Key Takeaways BDX will merge its diagnostics unit with Waters to form a high-throughput testing company. BDX's new venture aims for $6.5B in 2025 revenues, reaching $9B and $3.3B EBITDA by 2030. BDX to receive $4B cash and hold 39.2% stake in the combined entity via Reverse Morris Trust.Becton, Dickinson and Company (BDX) , popularly known as BD, and Waters Corporation (WAT) recently announced a strategic collaboration to combine BD’s Biosciences Diagnostic Solutions business with Waters’ expertise in ana ...

Summary of Becton, Dickinson and Company (BDX) and Waters Corporation Conference Call Industry and Companies Involved - **Industry**: Life Sciences and Diagnostics - **Companies**: Waters Corporation and Becton, Dickinson and Company (BDX) Core Points and Arguments 1. **M&A Announcement**: Waters announced a combination with BD's Biosciences and Diagnostic Solutions business via a Reverse Morris Trust, with Waters issuing 39.2% of its shares to BD shareholders and assuming $4 billion in debt [3][6][44]. 2. **Financial Projections**: The combined company is expected to generate pro forma revenue of approximately $6.5 billion and adjusted EBITDA of around $2 billion for 2025 [7][19]. 3. **R&D Investment**: Approximately 10% of product sales will be allocated to R&D to sustain innovation [8][17]. 4. **Employee Count and Headquarters**: The combined entity will have around 16,000 employees and will be headquartered in Milford, Massachusetts [8]. 5. **Market Expansion**: The transaction is expected to double Waters' total addressable market to approximately $40 billion, with a focus on high-volume, regulated applications [9][12]. 6. **Revenue Stability**: Over 70% of the combined revenue is expected to be recurring, enhancing growth stability [10][11]. 7. **Cost and Revenue Synergies**: Expected cost synergies of $200 million by year three and revenue synergies of $290 million by year five [20][41]. 8. **Adjusted Operating Margin**: The combined company aims for an adjusted operating margin of approximately 32% by 2030, with an initial margin of 27% [19][43]. 9. **Strategic Fit**: The combination enhances capabilities in bioseparations, bioanalytical characterization, and multiplex diagnostics, leveraging both companies' strengths [15][36][38]. 10. **Customer Base**: The merger allows for cross-selling opportunities, particularly in flow cytometry and diagnostics, enhancing customer access and service offerings [56][91]. Additional Important Content 1. **Historical Growth**: Both companies have historically grown at mid-single-digit rates, with BD's bioscience and diagnostic solutions business having approximately 80% annual recurring revenue [18][19]. 2. **Innovation Pipeline**: BD's Biosciences is noted for its strong innovation pipeline in flow cytometry and microbiology, while Waters has a robust portfolio in chemistry and analytics [24][26][30]. 3. **Market Positioning**: The combined company is positioned to lead in life sciences tools, with a focus on regulated high-volume settings [47][48]. 4. **Regulatory and Market Access**: The merger is expected to enhance regulatory capabilities and market access for diagnostics, particularly in high-throughput labs [78][92]. 5. **Long-term Value Creation**: The transaction is described as transformational, aiming to create significant long-term value for shareholders, customers, and employees [47][48]. This summary encapsulates the key points from the conference call regarding the merger between Waters Corporation and BD's Biosciences and Diagnostic Solutions, highlighting the strategic, operational, and financial implications of the transaction.

Transaction Overview - BD will separate its Biosciences and Diagnostic Solutions business to BD shareholders and simultaneously merge SpinCo with a wholly owned subsidiary of Waters in a tax-efficient Reverse Morris Trust transaction valued at approximately $17.5 billion[65] - Expected pro forma ownership of 60.8% for Waters shareholders and 39.2% for BD shareholders[65] - BD to receive approximately $4 billion cash distribution via proceeds of SpinCo debt[65] - The transaction is expected to close around the end of the first quarter of calendar year 2026[65] Financial Highlights - Pro forma revenue for CY 2025E is approximately $6.5 billion[18] - Adjusted EBITDA for CY 2025E is approximately $2.0 billion[18] - R&D spending is approximately 10% of sales[18] - The transaction is expected to be EPS accretive in Year 1[36] - Expected revenue synergies of approximately $290 million by Year 5, with an EBITDA impact of $145 million[33, 61] - Expected cost synergies of approximately $200 million by Year 3[33, 61] - Approximately $345 million in total annualized adjusted EBITDA synergies are expected by Year 5[36, 61] Growth and Stability - The combined company will have a total addressable market (TAM) of approximately $40 billion with 5-7% market growth[19, 22] - Over 70% of revenue is annually recurring[19, 30] - Over 50% of instruments are replaced every 5-10 years[19, 30] - Expected sales growth in the near-to-mid-term is MSD-HSD (Mid-Single-Digit to High-Single-Digit)[33] - Adjusted operating margin expansion of approximately 500 bps is expected by 2030[33]

