Becton, Dickinson and Company Q3 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Third-quarter results exceeded expectations, with revenue of $5.0 billion up 4.4%, adjusted operating margin of 24.9%, and adjusted EPS of $3.23, up 4.9%.
  • Positive Sentiment: Growth was broad-based, with more than 90% of the portfolio delivering high-single-digit growth and double-digit expansion in biologic drug delivery, advanced patient monitoring, PureWick, advanced tissue regeneration, and pharmacy automation. BD also cited share gains and strong momentum from new product launches and targeted commercial investments.
  • Positive Sentiment: BD raised the midpoint of its fiscal 2026 adjusted EPS outlook to $12.62–$12.72 and expects revenue growth toward the high end of its low-double-digit FX-neutral range; currency is currently expected to provide an approximately 100-basis-point revenue tailwind.
  • Negative Sentiment: Management expects fiscal 2027 revenue growth to remain in the low-single-digit range, partly because the end of Alaris remediation creates an approximately 200-basis-point headwind. Tariffs reduced third-quarter margin by about 110 basis points, while oil, resin costs, and broader market conditions remain risks.
  • Positive Sentiment: Year-to-date free cash flow rose 45% to $1.7 billion, supporting $3.1 billion of shareholder returns, including approximately $2.3 billion in share repurchases and $0.9 billion in dividends.
AI Generated. May Contain Errors.
Earnings Conference Call
Becton, Dickinson and Company Q3 2026
00:00 / 00:00

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Operator

Hello and welcome to BD's third fiscal quarter 2026 earnings call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com, or by phone at 800-688-9445 for domestic calls and area code +1-402-220-1371 for international calls. For today's call, all parties have been placed in a listen-only mode until the question-and-answer session. I will now turn the call over to Shawn Bevec, Senior Vice President, Investor Relations. Please go ahead.

Shawn Bevec
Senior VP of Investor Relations at BD

Good morning and welcome to BD's earnings call. I'm Shawn Bevec, Senior Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the third quarter of fiscal 2026. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer, and President, and Vitor Roque, Executive Vice President and Chief Financial Officer. Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX neutral basis unless otherwise noted.

Shawn Bevec
Senior VP of Investor Relations at BD

References to adjusted EPS refer to adjusted diluted EPS. Financials discussed here and included in the earnings release and 10-Q are presented on a continuing operations basis. Prior periods have been recast to reflect the spin-off of our life sciences business in combination with Waters, which is now accounted for as discontinued operations. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I will turn it over to Tom.

Tom Polen
Chairman, CEO, and President at BD

Thank you, Shawn, and good morning, everyone. We delivered a strong third quarter with revenue, adjusted operating margin, and adjusted EPS all ahead of our expectations. This was our first full quarter operating as New BD, and more importantly, the quality of this performance reflects our more focused portfolio beginning to demonstrate the growth and earnings potential we designed it to deliver. Performance was broad-based, reflecting commercial momentum across our key growth platforms, strong operational execution, and the expanding impact of BD Excellence. Revenue was $5 billion, up 4.4%, with more than 90% of the portfolio delivering high-single-digit growth. Performance continues to be driven by ongoing structural improvements across our key growth platforms, where we've been focused on enhancing commercial execution and driving product innovation.

Tom Polen
Chairman, CEO, and President at BD

This includes double-digit growth across biologic drug delivery, advanced patient monitoring, PureWick, and advanced tissue regeneration, along with strong performance in peripheral vascular disease and Rowa pharmacy automation. As these platforms continue to scale and growth outpaces the broader portfolio, they are becoming more meaningful drivers of top- and bottom-line performance. We also saw strong U.S. performance in MDS and specimen management, driven by broad underlying utilization as well as share gains. Growth was partially offset by known dynamics concentrated in less than 10% of our portfolio, primarily the difficult prior year comparison in Alaris, as well as vaccines in China, which all played out as expected. We delivered adjusted operating margin of 24.9% and adjusted EPS of $3.23, reflecting the increasing revenue contribution from our growth platforms, as well as strong operational execution through BD Excellence.

Tom Polen
Chairman, CEO, and President at BD

Based on our Q3 performance, strong year-to-date execution, and confidence in the continued momentum of New BD, we are updating our full-year guidance. We now expect revenue growth toward the high-end of our low-single-digit range and are raising the midpoint of our adjusted EPS guidance. Turning to our New BD strategy, we are increasing momentum across three strategic pillars: compete, innovate, and deliver. Starting with compete, we continue advancing commercial excellence with greater customer focus, stronger accountability, and faster decision making. Our goal is simple. It's to convert the strength of BD's portfolio into faster growth, deeper customer partnerships, and sustainable share gains. In Q3, this translated into strong outcomes across our growth platforms, and a few to highlight. Within Connected Care, we're seeing the power of our portfolio with continued share gains in Alaris this quarter and over 200 basis points year-to-date.

