Becton, Dickinson Starts the Bard Integration Off on a Solid Note

Becton, Dickinson (NYSE: BDX) reported wacky results for its second fiscal quarter. This is the first quarter that the medical supply company has included results from its acquisition of C.R. Bard. But looking at the two companies on a comparable basis, it was a solid quarter for the newly combined company.

Becton, Dickinson results: The raw numbers

What happened with Becton, Dickinson this quarter?

• Looking at the the companies individually, revenue for the old Becton, Dickinson grew 5.7% on a comparable basis, while revenue for Bard grew 8.5% on a legacy basis.
• The diagnostic systems segment led the way with revenue growth of 12.6% on a comparable currency-neutral basis, thanks in large part to a strong flu season. The BD MAX molecular platform, which automates bacterial testing, also performed well.
• The biosciences segment, which makes scientific equipment, and the peripheral intervention segment, which sells stents and balloons and other medical intervention devices, also had good quarters, up 8.9% and 10.9% on a comparable currency-neutral basis, respectively.
• With costs of the acquisition flowing into the GAAP numbers, adjusted EPS is the best way to compare Becton, Dickinson year over year, although it includes some benefit from changes in exchange rates. At a currency-neutral basis, adjusted EPS was still up a solid 7.8% year over year.
• The company has already started paying down debt it took on from the Bard acquisition, with its gross leverage ratio down to 4.5. The company plans to get the ratio below 3.0 over three years.

What management had to say

When asked about any surprises that have cropped up for the integration of Bard, chairman and CEO Vincent Forlenza could only think of a positive one, stating:

Of course, a happy integration is nice, but what's ultimately important in bringing the two companies together is synergies that can reduce costs, which CFO Christopher Reidy stressed the company was on target to do. Reidy said, "I'd like to point out that we continue to expect to deliver significant underlying margin expansion of 200 basis points to 250 basis points this fiscal year, which is in addition to approximately 500 basis points of margin expansion over the last three years."

Looking forward

After the strong fiscal second quarter, management set revenue guidance on a comparable currency-neutral basis for its fiscal year at 5% to 5.5%, which is the high end of its prior range.

On the bottom line, management is sticking with its adjusted EPS guidance on a currency-neutral basis for year-over-year growth of 12%. Apparently, the higher revenue growth will be eaten up by increased clinical trial expenses and increased material costs. The former can be seen as an investment in future revenue growth, but the latter increase in material costs is something that investors should keep an eye on, especially as the company tries to improve its post-acquisition margin.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Becton Dickinson. The Motley Fool has a disclosure policy.