Morningstar | DCB and Currency Drag Down Becton, Dickinson's Second-Quarter Performance and Full-Year Guidance
As anticipated, the paclitaxel issue has resulted in a sizable decline in Becton, Dickinson's sales of drug-coated balloon (DCB) products. The company now anticipates sales of these products to decline 50% for the full year, providing a 150-basis-point headwind to the interventional segment revenue. Coupled with a worse than previously guided currency environment, the firm has lowered its revenue guidance by 50 basis points and its earnings per share growth from 13%-14% to 12%. We're slightly adjusting our full-year forecast but maintaining our fair value estimate and our narrow moat rating. Shares are fairly valued at current levels.The paclitaxel FDA panel in June will provide greater clarity on the future of DCBs, but a negative ruling could have significant implications on the company's peripheral intervention franchise, including its lead pipeline Below-the-Knee Lutonix DCB product. A mitigating factor for vascular is lack of treatment alternatives in this area, but Becton, Dickinson has acknowledged it will need to review this program and future investments and cost structure in the event of an adverse recommendation.
Other segments and geographies delivered in line results, with the medication management business particularly strong, up 7%. Emerging markets were up 9% organically, consistent with our expectations.
DCB and currency will provide a 50-basis-point incremental reduction to the full-year operating margin. The firm has launched several initiatives to mitigate these cost increases (in addition to 300 basis points of raw material and flu headwinds) but will spare sales and R&D. The company has historically been very disciplined in managing its cost structure, so the currency-driven short-term margin contraction isn't too concerning for us. Bard synergies remain on track.
Becton, Dickinson and Company is a medical technology company engaged in the development, manufacture and sale of a range of medical supplies, devices, laboratory equipment and diagnostic products. The company's segments are: BD Medical, which produces an array of medical technologies and devices that are used to help improve healthcare delivery in a range of settings; BD Life Sciences, which provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a range of infectious diseases, healthcare-associated infections and cancers; and BD Interventional, which provides vascular, urology, oncology and surgical products.
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