Tom Polen
Chairman, CEO, and President at BD

APM continued to grow above market, supported by expanded adoption of HemoSphere Alta and double-digit growth in both Smart Recovery and legacy consumables. Our incremental commercial investments going into this year are contributing roughly 100 basis points-150 basis points to APM's growth rate. In BioPharma Systems, we continue to see pipeline momentum with new customer agreements signed across the portfolio. We're achieving high-win rates across the biologics market, including GLP-1s, and we now have approximately 100 agreements signed across novel and biosimilar GLP-1 programs. That demand is being supported by the capacity investments and innovative drug delivery technologies we've built over time. This includes a new collaboration with EMS, one of Brazil's leading pharmaceutical companies in the launch of a semaglutide therapy utilizing our Vystra injection pen in one of the region's largest healthcare markets.

Tom Polen
Chairman, CEO, and President at BD

In Interventional, our incremental commercial investments coming into the year are translating to stronger growth, with PI demonstrating another consecutive quarter of acceleration. In UCC, our incremental investments in the VA channel for PureWick continue to build momentum and contributed to another quarter of double-digit growth in the platform. Together, these results demonstrate that our compete strategy is a positive accelerator for New BD. We're winning more consistently, scaling our growth platforms faster, and strengthening our position with customers around the world. Our second priority is innovate. We're focusing our pipeline in attractive markets where healthcare needs BD most. Connected Care, enabling the shift to lower cost settings, and advancing treatment of specific chronic diseases. Our innovation momentum continued in Q3, with BD Excellence increasing the cadence and the speed of launches.

Tom Polen
Chairman, CEO, and President at BD

We expanded our vascular portfolio and PI with the early European launch of the differentiated Liverty TIPS Stent Graft, entering a market that's seen limited innovation for many years. BD Liverty brings enhanced ease of use, the broadest range of lengths available, and compelling clinical trial results. This launch broadens BD's presence in the approximately $2 billion global venous market, which is growing high-single-digits. We also launched the Elyra Thulium Fiber Laser System, expanding our kidney stone portfolio and presence in endourology. Early customer reception has been strong, with placements accelerating since launch. The endourology market is approximately $1.5 billion and increasingly driven by disposables, a model that plays to BD's strengths.

Tom Polen
Chairman, CEO, and President at BD

Finally, we continue to expand our non-invasive monitoring portfolio in APM with the launch of the Acumen IQ plus finger cuff and Smart Pressure Controller, which pairs with our HemoSphere Alta platform and brings enhanced usability and advanced AI features to customers. This advancement in our non-invasive portfolio allows us to continue expanding our reach to underserved OR and ICU patients. These technologies are commercially available now in both the U.S. and Europe. We're investing behind markets with attractive growth, strong clinical demand, and clear competitive advantages. Collectively, these launches demonstrate a more focused innovation model that's strengthening the long-term growth profile of the company. Our third priority, deliver, is about operational excellence at scale. Improving quality, service, productivity, margin, and cash flow. Through BD Excellence, we've built one of the most resilient supply chains in our industry, with back orders at record lows and service levels at record highs.

Tom Polen
Chairman, CEO, and President at BD

Our scale, combined with BD Excellence embedded across our manufacturing network, is a growing competitive advantage that translates into efficiency, resiliency, and consistency for our customers. Again, this quarter, we delivered approximately 8% gross productivity in our plants, with service levels above 90%. That progress was driven by plant consolidations, raw material savings, waste reduction, and higher efficiencies on our critical lines and processes. We've also begun investing in the deployment of a standardized digital platform designed to run AI across BD's end-to-end supply chain, and we believe this represents another meaningful runway for productivity and service improvement over time. Turning to capital allocation, our discipline framework remains unchanged, our improving free cash flow is giving us more firepower to execute.

Tom Polen
Chairman, CEO, and President at BD

We remained committed to returning capital to shareholders, including through share repurchases, investing selectively in high-growth tuck-in M&A, and driving towards our 90% free cash flow conversion target over time. With that, I'll turn it over to Vitor to provide more detail on our financial performance and updated guidance.

Vitor Roque
EVP and CFO at BD

Thanks, Tom, and good morning, everyone. We delivered a strong third quarter with $5 billion in revenue, up 4.4%, reflecting broad-based growth across the portfolio and disciplined execution through a dynamic environment. As Tom highlighted, performance was broad-based, driven by continued double-digit growth in several of our key platforms and strong performance in the U.S., partially offset by a difficult prior year comparison in Alaris and continued pressure in vaccines in China. All consistent with our expectations. Medical Essentials grew 3.2%. In MDS, strong U.S. performance benefited from share gains across vascular access management portfolio and utilization recovery related to last year's fluid shortage. This was partially offset by continued pressure in China. In specimen management, we delivered high-single-digit growth, driven by share gains across the BD Vacutainer portfolio, improved supply, and incremental demand as customers work through competitor back orders.

