Becton, Dickinson and Company (BDX) Earnings Call Transcript & Summary

Okay. And thanks, everyone, for joining us this morning. It's -- we're officially kicking off HealthCONx 2022 with Becton, Dickinson. It's a pleasure to have BD with us this morning. Look, I mean -- when I think about the macro, the uncertainty, things that have happened, I think it's safe to say that we love steadiness, consistency in numbers. And so I think BD exemplifies that. We have Chris DelOrefice, the CFO; and from the IR team, we have Francesca DeMartino and [ Adam Reef ]. So with that, Chris, thank you for joining us this morning.

Yes. Thank you, Vijay. It's my pleasure, and hello to everyone out there. I appreciate you taking the time to join us.

So maybe I'll kick off with -- if I just look at the last 12 months, Chris, you guys grew 8% organic, really strong. Some of this came from pricing. I think what, 3/4 came from volume. As you think about this price versus volume dynamics, right? I know you've given the fiscal '23 guidance, I think it's about 5.75% at the midpoint. How should we think about volume versus pricing for '23?

Thanks, Vijay, for the question. To your point, first of all, just to pause on our fiscal year '22. Certainly, we were really proud of the year. Not only was the absolute growth rate of 9.4%, 8.5% organic, to your point, really strong. But I think when you think of delivering that in this macro environment where as we went through the year, really, the geopolitical and macro uncertainty increased throughout the time. And despite that, we continue to execute, which I think is a common theme we'll hopefully kind of touch on as we go through the questions you may have for me today, very focused on our BD 2025 strategy, innovation and growth. And you saw consistent performance throughout the quarters and you saw consistent performance across our portfolio as well. So we're really proud of what we delivered in FY '22 and certainly feel like we have strong momentum going into '23. I'll answer your question in terms of how we think of growth, volume, price. Obviously, this is a nuanced year in a high inflationary environment that we haven't seen really in 40-plus years. So we're not giving specific guidance on price on a go-forward basis. You're right. If you look at '22, it was just north of -- it was between 20% and 22% -- 20% and 25% of the total growth. With that said, as we think of the year, there's intentional choices of navigating kind of the price volume dynamics knowing that the price is one component of navigating the higher cost. But if we step back and look at our guide for the year, the midpoint 5.75%, again, this is at the -- this is above the midpoint of what we outlined in terms of our -- I'm sorry, at the midpoint, 5.75% is above our 5.5% plus we outlined over a year ago now at our Investor Day. And when you think of that 5.75% against what we delivered last year, it's a 7.5% 2-year CAGR. And even if you strip out the inorganic contribution of that, you're still north of 7%. So I'm sure we'll talk more about it. But again, this is -- we're getting benefit holistically from our strategy. One, we have this durable growth profile; two, we've transformed our innovation approach; and three, we're starting to get the benefit from our tuck-in M&A strategy. And not just the onetime benefit when you bring an asset but we always said that 5.5% was not dependent on the onetime lift you get, it was really from the organic contribution as we bring in assets that are growing strong double digits, above our WAMGR. And as we anniversary those assets in the first year, they're contributing to growth. So last year, for example, they contributed about 20 basis points to the growth. So we're really excited about where we are. Again, as it relates to kind of the price volume, we're -- that's something as the year plays out, it will fluctuate. Price will continue to be part of the growth equation for us. But when we think of inflationary mitigation actions that we're taking, really, we take more of an internal view to that. And when you look at our margin improvement last year, there was a significant majority driven by all the other things that we were doing, whether it be buying through our plants where we had over 100 basis points of improvement driven by that, whether it be the strong growth profile we have, which allows us to be very intentional around portfolio mix. As an example, we have the early benefits we're seeing from our Project RECODE simplification strategy. We had our plants work really hard for outsized cost improvement. So it almost doubled versus what we would normally deliver in an environment. So across the board, we had our full organization focused on executing, delivering outsized improvements, all very much connected to our simplify agenda. And all this, by the way, while investing higher levels in R&D to keep ensuring we create that flywheel towards growth. So you can continue to look at pricing as being one part of that equation. But like I said, it's really all those other factors that are contributing to both growth, margin. And more importantly, we're very focused on reliability. I think in this environment the most, the investments we're making in continuity of supply, tool sourcing, well, you can talk about the inventory investments we've made. We're doing a lot on behalf of the customer that are certainly well in excess of even some of the benefits we're getting from things like price. So reliability and quality of supply in this time has been a top priority for us.

