Becton Dickinson and Co (BDX) 2017 Q1 法說會逐字稿

Hello, and welcome to BD's first fiscal quarter 2017 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through February 9, 2017 on the Investors page of BD.com, or by dialing 800-585-8367 for domestic calls, and area code 404-537-3406 for international calls, using confirmation number 51388884.

(Operator Instructions)

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

Thank you, Crystal. 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 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.

The first quarter comparable revenue growth rates and FY17 comparable revenue guidance provided today excludes the revenues of divestitures, most notably the respiratory solutions business that was divested in October of 2016 just after our FY16 end.

In the first quarter, the Company recorded a reversal of certain reserves related to a court decision, which among other things, reversed an unfavorable anti-trust judgment in the RTI case. This item, along with the details of 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, Chief Financial Officer and Executive Vice President of Administration; Tom Polen, Executive Vice President and President of the Medical segment; and Alberto Mas, 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, and happy Groundhog Day. Let's get started on slide 4. Most of you participating on today's call attended our Analyst Day back in November, and more recently the JPMorgan Healthcare Conference. As these events, you heard us detail our strategy for sustainable growth, with a pathway to a target of 5%-plus revenue growth and 10%-plus earnings growth.

At Analyst Day, you were also able to see firsthand many of the exciting products and solutions that we believe will help us drive more sustainable healthcare globally. As we partner with healthcare systems to address their key priorities, we are broadening our served markets through our focus on major healthcare challenges, where we believe we can have the greatest impact.

To achieve our objectives, we laid out a comprehensive plan centered on three key components. First, is a broad array of new products that we are either launching now, or we plan to launch over the next two years.

Second, is our move to solutions. As we do that, and move into adjacencies, we are becoming more impactful across our businesses on these major healthcare issues. And third, is our geographic expansion, including revenue synergies from CareFusion. I'm pleased to say that we are on track with that plan that we laid out, and we are off to a strong start in FY17.

Moving to the first quarter highlights, performance from both the medical and life science segments contributed to revenue growth that was ahead of our initial expectations. Our results this quarter continue to demonstrate the benefit of our diverse product and geographic portfolio. We continue to drive strong underlying margin expansion through the achievement of synergies, operational efficiencies, and continuous improvement.

Looking forward to the total year, we are reaffirming our FY17 currency-neutral revenue guidance. Our first quarter performance, along with our current outlook for the total year, gives us confidence to raise our currency-neutral EPS guidance. Since we provided guidance in November, the dollar has strengthened broadly relative to the euro and other currencies, and the negative impact from foreign exchange is now more pronounced. Chris will give you more details on this in just a moment.

In summary, we are delighted with our strong start to FY17, and are confident in our outlook for the full fiscal year. I'll now turn things over to Chris for a more detailed discussion of our first quarter financial performance, and our updated FY17 guidance.

Thanks, Vince, and good morning, everyone. As Vince said, we're off to an excellent start to FY17. Moving on to slide 6, I'll review our first quarter revenue and EPS results, which I will speak to on a currency-neutral basis.

Total first quarter revenues of approximately $2.9 billion grew 6.1% on a comparable basis, which was ahead of our expectations. Adjusted EPS of $2.33 also exceeded our expectations, growing at 19.4% over the prior year. EPS growth was driven by revenue outperformance, coupled with strong operating performance.

We are also pleased that we have continued to delever as we reduced the debt associated with the acquisition of CareFusion. During the first quarter, we paid down a $500 million debt maturity, and are currently at approximately 3.1 times gross leverage. We remain on track to achieve our commitment of 3.0 times gross leverage by March of this year.

Looking forward to the total year as Vince mentioned, we are reaffirming our FY17 currency-neutral revenue guidance. Our first quarter performance, along with our current outlook for the total year, gives us confidence to raise our currency-neutral EPS guidance to a range of $9.70 to $9.80, which represents growth of 13% to 14%. Since we provided guidance in November, the dollar has strengthened broadly relative to the euro and other currencies, and the negative impact from foreign exchange is now more pronounced. We expect to be able to offset about half of the increased currency pressure, and now expect adjusted EPS to be in the range of $9.35 to $9.45, which represents growth of 9% to 10%.

Moving on to slide 7, I will review our revenue growth by segment on a comparable currency-neutral basis. Performance from both segments drove first quarter revenue growth of 6.1%, which was ahead of our initial expectations. Growth was positively impacted by the timing of certain revenues that occurred in the first quarter, which we originally anticipated would occur later in the fiscal year.