Vitor Roque
EVP and CFO at BD

Connected Care grew 4.4%, led by double-digit growth in advanced patient monitoring on strength and consumables. MMS grew low-single-digits, led by double-digit growth in dispensing and continued strength in Rowa pharmacy automation. We also saw strong infusion set performance due to high utilization versus last year fluid supply disruption and pull-through from Alaris share gains. This was partially offset by difficult prior year comparison in Alaris Capital. BioPharma Systems grew 5.2%, driven by continued double-digit growth in biologics led by GLP-1s. This was partially offset by lower demand for vaccine products. Excluding the impact of vaccines, BioPharma Systems grew in the mid-teens. Interventional grew 5.5%, with solid mid-single-digit growth across the segment. In PI, growth was led by oncology and peripheral vascular disease, reflecting strong commercial execution and new product launches, partially offset by China market dynamics. UCC was led by continued double-digit growth in PureWick.

Vitor Roque
EVP and CFO at BD

Surgery performance was driven by double-digit growth in infection prevention and advanced tissue regeneration. Turning to the P&L. Adjusted gross margin was 54.3%, and adjusted operating margin was 24.9%, down 100 basis points and 130 basis points respectively, versus the prior year. Margins benefited from productivity gains to BD Excellence in favorable mix. These benefits were offset by approximately 110 basis points of tariff impact. We also continue to invest in selling and R&D to support our long-term growth strategy. Adjusted EPS was $3.23, up 4.9% and ahead of our expectations, reflecting our strong revenue performance. Turning to cash flow and capital allocation. Year-to-date, free cash flow was $1.7 billion, an increase of 45% versus the prior year. This reflects improved working capital and lower non-operating cash items, including Alaris remediation outlays.

Vitor Roque
EVP and CFO at BD

Year-to-date, we returned $3.1 billion to shareholders, including approximately $2.3 billion in share repurchases and $0.9 billion in dividends. We ended the quarter with net leverage of approximately 2.9x and remain committed to our 2.5x long-term net leverage target. Moving to our updated fiscal 2026 guidance. We now anticipate revenue growth to be toward the high-end of our low-single-digit FX neutral range. Based on current spot rates, currency is now estimated to be a tailwind to revenue of about 100 basis points. Moving down to the P&L. We continue to expect adjusted operating margin of approximately 25%, inclusive of the impact of tariffs. Our adjusted effective tax rate is expected to remain between 16% and 17%. Given our Q3 performance and continued productivity to BD Excellence, we are increasing the midpoint of our adjusted EPS guidance and updating our range to $12.62-$12.72.

Vitor Roque
EVP and CFO at BD

With that, I'll turn it back to Tom.

Tom Polen
Chairman, CEO, and President at BD

Thanks, Vitor. Before we open the call for questions, I want to recognize Mike Garrison, EVP and President of the Medical Essentials and BioPharma Systems segments, who recently announced his intention to retire after more than 20 years with BD. Mike has been an impactful leader and trusted partner, and we thank him for his many contributions to the company and wish him all the best in his retirement. As we continue to lead BD into its next chapter, I also want to welcome Peter Menziuso, who joined BD on June 1st as EVP and President of BD Interventional. Peter brings more than 30 years of global healthcare leadership, and his strong commercial and operational mindset is well aligned with the operating system we're scaling across new BD. I also want to recognize our associates. Our results reflect what we can deliver as a more focused med tech company.

Tom Polen
Chairman, CEO, and President at BD

Operationalizing our new BD strategy following the life sciences separation has taken a tremendous amount of work across the organization. All of this happens because of the dedication and execution by our associates, and I want to thank them for their many contributions. With that, let's start the Q&A session. Operator, can you please assemble the queue?

Operator

Thank you. At this time, if you have a question, please press star one on your touch-tone telephone. If at any point your question has been answered, you remove yourself from the queue by pressing star two. In order to allow for broad participation, please limit yourself to only one question. Lastly, to provide optimal sound quality, please pick up your handset while you ask your question. We'll take our first question from Travis Steed with Bank of America.

Travis Steed
Travis Steed
Analyst at Bank of America

Hey, everybody. Thanks and congrats on a really nice quarter here. I guess I wanted to ask about the strength in the quarter. There was a lot of momentum in a lot of the businesses here, and I think some of the 90% of the business that usually grows mid-single-digits was above trend. I don't know if there was anything one-time that you'd call out and kind of how you thought about the revenue guidance and being able to move that up to the high-end of the low-single-digit range and how much of this kind of carries into 2027.

Tom Polen
Chairman, CEO, and President at BD

Hey, Travis. Good morning. Thank you. Great to connect. We're really pleased with growth in the quarter, as you said. I think it's really exemplified by the momentum that you're seeing in our growth platforms. Those are areas that we've been very actively building over the last five years. I think you're really seeing them pay off and exemplify the power of the New BD. This is our first quarter as a focused med tech company. Those growth platforms, we had actually four of them growing double-digits, the rest all growing high-single-digits in the quarter.

