Becton Dickinson and Co (BDX) 2016 Q1 法說會逐字稿

Hello and welcome to BD's first fiscal quarter 2016 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through February 10, 2016 on the investor's page of the 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 20775429. 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, Vice President of Investor Relations. Ms. Dolecki, you may begin.

Thank you, Kristi. Good morning everyone and thank you for joining us to review our first fiscal quarter results. As we reference in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the investor relations page of our website at BD.com.

During today's call we will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our first fiscal quarter press release and in the MD&A sections of our recent SEC filings. We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release including the financial schedules is posted on the BD.com website.

As a reminder until we annualize the acquisition of CareFusion in the third quarter of fiscal year 2016, we will speak to our revenue results on a comparable currency neutral basis which includes BD and CareFusion in the current and prior year periods. We believe this provides additional visibility into the new BD. The comparable current period revenues are adjusted to exclude a small impact related to a purchase accounting adjustment to record CareFusion's deferred revenues at fair value as of the acquisition date.

In addition, comparable prior year revenues are adjusted to exclude sales related to the terminated agreement with CareFusion for the sale of Fisher & Paykel's respiratory care products. The fiscal year 2016 comparable revenue guidance provided today will also exclude the year-over-year impact of this contract termination. The impact to the bottom line is not material and is included in our EPS guidance.

Details of the purchase accounting and other smaller adjustments and the comparable basis revenue results can be found in the reconciliations to GAAP measures in the financial schedules, in our press release or the appendix of the investor relations slides.

Leading the call this morning is Vince Forlenza, Chairman, Chief Executive Officer and President. Also joining us are Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer; Bill Kozy, Executive Vice President and Chief Operating Officer; Tom Polen, Executive Vice President and President of the Medical Segment; and Linda Tharby, Executive Vice President and President of the Life Sciences segment.

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 solid start to fiscal year 2016. Performance from both the Medical and Life Science segments contributed to revenue growth that was in line with our expectations. Strong underlying margin expansion was driven by the achievement of operational efficiencies and continuous improvement coupled with the positive impact of synergies.

As we move through the first quarter we continue to make progress with the strategic review of our portfolio. Many of you already know we recently announced that Fresenius Kabi has acquired the BD Simplist portfolio. We believe Fresenius is a better owner of the BD Rx business as it complements their existing products and capabilities in the injectable pharmaceutical industry.

In addition, we are excited that we are initiating a long-term collaboration for Fresenius to supply us with a portfolio of competitive IV solutions in the US. This transaction is intended to enable BD to be responsive to our customers' needs and is complementary to our end-to-end medication management solutions for our customers and their patients.

Since we provided guidance in November, there have been a number of new dynamics that will affect our results this year. As most of you already know, several weeks ago there was a bipartisan agreement to suspend the medical device tax. This critical relief is extremely important to BD as well as the patients, providers and research communities we serve. While some of the specifics are still being analyzed, we plan to reinvest this tax back into the business which further supports our innovation strategy.

In summary, we are confident in our outlook and are maintaining our currency neutral revenue guidance. We are also maintaining our adjusted EPS guidance despite significant currency headwinds and are raising our currency neutral adjusted EPS guidance for the full fiscal year.

Moving on to slide five, I will review our first-quarter revenue and EPS results which I will speak to on a currency neutral basis.

Total Company revenues grew 1.8% which is in line with our prior guidance of 1% to 2% growth that we had anticipated and communicated on our last earnings call. Adjusting for tough comparisons for the prior year, this reflects solid underlying growth in both segments. Adjusted EPS was $1.96 driven by the solid underlying performance of the segments. Earnings were ahead of our expectations as the quarter also benefited from product mix that was incremental to already strong gross margin performance and some timing of expenses and below the line items.

Now I would like to turn things over to Chris for a more detailed discussion of our first-quarter financial performance and our updated fiscal year 2016 guidance.

Thanks, Vince, and good morning, everyone. As Vince just mentioned, performance in both segments contributed to a solid start to fiscal 2016. Total first-quarter revenues of approximately $3 billion grew 1.8% on a comparable basis which is in line with our previously disclosed guidance. Our growth rate this quarter reflects a tough comparison to strong prior-year results of 6.7% organic growth which includes CareFusion's final quarter as a standalone company growing at 10% organically.

As a reminder, our results last year were driven by robust performance in the legacy CareFusion businesses, the impact of timing of orders in Pharmaceutical Systems, a very strong flu season, timing of tenders and strong emerging market performance. As a result these items negatively impacted our first-quarter growth rate by over 240 basis points. On an underlying basis, we are pleased with the solid performance of our segments and the momentum in our businesses.

