Becton, Dickinson and Company (NYSE:BDX) Q4 2023 Earnings Call Transcript
Becton, Dickinson and Company (NYSE:BDX) Q4 2023 Earnings Call Transcript November 9, 2023
Becton, Dickinson and Company reports earnings inline with expectations. Reported EPS is $3.42 EPS, expectations were $3.42.
Operator: Hello, and welcome to BD's Fourth Quarter and Full Year Fiscal 2023 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 688-7339 for domestic and area code 1-40220-1347 for International. For today's call, all parties have been placed in a listen-only mode until the question-and-answer session. I will now turn the call over to Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations.
Greg Rodetis: Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the fourth quarter and full year of fiscal 2023. We also posted an earnings presentation that provides additional details on our business, strategy and performance. The press release and presentation can be accessed on the IR website at investors.bt.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Crystal DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy.
Chris will then provide additional details on our Q4 and FY '23 financial performance and our guidance for fiscal 2024. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis, unless otherwise noted.
When we refer to any given period, we are referring to the fiscal period unless we specifically noted as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms such as base revenues and the non-GAAP reconciliations included in the appendix. With that, I am very pleased to turn it over to Tom.
Tom Polen: Thanks, Greg. Good morning, everyone, and thank you for joining us. Earlier today, we reported our results for the fourth quarter and full year of FY '23, a year characterized by strong differentiated performance driven by our BD 2025 strategy in action, impactful new innovations and our diversified business portfolio designed to help our customers navigate today's challenging environment. The diversification of our portfolio offers both durability through our leading positions and consistent demand for products essential to everyday patient care and strong growth through a purposeful shift into higher growth markets, anchored against three irreversible forces we see shaping health care, connected care, new care settings and chronic disease.
Additionally, we have built capabilities and fostered a culture of operational excellence, where we make disciplined and strategic capital allocation choices, proactively address macro headwinds through our simplification programs and execute with speed and agility, all of which have and continue to play a key role in delivering strong consistent performance. This unique profile can be seen in both our current and 2-year performance and where our purposeful shift into higher growth markets has enabled us to drive the plus side of our targeted 5.5% plus revenue growth profile. In FY '23, we delivered 7% base revenue growth with base organic growth of 5.8%. Our team drove significant margin expansion and delivered $12.21 in adjusted EPS, which represents double-digit currency-neutral growth of 11%.
Over the past 2 years, we have made excellent progress toward our BD 2025 financial targets, delivering a 7% base organic revenue CAGR and 390 basis points of operating margin expansion. We are now over 70% of the wave 2 and tracking ahead of our 25% adjusted operating margin target by FY '25. As a result, on the bottom line, we delivered an implied base EPS CAGR of 20% currency neutral. We also ended FY '23 with strong execution of our strategic priorities. First, we delivered our number one priority, obtaining FDA clearance for the updated BD Alaris [ph] infusion system. Post clearance, our priority remains remediation, scaling up manufacturing and engaging with customers on the many benefits of the updated system that include advanced cybersecurity, wireless connectivity and other clinical and patient safety upgrades.
We are confident in our remediation plan and have begun the process, prioritizing our existing customers. We are making good progress with active contracting and shipments of our first units to customers taking place ahead of schedule at the end of September. We are excited to deliver the benefits of the updated Alaris system to our customers and their patients, including the power of one integrated infusion platform with a centralized user interface for all major types of infusion as well as the value added through interoperability and other innovations that connect data from Alaris, Pyxis and the rest of our medication management offering into the industry's only end-to-end solution for safer, simpler and smarter medication management from the pharmacy to the floor, to the bedside.
The clearance of the BD Alaris infusion system gives us further confidence in our ability to achieve our BD 2025 strategy and financial targets. Second, we significantly advanced our innovation pipeline, launching 27 key new products that benefit researchers, providers and patients, integrating AI, robotics and other advanced technologies. Our products are helping researchers gain deeper insights faster, like our fax Discover S8 cell sorter with CellView image technology and facts to at premium sample preparation system, which apply novel technologies like high-speed cell imaging and liquid handling robotics and our BD Horizon real yellow and real blue reagents, which were developed using AI guidance. Our pharmacy automation business continues to grow double digits and it's helping our customers serve patients more efficiently and with fewer errors across various care settings.
