Becton Dickinson and Co (BDX) 2010 Q3 法說會逐字稿

Hello, and welcome to the BD third fiscal quarter earnings 2010 call. At the request of BD, today's call is being recorded. It will be available for replay through Thursday, August 5, 2010 on the Investors page of the BD.com website, or by phone at 800-642-1687 for domestic calls, and area code 706-645-9291 for International calls using conference ID 85449987.

(Operator Instructions).

Beginning today's call is Ms. Sherry Bertner. Ms. Bertner, you may begin.

Thank you, Jackie, good morning everyone, and thank you for joining us to review our third fiscal quarter results. As we referenced in our press release this morning, we are presenting a set of slides to accompany our remarks on the call. The slide presentation is posted on our Investor Relation's page of our website at bd.com. During today's call, we will make forward-looking statements, and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our third fiscal quarter press release, and in the MD&A sections of our recent SEC filings. We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our press release and the slide presentation. A copy of the release, including the financial schedules is posted on the BD.com website. Unless otherwise noted, all of the growth rates expressed in our remarks will be on a foreign currency-neutral basis.The accompanying slides and financial tables also provide as-reported growth rates.

Starting us off this morning is Edward J. Ludwig, Chairman and Chief Executive Officer. Also joining us are Vince Forlenza, President and Chief Operating Officer, David Elkins, Executive Vice President and Chief Financial Officer, BD Executive Vice President, Gary Cohen, and Bill Kozy, as well as Bill Rhodes, President of BD Biosciences, and Philippe Jacon, President, of Diagnostic Systems. It is now my pleasure to turn the call over to Ed.

Thank you, Sherry, good morning, everyone. Today I like to begin our presentation with a few remarks regarding BD's solid third quarter. And then spend some time discussing our current view of the marketplace, and BD's opportunities within that context. I'll also discuss our strong commitment to delivering shareholder value, and some of thing we're doing to enhance shareholder returns, now and in the future. It is clear that we're managing through a very challenging time for the global economy, and for the healthcare industry segments in which we participate. We recognize that we're not immune to these challenges and we are committed to aggressively managing the Company to deliver strong bottom line growth, while continuing to invest for the future. We expect to be a steady ship through these choppy waters, based on a combination of actions we're taking.

So what are these actions? First, we will continue to drive operational efficiency initiatives which are aimed at gross profit improvements, such as ReLoCo. Next, we will also reduce G&A costs by streamlining our administrative processes, and with the implementation of our SAP upgrade program, Everest. While Everest will be an investment up front, it will deliver significant cost savings longer term. Ultimately, our strong product platforms and planned product extensions, along with our focused execution in important emerging markets will help us accelerate revenue growth. We will also use our strong cash flow to accelerate share repurchases.

Our steadfast commitment to achieving top line and bottom line growth is a key message I want to leave with you all this morning. So now let me comment on the quarter, which was a solid one for BD. We delivered EPS from continuing operations of a $1.29 per diluted share, which was in line with Company expectations. Importantly, we saw good performance across the businesses, with all three segments contributing bottom line results, consistent with expectations. That being said, as you all know, the quarter was not without significant macroeconomics headwinds for our industry. Globally, spending on healthcare products continue to challenged. Hospital spending remains at muted levels, and lab testing has moderated. Doctor visits in in the US continue to show declines due to high unemployment, and the increase in syringe and Diagnostic testing volumes from the H1N1 virus in 2009, have not been sustained in 2010. These factors are global, but have been even more pronounced in regions such as the European Union, where they continue to sort through a number of difficult issues.

We anticipated these market conditions in April, when we provided our guidance for fiscal 2010. However, as we have assessed our markets during the third quarter, we now believe that evidence suggests that these conditions are likely to persist in the near term. Despite these global macroeconomic conditions, we expect to deliver bottom line FX neutral earnings growth of 9% for fiscal 2010, which is in line with our previously communicated range of 8% to 10%, in spite of a higher tax rate than we had originally forecasted.

Regarding the top line, as we continue to face these macroeconomic spending challenges, we see that fiscal 2010 FX neutral revenue growth will come in at around 5%, rather than the 6% we guided to in our April call. We are confident that the fundamental business strategy we are following is a sound one, that will enable us to deliver annual EPS growth over the next three years of 10% to 12% FX neutral from continuing operations, with revenue expectations of an average of 6% over the same thee year time horizon. This is slightly muted from prior 7% average three year growth that we had been discussing.

Additionally, we expect that our top line during this interval will improve in the later part of the period, as the global economy improves, and very importantly as our R&D program's new product launches and line extensions come to fruition, again, in the later part of the next three years. We're confident in our ability to deliver consistent bottom line growth due to a number of factors, including our strong product pipeline, and our operational excellence programs, which we continue to expect to drive 50 basis points of operating income improvement annually over the next three years, with the programs I mentioned in the beginning of my remarks.

Additionally, the Company remains committed to efficient utilization of our strong cash flow. As a component of that, for fiscal year 2010, we are raising our guidance for share repurchases to $700 million, and we expect that we will execute approximately $600 million in share repurchases in 2011, next year. So it's $700 million this year, and $600 million next year. in share repurchases.

Before I conclude, I would like to express my congratulations to Vince Forlenza, regarding the announcement we issued today. At the Board meeting this week, the Board elected to add the title of President, Chief Operating Officer, to title of President, which he now holds. This is a well-deserved recognition of Vince's execution against the additional duties that he has taken on over the last two years. It is also a recognition of the key role he continues to play in developing and implementing BD's strategy and vision, and the great leadership and commitment Vince has demonstrated throughout his career at BD. As President since January 1, 2009, Vince has overseen BD's three business segments, International, and the quality function. In January of this year, Vince has also assumed responsibility for the integrated global supply chain, and the IT functions.