BD Medical first-quarter revenues increased 1.9% reflecting the effort mentioned items. Medication and Procedural Solutions, or MPS growth was 2.0% which reflects strength in pharmacy solutions, infusion therapy and safety engineered products. Very strong results in the prior year negatively impacted the MPS growth rate by approximately 250 basis points.

Despite extremely strong results in the prior year in medication management solutions, revenues grew 4.3% driven by both strong infusion and dispensing capital installations.

Respiratory Solutions revenues declined 6.8% reflecting the tough comparison to prior year results due to the strong final quarter as part of legacy CareFusion. Growth in Diabetes Care was 3.9% driven by solid growth in pen needles.

Pharmaceutical Systems growth of 2.6% reflects strong growth in SAIS partially offset by the impact of timing of orders which we expect to occur later this fiscal year. BD Life Sciences first-quarter revenues increased 1.7% primarily driven by growth in Preanalytical Systems and Biosciences. Preanalytical Systems growth of 4.4% was driven by safety engineered products in both the US and Europe and also reflect strong growth in emerging markets.

BD Biosciences growth of 1.2% reflects clinical tendered delays in emerging markets and a difficult comparison to the prior year when sequestration ended. This was offset by strong sales that were driven by an increased demand of high-end instruments and growth in research reagents.

The Diagnostic Systems decline of 0.8% reflects a mild flu season which impacted growth by approximately 400 basis points. Growth was also negatively impacted by a slowdown of capital spending in China, solid microbiology growth as well as growth in molecular led by BD MAX and international growth in women's health partially offset the impact from the flu.

Moving to slide eight, I will walk you through our geographic revenues for the first quarter on a currency neutral basis. US growth of 1.5% reflects the aforementioned prior-year comparisons and timing impacts with BD Medical growing 1.9% and BD Life Sciences growing 0.3%. BD Medical's performance reflects strength in pharmacy solutions, infusion therapy pumps and related consumables and strength in Diabetes Care. This was partially offset by Respiratory Solutions.

BD Life Sciences growth reflects the impact of a light flu season this year and a difficult comparison to the prior year due to a strong flu season and the ending of sequestration. Offsetting these impacts were strong performance in the Biosciences business driven by research reagent sales, solid performance in our Preanalytical Systems unit, growth in Microbiology and growth from BD MAX.

Moving on to International, revenues grew 2.2%. This is below our normal growth rate which reflects timing of tenders and capital installations. International revenues also reflect the moderation of growth in China in the quarter and I will provide more color on China in just a moment.

The Medical segment grew 1.9%. This reflects solid performance in Pharmaceutical Systems and Medication Management Solutions partially offset by a tough comparison due to large tenders in Brazil and EMEA in the prior year as well as timing of capital installations in the dispensing business.

The Life Sciences segment grew 2.7% which reflects strong growth in diagnostic systems driven by core microbiology, women's health and an expanded BD MAX menu in Europe. We also saw strong growth in the Preanalytical Systems unit. This was partially offset by a decline in the Biosciences business due to tendered delays in emerging markets.

On slide nine, emerging market revenues grew 2.4% currency neutral with developed markets growing 1.7%. The first-quarter growth rate in emerging markets reflects a very difficult comparison to the prior year period, both the BD and CareFusion legacy businesses and a moderation of growth in China. China growth for the first quarter was 4.5% compared with growth of over 23% in the first quarter of last year. This difficult comparison was in line with our expectations.

Beyond the difficult comparison we also experienced the continued slowdown of capital spending in Diagnostic Systems which resulted in inventory adjustments. Inventory adjustments negatively impacted growth in the quarter by approximately 350 basis points.

While there are pockets of pressure, millions of patients are entering the healthcare system and overall emerging markets continue to be an important growth driver. For the total year we expect China to grow in the low double-digit range and total emerging markets to grow 9% to 10%.

Moving to global safety on slide 10, currency neutral sales increased 4.9% and grew to $737 million in the quarter. Safety revenues in the US grew 3.8% while International sales grew 6.5% currency neutral with continued strength in Europe as compliance with safety legislation continues. Safety revenues grew 10.9% in emerging markets.

Medical safety sales grew 5.4% primarily driven by safety catheters and a range of products in Pharmaceutical Systems. Life Science safety sales which are driven by our Preanalytical Systems unit grew 4.1% in the quarter.

Slide 11 recaps the first-quarter income statement and highlights our currency neutral results. As I mentioned a few moments ago, revenues grew 1.8% on a comparable currency neutral basis. Pricing was about flat in the quarter.

Moving down the P&L, I will focus on the comparable basis figures which includes CareFusion results in the prior year in order to give a better indication of our performance.

Gross profit improved by 3.6%. I will provide more color on gross profit in the next slide when we look at underlying performance and the impact of currency.

SSG&A as a percentage of revenue was 24.9%. We are very pleased with the leverage we are getting which includes the benefit of cost synergy capture.

