Becton, Dickinson and Company (BDX) Q4 2017 Earnings Report, Transcript and Summary

Hello and welcome to BD's fourth fiscal quarter and full fiscal year 2017 earnings call. As the request of BD, today's call is being recorded. It will be available for replay through November 9, 2017, on the investor's page of the BD.com website or by phone at 1-800-585-8367 for domestic calls and area code 404-537-3406 for international calls, using confirmation number 92540524. I would like to inform all parties that your lines have been placed in a listen-only mode until the question-and-answer segment. Beginning today's call is Monique Dolecki, Vice President of Investor Relations. Ms. Dolecki, you may begin. Monique N. Dolecki - Becton, Dickinson & Co.: Thank you, Crystal. Good morning, everyone, and thank you for joining us to review our fourth fiscal quarter results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at BD.com. During today's call will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our fourth fiscal quarter press release and in the MD&A sections of our recent SEC filings. We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release including the financial schedules is posted on the BD.com website. The fourth quarter and full fiscal year comparable revenue growth rates provided today exclude the revenues of divestitures, most notably the Respiratory Solutions business that was divested in October of 2016, just after our 2016 fiscal year end. As a reminder, this is the last quarter in which we will have a year-over-year impact due to the Respiratory Solutions divestiture as we reach the anniversary of the divestiture with the start of the new fiscal year. The details of purchase accounting and other adjustments and a comparable basis revenue results can be found in the reconciliations to GAAP measures in the financial schedule in our press release or the appendix of the investor relations slides. Please note that all fiscal year 2018 guidance provided today is on a BD stand-alone basis. Regarding the acquisition of C. R. Bard, all the strategic and financial parameters remain unchanged from the deal announcement. After the transaction closes, we'll provide more detailed guidance for the combined company. Leading the call this morning is Vince Forlenza, Chairman and Chief Executive Officer. Also joining us are Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer; Tom Polen, President; and Alberto Mas, Executive Vice President and President of the Life Sciences segment. It is now my pleasure to turn the call over to Vince. Vincent A. Forlenza - Becton, Dickinson & Co.: Thank you, Monique, and good morning, everyone. Turning to slide 4, as you read in this morning's press release, we are very pleased with our performance for the year. I'm extremely proud of all of our accomplishments this year and how hard our organization worked to achieve them. Our core remains strong and we continue to execute on our CareFusion commitments. At the same time, we announced another transformational acquisition and are making excellent progress towards a successful closing. We achieved all of this while overcoming multiple headwinds. Despite the impact from the transformation of our U.S. dispensing business model, lost earnings from the divestiture of the Respiratory business, the impact from the severe hurricane season and continued currency pressure, we grew revenues 4.5%, drove approximately 180 basis points of margin expansion and delivered double digit EPS growth. The bottom line is our business continued to deliver solid consistent results. Before I highlight some achievements in fiscal year 2017, I'd like to take a moment to comment on the severe storms that occurred in the fourth quarter. We are grateful that all of our associates are safe and accounted for. As an organization, we are working to support our associates in Puerto Rico by delivering much-needed food water and power supplies as well as by setting up an employee relief fund. I'm proud of response by our global associates to personally contribute and help their peers in need. I'm also impressed by the fortitude of our associates in Puerto Rico who are enduring continued hardship and yet find a way to come to work so that we can continue to meet the needs of our customers and their patients. Chris will provide commentary on the business impacts from the hurricane in a few moments. Moving along to our key achievements this year, first, the strategic transformation of the U.S. dispensing business model was successfully implemented and our strategy for end-to-end medication management is resonating with our customers. We are continuing to see sales pull-through as customers understand the benefits of our integrated offering. Second, emerging markets continue to be a key growth driver for the company. Our momentum in China and the broader emerging markets is reflected in our strong fiscal 2017 performance in both segments. Third, we're extremely pleased with the excellent progress we continue to make with our CareFusion cost synergies. We expect approximately $350 million in total CareFusion cost synergies as we exit fiscal year 2018. For the three years ending fiscal 2017, on a cumulative basis, we achieved underlying margin expansion of approximately 500 basis points. And fourth, we are making excellent progress in preparing for the integration of Bard and BD. We are excited by the opportunities the new company will have to bring more comprehensive clinically relevant solutions to customers and patients around the globe. Moving on to slide 5, we have achieved several significant milestones towards the Bard closing in the six months that have followed the acquisition announcement. This past spring, we went to market shortly after the deal announcement and successfully issued approximately $5 billion in common and preferred shares. We also launched nearly $10 billion in senior notes. All offerings were oversubscribed by a multiple of over 3 times, clearly a positive indicator of investor sentiment about the transaction. In early August, Bard shareholders approved the merger with approximately 99% of the share votes cast in favor of the proposed merger. More recently, conditional clearance was received from the European Commission. As expected, we have committed to divesting certain assets associated with our soft tissue core needle biopsy product line, which we acquired with CareFusion, to satisfy the conditions to the Bard closing requested by the European Commission. From an integration standpoint, once we receive all regulatory approvals, we will be ready. Our teams have been engaged in extensive integration planning, including day-one readiness. We continue to expect that the BD and Bard transaction will close in the fourth calendar quarter of 2017, subject to customary closing conditions and additional regulatory approvals, including the U.S. Federal Trade Commission and other regulatory bodies. Moving to slide 6. You will see the guidance for fiscal year 2018 on a stand-alone, currency-neutral basis that excludes any expected impact from the Bard acquisition. For fiscal year 2018, we expect currency-neutral revenue growth of 4% to 5% based on our current view of the environment and various macroeconomic factors. As a reminder, the U.S. dispensing change will continue to impact our year-over-year growth by 100 basis points in both the first and second quarters of fiscal 2018, resulting in an estimated headwind of approximately 50 basis points for the full fiscal year. Of course, there are a number of items that could bring us to the top or bottom end of our guidance range, including a stronger or weaker flu season than expected, the performance of new product launches, emerging market growth and pricing. On the bottom line, we will continue to deliver high-quality earnings growth. For fiscal year 2018, we expect adjusted EPS of $10.55 to $10.65, which reflects currency-neutral growth of approximately 