Our robotic microbiology platform, BD Kiestra, hit record sales this year, and we continue to drive strong double-digit growth in our BD COR and BD MAX molecular platforms, leveraging our growing installed base through menu expansion that includes our new Vaginal Panel and our Onclarity HPV assay for thin prep on BD core and now greater than 20 assays on BD MAX. We continue to enable the care shift in new settings, including at home, through innovations such as our PureWick system franchise for urinary incontinence that we expanded to include solutions for male patients. PureWick Mail has been one of the fastest ramps of a new product in our history and continues to exceed our expectations. Given the strong adoption, we have now designated this as a greater than $50 million incremental growth opportunity.
Pharmaceutical Systems, which achieved 13 consecutive quarters of double-digit growth, continues to empower the delivery of new biologics, many administered by patients at home, such as the growing drug class of GLP-1s for diabetes and weight loss and other molecules, which will be delivered through our self-injection solutions. We are playing an increasing role in addressing chronic diseases like peripheral arterial disease and improving outcomes in tissue reconstruction. This year, we expanded the impact of new products such as our Rotarex Atherectomy system, Venous Stent System and then close RF ablation catheter, helping to address an area of high unmet need for the 10 million patients each year who are suffering from venous disease. In surgery, our teams accelerated the growth of Phasix Mesh to allow more patients to benefit from tissue repair performed with our resorbable synthetic biomaterial.
And of course, we continue to drive a relentless focus on improving clinician and patient satisfaction with PIVO Pro and BD Nexiva with near Port IV access, a core element of our OneStick hospital stay vision that enables needleless blood draws, which is a major satisfaction for patients. And BD Pyxis ES 1.7.4, which now fully integrates our C2 Safe system into the Pyxis ES platform, enabling security and automated controlled substance management for pharmacists. I'm really pleased with how our R&D team executed in FY '23, again reaching a new record level of on-time milestones and launches. Our enhanced focus on programs with the potential to move the needle in terms of growth has positioned us well to drive our WAMGR expansion. We are on track to both achieve our target of over 100 new product launches by FY '25 and our new product revenue contribution target as outlined at Investor Day, creating a new wave of margin accretive growth for BD.
Third, in addition to our investments in R&D, our tuck-in M&A strategy has been very impactful, targeted in higher-growth markets, M&A is complementing the plus side of our 5.5% plus growth profile and also contributing to growth on an organic basis as we anniversary those assets. This includes our acquisition of Parata Systems, which is part of our pharmacy automation business that is growing double digits. At nearly $700 million in revenue, BD Pharmacy Automation is one of the largest robotics and health care process automation businesses in med tech, focused on improving pharmacy labor efficiency and reducing errors. There's never been a greater need for these solutions. Fourth, we continued our simplification initiatives in FY '23 and actively managed our portfolio, divesting our surgical instrumentation business and executing a program of strategic portfolio exits, allowing us to continue to reallocate our resources into more strategic, higher growth areas and further reduce complexity across our company.
We also progressed our project Reco network [ph] and SKU rationalization programs, exiting more than 2,300 incremental SKUs in FY '23 and are pleased that we have now streamlined our portfolio by 20% compared to 2019, achieving our goal laid out at Investor Day 2 years early. We are seeing the benefits in our manufacturing plants and in our simplified portfolio with customers. We will continue to advance this initiative as we keep executing BD 2025. In addition, we initiated our operating model simplification initiative to reduce our organizational complexity and increase agility. As a result, we were able to absorb continued outsized inflation during the year as planned and advanced operating margins towards our 25% target. And lastly, we strengthened our balance sheet, inclusive of executing on our planned inventory reductions and maintaining a disciplined and balanced capital deployment framework.