Absolutely, Chris. And I appreciate those comments. I guess, if I took a step back and looked at your LRP of 5.5% plus, I think that LRP is maybe neutral to negative pricing. Is that fair, Chris?

Yes. At the time, we had just -- there were some early signs of inflation that had started late in 2021. So BD has always been pricing portfolio that was about flat to your point. I think traditional med tech is definitely more low single-digit declines is what you would typically see, it can fluctuate by category. So yes, roughly flattish price, slight positive. So this has been certainly above what we contemplated during that time. But it's been, I think, a necessary adjustment as we've entered this hyperinflation environment.

Understood. And maybe just one last on this topic is, your 10-K was filed recently. I think your fourth quarter implied pricing was a step up from 3Q. So there should be some benefits here as we think about '23. Would that be a reasonable way to think about 23, Chris?

Yes, absolutely. Like I shared, there's certainly one that will be a carryover impact from the timing of actions that we've already taken. And we'll continue to look at -- any price action we take is directly correlated to what we're experiencing in terms of just outsized inflation. I mean again, just to give you an example, our portfolio is maybe a little unique, like take some of our products like syringes, highly-automated manufacturing, very efficient manufacturing. A prominent portion of the cost is resin, which has seen significant increases. These are products that we deliver for maybe $0.10 to the marketplace. So before you even contemplate, take resin costs as an example, just all things being equal with shipping increasing significantly, shipping the same boxes of 100 syringes, you're experiencing significant cost increase there and then the resin on top of that. So there are targeted areas in our portfolio where it's -- pricing is an important part of maintaining a healthy margin profile. So if we can do some of those things that we talked about, continue to invest in supply capacity. I mean we keep building and adding capacity. A significant portion of our $1 billion CapEx budget is geared towards increasing capacity to support volume, support our customers, the inventory investments I talked about. So yes, you will definitely continue to see that be part of our strategy. But again, it's one kind of part of a holistic set of actions that we're focused on.

Absolutely. And I had the question on margins inflation down the list, but since you brought up inflation, now I want to go there. I think on the call, Chris, you mentioned the guide assumes 200 basis points of incremental inflationary pressures in fiscal '23. What are the components of those 200 basis points of inflation pressure, Chris? Is that -- what is labor shipping? And what portion of this has been perhaps capitalized cost on the balance sheet, which is flowing through in fiscal '23?

Yes. No, really good question. So first of all, just to ground, last year in FY '22, we had over 200 basis points of inflationary pressure. That escalated through the year from the original guide. Despite that, if you recall, we delivered on our operating margin improvement goals, delivering north of 250 basis points for the year. That got us halfway to our FY '25 objective of getting back to around just above 25%, so really good progress there in a very challenging environment. And keep in mind, for BD, especially because our fiscal year starts earlier, right, we're the first to kind of typically report from a fiscal year standpoint. There was also inflationary pressure on the back of -- midway through our fiscal year '21. So you've had kind of 2 consecutive years of inflationary pressure. '23, we are expecting another 200 basis points. The mix of it has changed a bit. So half of it is raw materials and the other half is predominantly labor. And when we talk about labor and wage, it's largely manufacturing-driven. Our wage force, the dynamics with employment rates and folks trying to access talent have increased significantly, and now manufacturing locations that maybe in the past weren't competing with traditional retail outlets as an example, they've been increasing their cost per hour for employees. And we've had to ensure that we're being very competitive with that. We've actually done things, by the way, beyond increasing salaries to be competitive. We focused on kind of other things that are valued, whether it be different shift structures that accommodate different lifestyles, things of that, that offer flexibility. And so again, it's usually not one solution. So when you think of that 200 basis points, half of it is labor, half of it is materials. Within materials, we are seeing resin abate, which is great to see. Where we saw the pressure is more in other traditional raw materials such as packaging, in particular. You still do have electric components as well that are more outsized relative to normal levels, so areas like that within the materials on a net basis with the resin prices abating some. And then lastly, I think shipping is where we have the biggest impact. We are seeing some year-over-year benefit there as well. We talked about this year delivering at least 100 basis points of margin improvement. Over 80% of that will happen in SSG&A for us, a small portion of that is the shipping rates abating. So that's kind of how we see inflation playing out this year. Obviously, if there's further opportunity and some of these costs kind of stabilize or reset further, it creates additional opportunity for us because we're approaching the year as if that's going to continue. But we'll certainly be prepared to take advantage of any further price or cost abatement that may happen in the marketplace.