10%. As Monique stated earlier, we will provide guidance for DB plus Bard after the transaction closes. I will now turn things over to Chris for a more detailed discussion of our fourth quarter financial performance and our fiscal year 2018 guidance. Christopher R. Reidy - Becton, Dickinson & Co.: Thanks, Vince, and good morning, everyone. I'm also extremely proud of our achievements this year as well as the extraordinary efforts made by our organization in the fourth quarter. Moving on to slide 8, I'll review our fourth quarter revenue and EPS results as well as the key financial highlights for the quarter and the total year. Total fourth quarter revenues of $3.2 billion grew 4.4% on a comparable currency-neutral basis. For the total year, revenues of $12.1 billion grew 4.5%, in line with our previously communicated expectations. The fourth quarter and full-year results include the impact from the U.S. dispensing change, which lowered total company revenue growth by approximately 100 basis points in the fourth quarter and 50 basis points for the full year. Excluding this impact, we drove full-year revenue growth of approximately 5%, which is the high end of our full-year guidance range. As Vince mentioned, our underlying performance is strong. As we communicated to you last quarter, our confidence in achieving our outlook was based on strong fourth quarter performance in MMS and Diabetes Care and across the Life Sciences segment, combined with continued strength in emerging markets, all of which we achieved. In addition, through the excellent efforts of our associates and our distribution and logistics partner as well as strength across the business, we overcame the logistics-related issues we described to you in mid-September. I'll provide more color on revenue growth in the quarter in a moment when I take you through the results by segment and geography. We significantly expanded our margins and captured an additional $80 million in annualized synergy cost savings related to CareFusion, reaching $250 million in annualized cost savings on a cumulative basis through the end of fiscal 2017. We are on track to achieve approximately $350 million in total annualized cost synergies by the end of fiscal 2018, which is the high end of our previously communicated range. Adjusted EPS growth of 13.2% in both the fourth quarter and the full year reflects our ability to overcome the dilution from the Respiratory divestiture and the U.S. dispensing change. Combined, these headwinds impacted EPS growth by approximately 700 basis points in the fourth quarter and 400 basis points for the full year. We are also very pleased to have continued our longstanding record of delivering an increasing dividend. Fiscal 2017 marked our 45th year of consecutive dividend increases. Now moving on to slide 9, I'll review our revenue growth by segment on a comparable currency-neutral basis. As discussed, fourth quarter revenue growth was 4.4% for the total company, including an estimated headwind of 100 basis points from the U.S. dispensing change. Pricing declined about 10 basis points in both the fourth quarter and the full fiscal year. Due to the timing of Hurricane Maria late in our fourth quarter, there was very little impact to our fourth quarter results. BD Medical fourth quarter revenues increased 3.9% which includes a headwind of 160 basis points from the U.S. dispensing change. For the full fiscal year, Medical revenues grew a strong 4.3% which includes an estimated 80 basis points headwind from the U.S. dispensing change. Medication and Procedural Solutions, or MPS, fourth quarter growth was 1.5%. Broad strength in infusion-related disposables was partially offset by a tough comparison to the prior year. For the full fiscal year, MPS revenues grew 3.8%. Revenues in Medication Management Solutions, or MMS, grew 6.7% in the fourth quarter including a headwind of approximately 600 basis points from the U.S. dispensing change. Growth in MMS was driven by our international dispensing business and by global strength in infusion. For the full fiscal year, MMS revenues grew 4.9% including a headwind of approximately 300 basis points from the U.S. dispensing change. Diabetes Care revenues grew 6.4%, driven by strong growth of 8.7% in the U.S. and double-digit growth in emerging markets, as expected. International growth continued to be impacted by some softness in Europe, primarily in the UK. For the full fiscal year, Diabetes Care revenues grew 3.6%. Pharmaceutical Systems revenues grew 3.4% in the fourth quarter. Strong growth in Safety and SAIS were partially offset by the impact of timing of customer orders that benefited growth earlier in the fiscal year. For the full fiscal year, Pharmaceutical Systems grew 5.3%. BD Life Sciences fourth quarter revenues increased 5.4%. Growth was driven by strength across the segment. For the full fiscal year, BD Life Sciences revenues grew 4.8%. Revenues in Diagnostic Systems grew 5.2% in the fourth quarter. Strength in core microbiology was driven by blood culture and IDAST. In addition, we saw continued strong growth in our BD MAX molecular platform. For the full fiscal year, Diagnostic Systems grew 6.4%. Preanalytical Systems growth of 5.3% in the fourth quarter was driven by strength in core products. For the full fiscal year, PAS grew 5.2%. Biosciences revenues grew 5.8% in the fourth quarter. This reflects growth in our newer research instruments such as the FACSMelody and FACSymphony as well as continued strength in research reagents. In addition, FACSLyric, our more recently launched next-generation clinical flow cytometer for HIV and leukemia and lymphoma applications, also contributed to growth in the quarter. For the full fiscal year, Biosciences grew 2.4%. This was driven by strong momentum in the second half of the year, which we expect to continue in fiscal year 2018. Moving to slide 10, I'll walk you through our geographic revenues for the fourth quarter on a comparable currency-neutral basis. U.S. revenues grew 2.1% in the fourth quarter, which includes an estimated headwind of 200 basis points from the U.S. dispensing change. BD Medical revenues grew 2.2% including an estimated headwind of 280 basis points from the dispensing change. BD Life Sciences revenues grew 2% in the U.S. For the fourth quarter, growth in BD Medical in the U.S. was driven by performance in Pharmaceutical Systems, Diabetes Care and the infusion business within MMS. Within MPS, continued strength in prefilled flush devices was offset by a tough comparison to a strong performance in the prior year across the portfolio. For the fourth quarter, BD Life Sciences growth in the U.S. reflects strength in core products in Preanalytical Systems and in Research Instruments and Reagents in Biosciences. Growth in our U.S. Diagnostics business was driven by continued strength in BD MAX, offset by a tough comparison to significant Kiestra installations in the prior year. For the full fiscal year, U.S. revenues were strong, growing 3% despite an estimated headwind of 100 basis points from the U.S. dispensing change. Moving on to International, revenues grew 6.9% in the fourth quarter. Growth of 6% in the Medical segment was driven by performance from infusion-related disposables in the MPS unit and from both the infusion and dispensing businesses in MMS. Within our international dispensing business, strength in emerging markets and strong performance in our retail business in Europe contributed to MMS growth in the quarter. Diabetes Care revenues reflect strength in emerging markets, partially offset by continued softness in Europe, as previously discussed. Growth in the Life Sciences segment of 8.3% was driven by performance across the Diagnostic Systems, Biosciences and PAS. Diagnostic Systems growth reflects strength in core microbiology including IDAST and Kiestra and in BD MAX. Biosciences revenues reflect strong sales of our newer research and clinical instruments. Growth