Becton, Dickinson and Company (BDX) Earnings

Management highlights

This was the first full quarter of operation for the focused "new BD" following the spinoff of the life sciences business with Waters, with overall revenue, adjusted operating margin, and adjusted EPS all exceeding management expectations. 90% of the portfolio delivered high single-digit growth, with four key growth platforms achieving double-digit growth. ### Strategic Pillar 1: Compete (Commercial Excellence) - Reallocated commercial resources and made incremental targeted investments (totaling $35 million at the start of the year) to high-growth areas, growing sales teams 15% in APM, UCC, and PI in the U.S. - Achieved over 200 basis points of year-to-date share gains in Alaris; incremental commercial investments added 100-150 basis points to APM's growth rate this quarter. - Signed approximately 100 customer agreements across novel and biosimilar GLP-1 programs, with high win rates across the biologics market, including a new collaboration with Brazil's EMS to launch a semaglutide therapy using BD's Vistra injection pen. - The dedicated VA sales team for PureWIC built a >$1 million monthly run rate in 2026, driving another quarter of double-digit growth for the platform. ### Strategic Pillar 2: Innovate (Focused Pipeline Development) - Improved innovation cadence and launch speed via BD Excellence operational frameworks, with multiple high-impact launches this quarter: - Early European launch of the Liberty tip stent graft, entering the $2 billion global venous market (growing high single digits) with differentiated ease of use and clinical results. - Launched the Alleritholium fiber laser system to expand BD's kidney stone and endourology portfolio; early customer reception has been strong, and the $1.5 billion endourology market's disposables-driven model aligns with BD's core strengths. - Launched the Acumen IQ Plus finger cuff and smart pressure controller for APM, adding enhanced usability and AI features to the Hemisphere Alta platform, now commercially available in the U.S. and Europe. - R&D resources are disproportionately reallocated to high-growth, attractive markets aligned with major healthcare transformation trends (connected care, lower-cost care settings, personalized chronic disease treatment). ### Strategic Pillar 3: Deliver (Operational Excellence) - BD Excellence has built one of the industry's most resilient supply chains, with backorders at record lows and service levels at record highs. This quarter delivered ~8% gross productivity in manufacturing facilities, with service levels above 90%. - Productivity gains are driven by plant consolidations, raw material cost savings, waste reduction, and improved process efficiency. BD is currently deploying a standardized end-to-end digital platform to run AI across the supply chain, creating additional long-term productivity and service improvement opportunities. ### Capital Allocation - Year-to-date free cash flow was $1.7 billion, up 45% year-over-year, driven by improved working capital and lower non-operating outlays. - Year-to-date, BD returned $3.1 billion to shareholders, including $2.3 billion in share repurchases and $0.9 billion in dividends. Net leverage stands at ~2.9x, with a long-term target of 2.5x. - Discipline framework remains unchanged: prioritize returning capital to shareholders, pursue selective high-growth tuck-in M&A, and work toward a 90% long-term free cash flow conversion target.

Guidance

Based on strong Q3 performance and year-to-date execution, management updated full-year FY2026 guidance: - Revenue growth is now expected to land toward the high end of the prior low single-digit FX-neutral range, with current spot rates providing an estimated 100 basis point currency tailwind to reported revenue. - Adjusted operating margin is still expected to be approximately 25%, including the impact of tariffs. - Adjusted effective tax rate is projected to remain between 16% and 17%. - The midpoint of adjusted diluted EPS guidance was raised, with the updated full-year range set to $12.62 to $12.72. For FY2027, management reaffirmed prior framework with the following preliminary outlooks: - Revenue growth is still expected to be low single-digit, as the conclusion of Alaris remediation creates a 200 basis point headwind that remains in the forecast. - Starting from a low single-digit revenue baseline, management expects modest EPS leverage, supported by ongoing pricing actions, productivity gains from BD Excellence, and favorable mix from growth platform expansion. Formal full FY2027 guidance will be provided in the November Q1 FY2027 earnings call. - Preliminary indications show vaccine headwinds are stabilizing, and are not expected to repeat at 2026 levels in 2027.

