Becton Dickinson and Co (BDX) 2013 Q2 法說會逐字稿

Hello and welcome to BD's second fiscal quarter 2013 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through May 9, 2013 on the investors page of the BD.com website or by phone at 800-475-6701 for domestic calls and 320-365-3844 for international calls using confirmation number 290460. 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, Katie. Good morning everyone and thank you for joining us to review our second fiscal quarter 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 portion 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 second 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 schedule 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 Suky Upadhyay, acting Chief Financial Officer, Senior Vice President and Corporate Controller; Bill Kozy, Executive Vice President and Chief Operating Officer; Tom Polen, President of Diagnostic Systems; and Gary Cohen, Executive Vice President.

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

Thank you, Monique, and good morning, everyone. As we stated in our press release, we are pleased with our continued improved performance in the second quarter. Our results this quarter highlight the benefit of our diverse geographic and product portfolio. We delivered solid revenue growth which were in line with our expectations.

In early March, we acquired Cato Software Solutions which manufactures a suite of comprehensive medication safety solutions for pharmacy intravenous medication preparation, physician therapy planning and nurse bedside documentation. The issue of medication errors is one of the top concerns on the minds of healthcare providers today. Cato provides an automated system that creates and shares data to help reduce human error, streamline workflow and increase efficiency for medication preparation to delivery in both pharmacy and clinical drug delivery settings.

Also in March, we announced BD's entrance into the generic injectable pharmaceutical industry. The FDA approved the first two drugs to be offered in the BD Simplist, ready to administer line of prefilled generic injectables.

The first BD Simplist product approved was diphenhydramine an injectable antihistamine. This product started shipping to customers in April. As we recently announced, the second drug approved was metoclopramide. We expect that product to ship in the coming weeks.

The launch of the BD Simplist product line and the acquisition of Cato demonstrate how we are continuing to invest in innovation both organically and through strategic acquisitions. Cato and Simplist are highly aligned with our broader strategy of making healthcare systems more effective, efficient and safe.

We continue to focus on medication error management and enabling safer more effective parenteral drug delivery in both hospital and pharmacy settings.

Moving on to our financial results, revenue growth in the second quarter was driven by our Medical and Diagnostics segments. Strong international growth overcame slower US sales growth which was mostly impacted by a timing of orders. We also saw continued strong growth in international safety sales and emerging markets.

Based on our solid second quarter and the first half of the year, we are raising our previously communicated currency neutral revenue and earnings per share guidance for the full fiscal year of 2013. Suky will provide more details on guidance in a moment.

On slide five, we have outlined our second-quarter revenue and EPS results which I will speak to on a currency neutral basis. Total Company revenues were solid increasing by 4.1%. Fully diluted EPS came in at $1.39, growing at 7.6% over the prior year. Excluding the impact of the medical device tax which went into effect in January this year, adjusted earnings per share grew 11.5% in the quarter.

Now I would like to turn things over to Suky for a more detailed discussion of our second-quarter financial performance.

Thank you, Vince, and good morning, everyone. I would like to begin by discussing the key financial highlights for the second quarter. We delivered solid performance in the backdrop of a challenging environment. This demonstrates that we are continuing to effectively execute against our strategy. We have made targeted investments that are delivering consistent improved results. We believe this is becoming evident as we made progress throughout this fiscal year.

Revenue growth in the second quarter was in line with our expectations driven by new product sales, acquisitions and lower pricing erosion. As expected, growth was unfavorably impacted by tough comparisons and timing of orders.

The medical device tax impacted SSG&A by about $14 million. This had a negative effect of about 4 percentage points on our operating income growth in the quarter. On an underlying basis we are continuing to deliver operating margin expansion.

Earnings per share were $1.39. This is slightly higher than the expectations we outlined for you on the call due in part to the timing of certain legal expenses which we now expect to occur in the second half of the year.

Also during the second quarter we completed an additional $56 million of our approximate $500 million share repurchase plan for fiscal year 2013. Overall, the health of our business is good and we are on track to continue delivering accelerated revenue growth, underlying margin expansion and a higher quality of earnings.

As Vince just mentioned, our year-to-date results give us the confidence to raise guidance on both our revenue growth and earnings per share. On a currency neutral basis, our guidance range for revenue growth is increasing by 50 basis points. We expect currency neutral earnings per share to increase by 100 basis points. I will provide further details later in my presentation.

On slide eight, I will review our revenue growth by segment on a currency neutral basis. Revenue growth was 4.1% for the Company. The impact of pricing erosion was about 20 basis points in the quarter which was better than our expectations. BD Medical's second-quarter revenues increased 4.2%. The growth in this segment was driven by a broad range of new products across all three business units.

Growth in Diabetes Care was 6.6%. This reflects continued strong sales of pen needles which include our Nano and PentaPoint products. Medical Surgical Systems growth was 4.2% led by our emerging markets and international safety sales.

As Vince mentioned, we acquired Cato and launched our BD Simplist to ready-to-administer prefilled injectables this quarter. Both Cato and Simplist will be recorded in the Medical Surgical Systems business unit going forward. These acquisitions did not have a material impact in the quarter and we don't expect them to have a material impact on the full year.

Pharmaceutical Systems growth was 2.4%. As we expect and communicated to you on the last call, this reflects an unfavorable impact from the timing of orders.

BD Diagnostics second-quarter revenues increased 4.9%. The segment's growth was driven by international expansion and new product sales such as KIESTRA and Veritor.

BD Biosciences revenue growth was 1.9% versus the prior year period due to solid instrument placements in the US and a benefit from the timing of orders in our advanced bioprocessing unit.

Moving to slide nine, I will walk you through our geographic revenues for the second quarter. As we expected, softer growth in the US primarily due to timing was offset by continued strong international growth. BD's reported US revenues increased 0.3% versus the prior year. We view the environment in the US as constrained but stable.

Revenue in our US Medical segment declined 1.4% which was largely driven by the timing of orders in the Pharmaceutical Systems business. Additionally, our Medical Surgical unit was unfavorably impacted by a difficult prior-year comparison with the PhaSeal product. In our Diabetes Care unit, revenue growth was unfavorably impacted by the timing of orders in our retail business and a tough comparison to the prior year.

US growth in the Diagnostics segment was 1.1%. This reflects strong growth of Veritor point of care platform which is partially offset by unfavorable timing in the pre-analytical systems unit. The segment was also unfavorably impacted by extended cervical cancer screening intervals in our women's healthcare and cancer unit.

