The paragraph introduces BD's Second Fiscal Quarter 2025 Earnings Call, noting that it is being recorded and will be available for replay on BD's Investor Relations website. Greg Rodetis, Senior Vice President, Treasurer, and Head of Investor Relations, welcomes the participants. The call, which is accessible via audio webcast, features presentations by Tom Polen, BD's Chairman, CEO, and President, and Chris DelOrefice, Executive Vice President and CFO. They will be joined for a Q&A session by the presidents of BD's segments: Medical, Life Sciences, and Interventional. The paragraph emphasizes that forward-looking statements will be made, with more information available in the earnings release and SEC filings on the Investor Relations website. Revenue changes are discussed on an FX-neutral basis unless stated otherwise, and tariff commentary reflects policies as of April 30th, excluding delayed or threatened tariffs.

The paragraph discusses BD's Q2 financial results and strategies. It highlights that revenues fell below expectations, growing only 6% overall and 0.9% organically, due to changes in research funding and slower recovery in blood culture testing. Despite these challenges, BD exceeded adjusted EPS growth expectations and achieved strong adjusted gross margins of 54.9%, an improvement of 190 basis points year-over-year. The company attributes its strong margin performance to consistent execution and improvements in its BD Excellence initiatives. CEO Tom Polen emphasizes the steps being taken to address the current market dynamics and resume organic sales growth.

The paragraph discusses the company's efforts to expand BD Excellence across their organization, including a significant increase in the number of Kaizens undertaken and the integration of this system into R&D and commercial operations. The company's Q2 revenue was impacted by reduced global research funding, largely due to cuts in U.S. research grants, affecting research instrument sales but not the demand for their innovative products in available markets. They also resumed sales in China after obtaining an export license. While the diagnostics segment, particularly the blood culture business, faced challenges, growth in reagent sales suggests that research is continuing. The company views BD Excellence as a catalyst for gross margin expansion and investment in growth initiatives.

The company has overcome previous supplier issues and returned to normal inventory levels. However, customer adoption of prior testing levels is slower than anticipated, prompting a revision of the full-year revenue growth forecast to 3% to 3.5%. The company is taking steps to accelerate growth, such as focusing on biologics, GLP-1 orders, and strategic investments in products like Alaris, APM, PureWick, Phasix, and new launches including FACSDiscover A8. They anticipate strong growth in the second half and are managing earnings expectations despite tariff impacts, with further details on updated guidance to be provided by Chris.

The paragraph discusses BD's strategic approach to navigating macroeconomic challenges, such as tariffs and supply chain issues, due to its strong manufacturing capabilities and network. BD, the largest U.S. MedTech manufacturer, has announced plans to invest $2.5 billion in U.S. manufacturing to bolster the healthcare system. With under 1% of U.S. revenue sourced from China, BD's main tariff exposure is from U.S.-made products exported to China. BD is taking proactive measures to mitigate tariff impacts by adjusting supply flows, optimizing supplier locations, and utilizing dual-sourcing options. The company remains dedicated to supporting China's healthcare system and maintaining business relationships there.

The paragraph discusses several strategic initiatives and advancements within the company. They have implemented cost containment measures and a balanced pricing approach in response to current economic pressures, while maintaining strong customer partnerships. The company is proceeding with the planned separation of their Biosciences and Diagnostics business, which is on track to enhance shareholder value. Significant progress is being made in their high-growth markets, including new product launches such as the Phasix ST Umbilical for hernia repair, enhancements to the BD Alaris system with cybersecurity updates, the BD neXus infusion pump for the EMEA region, and the upcoming launch of the BD FACSDiscover A8 analyzer. These initiatives emphasize the company's commitment to innovation and growth.

In the closing paragraph, the company emphasizes its focus on navigating the current environment and achieving growth in the latter half of the year. The separation of its biosciences and diagnostics businesses is on schedule, positioning the company as a MedTech leader. There is optimism about BD Excellence's potential to enhance margins and support R&D and commercial investments for sustainable growth. Chris DelOrefice then provides insights into Q2 revenue, which grew by 6% or 0.9% organically, noting headwinds affecting growth. Life Sciences underperformed due to decreased demand for biosciences instruments. However, outside diagnostics and biosciences, MedTech showed 1.9% organic growth, with Alaris and PureWick performing well, and biologics seeing double-digit growth.

The paragraph discusses various aspects of the company's financial performance. It highlights strong growth for PureWick male and PureWick Flex products, as well as the successful adoption of Phasix bio-resorbable mesh in hernia surgeries. While there was robust growth in U.S. and other regions, China saw a decline. The company reported improved margins and earnings, driven by productivity gains from BD Excellence. With a year-to-date free cash flow of $625 million, strategic inventory investments were made to mitigate tariff impacts. The cash generation is expected to strengthen in the second half, aiding deleveraging efforts.