in PAS was driven by strong demand for core products in emerging markets. For the full fiscal year, international revenues grew 6.2%. On slide 11, developed markets revenues were strong, growing 2.8% in the fourth quarter and 3.4% for the full fiscal year, despite estimated headwinds from the U.S. dispensing change of 130 basis points and 60 basis points respectively. Fourth quarter emerging markets revenue grew a strong 12.7% currency neutral, bringing our full-year growth to 10.1%, which exceeded our expectations. China growth for the fourth quarter was strong at 13.4%, bringing the total year growth to 11.6%. The fourth quarter growth rate in emerging markets reflects broad strength across both segments. By geography, greater Asia, including China and EMA grew double digits and sales in Latin America were up high-single digits. Moving on to global safety on slide 12. Fourth quarter currency-neutral sales increased 3.9% year-over-year. By geography, safety revenues in the U.S. grew 30 basis points while international sales grew 9.1% currency neutral. By segment, fourth quarter Medical safety sales grew 2.7% and Life Sciences safety sales grew 5.9%. In the U.S., growth in Preanalytical Systems and infusion disposables in MMS was offset by a tough comparison to the prior year. International performance was driven by strong growth in Pharmaceutical Systems in China and solid growth in Europe in our Medical segment and strength in China and EMA in Preanalytical Systems. Safety revenues grew 16% in emerging markets in the fourth quarter and 11.5% for the full fiscal year. Slide 13 recaps the fourth quarter income statement and highlights our currency-neutral results. As discussed, revenues grew 4.4% in the quarter on a comparable currency-neutral basis, which includes approximately 100 basis points negative impact from the U.S. dispensing change. As we move down the P&L, I would like to point out that, similar to our prior quarters, our results in the prior year period include the Respiratory Solutions business while the current period does not, as the business was divested in October 2016. Starting with gross profit, the decline of 50 basis points year-over-year includes approximately 600 basis points of negative impact from the loss of gross profit related to Respiratory Solutions divestiture and the U.S. dispensing change. I'll provide additional details on gross profit in just a moment. SSG&A as a percentage of revenues was 24.4%. In the fourth quarter, we incurred additional selling and shipping costs related to our efforts to scale shipments in the month of September, as previously discussed. As a result for the full year, SSG&A as a percentage of revenues was slightly above our guidance range. Accounting for the impact from the Respiratory divestiture and the U.S. dispensing change, we are pleased with the leverage we have achieved on an underlying basis, with SSG&A dollars growing slower than revenues. R&D as a percentage of revenues was 7%. The decline in R&D dollars spent year-over-year is due to the divestiture of the Respiratory Solutions business as well as the comparison to the prior year where we increased R&D spend in the fourth quarter as a result of the medical device tax suspension. Our tax rate declined to 14.6% in the quarter, resulting in a full year effective tax rate below our guidance range of 15.2%. As you are aware, we expected a lower tax rate in fiscal year 2017 as an offset to the impact of U.S. dispensing change. Looking ahead to fiscal 2018, as you will see when I take you through our adjusted EPS guidance, we expect an increase in our effective tax rate. This is largely the result of discrete items in fiscal 2017 that are not expected to recur. In the quarter, operating income grew 6.3% and adjusted earnings per share grew 13.2% compared to the prior year. Both operating income and EPS include approximately 700 basis points of negative impact from the Respiratory Solutions divestiture and the U.S. dispensing change. Turning to slide 14 and our gross profit and operating margins for the fourth quarter, as you can see, currency did not have an impact on gross profit margin or operating margin in the quarter. On a performance basis, gross profit margin improved by 100 basis points as continuous improvement initiatives, cost synergies and favorable mix which includes the positive impact of divestitures were partially offset by slight headwinds from pension and raw materials. As expected, operating margin improved significantly in the fourth quarter, increasing 180 basis points. This was largely driven by the comparison to the high level of R&D spend in the prior year. For the full year, we are extremely pleased to have delivered approximately 180 basis points of underlying margin expansion. As Vince said earlier, over a three-year period we achieved approximately 500 basis points of margin expansion. Moving to slide 15, I'd like to highlight our EPS growth which was in line with our expectations for the total year. Starting with fiscal 2016 EPS of $8.59, we are extremely pleased that we were able to deliver currency neutral EPS growth of 13.2% while overcoming notable headwinds. The strength of our performance as well as the tax benefit from stock comp accounting and other discrete items drove our ability to offset significant headwinds from the Respiratory Solutions divestiture, the U.S. dispensing change, pension and unfavorable currency. All in, we delivered earnings growth of 10.4%. Moving on to slide 17 and our full fiscal year 2018 revenue guidance for stand-alone BD, at a high-level, we expect revenue growth of 4% to 5% on a currency-neutral basis which represents strong underlying growth of 4.5% to 5.5% excluding the impact of the U.S. dispensing change. On a reported basis, revenue growth is expected to be between 5% and 6%, reflecting a currency tailwind of approximately 100 basis points. This assumes a euro to dollar exchange rate of $1.18. From a phasing perspective, as a reminder, in the first quarter we have a very tough comparison to 6.1% revenue growth in the prior year in addition to the impact from the U.S. dispensing change. Moving on to the segments, we expect BD Medical to grow between 4% and 5%, and we also expect our Life Sciences segment to grow between 4% and 5%. Revenue growth contemplates a small amount of pricing pressure. We expect revenue growth to continue to be driven by recent product launches across both segments and continued strength in both developed and emerging markets. We expect high single digit growth in emerging markets driven by a diversified base, with China growing low-double digits and continued strength in Latin America. And in terms of developed markets, we believe the stability we have seen in the market over the past 18 to 24 months will continue, yielding a growth rate of around 4% in fiscal 2018. Now moving on to slide 18 and our full fiscal year 2018 EPS guidance for stand-alone BD, in fiscal year 2018, we expect another year of very strong earnings with 15% to 16% growth on an underlying basis. This includes additional CareFusion cost synergies and aggressive continuous improvement initiatives which will help offset notable headwinds from the U.S. dispensing change and the expected increase in our effective tax rate, resulting in currency neutral earnings growth of approximately 10%. Assuming current spot rates, we expect currency will provide a tailwind in fiscal 2018, the first time in seven years, resulting in expected EPS growth of approximately 12%. Now from a phasing perspective, beyond the tough compare for revenues in the first fiscal quarter and the impact of the U.S. dispensing change, there are a few additional items to consider. The additional cost base initiatives are not expected to ramp until the second fiscal quarter and the tailwind from foreign currency is not expected to be ratable across the year, but rather disproportionately larger in the second quarter. Regarding