Prompt:
Human: We have a lot of exciting news to discuss today.
The first discusses our second quarter results of fiscal 2021.
The second announces our intention to spin-off our diabetes business into a separate public company.
Given the announcement of the spin-off of our diabetes business, we will also have Dev Kurdikar, our Worldwide President of Diabetes Care, who has been named CEO of NewCo to provide his early thoughts on the transaction.
We will also be discussing some non-GAAP financial measures with respect to our performance.
Unless otherwise specified all comparisons will be on a year-over-year basis versus relevant period.
To avoid any confusion, when we refer to any given period, whether that's on a quarter or year basis, we will be referring to the period in fiscal terms, unless we specifically call it out as a calendar period.
Finally, when we refer to NewCo, during today's call we are referring to the independent publicly traded diabetes company following the effective date of the spin, while RemainCo refers to BD post separation.
Today we will provide an update on how we are executing on creating value for our stakeholders through our BD 2025 strategy.
We have a lot of exciting updates for you, so let's jump right in.
Our second quarter results came in better than expected and we delivered strong revenue and earnings per share growth.
We are very pleased with the continued momentum in our core business, and therefore, based on our first half results and our projections for the second half we are reaffirming our fiscal 2021 guidance.
We are making steady progress on each of our growth initiatives, which include very purposely shifting our investments and portfolio into higher-growth categories and shifting our weighted average market growth rate over time.
We are advancing our product pipeline as well as our tuck-in M&A strategy, which now includes making selective investments in earlier stage and potentially disruptive technologies.
We see this planned spin as a significant value-creating opportunity for all stakeholders for our patients, customers, associates and shareholders.
As an independent public company, we believe the diabetes business can leverage its global leadership position and unleash its growth potential in this attractive market category through the more efficient allocation of its own capital.
For RemainCo BD, this transaction allows us to focus on our prioritized core businesses.
We expect this transaction to strengthen our mid single-digit revenue and double-digit total return growth profile.
We expect the spin to be completed in the first half of calendar year 2022 subject to customary closing conditions, including final approval by the BD Board of Directors and the SEC declaring our registration statement effective.
We are progressing well against our simplification initiatives, which are focused on reducing complexity, enhancing our product quality, refining our customer experience and improving cost efficiencies.
Our recode initiatives are progressing on track to generate savings of $300 million by the end of FY FY '24.
And these initiatives help unlock value and allow us the flexibility to reinvest back into our business to fuel future growth.
Chris will talk more about our capital allocation strategy later in the call, but we expect share repurchases to return as part of a more balanced capital allocation strategy, as our balance sheet position and cash flows have strengthened over the past year.
We also continue to be guided by our purpose of advancing the world of health and continue to make great progress on our ESG initiatives.
On Earth Day, we reaffirmed our climate change targets, which includes our pledge to be carbon neutral by 2040 across our direct operations.
Last week as I was preparing for our Board meeting, I reflected on where we were a year ago where we are today and the progress we've made.
First, we achieved my number one priority since taking over as CEO.
Last week, we announced that we submitted our Alaris 510(k) premarket notification.
This is an important milestone in our commitment to our customers and our patients.
The Alaris pump is the leading infusion pump in the US market administering more than one million infusions each day.
Second, we've significantly strengthened our balance sheet and cash flows.
Over the past year we've improved our net leverage ratio by a full turn from 3.4x to 2.4x and taken actions to meaningfully strengthen our cash flows.
Third, we answered the call to action with COVID.
We developed a series of innovative COVID diagnostic tests and scaled these to diagnose patients and help control the spread.
We secured our global supply chain to ensure that our essential medical devices were available to treat COVID patients in ICUs around the world including BD devices used in the treatment of an estimated 90% of US ICU patients.
And today we continue to add capacity and enable over 1 billion doses of COVID-19 vaccine to be delivered using our injection devices.
I am very proud of our team's impact when it matters most.
Fourth, we reinvested in growth.