In the paragraph, the company concludes the quarter with a net leverage ratio of 2.9x, aligning with expectations and reinforces its commitment to share repurchases, targeting $1 billion by year-end with $750 million already completed. The guidance for fiscal 2025 has been updated, projecting total revenues between $21.8 billion and $21.9 billion and aiming for an adjusted EPS of $14.30 to $14.60, representing 10% growth at the midpoint, despite an anticipated foreign exchange headwind. Organic growth is expected to improve in the coming quarters. The company is addressing macroeconomic dynamics and remains focused on key growth drivers, while also working to mitigate uncertainties related to tariffs.

The paragraph outlines the company's financial expectations and strategic actions related to tariffs and earnings. They anticipate a remaining tariff expense of about $90 million for the fiscal year, mainly impacting Q4, with an adjusted diluted EPS projected between $14.06 to $14.34, reflecting an 8% growth at the midpoint, including a 2% tariff impact. For Q3, they expect adjusted gross margins to remain strong year-over-year, with an adjusted operating margin of about 24.5% due to increased spending in selling and R&D while controlling G&A expenses. The company remains focused on sustaining momentum beyond 2025. In response to a query, Chris DelOrefice clarifies that the $0.25 tariff impact is net after mitigation efforts and praises the team's proactive measures in managing tariffs, such as adjusting their supply chain and sourcing strategies.

The paragraph discusses progress made in mitigating tariff impacts expected in 2025, noting the fluidity of the situation and the influence of future tariff rates. It mentions that while only a few months of tariffs are included in their financial guidance, an annualization factor is necessary. Efforts to mitigate the impact continue, and despite challenges, BD is demonstrating strong financial performance with an 8% EPS growth. Larry Biegelsen asks a follow-up question about organic growth in the second half of the year, specifically improvements from 0.9% in Q2 to 3% in Q3, seeking further details and confidence levels in this growth. The conversation briefly has technical difficulties before continuing.

In the paragraph, Chris DelOrefice responds to a question by outlining the company's growth expectations for the year. He notes that in the first half, excluding licensing, they experienced around 3% growth, and they project a 4% growth for the second half, implying a step-up to over 5% in Q4. He attributes this anticipated acceleration to four key factors, all equally weighted: organic growth from APM due to easier comparisons, continued momentum in Pharm Systems and biologics, expected high single-digit growth in BDI driven partly by easy surgical comps, and a launch in BDB that cycles through last year's easiest comp with the FACSDiscover A8. These elements support the projected increase from Q3 to Q4. Lastly, operator transitions to the next question from Robbie Marcus of JPMorgan.

In the paragraph, Chris DelOrefice discusses a downward adjustment in organic sales growth and attributes this to market-driven factors, particularly difficulties in China and the BDB sector. Originally, a mid-single-digit decline in China was expected, but it has now worsened to a high single-digit decline, partly due to changes in volume-based procurement and research spending. BDB also faced challenges due to market changes in Europe and reduced research funding in the U.S. The DS business, particularly the Bactec unit, also experienced past supply issues from a third-party supplier, but these have been resolved. Overall, the adjustment in guidance is largely due to these market conditions.

The paragraph discusses the proactive measures taken by a team to manage challenges posed by tariffs and other external factors. Tom Polen highlights the team's successful track record in dealing with macro challenges such as COVID, supply chain issues, and inflation. In response to tariffs, the team has been strategically positioning inventory in different geographies to mitigate near-term cost impacts and is ready to employ additional strategies as needed. They are also working with healthcare customers to ensure supply confidence and address utilization levels.

The paragraph discusses a company's strategy to manage its global sourcing and inventory, particularly in response to tariffs and international trade dynamics. The company, identified as a major U.S. MedTech manufacturer, has imported a product called Veritor from China but has secured enough inventory for the year. It emphasizes having a diverse global sourcing footprint, allowing flexibility particularly in high volume consumables. For instance, vacutainers sold in China are sourced from the U.S., and the company is pivoting their sourcing strategy in England to move away from Chinese imports. Additionally, a new facility in China has been established to produce flush products locally and avoid tariffs. This strategic adjustment reflects the company's broader initiative to optimize supply chains and reduce tariff impacts through proactive sourcing changes.

In the paragraph, a discussion is centered on the company's strategies for managing tariffs and navigating an inflationary environment. The company leverages BD Excellence to protect margins and invests in innovation and growth. They plan to partially offset tariffs through pricing as part of a multi-pronged approach. A question from Travis Steed from Bank of America raises concerns about the company's guidance and execution strategy amidst changing macroeconomic conditions. Tom Polen responds, acknowledging dissatisfaction with revenue changes and emphasizes a focus on actions to improve performance in the latter half of the year.

