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Medical technology major Becton, Dickinson and Company (BDX - Analyst Report) reported third quarter fiscal 2013 adjusted earnings per share from continuing operations of $1.54, beating the Zacks Consensus Estimate of $1.47 per share and up 1.3% year over year. Adjusted earnings exclude one-time items such as a charge of $22 million (7 cents a share from continuing operations) due to a pending antitrust class action settlement.

The company reported net income from continuing operations of $291.9 million (or $1.47 per share), up 6.3% (3.3%) year over year.

Quarter in Detail

Becton Dickinson recorded third-quarter revenues of $2,052.7 million, up 3.6% (up 5.1% in constant currency) year over year, marginally ahead of the Zacks Consensus Estimate of $2,050 million.

On a geographic basis, domestic revenues (contributing 41.3% in the third quarter) inched up 1.3% year over year to $848 million, while overseas revenues increased 5.3% (up 7.9% at constant exchange rate or CER) to $1,204.9 million. Domestic revenues were negatively affected by the order timings in Advanced Bioprocessing and softness in Women's Health and Cancer, while international revenues were boosted by growth in the emerging nations and robust growth of safety engineered products.

At BD Medical, global revenues moved up 6.6% (up 7.9% at CER) year over year to $1140.5 million in the quarter, driven by healthy revenues from Medical Surgical Systems, Diabetes Care and Pharmaceutical Systems.

Revenues from Medical Surgical Systems were up 5.5% (up 6.6% at CER) year over year to $560.9 million. Diabetes Care sales increased 7.3% (up 9.4%) to $249.6 million, while Pharmaceutical Systems revenues were up 8.0% (up 9.2%) to $329.9 million.

At BD Diagnostics, global revenues were up 2.0% (up 3.6% at CER) year over year to $655 million on account of growth in Preanalytical Systems unit, which was offset by softness in Women's Health and Cancer in the U.S. Preanalytical Systems revenues rose 3.4% (up 4.6% at CER) to $344.9 million, while Diagnostic Systems sales were up a mere 0.5% (up 2.5%) to $310.2 million.

Global revenues from the BD Biosciences unit declined 4.2% (down 2.5% at CER) year over year to $257.1 million. The downside was attributable to austerity measures in Western Europe, delays of government funding in Japan leading to economic slowdown, and timing of orders in Advanced Bioprocessing, which more than offset strong instrument placements in the domestic market.

Gross margin contracted 52 basis points (bps) 51.6% in the reported quarter. Consolidated operating costs and expenses increased 12.2% year over year to $655.4 million. Operating margin declined 296 bps to 19.7% in the third quarter.

Outlook

Becton Dickinson reiterated its guidance for fiscal 2013. The company expects sales growth for fiscal 2013 in the range of 3.5% to 4% (growth of 5.0% at CERcompared with 4.5% to 5.0% earlier). The current Zacks Consensus Estimate of $8,001 million implies year-over-year growth of over 3% but lags the company’s expectation.

Becton Dickinson continues to expect reported earnings per share from continuing operations for fiscal 2013 in a band of $5.72−$5.75. The projection implies year-over-year growth of 6.5%−7.0% (8.5%−9.0% at CER) for fiscal 2013 or 11.0%−11.5% after accounting for the medical device tax implemented in Jan 2013.

The current Zacks Consensus Estimate of $5.74 falls within the company’s guidance. Becton Dickinson plans to repurchase shares worth $500 million in fiscal 2013, subject to market conditions.

Our Take

Becton Dickinson continues on a positive note with its third quarter of fiscal 2013 results exceeding expectations on both fronts. Barring a poor performance in BD Biosciences, the balanced segmental growth amid the ongoing global economic downturn is a major upside.

While the domestic market is largely penetrated, the company’s robust growth in the international markets is a material upside. Although margins continue to remain under pressure, further penetration in emerging markets should bolster the top line for Becton Dickinson.

The stock carries a Zacks Rank #3 (Hold). On the other hand, medical sector stocks worth considering are Affymetrix Inc. (AFFX - Analyst Report), Thoratec Corp. (THOR - Analyst Report) and Align Technology Inc. (ALGN - Analyst Report). These stocks carry a favorable Zacks Rank #1 (Strong Buy).

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