R&D as a percentage of revenues was 6.3% as we continue to invest in new products and innovation. Operating income grew 12% reflecting strong P&L leverage which I will also address in more detail on the next slide.

Our tax rate increased slightly however, it continues to improve versus our initial deal model expectations. As discussed earlier, adjusted earnings per share were $1.96 which is a 45.8% increase versus the prior year. This reflects solid underlying performance from the segments, positive product mix that was incremental to already strong gross margin performance, some timing of expenses and below the line items.

Slide 12 illustrates our gross profit and operating margin for the first quarter presented on a comparable basis. Strong gross profit margin performance of 130 basis points was primarily driven by continuous improvement initiatives and product mix and to a lesser extent favorable raw material prices. Building off the strong momentum in fiscal year 2015 of 100 basis points of underlying operating margin expansion, operating margins grew 220 basis points year-over-year driven by gross margin expansion combined with the achievement of operational efficiencies, continuous improvement and the positive impact of cost synergies. Currency had a negative impact on both gross profit margin and operating margins.

Moving on to slide 14, since we provided guidance in November there have been a number of new dynamics that we anticipate will affect our results. Some of these items include the sale of BD Rx, the suspension of the medical device tax, the reinstatement of the R&D tax credit, lower oil prices, a milder flu season and additional FX pressure. As a result of these new dynamics in combination with our first-quarter results, we are raising our currency neutral adjusted EPS guidance by 4 percentage points from $8.73 to $8.80 to a range of $9.01 to $9.08. The increased currency neutral guidance is offset by incremental FX pressures of approximately $0.28 due to the continued strengthening of the US dollar.

Therefore we are maintaining our adjusted EPS guidance of $8.37 to $8.44. We are extremely pleased with our performance and our ability to execute and deliver on our commitments.

Turning to slide 15, I would like to walk you through additional elements of our guidance for the full fiscal year 2016.

In summary, we continue to expect comparable revenue growth of 4.5% to 5% on a currency neutral basis. On a reported basis, revenue growth for the total year is expected to be between 20% and 20.5% which reflects a currency headwind of about 450 basis points. US dollar has strengthened further against most currencies since we last provided guidance in November. Our guidance assumes a euro to dollar exchange rate of 1.09. We expect this unfavorable impact to be acute again in the second quarter with a revenue headwind of over 400 basis points on a comparable basis. We expect our currency neutral revenue growth to be back in line with our guidance range of 4.5% to 5%.

In the second half of the year, we expect the currency impact on revenue to moderate.

We continue to expect growth in BD Medical of 4.5% to 5%. In our Life Sciences segment, we are revising our guidance to 4% to 4.5% to reflect the mild flu season in combination with lower sales in China. Based on the current view of the environment, we continue to expect pricing to be about flat for the year. We continue to expect gross profit margin to be between 52% and 52.5% as the benefit from operating efficiencies, the sale of BD Rx and lower resin prices are expected to be partially offset by increased currency pressure.

SSG&A as a percentage of sales is expected to be between 24% and 24.5%. This is slightly better than our previous forecast as a result of the suspension of the medical device tax which was recorded within SSG&A. As we reinvest the medical device tax, we now expect R&D investment of about 6% to 6.5% of revenues. The reinvestment will help us to accelerate the strategies in both of our segments.

Operating margin is expected to be between 21% and 22% of revenues as a result of the items I just reviewed. Excluding the unfavorable impact of foreign currency, we are raising our underlying operating margin guidance to 170 basis points to 190 basis points. Once again we are very pleased with our performance in driving margin expansion.

We are broadening our tax rate to be between 21% and 22%. Our full-year guidance ranges for operating cash flow, capital expenditures, interest, other and share count remain unchanged from our November guidance.

Now I would like to turn the call back over to Vince who will provide you with an update on our key initiatives and product portfolio.

Thank you, Chris. Moving onto slide 17, we are presenting a new slide that includes updates on our new product innovation, strategic and business initiatives and partnerships and collaborations. With this new format, we will provide business updates each quarter. The product update slides that you are accustomed to seeing will remain in the appendix of the presentation for reference.

Starting with new product innovation within our Life Sciences business, we are very pleased with the early access customer response to BD FACSSymphony, a novel cell analyzer enabling the simultaneous measurement of up to 50 different characteristics of a single cell. BD FACSSymphony offers high-speed analysis that is 20 times faster than other non-flow platforms.

When combined with our BD Horizon Brilliant or the Sirigen re-agent portfolio, these capabilities will allow researchers improved identification and analysis of rare cell types and events. In early December, we successfully launched our FACSCelesta instrument, a mid-level cell analyzer with a very positive market reception. The new FACSCelesta system offers simultaneous measurement of up to 14 different single cell characteristics. The FACSCelesta system is also designed to leverage our broad BD Horizon Brilliant reagent portfolio.

