Becton, Dickinson and Company (BDX) — Form 10-Q
Reporting period: Fiscal third quarter and first nine months ended June 30, 2021. Comparative periods are the three and nine months ended June 30, 2020. Figures are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4,890 | $3,855 | $15,113 | $12,333 |
| Operating income | $628 | $358 | $2,304 | $1,229 |
| Net income | $525 | $286 | $1,827 | $746 |
| Diluted EPS | $1.72 | $0.97 | $6.00 | $2.38 |
| Operating cash flow | Not separately stated | Not separately stated | $3,696 | $2,058 |
- Q3 revenue increased 26.9% reported, including approximately 22.0% volume growth and 4.9% favorable foreign-exchange impact. Q3 operating margin was approximately 12.8%, versus 9.3%; gross margin was 44.2%, versus 43.1%.
- Nine-month gross margin was 47.2%, versus 43.6%. Nine-month revenue, operating income, and net income increased approximately 22.5%, 87%, and 145%, respectively.
- Q3 segment revenue: Medical $2,375 million (+11.9%); Life Sciences $1,433 million (+50.7%); Interventional $1,082 million (+38.4%). Life Sciences benefited substantially from COVID-19 diagnostic testing and recovery from pandemic-related declines in the prior-year quarter.
- Nine-month investing cash outflow was $1,186 million, including $766 million of capital expenditures. Financing cash outflow was $2,164 million, including $1,000 million of share repurchases and $789 million of dividends paid.
Financial position and liquidity
- At June 30, 2021, cash and equivalents were $3,153 million, restricted cash $128 million, and short-term investments $24 million. Management reported $3,306 million of cash and short-term investments including restricted cash.
- Total debt was $17,733 million: $2,033 million short-term and $15,700 million long-term. Total debt was $17,931 million at September 30, 2020. Short-term debt’s share rose primarily because certain notes were reclassified as short-term. Total debt to total capital was 40.7%, versus 41.3%.
- The $2.63 billion revolving credit facility had no borrowings outstanding; BD reported compliance with its financial covenants. Current liabilities rose to $7,749 million from $5,836 million at September 30, 2020.
Material changes, outlook and notable items
- Revenue growth reflects both recovery from COVID-19-related declines in the prior-year quarter and current COVID-19 testing demand. BD reported approximately $300 million of Q3 revenue from COVID-19 diagnostic tests. Testing pricing faced pressure from competition and demand declined; approximately $71 million of COVID-19 testing inventory was written down as excess or obsolete.
- Management cited inflation in raw-material and freight costs, supply-chain and transportation disruption, and continued incomplete recovery in some non-acute healthcare utilization. No numerical full-year earnings or revenue guidance is provided in the supplied filing text.
- BD announced plans to spin off Diabetes Care as a separate publicly traded company, expected in the first half of calendar 2022, subject to customary conditions, including board approval and an effective Form 10 registration statement. The proposed transaction is intended to be tax-free for U.S. federal income-tax purposes.
- BD recorded a $296 million pretax charge during the first nine months for product-liability matters and related legal defense costs. Product-liability accruals were approximately $2.5 billion at both June 30, 2021 and September 30, 2020. Management cautioned that additional charges could materially adversely affect results and cash flows.
- Product litigation includes approximately 23,590 hernia-device claims, 405 pelvic-mesh claims (plus about 835 filed or unfiled claims with insufficient information to confirm product involvement), and approximately 360 IVC-filter claims. Certain settlement agreements or agreements in principle covered about 15,285 women’s-health claims and 9,450 filter cases; outcomes and remaining exposure are uncertain.
- BD submitted a 510(k) filing for its Alaris infusion system in April 2021, but cannot fully commercialize it until FDA clearance. The filing also describes an SEC subpoena concerning Alaris and a DOJ civil investigation involving certain CareFusion contracts; the company says it is cooperating and cannot predict outcomes. Approximately 150 Georgia lawsuits alleging injuries from ethylene-oxide exposure were disclosed after quarter-end.
- Other unusual items included an $88 million pretax gain on a sale-leaseback and $16 million of costs related to the planned Diabetes Care separation. BD also issued $1.0 billion of 1.957% notes due 2031 and €600 million of 1.213% notes due 2036, using proceeds and cash on hand to repay maturing debt.
Key facts for investors to verify
- Whether growth and margins remain resilient as pandemic-related comparisons normalize, COVID-19 testing demand and pricing change, and raw-material and freight inflation continues.
- Alaris FDA clearance timing, remediation costs, and any developments in the SEC and DOJ matters.
- Product-liability settlement progress, adequacy of the approximately $2.5 billion accrual, and potential additional claims or charges.
- Conditions, timing, tax treatment, and costs of the proposed Diabetes Care spin-off.
- Debt maturities and liquidity after the short-term debt reclassification, debt repayments, dividends, and share repurchases.