Becton Dickinson (BDX) recently announced fourth-quarter and fiscal 2010 (ended September 30, 2010) results. Adjusted (excluding one-time items) earnings per share of $1.24 and $4.94, respectively, fell short of the corresponding Zacks Consensus Estimates of $1.25 and $5.10 while surpassing the year-ago figures of $1.20 and $4.76. Net income (on a reported basis) for the quarter surged 25% year over year to $396.7 million.
The Results in Brief
Becton Dickinson recorded revenues of $1.87 billion for the reported quarter, up 1% year over year (up 2.9% in constant currency), essentially in line with the Zacks Consensus Estimate. For fiscal 2010, the company had revenue of $7.37 billion, up about 5.5% on both nominal and constant currency basis, but falling short of the Zacks Consensus Estimate of $7.49 billion.
Domestic sales for the quarter were $832 million, up 1.4% year over year, which includes a negative impact of 1.8% from the flu pandemic. Ex-U.S. revenues were $1.04 billion, up 0.8% (or 4.2% in constant currency), which includes a negative impact of 4% from the flu pandemic in fiscal 2009. Becton Dickinson experienced higher growth in emerging markets, which was offset by the slowdown in European markets.
Becton Dickinson completed the sale of its Ophthalmic Systems unit as well as critical care and certain other product platforms, such as surgical blades. The results of these operations have been reclassified as discontinued activities for preceding quarters.
We have discussed the quarterly results at length here: Becton EPS Misses but Profit Soars
Agreement – Estimate Revisions
The overall trend in estimate revisions for fiscal 2011 is overwhelmingly inclined on the positive side following the release of the fourth quarter results. Out of the 15 analysts covering the stock, 11 raised their estimates over the past week while 2 lowered his/her estimates. A similar pattern applies for fiscal 2012 with 8 analysts (out of 16) raising their forecast and just one lowering the same.
The strong positive sentiment was fueled by tailwinds from several factors such as bullish results posted by a couple of sub-segments as well as the company’s favorable guidance for fiscal 2011.
Magnitude – Consensus Estimate Trend
Upward directional agreement, for the most past, has led to an 8 cent rise in the forecast for fiscal 2011 and an increase of 10 cents for fiscal 2012. The current Zacks Consensus Estimate for fiscal 2011 is $5.51, reflecting an estimated 12.44% year over year growth.
Becton Dickinson Stays at Neutral
We are pleased with the overall guidance for fiscal 2011. Becton Dickinson forecasts revenues to grow 4% year over year in fiscal 2011. The company projects reported earnings per share from continuing operations to grow about 11% to 13% to a range of $5.45 to $5.55. It expects adjusted earnings per share from continuing operations to grow in a band of 10% to 12% for fiscal 2011.
However, our optimism is tempered by the fact that Becton Dickinson lacks any major short-term catalyst. The rising demand for safety-needle products (with higher price points and margins) was the primary driver of the company’s past growth, which is not expected to continue, given that the U.S. market is predominantly already penetrated.
On the other hand, among the sub-segments, Diabetes Care (up 9.1% in constant currency) and Cell Analysis (up 7.8% in constant currency) finished strongly in fiscal 2010.
We are also hopeful that growth may recover in the future with the European Union adoption of safety requirements, recovery in research markets and continued growth in flow cytometry in the clinical setting. Becton Dickinson’s preeminent global healthcare products franchise is partly insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery field.
The company’s cash flows remain strong and management is committed to efficiently deploying cash flow for increasing returns to shareholders through its share repurchase program. We currently have a long-term Neutral recommendation on the stock, which is supported by a short-term Zacks #3 Rank (Hold).