Prepared remarks
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 +1 402-220-1371 for international calls. Operator Instructions: Participants may press star 1 to ask a question over the phone. I will now turn the call over to Shawn Bevec, Senior Vice President, Investor Relations. Please go ahead.
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. Also, 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.
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. 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. 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. 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. 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 to 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 and the launch of a semaglutide therapy, utilizing our Vystra injection pen in one of the region's largest health care markets. 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 health care 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. We expanded our vascular portfolio in 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. Finally, we continue to expand our noninvasive 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 noninvasive 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. 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. We believe this represents another meaningful runway for productivity and service improvement over time. Turning to capital allocation. Our disciplined framework remains unchanged, and our improving free cash flow is giving us more firepower to execute. We remain 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.
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 the 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. Connected Care grew 4.4%, led by double-digit growth in advanced patient monitoring on strength in consumables. MMS grew low single digits, led by double-digit growth in dispensing and continued strength in Rowa Pharmacy Automation. We also saw a strong infusion set performance due to higher utilization versus last year's fluid supply disruption and pull-through from Alaris share gains. This was partially offset by a 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. 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 and 130 basis points, respectively, versus the prior year. Margins benefited from productivity gains through BD Excellence and 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 nonoperating cash items, including Alaris remediation outlays. 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 '26 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 through BD Excellence, we are increasing the midpoint of our adjusted EPS guidance and updating our range to $12.62 to $12.72. With that, I'll turn it back to Tom.
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 1 as EVP and President of BD Interventional. Peter brings more than 30 years of global health care leadership and a strong commercial and operational mindset and 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. 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?
Questions and answers
Operator Instructions: Please press star 1 to join the question queue. We'll take our first question from Travis Steed with Bank of America.
Congrats on a really nice quarter here. I wanted to ask about the strength in the quarter. There was a lot of momentum in many of the businesses here. You mentioned that more than 90% of the portfolio grew high single digits. Was there anything one-time that you'd call out and how did you think about the decision to move the revenue guidance up to the high end of the low single-digit range? Also, how much of this momentum carries into fiscal 2027?
Travis, thank you. We're really pleased with the growth in the quarter, and I think it's exemplified by the momentum in our growth platforms. Those are areas we've been actively building over the last five years, and you're seeing them pay off in the New BD. This is our first quarter as a focused med tech company. Four of our growth platforms grew double digits, and the rest were growing high single digits in the quarter. Examples include very strong double-digit growth in biologics, specifically in GLP-1s; strong growth in pharmacy robotics with Rowa; and APM continuing to build momentum, where we are seeing benefits from commercial investments we made. That momentum is being supported by continued commercial investment and innovation. We've reallocated a disproportionate amount of our R&D programs into those growth vectors. As they grow, they not only accelerate company revenue because they're in faster-growing markets and we have leading positions, but they also have favorable mix benefits that can help fuel gross margin and operating margin expansion. We're pleased with the results and will continue to focus on execution as we move ahead at BD.
We'll take our next question from Patrick Wood with UBS.
You mentioned share gains and strong volumes across many categories. How much of this is driven by the innovation pipeline versus changes to your commercial approach? Has the commercial approach changed materially and enabled teams to take more share in categories where you already had high share?
Patrick, it's a combination of both. With our New BD strategy, we've been focused on excellence across commercial, innovation and delivery. On delivery, BD Excellence has been an important focus. We appointed Mike Feld as our first-ever Chief Revenue Officer earlier this year to lead commercial efforts. Since then, we've updated compensation for sales reps, deployed improved tools including early deployments of AI to help prepare for account visits and hunting, and reallocated commercial headcount into the highest-growth areas. At the beginning of the year, we made about $35 million of incremental targeted investments. For example, we grew the APM sales team by about 15% in the U.S., and those investments are already contributing roughly 100 to 150 basis points to APM's growth rate this year. We made similar investments in UCC and PureWick, including dedicated efforts in the VA channel, and in PI where we grew the sales team by 15% in the U.S. We've also shifted our innovation portfolio into the highest-growth sectors that are transforming health care—connected, automated and personalized care—and those investments are now starting to pay off. We'll have an Investor Day and share more details on our strategy and progress.
And our next question comes from Larry Biegelsen with Wells Fargo.
Tom, historically you have provided helpful color on the following fiscal year. My question on fiscal 2027: given the strength you're seeing, could revenue growth next year be closer to the high end of low single digits? What are the puts and takes we should consider for the P&L next year, and for example, can you grow operating margins next year?