I'll discuss this, as I take you through the business results. Adjusting for these timing-related items, revenue growth was in line with our full-year guidance range of 4.5% to 5% which exceeded our expectations for the quarter. In the quarter, pricing was about flat.

Moving on to revenue growth by segment, BD medical first quarter revenues increased 7.5%. Medication and procedural solutions, or MPS, growth was 4.3% which reflects strength in [flesh], and continued growth in infection prevention. Revenue growth in medication management solutions, or MMS, of 11% was driven by capital installations in both dispensing and infusion. Growth was positively impacted by increased installation efficiency, and the timing of placements that occurred in the first fiscal quarter earlier than originally anticipated.

Diabetes care grew 4.5%. This reflects strength in pen needles, which was aided by the timing of customer orders in the US which occurred in the first quarter, earlier than initially anticipated. Pharmaceutical systems growth of 15.5% was driven by strong performance in Europe, which was favorably impacted by the timing of customer orders that occurred earlier than anticipated. In addition, we experienced continued strength in our self-injection platform. Adjusting for the timing-related items, BD medical revenue growth in the first quarter was at the high end of our full-year guidance range.

BD life sciences first quarter revenues increased 3.2%. Growth was driven by performance in preanalytical systems and diagnostic systems. Biosciences revenue declined slightly, as growth from favorable customer ordering patterns in advanced bioprocessing and strength in research instrument sales in the United States was offset by a difficult comparison to the prior year in other geographies.

Revenues in diagnostic systems grew 6.4%. This reflects continued strength in core microbiology, including Kiestra, BD MAX, and an increase in flu-related sales. Preanalytical systems growth of 4.2% was driven by safety-engineered products, primarily in emerging markets.

Moving on to slide 8, I'll walk you through our geographic revenues for the first quarter on a comparable currency-neutral basis. US growth was very strong at 5.5%. This was comprised of BD medical growing at 6.5%, and BD life sciences growing at 2.8%.

Performance in BD medical reflects strong growth in capital placements in our dispensing and infusion businesses in MMS, and a wide range of infusion disposable products in our MPS business. Growth was also driven by our diabetes care business. BD medical growth in the US was aided in part by the timing of capital installations in MMS and customer ordering patterns in diabetes care, as previously mentioned.

BD life sciences growth reflects strong performance in our biosciences business, driven by favorable customer ordering patterns in our advanced bioprocessing business, and sales of research instruments and reagents. Growth in our US diagnostics business was driven by core microbiology, including Kiestra, and an increase in flu-related sales. Revenues in preanalytical systems declined slightly, due to limited US availability in one of our product lines.

Moving on to international, revenues grew 6.8%. The medical segment grew 9.1%. Growth was driven by our pharmaceutical systems business which was favorably impacted by the timing of customer orders as previously mentioned, and performance from infusion disposable and infection prevention products in the MPS business. Capital installations in our dispensing business in MMS also contributed to growth in the quarter.

Growth in the life science segment was 3.5%, driven by sales of safety-engineered products in emerging markets, as well as strength in Latin America and Asia Pac in diagnostic systems, which included a favorable comparison to the prior year in China. An increase in flu-related sales also contributed to growth in diagnostic systems. Biosciences revenues declined due to a difficult comparison to the prior year related to instrument sales in certain geographies.

On slide 9, developed market revenues grew a strong 5.8%, and emerging markets grew 7.7%. The first quarter growth rate in emerging markets reflects a strong performance in China and Latin America. Partially offsetting this growth are declines in the Middle East, and in our biosciences business in Africa, as we anticipated and communicated on last quarter's earnings call. The Middle East and Africa had a negative impact of approximately 200 basis points on growth in the quarter. Excluding these regions, emerging markets grew approximately 10%.

China growth for the first quarter was in line with our expectations at 9.1%. Revenue growth was driven by capital equipment purchases and higher reagent sales and diagnostic systems, as well as continued strong demand for consumables in both segments. Growth was partially offset by a difficult comparison to the prior year in biosciences as expected. For the total year, we continue to expect China to grow in the low double-digit range. We continue to anticipate emerging markets growth of high single-digits.

Now moving on to global safety on slide 10, currency-neutral sales increased 4%. Safety revenues in the US grew 1.6%. This is below our normal growth rate, and reflects a decline in preanalytical systems as previously mentioned.