Puerto Rico, our current fiscal 2018 revenue and EPS guidance does not contemplate any potential impact related to Hurricane Maria. We are still evaluating the impact and estimate it could be as much as $40 million to revenues, with a corresponding impact that could be as much as 1 percentage point of EPS growth. The products manufactured in our three plants in Puerto Rico represent approximately 5% to 6% of total company revenues. All three of our plants are suffering from the destruction of the infrastructure of Puerto Rico, which, as you are aware, has interrupted the supply of power, water and raw materials. Our two plants in Cayey are currently back in production. However, we are still working to scale them to full productivity. Our third plant, which is located in Juncos, experienced more damage than the plants in Cayey and is not operational today. With that said, we expect to resume production in Juncos by the end of the first quarter. While we feel good about our ability to return to full productivity during the fiscal year, this is dependent on several factors that are outside of our control. Before I move on, I'd like to echo Vince in thanking our associates in Puerto Rico, who over the last six weeks have demonstrated great dedication and perseverance. Now turning to slide 19, I'd like to walk through the balance of our guidance expectations for the full fiscal year 2018. We expect gross profit margin to be between 54% and 55%. SSG&A as a percent of sales is expected to be between 23% and 24%. We expect our R&D investment to be in line with fiscal year 2017 at 6% to 7% of revenues, as we continue to invest in new products and platforms. As a result of the items I just detailed, operating margin is expected to be between 24% and 25% of revenues, up from 22.9% in fiscal year 2017. Excluding the favorable impact of foreign currency, we expect our underlying operating margin to improve 100 basis points to 150 basis points, bringing our cumulative margin improvement over four years to 600 basis points to 650 basis points. We expect our tax rate to be between 17% and 19%. This is higher than our fiscal 2017 tax rate, which included a number of discrete items. For fiscal year 2018, we anticipate our adjusted average fully-diluted share count to be approximately 219 million shares. Cash flow is expected to remain strong with operating cash flow of about $2.9 billion in fiscal year 2018. Capital expenditures are expected to be between $800 million and $850 million. With respect to our anticipated acquisition of Bard, things are progressing well. The financial parameters we described when we announced the deal have not changed. We will provide guidance for BD plus Bard after the transaction closes. In summary, we have good momentum exiting fiscal 2017, and I'm confident that the fiscal year 2018 will be another strong year of performance. We look forward to the closing of the Bard acquisition. We believe that the combination of BD and Bard will create an even more powerful healthcare company, enhancing value for our customers, patients and shareholders globally. Now I'd like to turn the call back over to Vince, who'll provide you with an update on our key initiatives and product portfolio. Vincent A. Forlenza - Becton, Dickinson & Co.: Thank you, Chris. Moving on to slide 21, I will walk you through our updates on new product innovation and strategic and business initiatives. Starting with the new product innovations within our Medical segment, we're pleased that we will soon be able to provide sodium chloride saline to our customers through our partnership with Fresenius. As saline remains limited in supply, the addition of sodium chloride to our Medication Management portfolio will benefit our customers and, of course, their patients. Within our Diabetes Care business, as you are aware, we temporarily paused shipments of our insulin infusion sets. This was due to a moderately-higher-than-anticipated rate of complaints associated with insertion that occurred during the pilot launch. We have conducted a clinical trial to gather further insights and to ensure that patients ultimately realize the full benefits of BD FlowSmart technology. We are continuing to work closely with Medtronic toward full commercialization. In Life Sciences, while we continue to receive very positive feedback from customers on the overall benefits of our Barricor blood collection tubes, a few customers have reported issues unrelated to test results. As a result, we have voluntarily recalled Barricor in the U.S. and are actively working with the FDA to get back on the market. We anticipate relaunching in fiscal year 2018. Importantly, there is no change in the value proposition of the product. While there are delays in these two products, we're quite pleased that numerous new products that we talked with you about at our Analyst Day last November are on track and are doing quite well. These include our UltraTouch push-button blood collection set, Veritor Plus, new BD MAX assays and the new research in Clinical Instruments within Life Sciences that we talked about as well as Pyxis ES and Neopak in our Medical business, just to name a few. Within our Genomics business, we recently expanded our portfolio through the launch of BD Rhapsody, a new single cell platform for RNA expression analysis. Previously in limited release as BD Resolve, the BD Rhapsody is a complete segment of reagents, instruments and software for targeted gene expression analysis of tens of thousands of individual cells. Also in our Life Sciences business within strategic and business initiatives, we completed a small tuck-in acquisition of a leading provider of informatics software that enables BD to offer full sample to discovery flow cytometry and single cell genomics solutions. We also recently announced that Tim Ring and David Melcher will join the BD Board of Directors upon the closing of the Bard acquisition. We look forward to the experience and guidance they will bring to the new combined company. And lastly, I would like to congratulate our MMS team on the one-millionth installation of the Alaris Pump module. The Alaris Pump is helping health care providers to safely administer medication to their patients, reduce medication errors and improve patient safety. Moving on to our operational efficiency update on slide 22, we continue to make progress with our CareFusion cost synergy capture. Through the end of fiscal year 2017, we've achieved $250 million in annualized synergies. We expect approximately $350 million in total cost synergies related to the CareFusion acquisition as we exit fiscal year 2018. Turning to operating margin expansion, as you can see, we continue to drive significant operating margin expansion over a multiyear period. The consistent performance of our businesses combined with operating efficiencies, cost leverage and cost synergy capture is driving continued underlying operating margin expansion. Over the three-year period through fiscal year 2017, we delivered approximately 500 basis points of cumulative margin expansion. Moving on to slide 23, I'd like to reiterate the key messages from our presentation today. First, our core remains strong across both segments. We're pleased with our fiscal 2017 performance and our ability to offset notable headwinds from the Respiratory divestiture, the U.S. dispensing change, and foreign currency headwinds. Second, we're extremely pleased with the excellent progress we continue to make with our CareFusion synergies and our ability to drive continued margin expansion. Third, we continue to make excellent progress executing against our integration plan and towards closing the Bard transaction. And finally, we look to fiscal year 2018 and beyond with confidence as we continue to pursue our mission to address some of the world's most pressing health care needs and advance the world of health. So thank you. We will now open the call to questions.