Understood. No, that's extremely helpful, Chris. Maybe just on those components rate, given that this is all raw material manufacturing labor related, is all of the inflationary pressures hitting gross margins in fiscal '23?

Yes. That's the easy way to think. There's a little bit in SG&A in pockets, but you should think of the predominant majority being within gross margin. That's why this year, we gave a little bit of color around where that 100 basis points of -- at least 100 basis points of operating margin improvement would come from. And again, over 80% of it is going to be in SSG&A. There's a little bit of a tweak to our R&D investments. We've had a couple of years of outsized above our 6% target, monitoring that back closer to the 6% level. So a little bit of benefit there. And then lastly, we do expect GP actually to improve year-over-year, but it's going to be a slight improvement is the way we characterized it. But to your point, given the fact that we have over 200 basis points of headwind in GP, I would call a stable GP to a slight improvement, another really successful year.

Understood. And what's the offset on the inflation here, Chris, as you think about it? Is it Project RECODE? Is it mix? I'm assuming pricing is part of this.

Yes. So probably in order more so of the way we think of executing it, not so much the value of what we do. But I mean, one, it always starts with volume, getting efficiencies through our plant. So like I said last year, we had a 100 basis point benefit from volumes. Now a portion of that was also due to, call it, the COVID recovery lag. But our plants are now back above, call it, volumes ahead of the 2019 level. So we'll continue to focus on driving volume, cost improvement in the plants. Again, we have a very aggressive plan there where we have outsized cost improvement plans. Portfolio has been a big focus of ours, and that goes beyond price. We've really been focused on where are we directing volumes to the most critical areas in health care balanced against where we see the best growth opportunities, these transformative growth, higher-margin opportunities. And we've done a nice job there. Project RECODE, you mentioned, which is -- includes network simplification and our SKU rationalization program. That one has -- we're starting to get the benefits. We got a little bit of benefit last year. This will be another smaller step-up and then it will continue to kind of expand as you get into FY '24 and '25. And maybe just as a reminder for folks, Project RECODE in total, by the end of '24, is supposed to have about $300 million of value from a run rate standpoint. The majority of that is coming from the SKU rationalization and the network optimization. So those are the areas that we're focused on. And then I can talk a little bit too about we had this unique item that we made a very strategic decision to do this year that we think is really great. One, our ability to do that is driven by the fact that we have a very strong growth profile; and two, it further illustrates our commitment to simplify the organization. So these were these product exits, which is different from our SKU rationalization program. And I can provide more color when you want on that. I think it's important that everyone understands that because it's an intentional choice. We could have obviously just kept those products in our portfolio and we would have even had a higher growth rate, but we thought it was the right thing to do. It creates capacity for our higher growth, higher profit parts of our portfolio, simplifies the organization, and I'm happy to share more on that one, if you want to explore that.

Yes. Absolutely, Chris. I think that's one of the things which was a little bit of a surprise in the guide. I think the LRP contemplates some product excess, but we weren't aware of 100 basis points coming in fiscal '23. So maybe some color on where are these impacts, which product lines and why now?