This allows us to support organic and inorganic investments in growth while returning capital to shareholders. We just announced our 52nd consecutive year of dividend increases, continuing our long-standing recognition as a member of the S&P 500 Dividend Aristocrats Index, a distinction that reflects the consistency and reliability of our dividend policy. Lastly, I'm also very pleased with how we've advanced our ESG strategy and goals. In July, we published our 2022 ESG report, which provides details about our strategy and progress against our 2030 plus commitments. Highlights include progress in health equity and diversity as well as improving our environmental footprint, which included a reduction of Scope 1 and 2 greenhouse gas emissions by 10% and having generated 34% of our electric power from renewable energy.
In FY '23, we submitted our GHG emission reduction targets to the science-based target initiative for verification. I'm quite excited by our innovative circular economy pilots we did this past year. They were the first of their kind in our industry. Recycling medical waste like use syringes and vacutainers and converting these materials back into usable resins. We'll be advancing this work further in FY '24 as we continue to tackle end-of-life GHG emissions and seek to lead circular economy innovation within our industry. We also continue to pioneer products and solutions that address health and equities, like our efforts to detect HPV infections and diagnose cervical cancer through at-home sample collection. We're proud that our progress continues to be recognized externally with BD most recently named among the 100 Best Corporate Citizens by 3BL and among the top 2 in the health care equipment and services industry.
Before I turn it over to Chris, I'd like to provide some perspective on the macro environment and BD2025 as we look forward to FY '24. Starting with the macro environment. The complexity facing all companies will likely persist and in some cases, is accelerating. With China responding to economic pressures and elevated levels of geopolitical uncertainty occurring in multiple markets. Inflation has moderated from the peak high levels overall, but remains elevated compared to prepandemic norms, including higher labor rates in transportation and manufacturing, higher cost of energy and certain raw materials. While there continues to be a heightened degree of macro uncertainty as we head into FY '24, consistent with what we have done in the past several years, we have positioned BD to deliver strong performance through this environment.
As we move forward, you can expect to see continued execution of VD2025 with a focus on the bold actions that position BD strategically for the future. These include continuing to advance our strong organic portfolio of programs in higher-growth spaces that are transforming health care. This includes launching another 25 key new products, including our Phase 6 ST umbilical product that will provide patients a reliable alternative to permanent mesh, bringing the benefits of our bioresorbable Phasix material into one of the most common abdominal wall hernia procedures. The BD multimodality vacuum-assisted biopsy device, which is expected to be the first VAB system designed to work across all 3 imaging modalities of ultrasound, CT and MRI allows our customers to consolidate capital equipment, standardize consumables and simplify physician and nurse training.
Our next-generation PureWick incontinence solution for the hospital and the home will be launching in FY '24. And our FACSDiscover S8 Cell Sorter 3 and 4 laser configuration that will expand our new-to-world cell sorting instrument to the mid-parameter segment to help more researchers drive new discoveries. We're also launching our Libertas 5 ML device that will provide a wearable option for higher viscous drugs that tend to require longer dosing times. And finally, our BD next-generation infusion pump for Europe. These are just a few examples of the 25 key new product launches planned for FY '24. We will also continue to simplify our organization this year to enable operational excellence and agility, fuel investment and deliver on initiatives that will help us achieve our 25% adjusted operating margin goal in FY '25.
this includes our Project Recode initiatives where our network optimization efforts will start Generating savings in FY '24 as we drive plant efficiencies and our operating model efforts where we are seeing positive early results from outsourcing certain back-office functions. As we accelerate our focus on BD Excellence, our unique business performance system, we will increase the adoption of lean principles beyond manufacturing with pilots outside of operations this year. I see our BD excellence system as an important new lever we're building as we look ahead and think about our strategic plans beyond BD 2025. And lastly, we expect to continue our balanced approach to capital deployment. This includes ongoing transformation of our portfolio by deploying capital towards larger tuck-in acquisitions and in higher growth categories that we can scale and leverage to support our growth and margin goals.