In our Diagnostic Systems business, we continue to focus on menu expansion and anticipate launching new assays on the BD MAX platform in fiscal year 2016 including CT/GC and vaginitis.

Within our strategic and business initiatives as we discussed earlier, we have divested the BD Rx business and are excited to be adding IV solutions to our medication management portfolio. We continue to make progress with our portfolio strategic review process and will provide you with updates as we move forward.

In January, we launched our new BD brand that captures the new BD and our re-articulated purpose, advancing the world of health, which is more relevant than ever in a dynamic and ever-changing industry. And in the equally important area of partnerships and collaborations, we remain on track with our collaboration with Medtronic. The insulin infusion sets in our Diabetes Care business have an expected product launch in the middle of the fiscal year 2016, so this year. We believe this product will improve the consistency of insulin delivery by significantly reducing silent occlusions, simplify the users' experience and increase a patient's overall satisfaction with insulin pumping.

We continue to see strong growth in opportunities in our IDAST business where we have built a comprehensive solution offering which includes the BD Bruker Maldi Biotyper. This is a result of a collaboration with Bruker Corporation. We have seen success over the past several years with the BD Bruker MBT instrument due to its ability to provide rapid and accurate microbial identification and its adoption in new geographic markets. As you can see, we continue to have strong opportunities that drive growth in innovation and we look forward to updating you as we make progress throughout the year.

Moving on to our business update on slide 18, we continue to make progress with our cost synergy capture. Our G&A functional transformation continued in the first quarter and we made progress with our back-office functions and with harmonizing our IT infrastructure. We remain on track to achieve our FY16 cost synergies and continue to expect $325 million to $350 million in total cost synergies as we exit fiscal year 2018.

Contributing to our operational efficiencies is the benefit of sustained lower oil prices on raw material costs as we discussed earlier. The consistent solid performance of our business combined with operating efficiencies, cost leverage and cost synergy capture is driving continued underlying operating margin expansion. In addition to the 100 basis points of operating margin expansion in fiscal year 2015, we expect another 170 basis points to 190 basis points of the expansion this fiscal year.

Now I would like to reiterate the key messages from our presentation today. First, this was a solid start to fiscal year 2016. Both segments performed well and we delivered very strong earnings growth.

Second, our margin profile has improved significantly. We are driving operational efficiencies and continuous improvement in addition to delivering on our synergy commitments. This is manifesting in our financial results with 200 basis points of operating margin expansion this quarter and increased guidance for the total year.

Third, we continue to evaluate and optimize our portfolio and focus on the appropriate strategic initiatives. In doing so we are positioning ourselves in higher growth areas which are aligned with our core capabilities. By taking these actions, we are delivering the most value to our customers.

Finally, we are confident in our outlook and are maintaining our currency neutral revenue guidance. We are also maintaining our adjusted EPS guidance despite significant currency headwinds and are raising our currency neutral adjusted EPS guidance for the full fiscal year. We believe we are well-positioned to continue our track record of delivering value to our customers and shareholders and I look to the future with enthusiasm.

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

(Operator Instructions). Kristin Stewart, Deutsche Bank. Mike Weinstein, JPMorgan.

Let me ask you a couple of items. So number one, you guys in the last call had guided to 1% to 2% constant currency growth this quarter over the tougher comp. The Street heard you but didn't do a good job of reflecting that in the numbers. But you are maintaining your FX neutral guidance for the year which effectively implies that over the balance of the year the next three quarters you grow the top line 5.5% to 6% FX neutral. So A, is that correct? And then B, can you just walk us through your confidence in the top line outlook for the rest of the year? Thanks.

Sure, thanks Mike. So we did have results that were right in line in the first quarter with what we guided the 1 to 2. It came in at 1.8, which does imply greater growth for the rest of the year. Just to remind everyone that there was very difficult comps, a strong flu season last year, we had CareFusion's last final quarter and we talked in our prepared remarks about the 6.7% growth that we were jumping over including the CareFusion 10% growth. And then we had a number of items like in Pharmacy Solutions where we have the typical timing compares.

All of that goes away. In fact, it reverses in the second half so if you remember the CareFusion businesses actually grew minus 2% in the third quarter. So actually we expect the second quarter to be back in basically the range that we normally have, the 4.5 to 5 and you will start picking up more in the back half of the year against that CareFusion compare. Don't forget we had the AVEA recall in respiratory so that becomes an easier compare, emerging markets actually start comparing to more normalized results. You saw China this year, the first quarter of last year was 23% growth we had to jump over. So all of that starts reversing and so we are confident in our full-year guidance.

David Lewis, Morgan Stanley.