US Biosciences growth of 5.8% was driven by continued strong instrument placements as well as a benefit from timing of orders in advanced bioprocessing. We remain cautious about the US environment specifically the impact of sequestration on research funding. This has been contemplated in our full-year guidance.

As I just described, growth in the US this quarter was largely impacted by unfavorable timing. We expect growth in the US for the total Company to return to 2% to 3% for the balance of the year.

Moving onto international, we continue to see strong growth. Revenues grew 6.9% currency neutral with growth coming primarily from the Medical and Diagnostics segments. The Medical segment grew 8.2% and Diagnostics grew 8.8%. This reflects strong growth in emerging markets and international safety sales. Biosciences grew 0.2% impacted by softness in Western Europe due to austerity measures and the timing of government research funding in Japan.

On slide 10, we continue to see strong growth in emerging markets which accounted for approximately 23% of our total revenues. Emerging market revenues grew 13% currency neutral over the prior year. This was driven by good performance across all segments and regions with particularly strong growth in China of about 30%.

We continue to expect low double-digit growth in emerging markets and growth in China is expected to be in the 20% range for the balance of this fiscal year. Our success in emerging markets is driven by a number of factors including BD's ability to design products for a specific market. We have had success with products like BD Emerald and Intima II which are designed to meet the unique customer needs in emerging markets and are competitively priced.

Moving to global safety on slide 11, currency neutral sales increased 5.6% and grew $514 million in the quarter. Revenues in the US grew 1.6% while international sales grew 11.1% currency neutral with Western Europe and emerging markets both growing double digits.

Medical Safety sales grew 9% driven by a range of safety engineered products as well as the acquisition of SSI. Diagnostics growth was 2.4% in the quarter.

Moving on, since we have already discussed revenues in detail I will not cover slide 12.

Turning to slide 13, as we expected an outline for you on the last call, gross margin declined 30 basis points versus the prior year. Our performance in the quarter reflects benefits from reloco savings, continuous improvement initiatives, and favorable raw material costs. These items were more than offset by recent acquisition related costs, pricing erosion and other one-time costs.

One-time items had an unfavorable impact on performance of about 60 basis points in the quarter. After neutralizing for these events, underlying gross profit would have been broadly in line with our full-year guidance range.

Slide 14 recaps the second-quarter income statement and highlights our foreign currency neutral results. This is our fourth consecutive quarter of delivering solid underlying performance. Our results this quarter were overshadowed by some one-time events.

As we discussed, revenue and GP were in line with our expectations. SSG&A increased about 6% due to increased investments in emerging markets, acquisition related expenses, EVEREST and the medical devices tax. The medical device tax favorably impacted SSG&A by 3 percentage points.

R&D increased 4.5%. This remains in line with our expectations of 6.1% of revenues as we continue to invest in new products. Operating income grew 1.1% in the quarter. This was unfavorably impacted by the lower gross margins I just mentioned in addition to the medical device tax. The tax negatively impacts operating income growth by about 400 basis points.

Our tax rate declined 200 basis points reflecting the benefit of the reinstated R&D tax credit in the US. We continue to expect our full-year tax rate to remain in line with our previously communicated guidance range. In the quarter, earnings per share were $1.39 which is a 7.6% increase versus the prior year. Excluding the impact of the medical device tax, adjusted earnings per share for the second quarter were $1.44 which represents an 11.5% increase over the prior year.

As we mentioned earlier, our year-to-date results give us the confidence to raise guidance on both revenue and earnings per share. Slide 15 illustrates our revenue guidance by segment.

As you can see, we have increased our revenue growth expectations for the total Company which contemplates a stable environment. Our revised guidance of 4.5% to 5% reflects solid core growth, a benefit from new product launches and less pricing erosion. We now expect pricing erosion of about 50 basis points for the total year.

The Medical and Diagnostics segments are expected to grow about 5% and Biosciences remains unchanged at 1% to 2% growth.

Moving on to slide 16, I would like to walk you through the various elements of our P&L guidance for the rest of the year. Starting with revenues, we are raising our currency neutral guidance by 50 basis points. Reported revenue growth remains unchanged at 3.5% to 4% due to the weakening of the euro and the yen. This assumes a euro to dollar exchange rate of about 1.30 and a yen to dollar exchange rate of about $0.99 for the rest of the year.

Moving to gross profit, we have increased our range to reflect 51.6% to 51.8% of revenues. This reflects solid year-to-date underlying performance. We expect slightly higher SSG&A costs. Our new range of 25.6% to 25.8% of revenues reflects increased investments in strategic opportunities such as our recent acquisition of Cato.

Operating income is expected to be between 20% and 20.2%. This represents about 40 basis points of underlying margin expansion even after absorbing additional costs from acquisitions. We expect the unfavorable impact of the medical device tax to be about $45 million for the fiscal year. This represents a 300 basis point impact to operating income and a 250 basis point impact to EPS. This reflects our most recent thinking about the net impact of the tax.

For fiscal year 2013, we expect earnings per share of $5.72 to $5.75. This represents an increase of 100 basis points on a currency neutral basis. On a reported basis, this represents a 50 basis point increase due to the currency impact I just mentioned. Excluding the impact of the medical device tax and foreign currency we expect EPS to grow between 11% and 11.5%. This also reflects a 50 basis point increase versus our prior expectations.

The increase in earnings per share is driven by stronger revenue growth as well as better than expected results in interest income and other income. For the balance of the year, we expect our revenue and EPS profile to look slightly different than our historical performance. This fiscal year we expect a stronger fourth quarter rather than the stronger third-quarter performance we have historically delivered.

Based on our EPS guidance of $5.72 to $5.75 and our year-to-date results of $2.74, we expect EPS for the remainder of the year to be more heavily weighted to the fourth quarter.

Now I would like to turn the call back over to Vince who will provide a more detailed update on our progress around key initiatives.

Thank you, Suky. Moving on to slide 18, I would like to review the program and product launches in our Medical segment.

As I mentioned earlier, we acquired Cato and launched the BD Simplist product line. For BD Simplist, we currently have two drugs that have been approved by the FDA. In addition to diphenhydramine, we received FDA approval for metoclopramide in April. We have four additional drugs in the pipeline at various stages of approval.

In our Pharmaceutical Systems business, we announced the commercial launch of the BD UltraSafe PLUS Passive Needle Guard which was from our recent acquisition of SSI. In addition to offering needle stick safety in an easy-to-use device, this product is enhanced with special features designed to facilitate comfort and support for healthcare providers and patients. This device is also designed to meet increasingly complex biotechnology drug requirements including higher viscosity. This product nicely complements our current safety portfolio.