As I said at the top of the call, in fiscal 2023, our teams demonstrated exceptional agility and strong execution, advancing our BD 2025 strategy. We are delivering consistent durable performance in a challenging environment, which we expect to persist for several years to come. Our continued track record, combined with our growing pipeline and shift into higher growth markets is propelling us into a more innovative leader that is making a profound impact on advancing health care globally. We are advancing into FY '24 with clarity, focus and a growth mindset as we seek to do great things for those who rely on us, our customers, patients, associates and shareholders. With that, let me turn it over to Chris to review our financials, guidance and outlook.
Chris DelOrefice: Thanks, Tom. We delivered strong, consistent results this fiscal year, which reflect the diversity of our portfolio and our BD 2025 strategy in action. Beginning with our revenue performance. We delivered $5.1 billion in revenue in Q4, exceeding our expectations with base organic growth of 7% and total base growth of 6.3%, which reflects the impact from the surgical instrumentation divestiture. For the full fiscal year, we delivered $19.4 billion in revenue with base organic revenue growth of 5.8% that is 100 basis points higher than our initial guidance. Total base revenue growth was 7%, driven by strong performance in BD Medical and BD Interventional. Base revenue growth was strong regionally as well with high single-digit growth in EMEA and Latin America and mid-single-digit growth in the U.S. and Greater Asia despite low single-digit growth in China.
Our revenue performance continues to be supported by our durable core portfolio and an increasing contribution from higher-growth spaces that are driving the plus side of our targeted 5.5% plus revenue growth profile. We also continue to benefit from the organic contribution from tuck-in acquisitions we anniversaried, which was about 40 basis points for the full year. Over a 2-year period, we drove a strong base organic revenue CAGR of about 7%, which is well above our long-term target. Let me now provide some high-level insight into each segment's performance in the quarter. Further detail can be found in today's earnings announcement and presentation. BD Medical revenue totaled $2.6 billion in the fourth quarter, growing 6.2% with strong performance in Medication Management Solutions and Pharmaceutical Systems.
BD Medical performance reflects a decline in medication delivery systems resulting from softness in China driven by market dynamics, including some impacts from volume-based procurement. This was partially offset by strong performance in catheter solutions in North America and Europe through continued execution of our vascular access management strategy. MMS delivered exceptional growth of 13.7%, driven by double-digit growth in both dispensing and pharmacy automation as customers focus on solutions, which improve workflows and efficiencies and help pharmacies address rising costs and labor shortages. Pharmaceutical Systems delivered another quarter of double-digit growth of 10.6% driven by continued strong demand for prefillable solutions for biologics, partially offset by a slowdown in China exports of anticoagulants.
Ed Life Sciences revenue totaled $1.3 billion in the fourth quarter. Excluding COVID-only testing, Life Sciences base revenues grew 3.8%, driven by strong double-digit growth in Biosciences. Life Sciences base business growth reflects IDS base business growth of 0.6%, driven by continued adoption of our BD KIESTRA microbiology lab automation solution and strong IDAST instrument placements and continued growth of our molecular IVD assays, leveraging the BD core system and our expanded BD MAX installed base. Growth was partially offset by the comparison to prior year COVID-related recovery in China and a decline in specimen management that was driven by distributor and customer stocking in the prior year. PDB [ph] grew 11.7%, driven by strong demand for our recently launched BD Fax Discover SH cell sorter that is enabling an entirely new level of biological depth of speed, ease of use and solution integration for researchers across fields like immunology, cancer research and cell biology.
