Leading global medical technology company Becton Dickinson and Company (BDX) reported, after the closing bell on April 26, second-quarter fiscal 2011 earnings per share of $1.38, topping the Zacks Consensus Estimate of $1.30 while surpassing the year-ago earnings of $1.24.
Net income rose 4.8% year over year to $312 million on the back of higher revenues across the board. Shares of New Jersey-based Becton Dickinson gained $1.26 to reach $86.15 in after-hours trading, following better-than-expected results and its upward revision of guidance.
Revenues
Becton Dickinson posted revenues of $1,922 million, up 6.8% (or 4.6% in constant currency) year over year, well ahead of the Zacks Consensus Estimate of $1,856 million.
Geographically, domestic sales rose 4.7% year over year to $829 million while ex-U.S. sales jumped 8.5% to $1,093 million. International sales were driven by sustained healthy growth in emerging markets, partly ebbed by the slowdown in Western European markets due to a soft economy.
Segment Review
In BD Medical, Becton’s largest division, global revenues climbed 6.5% (or 4.9% in constant currency) year over year to $981 million, led by healthy revenues from Diabetes Care and Pharmaceutical Systems products. The results also reflect an unfavorable year over year comparison of roughly 1.6% due to sales related to the H1N1 flu pandemic in fiscal 2010.
Within BD Medical, revenues from Medical Surgical Systems rose 4.8% year over year to $504.6 million. Diabetes Care sales cruised 10.5% to $207.8 million while Pharmaceutical Systems revenues soared 6.6% to $269 million.
In BD Diagnostics, global sales spiked 8.9% (or 6.5% in constant currency) year over year to $605.3 million, boosted by healthy revenues from Preanalytical Systems’ safety-engineered products and solid Diagnostic Systems sales. Preanalytical Systems revenues surged 6.5% to $306.2 million while Diagnostic Systems sales climbed 11.6% to $299.1 million.
Global sales from the BD Biosciences unit rose 4.1% (or 0.4% in constant currency) year over year to $335.3 million. While growth was driven by higher cell analysis instrument and reagent sales, the results were negatively impacted by unfavorable comparison and the impact of the earthquake in Japan. Cell Analysis revenues climbed 5.4% to $255.5 million while Discovery Labware sales were essentially flat year over year at $79.8 million.
Margins and Expenses
Gross margin edged up to 52.1% in the reported quarter from roughly 52% a year-ago while operating margin fell narrowly to 22.9% from 23% in the prior-year quarter. Consolidated operating costs and expenses climbed 6.9% year over year to $1,481.7 million as the company spent more on both R&D (up 18.9%) and selling and administrative (up 5%) expenses.
Accuri Acquisition
Becton announced, in February 2011, a definitive agreement to acquire Accuri Cytometers, a Michigan-based company, which makes personal flow cytometers for use by researchers. The acquisition, which is synergistic with Becton’s strategy for its Cell Analysis sub-segment, was consummated in March 2011.
Japan Impact
Becton like many other top-tier medical technology companies was impacted by the massive temblor (and subsequent Tsunami) in Japan and its aftermath. Its manufacturing facility in Fukushima sustained some damage following the debacle, however, some manufacturing lines were restarted recently.
The company stated that order volumes for its products in Japan have returned to normal levels and expects manufacturing of its Hypak prefillable syringes to resume in third-quarter fiscal 2011. The unfavorable impact of the Japan quake on its second quarter sales was less than $10 million. Becton expects an aggregate negative impact of $10-$20 million on its revenues for fiscal 2011, which has been factored into its full-year guidance.
Outlook Raised
Based on the anticipated favorable foreign exchange impact, Becton Dickinson has hiked its revenue and earnings forecasts for fiscal 2011. The company now expects sales for the year to grow roughly 5%-6% year over year versus its earlier projected growth of 4%.
Moreover, the company has raised its earnings per share (on a reported basis) from continuing operations target to a new range of $5.55 to $5.65 from its prior view of $5.45 to $5.55, reflecting a roughly 13%-15% year over year growth. The revised forecast, however, incorporates the unfavorable impact of the Japan disaster and higher resin costs. The current Zacks Consensus Estimate for fiscal 2011 is $5.54.
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.
Further, Becton Dickinson faces a wide range of competitors, including Baxter International (BAX), in each of its three business segments. We currently have a long-term Neutral recommendation on the stock, backed by a short-term Zacks #3 Rank (Hold).
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