In our Diabetes Care unit, we continue to innovate with new products. We recently launched our next pen needle, the BD Nano with EasyFlow technology, which has proven patient benefits. As you can see, we have continued to make good progress with our product portfolio in the medical segment.

Turning to slide 19, you'll see the various product launches in Diagnostics. We made significant progress with our BD Veritor system since it launched early in fiscal year 2012. In addition to receiving FDA clearance for our new Strep A assay in the quarter, we have placed more than 4,700 units in this system. We continue to broaden our customer base as well as capture share gains with this innovative point of care platform.

On the BD MAX platform as we have been communicating, we have built up a nice pipeline of orders and we expect sales to continue to ramp up in the back half of this fiscal year. Shipments accelerated in the second quarter and we have passed a milestone of more than 150 instruments now operating at customer sites.

In April, we received FDA clearance for C. difficile, a key anchor assay that further strengthens our portfolio of assays for healthcare associated infections which also includes MRSA. Our enteric bacteria panel was also CE Marked and launched, representing a new served molecular market for BD.

This latest milestone demonstrates our commitment to rapidly expand the menu on BD MAX offering laboratories a broad range of fully automated molecular tests that can meet both their current and future clinical needs.

We also continue to receive very positive customer interest in our KIESTRA microbiology automation platform. KIESTRA is well-suited to help our customers navigate through the challenges of healthcare reform globally with its ability to accelerate timed results and also significantly increased lab productivity.

As an example in April, we announced that with Canada's CML Healthcare Inc., an agreement for CML to install the world's largest KIESTRA microbiology automation system. This fully automated system will be installed later this fiscal year.

On slide 20, I would like to review the program and product launches in our Biosciences segment which includes two analyzers for CD4 testing. We expect the FACSPresto, our low-cost analyzer designed for emerging markets, to launch in the second quarter of fiscal year 2014. This is two quarters earlier than our original expectations.

Our FACS ClearCount is currently on hold as we have other strategic priorities. We will update you on our future plans to ramp up that platform.

For the past 18 months, we have been reinvigorating the pipeline in our Biosciences business. We have some exciting new developments and continued enhancements to our Canto and Fortessa lines. Additionally, we have other new products that are in early stages and we will talk about them in more detail as we make progress with their development. We will continue to invest in this business in order to continue our expansion in this market and to drive future growth.

On slide 21, before we open the call to questions, I would like to reiterate the key messages from our presentation today.

First, we are pleased with our continued improved performance in the second quarter and our results year to date. This is our fourth consecutive quarter of solid P&L performance driving a higher quality of earnings.

Second, we continue to demonstrate that we are making progress delivering against our broader strategy making healthcare more effective, efficient and safe. The BD Simplist product line and our acquisition of Cato are good examples of this.

Third, we are seeing continued success with our key growth drivers. We have made targeted investments that are yielding results and we believe this is becoming even more evident as we progress through this fiscal year.

Finally, we are positive about our outlook for fiscal year 2013. We are committed to delivering a 4.5% to 5% revenue growth and about 11% to 11.5% EPS growth excluding the device tax and the impact of foreign currency.

Our diverse product and geographic portfolio and the operational effectiveness programs we have in place provide BD with a strong foundation. We believe we are well-positioned for continued success in fiscal year 2013 and beyond.

So thank you. We will now open the call to questions.

(Operator Instructions). Kristen Stewart, Deutsche Bank.

Thanks for taking the question. I just wanted to go back in the beginning because I think the line cut out at least on my side. You had mentioned pricing moderated. I didn't get the pricing impact on the quarter. Can you maybe just talk about what gives you the confidence that price will continue to be more moderate through the balance of the year?

You're right, Kristin, and thanks for the question. It did moderate and if you recall it was -- the same thing was true in the first quarter of the year so we have seen two quarters now where it was not as severe as we projected going into the year. We are not indicating that we are in an easy pricing environment, it is just not as difficult as it has been.

Having said all of that, Europe remains a particular challenge especially in Southern Europe but so far to date with the trends that we see we think it is just going to be somewhat less than our initial projection.

And what were the specific numbers in the quarter and your guidance again for the full year?

For the quarter, we said it was about 20 basis points and on a full-year basis, we are saying it is about 50 basis points.

Okay. Maybe, Vince, if you can just kind of give us your broader overview -- a lot of your peers this past quarter have talked a little bit more cautiously just about the healthcare environment with some of the hospitals reporting admissions that are still down and just kind of broader weakness. Can you maybe just talk about what you guys are seeing because your results would seem to suggest you are certainly kind of bucking the trend there?

So we talked about what we were experiencing as a stable environment but constrained so certainly not -- I wouldn't characterize it as an improving environment. I think that we have done well because of the diversity in the portfolio of geographically the acquisitions that we have been doing are performing well and our new products are getting traction. So I don't think that we are in a better place from a utilization standpoint than the overall industry. I think that what we have in our portfolio is working well.

On the negative side of course in this quarter you did see the timing issues. Suky, would you like to add to that?

I think you're right on point, Vince. The fact that emerging markets continues to grow really well and we are well indexed from a revenue exposure standpoint to emerging markets I think is another contribution.

Yes.

Lastly, can you give us the contribution from acquisitions this quarter and what you have in the full year? I think your prior guidance was for 50 basis point acquisition benefit. For the full year I don't if it is any different -- you kind of suggested Cato would be minimal but?

Yes, Cato will be minimal. For the full year, we had previously guided that acquisitions would be about 50 basis points. We are taking that up a little bit. We are getting a little bit better than expected traction thinking about 60 to 70 basis points on the full year. Within the quarter it was about 100 basis points but again that will come down over the rest of the year as KIESTRA starts to annualize.

Okay. Thank you.

Amit Bhalla, Citi.

Thanks. I just wanted to go into a little bit more detail on the Diagnostics component. I think in the prepared comments you mentioned that cervical cancer screening extensions of intervals was impacting there. That has been going on for a little while so I was wondering is there a greater impact in the quarter and could Tom maybe give a little more detail of the other product lines within Diagnostic Systems? Thanks.

Sure, Amit. So first off, good morning and I think Tom would be happy to talk about that. I think you saw that the intervals start before this quarter but continuing, so, Tom, maybe you can pick up on that.