Yes. And that's fair. To be fair, when we communicated in August, this was not something we had communicated. This was a strategic decision as you go through your planning process in any given year. Again, I think as investors understand this and the discussions we've had, this has been very well received. So -- and it was an opportunistic time to do this, right, because in essence, the simple way to think of this is these are pure product exits. And how is it different from what we're doing on, I'll call it, our Project RECODE SKU rationalization? SKU rationalization is basically take urology drainage. We had north of 3,000 SKUs to support that portfolio, support customer needs. If you look at the number of variants of products to serve customers and start compounding all the different choices, whether it be catheter sizes and colors and all these different things, packaging put-ups, it compounds and becomes very complex very quickly. And then you start asking yourself, well, what do you actually need to service our patients, service customers? That's an example where we reduced our portfolio by 65%, and they're still able to support the customer base in just a much more efficient manner. The revenue there is highly transferable. So you do get some revenue loss when you do those because there's typically like timing of inventory bleed downs and things like that, that have to take place. We've been absorbing that. That was absorbed in our 9.4% growth. There could have been -- it depends on the product portfolio, but those can have impacts of 10 basis points, 20 basis points to growth, kind of that order of magnitude that are just being absorbed. So that's a very strategic approach. Sometimes when you do that, it typically requires investment. You may need to do reregistrations to take a portion of your portfolio, move it in the market. We're going to continue to do that. That's part of like normal course. We're absorbing that within our growth rate. This is different. This was a hard look at our portfolio and doing kind of a typical, call it, four-quadrant analysis, where do we have products that we sell that are just not core to who BD is? There's other alternatives in the marketplace, not necessarily business we want to compete for. It's a drag on growth, margin profile that we had a threshold of 50% or below the GP in this similar category, so significant detraction to margin. Just asked ourselves the question, are these serving a purpose as it relates to the BD strategy? Or are they serving some sort of public health interest or are there alternatives in the market? And if you answer all those questions or no, we just made a decision to do a onetime exit more akin to a divestiture. And the nice thing here is we had Parata coming in, right, which was about 100 basis points. You have these exits, think of it again as a divestiture. Our core underlying business is still 5.75%, if you don't count either of those items. Frankly, even if you want to -- even if you want to sort of build in the portfolio exits, the growth rate is still very strong and approaching 5% at the midpoint and again, a 2-year CAGR at 7-plus percent on an organic basis. And more importantly, we fully absorbed any EPS impact, right? We still delivered double-digit EPS growth on an all-in basis, cycling over the COVID-only earnings benefit that we got, right, with COVID-only sales going from north of $0.5 billion down to our midpoint of our guide of $150 million. And on an FX-neutral basis, we were still 10% EPS growth at the midpoint. So it would imply roughly 13% EPS growth at the midpoint on the base business if you take out that COVID-only impact. So this is a really key core strategic action. It's onetime in nature. It takes away a distraction from the organization. When you think of these types of products, they still require regulatory support, they require quality support, customer inquiries. The manufacturing complexity associated with those frees up capacity of all kinds of resources, and it's just a really smart thing to do, especially in this kind of environment. Like I said, we could have easily just kept that growth. No one would have asked the question, but we're running the business to do the right thing and create the most value for our shareholders and feel really good about that choice.

That's helpful perspective, Chris. And maybe one last question on this topic. Are there future product exits that we should be expecting as you think about the LRP plan through 2025?

Say that one more time.

Should we expect future perhaps potential product exits through your long-range plan of fiscal '25?

Yes. No, I mean there's nothing that's been determined at this point. But we kind of took a pretty deep scrub of this, and we feel like this was a good year to focus on this. There's nothing going forward that we've signaled. This -- we feel this is sort of onetime in nature. And it's pretty balanced across our portfolio, by the way. We looked at it holistically. Everyone is participating in this. Medical is a little bit over-indexed. When you think of that portfolio, Life Science is a bit in line and Interventional, slightly under-indexed to that kind of 100 basis points, but every segment has it. There's also a stronger OUS orientation here. As you can imagine, there's probably some markets that just aren't near as profitable where there may be other alternatives. And there's no need for us to compete for that business. We want to service the parts of our portfolio that are our customers value the most. So...

