Executive Vice President and Chief Financial Officer at Becton, Dickinson and Company
Great. Thanks, Tom. Appreciate it. Before I jump in, let me first say, I couldn't be more excited about joining BD. BD is a purpose-driven Company, that is both a deep and broad portfolio that includes leadership positions in many important areas in healthcare. Combined with our innovative pipeline of products and solutions, we have a tremendous opportunity to shape the delivery of healthcare and make a meaningful impact on healthcare outcomes around the world. I look forward to engaging with the investment community next week during our Investor Day and sharing more specifics around our strategy and the actions we are taking to support our growth agenda and deliver long-term value.
So with that, let's get into our results. Echoing Tom's comments, we delivered on our commitments in 2021, have strong momentum as we enter 2022 and we are well positioned for the future. Slide 13 summarizes our high-level revenue performance. Fourth quarter revenues of $5.1 billion increased 7.3% on a reported basis and 5.9% on an FX-neutral basis and were ahead of our expectations. Our base business revenues increased 9.8%, driven by strong performance across all three segments. In Q4, we saw continued improvement in overall healthcare utilization levels and routine testing and lab activity and higher acuity. The breadth and diversification of the total BD portfolio, including COVID diagnostic testing provides insulation against COVID-driven procedure fluctuations. For the full fiscal year, our revenues grew 15.6% or 8.1% excluding COVID testing, which demonstrates the strength of our business and the momentum of our strategy across our segments with base growth of 6.8% in the Medical segment, 8.4% in Life Sciences and 10.7% in the Interventional segment. Base business growth was also strong regionally, particularly in the US, China and Latin America. Compared to fiscal 2019, base business revenues grew 4.5%, or about 7% when adjusting for the Alaris ship hold.
Turning to Slide 14. Our Medical segment delivered $2.5 billion in revenues in the fourth quarter, growing 7.7%, led by our Medication Delivery Solutions and Pharmaceutical Systems businesses. MDS revenues increased 11.3% that reflects strong demand for our core products, driven by higher acuity and increased utilization in the US, in Europe and competitive gains in catheters and vascular care devices. In MMS, Q4 revenues were comparable to the prior year, despite the high number of infusion pump placements in Europe last year to support hospital needs. We continue to see solid growth in our dispensing platform and a high number of committed contracts with Q4 being one of our strongest quarters to date for committed contracts. Revenue growth of 5.4% in Diabetes Care benefited from the timing associated with certain sales and slightly better-than-expected market demand. On a normalized basis, we see diabetes growth about flat. Pharm Systems growth of 12.3% reflects continued strong growth, driven by demand for our pre-filled devices and enabled by capacity expansion. Demand for pre-filled devices is being aided by the fast-paced vial to pre-filled device conversion for biologics, vaccines and other injectable drugs.
Turning to Slide 15. BD Life Sciences revenues totaled $1.5 billion in the fourth quarter, increasing 1.5%. However, excluding COVID testing, Life Sciences grew 15.8%. Performance reflects strong double-digit growth in our base business in both Integrated Diagnostic Solutions and Biosciences, partially offset by a decline in COVID testing revenues. In IDS, 16.2% growth in the base business was driven by specimen management and microbiology, as lab utilization improved and demand increased for both core products and products used during the care of COVID patients. We're also seeing strong growth in sales of BD MAX IVD assays which were up about 20% year-over-year. IDS base revenues also included sales of our combination flu COVID assays for both Veritor and BD MAX that began shipping in Q4. Early demand is robust and we believe the combination test will become the standard of care for symptomatic testing across laboratory and point of care testing as we enter the flu season.
Despite increased demand driven by the Delta variant and shipping our highest quarterly volume of over 30 million tests, COVID testing revenues declined in Q4 from $452 million to $316 million due to lower pricing in the market. Biosciences revenues increased 14.6%, driven by research solutions as lab utilization is returning to normal levels. We continue to see solid demand for research reagents globally. Our recently launched e-commerce site is a new vehicle for growth and has been well received with strong traffic.
Turning to Slide 16. BD Interventional revenues totaled nearly $1.1 billion in the fourth quarter, growing 8.3%. As we previously communicated, we began to see an impact from the Delta variant on elective procedures in certain US states in July and August, while we contemplated some continuation of that impact, it was slightly greater than anticipated in our Surgery and Peripheral Intervention businesses as hospitals reduced access and restricted elective procedures. Our Surgery business grew 16.8%, reflecting the year-over-year recovery in elective procedures with double-digit growth in infection prevention and biosurgery and strength in hernia despite some impacts from the Delta variant. Growth in infection prevention also reflects continued market adoption of our sterile ChloraPrep product. Revenues in Peripheral Intervention increased 5.5%. We saw continued strong performance in atherectomy as we have leveraged the capabilities of our PI sales force and in oncology as more people completed cancer screenings. PI also continues to be impacted by a product recall which impacted growth by about 300 basis points.
