Becton, Dickinson and Company — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. BD is a global medical technology company reporting through Medical, Life Sciences, and Interventional. Results are from continuing operations unless stated otherwise. The prior-year comparison is affected by the April 2022 spin-off of Diabetes Care, whose results are reported as discontinued operations.
Key financial results
| Metric | Quarter ended June 30, 2023 | Prior-year quarter | Nine months ended June 30, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $4.878 billion | $4.641 billion | $14.285 billion | $14.109 billion |
| Operating income | $549 million | $537 million | $1.762 billion | $1.793 billion |
| Net income from continuing operations | $407 million | $390 million | $1.376 billion | $1.348 billion |
| Diluted EPS from continuing operations | $1.36 | $1.28 | $4.60 | $4.45 |
| Continuing operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $1.665 billion | $1.498 billion |
Quarterly revenue increased 5.1% as reported and 6.3% on a foreign-currency-neutral basis. Price contributed 4.3 percentage points; volume and other factors contributed 3.5 points, while lower COVID-only testing and currency translation reduced growth by 1.5 and 1.2 points, respectively. Quarterly gross margin was 43.1%, compared with 44.5% a year earlier. Quarterly net income was $407 million; the prior-year quarter included a $30 million loss from discontinued operations. Nine-month 2022 net income included $144 million of income from discontinued operations, so total net income comparisons are less comparable than continuing-operations results.
Segments and material changes
- Medical: Quarterly revenue rose 11.1% reported (12.2% FX-neutral) to $2.434 billion. Segment income was $588 million, and segment margin declined to 24.2% from 26.1%, including the impact of a $90 million product-remediation charge and higher input, labor, and freight costs.
- Life Sciences: Quarterly revenue fell 6.3% reported (5.0% FX-neutral) to $1.226 billion; segment income declined to $343 million from $414 million. Lower COVID-only testing, weaker comparisons for combination testing, and U.S. distributor destocking affected revenue. Biosciences revenue grew.
- Interventional: Quarterly revenue grew 6.7% reported (8.1% FX-neutral) to $1.218 billion. Segment income rose to $323 million from $293 million, and segment margin improved to 26.5% from 25.7%.
- Quarterly U.S. revenue increased 4.9%; international revenue grew 5.4% reported and 8.2% FX-neutral. Emerging-market revenue increased 9.9% reported and 13.8% FX-neutral.
Cash, debt, and liquidity
- At June 30, 2023, cash and equivalents were $923 million, restricted cash $101 million, and short-term investments $8 million. BD reported total worldwide cash, restricted cash, and short-term investments of approximately $1.032 billion.
- Total debt was $16.782 billion, up from $16.065 billion at September 30, 2022. Current debt obligations were $1.856 billion and long-term debt was $14.926 billion. The weighted-average cost of debt was 3.0%, versus 2.8% at fiscal year-end.
- Nine-month investing cash outflow was $853 million, including $580 million of capital expenditures. Financing cash outflow was $959 million, including $1.716 billion of debt repayments and $849 million of dividends paid.
- BD had $279 million of commercial paper outstanding and no borrowings under its $2.75 billion revolving credit facility at June 30, 2023; the company reported compliance with applicable credit-facility covenants.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management said inflation was expected to persist through the remainder of fiscal 2023 and cited supply availability, labor costs, healthcare staffing and budget pressures, foreign exchange, and geopolitical conditions as factors that could add volatility.
- BD recorded a $90 million charge to adjust estimated future product-remediation costs; the remediation reserve for open recalls and infusion-pump updates was approximately $270 million, with related work and cash outlays expected over multiple years. Purchase accounting adjustments and integration, restructuring, and European regulatory initiative costs also affected reported results.
- Product-liability accruals, including related legal defense costs, were approximately $1.9 billion at June 30, 2023, versus $2.1 billion at September 30, 2022. BD noted that future charges could exceed accruals and available insurance and could materially affect results, financial condition, or cash flows. The company was defending approximately 34,285 hernia-repair claims, compared with approximately 31,445 at fiscal year-end.
- Other significant legal and regulatory matters include litigation and investigations involving Alaris infusion pumps, hernia products, pelvic mesh, IVC filters, urology sales practices, Genesis containers, and ethylene-oxide-related claims. Management stated that losses for certain matters could not be reasonably estimated.
- BD’s U.S. Alaris infusion-pump business remains subject to an FDA consent decree and ongoing corrective actions. After quarter-end, on July 21, 2023, BD received FDA 510(k) clearance for an updated Alaris system; the filing says U.S. devices are to be remediated or replaced. In August 2023, BD completed the sale of its Surgical Instrumentation platform for gross proceeds of approximately $540 million, subject to post-closing adjustments; the platform was not presented as discontinued operations.
- BD cited potential effects of further inflation and supply constraints, ethylene oxide regulation or sterilization interruptions, product safety or quality concerns, litigation, indebtedness, and changes in healthcare demand. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, timing, costs, and customer adoption associated with Alaris remediation and the updated system’s return to market.
- Developments in product-liability claims, the adequacy of the approximately $1.9 billion accrual, and actual settlement and defense cash outflows.
- Whether cash generation is sustained, including working-capital movements and the extent to which receivables factoring supports reported cash flows; nine-month receivables transferred under factoring arrangements were $2.252 billion.
- Debt repayment and refinancing needs, borrowing costs, and liquidity after the fiscal-year debt issuances and repayments.
- Post-closing proceeds and any adjustments from the Surgical Instrumentation sale, and the effect of the divestiture on future segment results.