Becton Misses EPS, Tweaks Guidance

Zacks

Becton, Dickinson and Company (BDX) reported third-quarter fiscal 2012 earnings per share from continuing operations of $1.52 missing the Zacks Consensus Estimate of $1.53 per share.

The company reported net income of $326.9 million ($1.59 per share), which includes $15.3 million (7 cents per share) from discontinued operations pertaining to the sell-off of the Discovery Labware unit of BD Biosciences by the end of calendar year 2012. 

Revenues

Becton Dickinson recorded third quarter revenues of $1,981 million, up 1.5% (or 4.9% in constant currency) year over year, missing the Zacks Consensus Estimate of $2,018 million.

On a regional basis, domestic revenues inched up 1.1% year over year to $837 million while overseas revenues moved up 1.7% (or 7.8% in constant currency) to $1,144 million. Overseas sales were driven by sustained growth in emerging nations and robust safety sales.

Second Quarter Review by Segments

At BD Medical, global revenues moved up 2.4% (or 6.4% in constant currency) year over year to $1,070.1 million in the quarter, driven by healthy revenues from Diabetes Care and Pharmaceutical Systems.

Within BD Medical, revenues from Medical Surgical Systems were up 0.5% year over year to $531.8 million. Diabetes Care sales moved up 5.7% to $232.7 million, while Pharmaceutical Systems revenues were up 3.4% to $305.6 million.

At BD Diagnostics, global revenues were up 1.7% (or 4.7% in constant currency) year over year to $642.3 million, on account of growth in both Women’s Health and Cancer care, as well as Preanalytical Systems. Preanalytical Systems revenues rose 0.9% to $333.5 million while Diagnostic Systems sales were up 2.6% to $308.8 million. 

Global sales from the BD Biosciences unit decreased 2.7% (or up 0.2% in constant currency) year over year to $268.2 million. This segment solely comprised of Cell Analysis following the decision to divest Discovery Labware.  

Margins and Expenses

Gross margin declined somewhat to 52.2% in the reported quarter from 52.7% a year ago while the operating margin dropped slightly to 22.7% from 22.9% in the prior-year quarter. Consolidated operating costs and expenses increased 1.8% year over year to $1,531.5 million as Becton Dickinson spent marginally more on both selling and administrative expenses and on R&D.

Outlook

Becton Dickinson forecasts reported sales growth for fiscal 2012 of approximately 1% compared with 1% to 2% earlier. The company revised its revenue growth forecast in constant currency, to 4%, from 3% to 4% earlier. The company cut its target for reported earnings per share from continuing operations for fiscal 2012, to a band of $5.33 and $5.38, from between $5.68 and $5.73 earlier. The change captures the impact of reclassifying Discovery Labware as a discontinued unit. On a constant currency basis, Becton Dickinson reiterated its earnings per share growth forecast of 4% to 5%, which includes the impact of the acquisition of Safety Syringes. 

We remain cautious about Becton Dickinson due to the lack of major short-term catalysts. The rising demand for safety-needle products (with higher price points and margins) was the primary driver of the company’s past growth, which is not expected to continue, given that the U.S. market is already largely penetrated.

On the positive side, Becton Dickinson’s preeminent global healthcare products franchise is partly insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery field.

Becton Dickinson faces a wide range of competitors, including Baxter International (BAX) in certain niches, in each of its three business segments. We currently have a long-term Neutral recommendation on the stock. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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