Good morning. Vince or Chris, I wanted to talk about emerging markets for a second here and how congested did you see the updated EM guidance? I guess just drilling down here, is the pressure largely capital in select businesses, are you seeing any (technical difficulty) weakness in Tier 1 hospitals in China and where are inventory levels now for you in some of these broader emerging markets?

Sure. So taking China first, the weakness was really on the capital side. It was in Life Science and it does not appear to be driven so much by the financial situation as it was driven more by this issue that we brought up last quarter which is the auditing of large capital purchases. So we are seeing that in China and we expect that to continue for the rest of the year.

On the disposable side we did fine. And these are products that sustain the healthcare system and so we expect stability in China on that side. That is really the difference as we look around the emerging markets. That is the biggest difference.

If I talk about Latin America, Latin America is basically -- Brazil is where we said it was and then with stronger performance in the other countries. So in terms of inventory as you heard, we made inventory adjustments on the medical side last time and coming back to the diagnostic piece, we actually thought that it was more of a timing issue, this audit issue. We are now saying that is not going away so we came back and we did make the inventory adjustment on the diagnostic side because of the change in the situation.

Chris, anything else you want to add?

I think that about nails it.

David Roman, Goldman Sachs.

Thank you. Good morning, everybody. I wanted just to follow up on the CareFusion integration. Clearly the cost synergy side of the equation is progressing at a rate faster than you had initially provided but can you give us a little bit more clarity on how some of the cross-selling initiatives may be materializing and when you think we could start to see that drive revenue up particularly in the context of the 4.5% to 5% is pretty much where the business has been growing the past couple of years and what it takes to sort of accelerate that number?

Overall I would stick with what we have said. You are really going to see the revenue synergies starting in 2017. That doesn't mean that we haven't done some work already in terms of aligning our organizations and Tom can comment on that.

Hi David, this is Tom. So I think as Vince said, we have always commented that it would take us some time to get products registered for particularly the ex US markets to put through our channels. Those registrations are well underway. We have several dozen products actively under regulatory review that we have already submitted. We have taken a few products that were already approved and put those through our channels in markets like China. We are seeing some early positive signs but we have always said it would take some time to ramp and that we would see that more in FY17 and we are right on track to that.

Rick Wise, Stifel.

Good morning, Vince, good morning, everybody. Let me start off with the margin expansion. Maybe, Chris, if I looked at the slide correctly, your bridging commentary, you had 22% cost synergies last quarter. This quarter you updated it by adding 4% so really talking about 26% cost synergies now with CareFusion. Am I understanding that correctly and maybe just in general how much more is there to go? I mean has this accelerated?

Well, you are on the right point, Rick. If you look at chart 14, it really lays that out. The one thing that I would say is that 4% additional is things like the sale of BD Rx, oil prices continue to give us a lift as the price per barrel went from $50 to $30 and so whether you call those synergies, it is all good. I mean what I would point to on that chart is that $9.01 to $9.08 represents a 37% to 38% increase over where we would have been on a BDX legacy guidance basis. So how you characterize that whether it is just accretion or synergies, that is somewhat semantics.

We were growing over the expectation that we would have grown 9% to 10% anyway so we have stayed pure on that. The tax rate improvements, are those synergies? Yes, they are synergies as well. It is just not what we had originally contemplated in the deal.

So we've tried to keep a very clear and transparent view of what is synergies and what is accretion and that 4% as I said, I wouldn't call those synergies, we are not raising our synergy guidance as we did last quarter because these are just kind of other things that are benefiting our cost structure and bottom line that hadn't been contemplated in November.

So for what we control, we are really executing extremely well, very pleased with it but obviously the FX drag is worse in that regard since November. The euro has stabilized at 1.09. Of that 4% drag additional in FX 1% comes from the euro remaining at that 1.09 and then another percent from other major currencies like Canada for example, it is down 8% or 7% since November. Mexico was down 8%, China is down 3% so that is another percent of that 4%.

The other 2% is every other currency in the world is weak against the US dollar compared to where it was in November and so that is another 2% so an addition 4% drag. So we don't really have a lot of control over that, we do everything we can to mitigate that. So what we control we are really feeling good about but we are going again significant FX headwinds. But we really feel good about the fact that we were able to still meet our commitment of a $8.37 to $8.44 despite those significant FX headwinds.

Larry Keusch, Raymond James.

Good morning. So just two things here. Number one, you know it sounded like from the prepared comments that the CareFusion large volume infusion pump business did quite well and I was wondering if you could provide a little color on that and some of the dynamics? I think you said capital sales were up and I am asking in reference to some strong results from a competitor yesterday.

And then just on China, I think you also said low double-digit growth for the year. You are obviously starting much lower than that so you have touched on this but how do you really accelerate through the course of the year to get to that low double-digit China growth?

So Tom will start with the infusion.