Tom Polen
Chairman, CEO, and President at BD

Whether or not it was very great growth, very high-double-digit growth in biologics, specifically in GLP-1s, even at the higher side of that, to what you're seeing in pharmacy robotics with Rowa to our APM business continuing to build momentum, including we're seeing the benefits of some of the commercial investments that we made there as well as in UCC. In other places. That momentum, we're continuing to invest behind, both commercially. We're continuing to invest behind from an innovation perspective. We've actually reallocated a disproportionate amount of our R&D programs into those growth vectors.

Tom Polen
Chairman, CEO, and President at BD

As those grow, not only do they accelerate the revenue of the company, given they're in faster-growing markets. We're building leading positions in and have strong pipelines, but they also all have favorable mix benefits and can help fuel gross margin and ultimately operating margin expansion as we look ahead. We're really pleased with what we're seeing there and what we're building. We're going to continue to focus on executing that as we move ahead in New BD.

Operator

Thank you. We'll take our next question from Patrick Wood with UBS. Please go ahead.

Patrick Wood
Patrick Wood
Analyst at UBS

Appreciate it. Thanks so much for the question, guys. Similar vein. You mentioned, obviously, share gains, and it sounds very clearly like volumes across a lot of these categories are doing very well. I guess my core question is, how much of this is that innovation pipe? Did you make any big changes to your commercial approach into the market that may have enabled your commercial teams to take more share? Because a lot of these categories, you actually already have quite a high share in. I guess, has the commercial approach changed, or is this really just the innovation platforms coming through? Thanks.

Tom Polen
Chairman, CEO, and President at BD

Yeah. Good morning, Patrick. It's a combination of both. As we've launched our New BD strategy, what we call Excellence Unleashed inside of BD, we're hyper-focused on driving excellence across those three pillars, which is commercial excellence, innovation excellence, and delivery excellence. Delivery excellence is what you've seen us doubling down with BD Excellence on for obviously some time, and you've seen the benefits of that in our margin expansion. You saw us appoint Mike Feld as our first ever in the company's history, Chief Revenue Officer, and he just moved into that role full time really in February when we completed the transaction with Waters. As part of that, we've begun changing everything from the compensation system of our sales reps to the tools that our teams have, including beginning to deploy AI into their hands to better prepare them for account visits and where to hunt.

Tom Polen
Chairman, CEO, and President at BD

We've been reallocating our commercial headcount into the highest growth spaces, and you saw us at the beginning of the year discuss making about a $35 million incremental investment in very targeted areas. I grew the APM sales team by about 15% in the U.S., and we announced this morning that about 100 basis points to 150 basis points of the APM double-digit growth this quarter came from that investment already, just in the first couple of quarters, and we're seeing that continue to accelerate. We did the same thing in UCC. We put more sales headcount down. We've been investing in market development for PureWick and seeking reimbursement across a broad range of areas, and we had earlier gotten reimbursement in the Veterans Administration, we put in a dedicated sales team to pursue that opportunity at the beginning of this year.

Tom Polen
Chairman, CEO, and President at BD

Again, we're seeing that pay off with already a well over a million dollar a month run-rate in that category built this year through those investments. We did the same thing. We grew PI sales team by 15% this year in the U.S., and you're seeing, again, strong consecutive growth in that business quarter-on-quarter, driven by that commercial focus. We think there's a really continued opportunity for us as we drive towards being the best-in-medtech commercially, and that's going to be a hyper-focus for us over the next several years, and we're complementing that again with our work in innovation. We've spent a lot of time over the last several years shifting our innovation portfolio into the highest growth sectors associated with the areas that we see transforming healthcare.

Tom Polen
Chairman, CEO, and President at BD

We really look back many years ago, and we recognized that healthcare was going to be undergoing one of the most significant transformations in its history. It's becoming more connected, more automated, more personalized, and we were very purposeful in shifting our innovations into those areas. Now you're seeing those, which are our growth drivers, starting to pay off. We appreciate the question and look forward to continuing to update you on those. We will have an Investor Day now that we've got Vitor on board, and we will be sharing the date on that forthcoming.

Operator

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Biegelsen
Larry Biegelsen
Analyst at Wells Fargo

Good morning. Thanks for taking the question. Tom, I don't want to take away from the strong quarter here, but, in the Q3 calls, you've typically given some helpful color on the following year. My question on fiscal 2027 is, in the past you said top-line growth similar to that in fiscal 2026, and the Street's at about 7% EPS growth next year. Given the strength you're seeing in the business, could revenue growth next year be closer to the high-end of low-single-digits? And what are some of the puts and takes we should consider next year for the P&L? For example, can you grow operating margins next year? Thanks for taking the question.

Tom Polen
Chairman, CEO, and President at BD

Yeah, sure, Larry. Let me turn that over to Vitor.

