Becton Dickinson and Co (BDX) 2015 Q1 法說會逐字稿

Hello, and welcome to BD's first fiscal quarter 2015 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through February 12, 2015, on the investors page of the www.BD.com website, or by phone at 800-585-8367 for domestic calls, and area code 404-537-3406 for international calls, using confirmation number 64069271.

(Operator Instructions)

Beginning today's call is Miss Monique Dolecki, Vice President of Investor Relations. Miss Dolecki, you may begin.

Thank you, Kristy. Good morning, everyone, and thank you for joining us to review our first 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 page of our website at www.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 first fiscal quarter press release, and in the MD&A section of our recent SEC filings.

We will also discuss the 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 Chris Reidy, Chief Financial Officer and Executive Vice President of Administration; Bill Kozy, Executive Vice President and Chief Operating Officer; Tom Polen, Segment President; Linda Tharby, Segment President and Alberto Mas, President of Diagnostic Systems.

This quarter we recorded pretax adjustments totaling $97 million or $0.34 per share. These adjustments consisted of acquisition related charges, legal charges and the amortization of acquisition related intangibles. Last quarter we noted that we would be moving to a cash EPS basis going forward. These adjustments were also made for the first quarter of FY2014 for comparison purposes, and can be found in the appendix of the investor relations slides.

I would also like to note that the guidance provided today is on a BD standalone basis. If we close on the transaction before the end of the first calendar quarter, we plan to provide guidance for BD together with CareFusion on our regularly scheduled second-quarter earnings conference call. 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're off to a really good start this fiscal year. We're pleased with our first quarter results, with strength coming from both our medical and life science segments.

Our first quarter results were also aided by a stronger than expected flu season. Our core business remains strong, which is consistent with the results we've reported for the past 10 consecutive quarters.

We continue to have a robust pipeline with recent product launches continuing to gain traction. Growth in the quarter was also driven by strong sales in emerging markets and safety engineered products.

Our pending acquisition of CareFusion remains on track, with an expected closing date before the end of the first calendar quarter. I will provide an update on our integration planning later in the call.

Overall, things are progressing quite nicely. Our solid revenue growth and operating performance this quarter, in combination with our performance in FY2014, gives us the confidence to raise our FY2015 currency neutral revenue and earnings guidance.

Moving on to slide 5, I will review our first quarter revenue and EPS results, which I will speak to on a currency neutral basis. Total Company revenue growth was strong at 5.3%.

Fully diluted EPS came in at $1.20, which included a number of charges which Monique just mentioned. Adjusted EPS was $1.53, which represents growth of 15.4% over the prior year.

Now I'd like to turn the call over to Chris, who will walk you through our first quarter financial performance and updated guidance.

Thanks Vince, and good morning everyone. I'd like to begin on slide 7 by discussing the key highlights for the first quarter, which I'll speak to on a currency neutral basis.

As Vince just mentioned, we are pleased with our first quarter results which were ahead of our expectations. Revenue growth of 5.3% was aided by a stronger flu season than last year. This contributed about 80 basis points to growth.

Our tax rate declined year-over-year, representing the impact of the reinstated R&D tax credit as we had contemplated in our guidance. Adjusted earnings per share of $1.53 grew 15.4% in the first quarter, when compared with the prior year.

Earnings were ahead of our expectations, primarily due to stronger revenue growth coupled with the lower tax rate. As Vince just mentioned, our strong performance in the first fiscal quarter gives us the confidence to raise currency neutral revenue and EPS guidance for the year, which I will talk to in more detail in a few moments.

On slide 8 I'll review our revenue growth by segment on a currency neutral basis. As you know, we have recently moved to a two segment structure. For transparency and to align with how we provided guidance, we are providing additional summarized information for the Life Sciences segment.

As I just mentioned, first quarter revenue growth was 5.3% for the total Company. The impact of pricing pressure in the quarter was about 20 basis points, as expected.

BD medical first quarter revenues increased 4.2%. Within the medical segment, medical surgical growth was 6.8% this quarter, aided by strong international safety growth.

