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Becton's All-Front Narrow Beat

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Becton, Dickinson and Company (BDX - Free Report) reported fourth quarter fiscal 2012  adjusted earnings per share from continuing operations of $1.42, surpassing the Zacks Consensus Estimate by a couple of cents. Adjusted earnings per share from continuing operations of $5.37 in fiscal 2012 beat the corresponding Zacks Consensus Estimate by a penny.

The company’s net income declined 3.6% year over year to $289 million ($1.43 per share) in the quarter.


Becton Dickinson reported fourth quarter revenues of $1,967 million, down 1.1% (up 4.7% in constant currency) year over year, edging past the Zacks Consensus Estimate of $1,965 million. Revenues in fiscal 2012 inched up 1.6% (up 4.3% in constant currency) year over year to $7,708 million, beating the Zacks Consensus Estimate of $7,707 million.

On a regional basis, domestic revenues increased 1.2% year over year to $824 million in the fourth quarter while overseas revenues decreased 2.6% (up 7.1% in constant currency) to $1,143 million. Overseas revenues were led by sustained growth in emerging nations and robust safety sales.

Segment Analysis

For BD Medical, global revenues declined 0.5% (up 5.9% in constant currency) year over year to $1,049 million in the quarter, driven by healthy revenues from all operating units. Within BD Medical, revenues from Medical Surgical Systems were down 0.6% year over year to $532.3 million. Diabetes Care sales moved up 3.9% to $233.4 million while Pharmaceutical Systems revenues were down 3.8% to $283.3 million.

For BD Diagnostics, global revenues inched up 0.5% (up 5.1% in constant currency) year over year to $645 million, on account of robust growth in Preanalytical and Diagnostic Systems and contributions from Kiestra acquisition. Preanalytical Systems revenues declined 0.3% to $327.5 million while Diagnostic Systems sales were up 1.3% to $317.5 million.  

Global revenues from the BD Biosciences unit decreased 6.3% (down 0.7% in constant currency) year over year to $273.1 million. Sustained softness in the domestic research market was responsible for the year-over-year decline. This segment is solely comprised of Cell Analysis following the divestiture of Discovery Labware.   

Margins and Expenses

Gross margin declined to 50.9% in the reported quarter from 51.2% a year ago while the operating margin dropped slightly to 19.8% from 20.8% in the prior-year quarter. Consolidated operating costs and expenses inched up 0.2% year over year to $1,578.4 million as Becton Dickinson incurred higher selling and administrative expenses as well as research and development expenditure.

Outlook for Fiscal 2013

Becton Dickinson envisages reported sales growth for fiscal 2013 in the range of 2% to 3%. The company forecasts revenue growth in constant currency in the range of 3.5% to 4.5%.

Becton Dickinson expects reported earnings per share from continuing operations for fiscal 2013 in a band of $5.58 and $5.64. The projection implies year-over-year constant currency growth of 7%-8% for fiscal 2013 or 10%-11% after accounting for the medical device tax to be implemented in January 2013. The company also expects to repurchase $500 million of its shares in 2013, subject to market conditions.

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 - Free Report) in certain niches, in each of its three business segments. We currently have a long-term ‘Neutral’ recommendation on Becton Dickinson. The stock retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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