Vitor Roque
EVP and CFO at BD

Yeah. Hey, Larry. Thanks for the question. Of course, we are very proud of the results on Q3 and the momentum that we have. Regarding FY 2027 outlook, I think we have consistently characterized FY 2027 as low-single-digit revenue growth, that is due to the Alaris remediation coming to an end in FY 2026, which creates a 200 basis points headwind next year. We believe that's still a reasonable framework as we head into FY 2027 from a revenue. Now, if related to the earnings, if we start on a low-single-digit revenue baseline, we believe a good starting point is to expect like a modest leverage on that earnings, supported by our pricing actions, productivity gains from BD Excellence, and our capital allocation strategy. We will provide our formal guidance, as you mentioned, in full details on our November call.

Vitor Roque
EVP and CFO at BD

I think important, our philosophy remains focused on establishing executable commitments and creating the opportunities for the consistent delivery against them. Thanks for the question.

Operator

Thank you. Our next question will come from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Kumar
Vijay Kumar
Analyst at Evercore ISI

Hi, Tom. Thank you for taking my question. Maybe I'll focus one on the big picture. There's been concerns around utilization environment in a CapEx environment. When I look at your APM business, I mean, that seems to be humming double-digit rates. Can you just comment on the broader utilization CapEx outlook, please?

Tom Polen
Chairman, CEO, and President at BD

Sure. Thanks for the question, Vijay, and great to connect. We obviously pay very close attention to hospital utilization, and we saw solid utilization across our portfolio. You can see that reflected in our Q3 results. I think, as you know, BD's very uniquely positioned because of the broad use of our products across essentially every procedure and care setting. Our strong positions give us really kind of a bellwether view on indicators. Things that we watch are blood collection tubes and syringes, catheters, those types of products, which are ubiquitous with just general healthcare consumption. You can see in our results, our U.S. MDS up 6% in the quarter, indicative with strong catheter utilization, syringe, et cetera. We think that's a positive sign. Specimen management.

Tom Polen
Chairman, CEO, and President at BD

If there's one business that kind of maybe is not a recurring at that rate, you saw the U.S. at 14% growth in specimen management. We're not declaring that's a 14% growth business going forward. They are executing phenomenally. They're taking share. Operationally, they're executing with excellence, and we're able to capitalize on some competitive near-term supply issues. Nevertheless, even if we take out kind of those benefits in the quarter, we still see strong utilization there. In fact, one of the metrics we look at internally is what's the ratio between the number of needles we sell and the number of tubes we sell, which is kind of how much diagnostic testing is being done.

Tom Polen
Chairman, CEO, and President at BD

We have seen over the last couple of quarters, and we saw it again this quarter, an uptake in tube utilization versus needle utilization, which says more testing is being done per patient. Whether or not that's higher acuity patients ending up in hospitals or you're seeing more testing going on because of new innovative cancer screening testing, et cetera. Nevertheless, the testing we are seeing trending up with the number of tubes being drawn per patient collection. Those are some of the things that again, we're going to continue to watch very closely. Overall, we see utilization remaining solid. Thank you, Vijay.

Operator

Thank you. We'll take our next question from Robbie Marcus with JPMorgan. Please go ahead.

Robbie Marcus
Robbie Marcus
Analyst at JPMorgan

Great. Good morning. Congrats on the good quarter here. Tom, I'm sorry to take this angle. Travis asked about, I think all the 90% of business growing double-digits. I want to ask about the 10% that's clearly laying on organic growth here, and any trends you could break out there. What's the visibility onto those endings? You called out a 200 basis point headwind from Alaris next year. What are some of the other line items that are dragging down growth, and what are some of the changing dynamics there in visibility to maybe an end in sight for those type of growth rates? Thanks.

Tom Polen
Chairman, CEO, and President at BD

Good morning, Robbie. Thanks for the question. Obviously, we've been talking consistently throughout the year on three specific headwinds, Alaris, which is extremely defined, China, and vaccines. Maybe I'll take those in a bit of reverse order. Vaccines. By the way, all three have been playing out as we expected through the year. We spent a lot of time reflecting and actually adding and building some capabilities in our central organization. Just given how dynamic the markets are today, we really wanted to build some best-in-class capabilities on independently at a central company level, independent from the businesses, looking at markets where they're heading and looking further around the corner. That team and those capabilities, you're really seeing that play out, how that we looked at that going into this year, and we got it right in a dynamic environment.

Tom Polen
Chairman, CEO, and President at BD

Vaccines we're seeing play out again, as expected. As we said, I think, on our last call, that we expected by the end of the summer to start getting some view in terms of what that's going to look like going forward. I think it's still a bit early. We're not quite at the end of the summer, but we're seeing positive signs. We're seeing stabilization, I think, in that. We're going to start lapping the vaccine headwind as we go into next quarter. I would say at this point, again, we're not through the end of the summer, but preliminary feedback that we're getting and preliminary order patterns that we're seeing aren't certainly showing a repeat of that level of headwind in 2027. We'll obviously give an update on that as we get into our guidance, but we're seeing positive stabilization there.