This is Tom. So in the quarter we saw, as Vince mentioned, overall strong performance in our microbiology business internationally and also in our point of care. Speaking then specifically to women's health and then I will also comment on molecular, we did see women's health was actually down 10% in the quarter and that was driven by continued strong double-digit growth internationally.

We are seeing continued increases in PAP testing internationally as well as good conversion from conventional to liquid-based cytology driving that double-digit international growth.

We saw the US down really driving that net decrease of 10% in the quarter and that is really two factors. We saw OB/GYN visits, the stat that when you look at -- OB/GYN visits were down about 6.5% in the quarter and then we see the intervals continuing to extend. We monitor those intervals and options pretty closely and we are seeing about 50% to 60% of physicians at this point have adopted those extended intervals. That is up from about 25% two years ago so it has not ended yet but it is moving towards a more -- it is continuing to increase that rate but that did impact us.

Molecular in the quarter was actually down as well about 4% and that was really prior losses in genome continued to annualize and that offset growth that we did see in MAX. And as Vince mentioned earlier, we are seeing very good customer interest in MAX, continued really pleasure from the customer perspective around the automation and performance of the open system capabilities. We did surpass that 150 total installations in the quarter that is C.diff approved which is a major milestone in our (technical difficulty) portfolio.

And (technical difficulty) against a backlog of orders bringing that down. We expect that backlog to be fully relieved in Q3 and moving them forward from there.

Because we are ramping up.

Exactly.

So obviously to state the obvious, the one area we are seeing lower utilization as an industry is of course is in women's health and cancer with the lower OB/GYN visits and the increase in the interval. Other than that I think it has been pretty much stability.

And, Vince, could you just follow up on Biosciences, just the point you made about strong instrument sales. Can you get a little more specific there? I think instrument sales in the industry are pretty volatile. Some companies have said they have been weak. You are talking about strength -- just a little color there? Thanks a lot.

Sure. A trend we started to see last quarter (technical difficulty) picked up at the higher end comment further.

Good morning. This is Bill. Just to give you some color, we have just slightly improved performance in the sorters and the high-end analyzers and if you thought back to last year and remember some of our reports, that was a weak spot. So we have seen that stabilize a little bit and we are getting some steady single-digit growth in that area.

And then of course our new instruments, Accuri, continues to contribute very nicely so the combination of some improvement in the high-end and the steady ongoing performance in Accuri is kind of the story on instruments.

Thanks a lot.

David Lewis, Morgan Stanley.

Good morning. Maybe one quick question on the outlook. And then Vince, I had a question on China.

Suky, I guess the interesting thing about the second quarter is unlike your peers we saw comp adjusted acceleration. Your comps do get harder into the back half of the year. I wonder if you could help us understand some of the drivers that give you the confidence you can maintain this performance into the back half?

And I guess the second related question is if you think about the impact you are having from acquisitions this year and the underlying operating margin performance of 50, 60 points, help us understand is there a way you could see next year not seeing better operating margins levers than you are actually seeing this year just based on that acquisition drag and the underlying business performance? I had one follow-up for Vince.

So I will start on your four-part question here. Good morning, David. Thanks for the questions.

So first off, what gives us the confidence on our outlook? First of all in the first half I think we did perform quite well versus our expectations, 4.7 on the top line and you can see that we are showing acceleration from an EPS perspective and some margin expansion.

Going into the second half we expect to see a little bit of acceleration from a topline perspective. The growth drivers I think as Vince has mentioned primarily around acquisitions we are seeing really good growth and customer anticipation around KIESTRA. SSI, we are very excited about and we think will be a nice growth driver for us for the rest of the year.

Our launch of new products specifically around MAX beginning to ramp up, as Tom spoken about, adding on the new anchor assay C. diff has us very excited. If you start to think about further on into our portfolio, around pen needles, we still have a longer runway in that business.

So it really cuts across many different businesses. And then again from a geographic perspective, we continue to see very strong growth from emerging markets, and safety continues to be a nice contributor. So we have got confidence again in the backdrop also of lower pricing erosion that we can sustain, not only sustain growth but actually accelerate it a little bit from a topline perspective.

Moving on to the second point of your question which is you are absolutely right, very good contribution from acquisitions; this year, very good margin expansion. What would you expect for next year? We are not going to guide on next year, but when you think about what are some of the drivers of our margin expansion this year, it is primarily in gross margin. And we have talked a lot about reloco and the incremental benefits there which are right on track and delivering as expected. We talked about our other continuous improvement and some of our G&A efficiencies. Those things don't go away as we look forward so my anticipation is that we continue to see some margin expansion as we move forward.

Okay. Sorry for my liberty with the questions. Maybe one more for Vince. I guess, Vince, the interesting thing about the China number this quarter and frankly the first half of the year has been versus your archrival so to speak in China, the local player. They are actually probably performing better than your biggest local competitor at least in our view. And I guess that is not what I think people would have thought heading into this year.

So maybe kind of talk to us about why you are being successful in China this year and the sustainability of that trend? Thank you.

Sure. We are having a good year in China. Actually we had a good year in China last year as well. I think we are building on success that we are putting in place over the last couple of years and there is a few things.

One is that we compete not just on product but on clinical knowledge in the market place especially on the device side. We are on our third memorandum of understanding with the Chinese government on infection control. So we are bringing not just a very innovative product which was designed for the Chinese market for example in our infusion therapy business but in addition, we are working with our customers on training, transfer of clinical knowledge which is highly valued in the market place which the local competition does not bring.

Second, from an organizational standpoint, we have been investing heavily the last several years in not just sales capability but in a broad capability -- the terms regulatory affairs, quality, manufacturing and I think you are seeing the impact of that as we improve our coverage across the entire country and strengthen partnerships with local distributors.

So it is a whole series of things we are putting in place. I don't want to give you the impression that it is just on the medical device side. The medical device side is doing quite well but it is also Diagnostics over the last 18 months has ramped up very nicely in China, is doing extremely well. BDB also is doing well both historically with the clinical market now it is also the research market place. And it is the total portfolio there that where we can do the small instrument all the way to the high-end centers that China is funding.

So it is that mix of all of those things that is giving us the good performance against both the local competition and quite frankly against the international players as well.

Great, thank you very much.

David Roman, Goldman Sachs.

Thank you and good morning. I wanted to just make sure I understand the change in the guidance on earnings versus the prior expectations and the math that I was getting too was there is a $0.03 benefit from the medical device excise tax being a little bit lower than you had expected, the outperformance in the second quarter of between $0.05 and $0.08 depending on what baseline you use. And then you are raising guidance by $0.03 for the year, is the entire difference there FX?