Yes. Sure, Larry. Let me turn that over to Vitor.
Larry, thanks for the question. We have consistently characterized fiscal 2027 as low single-digit revenue growth, driven in part by the Alaris remediation coming to an end in fiscal 2026, which creates a roughly 200 basis point headwind next year. We believe that framework is reasonable as we head into fiscal 2027. On earnings, if you start from a low single-digit revenue baseline, a reasonable starting assumption is modest earnings leverage, supported by pricing actions, productivity gains from BD Excellence and our capital allocation strategy. We'll provide formal guidance with full details on our November call. Our philosophy remains focused on establishing executable commitments and creating opportunities for consistent delivery against them.
And our next question will come from Vijay Kumar with Evercore ISI.
I'll focus on the broader utilization and CapEx environment. Looking at APM, that seems to be humming at double digits. Can you comment on the broader utilization and CapEx outlook?
Thanks for the question, Vijay. We pay close attention to hospital utilization, and we saw solid utilization across our portfolio reflected in Q3. BD has a broad set of ubiquitous products which give us a bellwether view on indicators: blood collection tubes, syringes, catheters, and similar items. For example, U.S. MDS was up 6% in the quarter, indicative of strong catheter and syringe utilization. In specimen management, U.S. growth was 14% this quarter; while we don't expect that level to be a permanent run rate, the team is executing very well, taking share and benefiting from competitors' near-term supply issues. Internally, we track the ratio of tubes sold to needles sold as a proxy for testing activity, and we've seen an uptick in tube utilization versus needle utilization over recent quarters, suggesting more testing per patient. Whether due to higher acuity or expanded testing like new cancer screening, testing trends are up. We'll continue to watch these indicators, but overall utilization appears to remain solid.
We'll take our next question from Robbie Marcus with JPMorgan.
Congrats on the good quarter. I want to ask about the roughly 10% of the portfolio weighing on organic growth. Any trends you can break out there? You've called out a 200 basis point headwind from Alaris next year, but what else is dragging down growth and what visibility do you have on those trends ending?
Rob, thanks. We've been consistent this year in highlighting three specific headwinds: Alaris, China, and vaccines. All three have been playing out as we expected. Vaccines: we expected to get more visibility by the end of the summer; while it's still a bit early, we are seeing signs of stabilization and we will start lapping the vaccine headwind next quarter. Preliminary order patterns and feedback are not indicating a repeat of the vaccine headwind magnitude in fiscal 2027, but we'll update guidance as we progress. China: following the Life Sciences separation, China is a much smaller portion of New BD—about 4% of revenue currently and likely to drop into the 3s as the rest of the business grows faster. We'll continue to assume a dynamic environment in China, but its relative impact will decline. Alaris: this is the most defined headwind. We said at the start of the fiscal year it would be about a 100 basis point headwind this year and a 200 basis point headwind next year; that's playing out as expected. After that remediation period ends, the 200 basis point headwind will be gone and we expect to return to our mid-single-digit growth algorithm. All of this remains consistent with our prior disclosures.
And we'll take our next question from Joanne Wuensch with Citibank.
Two quick questions. First, when you talk about modest EPS leverage in 2027, how do you define 'modest'? Second, on product drivers over the next 12 to 18 months, is there anything in particular you would like to call out that we should pay attention to?
Joanne, I'll take the product piece first, then turn it to Vitor for the EPS clarification. Expect product drivers to be concentrated in our growth platforms. We have additional launches and continued momentum in APM; at Investor Day we'll share more about innovations, including efforts to connect our APM monitoring technology and the Alaris pump, which the team has made substantial progress on. Tissue regeneration has several clinical trials underway for new indications that should expand presence in those spaces. Pharmacy automation has been pulled out of MMS into a focused team; we appointed a new president for that category and are excited about its growth. Biologics will continue to be a strong performer: we're at about 100 GLP-1 deals, we've announced a launch utilizing our Vystra pen which captures higher value than a syringe, and there are novel biologics coming that we support. Connected Care showed strong traction with Pyxis Pro and dispensing growing double digits. PureWick continues to grow, now over 35 consecutive quarters of double-digit growth, and we have a product roadmap and reimbursement efforts, including early-stage at-home reimbursement, that we see as exciting. We'll unveil additional products at Investor Day that will support continued momentum.
