Becton, Dickinson and Company (BDX) reported third-quarter fiscal 2011 earnings per share of $1.51, beating the Zacks Consensus Estimate of $1.43 while sailing past the year-ago earnings of $1.23 per share.
Net income (from continued operations) rose 14.9% year over year to $338.1 million on account of higher revenues from all segments.
Revenues
Becton Dickinson posted sales of $2,014 million, up 10% (or 4.8% in constant currency) year over year, greater than the Zacks Consensus Estimate of $1,984 million.
On a geographic basis, U.S. sales rose 5.7% year over year to $855 million while ex-U.S. revenue increased 13.4% to $1,159 million. International sales were driven by sustained healthy growth in emerging markets, partly ebbed by the slowdown in Western European markets due to the weak economy.
Segment Review
At BD Medical, Becton’s largest division, global revenues climbed 10.5% (or 4.9% in constant currency) year over year to $1,045 million, driven by healthy revenues from Diabetes Care, Pharmaceutical Systems products and safety items.
Within BD Medical, revenues from Medical Surgical Systems increased 7.2% year over year to $529 million. Diabetes Care sales jumped 11.7% to $220.2 million while Pharmaceutical Systems revenues soared 16% to $295.6 million.
At BD Diagnostics, global sales increased 9.6% (or 4.8% in constant currency) year over year to $631 million, bolstered by healthy revenues from Preanalytical Systems’ safety-engineered products and solid Diagnostic Systems sales. Preanalytical Systems revenues surged 8.8% to $330.3 million while Diagnostic Systems sales climbed 10.4% to $301 million.
Global sales from the BD Biosciences unit rose 9.3% (or 4.3% in constant currency) year over year to $338 million. The performance of this segment was hurt by delays in government sponsored research in Western Europe. Growth was driven by higher Cell Analysis instrument and reagent sales.
Weakness in core consumables hurt sales of Discovery Labware. Cell Analysis revenues climbed 10.7% to $255 million while Discovery Labware sales rose 5.3% year over year to $82.9 million.
Margins and Expenses
Gross margin edged up to 52.7% in the reported quarter from about 51.7% a year ago while operating margin rose slightly to 23.4% from 23.1% in the prior-year quarter. Consolidated operating costs and expenses increased 9.5% year over year to $1,542.4 million as the company spent more on both R&D (up 7.1%) and selling and administrative (up 14%) expenses.
Outlook
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 at the higher end of its previously communicated range of 5% to 6% year over year.
On a currency neutral basis, sales are expected to increase at about 3% (versus 3.5% earlier) on account of lower sales in Western Europe.
Moreover, the company has raised its earnings per share (on a reported basis) from continuing operations target to a new range of $5.65 to $5.70 from its prior view of $5.55 to $5.65, reflecting about 15% to 16% year-over-year growth.
Earnings per share from continuing operations for fiscal 2011 are expected to be 14% to 15% higher than adjusted earnings per share from continuing operations of $4.94 in fiscal 2010.
Becton recently announced a definitive deal to buy Sweden-based Carmel Pharma, the maker of PhaSeal System, which is the leading closed system drug transfer device for handling hazardous medications. The deal is expected to close before the end of this fiscal year.
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’spreeminent global healthcare products franchise is partly insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery field.
Further, 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, backed by a short-term Zacks #3 Rank (Hold).
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