International sales grew 7.6% currency-neutral, driven by strength across emerging markets which grew 18.1%. Medical safety sales grew 3.7% driven by infusion, disposables, and diabetes care. This growth was partially offset by a decline in the Middle East as anticipated, and a tough comparison to the prior year in Asia Pac. Life sciences safety sales which are driven by our preanalytical systems unit grew 4.4% in the quarter, as strong growth across emerging markets more than offset developed market revenues that were about flat.

Slide 11 recaps the first quarter income statement, and highlights our currency-neutral results. As discussed, revenues grew a strong 6.1% in the quarter on a comparable currency-neutral basis.

As we move down the P&L, I'd like to point out that our results from the prior year include the respiratory solutions business, while the current period does not, as the business was divested in October of 2016. BD's ownership interest in the Vyaire joint venture will be recorded within other income, beginning in our second fiscal quarter.

Gross profit was strong, growing 1.7% despite the loss of gross profit related to the respiratory solutions business. On a comparable basis, gross profit would have grown in excess of revenue growth, as the divesture of respiratory business resulted in an estimated 6% headwind to gross profit growth. I'll provide more details on gross profit in just a moment.

SSG&A as a percent of revenue was 24.3%. We're very pleased with the continued leverage we're getting in SSG&A. R&D as a percentage of revenues was 6.2%, as we continue to invest in innovation to drive future growth.

Operating income grew 9.8%, reflecting strong P&L leverage. Our tax rate declined to 17% in the quarter, which is in line with our full-year expectation of 17% to 19%.

In the quarter, adjusted earnings per share were $2.33. This represents a 19.4% increase versus the prior year, which is very strong growth, even after the dilution impact from respiratory solutions. The impact of currency in the quarter was a headwind to EPS of about $0.01.

Turning to slide 12, and our gross profit and operating margins for the first quarter. As we just discussed, the impact of currency was not meaningful in the first quarter, though we do expect currency headwinds for the balance of the year. On a performance basis, gross profit margin improved by 190 basis points. This growth was driven by continuous improvement initiatives, cost synergies, and favorable mix which includes the positive impact of divestitures.

On an operating margin basis, we are extremely pleased to have delivered about 250 basis points of margin expansion, as we continue to drive cost synergies. In addition, margin expansion was positively impacted by the divestiture of the respiratory solutions business.

Moving on to slide 14. Our strong performance in the first quarter and our full-year outlook gives us the confidence to raise our currency-neutral adjusted EPS guidance for FY17 by 1 percentage point, to a range of $9.70 to $9.80.

Offsetting this increase performance are incremental currency headwinds of approximately 2 percentage points that have resulted from the US dollar strengthening relative to the euro and other currencies since we provided guidance in November. Our guidance assumes a euro to dollar exchange rate of $1.06. On an adjusted basis, we expect to achieve earnings of $9.35 to $9.45, which represents growth of 9% to 10%, which as a reminder includes dilution of approximately 1.5% from the respiratory divesture.

Turning to slide 15, I'd like to walk you through the balance of our guidance expectations for the full FY17. We continue to expect total Company revenue growth of 4.5% to 5% on a comparable currency-neutral basis, with growth of 4.5% to 5% in BD medical, and 4% to 5% in life sciences. Based on our current view of the environment, we continue to expect a small amount of pricing pressure for the year.

As a result of our strong first quarter performance and outlook for the year, we now expect underlying operating margin to improve by 200 to 225 basis points. This excludes the unfavorable impact of foreign currency, and also excludes slight pension headwinds. Beyond revenues, EPS and underlying operating margin, all other P&L guidance from November remains unchanged. Now I'd 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. Excuse me. Thank you, Chris. Moving on to slide 17, I'll walk you through our updates on new product innovation and strategic and business initiatives.

Starting with a few quick updates on our recent product launches. Some of you already know that as part of our pilot launch, we temporarily paused shipments for our insulin infusion sets. The customers who have already received the product have been told they can continue to use it.

During our initial pilot, we received a moderately higher than anticipated rate of complaints associated with insertion. If you recall, we initiated a limited launch to gather customer insights prior to broad commercialization, and to detect opportunities for improvements like this. These early learnings, which are not unusual, are invaluable to ensure that patients ultimately realize the full benefits of BD FlowSmart technology. We're continuing to work closely with Medtronic towards full commercialization.

In life sciences, we have received very positive feedback from customers on our Barricor blood collection tubes, since launching in September this past year. We're also pleased that we continued to see strong growth in BD MAX across our portfolio of assays, including CT/GC/TV and our extended enteric bacterial panel in Europe, both of which launched in the fourth quarter of FY16.

