Medical instrument and supply provider Becton Dickinson’s (NYSE:BDX) first quarter was uncharacteristically soft, but its full year guidance suggests another annual period of leveraging single digit sales growth into double digit profit growth. The company has done this consistently over the past one, three, five and 10 year periods, which investors have taken note of by bidding up its share price.
First Quarter Recap
Revenues fell slightly, dropping 1.4% to $1.84 billion. Two of three business units reported positive growth, but the medical segment is the largest at just over half of sales, and reported a top-line decline of 4.5% as last year’s quarter saw strong sales due to the H1N1 virus. The unit sells needles, syringes and related devices to hospitals such as HMA (NYSE:HMA) and Tenet Healthcare (NYSE:THC) and physicians across the globe. The diagnostic segment sells products to collect and transport specimens for medical testing and reported 1% modest growth to represent just over a third of sales. The final segment is bioscience, which sells tools to research labs and similar clients and pharmaceutical firms such as Merck (NYSE:MRK) and Eli Lilly (NYSE:LLY). It experienced 3.7% growth to account for the rest of the top line at approximately 17%.
Geographically, U.S. sales fell 2.9% to account for just over 46% of the total. Foreign sales fell a modest 0.2% to make up the rest of sales, with weakness again attributed to H1N1 sales last year. Management detailed that emerging market growth was strong, but was offset by weakness in Europe.
Product costs fell faster than sales, but a 16.5% jump in research and development expenses meant total operating costs fell only 0.7% to $1.4 billion. This resulted in negative operating leverage as operating income fell 3.9% to $413 million. Income tax expenses fell and tempered the net income decline to 0.1%. Net income came in at $315.9 million, while share buybacks helped earnings per share increase 4.6% to $1.36 per diluted share. Earnings beat analyst projections, though sales came in a bit light of expectations.
For the full year, the company is said to expect sales growth of 4% and earnings growth between 11% and 13% for total earnings in the range of $5.45 and $5.55 per diluted share.
The Bottom Line
Becton Dickinson’s impressive growth and profit stability have not gone unnoticed by investors, and the shares trade at a somewhat rich multiple in the unpopular healthcare industry. Cash flow trends are also less impressive, as the company requires high levels of capital expenditure to grow and maintain its operations. (To learn more, see Investing In The Healthcare Sector.)