BDs performance also reflects strong growth in clinical reagents, leveraging our increasing installed base of FaxleRic [ph] analyzers in facto-ed automation. BD Interventional revenues totaled $1.2 billion in the fourth quarter, growing 9.6% and 12.8% organic. The strong double-digit organic growth was driven by surgery growth of 5% or 15.5% organic, which excludes the impact from the divestiture of the surgical instrumentation platform of 10.5 percentage points. Organic growth reflects strong market adoption of our leading Phasix Hardie products in our advanced repair and reconstruction portfolio and strong demand for our ChloraPrep infection prevention solution. PI grew 11.7%, which reflects strong performance in peripheral vascular disease driven by global penetration of the rotor atherectomy system and our venous portfolio in China.
Growth was aided by improved supply and distribution stabilization in EMEA following a new ERP implementation in fiscal '22. Urology grew 11.7%, primarily driven by continued strong demand for our PureWick chronic incontinence solutions in both the acute care and alternative care settings. Now moving to our P&L. Q4 adjusted diluted EPS of $3.42 reflects strong double-digit growth of 24% or 25% on a currency-neutral basis. Gross margin increased 20 basis points to 52.6%, and as anticipated, we delivered very strong margin improvement with adjusted operating margin of 25.4%, up 340 basis points. As expected, margin improvement was driven by leverage on our strong revenue performance, our ability to offset outsized inflation, lower SSG&A driven by our simplification initiatives, moderated R&D expense as a percent of sales due to investment timing and a favorable comparison to last year's COVID profit reinvestment.
Full year adjusted diluted EPS of $12.21 grew 7.6% or 11% currency-neutral. This includes delivering an additional $0.14 of currency-neutral earnings versus our original guidance. Additionally, we absorbed almost 400 basis points associated with reduced COVID-only testing, implying base currency-neutral EPS growth of approximately 15%. For the full year, gross margin of 53.5% was flat to the prior year despite absorbing over 200 basis points of outsized inflation and cost of goods sold. Operating margin of 23.5% was up about 90 basis points or 110 basis points when excluding the 20 basis point impact from the accounting treatment of an employee benefit-related item, exceeding our margin goal for the year. The employee benefit item is recorded in G&A and is fully offset in other income with no resulting impact to EPS.
While delivering our margin goals, we also maintained investment in R&D at 6% of sales or about $1.2 billion to advance our pipeline of innovation programs that will support our strong growth profile in fiscal year '24 and beyond. As anticipated, we made significant progress towards achieving our pre-pandemic margin improvement goals. Our FY '23 adjusted operating margin is ahead of our 2019 spin adjusted margin, which is particularly significant given it includes overcoming 500 basis points or almost $1 billion of outsized inflation in the past 3 years. Over the next 2 years, we remain well positioned to return to our targeted 25% operating margins. Regarding our cash and capital allocation. Cash flows from operations totaled approximately $3 billion in FY '23.
As expected, cash flow accelerated over the back half of the year and was strongest in Q4 due to normalization of working capital, including continued moderation of our inventory balances. We remain focused on free cash flow conversion and as anticipated, delivered a step-up in FY '23 with free cash flow increasing by over $600 million. We are planning another step improvement in FY '24 and expect free cash flow to increase double digits. This will be achieved through further moderation of inventory levels by the end of the year and continued discipline around CapEx investments through focused prioritization and areas of targeted reduction, both of which we expect to more than offset cash investments to support the Alaris remediation. As we execute against our BD 2025 strategy, we remain well positioned to achieve our long-term cash conversion target of around 90%.
Beyond our investments in growth, we paid down over $700 million in debt this fiscal year and returned $1.1 billion in capital to shareholders through dividends. We ended the year with a cash balance of $1.4 billion and a net leverage ratio of 2.6 times This is our strongest net leverage position since FY '21, which positions us well to capitalize on opportunities to accelerate our investment in higher-growth categories through our tuck-in M&A strategy. Moving to our guidance for fiscal '24. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. As demonstrated by our results over the past 2 years, BD has the ability to deliver strong performance in the most challenging times. Our performance reflects strong execution of our BD 2025 strategy, the benefit of our diversified and durable portfolio or simplification and outsized cost improvement programs and bold, purposeful capital allocation and investment decisions, all further optimized by our ability to execute with agility.