No, David, first of all, the medical device tax, previously we gave a guidance range of $40 million to $50 million. We are now saying it is around $45 million. So it is a little bit less than a cent or two if you took the upper end of that range versus the middle of that range versus what we talked about. So we don't see that as a major driver. Overall EPS we are increasing on a performance basis by about $0.05. FX offsets that by about $0.02 and again it is driven by the underlying uptake on revenue as well as some benefit from some items below the line.

That is helpful. And then taking maybe a little bit more of a longer-term view of the story, you are providing sort of 11% FX neutral ex medical device tax earnings growth number for the year. Can you maybe just talk about the moving parts in there about anything unique to fiscal 2013 that might depress that or inflate that and how we should think about sustainable earnings growth for the company? Then just sort of a dovetail of that, can you just explain in a little bit more detail the moving parts around the mix of earnings in Q3 and Q4?

So first of all the first question in there was around 2013 and how that looks versus 2014. So to try and answer that very simplistically, I deconstruct that 11%, 11.5%. If you think about revenues as a component of that, about 4.5% to 5%. Then you've got our share repurchase program carryover from 2012 plus the shares we are doing this year is probably worth about 4% to 5% and then the remainder of that is due to the operating margin expansion.

That is a profile that I pretty much see going into 2014. There is going to be some puts and takes across those three levers but I think that is broadly in line with where we are looking at it.

I think your next question was around how do we see Q3 and Q4 into the rest of the year. Again if you sort of took where our guidance -- what we have delivered so far of $2.74, our guidance range on EPS for the rest of the year, that takes you to about $3.00 at the midpoint for the rest of the year and again we see that more heavily weighted to the fourth quarter. I hope I have answered your second question.

I was just trying to understand why more weighted to the fourth quarter. What are the dynamics that make that the case this year?

Just lumpiness in the business, David.

Lumpiness in business. If you think about the uptake on our new products as well as acquisitions, you are continuing to see a steady ramp up quarter-over-quarter.

We mentioned some spending which got shifted from the second quarter into the third so you have that combination going on.

Okay, that all makes sense. Thank you.

Okay. You're welcome.

Brian Weinstein, William Blair.

Thanks for taking the question. Going back to the question on pricing, can you guys just talk a little bit there -- are there certain areas where you are seeing pricing a little bit better than expected? And is this something that you are doing or you are seeing success with efforts that you are making to minimize the impact of pricing or are there broader market dynamics that are just kind of helping you out there? Thanks.

Bill Kozy is going to address that question.

Just at a general level if you remember where we were managing a couple of years ago, we now have changed our price management systems across all six of the worldwide business units. We have the fundamental things in place now that pricing (technical difficulty) contract approval processes. I think we've gotten a lot more rigorous in the way we manage our price. As Vince mentioned, the environment is still tough but there is basically a diligence process on our major contract management process in all six of the business units and I think that has probably been an important factor.

In addition, the new marketing capability and the Company being led by our CMO, Nabil Shabshab, is really driving value propositions to a next level across again all of our acute care businesses which is where our price pressure has been mostly concentrated.

So I would say it is the combination of those two managerial initiatives that have probably had the most visible impact from our perspective on how we think about managing our price more effectively.

And if you think back, we also had a situation where we communicated that there was one product line which had a severe pricing event and that we sunsetted that I think about a year ago, halfway through last year. So with that in mind we communicate going forward that we thought pricing might improve because of that. It is still negative but we did sunset that and prices could stabilize in that particular marketplace like we thought. But to Bill's good points, I think it is that plus the combination of things that Bill just put on the table.

Great. I would just get in and jump back in the queue.

Okay, thanks a lot.

Mike Weinstein, JPMorgan.

Thank you. Let me just maybe clean up a couple of items. So if I am looking at the quarter acquisitions you said was 100 basis points and that includes KIESTRA, SSI and Sirigen? Is that right?

That is right, Mike.

And is Cato a zero for the rest of the year because I am just thinking about our numbers here and it seems like the acquisition component would be greater particularly with the addition of Cato or is that just a zero for the balance of the year?

No, it is very small, Mike. You don't have to figure it into your model. It will start to impact next year.

Okay, so if I look at this quarter so if I back out the 100 basis points from acquisitions and the 40 basis points impact of currency gets you to like to 3.1% organic. So that is down 200 basis points and the comp was a little bit tougher this quarter obviously than last quarter. But do you expect growth to accelerate in the back half of the year ex the acquisitions and that is just to be clear because of what?

So if you think about where we guided you for the rest of the year, Mike, we are saying 4.5% to 5% and if you think about acquisitions for the rest of the year, it is going to moderate somewhere in about the 60 to 70 basis points range. So we are looking at underlying growth somewhere of around 4 to 4.5. So it looks all right.

Mike, recall that we talked about the timing events in this quarter so the other thing that we should all be keeping in mind is it was a timing event in Diabetes Care so we expect strong growth in Diabetes Care in the back half of the year.

We all know we've talked about it many times the lumpiness in the pharm system, so pharm systems, we are indicating to you is going to be improving in the back half of the year versus this quarter so you see that going on as well. We have the ramp up of BD MAX in the back half of the year. Remember we talked about 150 instrument placements. It takes a while (technical difficulty) usage to start to ramp up.

So you have got all of those things and we expect continued good performance in emerging markets in the back half of the year. So when you put all that together and you pull out the timing elements, I think we are pretty confident in terms of the back half.

Okay. If I think about that as well just from a geographic standpoint if I adjusted for acquisitions this quarter, it looks like the US business was probably down slightly year-over-year. Is it the US business that turns in part because as well pharm systems turns just based on timing?

Yes, Mike, you nailed it.

Okay, great. That is helpful, guys. Thank you.

Rick Wise, Stifel Nicolaus.

Good morning, Vince.

Good morning.

Maybe talk about BD MAX for a second a little bit further. The C. diff approval seems like a pretty significant positive to me. Can you maybe be more specific or can you talk a little bit more -- expand on your comments about how it gets rolled out and how we think -- what impact on BD MAX placements the C. difficile approval could have uptake, etc.?

So Tom can comment on that but we really -- just as a foundation, we do believe that it is such a critical assay for us because it is probably the major problem that hospitals have right now in the US so without that anchor assay, we were constrained. But, Tom, do you want to add some color to that?