Understood. And then maybe getting back to this fiscal '23, sort of your philosophy and guidance. You brought back execution for us. It's really stepped up when I look at the consistency of your results over the last few quarters, right? Has anything changed on the execution front for BD? And what is this guidance as your aiming for utilization? And it looks like FX is coming in a little bit better, should we be thinking of normal utilization, FX improve the cash versus when you guided?

Yes. I mean -- so one, on FX, we'll constantly update on that, yes. It looks like it's moved to where the dollars weakened a little bit. So we may see some FX benefit. We'll just keep updating on that. I mean we manage our business, as you know, really kind of on an operational basis. I think that's the best way to think of the underlying strength of the business. It's hard to manage for FX movement. The one thing that we're really good about that you should be contemplating when it comes to FX is, how are you managing your cash position. FX is largely sort of just a translational mathematical measure, right, so that you can get an apples-to-apples approach to reporting your results. It doesn't change the underlying economic value of a euro that's earned in a euro-denominated country where it can become an impact is as you aren't matching kind of your assets, liabilities or your sources and funding of cash. And our treasury team here and our tax team does an outstanding job of that, and you've seen that play out with how we've been allocating capital and -- so when we think of FX, it's really more through cash management is the way we think of it. In terms of, I think you asked about utilization as well. It's interesting, I don't know, as you kind of continue to have dialogue, it feels like we've entered a new norm, and we're largely backed from a utilization standpoint to kind of pre-COVID levels. But we're also in a new environment where there's still uncertainty, right? And there's kind of starts and stops that are happening for different reasons. There's been a little bit of talk of nursing shortages and the impact that may have on procedures, things like that. But overall, we're seeing utilization relatively stable. I think the nice thing about the BD profile is the products that we have, right? I mean they touch 90% of the patients in the hospital, in the acute setting. So even as these things play out in the health care system, like take labor shortages and nursing as an example, the hospital itself is trying to navigate those dynamics and they're always going to try and shift and allocate resources to the most critical areas. And kind of BD plays in sort of everyday essentials, right? So I think through that lens, it's really nice. And then lastly, I think you had asked about just execution, anything different. I just think, one, I think our BD 2025 strategy that Tom put in place more than 2 years ago now is the right strategy. You're starting to see that pay off. I do think there's been a just an internal rally focused on execution across the board. We're very much a metrics-driven organization. We have specific KDGs and top needle movers that we stay very focused on. And as we've navigated this time, we've been very intentional about measurement against those agility and growth mindset towards navigating challenges. We've set up task forces to navigate the supply chain complexity as an example. So I do think you're right to kind of pick up on the execution focus, and it's just something that's embedded in the culture. We actually also enhanced our performance metrics without going into too much detail to make sure that in a time like this, growth is obviously very important, but profitable growth is critical. And we upped focus on that in our specific metrics. So there's things like that, that we've been doing.

Yes. That's helpful, Chris. And then maybe -- I think the guide -- I know you mentioned on the call, it does not assume any contribution from Alaris. But maybe can you give us an update on where we are in the process? Has BD had conversations? When was the last conversation you had? And what's been the feedback from the FDA?

Yes. No, we know folks remain interested in this. We provided some clarity on our call. Tom shared an update here. I'll reiterate some of that. We don't -- for any of our products, by the way, we don't comment on the details of any review process. So that's not something that should be viewed as unusual in and of itself. It would actually be unusual to talk about it, but we're very specific with language. One, we expressed the word confidence on the call. And confident for many reasons. One, I mean, this is the highest priority in BD and the resource allocation that we're driving to ensure that we're executing again against everything that's needed for this and being prepared is absolutely a top priority, and we're ensuring that, that happens and nothing gets in the way of that, going back to kind of our measurement approach and focus. That's very much part of that. So there's just strong organization focus, execution, prioritization. We remain confident in our process and getting clearance. Again, we just -- we've been very consistent with this. We just want to be prudent, thoughtful about the process with the FDA. We're not in the business of predicting time lines, but we're in the business of controlling what we do control, and we feel very confident in that. We've gone -- we've been clear too, this is part of our FY '25 plan. I've shared, for example, the negative impact that it had on margin. And there was an intentional choice there. We wanted to make sure we were still supporting customers. We maintain service organization, customer support. And so that, of course, created a deleveraging in your P&L with lost sales keeping investment. We've also had positive progress in other markets, right? Canada, similar situation. We're back in market there, getting positive feedback. And so collectively, those things, I think, should give you a sense of confidence, and we continue to be very focused on this. As you noted, the forecast this year, you can almost think of it as derisked and then it's not contemplating anything there. We're continuing just to be focused on medical necessity and have assumed revenue in line with FY '22, which was about $100 million. So that's pretty much what we've shared on Alaris. And certainly, we'll look forward to sharing more at a future date.