Our menu expansion continued in the first quarter, with the MAX vaginal assay launch in the US. The vaginitis panel is the first FDA-cleared PCR-based panel in the US. We have over a dozen accounts in various stages of validating the new assay. We also anticipate the launch of extended enteric bacterial panel in the US later this fiscal year.

Moving on to our more recent new product launches, within our medical business, we recently launched the BD Neopak 2.25 mL prefill glass syringe. This syringe is specifically designed for high value and sensitive biologic drugs that require higher quality levels and performance. This new syringe enables the development of drug syringe combination products with extended injection intervals, which will provide patients with more time between injections, and decrease the frequency of injections.

Within our life science business, we recently announced the commercial availability of the new BD Precise WTA kits that provide an easier method to identify and quantify genetic information in individual cells for genomics-based research. These kits provide researchers with more accurate and easy to use genomic tools to enable more efficient identification of genetic markers for disease. The combination of our reagents, cell sorters, and data analytics enables BD to support researchers from sample preparation to end data analysis.

We're also pleased that BD was recently named a 2016 top Global Innovator by Clarivate Analytics, a distinction that honors the most innovative corporations and institutions in the world. Within strategic and business initiatives, we're pleased with the successful launch of Vyaire Medical, the respiratory solutions joint venture. Vyaire will enable more strategic focus and investment to build a leading global respiratory company.

We're also pleased that we continued to make strong progress, achieving revenue synergies related to CareFusion. We now have over 160 product registrations either approved or in process.

Moving on to our business update in slide 18. We continued to make progress with our cost synergy capture. Our G&A functional transformation continued in the first quarter. We're pleased to have implemented a new global HR and payroll systems in January.

We also remain focused on ongoing supply chain optimization in our distribution centers. Our manufacturing-related synergies remain on track, and we continue to expect the majority of these to be achieved in the latter part of our deal horizon. We continue to expect $325 million to $350 million in total cost synergies related to the CareFusion acquisition, as we exit FY18.

Turning to operating margin expansion. We have driven significant operating margin expansion on a multi-year trajectory. Starting with FY15, we delivered 100 basis points of operating margin expansion, followed by another 200 basis points in FY16.

In FY17, we expect to deliver another 200 to 225 basis points of margin improvement. The consistent performance of our business, combined with operating efficiencies, cost leverage, and cost synergy capture is driving continued underlying operating margin expansion, which will result in over 500 basis points of cumulative margin expansion over the three-year period.

Moving on to slide 19, I would like to reiterate the key messages from our presentation today. First, we remain on track with the comprehensive plan we laid out at our recent Analyst Day, and we're very pleased with our strong start to FY17. Second, both segments performed ahead of our initial expectations, and our results highlight the benefit of our diverse portfolio, both from a product and a geographic standpoint.

Third, operating efficiencies, cost leverage, and cost synergy capture are generating significant operating margin improvement, as evidenced by our increased guidance for the total year. Finally, we are confident in our outlook for the full fiscal year, and our ability to drive currency-neutral revenue and earnings growth. We remain very optimistic about BD's prospects for the future, and our ability to continue to drive shareholder return.

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

(Operator Instructions)

Thank you. Your first question is coming from the line of David Lewis with Morgan Stanley.

Good morning.

Good morning, David.

Vince or Chris, I wonder if we could just start with the outlook for the year? I think there's two elements people are focused on, this strong first quarter revenues, but maintaining currency-neutral revenue guidance, and then lowering your earnings by $0.10, despite a much stronger quarter, better underlying margin strength. So can you walk us through these two dynamics, and your confidence in the remainder of the year? Thank you.

So I'll start off, David. From a revenue standpoint, we are delighted with the start that we had, and we feel very good about the outlook for the year. We just felt it was a little early to take up the revenue guidance.

Looking at the underlying markets, they do seem to have stabilized, so we're feeling good about that. We just think that from a much broader perspective, we're in an uncertain environment. So it was the first quarter, we feel good about it, we have confidence in the year. We'll come back in the second quarter and take another look. Now in terms of the impact of currency and whatnot, I'll turn that over to Chris.

Yes. So looking at our EPS guidance, we feel real good about the performance in the first quarter as well, and we think a portion of that's going to flow through to the year. As you see, we raised the FX end guidance which is what we control, and we feel really good about where that stands.