The paragraph discusses the impact of market dynamics and government changes on research spending, focusing on the biopharma sector in China and the research funding environment. There is a recovery in biopharma to initial expectations, but research funding has been volatile, notably due to changes in NIH grant funding that led to a freeze on capital purchases for research. Similar uncertainty exists in Europe, affecting government spending decisions like those seen with the NHS. The pressure and changing dynamics in research spending are expected to continue through FY '25, with organizations closely monitoring the situation in China and the VoBP environment.

The paragraph discusses the company's financial outlook and performance, highlighting a revised expectation for China, with projected declines shifting from mid-single-digits to high-single-digits. Despite challenges in China and broader market dynamics, particularly within life sciences and BDB, the company's MedTech and other segments are still showing solid mid-single-digit growth, excluding licensing. The strong consistent execution on earnings is emphasized, with an 8% earnings growth and the ability to absorb headwinds such as tariffs. The effectiveness of the supply chain and the company's historical track record provide confidence in its financial performance. Travis Steed then inquires about the separation of Life Sciences.

In the paragraph, Tom Polen addresses a question about the ongoing separation process, confirming that it remains on schedule despite changes in the macro environment and valuation. He emphasizes the company’s focus on maximizing shareholder value by thoroughly evaluating transaction options and expects to announce the transaction in the summer. Patrick Wood from Morgan Stanley then inquires about the company’s efficiency efforts, acknowledging their success but questioning the balance between continually pursuing efficiencies and the capacity of employees to maintain these efforts without becoming overwhelmed. Tom Polen appreciates the question, recognizing the need to balance efficiency initiatives with employee well-being and other business priorities.

The paragraph discusses the implementation and impact of Kaizen activities within a company. The speaker, who hosts an annual CEO Kaizen event, recently attended one in Singapore where multiple Kaizens occurred simultaneously, yielding impressive results. These activities are described as inspirational and comparable to the energy of sales meetings. Kaizen allows employees to step away from daily operations to focus on improving their work processes, leading to better quality, safety, efficiency, and cost-effectiveness. The organization provides strong support, including IT leadership, to facilitate rapid improvements. Although still in the early stages, with activities primarily focused on operations and warehousing, the company plans to triple Kaizen activities and expand the Business Development Excellence initiative into R&D and commercial areas to further enhance gross margins.

The paragraph discusses a recent Kaizen event conducted to improve a key clinical trial, resulting in a four-month acceleration. This success has inspired team members and highlighted the value of storytelling to share best practices within the organization, fostering a positive culture. Mike Feld emphasizes that implementing lean and continuous improvement processes frees up time for more strategic and creative tasks. This approach is being expanded across various organizational functions, enhancing efficiency and maintaining excitement. The conversation then shifts to a question from David Roman of Goldman Sachs, inquiring about the company's method for gathering market and competitive intelligence amidst changing market dynamics.

In the paragraph, Tom Polen discusses the effectiveness and strategy of their business in gathering market intelligence and adapting to changes in the MedTech, life sciences, and pharma sectors. He highlights the role of central and external teams in forming strategic views and navigating market dynamics, including research spending adjustments due to policy changes and macroeconomic factors like inflation and supply chain issues. Polen emphasizes their proactive approach in identifying trends and challenges, such as VoBP and inflation, often ahead of competitors, and their commitment to continuously improve in the life sciences and pharma sectors.

In this exchange, Matt Miksic from Barclays asks about the company's ability to maintain and even improve margins during a period of hyperinflation through cost optimization programs. He inquires about further potential in this area and how the company is leveraging AI for internal optimizations to enhance value creation. Tom Polen responds by acknowledging their successful navigation of the hyperinflationary period and explains their cautious, value-driven approach to AI investment. He highlights ongoing AI initiatives, including a new AI-based platform in APM, an upcoming AI platform with Pyxis Pro, and existing AI applications like Kiestra and diversion analytics. They continue to explore additional AI projects to drive value creation.

The paragraph discusses the implementation and benefits of AI within the organization's R&D sector. An AI incubator with a small, agile team is focusing on rapid prototyping and pilots for new business models. AI is being used to streamline back-office processes, like automating expense reviews, and optimize manufacturing operations, such as scheduling and inventory management. Chris DelOrefice notes that these initiatives enhance the workplace experience and contribute to potential earnings growth. The operator concludes the session, and Tom Polen emphasizes their focus on navigating current challenges and being prepared for growth as markets recover.

The paragraph indicates that the company is looking forward to providing progress updates during the next earnings call. The operator thanks the participants for their time, concludes the audio webcast, and instructs them to disconnect their lines, wishing them a good day.

This summary was generated with AI and may contain some inaccuracies.