Joanne, to complement Tom's comments on product drivers: regarding the modest earnings leverage comment for fiscal 2027, that refers to an earnings assumption off a single-digit revenue baseline. The modest earnings leverage reflects Alaris flow-through and a dynamic environment, which we are working to offset through pricing actions already underway, mix favorability from our growth drivers, and continued productivity from BD Excellence. We also plan to continue investing in commercial and innovation to fund the growth engine for 2028 and beyond. We'll provide more P&L detail when we give formal guidance in November.
And we'll take our next question from Matt Taylor with Jefferies.
If I take your guidance literally, it implies Q4 growth steps down to about 2.5% versus the 4.4% in Q3. Can you comment on that and whether there is conservatism or other trends to consider? Also, for next year, can you talk high-level about inflation and headwinds you're assuming to get to that modest leverage, given exposure to oil-based resins and freight and how you're hedging against that?
On the macro and inputs, we are taking a conservative posture for fiscal 2027. Oil and resin costs have been volatile. When oil was elevated, we estimated a $60 million to $70 million impact on COGS for sustained higher oil prices. Resin and molded plastics represent about 5% of our COGS. We've been proactive with actions to offset input cost pressure, including pricing actions that are underway. Our philosophy is to assume a higher input cost and, if it improves, that becomes a tailwind. I'll turn to Vitor to address the Q4 specifics.
Matt, the implied step down in Q4 versus Q3 is primarily driven by the tougher comparison on Alaris. We highlighted earlier in the year that we'd face a higher compare in Q4 because Alaris peaked last year, which contributes about 200 basis points of pressure. In Q3 we saw roughly a 100 basis point impact and that increases to about 200 basis points in Q4. That's the main dynamic. Underlying momentum remains and the sequential deceleration is largely a function of that comparison. We continue to manage pricing, productivity and investments within the full-year framework.
And our next question comes from Rick Wise with Stifel.
Tom, since you became CEO, you've focused on productivity, efficiency, manufacturing consolidation, portfolio change, and investing in innovation. How much runway do you see remaining and what are the implications for operating margins toward the end of the decade? Could reaching 30% operating margin by 2030 be realistic, or do you need to continue to invest more?
Thanks, Rick. As we think about our P&L algorithm, it starts with continuing to drive revenue growth. This year you can see underlying strong mid-single-digit growth even excluding the Alaris headwind. The growth platforms we are investing in provide positive mix benefits, which will help gross margin. BD Excellence remains a core driver; we've scaled Kaizen activity from roughly 50 a year to over 2,000 this year, contributing meaningfully to margin expansion over time. We're seeing approximately 8% productivity improvements in plants recently, driven by OEE improvements, procurement and material savings, waste reduction, and efficiency gains on critical lines. We have multiyear roadmaps for continued improvements in OEE and procurement, and we're starting to see material procurement savings this year. We're also deploying AI to help with gross margin and inventory management to improve cash flow. On the corporate side, we've brought in new leadership for GBS to drive efficiencies in G&A and reallocate savings into growth. While I won't give a long-term operating margin target today, we will present more specific long-term targets at our upcoming Investor Day. We see continued runway for margin improvement, and we'll share the details soon.
And we'll take our next question from Josh Jennings with TD Cowen.
Nice quarter. I wanted to follow up on margin dynamics. It seems like starting in fiscal Q4 there won't be much of a margin hit from Alaris. Can you clarify how Alaris capital declines affected margins during the remediation and how you plan to offset margin impacts starting in fiscal Q4 and through fiscal 2027?
Sure. Thanks, Josh. I'll turn that to Vitor to provide detail on Q4 and how we think about Alaris flow-through into margins.
Josh, we have a clear pathway for Q4 margin improvements sequentially compared to Q3; despite the Alaris revenue pressure that increases in Q4, the productivity gains we've driven during the year flow through and support Q4 margins. Looking at fiscal 2027, the Alaris pressure is the fact that revenue is coming down and therefore there's a natural drop-through to the bottom line, which we are factoring into our assumptions. We are acting to mitigate these impacts: pricing actions are underway, commercial investments are focused on high-growth, higher-margin areas that improve mix, and BD Excellence productivity continues to be a strong offset. There is nothing special about Alaris flow-through beyond the normal revenue-to-operating-income mechanics. The modest EPS guidance for fiscal 2027 is a starting assumption, and we will continue working to offset market dynamics while providing clear, executable guidance.
That concludes the question-and-answer session. I will turn the floor back over to Tom Polen for closing comments.
Thank you, operator, and thanks, everyone, for your questions and continued interest in BD. We look forward to connecting with everyone again next quarter.
Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your line at this time, and have a wonderful day.