Sure, hi, this is Tom. So we did have another solid quarter for the overall MMs business and certainly in our infusion business and particularly maybe I will just comment on the US which is by far the largest market. We did have high single-digit growth in our infusion business in the US which in a market that is growing low single digits we certainly see that as reflecting continued strengthening of our position in our Alaris business. So we are very pleased with our results and the momentum that we continue in that business.

Yes, I think, Tom, we grew last year in MMS was 40% in the first quarter so the 4% growth was on top of that. Chris, do want to take China?

For China, if you look at the first quarter growth we talked about the difficult compare against the 23% and we talked about the inventory adjustments in Diagnostics. If you normalize for both of those, you would be in double digits in China in the first quarter.

As I said on the overall BD revenue growth to come, the comparison to prior year eases in the second half of the year significantly. We have for example respiratory wasn't even shipping in China towards the second half of last year so that makes it an easier compare as well. So that is where we get the low double digits.

We are getting a little bit of a lift. We talked about most of the CareFusion synergies coming next year but there is a little bit in connectors and things like that that help us. Actually an easy compare against CareFusion's China performance last year, that gives us a little bit of a lift as well.

Bill Quirk, Piper Jaffray.

Thanks and good morning, everybody. I guess first question is just on safety and I guess specifically around Europe, it has been a couple of quarters since you have given us an update here in terms of kind of how far through that opportunity we are penetrated and how much more does this have to go?

So I think Tom can talk to that. It is mostly on the medical side. As you may recall, it is fairly highly converted in the PAS business and they are really moving to second generation products but there is more opportunity on the medical side and Tom will talk about that.

Safety does continue to perform well, internationally overall and certainly in Europe as compliance with the regulation continues to support our safety growth. Maybe just to break it into two categories from a medical perspective as we think about infusion, I would say we are probably in the fifth inning let's say there as that is typically the first area that people convert to. And then in the injection business which is generally perceived as a lower risk procedure, we are in even much earlier innings on that side of the business. So overall we still have a ways to go certainly several years to go when it comes to the European safety conversion.

Thanks, Tom.

Matt Taylor, Barclays.

Thanks for taking the question. I guess I wanted to just get a sense of your views about flu and you haven't updated us on your footprint there in a while. Could you speak to that? And interestingly, Abbott bought Alere this week so does that change your view on point of care testing? Sorry for the multipart question but had a few things to get in there.

That is okay, I don't think Abbott's buying Alere changes our view on point of care testing. But Linda will be happy to update you on the flu and what is going on out there.

Sure. So as we have seen on the flu, we had a tough jump over versus a strong flu season last year and not seeing anything that would indicate we are going to get any sort of a flu season this year.

As for our position in point of care on our Veritor platform, we feel very good about our position both in terms of accuracy, turnaround time and throughput. This is being reflected in our share position, now over 19,000 instruments placed globally and we are very excited about the new wireless connectivity we will introduce this quarter.

Thanks, Linda.

Brian Weinstein, William Blair.

Thanks for taking the question. Question is on new products, Vince, you used to talk about kind of percentage of revenue that new products were driving. Can you kind of update us where the new products are and kind of what your thoughts are going forward for new products especially in light of putting more money into R&D from the medical device tax reinvestment, where are you putting that specifically, what types of projects should we be thinking about?

Sure, Brian. We moved from about 8% up to the 14%, 15% range last year and that included Nano kind of starting to come out of that calculation. We are trying to get our arms around how we are going to do this calculation going forward with the CareFusion product line coming in and we are not quite there yet.

But if I look at the portfolio and the number of new products I would say we are in a strong position and it is across both of the segments and it is over the next three-year period. So both portfolios on the Medical side and the Life Science side appear good.

As I mentioned on the call, we feel very excited about the launch of the infusion set, the FlowSmart set. We haven't talked much about it lately but SAIS is making progress with their micro infuser and we have signed up a number of customers there. And so we are starting to see some nice momentum in SAIS.

I'm not going to try to walk through all of the new products across MPS and MMS but there is a nice portfolio and Tom would tell you in addition that the backlog for Pyxis remains very robust. And Tom, I think it continues to actually get a little larger, right?

Right, it continues. Obviously Pyxis ES is a major contributor to that percentage of new products in sales and certainly continues to keep that number up very high for the Company.

It would increase the number. And then on Linda's side of the business, I went through those new flow products but also the BD MAX menu expanding. You are seeing the impact of that in Europe already and Linda, we should be getting those other assays out soon in terms of Chlamydia and vaginitis. What is your expectation there?

Yes, so both products are in process right now at FDA so we would expect both of those products to be on the market in the US in Q3 and Q4 -- Q3 or Q4. We are very encouraged by the growth that we are seeing in Europe with the expanded menu.