Diabetes care growth of 3.6% reflects continued strength of pen needles, partially offset by order timing in the US and an unfavorable comparison to the prior year. Pharmaceutical systems decline of 1.9% was unfavorably impacted by ordering patterns, subsequent to strong fourth-quarter revenue growth. This was in line with our expectations and consistent with our communications on our last earnings call.

BD life science first-quarter revenues increased 6.5%. The segment's growth was driven by strong sales across its three business units.

Growth in diagnostics was 6.5%. Pre-analytical systems growth of 5.2% was driven by safety engineered products and geographic expansion.

Diagnostic systems growth of 7.8% was driven by core microbiology growth, which reflects a stronger flu season and strong blood culture performance. We continue to capture significant share with our Veritor platform. We now have over 15,000 instruments in use today at hospitals, clinics and doctors offices.

We also continue to see good traction with the BD MAX platform. Biosciences revenue growth was 6.7% in the first quarter, driven by strong instrument placements and international growth.

Moving to slide 9 I'll walk you through our geographic revenues for the first quarter on a currency neutral basis. BD's US revenues increased 3.7% versus the prior year, which benefited from some timing in the medical segment and flu sales in the life sciences segment. We view the hospital environment in the US as stable to improving slightly.

Revenue in our US medical segment increased by 3.6%. This was driven by pharmaceutical systems order timing, a favorable comparison to the prior year and solid growth in medical surgical systems. The diabetes care unit was partly impacted by the aforementioned timing of orders.

US life science segment grew 3.9%. Strong diagnostic systems US growth was negatively impacted by continued declines in our women's health and cancer business, which we have been discussing for some time now. Biosciences growth reflects strong research and clinical instrument placements.

Moving on to international, we continue to see strong growth. Revenues grew 6.4% driven by solid growth across both our medical and life science segments, which grew 4.6% and 8.5% respectively. Both segments continue to experience strong growth in emerging markets and international safety sales. Medical results were negatively impacted in part by the previously mentioned ordering patterns in pharmaceutical systems.

On slide 10, emerging market revenues grew 12.4% and accounted for 26.5% of total revenues. This strong performance was driven by growth across both segments.

China revenues grew 23.1% and safety sales in emerging markets grew 17.8%. Strategic investments in emerging markets continue to drive robust growth.

Moving to global safety on slide 11, currency neutral sales increased 5.9% and grew to $573 million in the quarter. Revenues in the US declined 1.9%, which was impacted by an unfavorable comparison to the prior year. International safety sales grew 16.1%.

Medical and life science safety growth was 6.6% and 5.3%, respectively. Both segments' results were driven by strong international growth, particularly in emerging markets.

Turning to slide 12, foreign currency had an unfavorable impact of about 70 basis points on our gross profit margin in the quarter. On a performance basis, margin expansion was driven by positive contributions from continuous improvements in favorable mix. These contributions were partially offset by the unfavorable impact of pricing and pension. We also incurred some one-time costs related to the Kiestra platform, which included the integration into our business information systems.

Raw materials were about flat in the quarter. For the full fiscal year, gross profit expectations remain in line with our previously communicated guidance.

Slide 13 recaps the first quarter income statement and highlights our foreign currency neutral results. Since we have already discussed revenue and gross profit, I will move down the income statement to SSG&A.

As a percentage of sales, SSG&A decreased in the quarter. This was driven in part by sustained cost containment. R&D was 6.3% of sales in the quarter. Operating income grew 10.1%, driven by solid revenue and gross profit growth, coupled with better leverage in SSG&A.

Our tax rate improved 380 basis points over the prior year. The improvement was due to continued favorable geographic mix and the impact of the R&D tax credit reinstatement, which was contemplated in our full-year guidance range. Adjusted EPS in the quarter was $1.53, or an increase of 15.4%.

Turning to slide 14, I'd like to walk you through our expected revenue guidance for the full FY2015. In summary, we are increasing our guidance and now expect revenue growth of about 5% for BD in total. This increase reflects our improved performance in the first quarter, relative to our overall expectations.

On a reported basis, revenue growth is expected about flat to a decline of 1%. This reflects a currency headwind of about 600 basis points and assumes a euro to dollar exchange rate of $1.14.