Yes, absolutely. And then just to clarify that, Chris. There are no major issues that the FDA has asked you to resolve here, right? And you did mention the margin impact. Can you quantify what the margin impact has been from Alaris?

Yes. No, we -- as always, we remain very engaged and connected and responsive to the FDA. Just -- it's a normal process. I think the thing that's maybe not typical is just -- and we've shared this before. This is a space where it's inherently complex. So these are large submissions, and they take an appropriate thoughtful approach from any regulatory agency, and we continue to support that. On the margin, yes, if you go back when we talked about kind of the margin compression that we experienced in '21 versus pre-COVID levels, there's about an 80 basis points impact from a combination of the lower sales base of Alaris and maintaining investment, actually also investing in quality and regulatory, as you can imagine as well. So about 80 basis points, that should be part of our margin progression through this FY '25 time period.

That's helpful, Chris. And then maybe just on the cadence here. When I think about Q1, I think you especially called out Q1, noting it will be below given the licensing comp. But how should we think about Q1 organic? Is the easiest way to think about, look, take the midpoint of the annual guidance and then you back out the licensing comp? Is that how we should we thinking about Q1?

Yes, it's a good question. So Q1, we had a couple of things. The licensing that you talked about, that's worth 100 basis points alone, right? So if you want to kind of take that sort of midpoint of our guide, the 5.75% and start thinking of items that you definitely have to account for and back out in Q1, that would be one of them. It also was, Q1 had outsized growth related to the combo assay. So again, in Life Sciences, right, you had the dynamic of essentially symptomatic patients, right, that are getting tested. And while they're getting tested, they're being tested with our combo assay versus a COVID-only assay. That, coupled with -- it was a relatively new launch, and it launched Q4 of the fiscal year, prior year before. The outsized demand because of COVID dynamics playing into that and just a new offering, right, which had a -- as a combo assay. So as you'd imagine, a differentiated value offering, so to speak, and price point. So all those things combined, that was another key one. There are other parts of our business where we had some outsized performance. I mean farm systems, which has been like a consistent double-digit performer, I mean, it was approaching 20% growth in Q1. That's a business we're really excited about. It's about 18%. So there were a few things there. I think all in all, you're probably looking at just between the licensing, the COVID-only, it's probably about a 200 basis points plus or minus without getting too specific. So that's maybe the easiest way to think about it. It will probably be one of our lowest revenue quarters. You also are, of course, going to have FX, that was more on an operational basis. FX will have one of the largest impacts in Q1 as well. Beyond that, I think the other thing to think of in terms of maybe quarterly phasing on revenue, we will cycle over Parata in Q4, right? So that will flip from kind of a onetime lift benefit and it will just be kind of core part of our organic growth there. So -- but that should give you a little bit of color that helps, I think, on Q1, but that's all contemplated. That is all well understood. As a matter of fact, the COVID and combo assay, it's not a significant difference year-over-year from like a dollar standpoint. It's just you have a high grow over, so it's the growth rate that's muted. The business is still healthy.

Yes. That's extremely helpful, is. It's the growth. It's not the dollar. We're just slightly...

And I just -- yes, and one last comment. You appropriately try and get insights into the quarter, which is great, and we try and provide as much color as we can. With that said, I don't want to overemphasize the quarters. For us, it's really about a glide path to our long-term strategy we outlined. I think annual is the way we think of our commitments. Quarterly, there's always quarterly fluctuations in a business. And this is very much in line with what we expected based on how Q1 last year played out and it's a strong underlying base performance. And again, I think the 5.75% guide starting this year, in a year where there's still uncertainty is still strong.