Thank you. Our first question comes from the line of David Lewis with Morgan Stanley. David Ryan Lewis - Morgan Stanley & Co. LLC: Good morning. Vince and Chris, I'll give you kind of a two-part question, all really focused on top line growth fiscal 2018. So Vince, the 4.5% to 5.5% underlying growth for 2018 is obviously better than most investors anticipated. It's actually much more consistent with the outlook you provided in November at the November 16 Analyst Day where you talked about 2018 acceleration above that 5%. So I know you talked about some of the drivers. Bf you just think about the pipeline, Vince, that you talked about in November of 2016 versus where you sit now heading into 2018, I wonder if you could bridge that gap and provide people the sense of why you're so confident that 5%-plus number is achievable. And then, Chris, just to avoid some of the communication dynamics across quarters for this year, obviously first quarter's going to be the weakest. As we move forward to quarters two through four, should we think about stable underlying growth in two, three and four? Or is the back half going to be more polarized than the first half excluding that first quarter? Just wanted to get a sense of after that first quarter how people should think about the modeling. Thanks so much. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. So, David, at a very high level I think what we've seen is strong growth in developed markets, driven by new products and then improving growth in the emerging markets. Especially if I go back a year, it's really China has changed. And if you look at the last four quarters, it improved every single quarter. The biggest change there of course was the rebound on the Life Sciences side, but you also started to see some of the synergies that we were getting from CareFusion as Rowa (39:27) has started to take off and some of the disposable growth has been quite good. The other thing that has happened from an environmental standpoint is our sales growth in EMA has rebounded. And so that started to help us. You especially saw that in this quarter, and we expect that to continue. So from a geography standpoint, we are well balanced. From a new product standpoint, first, I would point out what's happened in Biosciences and the really nice turnaround that you have seen there, driven by all the new product launches that I listed: the FACSVia, the FACSMelody, the FACSymphony, those products that we were showing you. In addition, the launch of FACSRhapsody, we're excited about that too. That was based on the cellular research. So I think Alberto and his team have done a really nice job of improving the performance of that business and getting those new products out. One thing I think people are missing is PAS is doing quite well. And while we talked about Barricor, UltraTouch is doing quite well. That was the second new product we showed back there in November. That's going well. And we still are very bullish on Barricor. Not a big impact in this year. But I think as we get into 2019, that's going to do quite well. And then of course, you saw the strong performance in DS. And Tom can comment even more on the Medical side, but we are making good progress. I think we feel very good about what we did with the dispensing change. I think it has been really well received and we're starting to now go beyond just the change in leasing and there's some new products in terms of predictive analytics that are coming out. So that strategy is really on track. We continue to do well with the infusion pumps, so all of that is going quite nicely, SAIS is going well. So yes, we're a little behind on the FlowSmart, but we're on track pretty much with the other major launches that we're talking about. Not big impact in 2018 but really getting set up for 2019. So that's the way I see all of that. All in all, we're on track with what we said. Christopher R. Reidy - Becton, Dickinson & Co.: So to the second part of that question on the phasing as we look into 2018. As we said, the toughest compare is in the first quarter, as you know. Second quarter stabilizes a little bit. You still got the overhang from the 100 basis points of dispensing and that stabilizes a little bit. And then you make up for the first quarter for the most part in the second half of the year. Remember, the third quarter will be a bit of an easier compare because we had a low growth quarter this year in the third quarter. And then fourth quarter is pretty much an average compare. So think about it as a tough compare first quarter, which drives a lower than average first half, made up for in the second half. David Ryan Lewis - Morgan Stanley & Co. LLC: Great. Thanks so much.