At current spot rates, all major currencies relative to the US dollar are down about 15% to 20% versus last year. We continue to anticipate pricing pressure of 30 to 40 basis points for the year.

We are increasing our adjusted earnings guidance to 9% to 10% growth, currency neutral. This is an increase from our previous guidance of 8% to 9% growth, reflecting an improved revenue growth profile, along with lower oil prices.

On a reported basis, earnings growth is expected to be about flat to 1%, reflecting a currency headwind of about 900 basis points. All other full-year guidance ranges provided on our November earnings call remain unchanged.

Now I'd like to turn the call back over to Vince who will provide you with an update on our product portfolio.

Thank you, Chris. Moving on to slide 16 and product launch updates in the medical segment. We recently announced the FDA approval of the BD Intelliport medication management system, intended for manual IV bolus injections. This product is the first and only solution providing realtime drug identification, dose measurement and allergy detection at the point of injection. Realtime wireless data collection is sent directly from the patient's bedside into their electronic medical record.

This product underscores our commitment to BD's medication management franchise and is complementary to CareFusion's smart pump and informatics platform. This represents the next wave of patient safety related products.

In diabetes care we're looking forward to the FDA submission for our approval of our new BD insulin infusion sets this fiscal year. We expect a product launch in 2016. This product will improve the consistency of insulin delivery for insulin pump users.

On slide 17, you can see the anticipated products in our life sciences segment. Within the diagnostics business, our BD MAX molecular instrument continues to gain traction with customers and we remain focused on menu expansion on that platform.

We anticipate launching a number of new enteric panel assays, including enteric parasite in FY15 followed by enteric viral and extended bacterial. Also in 2016, we expect to launch of the vaginitis and vaginosis assays.

As Chris mentioned earlier, we've seen a lot of success and we continue to gain notable share with our BD Veritor instrument. In 2016, we expect to launch the next generation of this instrument which will have smart device features. We continue to anticipate the full launch of BD's Totalys system in our women's health and cancer area, for cervical cancer screening automation.

Within biosciences, we have launched another of our BD horizon dyes, based on the Sirigen technology. As we have been sharing with you, these dyes are enabling significant gains in multi-parameter flow cytometry analysis.

We continue to anticipate the launch of two additional instruments towards the end of this year, the BD X-15 high parameter, multicolor research instrument and the BD FACSVia, low-cost clinical instrument. The FACSVia's primarily for emerging markets, with an initial focus on China. The diversity of this instruments, both in application and target demographic, illustrates the wide customer base that we are enabling.

In addition to these new product launches, we are also focused on successful commercial launches of our many recently launched products. As you can see, we continue to have strong opportunities in our pipeline and we look forward to sharing our progress with you throughout the year.

Moving on to the CareFusion acquisition timeline on slide 18, we continue to make progress in finalizing this acquisition. We successfully completed the Hart-Scott-Rodino review process in November, our financing was secured in December and most recently the CareFusion shareholders voted to approve the transaction on January 21.

Regarding Europe, we plan to file our final submission tomorrow. The EC has a 25 working day review period to decide whether to clear the transaction, or enter into a second Phase investigation. Assuming EC clearance at the end of the review period, we expect to close the transaction before the end of the first calendar quarter.

Regarding integration planning and talent retention, things are on track and in terms of the value drivers we've outlined, we remain confident that we will deliver on these commitments. As a result of the financing structure we communicated in November, we expect the acquisition to be accretive to cash earnings on a high-teen percentage basis for the total Company in FY2016. We continue to expect to deliver $250 million of cost synergies, which will be fully realized in FY2018.

As we focus on deleveraging, we will consider appropriate timing to restart our share repurchase program, which we expect when we return to a leverage ratio of about 2.5 times gross leverage. We remain enthusiastic about the financial and strategic benefits of this acquisition for our shareholders and customers.

On slide 19, before we open the call to questions, I'd like to reiterate the key messages from our presentation today. First, we're pleased with our strong start to FY2015. We are delivering on our commitment of topline growth, bottom line growth and underlying margin expansion.