We don't control the currency. Now we did do all of this based on a 30-day average, which is what we've always done, and that was $1.06. As you saw over the last couple of days, it's moved up to $1.08. It's been very volatile.

We haven't adjusted for that. So clearly, there's some upside if that continues, and it would be a pleasant surprise to see currency finally moving in the other direction, and being at our back instead of in our face. So our guidance does not take that in consideration, because whatever it is, it's going to flow through. So we feel good about the fact that we raised the FX end guidance. And then, currency is going to be what currency is, and we'll walk through that as we go forward, as we see it settle out.

But it wasn't too long ago, that people thought the dollar was going to go to parity. Now it seems to be headed in the other direction. Who knows? We'll hope for the best.

Thanks very much.

Your next question comes from the line of Michael Weinstein with JPMorgan.

Hey, this is Andrew Hanover in for Mike. Thanks for taking the question.

Good morning.

Good morning. I just wanted to follow up on that specific question, just to understand the cadence, based on what guidance is today. And obviously, you had the one-time items in this quarter that were pulled forward, or came in earlier than expected. But anything that would change what you were expecting for the rest of the year, and how should we think about the cadence for the second -- the fourth quarter? And then, as a follow up, I just wanted to get an idea on the status of the Baricor launch, and how that is going?

Okay. On the first piece of that, I would say clearly ahead of expectations in the first quarter. If you remember, we said that we're going to have a little bit more of a difficult compare in the first quarter, primarily because of the grow-over in the Middle East and Africa. Middle East was about what we expected. Africa was just actually a little bit better, because of the timing of some contracts. But clearly, we blew that 4% kind of guidance in the first quarter out of the water.

I'd say about two-thirds of the revenue overachievement was timing-related. You could look at pharm systems growing 15.5%, that's a lumpy business. It's not a 15% grower, but it's a good grower, but it's mostly timing, or a chunk of that is timing. So we see about a two-thirds, one-third breakout at this point.

So clearly, revenue is moving up in the range, and as Vince said, it's a little bit early in the year. We still have things like flu ahead of us. It's still not clear where that's going to go, although it's somewhat encouraging, but that could turn on a dime. So we'll see where that goes. Pricing is still a bit ahead of us.

So it's early in the year, but clearly, feel a lot better about our revenue guidance, and a lot more confidence in that guidance range. So we'll see how it goes, but off to a great start.

Yes, and for Baricor.

Yes, good morning. As Vince mentioned, we do feel very positive about the feedback that we're getting from customers. We've seen some early wins, around 30 accounts have now converted to Baricor, and we have a -- excuse me -- a healthy pipeline around of -- just over 150 accounts. They're validating and evaluating the product. It is a product that takes quite a long time to validate, between three and five months. So although all the signs are positive, this is going to be a slow conversion process that we're going to see --

As we expected. (multiple speakers)

As we expected and communicated. Thanks very much for the questions.

Your next question comes from the line of [Brian Weinstein] with William Blair

Hey, guys, thanks for taking the question.

Good morning, Brian.

Hey, so just going back into FX a little bit. Last year, you guys were very successful at offsetting all of the FX headwinds that you had. Sounds like you're thinking you can offset about 50% of them this year. Can you be a little more specific on where you're able to offset those FX headwinds this year, and did you sort of fully exhaust some of those options last year? And I guess, as part of that, can you just talk about where we are specifically in the $325 million to $350 million in cost synergies that you guys are targeting from CareFusion? Thank you.

Yes, Brian, thanks for the question. If I take you back 12 months ago, we were getting the same kind of question in terms of, had we exhausted what we could do at the end of the first quarter, you can't do anymore. And then, of course, we actually exceeded, and overcame the FX.

So this is early in the year. We were expecting some volatility in FX. We were very careful in our expense, in terms of how we rolled that out in the first quarter, and I think we did an excellent job of managing. But we're feeling very good about the P&L as we have, and as we look across the rest of the year. Chris, anything else you'd like to add?

Yes. I'd just add on that, before I get to the second part of your question, that's our job to offset as much of that FX headwind as we can. And I think we've done a great job of that last year, we continue that with our first quarter guidance, raising the FX [end] neutral. So that's our job to do that. And it's basically, the cost synergies, the continuous improvement, all of those things go into our ability to do that.

We feel really good about where we are in cost synergy. We have the $325 million to $350 million, we feel very good and confident with that. As you know, some of the cost synergies come towards the back end, and as we get increasing visibility towards that, we'll address where the total cost is going to come out.

