The general theme of med-tech earnings through this cycle seems to be that the market has gotten a little bit ahead of many of the companies, leading to earnings reports that the sell-side characterizes as "slightly disappointing." Among those is Becton Dickinson (NYSE: BDX ) , a generally reliable company that is structured more for long-term performance than short-term growth. Analysts seem focused on the weak results in diagnostics, but the overall picture hasn't really changed all that much.
Once again Becton Dickinson came in with a quarterly performance in its Diagnostics business that left analysts and investors wanting more, though it bears asking if the expectations were reasonable. Sales rose just 1% overall here, coming in 1% below expectations and weaker than Abbott (NYSE: ABT ) (up 5%) or Danaher (NYSE: DHR ) (up low single digits).
Preanalytical sales were solid, growing 6%, but Diagnostic Systems sales (which includes both systems and tests) were down 4%. I am a little surprised that sell-side analysts didn't see the weakness coming in the Systems business. BD, along with Hologic (NASDAQ: HOLX ) , is a major player in women's health diagnostics and that business is under significant pressure due to longer recommended intervals between testing. To that end, Hologic reported a 2% decline in diagnostics revenue for much the same reason. This market change has been known for some time, so it is interesting to me that it wasn't better reflected in analyst expectations.
Looking further out to the longer term, BD did announce another 40 placements of its BD Max system, bringing the total in the field to 340. BD also presented a fairly robust schedule for new testing menu additions for the Max and Veritor platforms. Whether its Abbott, Danaher, Hologic, or BD, consistent menu development is a long-term key, as it enhances the value of the system to hospital/lab customers and provides a stream of higher-margin consumables revenue. It is worth noting, though, that unlike Abbott, BD is relatively weak in virology testing and that is quickly developing into a more attractive market given the launch of new drugs for hepatitis C.
Medical on track
Medical was a stronger business for BD this quarter, as revenue rose 6% in the quarter. Surgical Systems growth of 4% seemed to be pretty good given the pressures on patient volumes through the first quarter due to weather. Diabetes did quite well with revenue growing 10% on strong sales of the Nano pen needle, and Pharmaceutical Systems rose 7%. This latter business should continue to grow as the company rolls out more prefilled generic injectables.
Bioscience delivers double-digits
BD Bioscience was the real star this quarter, with 10% growth. This was a more mixed quarter for the life sciences equipment space, but cytometry demand was pretty solid, and both BD and Danaher benefited. While BD management pointed to order timing as a positive contributor, good sales in emerging markets and stronger system placements should bode well for the long term.
The bottom line
Sentiment seems to have cooled a bit on Becton Dickinson shares, but it's still in that tricky space where the shares don't look all that expensive on a long-term basis, but there isn't that much of a margin of safety for new investors. BD should be able to grow at a pretty consistent mid-single digit rate, as stable-but-not-spectacular businesses like Surgical and Preanalytical fund growth efforts in areas like pre-filled syringes and diagnostics. A 10% pullback would make the shares pretty interesting, but there are better options today in devices and diagnostics.
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