Second, our core business is strong, as evidenced by our consistent performance for the past 10 quarters. We continue to see good performance in both segments, coupled with strong growth in safety and emerging markets. Our strategy continues to deliver results, as evidenced by our performance this quarter.

Third, we are on track for the anticipated CareFusion acquisition. Teams across both organizations are hard at work planning for a successful integration. The powerful combination of the two companies will further enable us to deliver end-to-end solutions that increase efficiencies, reduce medication errors and improve patient safety in both hospitals and pharmacies.

Finally, our strong financial performance in the first quarter enables us to raise currency neutral revenue and earnings guidance for FY2015. We look forward to the future with confidence.

Thank you. We will now open the call to questions.

Thank you.

(Operator Instructions)

Kristen Stewart, Deutsche Bank.

Good results today. I was wondering if you could walk through the guidance and the components that gives you confidence. How much is flu, that's adding to the increased topline? And can you walk us through your commentary around lower oil costs and resin costs and how that could be contributing as well to the EPS line?

Chris can do that, but we had strong performance across all of our businesses, with flu on top of that, and flu was a combination of a stronger season and continued share gains in that business. So that's kind of behind what we saw on the revenue side, plus we see good growth in emerging markets. We haven't seen any turndown in any of our emerging markets.

We look at Brazil and we're careful about that and keeping an eye on it because from a macro economic standpoint, you'd be concerned, but we saw good performance there this quarter. So good emerging markets, good across the portfolio and good flu. That's what got us to the top of the range. Chris, if you want to walk through the rest of it?

That sums it up in terms of the top of the range, flu certainly helps and we see that sticking. We don't know what's going to happen in the next quarter regarding flu, but so far it's been strong and again that's been a combination of a strong flu season, as well as our taking share. So that's really what's driving the topline.

The bottom line a number of things. Certainly the contribution of a stronger revenue growth including the lift from flu, then as we look out at our cost structure, we do see the decline in oil prices. That's going to have more of an effect in the back half of the year. It's not directly related to the price of oil.

The resin prices are going down about at a one-third rate of oil price decline, and some of that has to do with the dynamics of the market and others in other industries, still having a high demand. But we do see some impact of that, but you get about a half of year of that because it runs through inventory. So I think on the EPS, contribution from flu or contribution from oil prices, as well as the fact that we've got some upside on the tax side as well, coming a little bit to the lower end of the range, primarily driven by the R&D tax credit that was re-enacted.

Mike Weinstein, JPMorgan.

I just wanted to circle back on two things. One, the CareFusion commentary. With regards to the accretion. The high-teens accretion commentary. Is that commentary first 12 months, or is that FY16 commentary? And then, second, I was hoping you could spend a little more time on the China performance this quarter, which was well north of 20% and hoping you could shed more light there. Thank you.

Mike, on the first one it is consistent with what we said in the past, FY16.

And then on China, Mike, we continue to see strong performance pretty much across the board in China. And so the medical segment continues to do very well. We're continuing to expand our footprint there. And as that's happening, we see the government continuing to spend on healthcare.

We have not seen any slowdown. We track a number of measures, so we haven't really seen any significant issues in China. Tom, would you want to comment at all on the medical side, and Linda on the diagnostics and life sciences?

I think you said, we had a very strong, north of 20% growth in the medical segment in China this quarter. And we continue to see strong performance across all three businesses in the segment.

The life sciences segment again, over 22% growth this quarter, and we continue to see as expansion occurs in healthcare amongst different tiers, strong opportunity continuing for us in the China market.

So pretty much across the board, Mike. Thanks for the question.

David Lewis, Morgan Stanley.

Just one quick question, maybe for Tom or for Vince. Wonder if you could discuss the development of the pro forma growth story with CareFusion. Specifically what I wanted to center on was, how long is it going to take to really see benefits from CareFusion international product registration, and what provides that confidence that the underlying CareFusion growth can sustain pro forma topline around 5% until that process plays out and develops? Confidence and timelines any development thoughts would be very helpful.

