Becton Dickinson and Co (BDX) 2012 Q4 法說會逐字稿

Hello and welcome to BD's fourth fiscal quarter 2012 earnings call. At the request of BD today's call is being recorded. It will be available for replay through November 14, 2012, on the Investors page of the BD.com website or by phone at 800-585-8367 for domestic calls and 404-537-3406 for international calls, using conference ID 35734482.

I would like to inform all parties that your lines have been placed in a listen-only mode until the question-and-answer segment. Beginning today's call is Ms. Monique Dolecki. Ms. Dolecki, you may begin.

Thank you, Jackie. Good morning, everyone, and thank you for joining us to review our fourth fiscal quarter and year-end results.

As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations 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 fourth 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 its related financial schedules and in the slides. A copy of the release, including the financial schedules, is posted on the BD.com website.

Leading the call this morning is Vince Forlenza, Chairman, Chief Executive Officer, and President. Also joining us are David Elkins, Executive Vice President and Chief Financial Officer; Suky Upadhyay, Senior Vice President and Corporate Controller; Bill Kozy, Executive Vice President and Chief Operating Officer; Gary Cohen, Executive Vice President, and Tom Polen, President of Diagnostic Systems.

It is now my pleasure to turn the call over to Vince.

Thank you, Monique, and good morning, everyone. Today I will begin with a brief overview of BD's performance for the full fiscal year 2012. Then I will spend some time highlighting the guidance for fiscal year 2013. After that, David will provide a financial review of the total company and segment performance.

Suky will also participate on this call. He will provide you with the framework for fiscal year 2013 and how we are thinking about the various aspects of our P&L. I will spend the balance of our time discussing our performance in emerging markets and the progress we have made in our product pipeline. After that we will open the call up for questions.

As we stated in our press release, we are proud of our solid finish to the year in a challenging business environment. We delivered on our commitments even after absorbing additional costs from acquisitions. Revenue growth was primarily driven by our BD Medical and BD Diagnostics segments, and we continued to experience strong growth in international safety and emerging markets.

We also continue to see a positive impact on our top line from the new product launches and recent acquisitions. We continue to face challenges in our Biosciences business in the US as we expected. The Biosciences business continues to be impacted by an uncertain research spending environment.

Our recently announced acquisitions are performing on track. In August we announced our acquisition of Sirigen Group Ltd., a developer of unique polymer dies that are used in flow cytometry. This new technology is a natural complement to our instrument platforms and reagent portfolio.

In our Medical segment we announced our plans to acquire Safety Syringes Inc., or SSI. We expect to close on this transaction by the end of the calendar year.

This year we have demonstrated that we are making progress delivering against our strategy. I would like to highlight four key achievements to date. First, strategic opportunities.

Our goal is to complement organic growth through bolt-on acquisitions. In the past 18 months we have completed the acquisitions of Accuri, Carmel, KIESTRA, and Sirigen, and we expect to close on SSI by the end of the year. These acquisitions have been nice additions to our portfolio and have contributed about 100 basis points to our top-line growth this year.

Second, we have expanded our portfolio through new product launches. At our analyst day last November we communicated that we believe we have the most robust pipeline in the Company's history. Since then we have launched 10 new products across our three segments. We also expect to launch at least 10 new products in fiscal year 2013, which I will provide more color on later in the call.

Our third achievement to date is driving operational effectiveness. We are doing this through our ReLoCo programs, Everest, and other G&A initiatives, some of which have already started to yield savings in 2012. We are on track to continue delivering ReLoCo savings in 2013 and 2014 as we have been communicating to you throughout the year.

Our first wave of Everest went live in April and we are continuing to implement this program worldwide with our peak year of spending in 2013. We are also pleased with the performance in our shared service centers.

Lastly, I would like to highlight our success in emerging markets. As growth in industrialized markets slow we redeployed SSG&A to enable substantial investments in emerging markets. As you know, our incremental investment in fiscal year 2012 was $60 million.

We are pleased with our accomplishments over the past several years. From fiscal year 2009 our revenues have increased from $1.2 billion, growing at 8%, to $1.7 billion, growing at 11% in fiscal year 2012. As a percent of sales, emerging markets have gone from 17% in 2009 to 23% in 2012.

The execution of our strategy so far has resulted in a more consistent revenue growth profile with acceleration in certain areas of our business along with the operating margin improvement which we delivered in the back half of this year. We expect that to continue into fiscal year 2013.

We believe that our strategy of investing and innovating for growth will succeed and we have seen evidence that our strategy is delivering results. Now moving on to slide five, we have outlined our fourth-quarter revenue and EPS results, which I will speak to on a currency-neutral basis.

As we previously noted in our third-quarter conference call, the results of our Discovery Labware business, excluding advance bioprocessing, have been reclassified to discontinued operations. Total company revenues were solid, increasing by 4.7%. Fully diluted adjusted EPS came in at $1.42, growing at 15.2% over the prior year.

For the 12 month year-to-date results revenue growth was 4.3%. Adjusted EPS of $5.37 increased by 4.7% which was in line with our fiscal 2012 commitment to invest for long-term growth.

On slide six you will see the guidance for fiscal year 2013 on a currency-neutral basis. We have also provided guidance excluding the estimated impact of the medical device tax. For fiscal year 2013 we expect revenues to grow about 3.5% to 4.5% and EPS to grow about 7% to 8%.