So I'm now delighted to turn the call over to our President and Chief Operating Officer, Vince Forlenza.

Thank you Ed, and good morning, everyone. Starting with slide five, I'd like to briefly highlight some of our third quarter results. As Ed mentioned in his remarks, our third quarter results were in line with the Company's expectations. Revenues came in at 3.9% currency-neutral, which was impacted by a tough comparison to fiscal year 2009 pandemic flu purchases, and slowed by softness in the BD Diagnostics segment. BD Medical revenue growth was primarily driven by Diabetes Care products, which were partially offset by the H1N1 flu pandemic impact of about 1 percentage point, and softer pharmaceutical systems revenue due to timing of orders in the quarter. BD Diagnostics was impacted by the economic pressures in the US, resulting in reduced physician office visits, and reduced Diagnostic volumes in Europe. The comparison to the prior year is also negatively impacted by 1.6 percentage points due to the H1N1 flu pandemic in fiscal year 2009. We experienced an improvement in our Biosciences segment, primarily driven by cell analysis instrument and reagent sales in the US, available supplemental funding in Japan, and a favorable comparison versus the prior year.

We're also pleased with results in our emerging markets experiencing double digit top line growth. We believe the Company's performance has fared well in a challenging global economy, and in the healthcare industry. Based on a results year-to-date, we are confident that we're able to achieve bottom line growth of about 9% currency-neutral, which is in line with our previous range of 8% to 10% for the full fiscal year 2010. Moving to slide six, you will see that the Company experienced top line growth of 3.9% on a currency-neutral basis for the third quarter. Adjusted EPS decreased 0.8% to $1.29, however, on a currency-neutral basis, however, on a currency-neutral basis increased by 6.9%. Our nine month year-to-date results reflect solid revenue growth of 6.5% on a currency-neutral basis, and adjusted EPS growth of 11.4% currency-neutral.

Now let's move on to slide seven, which looks at our guidance for fiscal 2010. As Ed mentioned earlier in his remarks, we have modified our revenue guidance to 5% to 6% currency-neutral. Our adjusted EPS guidance of about 3%, or about 9% on a currency-neutral basis remains in line with our previously communicated range. On slide eight, we will review our revenue guidance by segment. For the Medical segment, currency-neutral growth remains unchanged at about 6%. For the Diagnostics segment, we are modifying our revenue growth to about 4% on a currency-neutral basis, due to reduced Diagnostic testing and physician visits. For our Bioscience segment, we expect revenues to be approximately 6% currency-neutral. Now I'll turn the call over to David to review our financial results.

Thank you, Vince, and good morning, everybody. On slide ten, we begin a review of our revenue growth by segment. First, you can see total top line growth for the Company in the quarter was 3.9% currency-neutral. For the nine month period, the Company grew 6.5% currency-neutral. BD Medical third quarter revenues increased 2.7% currency-neutral. Excluding the impact of pandemic sales, revenue growth within the quarter was up 3.4%. As Vince mentioned earlier, the growth in this segment was mainly driven by the Diabetes Care businesses, with continued strong sales of pen needles.

Our pen needle growth was led by successful launch of our new nano product, the world's smallest pen needle, along with strong growth in emerging markets. Pharmaceutical Systems revenue in the quarter was flat, mainly due to the timing of orders in the quarter. For the nine month period, the Medical segment grew 7.6% on a currency-neutral basis. Excluding the impact of the pandemic sales, revenue growth for the nine month period was up 5.2%. Revenues in the BD Diagnostic segment grew 2% currency-neutral. Diagnostic Systems business growth was flat year-over-year on a currency-neutral basis, partly due to H1N1 impact in quarter three fiscal year 2009, and the soft demand in the US and western Europe due to lower Diagnostic testing.

Partially offsetting these testing declines is strong growth in GeneOhm platform of 14% in the quarter. Our pre-analytical systems business grew 3.9% in the quarter, with strong growth in emerging markets, offset lower lab testing volumes in the US. For the nine month period, the Diagnostic segment grew 4.3%. BD Biosciences grew -- growth 11.6% currency-neutral, due to the reasons Vince mentioned earlier in his remarks. In addition, the advanced bioprocessing business also experienced very strong double digit growth in the US, primarily due to accelerated timing of large customer order. For the nine month period, the Biosciences segment grew 7.3%.

I'll turn to slide 11. We'd like to walk you through the impact of the pandemic flu on the quarterly revenue growth of business in fiscal year 2010. In the first half of the year, pandemic flu provided a benefit to our revenue growth of 2.4%, which is mainly in the US. For the second half of the fiscal year, we expect the pandemic flu to result in a 2% negative impact to our revenue growth, due to the International pandemic revenues that we recorded in second half of the fiscal 2009. Adjusting for the effect of pandemic-related orders, the underlying growth is consistent with the full-year growth rate of about 5% to 6% currency-neutral.

Now turning to slide 12, we'll look at our geographic revenue results. On an as-reported basis in the third quarter, BD's US revenues increased 3%. US Medical revenues increased 1% year-over-year. US sales of Diagnostic products increased 1.4%, impacted by reduced physician office visits and lower Diagnostic testing. Bioscience's revenues in the US increased 14.8%, due to strong revenue growth in the cell analysis business, led by research, instrument, and reagents. International revenues grew 4.6% on a currency-neutral basis in the third quarter, with soft western Europe being offset by growth at Asia-Pacific and Latin America.

