Becton, Dickinson and Company — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2024. BD is a global medical technology company operating through Medical, Life Sciences and Interventional segments. Amounts below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $5,045 | $4,821 | $9,751 | $9,407 |
| Operating income | $734 | $628 | $1,173 | $1,213 |
| Net income | $537 | $460 | $818 | $969 |
| Diluted EPS | $1.85 | $1.53 | $2.81 | $3.24 |
| Gross margin | 45.7% | 46.4% | 44.4% | 46.4% |
Q2 revenue rose 4.6% reported (4.7% foreign-currency neutral): volume/other contributed 5.0%, pricing 0.6%, the Surgical Instrumentation divestiture reduced growth by 0.9%, and currency reduced it by 0.1%. Q2 operating margin was approximately 14.5%, versus 13.0% a year earlier. Six-month operating margin was approximately 12.0%, versus 12.9%.
Q2 segment revenue and operating income: Medical $2,449 and $662; Life Sciences $1,304 and $415; Interventional $1,292 and $388. Interventional growth was led by Urology and Critical Care, including licensing revenue and PureWick demand. Medical benefited from catheter and infusion-system demand, while China procurement dynamics were unfavorable. Life Sciences revenue increased modestly, but six-month segment income declined to $787 from $827.
Cash flow, liquidity and debt
- Six-month cash from continuing operations was $1,369, up from $584. Management attributed the change partly to a smaller working-capital cash use than in the prior year; current-period cash flow also included a $150 discretionary pension contribution.
- Capital expenditures were $250 versus $389. Investing cash outflow was $1,289, including $815 of net investment purchases. Financing cash inflow was $843, including $1,972 of long-term debt proceeds, $500 of share repurchases and $550 of dividends paid.
- At March 31, cash and equivalents were $2,348, short-term investments $827 and restricted cash $46, totaling $3,222 including restricted cash. Current assets were $10,340 and current liabilities $7,327.
- Total debt was $18,011, up from $15,879 at September 30, 2023; weighted-average debt cost was 3.2%, versus 3.0%, and debt was 40.5% of total capital, versus 37.2%. No revolving-credit-facility or commercial-paper borrowings were outstanding; BD reported compliance with credit-facility covenants.
Material changes and unusual items
- Q2 net income increased 17% and diluted EPS rose to $1.85 from $1.53. For the six-month period, net income and EPS declined; the effective tax rate was 17.5%, compared with 4.0% a year earlier, when more favorable discrete tax items benefited results.
- Specified items reduced Q2 earnings by $384 after tax and six-month earnings by $883 after tax. These included purchase-accounting adjustments ($362 in Q2; $724 for six months), restructuring, European regulatory initiative costs and other items. Q2 restructuring costs were $98; six-month restructuring costs were $167.
- Gross margin was pressured by higher raw-material and labor costs, foreign exchange and planned inventory reductions, partly offset by pricing and productivity improvements. BD cited higher labor costs, China volume-based procurement, and potential supply, logistics and healthcare-budget pressures.
- BD issued $1,981 of notes in February 2024, including $625 of 4.874% notes due 2029, $550 of 5.110% notes due 2034 and €750 million of 3.519% notes due 2031.
Outlook, risks and contingencies
The filing provides no numerical full-year revenue or earnings guidance. Management’s BD 2025 strategy emphasizes growth, simplification and empowerment, including investment in R&D, product programs and operational efficiency. Management cautioned that macroeconomic and geopolitical uncertainty could make near-term performance volatile.
Key risks include inflation and labor costs, China procurement programs, supply-chain and sterilization capacity, currency and interest-rate changes, healthcare-provider budget and staffing pressures, product quality and regulatory compliance, and litigation. BD’s U.S. Alaris infusion-pump business remains under an FDA consent decree; the FDA’s review is ongoing, and future action, costs or operational restrictions cannot be predicted. BD received 510(k) clearance for an updated Alaris system in July 2023 and expects remediation or replacement of U.S. devices over several years.
New EPA ethylene oxide sterilization standards became effective April 5, 2024; BD is assessing compliance requirements, generally due within two years. The filing notes possible impacts to BD and third-party sterilization capacity. Product-liability accruals, including defense costs, were approximately $1.7 billion at March 31, down from $1.9 billion at September 30. BD was defending approximately 37,330 hernia-device claims; management warns future charges could exceed accruals and available insurance and could materially affect results, financial condition or cash flows.
An $85 million securities class-action settlement related to Alaris was adequately reserved and largely insured; final court approval and judgment were entered April 22, 2024, after quarter-end. Other investigations and proceedings remain pending, including an SEC investigation concerning Alaris, government inquiries, and environmental and product-liability matters. The filing states that losses for many matters cannot be reasonably estimated.
Important facts for investors to verify
- How much of reported growth and margin performance is recurring versus licensing, product mix, foreign exchange and specified items.
- Progress on Alaris remediation, FDA consent-decree compliance and any resulting costs, penalties or sales impacts.
- Developments in hernia, pelvic mesh, IVC-filter, implantable-port and ethylene oxide litigation, and whether accruals or insurance remain adequate.
- BD’s assessment of the new EPA sterilization requirements and any effects on its own or third-party sterilization capacity.
- Debt maturities, refinancing needs, cash generation and the sustainability of dividends and share repurchases.