If you exclude the impact of the medical device tax, which we estimate at about $40 million to $50 million, revenue growth, of course, remains unchanged. However, EPS growth is expected to be between 10% and 11%.

Though we are not predicting any specific issues, the lower end of our guidance range assumes worsening of macroeconomic conditions in the US and Western Europe. The upper end of our guidance range for fiscal year 2013 assumes a macro environment similar to what we are seeing today -- general stability in the US with continued headwinds in our bioscience business and in Europe. It also contemplates the expected closing of SSI by the end of the calendar year.

Now I will turn the call over to David who will walk you through our performance in the quarter and for the total year.

Thank you, Vince, and good morning, everyone. I would like to begin by discussing the key financial highlights for the fourth quarter.

Our fourth-quarter results were in-line with expectations with revenue growth of 4.7%. We saw solid growth in both our Medical and Diagnostic segments with continued challenges in Biosciences as we expected. We saw strong performance in international safety sales and emerging markets. Our recent acquisitions of Accuri, Carmel, and KIESTRA contribute about 90 basis points to revenue growth in the quarter.

Additionally, during the fourth quarter, we completed about $250 million in share repurchases. As planned and as we have communicated to you throughout the year, we have completed our $1.5 billion share repurchase program.

Now let's move on to slide nine where we review our revenue growth by segment, which I will speak to on a currency-neutral basis. As I just mentioned, revenue growth was 4.7% for the total company on a continuing operations basis. Pricing erosion in the quarter was about 70 basis points. This is in line with our expectations as we move past difficult comparisons in the first half of the year.

BD Medical fourth-quarter revenues increased about 6%. The segment's growth was driven by positive results across all three business units. Diabetes Care growth of about 9% was driven by continued strong sales of pen needles, which includes our Nano and BD PentaPoint products. We have a solid quarter in our Medical Surgical Systems unit with strong performance coming from BD PhaSeal product and international sales of safety engineered products.

Pharmaceutical Systems growth was 6.4%. For the total year result, the Medical segment grew about 5%.

BD Diagnostics first-quarter revenues increased 5.1%. Growth in this segment was driven by pre-analytical systems which benefited from solid sales of safety engineered products and strong performance in the Diagnostic Systems which is aided by the strength of our KIESTRA platform. For the total year, BD Diagnostics grew 4.5%.

BD Biosciences revenue declined about 0.7% with solid international growth offset by declines in the US. For the total year our Biosciences segment grew 0.7%. Fourth-quarter results continued to be unfavorably impacted by the uncertain research spending environment.

Moving to slide 10, I will walk you through our geographic revenues for the fourth quarter. Overall, BD's reported US revenues were up 1.2% versus the prior year.

Growth in our Medical segment was 4.4%. This was driven by strong growth in our Diabetes Care and Pharmaceutical Systems. Growth in Pharmaceutical Systems was driven by low molecular weight heparin and sales to biotech customers.

Growth in our Diagnostics segment was 0.1% aided by sales in Preanalytical Systems unit which grew at 2%. The Diagnostic Systems unit declined 2%, partially due to softness in our US women's health business. We also saw softness in our GeneOhm and HAI platform, which is similar to the results we discussed last quarter.

We expect our sales trajectory to improve with BD MAX now that we have MRSA approval and we continue to build out the menu on this platform.

Biosciences sales in the US for the fourth fiscal quarter declined about 9%. We continue to see weakness in the US research market as well as a tough competitive environment in research reagent sales. We continue to experience lower demand for high-end instruments due to continued funding constraints in the pharmaceutical and biotech research area, as well as in the academic markets. We believe there will continue to be uncertainty in the US research market into calendar year 2013.

International revenues grew 7% currency-neutral in the quarter with growth coming from all three segments. The Medical and Diagnostics segments grew 6.8% and 9.9%, respectively. Revenue growth in these segments was primarily driven by strong sales of safety products and continued growth in the emerging markets.

Biosciences grow at 3.5% in the quarter. We continue to see positive results in the Biosciences segment outside of the US, particularly in emerging markets. For the total year, reported US revenues grew 1.2% with Medical increasing 3.7%, Diagnostics growing at 1.1%, and Biosciences declining about 9%. Total international revenue growth was a strong 6.6% currency-neutral with Medical growing 6%, Diagnostics growing at 8%, and Biosciences growing at about 6%.

Moving to global safety on slide 11, which includes the PhaSeal acquisition, currency-neutral sales increased 5.8% to $507 million in the quarter. International sales were up 12.7% on a currency-neutral basis with emerging markets growing double digits.

Medical safety sales grew 6.4% driven by infusion therapy products in our PhaSeal product. Diagnostic safety sales increased by about 5% driven by a range of safety engineered products. For the total year, safety revenue growth was 8% on a currency-neutral basis. This was due to a combination of strong international growth of 15.6% and a growth rate of 2.9% in the US.

On slide 12 we will review our revenue growth in the quarter. Our reported revenue growth rate declined 1.1%. Performance contributed about 4.7% to growth offset by 5.8% of unfavorable currency translation. Acquisitions contributed about 90 basis points of growth.

Moving to slide 13, looking at our gross margin, we experienced a 30 basis point increase which was in line with expectations. Efficiency gains from ReLoCo and our continuous improvement initiatives were partially offset by the negative effects of pricing, acquisition-related costs, and unfavorable mix driven by lower sales of higher margin products. Favorable currency translation contributed about 20 basis points.