Urology and Critical Care revenues grew 3.8% driven by continued strong demand for PureWick, as well as continued adoption of the recently launched Arctic Sun with our Targeted Temperature Management platform. Partially offsetting this growth was a temporary supply disruption within acute urology that is now remedied. We expect shipments to be caught up within the first quarter of FY'22. For the full fiscal year in 2021, UCC grew 7.6%.
Turning to Slide 17 and our Q4 and full-year adjusted P&L. For the quarter, we delivered adjusted net income and EPS above our expectations, with net income of $770 million and diluted EPS of $2.59. On a currency-neutral basis, net income declined 7.8%, primarily by lower COVID testing pricing and testing-related one-time costs and reinvestment in the business, as well as higher shipping costs due to inflation and increased R&D levels. EPS declined slightly less or 6%, reflecting a lower share count due to share repurchases.
Our full-year adjusted net income and EPS were $3.9 billion and $13.08, respectively, with growth of 31% and 28%, driven by strong revenue growth and operating margin expansion of over 100 basis points on an FX-neutral basis. We delivered Q4 and full-year operating margins in line with the expectations we previously communicated for the Company and for the base business.
Turning to Slide 18, cash flows from operations totaled $4.6 billion in fiscal 2021, an increase of over 30% versus fiscal 2020. This improvement in our cash flows has allowed us to advance our balanced capital allocation framework and support our BD 2025 growth strategy through investments in capital, R&D and M&A. During fiscal 2021, we invested in capital expenditures to support high-growth opportunities, including the new manufacturing lines Tom previously mentioned. In addition to investing in R&D at over 6% of sales to advance our pipeline of innovative programs, we also invested $500 million in tuck-in M&A across our businesses that will support our strong growth profile in 2022 and beyond.
Beyond our investments in growth, we returned capital to shareholders through $1 billion in dividends and $1.7 billion in share repurchases. We ended the fiscal year with $2.3 billion in cash and an adjusted net leverage ratio of 2.6 times. Our current cash and leverage position gives us flexibility to create value through multiple levers and I look forward to sharing more with you about our capital allocation strategy during our upcoming Investor Day.
Now, turning to our fiscal 2022 guidance on Slide 20. First, the macro assumptions that support our guidance range. While we recognize there will continue to be some variability, we assume there will be continued easing of COVID-19 restrictions as vaccination rates continue to increase and that's expect to see continued stabilization of procedures and are not assuming significant disruptions to procedure volumes. Additionally, while we do not expect conditions to return to normal levels, we do not anticipate worsening macro supply chain constraints or inflationary pressures. Finally, we've not assumed any impact of legislation changes that would impact the broader market.
Given the significant sales and income generated from testing in fiscal 2021, we previously provided a preliminary guidance for that excluded testing. To help you model our underlying base business performance, we will continue to provide our revenue guidance split between base and COVID-only testing through this year, along with context regarding testing margins relative to our base business.
So, a few specific comments on testing assumptions. Our base business revenue assumptions include sales of our combination flu COVID assays at a level comparable to a normal flu season which you should think of a $75 million to $100 million. For COVID-only testing, which is in addition to our base business combo test revenues, we assume the demand would be significantly less in fiscal 2022. Given the variability in the COVID environment driven by uncertainty around the length and intensity of outbreaks, our current assumptions are largely based on confirmed orders. We are assuming about $200 million of COVID-only testing revenue. If testing revenues were to be substantially higher, we first will compensate for any resulting procedure softness impacting our base revenue and income, which positions us well to manage through this period of uncertainty. Any further upside would be used to create value through either reinvestment or allowing incremental profits to flow through.
Regarding Alaris, as Tom noted, we are confident in the progress we are making and the resources that we have invested behind this program. As we previously shared, infusion pump clearances are inherently complex, particularly our filing and that's would not be prudent to predict timelines. Consistent with what we shared previously, we do not expect and our guidance does not include a 510(k) clearance in fiscal 2022. Additionally, it is difficult to predict how things will play out as shipments are only being made under the medical necessity process. But at this time, we've assumed that our Alaris capital revenues will be generally in line with fiscal year 2021.