Hi, Rick. This is Tom. I would just say that if you look at particularly in the US, ex-US, we have had about seven assays launched. This brings the US up to now three FDA approved assays and we also offer an MRSA assay for the HAI space as well as CRE.

So the launch of C. difficile really rounds out our HAI portfolio. We had MRSA. MRSA is still a growing market but the growth rate of MRSA looking forward is not nearly at the level of C. difficile. I would say MRSA is defined as a bit of more of a mature market. C. difficile as Vince alluded to is still a very fast-growing market that has a lot of runway ahead.

And as you look at someone looking to make an acquisition of a platform for helping them manage their HAI solutions, the fact that we now have MRSA and C. diff available on the box is something we had a lot of customers actually waiting for. We had some pent up demand of people waiting for our C. diff approval and we saw that immediately upon approval, a series of orders come through the door and we are still of course working on many more beyond that.

One additional assay, it is not the scale of MRSA or C. diff, it is actively under clinical trials right now, that is our Staph SR assay for presurgical screening. We will be submitting it to the FDA later this year and that will fully round out our HAI portfolio.

Rick, one other thing to keep in mind is that while we are targeting new placements and we are getting new placements in customers we did not have before, a big priority for this year is upgrading the current base. So as I was mentioning, you are going to see the ramp up of sales but that is somewhat moderated by the fact that we are also trading out that installed base where we have been selling a very manual product to date. So expect even a bigger impact next year.

Okay. So the impact could be greater next year?

Yes.

A couple of other quick ones. Investment income was almost double our $6 million forecast formerly and sequentially better than the first quarter. I know this is an up and down number. Just what was causing that and how do we think about the number for the rest of the year?

So total investment income, you are right, was slightly higher in the quarter primarily due to deferred comp. As you know, we've talked about this in the past, as assets in that plan increase as we have seen a good performance in the overall equities market, we recognize additional interest income. Of course there is an offset in SSG&A which you will see in this quarter as well. So that is one of the key drivers to this year.

We are also seeing some slight rate improvement ex US on our cash balances so that is a positive. As we think about for the year interest income we are characterizing it about $35 million and so that is a slight increase from last quarter.

Okay, thanks so much.

Doug Schenkel, Cowen.

Good morning, everyone, and thanks for taking the questions. Vince, I think this is a question really for Vince and Suky. You bumped up your guidance just a little bit for SSG&A spend for the year. I apologize if I missed this but are you pulling forward any spend that was planned for maybe next year or beyond on really an opportunistic basis given you have seen some better than expected revenue this year? And if so, is there any reason we shouldn't be contemplating this as we model out margins moving forward?

Good question. The answer is no. To be more precise, we are saying there was spending that we thought was going to happen in the second quarter and it was in the legal area. That is now moving into the back half of the year somewhere we think probably the third quarter and that is what is going on. It is not us accelerating infrastructure spending or that sort of thing. So no impact on your modeling other than this year.

And the increase in overall SSG&A is primarily driven by the new acquisition.

Okay, that is helpful. Then another BD MAX question for Tom. Thanks for the update on the number of placements and clearly your commentary today really dovetails with our recent checks that BD MAX is going well especially as the menu expands.

Vince, just a second ago you mentioned that you are really focused on upgrading existing customers rather than gaining incremental customers. Could you just provide a little bit more detail on how you expect this to evolve over the next year or two?

And then, I guess in terms of just thinking about conversions or upgrades, however you want to put it, what is the revenue opportunity associated with getting a customer -- an existing customer to upgrade from genome? Thank you.

So this is Tom and thanks for the question. So just on -- give a little bit of color on the upgrade path and why that is important to us. As we have been reporting, the genome business has been challenged I would say for really the last year or two because of the very manual nature of that. It has been vulnerable. As we have said, we actually had -- molecular was down this quarter because of the annualized impact of losses in the past on genome and the genome menu is really purely an HAI menu plus GBS. That genome menu now with the approval of C. diff has basically been fully replicated on MAX and so the customers that have been relying on genome to do their MRSA testing and their C. diff testing and their GBS testing now have that exact same portfolio available on MAX and so we are able to go and a more aggressively upgrade them, secure that business so that we don't have any underlying negative trajectory in that part of the portfolio.

So then with a more solid base of course we are looking at a combination of share gains as well as entering into new market spaces. And really from here on out most of the new assays that we will be launching on MAX and we haven't characterized the exact size of those markets publicly but what you will see is MAX beginning to enter into new spaces for us.

So for example in the quarter, we launched our Enteric Bacterial panel in Europe. That is a new market for us, it is a new market overall because it is upgrading customers from culture to a molecular method. That assay is under active clinical trials right now in the US and will be submitted for FDA approval at the end of this year.

We have GC/CT also moving into clinical trials, GC/CT Trich, a new assay on that platform in that volume segment of the market. Of course we have been playing a bit more in the higher volume segment on our Viper platform and there's many others. We have respiratory assays in our pipeline, etc. which are new markets for us.

So we think about as we get that MAX placement into an account really growing that account through the addition of menu and that is an area that we have communicated that we are very focused on and we continue to be obviously on the execution side of that very focused on menu expansion because that is what is going to drive average revenue per account upwards over the many years to come.

Okay, that is helpful, Tom. Really one quick follow-up. Genome to MAX conversion, there is also a pricing benefit as well for you, correct?

There is. In general, it is in the 10% to 20% range.

Okay, thanks again.

You are welcome.

Jon Groberg, Macquarie.

Good morning, just a couple of quick ones for me. First on the margins, I'm just trying to understand a little bit more what happened on your year-over-year sequentially. Even if I strip out the medical device tax, the margin seems like it was a little bit weaker than I would have anticipated and I think you said you had 60 basis points of just one-time items and then you noted the legal spend push out. So I was just trying to understand a little bit more what was happening on the margin line there, the 60 bps?

So from a gross margin perspective, you're right. We have one-time items about 60 bps. It really relates to a lot of smaller items for example, we had the write down of a plant that we are closing as a result of our reloco initiatives. There has been some other items related to cost compliance. All in all they get us to about 60 bps for the quarter. Again we expect those to turn in the next quarter.

So that was the key driver of gross margin and then when you look below that again, a medical device tax worth about $14 million or about 60 bps to operating margins as well.

So Suky, maybe you want to comment on the good productivity in the quarter because we actually had the productivity we expected to have.

