Becton, Dickinson Sees Synergies From Bard With More to Come

Just like last quarter, the year-over-year changes in Becton, Dickinson's (BDX -1.22%) third fiscal quarter looked outstanding, but that's only because of the addition of revenue from C.R. Bard. Fortunately, management of the medical supply company was nice enough to provide comparable results as if the company owned Bard in the year-ago quarter, which showed BD continued its slow but steady approach while taking advantage of the cost savings from the acquisition.

Becton, Dickinson results: The raw numbers

Data source: Becton, Dickinson.

What happened with Becton, Dickinson this quarter?

• On a comparable basis and ignoring changes in currency exchange rates, revenue grew 5.5%.
• Year-over-year growth for the medical segment was slightly better than the whole company, at 5.7% on a comparable, currency-neutral basis. The company lapped the 2017 changes made to the U.S. dispensing business model for its medication management solutions (MMS) business, which were hampering growth of the segment. With that out of the way, MMS grew 8.3% year over year.
• The life sciences segment grew 5.6% on a comparable, currency-neutral basis, with biosciences revenue from research reagents and advanced bioprocessing as well as new cell sorting machines helping drive sales of biosciences by 6.8% year over year.
• The interventional segment was the laggard of the group, but only barely, with sales up 5.1% on a comparable, currency-neutral basis. Drug-coated balloons and growth of biopsy products overseas, especially in China, helped drive sales growth.
• In July, BD bought TVA Medical, a privately held company developing minimally invasive vascular products for patients with end-stage renal disease.
• The company continues to pay down debt from the Bard acquisition, helping to get its gross leverage ratio to 4.2 on the way to its goal of 3.

Image source: Getty Images.

What management had to say

Chairman and CEO Vincent Forlenza noted that most of the synergies between BD and Bard have come from cost savings, but there's more to come:

So, I would say that from a revenue synergy standpoint, we're really in very early days. We're only two quarters into this, just training folks on that, so you're not seeing the revenue synergy piece of that yet. That's to come.

Forlenza also highlighted the potential for other smaller acquisitions like TVA Medical:

We are focused on debt reduction and meeting our commitment to get down to 3x, and we're on track so far, so we're feeling good about that. But, as we did our modeling and our planning, we did make allowance for tuck-in acquisitions. Just as we did under CareFusion, we did a few of them. We tightened the screening and said they have to be must-dos strategically. And, of course, we always have rigid criteria. But, you should expect that we will continue to do plug-in acquisitions, but also, at the same time, meet those deleveraging goals, and that's on track so far.

Looking forward

Management updated its 2018 fiscal year guidance and now expects revenue to increase by more than 5.5% on a comparable, currency-neutral basis, which is up from previous guidance of growth in the 5% to 5.5% range. Management also tightened its adjusted EPS guidance, upping the lower end of the range by $0.05 and now expects adjusted EPS to fall between $10.95 and $11.05.

Looking further ahead, management needs to keep working on the $300 million in annualized cost synergies it thinks BD can get from the Bard acquisition and start using its expanded sales force to drive revenue growth for products from both legacy companies.