As we look to fiscal '24, while the macro landscape has evolved since our last earnings call, I'm pleased to share we remain committed to the revenue growth profile we previously outlined. And at the midpoint of our guidance, we expect to deliver another year of organic growth above our 5.5% plus profile. Let me share some of the key puts and takes contemplated in our guidance. First, we see strong momentum in many parts of our business. We have 6 key areas in our portfolio now totaling over $5 billion or 25% of our sales that we expect to deliver high single to double-digit growth. These include our farm systems pre-fillable syringes, which are benefiting from the strong trends in biologics, our bioscience business, our peripheral vascular disease platform, our medication management systems business, including pharmacy automation and infusion given the recent clear Delaris pump, urinary incontinence supported by our PureWick franchise; and finally, our molecular diagnostic platforms.
This allows us to deliver strong results despite some heightened macro dynamics affecting many industries, most notably in China, along with increasing risk and complexity as the result of the war in the Middle East and other geographies. Specific to the health care industry, providers continue to feel the pressure of elevated inflation and labor dynamics. And while they remain very focused on cost and working capital management, our portfolio has proven to be more resilient in this type of environment given BD's essential role in the health care ecosystem and our ability to transform health care processes and drive efficiencies. As it relates to BD, the largest headwind we anticipate from these macro dynamics is in our China business, where we see market softness and increasing levels of volume-based procurement, predominantly impacting our MDS business along with some impact in farm systems from reduced demand as our Chinese pharmaceutical customers export business slow.
As a result, we are projecting China to be flat to modest growth in FY '24, which creates nearly a 75 basis point headwind to our revenue growth this year. Taking these factors into account, we expect to deliver base organic growth of about 6% at the midpoint, which is consistent with the view we provided on our last earnings call. We still expect COVID-only testing to step down from the $73 million reported this year and result in a headwind to organic growth of over 25 basis points. This brings the midpoint of our total organic growth to 5.75% within our 5.25% to 6.25% range. To help simplify our reporting, unless there's a significant change in the COVID-only testing market. Effective this year, we will no longer be reporting base organic growth that excludes COVID-only testing.
However, it was important to give us context with our initial guidance. As a reminder, while the sale of the surgical instrumentation platform that closed in Q4 FY '23 does not impact our organic growth, we'll have nearly a 75 basis point impact to total revenue growth in FY '24 and is accounted for in our total currency-neutral revenue growth guidance of 4.5% to 5.5%. Moving to margins and earnings. We plan to deliver another year of strong profitable growth, including progressing our adjusted operating margin towards our FY '25 goal of 25%, while generating cash flow improvements to support our strong and reliable growth profile. On gross margin, we expect to be about flat year-over-year on a reported basis, including the impact of currency headwinds of approximately 75 basis points.
Excluding the impact of currency, we expect gross margin to improve with our simplification strategy more than offsetting 150 basis points of headwinds from outsized inflation of about 100 basis points and another 50 basis points from inventory reduction efforts that occurred in FY '23 and that we plan to further moderate down by the end of FY '24, which will improve cash flow. The value from our simplification programs continue to be driven by our recode network optimization, SKU rationalization and operating model simplification programs. Additionally, our BD excellence program, which focuses on the application of lean principles is driving productivity gains across our operations. As it pertains to OpEx, we anticipate SG&A expense leverage on strong revenue performance and continued benefit from our operating model simplification programs.
After 3 consecutive years of investing in R&D at over 6% on average, in FY '24, we anticipate a consistent year-to-year dollar spend in R&D that is needed to advance our pipeline, which will result in some modest leverage. As a result, we expect adjusted operating margin to improve by around 50 basis points on a reported basis over the 23.5% reported in FY '23, primarily driven by SSG&A leverage. This puts us well on track to achieve our 25% margin goal by FY '25. For tax, assuming no major legislative or regulatory changes, we expect our adjusted effective tax rate to be between 13% and 15%. As a reminder, it would not be unusual for our tax rate to fluctuate on a quarterly basis given the timing of discrete items. Given all these considerations, we expect adjusted EPS growth before the impact of currency of 8.25% to 10.25% or 9.25% at the midpoint.