That is right so if you sort of broke gross margin apart, it is down 30 bps, 10 due to performance but unfortunately some of those one-time items masked the really good performance we are seeing against reloco, continuous improvement and actually our 2012 acquisitions now becoming accretive to gross margins in 2013, those all in were worth about 130 basis points improvement year-over-year. So a good point, Vince, and that is really the underlying story.

Okay, that is helpful. Then on the 3Q, 4Q dynamic, just so I am clear, do you know specifically because you said diabetes was pushed out and you expect it to be stronger in the second half. Is that something you know is going to be a 4Q versus 3Q event or is this just some conservatism that you don't really -- you know some things are coming and it is just difficult to predict when it is coming?

And I guess another kind of follow-up on the revenues there, it looks like, Tom, for Diagnostic Systems to be up as much as it was given what you said about women's health and molecular that microbiology must have been up double digits which is not a business that I think most would expect to have that kind of growth. So can you maybe just talk about the sustainability of that? Thanks.

First, on Diabetes Care, there was a one-time supply chain event. It has already resolved itself so going forward we are not concerned about this so you can pretty much take that off the table. Tom, microbiology is doing well.

It is. This is Tom. Microbiology is doing well overall. I would say in that segment you also have to put in the Veritor point of care platform which is also doing very well. As Vince mentioned, we are up to over 4700 placements since launch and really most of those sales of course are concentrated in the flu season which was Q2.

So I look at Diagnostic Systems as really getting the benefit of concentration of a very successful new point of care launch with flu with also very good growth internationally across the portfolio and solid performance and increasing strength in our microbiology business and that is driven by not only just the core products but also the integration of KIESTRA and now the broader solution that we are offering in that category around automation.

KIESTRA is really giving us a total offering in this segment that we didn't have before.

Okay and just to be clear on the 3Q, 4Q, do you know specific items that are going to happen in 4Q versus 3Q or is that just kind of uncertainty with the lumpiness?

No, I think it is just, as we have talked before, it is just the calendarization and really the ramp up of the new products and the acquisitions that are driving sort of a sequential uptake to the fourth quarter.

We do pharm systems is going to be bigger in the third quarter than the fourth quarter. That is the main one.

Thanks a lot.

Sure.

Bill Quirk, Piper Jaffray.

Thanks. Good morning, everybody. First question I think is probably for Tom and this is a follow-up to a question he had regarding MRSA and C. diff and kind of how you think about those from a longer-term growth standpoint.

Any comment around the recent CMS proposal that came out earlier this week around the inpatient quality scores and tying those to HAIs and potentially giving this business a shot in the arm here in a couple of years?

Good question. This is Tom. So just around MRSA and C. diff, we continue to see C. diff -- I'd say the market overall is growing very strong double digits closer towards the 20% range is what we see and we would say adoption of molecular C. diff methods, it still well under 50% across the market.

So you have got a significant overall healthcare issue that is happening particularly in the US with a continued upgrade from what is very clearly documented as going from an inferior method to a superior method going from EIA to molecular technology.

MRSA, I would describe as a bit more mature. You are seeing that growing more in the very high single digits to very low double digits for MRSA as a market place. That has been the conversion from culture to molecular has been going on for quite a bit longer period of time and we describe that as a bit more mature. The combination of the two though of course we still see HAIs as a very attractive market.

On your point regarding reimbursement and kind of value-based purchasing going forward, certainly we have always recognized that there is going to be increased incentives for hospitals to reduce HAIs and we have been positioning ourselves for that not only through expansion of our portfolio but we have been very involved in helping to influence those guidelines and the laws that have been passed in several states around mandatory screening, etc. So overall, the market access and market development around HAIs including influencing rolls around future payment structures, etc. is an area that we remain very active in.

Great, thank you. Then as a follow-up, we certainly have seen kind of firsthand the effect of KIESTRA being at the ECCMID meeting over the weekend and candidly seeing some pretty impressive traffic at that piece of your booth.

Can you talk a little bit about -- I guess one of the other new technologies in microbiology that I think is helped probably driving the franchise and that is mass spec and what you are seeing both in Europe as well as in the US and kind of how this fits in the entire equation?

That is a great question. Tom, why don't you --?

I appreciate the feedback on ECCMID. So I would say as you saw, KIESTRA is going very well and it is performing at our expectations. Mass spec is a very exciting new technology that's of course really allowing identification of organisms to occur in minutes rather than in hours. You may have seen at ACMED, we did a joint press release with Bruker. We have entered into an OEM agreement with Bruker on a BD branded MALDI-TOF, which is going to be -- we will sell that as a stand-alone and connected in with our Phoenix ST solution. We have launched our Phoenix so that customers can use the ID on mass spec ST on our Phoenix and connect all of those results through our informatics platform called EpiCenter.

We are also in the process of integrating that Bruker MALDI-TOF OEM that we had done in line with our KIESTRA system to be able to automate that moving forward and you probably saw we actually -- we are sharing the early prototype versions of that we were demonstrating at the convention that you were at.

Very good. Thanks, guys.

Sure.

Derik De Bruin, Bank of America.

Great. A couple of just really quick ones. What was the year-over-year benefit from flu?

The year-over-year benefit from flu was a little bit better than what we expected in a second quarter. If you recall in the first quarter, we said it was about 50 basis points.

Okay, great. Just a quick one on the Simplist products, what's sort of your expectation to organic revenue growth contribution for that in 2013? I guess some general guidance on how to think about it for 2014?

So for 2013, small. And we are just starting to ramp this up but we are starting to ship product but in terms of back half of the year, it is going to take a while for these contracts to roll and the product to get through the system (technical difficulty). So not much. So you are going to see a bigger impact in 2014. 2014 is going to be our really first sales year of this product but we are not going to get into a particular revenue guidance on it at this point in time.

Great, thank you very much.

Sure. Thanks for asking.

Matthew Taylor, Barclays.

Good morning, thanks for taking the question. Just a bigger picture question. I wanted to ask about the cadence of safety growth in Europe just given the legislative mandate there and how you see that through the rest of the year and then through the next couple of years?

Bill is going to take that.

Good morning. This is Bill. Most of the countries at this point are still in their final stages of transposing that directive to the localized country legislation and as you know, that is supposed to become effective May 11. There is a little bit of a variance across the countries in terms of capability to be ready by mid-May. You've got some people that are very far along -- examples would be Austria, Finland, France, Germany and Ireland. You've got a few people who are lagging and less certain. This would be the countries in Southern Italy; and Denmark and Czech Republic, a little different.