Slide 14 recaps the fourth-quarter income statement and highlights our foreign currency-neutral results. As discussed earlier, fourth-quarter revenues increased by 4.7%. Our gross margin of 51.5% improved year over year due to the items I just mentioned.

Moving down the income statement, SSG&A increased 4.3% primarily due to increased investments in emerging markets, our Everest implementation, and deferred compensation. As a reminder, our deferred compensation expense is generally offset within the interest income line.

R&D increased by 11.4%, which is in line with our expectations due to timing of continued investments in our new product portfolio and of relatively low R&D expense in the prior period. Our operating income increased by 4%. The large increase in R&D negatively impacted our operating income by about 3 percentage points.

EPS growth in the quarter was about 15.2%, which was aided by the execution of our share repurchase program and a favorable tax rate versus the prior period.

Now slide 15 recaps the total year income statement and highlights our foreign currency-neutral results. Revenues grew 4.3%, gross profit was 2.8%. This was due to margin erosion from pricing pressure, higher raw material costs, and acquisition-related costs which offset productivity gains and our ReLoCo savings. This is consistent with our expectation and what we have been communicating to you throughout the year.

Moving down the income statement, SSG&A increased 7% with the main drivers being increased investments in emerging markets and the new product launches, Everest, acquisition costs, and deferred compensation costs. SSG&A was negatively impacted by about 6 percentage points due to these increased costs in fiscal year 2012. These increased costs were partially offset through efficiency's in our G&A infrastructure and other cost-saving programs.

For the total year R&D increased 3% currency-neutral, which is in line with our expectations as we invest in new products and platforms. Operating income decreased 2%, which reflects lower gross profit and increased SSG&A expenses. Again, this is in line with our expectations and what we have been communicating to you throughout the year. EPS growth was 4.7% currency-neutral.

Before I turn the call over to Suky I would just like to highlight our solid finish to the year in a challenging environment. As Vince stated earlier, our strategy is continuing to yield results. Emerging markets and international safety continue to deliver strong double-digit growth and we are seeing a nice improvement in our top line and new product launches and recent acquisitions.

We also began to see an improvement in underlying operating margins and we delivered this in the back half of the year, which we expect will continue into fiscal year 2013. The Company will also continue to invest in key R&D projects and in new programs to drive operational efficiencies.

On a personal note, I would like to say a few words since this will be my last earnings call with the Company. While my decision to leave BD was difficult, I have a new opportunity that makes sense for me and my family right now. I would like to thank Vince and the Board for the opportunities they have given me and I am proud to be part of a very talented BD team.

BD is an outstanding company and has a great future, and I know it is well-positioned to succeed. I am confident that, Suky, along with the rest of the team will ensure a seamless transition.

Thank you, David. This is Vince. I would like to personally thank David for his four years of committed service to BD. He has been an outstanding Chief Financial Officer and a terrific partner since he joined BD in 2008, but we respect his decision to pursue the next chapter of his career elsewhere.

The Board and I are grateful for his contributions and we wish him all the best in the future. Now with that I will turn the call over to Suky.

Thank you, Vince, and good morning, everyone. Turning to slide 17 I would like to walk you through our P&L expectations for full fiscal year 2013. As Vince mentioned earlier, the lower end of our guidance range assumes worsening of macroeconomic environment in the US and Western Europe. The upper end of our guidance range for fiscal year 2013 assumes an environment that is similar to what we are seeing today -- general stability in the US with continued headwinds in our Biosciences business and in Europe. This also contemplates the expected closing of Safety Syringes Inc.

In summary, we expect revenues to reach about $8 billion with growth of about 2% to 3% as recorded or 3.5% to 4.5% currency-neutral. This contemplates our Medical and Diagnostic systems segments growing at about 4% and Biosciences growing about 1%.

Our earnings per share from continuing operations is expected to grow as reported or about 7% to 8% currency-neutral. Excluding the medical device tax, currency-neutral EPS growth is expected to be between 10% and 11%.

Revenue growth will continue to be driven by emerging markets, new product launches in all three of our segments, and continued strong growth of safety engineered devices. Also, we expect the most recent acquisitions of KIESTRA, Sirigen, and SSI to contribute approximately 50 basis points of growth to the Company in fiscal year 2013. The acquisitions of Accuri and Carmel have been annualized and will be included in our base going forward.

The growth drivers I just mentioned will be partially offset by the unfavorable impacts of pricing pressure and foreign currency translation. We expect pricing erosion to be broadly in line with fiscal year 2012. We also expect 150 basis points of negative currency translation, which assumes a strengthening dollar against all of our major currencies, most specifically driven by a euro to dollar exchange rate of 1.27.

We expect our gross profit margin to be between 51.5% and 51.7%, which includes about 20 basis points of erosion due to negative currency translation. Underlying gross margin is expected to improve about 40 basis points.

Our ReLoCo programs remain on track to deliver the previously communicated savings. Moving forward we will guide on the program's overall incremental savings rather than the cumulative net savings. In fiscal year 2013 we expect incremental savings from both programs combined to be approximately $40 million to $50 million. We expect these profitability gains to be partially offset by the impact of pricing, increased pension costs, and acquisition-related costs.

SSG&A as a percent of sales is expected to be 25.5% and 25.7%. This reflects an incremental $40 million to $50 million related to the medical device tax. Our guidance also reflects continued investment in emerging markets of an incremental $40 million, as well as costs related to new product launches, acquisitions, and Everest.

