Becton Dickinson expects medtech tax to cut 3% from next year’s bottom line

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Becton Dickinson & Co. (NYSE:BDX) is expecting the medical device tax to cut about 3% off of its 2013 earnings growth, chairman, president & CEO Vincent Forlenza said during an earnings call this week.

During an earnings call for its 4th quarter and full-year 2012, Forlenza told investors that the company expects 2013 earnings to grow about 7% to 8% due to the impact of the tax. Excluding the tax burden, earnings are expected in the range of 10% to 11%, Forlenza said.

That accounts for a $40-$50 million bill the company expects to pay to satisfy the 2.3% medical device tax contained in President Barack Obama’s healthcare reform bill. The tax will also shave about 50 points off the company’s operating margins, Forlenza added.

The tax represents heavy blows, but is a more optimistic figure than calculated in a MassDevice.com analysis, which estimated that BD can more readily absorb the burden than many smaller device makers. Based on BD’s 2011 sales and earnings reports, an added 2.3% sales tax would have cut about 4.9% off of the company’s profits, according to our calculations.

That’s a relatively easy burden to bear compared with some smaller companies, where the tax is expected to take a much larger portion off the bottom line. The top-line tax could take 48% off of earnings for Integra LifeSciences (NSDQ:IART) and 34% off of Hanger Orthopedics (NYSE:HGR), according to MassDevice.com’s estimates.

The tax may not take effect at all, if medical device industry lobbying group AdvaMed has anything to say about it. The group is still looking to the so-called “lame duck” session between the election and the seating of a new Congress as an opportunity to press for repeal of the medical device tax before it takes effect on January 1.

That would be good news for BD, which could use a little boost after reporting a 4% drop in 4th-quarter profits. The Franklin Lakes, N.J.-based company reported $289 million in profits, or $1.43 per diluted share, on $1.97 billion in sales during the 3 months ended Sept. 30, 2012.

That’s a 1.1% drop in sales and a 3.7% dip in profit compared with $300 million earned, or $1.36 per diluted share, on $1.99 billion in sales during the 4th quarter of 2011.

Despite the slide, BD’s adjusted 4th quarter earnings of $1.42 beat analysts’ consensus estimate by 13¢, but that seemed to garner little praise from Wall Street. BD shares have lost 0.9% since opening at $75.75 yesterday, prior to unveiling its latest earnings. Shares were trading at $75.10 at about 12:45 p.m. today.

The company’s total 2012 earning showed modest progress in sales year-over-year, but earnings dropped about 8% to $1.17 billion, or $5.59 per diluted share, on sales of $7.71 billion.

For the year ahead, BD predicted earnings per share of between $5.58-$5.64, expected a 2-3% increase in sales.

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