In terms of where we are sitting right now -- and of course we are just trying to get a handle on today -- we see the European safety market about 53%, 55% converted on infusion therapy, maybe about 10% to 13% on inspection and about 42% to 45% on our blood collection products. Those are the real key drivers.

We've also got an early-stage entry in diabetes right now and that safety market is about 10% converted. Now we have seen our revenues growing at about 9.5% or so year to date on safety. We expect that number to kind of continue itself. We don't see anything dramatic happening suddenly in the second half of the year but we do expect that high single-digit growth to continue hopefully over the next several quarters.

Great, thanks. I just wanted to ask another question on the margin. I guess it was interesting that you called out the acquisitions as becoming accretive and given your programs and terms of reloco, can you talk about your acquisition strategy and how that relates to margins? And do you think that a lot of your expansion in the next couple of years is going to come from gross margins or is it more going to be cost-cutting driven?

I think we have a mix going forward. We do expect to continue to get gross margin improvement as we go forward. I think from a principal standpoint you should think that the kind of reloco program you have seen in medical is now a way of life and that we would look to keep extending that kind of thinking and program throughout the Company. We are actively working on those things.

Also second piece, you are right, we do expect that these acquisitions will become more accretive over time. The way I think about it is our strategy is to continue doing these plug-in acquisitions so there is always a base line cost to the program. But as some of these acquisitions mature, then we see benefits from them and that whole program becomes more positive over time. But we do expect to continue this program and continue to move into adjacencies.

Moving into SSG&A, we will continue to drive our efforts in shared services as we bring up our global shared service network and continue to look for operating efficiencies in SSG&A as we move forward on the EVEREST program as well. So it is going to be a combination and it will probably vary from year to year depending on what is going on.

Thank you.

Sure.

Peter Lawson, Mizuho Securities.

Just a question around the pharma business. Does that change the acquisition strategy going forward and is there any way you can kind of help us around 2014 on the outlook for that business?

So we are not going to start guiding that business now. It is too early on, Peter. Let us get some traction and we will come back as we talked about 2014 more holistically, then we will update you on that business. But we are just taking the first orders for that business so just way too early for that. What was the first part?

Just around acquisition strategy.

So I don't think it changes our acquisition strategy. We are still focused on plug-in acquisitions. If you think about what we are doing in the medical side of the business, what we are communicating is we are focused on medication error reduction and improving parenteral drug delivery. That is the core of that strategy and sure we would continue to look to expand our footprint in that area as we are continuing to expand our footprint in Diagnostics and Biosciences.

And then just on BD MAX and C. diff, what kind of hospitals are your targeting? What is your go to market strategy there and is that more of an international business you think than a US business?

It is very much a US business and an international business. But pretty much all the major -- the acute care hospitals have significant programs around first HAI reduction and then as Tom was talking about before, we see this opportunity for a broader menu across the acute care segment. What Tom is doing is broadening the footprint of molecular within the acute care segment. You want to comment any more on that because it has been very concentrated in moving out?

I think you summarized it very well. If anything I would say C. diff is a bit more concentrated in the US where the adoption of molecular is more widespread. Europe is much further behind in the adoption curve. The US is three to four times ahead in the adoption curve I would say at least of C. diff than really most other geographies around the world.

And just a follow-up around that. Is Asia a focus for your BD MAX?

Yes, we replaced quite a number of BD MAXes in Asia. We have not necessarily entered into China with BD MAX yet but more of the mature geographies in Asia particularly Singapore, etc., we are seeing strong adoption of BD MAX. They have existing HAI screening programs in those markets and we also see very positive feedback on our future menu in those geographies as well.

Jeff Frelick, Canaccord.

Thanks for taking the question, Vince. You had mentioned earlier you are not seeing broad improvement in the overall market especially around utilization. So given the solid quarters you have strung together here, you must be taking some share. Just wondered if you can point to which products are contributing to those gains?

I think there's a number of businesses where we are doing quite well in and you see our results first off just broadly in international and especially in emerging markets, we are doing well. As we build out those infrastructures, as we talked about, as we have some products particularly targeted for those markets so in Medical we are doing well. Remember we haven't talked about it today, the Emerald syringe, we have launched and we are moving into markets that we haven't served before.

I think we are doing quite well in the Diabetes Care business and pen needles as well. In Diagnostics, we were pointing out the point of care in Veritor. We entered the physicians market place where we had been in clinical but we were not there before in the flu market in physicians. Now we have strep and RSV going forward as well so we are excited about that.

Remember there's also adjacencies going on here which where we are moving into spaces we just haven't occupied. Tom just talked about how he has got a mass spec unit. We have moved into laboratory automation.

So I think we are doing better because we are moving into adjacent spaces, new products and gaining some share at the same time. I think it is more the adjacencies, the international piece than share gain right now but getting some on the margin.

Great. Thanks, Vince.

Kristen Stewart, Deutsche Bank.

I just want to follow-up on Derik's question just regarding the flu to make sure I understood it correctly. Last quarter you guys said there was a 50 basis point benefit in 1Q which you characterize as going to be more of a pull forward from the second quarter. And then I thought if I understood you correctly you said this quarter was a little bit better than what you had been expecting. So can you maybe just help us understand in this quarter what kind of flu was?

You are right, Kristin. Flu is worth about 50 bps in the first quarter. It was smaller in the second quarter, a little bit better than we had expected. So when you think about and you look at the actual market dynamics on what happened in flu you clearly saw from CDC a big drop off in the second quarter. There was a bit of a spillover.

It was small in the quarter, wasn't a big driver at all -- less than 50 bps. But where it was was in the physician's office with the new products.

So we shouldn't be thinking about the underlying growth, the 4.1 less the 100 from acquisitions and then kind of further reducing for flu would you say that given --?

I wouldn't do that.

Okay. Perfect. Thank you.

There are no further questions. I will turn the call back over to Vince Forlenza. Please go ahead.

Thank all of you for your questions and your participation on the call. We were very pleased with our second-quarter results and it was great communicating that to you. Very happy to raise our guidance for the year.

I think that we are seeing strong growth as we communicated from international, good performance from our acquisitions and our new products which is driving that growth. We didn't talk a lot today about our operating effectiveness programs but they remain on track with reloco 1 and reloco 2 and we will continue to drive those programs going forward. And it was a pleasure to raise our guidance.

So we look forward to updating you on the balance of the year. Thank you very much.

Thank you. This does conclude today's teleconference. Thank you for using AT&T Teleconference. Please disconnect your lines at this time and have a wonderful day.

Thanks very much.