As a reminder, fiscal year 2013 will be the peak year of spending for our Everest project. We also expect increased pension costs as a result of declining interest rate environments. Excluding the 60 basis points impact of the medical device tax, SSG&A would be between 24.9% and 25.1%, or growth that is roughly in line with the rate of sales growth.

We expect our R&D investments to be in line with fiscal year 2012, between 6.1% and 6.3% of revenues as we continue to invest in new products and platforms. As a result of the items I just detailed, operating margin is expected to be between 20% and 20.2% of revenues.

Excluding the unfavorable impact of foreign currency and the medical device tax, we expect our operating margins to improved by about 50 basis points. This is in line with our expectations and consistent with what we have been communicating to you over the past year.

We expect our tax rate to be between 24.3% and 24.5% as we continue to see improvement from geographic mix. Our cash flow will remain strong with operating cash flows expected to be about $1.7 billion in fiscal year 2013. We plan to repurchase about $500 million in shares, which is broadly in line with historical levels. Our expectations for capital expenditures is about $525 million.

While we do not guide by quarter, I would like to note that our revenue and EPS results next year will be more positively weighted to the back half of the year. This is primarily due to the expected contributions from new products launches ramping up in the second half, as well as the impact of timing due to investments and other costs.

Now I would like to turn the call back over to Vince who will walk you through our results in emerging markets and also provide you with an update on our products portfolio.

Thank you, Suky. Moving on to slide 19, I would like to highlight our emerging market results.

We continue to see strong growth in emerging markets which accounted for approximately 23.3% of our total revenues in the fourth quarter. Emerging market revenues grew at 13.1%. We continue to see double-digit growth in a number of key markets with China growing at 23.7% in the quarter, which is in line with our expectations.

We are very pleased with safety revenue growth in emerging markets, which was up about 21% over the prior year. We expect to see similar results in emerging markets in fiscal year 2013 as we continue to invest in high growth areas.

We have many exciting opportunities in our pipeline. We have spent the past few quarters discussing our key product launches, and as I mentioned earlier, there were 10 this year. We have highlighted them on slides 20 and 21.

Now looking to fiscal year 2013, we have some products that are key to our success going forward. In our Diabetes Care business the BD Nano has been very successful and we continue to gain a lot of traction in that space. In our Pharmaceutical Systems business we are looking forward to our expected closing of SSI by the end of the calendar year. In our Biosciences segment we have two CD4 analyzers that will launch in fiscal year 2014.

Moving on to slide 23, in our Diagnostics segment we have a number of assays launching on our BD Veritor, BD MAX, and Viper platforms. We are also launching our BD Totalys Front-End Automation system. In addition to these launches we also expect our KIESTRA platform to ramp up in fiscal year 2013.

As you have seen over the past few years, our new products as a percent of revenues have increased from 8% in 2011 to 10% in 2012. We expect to deliver continued improvement in fiscal year 2013 and beyond as we make progress on our recently launched and the products we expect to launch in the near term. We look forward to updating you on our pipeline in the weeks and months ahead.

Moving on to slide 24, before we open the call to questions I would like to reiterate the key messages from our discussion today. First, we are proud of our solid finish in fiscal year 2012. Despite a challenging macroeconomic environment, we delivered on our financial and operating goals while continuing our ongoing investments in geographic expansion, operating effectiveness, new product platforms, and strategic acquisitions.

Second, our outlook for fiscal year 2013 is positive and we are confident we can deliver revenue growth of about 3.5% to 4.5% and EPS growth of 10% to 11%, excluding the medical device tax. Third, we are already seeing sustained revenue growth, operating leverage, and improved quality of earnings as we bring to market our key products and complete our operating effectiveness programs. Lastly, we are committed to delivering superior value to our shareholders and customers all over the world.

Thank you and we will now open the call to questions.

(Operator Instructions) David Lewis, Morgan Stanley.

Good morning. David or Suky, I just wanted to come back to your comments, I think it was Suky, on pricing. I think last year in fiscal 2012 we were aware of one specific product in the US that was driving significant pricing pressure for the Company, so I was a little surprised that in fiscal 2013 your pricing pressure is scheduled to be kind of equal to fiscal 2012. Just anniversarying that significant issue I thought pricing would get a little better.

So could you please just walk us through in fiscal 2013 other factors that are driving in-line pricing versus 2012 versus a slight improvement? Thank you.

Sure. Suky can do that for you.

Sure, David. It is a great observation. You are right; throughout 2012 we were sort of talking about overcoming the one-time issue that we had with pricing sort of improving the back half of the year. And 2013, you are right, we are saying broadly in line with 2012 and that primarily contemplates a challenging macroeconomic environment in Western Europe as well as in other developed economies.

So we are just being a little bit prudent with our overall pricing assumptions.

So, David, we see Southern Europe we see more pricing pressures there and we are being conservative to make sure that we have that covered. That is what you are seeing going on here.

And maybe just one more quick technical question, Vince, on that point. In this year, fiscal 2013, you are sort of getting back to the gross margins you saw in 2010 but you are not getting back to the operating margins you saw in 2010. Maybe just help us reconcile over the last two to three years what you think that disconnect is now being driven from.

Well, the first obvious disconnect, of course, is the medical device tax, which is $40 million to $50 million, and that is the biggest impact. So I think if you look at the performance we are talking about with approximately about a 4% revenue growth and 10% to 11% on the bottom line, I think the consistency of the 50 basis point of operating leverage I don't think there is any disconnect there.