Growth in our Medical segment at 3.9% was driven by strong emerging market growth, partially offset by timing and orders with our Pharmaceutical System business. The Diagnostic segment grew 2.7% currency-neutral, driven by growth in pre-analytical systems, emerging markets, partially offset by western Europe. Biosciences grew at by about 10% currency-neutral, mainly driven by strong growth in Japan. For the nine month period, reported US revenues were 6.3%, with Medical increasing 7.5%, Diagnostics increasing 4%, and Biosciences growing 8%. International revenues were strong in our Medical segment with underlying growth at 7.6% currency-neutral. The Diagnostic segment grew at 4.6%, and Biosciences grew at 6.8% currency-neutral.

Now turning to -- moving on to global safety on slide 13, sales grew 3.3% on a currency-neutral basis to $436 million in the quarter. This was comprised of a 1.6% growth rate in US, and an underlying International growth rate of 6.5%. Both the Medical and Diagnostic segments are being negatively affected by previous pandemic orders. For the nine month period, underlying growth was 6.6% on a currency neutral basis, which is a combination of the 5.9% growth rate in US, and an underlying growth rate International safety of about 8% on a currency-neutral basis.

Next I will review the third quarter revenue growth. Looking at the third quarter revenue growth, gains from our underlying performance of 3.9%, and 0.9% favorable impact of currency translation, were offset in part by the 1.6% unfavorable impact from our hedging program. Moving to slide 15, gross margin declined 100 basis points year-over-year. Gross margin performance, however, improved 20 basis points, mainly driven by strong favorable product mix that was partially offset by increased resins, and start-up costs of our ReLoCo program, and pension costs. This favorable performance was more than offset by the unfavorable currency translation, and unfavorable hedging costs. Slide 16 recaps the third quarter income statement, highlights our foreign currency-neutral results. As discussed earlier, third quarter revenue growth was 3.9% and gross profit grew faster at 4.2%.

Moving down the income statement, SSG&A increased 3% currency-neutral, which is 100 basis points improvement over the prior year as a percent of revenue. This reduction was primarily driven by a decrease in our deferred compensation plan expenses, reflecting lower returns that reduces our SSG&A expense, and correspondingly is offset by a loss on the interest income line. Additionally, we continue to place tight controls on our G&A spending, that we are able to more than offset the unfavorable pension and Everest expense we've been incurring. R&D almost increased 10% or 40 basis points, as a percent of revenue over the prior period. The acceleration is in line with our expectation, which continues to increase in the second half of the fiscal year due to funding of key strategic initiatives. Our operating income increased 10.2%, as a result of the improved operating margins on a currency-neutral basis. I would also like to point out, that the tax rate for the quarter is higher than prior year, due to the absence of the R&D tax credit, and the unfavorable impact related to geographic mix of income. In our full-year guidance, we have increased tax rate to 28.5% to reflect this unfavorable mix.

Moving to slide 17, year-to-date revenue growth increased 7.2%, performance and currency contributed 6.5%, and 3.3%, respectively, which was partially offset by the hedge with a 2.6% unfavorable impact. Looking at our gross margin change year-over-year on slide 18, we experienced a 90 basis point decline as a percent of revenue. Favorable performance of 50 basis points reflects favorable products mix, partially offset by unfavorable start-up and pension cost. This favorable performance was more than offset by the currency and hedging costs. Slide 19 recaps the nine month year-to-date income statements highlights our foreign currency-neutral results. Revenue growth was 6.5% currency-neutral, and gross profit was 7.7%.. Moving down the income statement to SSG&A, increased about 3% currency-neutral, impacted by Everest and our pension costs. For the nine month period R&D expense increased 4.3%, which is lower than what we expect for the full-year. We expect R&D spend to accelerate in the fourth quarter. Operating income increased 13.1%, as a result of our strong gross margin and controlled SSG&A expenses.

Moving to slide 20 to recap our results for the nine month period. We are pleased with our results in a difficult macroeconomic environment. We experienced lower than expected revenue growth, which is mainly due to the Euro weakness, and lower hospital admissions and lab testing. We expect slightly higher operating margins, reflecting the gross margin improvement, and operational excellence programs. Earnings are in line with expectations. And we are committed to delivering about 9% adjusted EPS growth for the full fiscal year 2010, despite the higher tax rate that I just discussed. I would like to point out that our year-to-date EPS performance is just over 11%, and our total year is 9%, which implies the fourth quarter essentially as flat. There are two contributing factors impacting our expected results. First, as I previously mentioned to you, the absence of fourth quarter pandemic revenue as compared to prior year impacted revenue by 3%.

Secondly, we are seeing higher resin costs, as compared to prior year as discussed in our quarter 2 earnings call. Our cash flows remain strong, and we will be increasing our share repurchases from $550 million to $700 million, which supports our ongoing committment to return value to shareholders. I would like to reiterate Ed's comments in the beginning of our call today, that while we are not immune to the challenges in the macroeconomic environment, we are confident that we have the tools to overcome these challenges through our strong product platform and geographic diversity, along with the operational excellence programs we have put in place.

Before we open the call to questions, I'd like to introduce and welcome to BD, Zac Nagle, our new Vice President of Investor Relations. Zac will serve as the primary liaison between BD, and its investors, and the analyst community. Zac is a seasoned Investor Relations leader, who brings over 16 years of experience, and a deep understanding of the investment community to BD, including Investor Relation positions that he had in both Flowserve and Dell. Sherry Bertner will continue to work with BD in her advisory role. We look forward to introducing Zac, to everyone in the coming months. I will now turn the call over to Vince to begin the Q&A.

Alright, operator, can we start with the Q&A please?

Thank you, the floor is now open for questions.

(Operator Instructions).

Thank you our first question is coming from Jon Wood with Jefferies.

Thanks a lot, good morning.

Good morning.

So, David or Vince are you in a position to disclose the net proceeds from the asset divestitures in the fourth quarter?

We're not a position today once the transaction closes we'll go ahead and do that.