Sure. We're doing a lot of work on that right now. And Tom can comment and bucket this thing for you in terms of near-term opportunities where we don't have registration issues. Registration and then longer-term, some of the market development stuff. So Tom, why don't you walk us through that?

David, good morning. As we've shared in the past, we look at revenue opportunities really evolving more in the 17-plus timeline. And we see that in three different buckets.

The first is, there's a series of products in the CareFusion portfolio that do not require registration in emerging markets and ex-US. And those would be primarily around the Roland Pyxis portfolio. For pharmaceutical dispensing and automation.

Then you've got -- so that's in the near term horizon, and the mid-term horizon then, you've got products which do require registration, but fit into very strong existing BD channels. And so those would be portfolio components such as IV valves, sets, chloraprep can fit into that category where we've got the existing infrastructure and it's really sold as integrated solution with our current portfolio.

And then I put the third horizon there as, more complex capital that, such as pumps in certain markets where they're not already registered. And those require both registration, as well as building some basic infrastructure around service et cetera, of that type of capital. With that said they do have, of course through the CME equity stake that they took, position in a Company that does have pumps registered in a series of emerging markets and we see that as a near-term opportunity. But we're actively working with the CareFusion team on further defining and putting timelines around each of those subcomponents, and we'll be sharing certainly more of that after close.

David Roman, Goldman Sachs.

This is actually Kyle calling on behalf of David Roman. Thanks for taking the question.

Good morning.

I just wanted to talk a little bit about your woman's health segment and diagnostics. You called out the extended interval screening for roughly a year now, creating a headwind to growth in that segment. When can you see interval screening as fully incorporated into -- as fully incorporated as behind you, and when do you see yourself as lapping that headwind going forward?

Sure. Linda will take that.

Good morning, Kyle. So declines from our increased interval recommendations, we look at continuing for another 12 to 18 months. As more physicians adhere to the recommendations. So we estimate at this point about 70% are using the increased interval timelines. And I think of note, this is obviously affecting us in the US and we continue to see very strong growth ex-US on our SurePath platform.

Thanks, Linda.

Rick Wise, Stifel.

Couple questions. Maybe touch if you would on the current NIH budget proposal. I think it was a better proposal than we've seen, 3.3% I think in Obama's proposal. Is that good, bad neutral in your view? We feel more optimistic on the outlook as a result and maybe talk about US bioscience and was it helped by end of quarter budget releases?

So I think that it's a good thing. I think that's better than it's been for quite some time. We'll have to understand their priorities in how they spend that. Certainly we're hearing about the whole program and next-generation sequencing and the million people, individuals that they are looking to do.

But overall I would say it's a nice positive. So things heading in the next direction. I think there's going to be continued debate in Congress over this as well, with some let's say thinking that supporting research is an important part of an innovation strategy for the country and that's becoming a more rational debate. I think we're past the sequestration but Linda, do you have other thoughts you might want to add?

I think Vince summed it up very nicely. Maybe the only thing I would add on the comment around priority of spending, obviously we're looking at how much goes into areas like core immunology versus translational research, and of course with our acquisition of GenCell we're very excited about the news happening in the US on personalized medicine. Maybe the only thing we're watching on a global basis is the spending in Japan where we're seeing some reductions overall and push outs in spending in that environment.

There was a little bit more than a 3% reduction, Linda if I remember correctly in Japan. And so we're watching that. We know it's going to give us a little bit of softness in the back half of our year in biosciences. But overall positive.

Derik de Bruin, Bank of America.

In your microbiology segment, there is a number of new technologies that are emerging for both pathogen ID and in particular for antibiotics sensitivity testing. That potentially accelerate and automate the process in AST. Could you talk about what you're doing in tech development in that area and how you see about protecting that franchise as some of these new technologies go out? This goes on to a question on, can you update us on Kiestra and where you're on that and how many systems have been installed?

So on Kiestra, we haven't said how many systems have been installed, but we're continuing to make good progress. We've got a very nice pipeline on Kiestra and we're expecting very strong growth there this year. And continued demand. But Alberto, do you want to talk a little bit about rapid detection methodologies?