Our next question comes from the line of Mike Weinstein with J.P. Morgan. Vincent A. Forlenza - Becton, Dickinson & Co.: Good morning, Mike. Christopher R. Reidy - Becton, Dickinson & Co.: Morning.

Morning. I'm going to try and sneak in three questions if I can, so here we go, here. (43:00). Number one, I know you're not updating on Bard today, but have your thoughts on year one accretion from Bard changed at all since the time of the deal announcement? Number two, I was interested in just kind of the update you were running through there on some of the pipeline. One product you didn't touch on was the type 2 basal-bolus pump. Can you update us on the status of the development and launch plans there? And then third and last, I promise, is China. And as you're aware, China is moving towards national reimbursement for some devices and really started, what I would call, at the high end of the medical-technology curve. Can you just give us your thoughts on where China is headed and as you think about your exposure or lack of exposure to your business as well as Bard's business, because obviously China has been a big growth driver for you and for Bard over the last several years? Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. Since they were such good questions, we'll allow you to do three, okay?

Much appreciated. Christopher R. Reidy - Becton, Dickinson & Co.: And I'll take the first one on the year one accretion. So as we said in our prepared remarks, we feel good about the Bard transaction and the financial parameters are in line with what we had articulated at the time of the deal announcement. Specifically, related to year one accretion, we had said low-single-digit accretion and that still stands. Bear in mind that was for a full year, we'll probably get nine months, but we still see low-single digit per share accretion. Vincent A. Forlenza - Becton, Dickinson & Co.: Okay. On the pump, Tom, you want to comment on that? Thomas Polen - Becton, Dickinson & Co.: Hi, Mike. This is Tom. Yes. The type 2 patch pump continues to progress very well in our funnel. One thing is you do see if you look in the appendix that we had said before we were expecting to launch that at the very end of FY 2018. Based on some learnings actually from other product launches, we did add in an additional patient clinical trial there, and so we now expect that to launch in 2019. So we don't see revenue in our guidance within the Diabetes Care business for 2018, but the project's progressing very well from a development perspective. We actually just finished final acceptance testing on the manufacturing line this week and are installing that in our plant in Ireland this month. Vincent A. Forlenza - Becton, Dickinson & Co.: Okay. And I'll take China. For us, Mike, the issue that you mentioned is not really all that relevant. What we've been working on has been the two invoice evolution in China in two provinces. And we've successfully implemented a program within those two provinces, and net-net it's neutral to positive for us, the way that we have done this. And so we think we're in very good shape if that moves ahead. They have slowed it down, and so we don't see a big impact in this year. Over time, I think they will come back to it. So that piece of it is fine, and we think we'll be able to apply it on the Bard side as well as we move forward. In terms of the pricing, we've been very effective in getting the right pricing in the Green Book. And so as I look out over the next couple of years, I don't see a big issue, Mike.

I appreciate it. Thanks for taking the questions, guys. Vincent A. Forlenza - Becton, Dickinson & Co.: Sure.