Okay, how are you thinking about the urgency of that -- deployment of that cash? Should we assume basically that's partially responsible for the stepped up repurchase commitment this year and next? Basically, do you have an earmark for those funds at this point?

You should assume that we took into account the proceeds from the divestitures in the new cash, in the new share repurchase numbers.

Okay thank you. My follow up is on the Biosciences side, your outlook unchanged, obviously, 6% for the year. You're track over seven in the first nine months, so just give us a context if the rose is there -- is this just conservativism, or have you seen a dramatic change really in the bookings of flow thus far in the fourth quarter?

Bill can speak to that. He'll tell you that there's an issuance of timing in Advanced Bioprocessing. You want to comment Bill?

You did say flow, Jon, but in terms of BDB. the third quarter was positively impacted by an order that came in from a large customer for AB, which was anticipated fourth quarter, came in third quarter. Which is good, because our customers are getting back -- getting safety stock in place. In terms of overall orders, we're pretty much exactly where we expected it to be.

So that one order moved from the fourth to the third, that's what you're seeing.

That's a bioprocessing comment not flow side commentary.

Yes.

Okay, got it. Thanks.

Thanks a lot.

Our next question is coming from Mike Weinstein of JPMorgan.

Hello, Mike.

Oh, hi there. It's actually Kim for Mike. A couple questions here. I guess the first one is, wondering if you guy saw in your quarter any kind of change in procedure volume, particularly in the month of June. We have actually heard that from one or two other large companies in this space. So wondering if you guys saw any kind of change in the cadence of volume as you move through the quarter?

So, we don't track procedure volume. We're tracking hospital visits and physician visits. I think we did -- some of data I saw, that month to month -- there was some -- let's say, volatility on a month to month basis. But it's not something that will have a significant impact on us.

Okay, great. and then the follow up question is just, on Ed you're outlook the kind of three year outlook that you gave, which was essentially on a FX neutral basis 6% top line, and 10 to 12 on bottom line. Just making sure we're think about that 10% to 12% from continuing Ops correctly. I wanted to confirm that this will be off of a diluted 2010 number. So basically the 5, 10 to 5, 15 guidance decreased by $0.20 once the. once the divestitures are accounted for.

That's correct.

Okay, and so, I guess the question on that is with the diluted 2010 number, we might have thought that 10 to 12 would look a little bit higher. Wondering -- is some of this investment in systems, and should we be thinking about higher spend in some of your system investment in 2011?

Yes, in the near term of this plan, which spans from 11 to 13 -- we will be -- I can be descriptive now. We will be more specific in November when we give guidance. But within this trajectory of three years, as we pointed out, the Everest program is net investment in the near term. We are accelerating R&D investments, and that will be negatively impacting near term of the plan, that will show benefits in the later part of the plan. But very aggressively looking at -- I think we're very pleased even now to be starting to show operating performance improvements in our gross profit rate, based on mix of products sold and productivity. And we also have communicated previously that we're going to be very aggressive about managing downward our core G&A expenses.

Great. Thank you.

Thanks, Kim.

Our next question is coming from Kristen Stewart of Deutsche Bank.

Thanks for taking the call. David, I was just wondering if you can go over again kind of the typical hedge and EPS impact commentary? And just kind of how do you feel, given where rates are, in terms of looking at what the appropriate base year is going to be, given where rates are again from 2010, to assess kind of where we go from 2011?

I think if you remember, the last guidance that we provided we said the currency is going to have about a $0.17 impact, being offset by hedge losses of about $0.12, so a net impact of about $0.05. Year-to-date where we're sitting is, currency has benefited us about $0.16 on a EPS basis, being offset by hedge losses of $0.11, so that's about a $0.05 sitting here today net impact. As we look at for the full fiscal year, it's about $0.15 -- currency is our best estimate. And the hedge would probably decrease the hedge loss decrease to about $0.06 which would be about $0.09 for the year. So I think for the remainder of the year, between where we are right now year-to-date, and our guidance is probably the way for you to think about as far as volatility and rate. So it's not a significant impact in our results from now until the end of the year.

Thinking about 2011, it sounds like you have is think about -- is it correct to think that about having $0.09 of cushion if you will just on a year-to year basis to absorb some of the negative impact of currency?

Well, we have to see where this year comes out to see where that hedge loss comes in at. But where we are year-to-date is about $0.11 loss, and what we're putting into our guidance is about $0.06 loss on that. So it's in that range. But since you mentioned fiscal year 2011. It is probably good for me right now to discuss foreign currency in our hedging program as we look forward. We made a rough estimate on how currencies may impact our next year results, if they held at current rates. We estimate revenues would be negatively impacted by about 2%. If you factor in the normal drop of roughly 25% to 35% to operating income and tax effect that, the negative impact would be about 2% to our EPS growth, reported EPS growth. At this point we still haven't entered into any hedges, as they continue to be very costly. And there's a lot of volatility obviously that still exists. So we will continue to monitor it, and keep our eyes on this, and reserve the right to enter into any contracts if we see the situation changing. But that's just top line just kind of how we're looking at currency going into fiscal year 2011.

So,basically using rates as they look today, and then kind of projecting that out into fiscal 2011. So in other words, your 10 to 12 EPS growth on a FX neutral basis, can also be added -- layered into the negative kind of 2%, given where rates are for currency?

That's right. That's right.

Perfect. And then a real quick one, just kind of on the pricing environment that you're seeing. I know diagnostics is kind of softer, with lower volumes and physician visits. So just wondering how pricing is tracking, in light of some of the lower volume expectations?

We haven't seen significant changes in pricing. We've always been a tough pricing environment, and may be I'll ask Gary Cohen to comment a little bit about Europe because we have been getting that question a lot. Gary?