Tom Polen
Chairman, CEO, and President at BD

In China, the key thing there is now as part of New BD and the separation of life sciences, China is a much smaller portion of BD. It's going to be down to just 4% of New BD revenue, and it's going to probably drop into the 3s as the rest of the BD is growing faster as we get into next year. We're going to continue to assume a dynamic environment in China, but I think we're going to end up seeing that just get incorporated in our outlook and kind of not as significant of a dynamic as we go forward. Alaris is really the one that we're going to have. That's a very defined window. That's going to end next year in 2027. We've known that for a bit of time.

Tom Polen
Chairman, CEO, and President at BD

As we said at the start of this fiscal year, it was going to be 100 basis point headwind this year. It's playing out exactly as we said, and we said it's going to be a 200 basis point headwind next year, and it's playing out exactly as we said. It's not going to be a headwind anymore. That 200 basis points will come off and lift, and we expect to be driving back to our mid-single-digit algorithm. All that remains exactly in line. Thank you for the update, Robbie, we'll continue to obviously provide progress there.

Operator

Thank you. We'll take our next question from Joanne Wuensch with Citibank. Please go ahead.

Joanne Wuensch
Joanne Wuensch
Analyst at Citibank

Good morning, thank you so much for taking the questions. Just briefly for clarification, when you talk about modest EPS leverage in 2027, how do you define modest? My second question really has to do more with products, and this may sort of grab some of the wind from your strategy day, but anything in particular you'd like to call out as product drivers over the next 12-18 months that we should pay attention to? Thank you.

Tom Polen
Chairman, CEO, and President at BD

Hey, Joanne. Why don't I take the product piece first, then I'll turn it to Vitor to share that. Again, just as a reminder, we're not looking to give 2027 guide here. We'll do that in November, I'll turn that to Vitor. As we think about product drivers, expect those to be in our growth platforms continuing down the line. We've got additional launches, we expect continued momentum in APM. The teams there is doing a fantastic job. Expect that at Analyst Day for us to share more about some of the innovations that we told you that we'd be making, particularly beginning to connect our APM monitoring technology and our Alaris pump. We'll unveil what we've been up to there. The team's made phenomenal progress, expect that to come up in that discussion.

Tom Polen
Chairman, CEO, and President at BD

Our tissue regeneration business, we continue to expect strong growth going forward there, have quite a few clinical trials underway for new applications of that biomaterial into new indications to continue to expand our presence in those spaces. Pharmacy automation, as you know, we recently pulled that out of MMS, have that as a focused team underneath of Bilal. We brought in a new president of that category, are excited about the growth as we look ahead there. In biologics, that's going to continue to be a strong growth performer for us. You heard us announce we're up to 100 deals in the GLP-1 space, you saw us announce the first launch of a biosimilar in our new Vystra Pen, which is at a higher value capture than when we just sell a syringe. We're excited about still the future there in biologics.

Tom Polen
Chairman, CEO, and President at BD

Not only biosimilars, there's the number of new novel biologics that are coming down the pipeline that we have a strong presence in as well. Connected Care, you're seeing the power of our BD Pyxis Pro launch with dispensing growing double digits in the quarter. We are seeing positive market traction and adoption there, of course, the power of our overall portfolio combined with our Alaris and new AI platform, BD Incada. I probably haven't mentioned everything there. Obviously, at PureWick, which has new products launching also in the future, I think we're up to over 35 consecutive quarters, 37 consecutive quarters of double-digit growth in PureWick. We've got a strong roadmap to continue momentum there, we'll be unveiling some new products at Investor Day that will help fuel that, as well as our continued efforts on reimbursement.

Tom Polen
Chairman, CEO, and President at BD

We're in early stages of reimbursement for at home in PureWick, we see that as a really exciting vector forward going as well. Again, we've been doubling down on those growth platforms over the last several years. You're seeing the momentum of those, we've got a really exciting pipeline to back that up as we go forward.

Vitor Roque
EVP and CFO at BD

Yeah. Maybe, Joanne, just to complement what Tom was mentioning, if we go to the EPS, as we said, we gave early indications of where we see FY 2027 starting. There will be more details on P&L specifics and numbers when we give our guidance in November. The modest earnings leverage is of the single-digit revenue growth baseline. It's an EPS starting assumption. That's what we are seeing this, and it reflects the Alaris flow-through and a dynamic environment which we are actually working to offset via pricing actions that are already underway, some mix favorability with the growth drivers that Tom just mentioned, but also the BD Excellence productivity. We also plan to continue to invest in our commercial and innovation to fund ourselves and leverage that growth engine for 2028 and beyond.

Vitor Roque
EVP and CFO at BD

We'll give more guidance in FY 2028, those are the key drivers inside that modest assumption.

Tom Polen
Chairman, CEO, and President at BD

Thank you, Joanne.

Vitor Roque
EVP and CFO at BD

Thank you.

Operator

Thank you. We'll take our next question from Matt Taylor with Jefferies. Please go ahead.

