Becton, Dickinson and Company — Form 10-Q Summary
Business context and reporting period
Global medical technology company with BD Medical, BD Diagnostics and BD Biosciences segments. This unaudited filing covers the quarter and six months ended March 31, 2012, the second quarter of fiscal 2012. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q2 FY2012 | Q2 FY2011 | Six months FY2012 | Six months FY2011 |
|---|---|---|---|---|
| Revenue | $1,990.8 | $1,922.0 | $3,878.5 | $3,764.0 |
| Operating income | $406.4 | $440.3 | $765.0 | $853.4 |
| Income from continuing operations | $290.5 | $311.1 | $553.6 | $625.3 |
| Net income | $291.0 | $312.0 | $554.0 | $628.0 |
| Diluted EPS, continuing operations | $1.38 | $1.38 | $2.59 | $2.72 |
| Diluted EPS, total | $1.39 | $1.38 | $2.59 | $2.74 |
| Gross margin | 51.2% | 52.1% | 51.1% | 52.6% |
- Q2 revenue grew 3.6% year over year, reflecting approximately 5.7% volume growth, offset by 1.1% lower prices and 1.0% unfavorable foreign currency translation. Q2 operating income declined about 7.7%; continuing-operations income fell about 6.6%. Six-month revenue rose 3.0%, while operating income fell about 10.4% and continuing-operations income fell about 11.5%.
- Q2 revenue by segment: Medical $1,021.2 million, up 4.1%; Diagnostics $630.0 million, up 4.1%; Biosciences $339.6 million, up 1.3%. Segment operating income was $285.3 million, $158.1 million and $94.4 million, respectively. For the six months, segment revenue increased across all three segments, but Medical and Biosciences operating income declined.
- Q2 gross margin decreased 90 basis points. Management attributed pressure to acquisition and software amortization, unfavorable pricing, raw-material costs, product mix and currency; manufacturing efficiencies and lower pension costs partly offset these effects. Selling and administrative expense rose to 24.9% of revenue from 23.0%, including higher emerging-market, acquisition, legal and ERP-related costs.
- Six-month cash from continuing operations was $610.4 million, versus $706.9 million. Investing activities used $225.9 million, compared with $1,024.0 million; financing activities provided $277.5 million, compared with $155.5 million used in the prior-year period. Capital expenditure was $214.5 million; dividends paid were $188.2 million; share repurchases were $1,000.0 million.
Financial position and liquidity
- At March 31, 2012, cash and equivalents were $1,839.5 million and short-term investments $272.6 million. Total current assets were $5,300.6 million and current liabilities $1,621.5 million.
- Total debt was approximately $4.17 billion, up from approximately $2.72 billion at September 30, 2011; long-term debt rose to $3,964.1 million. Debt represented 47.4% of total capital, versus 35.8% at fiscal year-end.
- BD issued $500 million of five-year notes at 1.75% and $1 billion of ten-year notes at 3.125% in November 2011. The company reported $200 million of commercial paper outstanding and no borrowings on its $1 billion credit facility. Management said available cash and operating cash flow were expected to fund normal 2012 needs.
- Cash from operations was reduced by working-capital uses and approximately $100 million of discretionary pension contributions. BD expected approximately $1.5 billion of repurchases for fiscal 2012; about 14.8 million shares remained authorized for repurchase at March 31.
Outlook, management commentary, risks and unusual items
- Management expected pricing pressure, constrained healthcare utilization in the U.S. and Western Europe, and increased raw-material costs to persist through fiscal 2012. It expected fiscal-year R&D spending, as a percentage of revenue, to be comparable with fiscal 2011; Diagnostics R&D was expected to be slightly lower as a percentage of revenue.
- A change in estimated useful lives of certain production machinery, effective January 1, 2012, was expected to increase fiscal 2012 operating income by approximately $19.9 million. A U.S. pension-plan remeasurement was expected to reduce fiscal 2012 pension cost by $40.2 million.
- In April 2012, BD agreed to sell Biosciences’ Discovery Labware unit, excluding Advanced Bioprocessing, for expected proceeds of approximately $730 million, subject to adjustments and closing conditions. Completion was expected by year-end 2012, with a gain anticipated. The affected assets were forecast to contribute about $235 million of fiscal 2012 revenue and $0.23–$0.27 of diluted EPS.
- The KIESTRA Lab Automation acquisition closed in February for total estimated consideration of $59.5 million, including contingent consideration; it added $33.5 million of goodwill. BD also recorded $2.5 million of acquisition-related expense.
- Key risks include economic and healthcare-spending uncertainty, pricing and competition, currency and raw-material exposure, the 2.3% U.S. medical-device excise tax beginning January 2013, government-receivable collection delays, product and regulatory matters, ERP implementation and litigation. Spanish government-related receivables were approximately $85 million net of reserves.
- Contingencies include antitrust class actions, patent and other claims by Retractable Technologies, Inc. (RTI), Gen-Probe patent litigation and environmental proceedings. BD said potential losses beyond recorded accruals could be material; it could not estimate a loss range for several matters. The antitrust settlement with distributor plaintiffs remained subject to appeal; RTI petitioned the Supreme Court concerning the patent ruling, and its other claims were postponed.
Important facts for investors to verify
- Whether revenue growth, pricing, foreign exchange and segment mix sustain or improve gross and operating margins.
- How the higher debt balance, interest expense, repurchases and cash generation affect leverage and financial flexibility.
- Closing terms, proceeds, gain recognition and earnings impact of the Discovery Labware sale.
- Actual costs and effects of the medical-device excise tax, pension changes, raw-material inflation and the machinery-life estimate.
- Developments in significant litigation, government receivable collections, and the company’s stated risks around healthcare spending, regulation and competition.