Sure. There's been number of other -- let's say industries, they are similar, not the same as our industry, where there's been more pronounced pricing pressure reported. We're not seeing that. And I don't know whether or not to say yet. But I think -- we don't necessarily say yet, as Vince mentioned, we have been in constrained tender-driven pricing environment for many years. We haven't had to rely on price increases to drive revenue growth. And we have not seen any substantive changes in that environment in Europe, where others perhaps more in the pharmaceutical side or some of the other segments, the device industry are perhaps seeing some things migrating through tenders that might not have been doing so previously. About the only environmental changes we've been able to pick up, is the potential movement in Spain to go to a national tender, rather than a regional tenders. It's not clear whether that will happen, or can happen. That's about the only thing. But we're watching this very closely. But from what we see so far, we're in constrained pricing environment, and it's not really changed from what it's been over the last several years in that respect.

Thank you very much.

Our next question is coming from David Lewis of Morgan Stanley.

Hi, guys. This is Marshall Urist in for David. So first question, was just on the thoughts on leverage, and where this sort of incremental leverage is coming from below the line, or above line, as we think about growth going from six, but maintaining that earnings growth. Could you just talk about -- as we think about where that incremental leverage is coming from. Is that increasing buybacks versus increased confidence in the middle of the income statement?

Well, we do have strong confidence in the middle of the income statement to start out with. Number one, we have been investing in cost reduction programs on the manufacturing side, our usual continuous improvement. But of course, we've added ReLoCo to that, and ReLoCo will be a positive impact going forward. In a minute I will ask Bill Kozy to comment on that, but we're making excellent progress on that program. So that's one element that is in our thinking.

The second element that we have started a while ago, on a G&A efficiency and effectiveness program. The backbone for that program is Everest, going from five ERP systems down to one. But we are also laying these functional excellence programs on top, in finance, HR, and IT. And we feel that we have that well organized, and we're making good progress on that. So while Everest itself, is a bit of expense increase in the near term, as Ed mentioned. Then we start to see benefits from these programs as they get layered in.

And then, just to kind of to complete the three year look, we start to see product launches as Ed also mentioned. And they start in the 12 or 13 time frame to be significant. I like to ask Bill to just comment on ReLoCo for a minute.

Sure, just very quickly, you might recall that we have been in investment mode on ReLoCo for the last couple of fiscal years. And as Vince has already mentioned, FY 2011 will be that important transition year, when we'll move from kind of negative investment impact on the P&L, in the business in the Company, and start to neutralize that and improve on terms of benefit accrual as we forward throughout fiscal years 2011, 2012 and 2013. And that projects remains right on track.

And so of course, just to finish up here, we did mention, of course, increasing the share buyback to $700 million, and then $600 million, so obviously that will have an impact as well.

Okay, thanks for that. As the follow up, then -- with tempered, kind of three year growth expectation, is that change the way you're thinking about the role that acquisitions could potentially play over the next couple years? And what are the kind of markets or opportunities that you might be thinking about?

It's not a significant change to the way we're thinking about acquisitions. We think we will still have flexibility to do the acquisitions with our strong balance sheet over that planned period. We don't feel we're in need of having to do a acquisition. We still expect to do plug-in acquisitions that are strategically obvious, and create shareholder value. We are increasing our R&D, and becoming more confident in those programs as we're moving forward, as they're moving through the product development process. And then lastly, just one investment we haven't mentioned is that, as in this three year plan you should also expect there will be investing geographic expansion -- we mentioned on this call already, that we're seeing double digit growth in emerging markets. And we continue to see strong opportunity there, and in particularly China.

Great. Thanks for taking the question.

Sure.

Our next question is coming from Jon Groberg of Macquarie Capital.

Good morning. I know you mentioned some of the softer volume on the Diagnostics side, and I can appreciate in particular some of the headwinds on the rapid Flu, and given some of the comps there. Can you maybe just provide a little bit more detail, in terms of what you're seeing in STD,TriPath and some of the hospital acquired infection products?

Certainly, Philippe Jacon will address that.

Sure. So again it's sort of mixed bag of performance, if you look world-wide. So overall, US, is I would say doing okay. I will separate, TriPath and molecular so that you understand better. But for the Europe and Canada, are the two regions where we have been suffering. So also in TriPath the sales this quarter were about $33 million. And we see a growth which is kind of slow in the US reflecting the economy, the kind of weak economy and the lower visits to the physicians. We've seen very good growth in Asia on the TriPath products.

But unfortunately these are offset by a decline in Europe, where we see in some of the countries the increase intervals being mandated. So for instance, in Belgium today, instead of having one cervical cancer test per year, it's now every two years. And this is really impacting directly the business. And the last piece is that, we had in the same quarter of last year in Canada, a very large cash order of instruments that didn't repeat this year. In molecular, the picture is a little bit different. Actually the US has been doing pretty good, but clearly it's because of the good performance of our Affirm product. We know that the CT/GC market seems to be flattening, in terms of its growth overall. Europe also is kind of declining for several reasons, but one of them is really that we see some increased competition in the mid to low volume segment popping up. And also again in Europe, we've seen some instruments sales that we had last year, cash sales, which really account for 3% to 4% growth that didn't repeat this year. So that's basically the picture on the women's health and cancer side.

It was a move to more reagent rentals instead of cash sales.

Absolutely.

So then on HAI's, Philippe?

So, on HAI's -- so GeneOhm has had a pretty good quarter at $14 million in sales, which globally is up 14% compared to previous year. Actually, it's -- I think it's important to mention the very good growth that we've had in the US, which is about 20% growth year on year in this quarter. And this is really driven by C.diff, which is very strong but also I would say supported by the new MRSA athromopeppidase the new chemistry we have for MRSA, which is getting a lot of traction in the market. And which has also enabled us also to gain some competitive conversion to our systems. So, very pleased on this front.