But if you go back over the last couple years, of course, the major change in the environment has been, number one, the pricing environment. And Suky just talked about that element. The second piece, of course, was the ramp up in cost of materials. Now going forward into this year we are saying that those costs are going to be basically about flat.

The other element I would point to that is a multiyear phenomenon, which is about the last three years, has been pension costs. Those have been a significant increase. Lastly, of course, it has been Everest, and Everest will peak, as we said, in 2013.

Suky, do you have anything else you want to add to that?

I would say, Vince, we also continue to invest in emerging markets and our growth rates in those regions are quite strong. So we feel really good about that. Then, of course, we have done a number of acquisitions over the last few years which, of course, has added to our cost base because acquisitions actually are performing quite well.

Really once you are becoming accretive.

Great, thanks. Very helpful.

Mike Weinstein, JPMorgan.

Good morning, guys. It is Kim here for Mike. So first question may be for Vince.

It looks like you are guiding to 3% to 4% organic growth for 2013. Just curious, what do you think your end markets are growing right now? As you look forward for backed in how do you think about the Company's willingness to take on further dilution for either acquisition or divestiture given your end markets under pressure?

So on the divestiture side; I think the portfolio is in good shape so I don't see any significant issue there, number one. Number two, from an acquisition standpoint the ones that we have done early on are starting to become accretive, and, of course, we have some dilution from the newer ones baked into the guidance that we just gave you.

We are going to be consistent in terms of doing tuck-in acquisitions, and I think you are going to get to a rolling situation where you have some improving and then you have some newer ones coming [out]. So I would think about the dilution that way. Small amount of dilution, but also being offset by improvement in the earlier ones as we take advantage of the whole business strategy, which is to leverage them and drive them globally.

Now in terms of the end markets, I think what we see right now is, as we said, stability in the US market which means that they are pretty flat. If they are around 1% or so, somewhere in that range that is pretty good in the US and Europe. And so you are talking low single-digit growth offset by double-digit growth in emerging markets with China going significantly higher than that. And we are still seeing good growth in Latin America.

We are going to watch the healthcare spending in those market places. What we see right now, Kim, is that the Chinese are continuing to spend aggressively even though the GDP growth rate has come down a little bit. But those are the kind of factors we see for the next couple years.

Okay, thanks. Then just a follow up on the expenses that you are going to see in fiscal 2013. Two items; so Everest peaks in 2013 and the pension expense continues to be a headwind. Is there any way you could quantify the incremental impact from each of those items in 2013 versus 2012?

Suky is going to talk to that.

Sure. So from an Everest perspective we are looking at incremental expenditures of about $10 million as we plan for our biggest wave going into 2013 and 2014. Then from a pension perspective it is about $10 million year over year.

Great. Thanks, guys.

Sure.

David Roman, Goldman Sachs.

Good morning, everyone, and thank you for taking the questions. David, congratulations on your tenure and best of luck in your new opportunity.

I wanted just to go a little bit farther into the revenue performance. This year I think you came out just I think for the full year a little bit above 4% FX neutral, which included some acquisition revenue next year, includes some acquisitions. You are saying that the low end of the guidance contemplates a deterioration in end-market trends, but it doesn't look as though the low end of the guidance is that far off the organic picture that 2012 represented.

So I am just trying to understand how much conservatism you are baking in, so if you could provide a little bit more detail that would be helpful.

Sure we can and Suky can walk you through that. The starting point, of course, is the annualization of some of the acquisitions. But, Suky, why don't you just break that out?

Sure. So if you think about 2012 foreign currency-neutral growth at a BD level of 4.3% and, as we talked about in the presentation, acquisitions contributed about 100 basis points. It's probably closer to 110 basis points. So if you think of it in that terms your underlying organic growth is somewhere in the low 3%s, let's call it 3.2%.

As you move into 2013, as we said, acquisitions will contribute about 50 basis points. So if you think about sort of the midpoint of our revenue range to the upper end of 4% to 4.5%, again reserving the bottom half for a worsening environment. You take that 4%, 4.5% and take the 50 basis points off for acquisitions you get to an underlying organic growth that is accelerating year over year.

Right, so I'm trying to understand how accelerating growth matches up with a deterioration in the environment.

So basically what we are saying, the midpoint of the guidance is pretty much stable environment, so that if you start to go below that we are looking at either an event in Western Europe, and that would probably be Southern Europe, or some softening in the US. So those are the kinds of things that we are looking about. In the US it is probably a worsening of the bioscience situation, and we are being obviously conservative there.

Okay, that is helpful. Then, Vince, maybe just a strategic question for you. If you look at your emerging markets growth this quarter, very nice acceleration from what we had seen over the first three quarters of the year and a pretty fast return on that $60 million that you spent. So as you think about resource allocation, why wouldn't you keep putting that type of money into emerging markets and use Europe as a source of funds or reconsider the M&A strategy, given that you have seen this quick a return on that investment in emerging markets?

So where we have the opportunity for a very quick payback, we are going to fund it. It is a great question that you bring up, and so that is certainly in line with our thinking. It is not true that all elements of the investment paid back that fast. So in the right geographies and the right countries, we agree with you.

Okay, thank you very much.

Kristen Stewart, Deutsche Bank.