This includes absorbing about a 75 basis point headwind from the divestiture of the surgical instrumentation business, and as a result, implies double-digit earnings growth, excluding the divestiture of 10% at the midpoint and within a range of approximately 9% to 11%. Let me now walk you through the estimated impact from currency. As a reminder, we manage our business and provide guidance on a currency-neutral basis to best represent underlying performance we provide perspective on currency using current spot rates, consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger U.S. dollar, along with normal FX translation, given our global manufacturing and distribution footprint, we also faced the impact of currency fluctuations in our P&L, including the impact from the sourcing and timing of inventory production and movements throughout our network.
Since our last call in August, the U.S. dollar significantly strengthened against most major currencies and the change over this time period accounts for nearly two thirds of the expected FX impact. Additionally, as it relates to sourcing from Mexico, where we have a large manufacturing footprint, the dollar weakened versus the peso by about 10%, taking the average rate over the last 4 months ending in October versus the average over the first 9 months of fiscal year '23, with the peso achieving peak rates that in that time frame had not been seen in well over 5 years. Based on current spot rates for illustrative purposes, currency is estimated to be a headwind with approximately 75 basis points to total company revenues and approximately 375 basis points to adjusted EPS growth on a full year basis.
All in, including the estimated impact of currency, we expect revenues to be between approximately $20.1 billion to $20.3 billion and adjusted EPS to be in a range of $12.70 to $13, which represents growth of 4% to 6.5%. As a reminder, currency can fluctuate over time, and it would not be prudent to deviate from our investment profile that is resulting in consistently strong base organic growth, which is delivering an expected 3-year base organic CAGR of about 6.8%, well above our 5.5% plus growth profile. We continue to deliver margin improvement, resulting in earnings growing 1.3x the rate of sales. And with our focus on improved cash conversion, we expect to deliver double-digit free cash flow growth. As you think of fiscal '24 phasing, the following are considerations for Q1 in context on how revenue and margin will index through the remainder of the year.
As it relates to Q1, we expect organic revenue growth to under index the full year by over 200 basis points, and we expect a decline in adjusted EPS versus the prior year of about $0.55 to $0.60. There are 3 key items to consider First, sales was driven by the prior year base and COVID-only respiratory testing comparison, along with the market dynamics in China. These impacts are about equally weighted and primarily impact the IDS and MDS business with a modest impact in farm systems associated with China. We also expect Alaris revenues to ramp over the year and be weighted to the second half. Second, we expect operating margin to decline by around 350 basis points on a reported basis in Q1 with 200 basis points driven by inventory-related FX dynamics and another 200 basis points from the negative absorption impact from our planned inventory reductions, which we expect to partially offset through our simplification and cost mitigation initiatives while also overcoming outsized inflation.
Lastly, we had a discrete tax item in Q1 of last year that creates a negative comparison. As you think about the remainder of the year, we expect organic sales growth to be higher than our full year range in the second half, partially driven by the ramp-up of Alaris. We expect our Q2 margins to expand significantly on a sequential basis, resulting in year-over-year operating margin being nearly flat on a reported basis or slightly up on a currency-neutral basis. In closing, we are very pleased with our performance this past year, particularly given our ability to navigate another year of significant macro complexity and inflationary pressure. The momentum in our durable and strong portfolio, along with our track record of successfully executing and delivering against our commitments, gives us confidence in our ability to continue this momentum into FY '24 and create long-term value for all of our stakeholders.
Let me take a moment to thank our talented employees across BD who through growth mindset and an unwavering commitment to our purpose or core to delivering this performance. With that, let's start the Q&A session. Operator, can you assemble our queue, please?
Operator: [Operator Instructions] And our first question comes from Robbie Marcus with JPMorgan.
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