Matt Taylor
Matt Taylor
Analyst at Jefferies

Hi, good morning.

Tom Polen
Chairman, CEO, and President at BD

Good morning, Matt.

Matt Taylor
Matt Taylor
Analyst at Jefferies

Good morning, Tom. How you doing? Thanks for taking the question. I had kind of two. I'll just put them up front. Number one, if I take your guidance for top-line quite literally, then the squeeze math would imply Q4 goes back to about 2.5% growth versus the 4.4% you just did. I was wondering if you could comment on that and if that was any conservatism or other trends we should think about. Just on next year, maybe you could just talk a little bit high-level about inflation and headwinds that you're assuming to get to that modest leverage, given your tie to oil-based resins, plastics, and freight, and how you're hedging against that.

Tom Polen
Chairman, CEO, and President at BD

I'll take the macro dynamics for 2027 first, and then turn it over to Vitor for Q4. In terms of 2027 on the macro, right? We want to take a conservative posture there. I think as you said on there, obviously oil's been bouncing all over the place. Even this past week has been a good exemplar of that. We had shared before that if oil were to stay above $100, which it's not there right now. But if it were back when it was, it would be about a $67 million-$70 million impact on COGS. Just as a reminder, resin and molded plastic components, which obviously are a byproduct of oil, they represent just about 5% of our COGS. We're being very proactive in terms of the actions to offset that when oil was at its peak, right?

Tom Polen
Chairman, CEO, and President at BD

We weren't just going to wait around and see where it was going to head. We started taking actions back then, and that included additional pricing actions, which we continue to execute against, and we will continue to execute against those, right? We'd rather assume a higher input cost, and if it gets better, that can become a positive for us. That's our philosophy that we're taking there. When it comes to Q4, Vitor?

Vitor Roque
EVP and CFO at BD

I'll cover here Q4, Matt. Talking about Q4, you're correct. So the calculation imply the stepdown on Q4 compared to Q3. The main dynamic, it reflects the Alaris comp dynamic. We have highlighted at the beginning of the year that we're going to have a higher tough comparing Q4 because of the Alaris peak last year. That adds a point of pressure on Q4 versus Q3, adding to 200 basis points of total pressure. We had 100 basis points in Q3. That jumps to 200 basis points in Q4. That's the major dynamic we have heading into Q4, different than Q3. I think the key takeaway for us is we continue to guide and look at the Q4 as the consistent full-year framework. Underlying the new momentum remains there.

Vitor Roque
EVP and CFO at BD

I think it's something that we have seen sustained, and the sequential deceleration is just that time at this headwind comparison of Alaris. That's the main driver. Thanks for the question.

Operator

Thank you. Our next question comes from Rick Wise with Stifel. Please go ahead.

Rick Wise
Rick Wise
Analyst at Stifel

Good morning. Hi, Tom.

Tom Polen
Chairman, CEO, and President at BD

Good morning.

Rick Wise
Rick Wise
Analyst at Stifel

Tom, since you took over as CEO, productivity enhancement, efficiency, manufacturing consolidation, portfolio change, investing in innovation, all these have been huge priorities. My question is, how much more is there to go in your mind and the implications for our operating margins as we look ahead, not to the next quarter or to 2027, but to the end of the decade? I feel like your new AI productivity idea, and so forth, the portfolio reshaping and the efficiencies so far, all suggest to me that we should see accelerating margin expansion from here. You're in the mid-20s. It's bumped up a couple of hundred basis points over the last couple of years for all sorts of complicated reasons. Is dreaming of 30% in 2030, it has a nice ring to me. Is that too ambitious, or do you need to invest more?

Rick Wise
Rick Wise
Analyst at Stifel

Just help us think through the longer-term picture there. Thank you.

Tom Polen
Chairman, CEO, and President at BD

Yeah. Thank you for the question, Rick, and appreciate the commentary. Maybe just as we think about our algorithm down the P&L on margins, I can give an overview and Vitor jump in. Obviously that all starts with continuing to drive revenue growth. I think you're seeing this year underlying strong mid-single-digit growth, just even ex-Alaris remediation headwind, you're seeing us at mid-single-digit growth this year. Essentially the LSD midpoint for next year with the 200 basis points Alaris puts us at that as a starting point as well. We're going to continue obviously focusing on driving revenue growth through any macro environment. As we go down the P&L on gross margin, as I mentioned before, those key growth platforms that we're driving have positive mix benefit, which is very purposeful.

Tom Polen
Chairman, CEO, and President at BD

We're going to continue to focus on accelerating those, which will help gross margin. We couldn't be more pleased with the momentum in BD Excellence. Of course, that is our operating system that we put in place just a number of years ago, and we've gone from 50 Kaizen a year to over 2,000 Kaizen this year. You saw that pan out in well over 500 basis points of margin expansion over the last several years. How we get that within the plants, you heard us, we're at 8% productivity improvements essentially every quarter so far this year. We could see that continuing. Also how we get that, we have a multiyear roadmap for that, right? As we think about OEE was a key driver of that, right? How efficient we're running our lines.