Segment performance

Total company revenue for Q3 FY2026 was $5 billion, up 4.4% year-over-year on an FX neutral basis. Breakdown by segment: 1. Medical Essentials: Grew 3.2% year-over-year. Strong U.S. performance from share gains in vascular access management and utilization recovery following 2025 fluid shortages, partially offset by continued market pressure in China. Specimen management delivered high single-digit growth driven by share gains in the BD Vacutainer portfolio, improved supply chains, and incremental demand from competitor backorders. 2. Connected Care: Grew 4.4% year-over-year. Double-digit growth in advanced patient monitoring (APM) driven by strength in consumables. Medication management solutions (MMS) grew low single digits, led by double-digit growth in dispensing and sustained strength in pharmacy automation, plus strong infusion set performance from higher utilization and pull-through from Alaris share gains. Growth was partially offset by a difficult year-ago comparison for Alaris Capital. 3. Biopharma Systems: Grew 5.2% year-over-year, driven by continued double-digit growth in biologics (led by GLP-1 programs). Lower vaccine product demand offset overall growth; excluding vaccines, the segment grew in the mid-teens. 4. Interventional: Grew 5.5% year-over-year, with solid mid-single-digit growth across sub-segments. Peripheral interventions (PI) growth was led by oncology and peripheral vascular disease, supported by strong commercial execution and new product launches, partially offset by China market dynamics. Upper cervical care (UCC) delivered continued double-digit growth, while surgery grew on the back of double-digit gains in infection prevention and advanced tissue regeneration.

Risks & headwinds

- Alaris remediation creates a 100 basis point revenue headwind in FY2026, rising to a 200 basis point headwind in FY2027 before ending after that. The revenue decline from Alaris creates natural bottom-line pressure that management is working to offset. - Continued market weakness in China negatively impacts performance across multiple segments, though China now represents only 4% of new BD's total revenue, reducing the impact of this dynamic. - Sustained high oil prices would increase resin and plastic component costs; if oil holds above $100 per barrel, it would create a $60 to $70 million impact to cost of goods sold (resins/plastics represent ~5% of total COGS). - Tariff impacts reduced adjusted operating margin by ~110 basis points in Q3, offsetting productivity and mix benefits, and full-year FY2026 guidance already includes this tariff impact.

Analyst Q&A

• Q: With broad upside momentum across 90% of the portfolio this quarter, is any of this strength one-time, and how much of this momentum will carry forward? /

  A: The strong performance reflects multi-year investments in BD's core growth platforms, which are now scaling as the focused new BD. Four platforms grew double digits this quarter, with particularly strong momentum in GLP-1-related biologics, pharmacy automation, and APM. R&D and commercial resources continue to be disproportionately reallocated to these faster-growing, higher-margin areas, which will drive sustained revenue and margin expansion going forward. (317 characters)

• Q: What is driving the broad strength across segments: innovation changes, or shifts to your commercial approach? /

  A: It is a combination of both. BD recently appointed its first ever chief revenue officer, who has rolled out updated sales compensation, new AI-enabled tools for reps, and reallocated headcount to high-growth areas. Incremental investments this year have already delivered visible gains, including 100-150 basis points of extra growth for APM. Innovation has also been refocused on high-growth healthcare transformation trends, and those pipeline investments are now paying off in market share gains. (428 characters)

• Q: What trends are you seeing in the underperforming 10% of the portfolio, and when will these headwinds end? /

  A: The three headwinds (Alaris, China vaccines, general China market weakness) are all playing out exactly as expected. Vaccines are showing early stabilization, and BD will lap the current headwind starting next quarter, with no expected repeat of 2026's headwind level in 2027. China now makes up only 4% of BD revenue, so its impact will continue to shrink as the rest of the business grows. Alaris' 200 basis point 2027 headwind is fully defined, and will no longer be a drag after 2027. (469 characters)

• Q: What is the long-term outlook for operating margin through the end of the decade, after BD's many years of productivity improvements? /

  A: Long-term margin expansion will be supported by three core drivers: sustained mid-single-digit underlying revenue growth (ex-Alaris headwinds), favorable mix from faster-growing, higher-margin core platforms, and ongoing productivity gains from BD Excellence. BD is on track to deliver 8% annual manufacturing productivity, and new AI deployments across supply chain and G&A functions create additional long-term efficiency runway. Specific long-term targets will be shared at the upcoming BD investor day. (447 characters) Total Q&A character count: 1661