We set up the BD Innovation and Growth Fund and advanced impactful new innovation programs in each of our businesses.
We acquired 11 tuck-in acquisitions since the beginning of 2020 along with early stage investments and we're reinvesting some of BD Veritor profits back into the business and behind our BD 2025 strategy.
Fifth, we started to shift the BD culture to one of a growth mindset.
We've been systematically advancing our leadership capabilities and culture in this area which includes partnering with the Neuro Leadership Institute to embed an enhanced focus on innovation and growth across our culture and mindset and the progress we're making with shifting the culture is very real and tangible.
And today, we are announcing our intention to spin-off the diabetes business.
We believe this spin-off will be another value-creating opportunity for our shareholders.
But what excites me most is not what we've done it's where we're going and what's to come over the next several years all of our future successes and milestones to come.
The BD 2025 value-creation story has only just begun.
And later this year we are planning to host an Investor Day and we'll look forward to sharing greater insights into our 2025 strategy and pipeline.
Chris is going to run through our financial results in greater detail later on.
But just to highlight, we are very pleased with our second quarter results as the BD team continued to execute well.
Our second quarter revenues totaled $4.9 billion, up 15.4% on a reported basis and up 12.2% on an FX-neutral basis.
I was particularly pleased with the continued momentum of our core businesses which were above our expectations in all three business segments.
To call out a few, our market-leading BD Pharmaceutical Systems business continues to deliver robust revenue growth of nearly 10%.
Medication Delivery Solutions business was up over 8%, as we continue to deliver on our COVID vaccine injection devices commitments and our results were also driven by higher patient acuity.
Our Bioscience business turned in double-digit growth as research activity has rebounded and urology and critical care continued to perform well driven by PureWick and targeted temperature management.
In China, where we began to anniversary the impact of COVID-19 we saw a strong revenue growth of 62% and we continue to invest support our future growth including reinvesting some of the profits from our COVID diagnostics.
Our R&D spending was up 18.7% year-over-year on a currency-neutral basis.
Adjusted earnings per share was $3.19 representing year-over-year growth of 25.1% on a reported and 22.7% on a currency-neutral basis.
The performance of our business particularly our core, gives us comfort to reaffirm our fiscal 2021 guidance ranges which include currency-neutral revenue growth of 10% to 12% and adjusted earnings per share guidance of $12.75 to $12.85, up 25% to 26% on a year-over-year basis.
Turning to slide 9.
As I discussed before, we are proud to play such an important role in the COVID-19 pandemic response, across the continuum of care, from diagnostics to treatment and now prevention.
As vaccination campaigns continue to progress, I am pleased to announce, that we now have cumulative commitments for over 1.7 billion injection devices to administer COVID vaccines globally.
These commitments will stretch through our fiscal 2022 period.
And therefore, we now see higher demand in our MDS hypodermic business, as being durable into next year.
We also see potential opportunity for our prefilled business in the future, and are now working with several partners at various stages of formulation testing on possible pre-filled COVID-19 vaccines.
Turning to slide 10.
I will provide an update on our COVID-19 Diagnostic Testing business.
We recently announced several emergency use authorizations or EUAs from the FDA.
We received EUAs for our combination COVID flu assays for both BD Veritor and BD MAX and we believe combination tests are going to be important in the next flu season.
Next, we extended our EUA for the BD Veritor COVID-19 test to include a claim for screening asymptomatic individuals by serial testing.
Several peer-reviewed publications have supported the benefits of serial rapid antigen testing, and we are continuing to develop our BD Veritor at-home test.
Our test is designed to deliver a clear, digitally displayed record of test results on a smartphone to eliminate the reading guess work, and we also designed it to allow the data to be digitally shared by the user to eliminate errors and report sharing.
Our BD Veritor at-home antigen test is also expected to have some other features that we believe will further differentiate it versus others on the market.
Our antigen tests will all be manufactured on the same production lines to leverage economies of scale and our capital investments.
Turning to slide 11.
Growth through innovation is central to our BD 2025 strategy.