But the traction that we have is terrific. And it's still a little bit early to give any more specificity to where we'll ultimately end up, but we feel really good about the synergy progress that we've made, and continue to expect that to be strong.

Thanks, Brian.

Your next question comes from the line of Larry Keusch with Raymond James.

Hi. Good morning. Chris, perhaps for you, the 3.1 times gross leverage, obviously impressive, and tracking right to the 3 times that you were targeting by the end of March. I guess, the question is -- and I sort of will wrap in the $1 billion of stranded cash that you have overseas -- to the extent that you could get that money back, and your leverage comes down to that 3 times target, how do we think about the cadence of broadly capital deployment, and then specifically, share repurchase and dividend?

And then the second question is, and it's sort of been touched on, but given the outperformance in the first quarter on sales on a constant currency basis, how do we specifically think about the cadence of the remaining quarters, given some of that timing pull forward? Does that imply that the 2Q would now be below the 4.5% to 5% outlook for the year?

Okay. You got a couple there. On that last point, I think in terms of the cadence, I think somebody else asked that too. The -- as we look out, it's going to be pretty ratable.

I don't think there's going to be any spikes in the second, third, or fourth quarter, and so it'll be within the range that we had provided for the year. And obviously, because of the timing, it's probably towards the low end of that range to keep us within the 4.5%, as you do the math. The other part of the question --?

Capital deployment.

Capital deployment, sure, my favorite. So the way to think about that -- one of the things you said, Larry, was the $1 billion of stranded cash, remember that a company our size needs a certain amount of working capital. So I don't see all of that as a $1 billion. Some of that is just normal working capital needs.

As we pay down to the 3.0, we're going to get down to very historically low levels of cash. It'll take a little while to kind of go back up to normal working capital levels, and then a little while longer to actually start accumulating the cash that you need for the deployment.

So as I look out, the impact this year of any share buybacks would be de minimus, because of what I just described in building back up the cash balances. But clearly, we're not going to let cash build up on the balance sheet, and we would deploy that as that cash starts building up again. But the way you should think about it for this year, is that the impact of any share buybacks which would occur later in the year, would be de minimus to the year.

Okay. Perfect. Thanks, guys.

Okay. Thanks a lot.

Your next question comes from the line of Vijay Kumar with Evercore ISI.

Hey, guys. Thanks for taking my question. So maybe just one, I guess, a housekeeping question on the guidance here. So it looks like FX was an [incremental] $0.17, $0.18 headwind, with the -- but the reported EPS was only lower by [$0.10]. So could you maybe just walk me through on where, I guess, you're getting the offset from? I think that would be helpful.

The margin.

Yes. We're actually, we're seeing a little bit better strength in the revenue side, and our margins, as you can see, were very strong in the first quarter as well. So the combination of those two things, the beat in the first quarter, some of that is going to flow through. So we see about one-third of the revenue, about one-third of the bottom line flowing through, and that's where we're seeing it.

Got you. And then, maybe one more, Chris, on what is the net impact of corporate tax reform and border tax? Is that a net neutral, a net positive?

Well, on the border tax, we certainly -- we are a net exporter, so that's a positive. Certainly, the lowering of the US rate would be positive. It all depends on all of the other factors that go in it. And that's very volatile, in terms of what other factors there might be such as, the interest expense and the price of repatriation of unremitted foreign earnings. So it's too quick, too soon to know, because it's anybody's guess, as to what will actually end up in the ultimate rules, and we still got a way to go.

But there's some positive, there's some negatives. We'll see where -- where they come out. But the one thing that I would want you to take away is that we are a net exporter. We do have over 30 plants in the US. So we feel good about that aspect of it.

Got you. Congrats on the nice quarter, guys.

Thank you.

Thanks, Vijay.

Your next question comes from the line of Doug Schenkel with Cowen.

Hey, good morning.

Good morning, Doug.

So my first question is on China, and I just want to have a quick circle back to Brian's question from a couple minutes ago. So first on China, you grew over 9% in the quarter against a difficult compare. You didn't call out CareFusion contributions specifically. So with that in mind, I was just hoping you could comment on how much products that have completed the registration process contributed to growth, and what's the right way to think about this ramping over the coming quarters?

And then just to go back to Brian's question. One area of clear focus today, seems to be the concern that you may be reaching a limit on your ability to keep offsetting FX with operating discipline, without cutting into bone over the next several quarters. I'd say it's a bit more pronounced than I would have expected, largely because you didn't reiterate reported EPS, and I think a lot of folks thought you maybe could have.

