixation system that thus far has got a tremendous feedback from our from our customers. So.
Hernia continues to do a can continue to do very well and we continue to look for other ways that we can leverage that that sales team that we have domestically and internationally. So you should expect to see that continue in that vein, okay. Josh thanks for those questions.
Thank you I will now return the call to Vince Forlenza for any closing comments.
Okay. So let me wrap this up a couple of thoughts our revenues were strong across all the businesses and regions in line with the second half our second they have planned acceleration. We're very excited about that we expect our momentum to continue and have reaffirmed our fiscal year 2019 revenue and EPS guidance.
And as we approach the final year of the B of the Bard deal model I am confident that we will continue to deliver on our commitments and create more value for our customers their patients and our shareholders. Once again. Thank you for your questions. We look forward to updating you again around this exciting business that we built thanks very much thanks, everyone.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.