Let me now share some perspective on what is underlying our base guidance. We are well positioned for strong growth across our three segments with a balance in robust innovation pipeline resulting from investments in increased productivity in R&D. Growth will be further enabled by the strategic acquisitions we have added to our portfolio that are positioned in high-growth categories. While we aren't providing segment-specific guidance relative to total Company base growth, we do expect our Medical Segment growth to be slightly below, Life Sciences growth to be in line, and Interventional to be slightly above total Company based growth.
In the Medical Segment, We are continuing to extend our leadership position with competitive gains and significant categories, such as peripheral catheters and pre-filled devices while investing in solutions transforming healthcare through smart connected care, and new care settings. Life Sciences holds leadership positions in attractive and growing categories and is investing in higher growth spaces by enabling smart automated laboratory workflows with solutions such as BD COR. Improving chronic disease treatment with clinically differentiated assays, research tools and companion diagnostics, where we expect continued above market growth in research reagents and migrating point of care diagnostics to alternative care settings. Interventional is continuing its strategy of evolving from product to category leadership in chronic disease treatment, while continuing to invest in accretive high-growth spaces. These investments include increased product offerings, both organic and inorganic, expanded labeling and investments in the non-acute care space. Our PureWick product line and acquisition of Straub Medical are good examples of how we are driving growth through our BDI strategy.
Turning to Slide 21 and our guidance for fiscal 2022. We expect base revenues to grow 5% to 6% on an FX-neutral basis compared to $18.3 billion in fiscal 2021. For COVID-only testing, we are assuming $200 million in revenue. Based on current spot rates for illustrative purposes, currency would be a headwind of approximately 50 basis points, or about $100 million to total Company revenues. All-in base plus COVID-only testing and the illustrative currency, we expect reported revenues in the range of $19.3 billion to $19.5 billion in fiscal 2022. We expect operating margins in our base business to improve approximately 200 basis points over fiscal 2021 base operating margin of 21.7%. Due to the current COVID test pricing levels, we expect operating margin on COVID-only testing to be modestly above our base business margins.
A few additional items for your models, we expect up to $50 million in improvement in interest other given debt refinancing activities we completed in the fourth quarter of fiscal 2021. As you are aware, interest other can fluctuate due to deferred compensation which is offset in SSG&A. We plan for an increasing effective tax rate of 12.5% to 13.5% given discrete tax items, in 2021 will not repeat. And in terms of share count, while our priority remains tuck-in M&A, we expect share repurchases to also be a consistent part of value creation. In addition to the year-over-year benefit from share repurchases completed in fiscal 2021, where our ending shares outstanding were 288 million, our guidance assumes share repurchases that at minimum offset any dilution from share-based compensation. All-in, we expect adjusted EPS to be between $12.30 and $12.50 with EPS excluding COVID-only testing being well above the $12 floor we provided in August on our third quarter earnings call.
Turning to Slide 22. Regarding margins, let me first take a minute to re-ground everyone on where we are today. There are few key considerations that have resulted in some margin pressure, some of which will be naturally restored and others that will be addressed by existing margin improvement programs with further improvements through new initiatives we are pursuing. Our total operating margin of 23.9% for the full-year did improve versus 2020. In 2021, our total margin profile benefited by over 200 basis points from the COVID-19 testing margin net of investments we made to accelerate growth and other value-creating programs. So it's best to look at our base operating margins excluding COVID-19 testing of 21.7%, which also improved on an FX-neutral basis versus 2020. However, they do lag pre-pandemic levels as our base operating margin was primarily impacted by four key factors: the Alaris ship hold; negative COVID-19-related volume utilization; above normal inflation in COGS and shipping, along with currency headwinds. Each of these items negatively impacted margin by under a 100 basis points and averaged about 80 basis points each. They collectively accounted for about 90% of the erosion from pre-pandemic levels. The remaining impact was small and driven by a few items including a decision to strategically increase R&D investments to more competitive levels at about 6% of sales to support long-term growth.
As I shared, we anticipate improving base operating margins by around 200 basis points in fiscal 2022, driven by the following: first, like all companies, we experienced short-term impacts from COVID-19, such as under-utilization in our plants. These impacts carried into fiscal 2021, but will be more than fully restored in fiscal 2022 given our strong base sales momentum and associated increased volumes and will drive about 100 basis points improvement in operating margin versus 2021.
Second, given our global manufacturing and distribution footprint, we faced the impact of currency fluctuations in our P&L, along with normal FX translation, the timing of inventory movements throughout our network can also impact our margins. Based on current spot rates and our inventory outlook, we expect to recapture about 50 basis points of the currency headwind to operating margin we reported in 2021.