Could you just comment more directly on how you feel about -- how much dry powder is left? And kind of back that up with, some data that tells us that there is, or there isn't a lot of operating discipline left to be had in offsetting some of the FX headwinds? Thank you.

Okay, let's start with China first. We did have a strong performance in China, and a lot of it was on the medical side. So, Tom, why don't you talk a little bit about that, and the CareFusion impact.

Hey, Doug, this is Tom. As Vince mentioned earlier, we have made really good progress on the registrations, as we go after revenue synergies, up to 160-plus either approved or under active review. As we have always shared, of course, China has one of the longest registration times. And so, as we think about our synergies, we do have synergies coming in China, but that's certainly not the main source of them at this point. We'll see those coming in over the next couple years.

As we think about revenue synergies overall, it was a good contributor to the segment in the quarter. Think about it in 10s of basis points impact on BD medical revenue growth in the quarter, on a global basis.

Okay. So we'll come back to this question, where do we get potential offsets as we look forward through the P&L? And you've mentioned operating discipline and, of course, we will continue that. But Chris, we have other levers we can pull.

[We do]. Certainly, as we talked about the synergies and our ability to drive more synergies, we've gotten a lot of traction on that, there's still a lot to come. And so, there's potential to continue to drive more synergies, and that would be a potential.

We feel good about the fact that we were able to offset a good chunk of the FX headwinds in our guidance, as we go down to [1.06], it's now [1.08]. There's certainly some upside there as well. It's somewhat out of our control where FX goes, but our job, as I said before, is to offset as much of that as we possibly can. And I think we have some options and opportunities, particularly around synergy acceleration and those kinds of things that we would be pushing.

And the only other thing I would add, Chris, is that, if we continue with the strong revenue, we saw very good margin on that incremental revenue. So we have that as a go -- looking forward as well. So those are the elements.

Okay. Thanks very much.

Your next question come from the line of Jonathan Groberg with UBS.

Thanks a million. Could you maybe give a -- Vince, I know one of the things from a new product standpoint, investors had been anticipating was that insulin infusion set. And maybe just a little bit more color on, what should investors be expecting, given the early feedback that you've gotten, either from a timing, or what you're going to do from a product standpoint?

Yes, Tom can talk to that.

Hi, Jonathan, this is Tom. So as Vince mentioned, in October we began the initial pilot launch with Medtronic in the US, to collect customer insights and to form the broader rollout.

As we said, we did put out a safety notification a few weeks ago. And it stated that although the majority of customers are using the product successfully, and we're getting great feedback on that, there was a small percent that had reported some issues. And so, we had an agreement with Medtronic, temporarily pause the shipments, so we could review that customer feedback.

We also indicated that any customers who have the product, okay to continue to use it. Again, we're getting overall, very good feedback. And we recognize that it's a new and different technology, and we need to make sure that we're rolling out the right training, so that we're giving customers, all customers the right instructions for use, 100% are having that right experience.

And so, we've been analyzing that feedback, refining some of the training practices, et cetera. Obviously, we're disappointed with the shipment pause, but as Vince also mentioned, we view this as part of the learnings critical to maximize the potential of this, over both the near- and long-term.

It doesn't change at all, our outlook for the product. We continue to be very positive on the opportunity, and extremely positive on the benefit of the FlowSmart technology. We also don't see any impact of this on the guidance for the medical segment of the Company.

So we're still working towards full commercial launch, changing some of the training materials. Thanks, Tom. Thanks, Jon.

Your next question comes from the line of Derik de Bruin with Bank of America.

Hi, good morning.

Good morning.

So a couple of questions. First, when you look at the respiratory JV on that other income line, how should we think about that for the rest of the year? And I guess, going forward on that, is a low single-digit sort of growth estimate for that a reasonable assumption on that business, or on that contribution?

It's not going to be very material. We're not counting on it being very material for the rest of the year, and it's on a lag just because of the reporting piece which is not unusual, so I wouldn't expect too much there. I don't think it's going to really be a driver.

Okay. And then, just one follow up. You called out flu several times, and historically flu has been, anywhere I think what, [$12 million] to [$15 million] in a good flu season for you. Did -- can you call out the contribution in Q1, and then sort of expectations for Q2?

Yes, I don't know that we can give you an expectation for Q2, but Alberto can comment on what we've seen so far, and what happened in this quarter. Alberto?