And then of course, Veritor which we mentioned on our last call. Now coming back to the investment on the medical device tax, I think it is an opportunity for us to really accelerate the strategies that we have articulated to you both in Medication Management and on the Life Science side. And I would say they are both the core business as we continue to elaborate things like KIESTRA and drive that into the marketplace and drive the genomics stuff that we just started.

I think we are in a situation where a lot of these things haven't launched yet but they launch over the next couple of years. So thanks, Brian, for the question.

Jon Groberg, UBS.

Thanks a million and congratulations. Can I just maybe -- one kind of clarification and then a quick question. So one on China, I guess maybe Vince or Linda, can you maybe talk a little bit more on the Life Sciences weakness on the auditing of large capital purchases, it seems like about 12 months later than what most life science companies have been seeing or most of them saw it a year ago and have reported pretty good results in China this year. So just curious why you are seeing those delays more significantly than others in the life sciences space. And I just wondered on the new products, on Totalys I think in your presentation you have that still launching in the US in 2016; and just curious what you are seeing with that in Europe and whether that is still on track for 2016. Thanks.

Sure. So, Linda, do you want to take that?

Yes. So maybe on your first question on why the delay in China. If you recall, we mentioned last year that we signed an exclusive partnership with Bruker on the ID side in China specifically. So as we were putting those instruments into the market, really starting in our first-quarter fiscal year 2015, we had expectations on those that clearly in the first quarter we saw that the overall number of tenders being issued were not at the level that we were expecting. So that would explain the delay because of the Bruker exclusivity.

We are seeing, though, very good progress competitively in that space with now more expanded solution to offer.

And then as you note, we are seeing great performance ex-US now with a more expanded platform that includes our Totalys and FocalPoint system for a full liquid cytology solution. So we saw this quarter high double-digit growth ex-US on those platforms. And the anticipated launch date for us in the US is in FY2016. I don't have the exact quarter sitting in front of me, but --

But later in the year anyway.

-- Q3 would be a safe bet for us.

Vijay Kumar, Evercore ISI.

Thanks for taking my question. Just maybe going back on the guidance, I wanted to make sure we have the math right so it looks like the core revenues came down by 300 basis points. But the implicit assumption on the repatriation of EPS and I guess op margins are going to come up at the higher end of the guidance range. I want to make sure I got that right. And when you look at below the line and think other income, you had some hedging gains. Why would those gains be worse in the back half? Thank you.

So I think I got you right. Yes, operating margins have been increased in the back half of the year. When we look at the Q1 compared to expectations, I think what we are seeing is, as you pointed out, favorable gross margin performance in the first-quarter, favorable timing of expenses as well. And then below the line there is a little bit in tax rate so the 21.5 is a little bit better than expectations and we see that flowing through to the total year.

We were slightly better in interest income and slightly less in interest expense. You put all those things in and that flows through to the full year. Of course it is overwhelmed by the items that I talked about with the oil prices being down will benefit the second half of the year as well as the sale of BD Rx. So you put all of that together and we get to the $9.01 to $9.08 and the $8.37 to $8.44 all in with FX.

Okay, thanks.

Richard Newitter, Leerink Partners.

Thanks for taking the question. Just wanted to ask actually two quick ones. One, is the full med tech tax reversal benefit getting reinvested so it is just a swap between SG&A? Are you allowing some flow through?

And then the second question is what would you expect the adjusted China growth rate to be if you kind of looked at it the way you had -- you said low teens I think in the past two quarters if you back out the inventory?

So on medical device tax just to put it in perspective, last year we had about in our budget we had about $60 million for the full year. Don't forget we only pick up three quarters of that this year so that is about 45. Right now we have about one-third of that being executed against. The other two-thirds we are still getting the projects in place and we do fully expect to spend that this year. There might be a little bit of timing issue obviously in the month of January, we are getting the benefit and we are only executing on the one-third. So we will probably just naturally pick up a little bit in timing but not a lot and that is already in the guidance. But we fully expect to reinvest and we want to reinvest and we are going through that process now.

And then the second question was China. I think I would bring you back to -- if you adjust for the difficult compare in the first quarter and you adjust for the inventory adjustments that we talked in Life Sciences, it brings you back up to a double-digit number in China. And we said low double digits for the full year and we get the benefit of a little bit of easier compares.

Easier compares and a little bit of momentum out of some CareFusion products.

Doug Schenkel, Cowen.

So US Bioscience revenue growth moderated sequentially from I think around 15% year-over-year last quarter to around 6% year-over-year this quarter. Recognizing the comparison was a bit more difficult relative to the prior quarter, the moderation seems to be a bit more material than we would have expected just given what we have seen from Life Science tools peers. Others have talked about academic government starting to pick up, it sounds like biopharma continues to be strong. So with all that said, two questions.