That's extremely helpful, Chris. And then since you brought up the combo assay, I think one of the things that I was confused about was -- flu, I think, is about $130 million to $150 million of revenues in fiscal '23. Based on current seasonal trends, are we feeling good about that $130 million to $150 million perhaps maybe at the lower end or higher end? And does that number include the combo antigen test, the $130 million to $150 million?

Yes. So what we tried to do, if you think back, right, we used to say our flu business, pre-COVID, pre-combo was about $75 million to $100 million. Now comes a combo offering which, if someone's coming in, again, symptomatic with flu-like symptoms in the COVID world, they're likely getting a COVID combo test. So when you think of a new platform, new value proposition, we would say apples-to-apples, that $75 million to $100 million is roughly 1.5x, and that was predominantly referring to our Veritor offering. So it's antigen, not molecular BD MAX. That said, Veritor and the antigen business makes up the predominant portion of our combo testing that's in our base business. So hopefully that helps a little. We don't want to get into like detailing our portfolio too much, but we knew that was important. We had shared it before. This was a new dynamic and it's intended to give you a directional indication of what that business could be worth. And then to your point, kind of moving into the second part of your question, that, of course, can fluctuate depending on the respiratory season and what's happening in any given year. It's premature to kind of share a specific point of view. I would say flu, from what folks have seen, there's been some like short duration of spikes, but it's been more of a muted season overall. It hasn't been as durable, but we watch it. These things can change on a weekly basis. But it's still a reasonable range overall. You do have kind of the COVID dynamic that's still in there, right, as folks have symptoms. So it's kind of an unusual time in that we're in this more endemic COVID phase and flu. So it's -- you almost have to look at both. But, anyway, I know that's not a perfect answer to your question, but hopefully, it helps give you a little color.

No, it did. It certainly did. And I think we're almost in the last few minutes here, Chris. I did want to touch on 3 topics: Parata; China; and ETO. For me, Parata growing double digits in the first quarter of our deal close on a pro forma basis, I mean, that was a solid number. Medtech deals, it's -- not all of them are clean. So what do you -- what is driving this double-digit growth in Parata? Is that your wrapping up some of those underlying execution that you mentioned or because you perhaps knew this asset? Or is this market so underpenetrated? Help us out, give some context on Parata.

Yes. We're equally obviously very excited about it. We're excited about the organization, the team that we've brought into BD. They have a ton of passion for this space. I do think it's nicely connected to the 3 irreversible forces we talked about, which in this kind of macro complex time, right, anything that has kind of an efficiency play within the health care system too is certainly very critical. To your point, our M&A strategy, we've had a very thoughtful approach. One, I think I think things that we're acquiring that have done the best in BD are right at this kind of early revenue stage, where we can leverage the capability they have to bring the BD capability to bear. These discussions happen over a period of time. You get to know the assets. There's a lot of upfront work that gets done to establish a clear plan to continue momentum. And so again, I think this kind of concept of execution is -- it's showing up in everything that we do, whether it be how we're executing our R&D strategy and innovation and improving R&D productivity, delivery of long-time milestones, how we're driving our base, how we're focused on margin improvement, navigating the supply complexity. This is just another example. We don't look at it as just sort of a transaction and looking at a financial model of what we're bringing in, we think about the culture, we think about the people, we think about the opportunities. What are the kind of needle movers within a deal, the top 3 things that we need to focus on to ensure success, and Parata's off to a great start. Again, this asset was a double-digit grower, critical space. It gets us now a pharmacy automation business that's approaching $600 million growing double digits. This specifically has a margin profile accretive to not only current margins, but our FY '25 margin aspiration. So off to a great start. Team is doing an outstanding job. I mean we actually just met right before the Thanksgiving holiday on doing an early kind of integration assessment. Something else that we've been doing a lot of is post-acquisition learning and adjusting. So I appreciate you noticing that, and we're really excited about it.

Fantastic. Then one on China, some recent headlines about lockdowns in China. What did the guide contemplate from China lockdowns? And are the current lockdowns baked into the guide?