So, we are, good morning. We are definitely watching the space very actively. And I would like to highlight as well the partnership that we have from a multi-talk perspective with Bruker, we're partnering with them not only on current technology, but potentially making an evolution next step, bringing our expertise in microbiology to their expertise from an instrumentation perspective. And making an impact on the market that way.

Okay. Thanks for the question.

Bill Quirk, Piper Jaffray.

So with the CareFusion acquisition closing next quarter, or it seems like it's going to close next quarter, when should we start to see some of the costs and revenue synergies leak through?

So we said our expectation is that by the end of the first calendar quarter it should close as long as we do not get a, I'll call it a second request from the EC. Just to make sure you understood what we said a few minutes ago. And so with that, in terms of when do we expect to see the synergies? Was that the second part of your question?

Yes. So let me jump on that. In terms of that at the next earnings call what we will do is tell you what the new color looks like on a combined basis for the remainder of 2015. So we'll address that then. We have obviously talked about the accretion in the high teens for FY16. And again, a lot of that driven by cost synergies. I think, Tom addressed on an earlier question the timing of revenue synergies which were not baked into that, but are more of a longer-term synergy.

First, revenues I think Tom said starting about fiscal year, two years out basically is what we said and that's really driven by product registrations as much as anything else.

Vijay Kumar, Evercore ISI.

Maybe a big picture question for you. Historically, you guys have been pretty conservative when it comes to cap deployment. You've been extremely focused on organic. The core if you will. And now that you've done the CareFusion deal, you've seen a lot of enthusiasm around the stock with investors cheering your strategy. As we look forward at this Company, is this a new Becton, Dickinson how is management thinking about cap deployment? Can you please just contrast the old versus the new strategy if you will?

Well, I would say that we moved from a phase being primarily tuck in acquisition, building our acquisition capabilities, but at the same time being strategy driven. And when that strategy called for larger acquisition, that made sense both strategically and financially we did it. And that is still the way we think about things. Has to have attractive returns and it has to have a clear and compelling strategy. That hasn't changed at all.

And so as we do this, we'll continue to build our capabilities. We'll have gone through a large integration process. We'll always will continue to step back and look at the corporate strategy and look at what is the next logical move? And that could be a series of tuck ins or something somewhat larger. But right now, we are focused on CareFusion, getting that integrated. And getting both the cost and the revenue synergies as we look forward.

Doug Schenkel, Cowen and Company.

I want to go back to what was really the very first question in the Q& A session. FX and revenue growth was much better than consensus in the first quarter, and it was strong across all businesses, not just diagnostics and flu. It was broader than that. And yet it looks like your revenue guidance for medical and biosciences was unchanged. Really all it looks like you did was bump up diagnostics. And this seems pretty conservative relative to your tone and certainly the balance Q1 beat.

Keeping in mind, running off a few things off the top of my head, women's health should presumably return to growth over the course of the year as you annualize the account loss. It seems like China momentum, if anything's building in really all segments, based on your prepared remarks there was some timing dynamics that actually seemed to push some revenue out of Q1 into the balance of the year. And you clearly have a good pipeline of products, so I'm just wondering, what's behind this?

Should we view this as a continuation of your practice of being conservative with guidance increases earlier in the year, along the lines of what we've seen the last couple years? Is it about an uncertain macro environment? Just trying to dig in here. And then, related to that, the stronger than expected performance we've seen in the last couple quarters, has that allowed you to accelerate some of the investment that you need to make as you head into the CareFusion deal? Thank you.

Starting with your last part of your question, I think our investments are really on track with what we expected for CareFusion and other things that we're pursuing within the Company, whether it's GenCell, on the life science side, or Intelliport, or whatever. And so that really remains on track. In terms of, absolutely we feel good about the first quarter and how it went. We didn't change the bioscience guidance because of the issue that Linda was putting on the table, which was what's happening in Japan with research spending being cut by I think it was 3.5%. Somewhere around there approximately.

And so we're going to have a tough compare in the back half of the year in biosciences. Good performance, improving performance. But from a market standpoint, internationally that's going to impact us to, that's why we didn't change it there. Diagnostics we did.