Core Insights - Zacks Premium provides various tools to enhance stock market investment confidence and effectiveness [1][2] - The Zacks Style Scores are designed to help investors select stocks with the highest potential to outperform the market in the short term [3] Zacks Style Scores Overview - The Style Scores categorize stocks into four types: Value Score, Growth Score, Momentum Score, and VGM Score, each focusing on different investment strategies [4][5][6][7] - Value Score emphasizes identifying undervalued stocks using financial ratios [4] - Growth Score focuses on a company's future earnings and financial health [5] - Momentum Score capitalizes on existing price trends and earnings outlook [6] - VGM Score combines all three styles to provide a comprehensive assessment of stocks [7] Zacks Rank and Performance - The Zacks Rank is a proprietary model that uses earnings estimate revisions to assist in portfolio building [8] - Stocks rated 1 (Strong Buy) have historically achieved an average annual return of +25.41% since 1988, significantly outperforming the S&P 500 [9] - There are over 800 top-rated stocks available, making it essential to utilize Style Scores for effective selection [10] Investment Strategy Recommendations - For optimal returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B [11] - Stocks with a 3 (Hold) rank should also have A or B Scores to maximize upside potential [11] - The direction of earnings estimate revisions is crucial when selecting stocks, as declining forecasts can negatively impact share prices [12] Company Spotlight: Waters Corp. (WAT) - Waters Corp. is an analytical instrument manufacturer providing sustainable products for laboratory organizations [13] - Currently rated 3 (Hold) with a VGM Score of A, WAT has a Momentum Style Score of A and has seen a 2.2% increase in shares over the past month [13][14] - Recent upward revisions in earnings estimates for fiscal 2025 indicate positive momentum, with the Zacks Consensus Estimate rising by $0.06 to $12.90 per share [14]

Core Viewpoint - Waters Corporation reported strong first-quarter 2025 results, with non-GAAP earnings and net sales exceeding expectations, driven by robust demand across key sectors and regions [1][2][10]. Financial Performance - Non-GAAP earnings for Q1 2025 were $2.25 per share, surpassing the Zacks Consensus Estimate by 1.35% and increasing 1.8% year over year [1]. - Net sales reached $662 million, exceeding the Zacks Consensus Estimate by 1.08%, with a reported increase of 4% and a 7% increase on a constant currency basis year over year [1][11]. Segment Performance - The Waters segment accounted for 88.8% of net sales, generating $587.3 million, up 4.5% year over year and 8% at constant currency [3]. - The TA segment contributed $74.4 million (11.2% of net sales), reflecting a slight decline of 0.7% year over year but a 1% increase at constant currency [3]. Product and Service Breakdown - Instruments sales (39.7% of net sales) were $262.9 million, increasing 8.7% year over year and 11% at constant currency [4]. - Services sales (39.5% of net sales) totaled $261.2 million, with a modest increase of 0.2% year over year and 3% at constant currency [4]. - Chemistry sales (20.8% of net sales) reached $137.6 million, growing 2.6% year over year and 5% at constant currency [4]. Market Analysis - The Pharmaceutical market (59.1% of net sales) generated $391.1 million, up 4.5% year over year and 8% at constant currency [5]. - The Industrial market (27.5% of net sales) saw sales of $203.4 million, increasing 4.1% year over year and 6% at constant currency [5]. - The Government & Academic market (10.2% of net sales) generated $67.3 million, remaining flat year over year but increasing 3% at constant currency [6]. Geographic Performance - Asia (33.4% of net sales) generated $220.8 million, up 6.4% year over year and 13% at constant currency [6]. - Sales in the Americas (38.6% of net sales) were $255.5 million, increasing 6% year over year and at constant currency [6]. - Europe (28% of net sales) generated $185.4 million, decreasing 1.4% year over year but increasing 1% at constant currency [7]. Operating Details - Non-GAAP selling and administrative expenses were $170.1 million, up 6% year over year, expanding 50 basis points as a percentage of net sales [8]. - Research and development spending was $46 million, increasing 7.7% year over year, with a 20 basis point expansion as a percentage of net sales [8]. - The adjusted operating margin was 25.5%, contracting 150 basis points year over year [8]. Balance Sheet and Cash Flow - As of March 29, 2025, cash and cash equivalents were $382.9 million, up from $325.4 million as of December 31, 2024 [9]. - Cash generated from operations was $259.6 million, down from $262.9 million in the year-ago quarter [9]. - Free cash flow for Q1 2025 was $233.8 million [9]. Guidance - For Q2 2025, Waters expects non-GAAP earnings of $2.88-$2.98 per share, with a Zacks Consensus Estimate of $2.93 per share, indicating 11.4% growth year over year [10]. - Total sales growth is anticipated to be in the range of 4-6% on a reported basis, with constant currency sales growth expected to be between 5% and 7% [11][12].

Q1 2025 Financial Performance - Q1 2025 revenue reached $662 million, reflecting a 7% growth in constant currency[6] - Recurring revenue experienced an 11% growth in constant currency[6] - Instrument sales increased by 4% as reported and 11% in constant currency[6] - Non-GAAP EPS for Q1 2025 was $2.25, a 2% increase, with a 7% growth in constant currency[6] Growth Drivers and Market Segmentation - Instrument sales showed strong growth, with Pharma up 14%, Industrial up 10%, and Academic & Government up 7% in constant currency[9] - Asia showed the strongest geographic growth at 13%, followed by the Americas at 6%, and Europe at 1% in constant currency[19] - Waters segment grew 8% while TA segment grew 1%[19] Innovation and Idiosyncratic Growth - Next-Gen Flagship HPLC sales grew over 3 times year-over-year, representing approximately 20% of HPLC sales[14] - Waters Xevo TQ Absolute sales grew 56% year-over-year[14] - QA/QC testing of GLP-1 drugs is expected to contribute an average 30bps growth annually from 2024 to 2030[15] - PFAS testing is a $400 million global market, estimated to grow approximately 20%[15] FY & Q2 2025 Guidance - The company projects constant currency revenue growth of +5% to +7% for FY 2025 and Q2 2025[21] - The company projects Non-GAAP EPS of $12.75 to $13.05 for FY 2025 and $2.88 to $2.98 for Q2 2025[21]