Yes. I mean it's early. We're going to have -- everyone will be watching how this plays out. So we're kind of in the early days of this. So I would say we're watching. Our guide holistically, we talked about we expect macro complexity and geopolitical complexity to persist. You can start to see more markets kind of moving to this as endemic phase and business as usual to the extent we can. We didn't contemplate worsening or certainly kind of large duration lockdowns. With that said, while we may not have contemplated that, you look at BD's track record, how we navigated last year, $1.4 billion in China. We grew just over 10%. If you recall, we actually increased our guidance despite the lockdown. And so team China did an outstanding job executing. We talked about $2 billion being the goal FY '25 and a double-digit grower. So it's an important market. We feel good about how we're positioned there. And our focus is really on innovative offerings, quality, reliable supply. And so we continue to feel good about that business. And we'll continue to watch it, though, obviously, the news in literally the past couple of days, but...

Understood. And then maybe a quick 30-second, Chris. I know the 10-K had a lot of details on the Georgia cases related to ETO. But I know you have a couple of sites outside of Georgia. Any -- how should we think about risk exposure to sites outside of Georgia?

Yes, yes. Look, I appreciate the question. It's interesting, though. I understand why there's been some questions. ETO, really the fundamental thing, I think, just -- this one is worth stepping back a little bit. One, obviously, ETO, it's essential to providing safe and functioning products to the health care system. Sterilization in general, right? It's an FDA requirement. ETO in many cases, is the only option for certain medical devices. If you used a different option, you would create a safety issue for patients. So I just think that's an important context, right? The role of sterilization, the role of ETO itself is essential. And the question that actually folks really should be asking more about from an industry standpoint is capacity. What companies are best positioned to be able to sort of control their own destiny, capacity, and this is where BD is well positioned on 2 fronts. One, from a capacity standpoint, we have more direct control of the capacity. We feel well positioned there. We have a long-term road map to continue to ensure that we can provide safe, critical health care products. And then as you think of ETO specifically, we've been on the leading edge of this technology making investments, providing kind of best-in-class capability. Our products, the 99.95% of ETO is destroyed. We're at least 20x better than what the Clean Air Act requires, and we continue to make -- put leading approaches in for more, like, for example, off-gassing that happens in warehousing facilities. And so we're really a leader in the space and thus folks can't look at other -- I won't comment too much actually, but it would be not appropriate to look at other external events and factors and just make an assumption that BD is at a similar footing, that couldn't be further from the truth. Again, from a capacity and providing quality and responsible use of sterilization, we're in a leading position. And we continue to work with the industry to make sure that, that's well understood and there's capacity in the marketplace to provide health care products. I know this started more with a legal question. We feel really good from a legal standpoint. And I would first anchor back to all of those facts that I just shared around how BD is positioned. Our circumstances couldn't be more different. Again, fully compliant, significantly exceeding Clean Air Act standards, really strong footing there, leading technology that we've had in place for more than 2 decades. So really strong footing there. Cases are stable. Again, I almost wouldn't overly focus on that. But we have no accrual. You have to meet a probability standard. We don't see this as a probable event. Also has to be estimable, that's not even really relevant because it's not probable in this case. This is not something that we view as material. We continue to focus on executing. Watch us how we deploy capital, right? We continue to deploy capital very consistent with what we outlined in our Investor Day. By the way, the cases are stable. And then I know there were some reporting, a lot of information you can find in the public domain. I mean even after thinking of all that, the facts and circumstances of certain jurisdictions are very unique relative to where BD are. I mean simple things like if folks really were concerned, punitive damages capped at $250,000. It really puts sort of risk at a very different perspective. But again, I don't even really like to go there because I go back to the other comment around how strongly BD is positioned in terms of doing things the right way in a leading way and couldn't be on stronger footing in that regard. And so that's probably all there is to share there. Again, we're very focused on executing. We've delivered strong growth. We have a great outlook for FY '25. This in no way is impacting how we're thinking of that and our capital allocation approach going forward.

Fantastic. Chris, thank you for the time this morning. I know we ran a few minutes over, but this was fantastic. Thanks, everyone.