I just wanted to go back again, just kind of on the moving parts within kind of SG&A. I think you had said there was about $40 million; EVEREST you said was $10 million; pension was another $10 million. What is the other $20 million? Is that including emerging markets funding?

No, we said $40 million in emerging markets, and then Suky broke out the incremental EVEREST which was $10 million, Suky?

That is right.

And then you added the pension cost at another $10 million.

Well, $10 million for pensions all over across the P&L. It is $5 million in SSG&A.

Then can you just maybe run through diagnostics? I know you had mentioned women's health was a little bit softer as well as GeneOhm. I guess what gives you the confidence that those two are going to be turning around?

So Tom Polen can speak to that, and I'm sure he is going to talk to some of the progress he is making with BD MAX, some of the other programs. Would you like to do that for us?

Sure. Just around the performance of GeneOhm, so let me just comment on that for the quarter first off. So GeneOhm actually was down for the quarter about 7.9%, driven by what we shared in the past related to MRSA competitiveness and pricing pressure.

In Q4 we did receive, I want to say, approval on BD MAX in the US and obviously we are very focused on driving those new MAX placements. As I think we have said before, we are seeing very good early customer demand and excitement around BD MAX. We do expect, though, with that underlying trend that we are now turning around in terms of GeneOhm we expect it's going to take a few quarters until we see that significant ramp as MAX solidifies the base and provides additional growth moving forward.

Tom is not in a submarine, but he is offsite. It was difficult to hear, so we thank him for joining the call. He has also got some good opportunities on the Viper platform as well with the launch of Trich in the fourth quarter and HPV coming out.

Amit Bhalla, Citi.

Thanks. Just wanted to go back to Tom for a second, if you could give us some more detail about TriPath, C. diff, and some of the STD performance in the quarter as well.

Sure. Tom, did you hear the question?

I can, yes. This is Tom, just following backup, so let me start off with TriPath and cytology. So in the quarter cytology business grew just over 2% which is driven by a tale of two worlds. First, ex-US we are delivering very solid, high double-digit growth as we continue to upgrade customers from conventional Pap and we see, particularly in emerging countries, as they continue to expand their access to cervical cancer screening.

In the US, the counter to that, we continue to see Pap volumes pressured due to extended intervals and we actually saw a higher than typical decline in demand for Pap testing overall in the US this past quarter.

As we look at the STD business, kind of switching there, on the Viper business we were up just a percent this quarter. For the full year STDs are up 3% and that is a few points higher volume that we are gaining over the 3%, offset partially by pricing pressures in that marketplace.

As Vince mentioned, in the second half of FY 2013, as he stated, we will be launching the Viper LT platform in the US and in Europe starting with GC/CT on a global basis and HPV ex-US. So expect that to help further accelerate the STD business.

Okay, thanks. Then my second question on Europe more specifically. I think in the past you have talked about Spain with $100 million in accounts receivable, but Spain has started paying again for you guys.

But you guys have alluded to Italy potentially getting worse. Is that what you are starting to see actually happening as you discuss Southern Europe pressure in 2013? Thanks.

So you are right, Spain has resolved itself. We have been paid, so we are in a very good position on Spain. Suky, can talk to you about Italy where it's not really the whole country but just a piece of Italy. You want to make some comments, Suky?

Sure, Vince. Yes, in Italy we do have a large accounts receivable balance. As Vince said, it is not problematic across the entire country, it's pretty much isolated to a few regions. And while we do see some large outstanding balances there, we are not seeing a significant increase since the prior year. So while it is large we are seeing some stabilization there.

And the government is calling for the hospitals to pay. So the situation -- there is a chance that this situation is starting to improve, but we will follow it closely.

I would say in Italy the primary concern is more around pricing as opposed to receivables.

Okay, great. Thanks.

Jon Groberg, Macquarie.

Just I guess one quick question on your final point, Vince, I wanted to follow up on which is on the new products. So I think you mentioned that there were about 8% of sales in 2011 and 10% of sales in 2012.

Can you maybe just talk about what is being required from an investment standpoint? Where these products are coming in from a pricing standpoint? Are these accretive to results and I guess just trying to understand how these are able to continue to grow as you talk about launching new products?

Are these accretive to your margins and your earnings, or are you having to invest a little bit more? I'm just trying to understand the impact they are having below the revenue line. Thanks.

Well, generally from a gross profit line they are -- they have a positive impact. Now you have certain product launches, of course, where you have to invest in the launch of the new product on the sales and marketing side. So we are spending against them and what you're seeing in our expense ratios for this year, the sales and marketing area, is the cost to launch those new products as well.

As you get scale, of course, you get quite good leverage in these new product areas. So they are all baked into the R&D number, which is about 6% of sales. The uptick you saw in this quarter was really driven by acquisitions and some timing. So you should be thinking about around 6% and then getting gross margin leverage as we get more volume in these areas. [So net-net] positive over time.

And so do you have a target? If it was 8% of 2011 are you saying 10% of 2012? I know the new products are a big part of trying to get the growth back to (multiple speakers) levels. Do you expect that to be back to -- what do you expect that number to be in 2013 I guess?

Well, we haven't guided that on 2013, but what I would refer you back to what we were saying was the end of 2014 that back in November the 10% was done on the same number. I mean the same accounting. So 18% by the end of fiscal year 2014, that is the goal.

Okay, you are still. That is still your goal. Okay, thanks a lot.

There has been some puts and takes there, but that is the goal.

Matt Taylor, Barclays.

