Becton, Dickinson and Company (BDX) — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2022; fiscal year ends September 30. Amounts are in U.S. dollars. The April 1, 2022 spin-off of Diabetes Care as Embecta is reflected as discontinued operations for applicable periods.
Financial results
| Metric | Quarter ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $4.641 billion, up 0.7% reported and 3.8% foreign-currency-neutral (FXN) | $14.109 billion, down 1.2% reported |
| Operating income | $537 million, versus $492 million | $1.793 billion, versus $1.870 billion |
| Continuing-operations net income | $390 million, versus $407 million | $1.348 billion, versus $1.450 billion |
| Diluted EPS from continuing operations | $1.28, versus $1.32 | $4.45, versus $4.72 |
| Net income, including discontinued operations | $360 million, versus $525 million | $1.491 billion, versus $1.827 billion |
| Gross margin | 44.5%, versus 42.5% | 45.4%, versus 45.8% |
| Cash from continuing operating activities | $1.498 billion for nine months, versus $3.285 billion |
Quarterly revenue growth reflected 6.0% volume growth and 2.6% pricing, offset by a 4.8% decline in COVID-19-only testing and a 3.1% foreign-exchange impact. U.S. revenue rose 9.0%; international revenue fell 8.4% reported. COVID-19-only diagnostic testing revenue in Life Sciences was $76 million, compared with $300 million a year earlier.
Quarterly segment revenue and operating income were: Medical, $2.191 billion and $573 million; Life Sciences, $1.309 billion and $414 million; Interventional, $1.142 billion and $293 million. Life Sciences revenue declined 8.7% reported, mainly reflecting lower COVID-only testing; Medical and Interventional revenue grew 4.7% and 5.5%, respectively. Segment income improved in Medical and Interventional, while Life Sciences income declined slightly.
Cash, debt and liquidity
- At June 30, cash and equivalents were $2.558 billion; restricted cash was $202 million and short-term investments $14 million. Total including restricted cash and short-term investments was $2.773 billion.
- Total debt was $16.365 billion, down from $17.610 billion at September 30, 2021. Current debt obligations were $1.682 billion and long-term debt $14.683 billion. Debt was 37.6% of total capital, versus 41.1%; weighted-average debt cost was 2.7%, versus 2.4%.
- BD had no borrowings under its $2.75 billion revolving credit facility and no commercial paper outstanding; it reported compliance with applicable credit-facility covenants. Moody’s and Fitch upgraded BD’s senior unsecured ratings in June 2022, revising their outlooks to Stable.
- Nine-month continuing investing cash outflow was $1.215 billion, including $658 million of capital expenditures and $450 million for acquisitions. Financing cash outflow was $187 million and included $812 million of dividends; Embecta’s $1.266 billion distribution partly offset outflows.
Changes, outlook and notable items
- Quarterly diluted EPS from continuing operations decreased to $1.28 from $1.32; nine-month EPS decreased to $4.45 from $4.72. Lower continuing-operations income and higher specified-item impacts weighed on results. The quarter’s higher gross margin reflected efficiency initiatives, pricing and currency effects, partly offset by inflation in raw materials and freight.
- Management cited inflation, constrained logistics, labor and component availability, and COVID-related disruption as pressures. BD described mitigation through procurement alternatives, cost controls, manufacturing efficiencies, product allocation and pricing. It cautioned that these measures may not fully offset cost pressures.
- The filing gives no quantified full-year revenue or EPS guidance. Management said short-term performance may remain volatile; COVID-related demand, inflation, supply constraints and currency movements create uncertainty.
- BD completed the Embecta spin-off on April 1. The quarter included a $30 million after-tax loss from discontinued operations, including spin-off execution and residual costs. BD received $1.266 billion from Embecta and transferred $265 million of cash upon separation.
- On July 18, 2022, after quarter-end, BD completed its acquisition of Parata Systems for $1.525 billion in cash; purchase-price allocation was not yet complete.
- Product-liability accruals, including related defense costs, were approximately $2.2 billion at June 30, down from $2.5 billion at September 30, 2021. BD defended approximately 30,290 hernia-device claims and warned that additional charges could materially affect results or cash flows; it could not estimate reasonably possible losses for several proceedings.
- Regulatory and litigation exposures include the Alaris infusion-pump FDA consent decree and pending 510(k) clearance, an SEC inquiry and DOJ investigations, and lawsuits involving hernia products, pelvic mesh, IVC filters and ethylene-oxide emissions. U.S. Alaris commercial operations remained limited to medically necessary cases and remediation of recalled software versions.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether core volume and pricing gains can offset declining COVID-only testing, foreign-exchange headwinds and inflation-related costs.
- Whether operating cash flow recovers from the year-over-year decline, given working-capital use and the pension contribution.
- Debt maturities, refinancing needs and liquidity following the Parata acquisition; assess the acquisition’s funding and subsequent financial impact.
- Developments in Alaris remediation and FDA clearance, and any resulting impact on sales, costs or regulatory exposure.
- Changes in product-liability accruals, claim outcomes and other legal or environmental contingencies, including the Georgia ethylene-oxide matters.
- Post-spin-off comparability: review continuing operations separately from discontinued operations and account for the Embecta separation in year-over-year comparisons.