10-QPeriod: Q3 FY2018

BECTON DICKINSON & CO Quarterly Report for Q3 Ended Jun 30, 2018

Filed August 2, 2018For Securities:BDX

Summary

Becton, Dickinson & Co. (BDX) reported strong revenue growth in the third quarter of fiscal year 2018, driven significantly by the acquisition of C.R. Bard, Inc., which closed in late 2017. The combined entity generated $4.278 billion in revenue, a 41.0% increase year-over-year, with Bard contributing approximately 32.4% of this growth. The company has realigned its business segments, now operating under BD Medical, BD Life Sciences, and BD Interventional, with the latter now encompassing the majority of Bard's former product offerings. Despite the integration of Bard, the company experienced growth in its established segments as well, with Medical seeing a 20.0% increase and Life Sciences growing by 8.2% in the quarter on a reported basis. However, the company also faces significant ongoing litigation, particularly related to product liability claims inherited from Bard, which have led to substantial accruals for potential losses. Management anticipates future charges related to these matters could materially impact results.

Financial Highlights

53 data points
Beta

Revenue

$4.28B

47.1% Gross Margin

Net Income

$594.00M

13.9% Net Margin

EPS (Diluted)

$2.03

Total Assets

$53.98B

Cash & Equivalents

$1.38B

Free Cash Flow

$345.00M

Financial Statements
Beta
Revenue$4.28B
Cost of Revenue$2.26B
Gross Profit$2.02B
R&D Expenses$277.00M
SG&A Expenses$1.09B
Operating Expenses$3.77B
Operating Income$512.00M
Interest Expense$182.00M
Net Income$594.00M
EPS (Basic)$2.08
EPS (Diluted)$2.03
Shares Outstanding (Basic)267.84M
Shares Outstanding (Diluted)273.93M

Key Highlights

  • 1Reported strong third-quarter revenue of $4.278 billion, a 41.0% increase year-over-year, largely due to the acquisition of C.R. Bard.
  • 2The C.R. Bard acquisition, completed in December 2017, contributed significantly to revenue growth, with Bard's operations included from January 1, 2018.
  • 3Reorganized into three primary segments: BD Medical, BD Life Sciences, and BD Interventional, with Interventional now housing most of Bard's former products.
  • 4Medical segment revenue increased by 20.0% and Life Sciences segment revenue by 8.2% year-over-year in the third quarter.
  • 5Accrued $2.0 billion for Bard-related product liability and other legal matters as of June 30, 2018, indicating significant ongoing litigation risks.
  • 6The company adopted new U.S. tax legislation (Tax Cuts and Job Act) which reduced the corporate tax rate to 21% and resulted in a provisional expense of $275 million.
  • 7Cash flow from operating activities was $1.559 billion for the nine months ended June 30, 2018, but investing activities showed a significant outflow of $15.298 billion, primarily due to the Bard acquisition.

Frequently Asked Questions

The acquisition of C.R. Bard, completed in December 2017, was the primary driver of BDX's revenue growth. In the third quarter of fiscal year 2018, total revenues increased by 41.0% to $4.278 billion, with the Bard acquisition accounting for approximately 32.4% of this growth. Bard's operations were consolidated into BDX's results beginning January 1, 2018, and its products are now largely reported within the new BD Interventional segment.

BDX faces significant product liability litigation, particularly related to Bard's hernia repair devices, pelvic mesh devices, and vena cava filters. As of June 30, 2018, the company had accrued approximately $2.0 billion for Bard-related product liability and other legal matters. While the company is actively managing these, management acknowledges that future charges related to these matters could have a material adverse effect on the company's financial results.

The Tax Cuts and Job Act, enacted in December 2017, reduced the U.S. federal corporate tax rate to 21%. While this offers a long-term benefit, BDX recognized a provisional expense of $275 million for the nine months ended June 30, 2018, related to the estimated effects of the Act, including a one-time transition tax on foreign earnings and the remeasurement of deferred tax assets and liabilities. The company is still finalizing its accounting for the full impact of this legislation.

The company reported growth across its segments. The Medical segment's revenues increased by 20.0% year-over-year, driven by Medication Delivery Solutions and Medication Management Solutions. The Life Sciences segment saw an 8.2% revenue increase, with growth across all its units. The newly formed Interventional segment, which includes most of Bard's former products, showed substantial revenue growth, though prior-year comparisons are impacted by the reclassification of products. The company continues to invest in R&D and geographic expansion to drive future growth.