Good morning, guys. Just wanted to ask a couple questions, maybe thinking about the strategy longer term. We have talked a lot about 2013 here, but just wanted to understand how you are thinking about a couple of your key drivers in terms of the safety tailwind internationally and emerging market growth over a longer period, say three to five years, and what kind of runway you think you have in both of those areas.

Sure. I am going to ask Bill Kozy to address those. On the emerging markets we think we have a long runway there with -- kind of from a modeling standpoint the next few years using a consistent growth rate with what we are talking about for 2013 is a very good starting point. But we think we are early on in that story, especially out in Asia.

Bill, maybe want to comment on the safety piece?

On the safety piece, just to build on Vince's comment, the international market continues to be a focal point for investment and product rollout. As you heard, we had a really good fourth quarter.

Remember that the European legislative activity is targeted for a May 2013 implementation. We continue to put significant effort and attention on that and our safety growth in Asia, particularly in China, continues to be very favorable. So if you were trying to characterize a tailwind as we move forward that tailwind would come from those targeted emerging markets where we have got new safety platforms launching as well as Europe.

Thanks, that is helpful. Then I just wanted to understand in terms of leverage, can you help us with how you are thinking about producing some operating leverage post these ReLoCo programs? Then obviously you are funding the buyback this year with proceeds from a divestiture. How can we think about buyback going forward?

So in terms of operating leverage, we expect to continue to get gross margin leverage. As we finish up ReLoCo 1 and ReLoCo 2 we are going to have more operating effectiveness programs. I don't know if we will call it ReLoCo 3, but that is our mindset in terms of continuous improvement. And we are already working on those sorts of things in anticipation of finishing up ReLoCo 1 and ReLoCo 2.

In the SSG&A area we are still early on in the implementation of our shared service centers. Then lastly, as we get Everest in place across the Company, we think that that is going to enable a lot of these G&A savings programs, both from a savings standpoint and an effectiveness standpoint. So we look at all of those things; then you roll in the new products back to the gross margin in terms of some gross margin leverage going forward.

Now in terms of share buybacks, number one we will have to see what the -- in terms of cash and cash planning we will have to understand what the tax situation is going forward. That is obviously very much up in the air, but both parties have said that from a corporate tax standpoint they have a lot of work to do.

And so we will have a clear understanding of what the environment is that we are living under, hopefully, over the next six to 12 months. But we also have the possibility of bringing back cash from time to time from higher tax countries. We have done that historically and we would expect to do that going forward.

So, yes, this year is kind of a one-off in terms of funding the buyback by a divestiture, but that is not the way we had planned to do them going forward.

Great. Thank you very much.

Brian Weinstein, William Blair.

Thanks for taking the questions. Question on the TriPath business, the trends that you guys have been seeing with solid O-US growth up in the double digits in the emerging countries. I am curious where outside the US you guys think we are in terms of that conversion from conventional to liquid-based Pap testing and how many years more do we have of that low double-digit growth in that business particularly. Thanks.

So Tom can answer that question, but it is not just about conversion from conventional. It is a whole new markets opening up to Pap smear testing. So, Tom, would you like to make a comment or two?

So, Brian, this is Tom. If you look at cervical cancer screening ex-US, so if you just take the number of women who are eligible for cervical cancer screening 90% are not screened today. If you look at the 10% who are screened outside of the US of eligible women, about a third of them are screened using LBC and two-thirds are screened using conventional Pap. So if you just do the math there and if you start getting up towards developed market screening rates, there is quite a long ways to go just in terms of expanding access for women as well as opportunity to continue to convert conventional to LBC.

As Vince mentioned, I am calling in from outside of the office. I am in Tokyo right now and I think here in Japan is a great example. It is an ex-US market, but a very developed market, but one in which only 25% of women in Japan have ever had a routine cervical cancer screening.

So even in markets like this there is still significant growth as the governments are continuing to expand screening programs. We see that not only in more developed markets, like Japan, but certainly in markets like China, in India, throughout Latin America. And so we see, certainly for the next several years, that ex-US growth around cervical cancer screening to be a continuing trend.

(multiple speakers) I was just going to say, of course, we will be supplementing that with the algorithm that the country chooses as we launch our HPV genotyping assay in the second half of FY 2013.

Okay. Then I haven't had a chance to kind of compare what you guys said this quarter versus last on the program and product launch updates. But were there any delays in any of the programs that you guys highlighted or is everything still on schedule from where it was last quarter? Thanks.

We talked about the fact that the two small analyzers -- I am sorry Tom -- in the overall program the two small analyzers for Biosciences are now 2014. Tom, any changes on your products?

No, we had highlighted last quarter Totalys being one quarter delayed, but all other assays and programs remain on track.

Eric Criscuolo, Mizuho.

Good morning. Thank you for taking my question; just filling in for Peter. So on the $20 million non-cash pension charge, was that realized in other income?

So that $20 million would have been realized throughout the P&L. Some of it was held in gross margin as well as SSG&A and R&D as well.

Okay. So it was fairly distributed then, more or less?

That is right, yes.

Okay, great. Thank you. Then the interest income, it looked like it increased about -- it almost doubled actually from last quarter. Was there anything behind that?

Primarily around deferred compensation where we had an uptick in the return on assets there, but as we have said before, you generally see an equal offset in SSG&A.

Okay, great. Thank you. Then just lastly, quickly, on the Diagnostic pricing pressure that you have seen have they gotten worse or are they stable?