Lastly, we realized unprecedented inflationary pressures in fiscal 2021, driven by increased resin, inbound and outbound transportation and labor costs. These inflationary pressures will carry into fiscal 2022 and we intend to be best-in-class in how we navigate this environment. We are expanding our existing simplification efforts such as Project Recode and intend to drive additional margin improvements through new spend optimization initiatives. These include actions across procurement and shipping, such as reduced airfreight and supplier cost control. In addition, we have actions in place to invest behind continuous improvement in our plants. And inevitably, in this environment, we know we need to offset these pressures through pricing actions, which are already being implemented. We also are focused on leveraging our SSG&A investments while maintaining competitive investments in R&D. In 2022, we are forecasting additional impact to operating margin from inflation above normal levels from 2021. However, with the significant progress we've made to date on margin initiatives that are already underway, we anticipate being able to more than mitigate the incremental inflationary pressures this year to drive an additional 50 basis points of operating margin improvement.
Increased utilization, reversing FX pressure and initiatives to offset inflationary pressure will also play a key part in restoring our base gross margin to pre-pandemic levels. Combined, we expect these to drive around 100 basis points improvement. We are committed to delivering against these goals and thus, margin improvement will be a key measurement for performance in this year's compensation plan across the Company. Our fiscal 2022 operating margin improvement will be a significant step towards recovery of pre-pandemic margin levels. We look forward to sharing more about our longer-term margin recovery initiatives next week at our Investor Day, which includes exceeding pre-pandemic levels in fiscal 2024.
Turning to Slide 23, our fiscal 2022 adjusted EPS guidance reflects the year-over-year decline in COVID-only testing profit, net of reinvestment. In our base business, as we just discussed, we expect strong operational growth driven by revenue growth and margin improvement with EPS well above the $12 floor provided on our August call.
Now, turning to Slide 24, our fiscal 2022 guidance also includes our Diabetes business. We continue to believe the spin-off is a significant value-creating opportunity for our shareholders and both RemainCo and NewCo are well positioned for success. Let me take a moment to reinforce some key items to make this compelling to all stakeholders. NewCo will be one of the largest pure play diabetes companies in existence today. With an ability to focus on its strategic goals, drive strong cash flow and allocate its capital more efficiently and effectively to drive higher growth. The proposed spin enhances RemainCo's revenue and EPS growth profile as Diabetes Care's revenue growth is slower than the corporate average and its margins are declining. Carve out financials will be available with the Form-10. RemainCo is expected to receive a cash distribution equivalent to multiple years of cash generated by the Diabetes Care unit. We plan to provide more details related to the proceeds and intended use at a later date.
The spin is intended to be tax-free for US federal income tax purposes and as is normal course for spends, we plan to restate our financials after the spin's effective date to classify the Diabetes business as a discontinued operation. Given the higher margin profile of the Diabetes Care business, one should expect RemainCo's margins to be lower as a percent of sales after they are restated but with a higher rate of growth. We are establishing transition services agreement that will offset stranded costs. We remain excited for what's ahead for NewCo and making this a successful and value-creating opportunity for all.
Now, turning to Slide 25. Finally, I wanted to take a moment to share some phasing considerations for your models. First, we expect revenue growth to be normalized across the quarters with the exception of Q2 where we expect higher growth due to the easier comp resulting from the COVID resurgence in Q2 FY'21, primarily in Interventional. In addition, we expect COVID testing revenue to be weighted towards the first half of the year. Second, we expect gross margin to be lower in the first half given that increased inflation began earlier in fiscal 2021 and the benefit of cost improvement initiatives we have initiated will be on a lag as they flow through inventory. We expect the inflation flow through to inventory to be most prominent in Q2 and approve across the balance of the year.
Third, as we move past COVID variability, we expect SSG&A and R&D expense dollars to be fairly ratable by quarter. Fourth, for full-year -- for FY'22, we anticipate our effective tax rate to be in the range of 12.5% to 13.5%. This rate includes assumptions around our jurisdictional mix of income and certain potential discrete items. Of course, the timing of realization of discrete items could result in variability in our rate quarter-to-quarter, including a potentially lower Q1 rate.
In summary, fiscal 2021 was a year marked by significant strategic progress and execution against our key priorities. As we look forward and as reflected in our 2022 guidance, we are well positioned for growth with excellent momentum in our base business, increased investments in our innovation pipeline, tuck-in M&A momentum, strong progress executing our balance sheet and cash flow initiatives and clear visibility to meaningful margin improvement. We are excited to share our long-term outlook with you at our Investor Day.
Let me now turn it back to Nadia to lead the Q&A portion of the call.