A couple things I want to mention also on both sides, is that for GeneOhm and HAI, we are doing good progress with our new platform BD MAX, as you know we've got the approval for Group B Strep on the two colors in May, and we're working with the FDA to gain moderate complexity status. So I would just like you to stay tuned on that. So as soon as we know more, we will let you know. The plan to develop the BD MAX six-colors is going on as planned, and so for a launch by the end of 2011, beginning of 2012. We are still on plan to do that, clinical trials starting at the end of this calendar year. We can see very clearly, a lot of good traction already customers asking us for this platform given it's potential use as an open platform. So this is great on GeneOhm. And just last thing, I want to come back to SurePath is that we are doing our beta trials on SurePath plus which are going very well. So we are also on track to start our clinical trials at the end of this quarter for SurePath Plus.

Thanks, Philippe, for all the color. Maybe just quickly can you handicap how you're think being Europe on the safety initiatives, given the initiative that was passed, and putting context to the broader environment there in Europe? Thanks.

Certainly, Gary Cohen is going to do that for you.

As we communicated on the previous two calls, we're anticipating the impact of the EU directive, which is moving forward, and has been published to be sort of the latter part of what our -- of our three year planning period, because that's around the time that the directive moves into compliance mode. In the meantime, we are seeing good safety contribution from Europe, across the two businesses. And our expectation for the full-year, is that it's going to be in the 9% plus range, safety growth overall from Europe. So we're getting strong contribution and that should up tick over the latter part of year as directive comes in place.

All right thanks.

Next question please.

Our next question comes from the line of Rick Wise with Leerink Swann.

Good morning, everybody.

Morning.

Maybe for Ed and Vince, talk about the growth goals. We've seen pretty steady, and understandably, we've seen pretty steady downward pressure on your three growth goals. I think a year ago or so It was 7 to 9, and then 7, and now we're talking about 6. I think -- I have a lot of confidence in your cost reduction share buyback initiates helping EPS grow faster. But basically two questions, why not set a lower broader range now, just as opposed to the sort of steady downward guidance on that front? And two, where does the -- the EPS growth goal get challenged at that double digit goal? Thank you.

Maybe I'll take the first shot at that. We just completed our three year planning exercise, Rick. And so we took it from -- down by a percentage point, based really our best view of what's happening out there. And we did say in the remarks that we expected the conditions in the short run to be very similar, I'm talking about the macro economic conditions, and if the growth would improve over time as our product development programs started to take hold. We're also bullish on our opportunities in geographic expansion as I was mentioning. It was kind of a sequence here in geography moving to product launches. And so we feel pretty good about what we just gave you. So that would be the first part. In terms of the 10 to 12 EPS, we think it's secure even at this lower revenue guidance, that with the programs that we have in place from an operation effectiveness standpoint, that we have multiple levers to pull here. And so, we feel good about that.

Going back to BD Bio, you've been arguing in recent quarters, that when we visited recently, that the business has been stabilized. It seems to have -- there's a lot of concern, obviously, about the capital spending recovery. Can you help us think ahead to the next two or four quarters, next year? Has it indeed stabilized now, and -- are you still confident in the stability of that business? Thanks.

I think we're optimistic about the long run opportunities in that business, and continue to invest heavily in both new product platforms, and some new opportunities. And we really haven't talked about the product launches. And Bill can talk a little bit about where that product line is going.

Bill Rhodes And just to put a little added color, in terms of sort of the macro economics, we certainly see that areas of Europe, country by country, we seen some stabilization. We actually see some opportunities, at least in this last quarter, we saw opportunities for growth. In terms of going forward we talked about the fact that in late FY 2011, we will be launching a new product platform for -- out of our flow cytometry business, and that will lead to subsequent platforms as well. So quite honestly we also see -- we will be a big participant in the geographic expansion opportunities on a world-wide basis. I think Vince used the word optimistic, we remain very optimistic. In terms of new markets and new products, we are -- again, as been said before, we are -- during that three year period we will be introducing new modular flow cytometry platforms, and new reagents, our advance bioprocessing facility is online. So, we are very optimistic about it.

Rick, just one last comment coming back to the growth, to keep in mind, as we look towards next year, remember that we are going to have to jump over these pandemic sales, and the sale from the stimulus in Bill's business and Biosciences. And that was part of the reason why we changed the outlook.

Thank you so much.

Our next question is coming from Amit Bhalla of Citi.

Hi, good morning. Good morning. I wanted to continue with Biosciences with two questions. Can you just talk a little bit about just the outlook for US stimulus contributions in the Biosciences. And I think in prepared comments, you mention that Japan had some positive contributions from stimulus there. Are you still expecting that to continue into the second half of the year?

I can comment on both. We began the year with US stimulus, estimating a $20 million to $25 million impact to our US based business, flow primarily. I think in the last call we said it would be closer to the $20 million in our estimate. We now see it coming in at about $19 to $20 So hat's basically where we are, fairly close to where we anticipated. With Japan, what you're actually seeing in the third quarter is a essentially a timing overhang of sales, that were made in the second quarter but installed in the third quarter. So that really is the bulk of the supplemental spending that we spent in Japan. So we don't anticipate additional supplemental funding until the next round -- becomes available.

Okay, thanks. And just a question on the asset sales, was that just part broader review. Should we expect more announcements such as those over the next year or two?

It was part of a broader review, and, no, you shouldn't be expecting more announcements.

Okay, thanks.

Our next question is coming from the line of David Roman of Goldman Sachs.

