Becton, Dickinson and Company — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 31, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. BD is a global medical technology company operating through Medical, Life Sciences and Interventional segments.
Financial results
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $4,706 | $4,586 |
| Operating income | $439 | $585 |
| Net income | $281 | $509 |
| Diluted EPS | $0.96 | $1.70 |
| Operating cash flow | $855 | $399 |
| Capital expenditures | $116 | $208 |
- Revenue increased 2.6% reported and 1.6% on a foreign currency-neutral (FXN) basis. Pricing contributed 2.0 percentage points, foreign currency translation 1.0 point, volume/other 0.5 point, and the Surgical Instrumentation platform sale reduced growth by 0.9 point.
- Gross profit margin declined to 43.1% from 46.5%. Management cited higher raw-material and labor costs, inventory-reduction absorption effects and unfavorable foreign currency, partly offset by pricing and productivity improvements.
- Segment revenue and income: Medical $2,230 and $535; Life Sciences $1,288 and $372; Interventional $1,188 and $291. Segment income fell year over year in all three segments. Segment margins were 24.0%, 28.9% and 24.5%, respectively.
- Net interest expense was $77, versus $96, as higher interest expense was more than offset by increased interest income. The effective tax rate was 21.6%, compared with (5.8)% in the prior-year quarter.
- Cash from operating activities was $855; investing activities used $233 and financing activities used $862. Financing included $500 of share repurchases and $275 of dividends. Cash, cash equivalents and restricted cash totaled $1,234 at quarter-end; cash and short-term investments, including restricted cash, were approximately $1,236.
- Total debt was $16,110, compared with $15,879 at September 30, 2023; total debt was 38.0% of total capital. BD reported no outstanding borrowings under its revolving credit facility or commercial paper programs and was in compliance with applicable credit-facility covenants.
Changes and notable items
- Revenue growth was led by Interventional (+5.2% reported; +4.7% FXN) and Medical (+3.5%; +2.4% FXN); Life Sciences revenue declined 1.0% reported and 2.5% FXN. Respiratory illness-related sales weakened in Integrated Diagnostic Solutions.
- Net income and diluted EPS declined substantially year over year. The prior-year comparison included favorable tax items; BD also reported specified items of $475 before tax in the current quarter versus $449 in the prior-year quarter. These included $362 of purchase-accounting adjustments in each period and $69 of restructuring costs versus $26. The filing reports after-tax specified-item impacts of $499 and $364, respectively.
- Operating cash flow improved from $399, principally reflecting a favorable change in operating assets and liabilities, including lower trade receivables, compared with a significant working-capital cash use in the prior-year quarter.
- BD repurchased 2.118 million shares for $500 under its existing authorization. The quarterly common dividend was $0.95 per share, up from $0.91.
Outlook, risks and contingencies
- The filing provides no specific quantitative revenue or earnings guidance. Management expects China market dynamics, including volume-based procurement, and labor availability and costs to remain challenges during FY2024. It also cautioned that macroeconomic uncertainty could make near-term performance volatile.
- Management cited inflation, supply-chain and transportation constraints, healthcare-provider budget and staffing pressures, and geopolitical developments as potential risks to costs, supply and demand. Ethylene oxide regulation could constrain sterilization capacity; BD said business-continuity plans may not fully offset disruption.
- BD Alaris infusion pumps remain subject to an FDA consent decree and ongoing corrective actions and audits. FDA review continues; the decree permits significant remedies, including production or distribution restrictions and monetary damages for violations. BD received clearance for an updated system in July 2023 and plans to remediate or replace U.S. devices over several years.
- Product-liability accruals, including defense costs, were approximately $1.8 billion at December 31, 2023, down from $1.9 billion at September 30. BD disclosed approximately 35,935 hernia-device claims and said additional losses beyond accruals and available insurance could materially adversely affect results, financial condition or cash flows.
- An $85 million settlement in a securities class action concerning Alaris pumps was agreed in principle, adequately reserved and largely insured; preliminary court approval was granted in January 2024, with final approval hearing scheduled for April 22, 2024. Other disclosed matters include product-liability litigation, government investigations and environmental claims; outcomes and potential losses are uncertain.
- BD reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth, margins and segment profitability improve as pricing and productivity offset cost pressures and weaker respiratory-related sales.
- Progress and costs of Alaris remediation, FDA consent-decree compliance and any subsequent regulatory actions.
- Developments in product-liability claims, settlement payments, accrual assumptions, insurance recovery and government investigations.
- Cash conversion and working-capital trends, debt and near-term maturities, and the sustainability of repurchases and dividends.
- Any subsequent FY2024 guidance or material update to the China, labor, sterilization-capacity or healthcare-demand outlook.