I would say they are generally fairly stable. Tom?

This is Tom. Just I would say fairly stable within that MRSA space and the STD space where we had seen it not deteriorating further but stable.

Great, thank you very much.

Thanks a lot.

Bill Quirk, Piper Jaffray.

Good morning. It is Dave Clair in for Bill Quirk. Thanks for taking my question.

The only one for me, I was just hoping you could quantify the impact of ReLoCo in 2012. And are you still expecting $50 million to $60 million in savings in 2013 from ReLoCo?

So as we stated through the presentation, we are on track to deliver what we had previously communicated. So the $50 million to $60 million on ReLoCo 1 total annualized savings, but as we said, combined both programs, ReLoCo 1 and 2, would be an incremental $40 million to $50 million in 2013.

So we did see some benefits, net benefits from ReLoCo 1 in 2012. We have not sized those. I think the important thing here is the $40 million to $50 million we are talking about in 2013.

Okay, thank you.

Jonathan Palmer, CLSA.

-- discussion on these programs. Could you discuss how the ReLoCo and Everest spending steps down through the end of these programs?

So Suky can address that, but Everest what we are seeing has flattened out as we start to amortize the system as more and more -- as we get further around the go-live, as we go through the different phase.

Then in terms of ReLoCo spending, what we would expect is that -- we are talking about the net benefit here, so that is going down and you're starting to see the benefits. As Bill Kozy was mentioning before, we would start to work on other cost savings programs which are not completely defined right now.

Suky, anything else on that?

Understood.

No, I think you characterize it well, Vince. The important thing is while we are not guiding on 2014, as Vince said, we expect Everest to sort of flatten out. So we would not see or expect to see a major tailwind into 2014 on that.

Then with ReLoCo, again, we are coming out of investment mode on ReLoCo 1. We are still in investment mode on ReLoCo 2, however, delivering net benefits.

Then you should expect continued net benefits incrementally in 2014 as well, because we said ReLoCo 2 hits in 2014. A good chunk of that anyway.

Then maybe could you just dive deeper into this one-time pension expense? What exactly was that and was that something that was within your control?

So overall it was a $20 million charge in the fourth quarter. It is really composed of two items. About 75% of that was due to a plan, a small plan we have in the US. It is a spillover plan which takes into consideration contributions over IRS limits.

Since it is such a small plan it is very sensitive to large lump sum distributions. We did have some of those large distributions in the fourth quarter which required a re-measurement and, therefore, we had to record, again, a non-cash and what we expect to be a nonrecurring charge.

The other, say, 25% of it related to a plant closure in Sweden where we completely settled and close out the pension liability. So, again, a nonrecurring event. So both of these we see as non-core to current and future earnings.

Certainly the first issue was not under our control.

Understood. Maybe, lastly, if I can touch on Bioscience for a second. Could you talk qualitatively about the growth expectations between US and international? What I am really wondering is on the US business do you expect the declines there to calendarize or really continue to decrease throughout the year?

Bill, would you like to address Biosciences?

Sure. As I think you heard in some of the guidance comments that were made, we are treating Biosciences as kind of an ongoing challenge with the bulk of the top-line growth coming from outside the US and the US market on a stand-alone basis being challenged, with Europe also being kind of a developed market low-level grower.

If you were to use 2012 as an example, and I think you probably saw some of this, but our emerging markets grew at double digits. And our developed markets -- Europe, US -- grew at negative low single digits. So you get a minus 2%, 3% going in those developed markets, you get a positive low double-digit growth going in those emerging markets.

And that is the way we see it at least over the next 12 months. We are not really looking beyond that at this point in time. We are taking this kind of a year at a time.

Thanks again for taking my questions.

Alex Morozov, Morningstar.

Thank you for taking my question. Maybe just a follow-up on the Biosciences. In your 2013 base guidance for this segment, how are you looking at the sequestration and its impact on the performance?

So how are we looking at sequestration?

Yes.

Basically what we are saying is there is going to be uncertainty throughout the year. And so the market is generally going to continue to be paralyzed because they are going to be working on this deal, so we are not assuming a deal and a rapid turnaround.

Okay, thanks. A related question to the one on new product introductions. It looks like you are guiding a moderate acceleration in R&D spend again for 2013, more or less a continuation of what was seen over the past few years.

Is this step up more indicative of this new product bolus that you guys are currently working, or is it still a top-line weakness? How should we be looking at the R&D spend going forward?

The R&D spend you should think about -- innovation is going to continue to be an important part of our strategy but around 6%, or just above 6%, is kind of where we are targeted now. I don't see that changing in the short run.

Thank you.

Kristen Stewart, Deutsche Bank.

I guess just one follow-up, just kind of overall. You had mentioned for fiscal 2013 it was going to be more backend loaded and a lot of that was just kind of timing of spending I assume. How backend loaded are you talking as we look at numbers heading into the first quarter?

It really, Kristen, follows more along the revenue line and we expect about 100 basis points of increased revenue in the second half versus the first half.

Perfect, thank you.

You are welcome.

That was our final question. I would now like to turn the floor back over to Vince Forlenza for any closing remarks.

Thank you all for participating. We are looking forward to a strong 2013. As I said in my remarks before, we are excited about our opportunities in emerging markets, the new products we are launching, and the fact that we are making good progress with our cost reduction programs.

So we look forward to updating you on all of those initiatives as we go forward during the year. Thanks very much.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.