Our next question comes from the line of Brian Weinstein with William Blair. Brian D. Weinstein - William Blair & Co. LLC: Hey, guys. Thanks for taking the questions. Vincent A. Forlenza - Becton, Dickinson & Co.: Sure, Brian. Brian D. Weinstein - William Blair & Co. LLC: You guys talked about getting some benefit from the end-to-end solutions in MMS. I was hoping you guys could expand on that a little bit and talk about how customers are receiving kind of the entire solution at this point and talk specifically, if you could, about some share gains that you are expecting within the various segments there. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. Tom will take that. Thomas Polen - Becton, Dickinson & Co.: Hey, Brian. This is Tom. So I think if you look at obviously MMS's performance in the quarter, which was 6.7%, and that includes a 600 basis points of headwind just from the accounting change, so if you take that into account, it's north of 10%. That's driven, as you mentioned, by very strong growth on both the dispensing and the infusion side. We do expect our infusion category share to have gone up between 1% and 2% this year, in line with prior year, so we are continuing very good progress there. As you heard from Vince earlier, we've actually just installed our one-millionth Alaris Pump this past quarter, which was a major milestone for us. And on the dispensing side, several years ago we were talking about the stabilization of Pyxis ES. At this point, Pyxis ES is really humming. We've got over 1,700 sites live now across the U.S., and we feel very good. We actually had a record level of new business closes on Pyxis ES since the platform has been in the marketplace and certainly a record level for Pyxis in the last five or six years. So we're feeling good about that. The other thing is one of the metrics that we look at is pull-through of other products, so how often are customers choosing to buy Pyxis plus Alaris plus our software solutions, products like Cato and Pharmogistics? And as we look at those metrics, we see ratable quarter-on-quarter improvement in the value of people buying that end-to-end offering. And so all of that gives us confidence as we go into FY 2018 that that solution is working. We'll be unveiling some new particularly informatics solutions at the ASHP coming up in December that are just going to further the offering that we have in that space. Vincent A. Forlenza - Becton, Dickinson & Co.: So hopefully we'll see you there, Brian. Thomas Polen - Becton, Dickinson & Co.: Yes. Vincent A. Forlenza - Becton, Dickinson & Co.: Next question, please.

Yes, sir. And your next question comes from the line of Larry Biegelsen with Wells Fargo.

Good morning, guys. Thanks for taking the question. First, just to clarify the low-single digit accretion in 2018, should we prorate that for nine months? And then two product related questions. Tom, earlier this year you talked about an interim analysis for the Lutonix (49:34) trial. Should we still expect that before the end of 2017? And are you still confident in that indication? And then second, the flu season is expected to be severe this year. Can you talk about your exposure to the flu and how a severe flu season could impact BD? Thanks. Christopher R. Reidy - Becton, Dickinson & Co.: So on the year one accretion, as I said, the most important thing is all the financial parameters on this deal are consistent with what we had said. We did give guidance for the full year, to your point, but the interesting thing is it's low-single digits. It's low-single digits whether you do it over a year or nine months, and so you have the nine months. We also have the divestiture of what we have to do on the needle biopsy, but we'll give more precise information on that along with multiple other parameters and inputs related to the transaction when we give the full guidance for the transaction in February. But it's consistent low-single digits. Vincent A. Forlenza - Becton, Dickinson & Co.: So from a flu perspective, we budget kind of an average flu season, and so if it ends up in North America being stronger, which is where most of the market is, then it would drive us more towards our upper end of our range. That would be one of the positive factors. There has been some strong flu in other parts of the world, so we'll see how that plays out. Our expectation is that you budget that in the second quarter of the year not the first quarter. Last year, it was a very unusual year and came in in the first quarter. So that's how we're thinking about it. We'll see. Thomas Polen - Becton, Dickinson & Co.: And Larry, this is Tom. On your question on Lutonix, no change from obviously what Bard management guidance was prior on the timing of that. I'd say we continue to be optimistic around the ability to get that claim over the longer term, though. So no change versus what they had shared previously. Vincent A. Forlenza - Becton, Dickinson & Co.: Right. Okay. Thanks very much. Next question, please?

Our next question comes from the line of Isaac Ro with Goldman Sachs. Isaac Ro - Goldman Sachs & Co. LLC: Good morning, guys. Thank you. I had a question on the Diagnostics part of the business, in particular the outlook here as we digest the PAMA legislation. I know it's early, but it does seem like the custom Medicare reimbursement are going to have a pretty protracted impact on a variety of labs that you guys serve. So I'm curious how you're game planning the way in which they spend, how that's going to change, and how you guys can make sure that you continue to get your share of the business? Alberto Mas - Becton, Dickinson & Co.: Yes. Hi. This is Alberto. The PAMA proposals on CMS – first of all, I want to mention that they're in the comment period. They're not definitive. And we have commented in the direction of supporting the AdvaMed rationale, which is that probably they took a relatively small sample of labs, mostly bigger labs, and we are proposing that we take a little bit of a timeout and extend that polling of pricing to more smaller, independent labs. But just to put it into context, obviously there's – most of our business is private insurance. This only affects the lab schedule. So we think that the direct impact potential in our businesses of this PAMA legislation is at worst, if you like, it's in the single digits that we're talking about. Single digit millions of dollars, and probably mostly on the low end because the amount of our business affected by this is relatively small and it's also capped by the proposal any one year in terms of how much the impact is. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. So not a big impact for us. Alberto Mas - Becton, Dickinson & Co.: No. Vincent A. Forlenza - Becton, Dickinson & Co.: But thanks for the question.

Our next question comes from the line of Bill Quirk with Piper Jaffray. Vincent A. Forlenza - Becton, Dickinson & Co.: Good morning, Bill. Are you there, Bill? William R. Quirk - Piper Jaffray & Co.: Yes. Hello. Can you hear me? Vincent A. Forlenza - Becton, Dickinson & Co.: Good morning. Christopher R. Reidy - Becton, Dickinson & Co.: Yes. We can hear you now. William R. Quirk - Piper Jaffray & Co.: Good morning. Sorry about that. User error, I guess, on this end. So first off, Vince or Tom, can you talk a little bit about the ongoing adoption of new guidelines around handling certain oncology drugs and maybe how that might flow through to the domestic Medical business? And then I have a follow-up as well. Thomas Polen - Becton, Dickinson & Co.: Sure. This is Tom, Bill. So obviously, we have been part of helping to shape those legislations around closed system transfer devices and the adoption of those. We obviously have our product PhaSeal, which is growing very nicely, at or near double digits, and we expect that trend to continue as that legislation continues to expand to new states. In both the U.S. but also ex-U.S., we see very, very strong growth around the world for that platform. So I'd say no fundamental inflection difference that we expect in 2018 or 2019 but continuing to grow very strongly as it has been in recent years. William R. Quirk - Piper Jaffray & Co.: Okay. Great. Thanks. And then, Chris, just a housekeeping question. The fourth quarter adjusted earnings number, are you backing out the Bard debt interest expense as well as the cash interest income? It just wasn't clear when we were looking through the adjustment. Christopher R. Reidy - Becton, Dickinson & Co.: Yes, and that's consistent with what we did last quarter as well. William R. Quirk - Piper Jaffray & Co.: Okay. Perfect. Thank you. Vincent A. Forlenza - Becton, Dickinson & Co.: Next question, please?