And I would say on medical, and Tom can comment on this we're pretty much where we expected to be. It was strong and there were some puts and takes within that. And so we are encouraged about the remainder of the year, but we thought five was about right. Do have any other comments you want to make a medical?

Hi Doug, this is Tom. I think, obviously in the quarter we were 4.2% growth versus our guidance for the full year of 4.5% to 5%. Obviously we weren't looking to raise from there. But we are confident that we were expecting a slightly lighter first quarter. It's well within our expectations.

We knew after a very strong performance in Q4 in pharma systems we were expecting some lighter ordering patterns in Q1 and a big prior-year comparison in diabetes care. And so our Q1 performance is right in line with our expectations and it does reinforce our confidence in our full-year guidance for the medical segment.

Maybe just one other comment, Doug, on the life sciences side, for biosciences in particular, which is our comparator in Western Europe, in particular we had a pretty strong first quarter, sorry light first quarter last year. So we're working off a weak comparator.

So one last thought too. We saw good performance across all of emerging markets. We're watching what happens in Brazil. And whether that situation changes.

And the reason I put it on the table is because we've seen good performance, but we're reading about some of our peer companies which are not doing as well. So we're watching it. I think we've got a good organization, we're on top of it, but that was another part of our thinking.

Rich Newitter, Leerink.

Going back to cervical path testing, it sounds like your comments relative to a competitor, a little bit more conservative about the market outlook. They seemed reluctant to call it bottom, but things have improved. Declines have gotten less bad. And they also called out market share gains. So I'm wondering if you can help parse that out a bit. Do you think the market may be, the margin is getting close to a bottom? Anything on market share?

Sure. Linda will take that.

Thanks, Rich. As we commented earlier we see about 70% of the market now having transitioned to interval testing. So continued impact of that and we also are seeing specific to the US market, some competitive loss occurring on that side. And again ex-US, very strong performance on the platform.

So we're at 70%. It's difficult to say does that finish off at 85%? Where that goes, there will probably be some people who never make the change. We're thinking it's at least another year before we see the market flatten out.

Glenn Novarro, RBC Capital.

On safety, two questions here. In the US, I think you called out a tough comp. So maybe talk about how you see safety playing out for the rest of the year? And then outside the US you called out very strong emerging markets in the quarter. Can you talk about how Europe performed in the quarter and your outlook for Europe for the rest of the year? Thank you.

Sure. US safety, I think that's what you were referring to, was down a little bit, but there was a product line that was SSI. It was an acquisition. It was all reported in the US last year. Now we're reporting it in each of the regions where it's sold, so that was the impact year on year. Otherwise, you really see no change in US safety sales. Tom, maybe you want to comment on safety sales outside the US and what you're seeing?

Sure. So, we were basically flat in the US when we take out that reclassification. And, you'll see that continue to annualize, that effect in the US for the next couple quarters. It will be, that re-class will be out by Q4, but where you'll see that have a slight drag on the US safety reported numbers for the next two quarters as well.

Internationally we were really pleased with 16.1% international safety growth, really driven by very strong performance in emerging markets. How we continue to grow into the double-digits, really led by Asia and Latin America. And we're seeing good progress and continued interest in partnering in a number of emerging countries who continue to improve the safety of their healthcare worker. So, continued strong trajectory in emerging market performance there.

So in Europe, it was 0.9% growth, but it was all driven by unfavorable timing in the pharm systems business. The usual lumpiness we see within that business. Anything else you want to comment on that, Chris?

Strong in life science, strong in med surg. But really, what we saw in pharm systems which we expected, was this ordering pattern and that really hits you in Western Europe.

So underlying we're really saying no change.

And as expected.

Larry Keusch, Raymond James.

Just a couple quick ones for you. Could you, I'll rattle them off. How much was the R&D tax credit worth within the tax rate? And then, secondly can you remind us of resins, how much of that was in cost of goods, just trying to get a sense of magnitude of your resin spend.

On the last one in terms of resins, about $260 million. And so again, as you think about that, oil prices declined about 40%. We see resin prices about a third of that rate and only about a half of it gets impacted, because of the cap enroll in inventory. The first part of the question was?