Thank you for taking the questions. You gave us some helpful information, looking at year-to-date growth rates, stripping out things like pandemic flu. If I sort of look at the weighted average of the three segments, X flu, that comes to sort of 5% top line growth rate. Is it right to sort of think about things, that the overall macro environment takes a 100 basis points off the growth rate? So in fiscal 2010, the underlying sort of normalized growth rate for the business is 6%?

Well, that's probably not a bad way to look at it actually. We've been -- it's very difficult to kind of normalize some of things that are going on. If you look at over the next three years, which is the way we like to look at things, and normalize for things like the stimulus and the pandemic. We believe that in the mid to later part of this three year horizon, you will see a normalized growth rate for Biosciences in the higher single digits, something in the 7%, 8%, 9% range. We think that with the launch of new products in Molecular Diagnostics and in cancer screening, and with the recovery of testing to more normal levels, we think that the Diagnostic business can be in the 6% to 7% range. And it's a little bit below that now. And Medical, with strong growth of Diabetes Care, which is above trend, with a return to stronger growth in Pharm Systems, with the launch of some new products that we see in the pipeline. And with International expansion, particularly in China and India and Latin America et cetera, we think that Medical can kind of be the average in the 5%, 6%, 7% range.

So if you put that into longer term perspective, we think that 6% on average is a prudent way to go, with higher rates in the latter part of plan, as we sort of come through, A, the economic situation, B, some of the anomalies of flu and stimulus, and, C, as we get some line extensions and product launches in the 2012 and 2013 time frame. And within that context, for all the reasons that Vince and David commented on, related to very good performance in gross profit expansion, G&A reductions, and share buybacks, we're very confident in the 10 to 12 FX neutral continuing operations guidance.

Okay, can you just talk a little bit about the dynamics in the flow cytometry market. I mean, one of your larger competitors has talked about getting more aggressive with respect to sales and marketing, and product introductions. And there does appear to be sort of a propensity of lower cost players entering that space. Can you maybe sort of update us on your thinking on growth that market, and also how you're responding from a competitive standpoint?

I'll let Bill give you a little color on that, but I think we're very pleased with -- there's two different issues that you brought up, lets say the high end of the market place and the competition there, and then smaller players at the low end, but we're very happy with the product launches that we've had and the program that we're moving ahead on the high end of the market, and then we have some programs coming on at the lower end of the market too. So Bill, why don't you give a little bit of color on that.

And it echoes with what Vince has said. You do have to break out the clinical flow from the research flow, and then within research flow analysis and sorting. But on the research side we not only introduced new products, but have products to be introduced. The high end and mid end of the analysis range, we are very comfortable and confident about, and have done well, continue to perform well. And on the sorter side, frankly, we -- based on our Cytopia acquisition and the Aria III launch, we've done quite well there. And we continue to improve and bring new products out during the period. So on the very low end, which is the other part of your question, the research market, Bench-Top Analysis, and we do believe as we go forward in developing our new products, we do believe will will be able to reach into that market as well.

Just one last comment on this, on the clinical side, in the developing world. We're also moving ahead on programs for very low end on the clinical piece.

And then may be can you quantify for us the breakdown of your business, the high end versus low end?

We don't have that right off the top of our head.

Thank you very much.

Our next question is coming from Bill Bonello of RBC capital.

Hi guys, thanks a lot. First of all, congratulations, Vince, to the new title.

Thank you.

I have a follow up question to Philippe's comments on CTNG You mentioned Latin and US growth, I'm just wondering if you can give us what the growth ex US looks like, and then whether you think the slower US growth is part of a long term trend in demand? Is it may be due to the near term pressure on physician business or you may be losing share in the US?

We don't see that we are losing share in the US on that market at all. We see that there is a definite flattening of the growth of the testing. I think that's being reported in some different surveyswe have been able to read. And that's what we see also. I'm sure you know also that the reference labs have reported lower testing. And part of it really was this kind of screening test. So I think one of the issues that we're dealing with, is again, people being unemployed not having anymore coverage, are skipping some of the screening test that they used to do on a regular basis. So this is really about the US.

Outside of the US, I would say that we've seen a little bit of a slowdown again in Europe and mainly in the UK, where there were programs in place that been kind of discontinued or kind of phased out, and this is basically what we're thinking about. The last point I was making earlier also, is that there is definitely more competition on the mid to low value market, and we see that today mainly in Europe. So that's why we're also -- I cannot say we've been losing share today, but we certainly have not been gaining share. So that's another way to look at it. And we continue to gain market, but we have been losing a little bit more what we used to lose before.

Okay, and then just in terms of for my follow up question, just big picture, have you guy giving any consideration to further expansion in the Diagnostic space, to either increase your scale in existing businesses some of them where you are pretty distant? Or number two expand your scope, so you just have more touch points with your hospital customers in particular.

We don't think that scale is a significant issue for us. We're following a focused strategy and investing behind it I think you should expect that in the short run, we're focused on implementing behind the platforms that acquired. In the long term, we continue to look for plug-in acquisitions that could expand our footprint.

Okay, thanks.

Sure.

Our next question is coming from the Bill Quirk with Piper Jaffray & Co.

Thanks, good morning, everyone. Vince, first question is bit of a trend here that I guess we have seen on the call. But in terms of the overall environment for physician office trends and visits and such, do you consider this to be by and large an economic phenomenon, in other words we should expect to it see improve as employment levels improve? Or do you think that it is a longer term trend her?

That's a very interesting question, Bill, and probably saw the front page article in the Wall Street Journal this morning speculating on that issue. And so we're all speculating as we see it. In past recessions, it has bounced back. The decrease in physician office visits has been more severe in this downturn than before. Unemployment is higher, and there are higher copays out there. So I think that insurance pricing is going to have an impact on this. I think the underlying healthcare needs are there. number one. Number two, as healthcare reform kicks in I don't think that's been factored into people's thinking. And you are going to see coverage for preventive care. As employment improves -- so this is personal opinion -- as employment improves and healthcare reform starts to take hold I will think you will see volume -- visits come back.