One, can you describe what you saw in the quarter in terms of demand from biopharma and academic government in the US? Two, what is embedded into your guidance for contributions from new products and the potential benefit associated with a more robust NIH budget? Thank you.

So that was a multipart question. Let me see if I can get at this. So first, let me just comment on the performance of the US business, the US Biosciences business continues to do very well. We did mentioned that in first quarter 2015 we had a tough jump over, we had high double-digit growth primarily in our research instrument base. So we still managed to draw off that base but it was a difficult compare.

So for this quarter we did see very good growth in our biopharma side particularly in our advanced bioprocessing business, a business we do not talk about a lot but is doing very, very well for us. So that was a tremendous area of growth. And then as we have been talking about for the past several quarters led by the US, our total research solutions platform now we feel very good about the prospects for that business. Of course this past quarter launching both FACSSymphony and FACSCelesta we think across the range of low, mid and high end analyzers now combined with our Sirigen platforms are really now starting to work out that full solution between our instrument base and our solution base.

We see the US research market as being an area that has if you look at our last quarter report -- was very strong for us and an area moving forward that is in our guidance.

How do you feel about the products, Linda? I know you can't exactly quantify it but?

So new products overall starting with biosciences, the research solutions piece feel very strong about the genomic side of course coming with full launches on both the GenCell side and Cellular Research coming this quarter. So excited about that. And of course PAS with new products and DS with the expansion of the MAX menu we are really starting to see these kick in.

So we should start to see some traction in the back half of the year basically. Okay, thanks.

Derik De Bruin, Bank of America.

Good morning. So could you talk a little bit about -- sort of looking at the overall portfolio, I mean you have trimmed Simplist and there had been some talk about respiratory earlier on in the process of maybe doing something with that. Has that business rebounded to the point now where you feel comfortable with it that you feel it was part of the portfolio and it is not potentially a divestiture candidate?

So what I would tell you about respiratory is we are running it like -- we own this business so we run it to optimize the business like we do with all of our businesses. Having said that, we are proceeding with our strategic analysis of that business. I would tell you we are making some progress on that but we are not to the finish line yet.

There are a couple of other small pieces that we are continuing to work on also in terms of that strategic review process and you will hear more from us as we move forward.

Kristen Stewart, Deutsche Bank.

I was just wondering if you could expand a little bit more upon the relationship with Fresenius over these solutions? And also if there is any additional updates on the CME relationship with the pumps and anything about bringing that in-house to BD and the timing of launch that that could go into emerging markets?

Kristen, this is Tom. Let me start with the Fresenius one and then I will address these CME. So we are very pleased obviously with the long-term collaboration that we have entered into with Fresenius for a broad line of IV solutions in the US marketplace. We certainly see that this opportunity is aligned with our customers' feedback to have additional options available to them in how they buy IV solutions and we expect to begin launching that line in the very back half of FY16. So I think that is probably the most to say about that there but we see it very much in line and supporting and helping to advance our overall medication management strategy and we have gotten very positive feedback from customers after that announcement.

Related to CME, we do sell CME products in certain markets today primarily in Europe. No new news to update in terms of an acquisition or integration of CME into BD. As you know we already own 40% of CME and we have talked about options of that going forward. No new news to share there. We continue to promote and grow their products though in the markets particularly in Europe that we have had since the beginning of the year.

Brandon Couillard, Jefferies.

Thanks for squeezing me in. Just one more for Linda. Any chance you could give us an update on where BD MAX stands in terms of its global installed base? And remind us of the number of tests available on the menu and to what extent is the LDT capability contributing to growth?

Okay. So on the overall BD MAX platform in terms of overall numbers of placements, I am not going to go into the overall number for the quarter but safe to say that our total overall global systems now are close to 1000 placements overall on a global basis.

In terms of the menu of course the expansions that we saw in the menu in both Enterics and CT/GC, what we are seeing now in Europe is very strong double-digit growth and very positive feedback from our US customer base again starting to see very good growth in placements on our MAX system and of course when we get the CT/GC and vaginitis we are anticipating stronger growth there.

On the LTC side in terms of what we see in terms of opportunity for us moving forward, are you speaking about the --

Open channel.

So for us we see that in Europe being a great advantage. European customers are really adapting that as a strong advantage and in the US again, it is seen as an area for us versus our competition that really differentiates MAX. So great opportunity for us. I would say that the big opportunity that we see is with the differentiated menu that we are already seeing on the Enterics and we look forward to on the CT/GC and vaginitis.

Thanks, Linda. Okay.

Thank you. With that I will turn the floor back over to Vince Forlenza for closing remarks.

Thank you very much for all of your questions. We are very pleased to update you on our quarterly results and to raise our FX neutral EPS guidance. We look forward to updating as the year progresses. Thank you very much.

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