[Here's the deal]. Flu seasons in, specifically in Asia, so Japan and Korea were earlier than last year, as well as in the US. The last year's flu season was late, so we saw strong demand in Asia in Q1, and very, very late in December. A little bit of a spike in the order from distributors, in anticipation of what we've seen an increase in flu for the last three weeks or so.

We don't know exactly obviously how that's going to -- going forward, how that's going to evolve, but there was a very late buy-in of inventory by distributors in the US, moderate though. It contributed about just over 1.5% growth rate to the DS growth rate for the quarter.

Great. Thank you.

Thanks, Alberto.

Your next question comes from the line of [Bill Quirk] with Piper Jaffray.

Great, thanks. Good morning, everyone.

Good morning.

I have [two] questions. I guess, for Vince or Tom, just curious if there was a broadening of an EU sharps directive that might get expanded in scope to some non-healthcare workers like police, and lab workers and such. Just thinking about the potential size of this opportunity. I'm guessing, this is more of a 2018, 2019 sort of event, but would love any color there.

And then just a quick one for Chris on share count. You guided to [219 million] for the year. We're comfortably under that at this point. So just kind of help us think about, I guess, some of the puts and takes there? Thanks.

So Tom, do you want to comment?

Yes, this is Tom. Certainly, we see Europe is about 50% of the way through their safety legislation. I think the add-on that you're talking about is, not something that we see as fundamentally being of significant scale to move the needle, beyond kind of the current projection. But we continue to be very positive overall on safety growth in Europe, and as well as in emerging markets. Thanks for the question.

And on the share count, so that assumes -- and we've seen -- since we're not buying back any shares, you get a little bit of a lift from conversion of options, and we've seen that over the last several quarters. So it's just a continuation of that, and no assumption of share buybacks for the remainder of the year.

Your next question comes from the line of Brandon Couillard with Jefferies.

Thanks, good morning. Just curious if you could elaborate on the US safety weakness in the first quarter, and whether or not that we should think about that normalizing in 2Q? And then secondly, curious if the international biosciences experience was actually in line with plan?

Okay. So first safety, and in the US, there was a little bit of an impact on the life science side, because we had some capacity constraints on one particular product in PAS, and we're working to add capacity. So that's what you saw there. We are adding some capacity. We are going to be tight for the balance of the year. But, Tom?

We saw pretty solid performance from a medical perspective in the US in the quarter. No change in that. I think, as we think about safety overall in the quarter, I think we recognized that at a BDX level, it was maybe a bit more of an impact from international safety sales, with some headwinds in the Middle East and in Asia. But we see those basically moderating as we go forward for the year, those annualize. And overall, see a positive outlook for safety, through the balance of FY17.

And Alberto, in international safety, I think you did pretty well too.

Yes, in terms, we did particularly well, above average because some of the supply in some of the constrained products, in the push-button blood collection went outside the US. So we saw particularly high safety numbers.

So a little less growth in the US, but more international. (multiple speakers) Okay, great.

And emerging markets over 18% growth.

Yes, it was 18% so.

Okay. Thanks very much for the question.

Your last question comes from the line of Richard Newitter with Leerink Partners.

Hi, this is Ravi in for Rich. Can you hear me okay?

Yes, we can, Ravi.

Hi, thanks for taking the question. Just one on price. You mentioned the pricing environment a couple times. How should we think about how you're thinking about that? It sounds like you're taking a little bit more of an incremental cautious approach there. And just a follow up, could you just highlight what US growth would have been, ex the order pull-through? Thank you.

Yes. So on the pricing piece, I think it's very consistent with the way we always approach pricing. There's no question that there's pricing pressure in different parts of the business. We tend to be able to offset a lot of that. And so, we started this year, opening guidance with 10s of basis points of pressure. The first quarter was about flat, as I mentioned. And so, we're still having our guidance, the 10s of basis points coming from the remainder of the year. That's got some room for upside, if we're able to outperform. But right now it contains that 10s of basis points of pricing pressure.

Okay. Well, thank you very much. So maybe then to go on, and just wrap up the call, we are very pleased with the strong start to the year. We're implementing our strategy that we laid out for you at Analyst Day. That whole plan is on track.

We're excited about the new product launches. You saw the increased performance on the margin line as well. So when we step back and look at this in totality, we're feeling very good across the continuum of the entire P&L. So thank you very much for your questions, and we'll look forward to updating you next quarter.

Thanks, everyone.

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