Very good, and then as a follow up, Philippe, you talked about some orders coming as reagent rentals, rather than cash sales. Is there kind of a bigger picture trend that we should be reading into here, just in terms of hospital appetite for capital equipment?

Not that I can really relate to right now. It's difficult to draw conclusions out of only one quarter, where we see the comparison from same quarter a year ago. I cannot say today we see a trend one way or the other. I think, overall, when you look on a 12 month basis, it is pretty much the same. In other words, the appetite for instrumentation itself is not changing, it's just a question to how to pay for it? No, I think -- let me just put a little color here, it is changing in the south of Europe. I mean in countries like Italy and Spain, it has been changing, but it's really because they, as Gary explained before, in the way they are looking at the healthcare system. SO clearly, the tenders have been postponed in Italy for instance, and because of what Spain is trying to implement today, things are not as moving as fast as they used to move. So but the appetite overall is not really changing. I would say even, I'm sure you have seen our new BD Innova, the new plate streaker and what I was referring to with the BD MAX before, we see that the hospital customers are really interested in bringing these platforms on board. I don't think there is any change there.

Very good, thank you.

Our next question is coming from Brian Weinstein of William Blair.

Good morning. Just curious, Philippe, a little bit about the BD MAX strategy here. While part of HandyLab, the Jaguar, was contemplated for STD testing in the hospital setting, is that still in the cards, or does your new Viper -- I think you are calling it the Viper LT take it's place there? And also does the LT incorporate the XTR technology?

Okay. A couple of questions here. So the LT is actually incorporating the XTR technology, as it is both SDA and PCR, on board the LT. So of course CT/GC is going to be the LT. Clearly BD MAX, today we focus our efforts in making sure we're going to get BD MAX on the markets with our HAI assay, which is the really the burning issue for us, so that is where we are going to put all our efforts. Soon after that we'll expand the menu. Menu is key to the platform And suddenly the customers will be able to run assays later on like CT/GC, and others on BD MAX have a different kind of volume, than at what you see on customers using Vipers today.

So it's a more flexible platform, and on which we intend to increase menu after we have HAI assays on board. But again, you are going to have a -- I think a segmentation that we are looking at, and we've been discussing in general the market in terms of volume, batch versus on demand. And also with BD MAX, again, being an open platform, where customers will be able to run their own assays. So a thing like -- in case of pandemic like we've seen last year, instead of us putting a lot effort in developing a molecular test, our customers could develop their own that they could get from either the CDC in the US, or the equivalent of the CDC in other countries, and be able to run on BD MAX very quickly. So we believe this a pretty compelling argument for our customers to get into BD MAX.

Great, as my follow up there on Pharm Systems, I think you guys said it was flat due to timing -- so should we anticipate Q4 will be a much stronger quarter?

Yes, you should.

Okay, thank you.

Our next question is coming from Jaimin Patel with Greenlight Capital.

What is our current outlook for the tax rate next year, and our best guess for the few years after that?

We'll provide update guidance on that when we do full-year guidance for fiscal year 2011 in November, but right now what we got it for this year is 28.5%, based upon the mix of our business.

Okay. Does the outlook for a two percentage point FX impact in fiscal 2011 at the EPS line effectively reflect a four percentage points of translation headwind with a two percentage point year-over-year hedge benefit?

No, that's just the currency. We really don't know what the hedge loss will be this year. We provided guidance on what we think it will be. But again, when we do guidance for fiscal year 2011, by that time we'll know what the actually hedge loss was. So going back to the point, the way we're looking at currency, I was just giving you the straight currency impact.

Right now our expectation is for a $0.09 hedge loss for the full-year, and not -- if what we expect now is true, that will be roughly a $0.09 offset to the 2%.

That's right.

Okay, and then could you help us understand that translation just the translation head wind how much of that is Europe?

There's a mix of currencies in total, but the majority of it has tendency to be Europe. But in any given quarter, there can be fluctuations based upon individual currencies.

Thank you.

Our next question is coming from the line of Jeff Frelick with ThinkEquity.

Hi, guys. First question, David, SG&A was a bit below our estimate are you still targeting, as a percent of revenue in that 22.7% to 23% range, or will it come in lower for the year?

SG&A we're saying is around 23% for you to think about for you full-year.

Okay, and just a quick follow up for Philippe. With respect to the solid GeneOhm growth in the quarter is that driven by new customer ads, or by adding new assays to the existing customer base?

It's really new customers. We got C.diff launched earlier this year already, so it's not a new assay. And we've got the MRSA achromopeptidase also launched earlier this year, so there is no new assay in the quarter. Now there is a good traction on the C.diff. I think the molecular testing on C.diff is proving to be extremely compelling to our customers. They don't have to repeat testing, and they like the way they can run the test on our box. And the same thing thing for MRSA achromopeptidase, so the new chemistry that is extremely easy to validate and easy to use. We are seeing a lot of customers using these.

Okay.Thanks, folks.

At this time there are no further questions. I will now turn the floor back over to Vince Forlenza for any closing remarks.

I want to thank all of you for participating on our call today. We are pleased to announce the quarter in line with our expectations, and reaffirm our earnings guidance for fiscal FY 2010, in spite of a higher tax rate. We are also pleased to update you on our longer term outlook, and our share repurchase program which reflects our continued focus on shareholder value. So thank you very much for joining us.

Thank you this does concludes today's teleconference. Please disconnect your line at this time, and have a wonderful day.