The impact of the tax credit. The R&D tax credit.

So as we had said on the last call, that if the R&D tax credit was enacted, we would be at the low-end of our guidance range for the year, which is the way to think about that. Towards the low-end, because if you really looked at what they did, they didn't do it the way they had done in the past and extend it out for this full-year. They only reenacted it through our first fiscal quarter, December 31 of last year. So you've got a catch-up, but you didn't get the benefit of the next three quarters. But even with that, it had a good impact in bringing us towards the low-end of our tax rate range. Which to remind you was 21.5% to 22.5%. So think towards the low-end of that the tax rate, primarily driven by the R&D tax credit enactment.

Brian Weinstein, William Blair.

With respect to your Veritor product, you've called it out a couple of times on these calls as being particularly strong on placements. Alere obviously has an approval on the molecular side for a CLIA waiver. Can you talk about the potential impact from that product launch and your general thoughts about the need for a molecular product in the point of care, or CLIA waive setting?

Sure. Alberto will take that.

Yes. We're seeing the product potentially over time impact more on the hospital segment than in the point of care and retail segments, where we are particularly strong in. So that will be a little bit of a transition over time in certain segments of the market.

Any more questions?

Mark Massaro, Canaccord Genuity.

Maybe just to follow up on that flu question. Obviously flu prevalence was significant in the quarter and continues to trend above last year's levels. What was your flu revenue in the quarter and can you comment on what you're seeing presently in the competitive environment? And finally, to what extent do you think your investment in smart device features can potentially accelerate your run rate somewhere above 1000 per quarter?

Alberto, why don't you comment on what you're seeing competitively, how you see the importance of the smart features, the connectivity and whatnot? And then I think we'll take a look at what the flu sales were.

In terms of the competitive environment, about a third of our growth versus prior year is driven by share gains. And most it's the Quidels and Aleres of this world that we're seeing the gains. In terms of our next-generation Veritor system, it will have a connectivity associated with it which will be very positive, obviously positions, but also integrates delivery networks. So they can actually get a better sense of the quality and the compliance of the flu. In addition to that, we'll have other features like barcoding and other capabilities so we can develop future assays on the platform.

The flu contributed about 80 basis points to our growth if I remember right, Chris for the quarter.

Translate that to the year, it's worth about 20 basis points or so based upon where we are today.

Kristen Stewart, Deutsche Bank.

I just wanted to go back to the CareFusion deal and I wanted to get your thoughts on what you consider to be the underlying sustainable growth rate of that business. How you're looking at that and integrating. I think one of the other questions had mentioned about a 5% topline growth. And I'm just wondering if that's what you are expecting from that franchise and how to think about that. Thanks.

So when we valued the deal we did not value it at a 5% growth rate. We're looking more at an underlying growth rate that was about 3.5%. What we've said is, the challenge over the long-term based on the work that Tom was describing, was that BD's about a 5% grower as we're saying on the call today, and the work would be to try to accelerate their growth rate up towards the 5%. But we didn't start out with saying it's a 5% grower, but that is the work that we're doing.

And that would be a goal that we would have and we're working to try to put those plans in place. It will be dependent on the three buckets that Tom talked about over time. The geographic expansion and we're very, also excited about in the long run how we leverage smart works and what other applications could be put on that. So Tom, do you have anything else you'd want at that?

The only thing to add is, as Vince mentioned I think we see them as 3%, 3.5% underlying growth rate. We certainly recognize that that's primarily based on being a US Company, which is very comparable or even slightly better than our US-based growth rate. That's of course we're 60%, international, they'll be less than 25%. We're 25% emerging markets, they're less than 10% emerging markets. And so, that 3.5% underlying primarily US business, we see an opportunity to really accelerate that based on international growth opportunities and continue to expand that as a percentage of their total sales.

I would now like to turn the call back over for to Vince Forlenza for any additional or closing remarks.

Thank you very much for your participation today. We look forward to updating you as we move closer to the CareFusion acquisition. We're very excited about the start of the year and the strong start in our core business. And thank you very much for joining us.

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