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

Hi. Good morning. Vincent A. Forlenza - Becton, Dickinson & Co.: Good morning.

Hey. Just a couple of quick ones. One, and the impact to Bard from Puerto Rico and just some of their operations, just an update if there's going to be any read-through on that one. And then I just wanted to follow up on – just going back to your Analyst Day last year, just wanted to know if there's an update on your next-gen molecular system that you have in the works. Christopher R. Reidy - Becton, Dickinson & Co.: So on the first piece, we really can't say much about Bard at this point. But what we would say is they were fairly straightforward in the impact from Puerto Rico on their side. They did have an impact in their last quarter, and they anticipate having an impact in the next quarter. But they're back up operating, much like our Cayey plants and are subject to the same power issues that we are. But they don't have the same level of issue that we have at our Juncos plant. They're more like our Cayey plants, which are further along. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. Which are scaling up. Okay. And then Alberto will brief you on next gen. Thank you. Alberto Mas - Becton, Dickinson & Co.: Yes. On the next gen molecular, we are – the program progresses, is continuing. We are very focused on a very reliable instrument and ultimately that's going to be guiding our launch cadence. But the program is ongoing and tracking as expected. One thing that's worth mentioning as well is that we have filed for HPV with the FDA a few months ago, and we expect approval of that towards the end of this calendar year. So December, January type. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. So making good progress. Alberto Mas - Becton, Dickinson & Co.: Good progress, yes. Vincent A. Forlenza - Becton, Dickinson & Co.: End of the day. Okay. Thanks very much. Next question?

Our final question comes from the line of Doug Schenkel with Cowen & Company. Doug Schenkel - Cowen & Co. LLC: Good morning. Vincent A. Forlenza - Becton, Dickinson & Co.: Good morning. Doug Schenkel - Cowen & Co. LLC: I think just a couple quick questions for Chris. It doesn't appear 2018 stand-alone free cash flow guidance assumes much of a year-over-year increase. Could you just walk us through why that is? And then second question for Chris. You noted you incurred additional selling and shipping cost in Q4. I'm just wondering if you'd quantify that, so we could get to what margins would've been excluding those? And, kind of along the same lines, you stepped up R&D in a big way sequentially, Q3 to Q4. Just wondered if you'd comment on what drove that. Thank you. Christopher R. Reidy - Becton, Dickinson & Co.: Sure. So on cash, we actually do have a nice step-up and we've seen that step-up over the last couple years. We're going from $2.8 billion to $2.9 billion. Most of that is the flow-through of net income. There is a payment of nearly $100 million related to pension payments, that kind of thing, that will have been made. You'll see that in the 10-K when we file, but a nice drop-through from net income. SSG&A, you're right. We did have some additional costs to drive the logistic issues, and we thought that was the right thing to do to drive the revenue and keep our customers happy, and so there was a step-up there. All in, with that, there were about $20 million or so of cost. And the R&D question that you asked was? Vincent A. Forlenza - Becton, Dickinson & Co.: Just sequentially, what drove it up quarter-on-quarter? Christopher R. Reidy - Becton, Dickinson & Co.: Well, you have the fact that we're scaling, and it's more of the growth is relating to the spending in the prior year, which was lumpy, which had to do with the repeal of the medical device tax. Vincent A. Forlenza - Becton, Dickinson & Co.: Device tax. Yes. So it wasn't starting any new major programs or anything. We're really focused on delivering what we talked to you about at Analyst Day. And, of course, the other thing I would mention coming back to the cost question in the fourth quarter was we overcame $5 million of incremental costs in Puerto Rico, and you saw that on that line, too. So that's things like write-offs... Christopher R. Reidy - Becton, Dickinson & Co.: ... of inventory and the like that occurred. Vincent A. Forlenza - Becton, Dickinson & Co.: Exactly. Christopher R. Reidy - Becton, Dickinson & Co.: So we did overcome that as well. Vincent A. Forlenza - Becton, Dickinson & Co.: Yes. Okay?

At this time, there are no further questions. I will now turn the call back to Vince Forlenza for closing remarks. Vincent A. Forlenza - Becton, Dickinson & Co.: Okay. Thank you very much, operator. So just a couple of thoughts. First, we delivered on our commitments this year with really strong performance demonstrating the consistent and I'd call it reliable nature of our business despite various headwinds throughout the year, which we detailed on the call. Our core business remains strong, and we're confident in our outlook for next year. And, lastly, of course, we look forward to the upcoming close of the Bard transaction and the opportunity to create meaningful, long-term value and continue to improve healthcare globally. So thank you very much for your participation today. Christopher R. Reidy - Becton, Dickinson & Co.: Thanks, everyone.

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