Tom Polen
Chairman, CEO, and President at BD

We started ramping-up material changes and procurement savings as part of input costs. We're starting to see this year actually, we saw a notable pop in that as a driver. We still have much more runway there as we look ahead. You saw us announce AI and how AI can have a role in not only helping us on our gross margin side, but also on our cash flow side as we think about taking inventory down going forward. We also are applying that. We've recently brought in a new leader of our GBS organization, which is looking at how do we continue to drive efficiencies in our G&A functions, so that we can, again, reallocate that money to be driving the top-line equation on revenue growth, and be more efficient from a corporate center perspective.

Tom Polen
Chairman, CEO, and President at BD

We're seeing, again, good momentum on that equation. Of course, all of that ultimately flows through to a combination of margin expansion as well as driving to our cash flow goals that we've got. You saw good momentum in the quarter there on cash flow as well. Now's not the time to call out a long-term op margin target, again, as I mentioned, expect we do have a date in mind already for our Analyst Day coming up, we'll be sharing that quite soon, we'll look forward to sharing more long-term targets, specific ones, at that meeting. Thank you, Rick.

Operator

Thank you. We'll take our next question from Josh Jennings with TD Cowen. Please go ahead.

Josh Jennings
Josh Jennings
Analyst at TD Cowen

Hi, good morning, Tom, Vitor. Thanks for the question. A nice quarter. Wanted to just follow up on Rick's questions just on margins. I think the Alaris revenue headwind that your team has communicated very clearly. Starting in fiscal 4Q, it seems like there won't be much of a margin hit, just wanted to better understand those dynamics, just considering when Alaris capital declined during the early days of the recall and through the remediation, that did have an impact on margins, then how are you guys able to offset, or what are you doing to offset maybe the margin impact from the capital comp that's in place starting in fiscal 4Q and then through fiscal 2027? Thanks for taking the question.

Tom Polen
Chairman, CEO, and President at BD

Sure. Thanks, Josh. We'll turn it to Vitor to answer. We didn't get to Rick's question on Q4, Vitor will tackle that then address yours.

Vitor Roque
EVP and CFO at BD

Yeah, I think I can combine both into one here. Of course, we are seeing our perspective of margin in Q4 is actually we have a very clear pathway and view of delivering Q4 margins enhancements that we have sequentially in Q4 compared to Q3 and the other quarters. Despite the fact that we had the Alaris takedown and the biggest pressure on the revenue starting in Q4 and of course, heading into next year, the Q4 profile of margins is something that we already have good line of sight based on the productivity gains that we drove during the year across our several platforms, and actually becoming as part of our P&L in Q4. We feel very confident about the profile of we heading to Q4.

Vitor Roque
EVP and CFO at BD

Now, if you go into 2027, the pressure from Alaris is just the fact that the revenue is coming down significantly on Alaris, and there is a natural drop-through on the bottom-line that we are factoring into our assumptions. Of course, as Tom mentioned, oil is a factor that we are monitoring very closely, and the general market dynamics is still something that we are looking. I think the most important is we are acting on it. We are not waiting and see this impact us. We have pricing actions underway already. We have showed this in the past, and we continue to act on those pricing actions. The commercial investments we are making today are actually a very intentional high growth, high margin areas that improve our mix as well. Of course, as Tom highlighted, the importance of BD Excellence on our margins going forward.

Vitor Roque
EVP and CFO at BD

Those are the actions that we are already underway, that are going to help us kind of mitigate some of these market dynamics and the Alaris flow through. There is nothing special, I would say, about the Alaris flow through. It's just a natural takedown, the revenue dropping to the bottom-line at the end of the day. The team will continue to work to offset. The guidance on the modest EPS, as I said, is a starting point. It is a EPS starting assumption heading into next year with the philosophy of continue to commit to numbers that we can deliver consistently to investors. Thanks for the question.

Operator

Thank you. That will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing comments.

Tom Polen
Chairman, CEO, and President at BD

Okay. Well, thank you, operator, and thanks everyone for your questions and continued interest in BD. We look forward to connecting with everyone again next quarter.

Operator

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining us today. Please disconnect your line at this time and have a wonderful day.

Analysts
    • Shawn Bevec
      Senior VP of Investor Relations at BD
    • Tom Polen
      Chairman, CEO, and President at BD
    • Vitor Roque
      EVP and CFO at BD
    • Travis Steed
      Analyst at Bank of America
    • Patrick Wood
      Analyst at UBS
    • Larry Biegelsen
      Analyst at Wells Fargo
    • Vijay Kumar
      Analyst at Evercore ISI
    • Robbie Marcus
      Analyst at JPMorgan
    • Joanne Wuensch
      Analyst at Citibank
    • Matt Taylor
      Analyst at Jefferies
    • Rick Wise
      Analyst at Stifel
    • Josh Jennings
      Analyst at TD Cowen
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