We are advancing our R&D pipeline across all three of our segments.
And as you can see on this slide identified by the green circles, several products have launched or achieved clearance since the beginning of the year.
I've already covered our regulatory clearances related to COVID Diagnostics, and I'm happy to share that we've made steady progress in our medical segment, with a healthy cadence of relevant portfolio expansions and extensions across the MDS portfolio, such as the broadening of our leading peripheral IV catheter position with the introduction of our first passive safety catheter in the United States, the BD Cathena IV safety catheter.
We launched a new catheter stabilization solution for peripheral IV catheters with the BD Secura stabilization device and further advanced the safety of the BD PhaSeal optimal product family with a locking injector.
In interventional, we're launching Sensica, a smart connected folly catheter, which can be an important tool for the ICU.
It provides weight-normalized urine output data that is one of the early parameters used by clinicians to help identify acute kidney injury.
BD Sensica can wirelessly transmit this data to the hospital's electronic medical record.
We're also looking forward to launching Pristine later this quarter.
Pristine is our new long-term hemodialysis catheter with unique side hole-free symmetric wide tip distal lumen design.
The design of the product is intended to help minimize thrombus adhesion, facilitate blood clot aspiration prior to hemodialysis treatment and help minimize recirculation rates in both forward and reverse.
Turning to slide 12.
As I have often said over the last year, Alaris was my number one priority and last week, we announced a very important milestone.
We submitted our 510(k) premarket notification to the FDA for our BD Alaris system.
I am extremely proud of our MMS regulatory affairs, quality and R&D teams for their dedication and hard work, to ensure a comprehensive submission.
We're also very appreciative of the FDA's collaboration.
We recognize this is one important step and we look forward to working with them through the FDA review process to obtain clearance for the updated BD Alaris system.
Just to give a sense of what is included in the submission and how comprehensive it is.
The 510(k) submission is intended to bring our file up to date for all changes to the pump, since the last 510(k) was cleared.
We are also implementing updated features and addressing open recall issues, including through a new version of the BD Alaris system software that will provide clinical, operational and cybersecurity updates.
These updates are part of our overall commitment to safeguard infusion programming.
And included in the software will be updates to our BD Alaris Guardrail Suite and BD Alaris EMR interoperability, including cybersecurity updates, network security and advanced data encryption.
From a hardware perspective, our submission includes updated PCU, LVP, syringe and EtCO2 modules, as well as our existing PCA module.
We plan to continue to advance the BD, Alaris system with future updates and subsequent submissions.
We filed a substantial amount of data to support the filing.
This is a complex and comprehensive submission.
Therefore, we would expect that the FDA review process will take some time to complete.
And while we're not intending to predict the FDA-specific time line, we certainly recognize that our stakeholders would like to have some input for modeling purposes and we believe it would be prudent to think about Alaris' clearance sometime during the second half of our fiscal year 2022.
We plan to update you if there are any significant developments.
And for now, we expect to continue to ship to our customers who qualify under medical necessity.
We've learned a lot of valuable lessons and gained insights during this journey that we're applying to our ongoing next-generation pump platform programs as well as our quality and risk management systems.
Turning to Slide 13.
We are making significant progress with our tuck-in M&A strategy.
Year-to-date, we've closed five acquisitions and we have a robust funnel of opportunities at various stages.
We continue to exercise financial discipline, in addition to ensuring deals meet our strategic and operational criteria.
This includes them being accretive to our growth profile, supporting our key innovation themes, advancing our strategic positions, meeting our financial hurdles and creating shareholder value.
As part of building a more holistic approach to expanding our inorganic growth funnel, we also expanded our evaluation and selective investment in early stage strategic opportunities.
On Slide 14, we highlight our key innovation themes and with some of our tuck-in acquisitions and R&D products across our three business segments that align to these themes, some of which I've already highlighted.
So within this theme of applying smart devices, robotics, analytics and artificial intelligence to improve care processes, I've already discussed our Smart Foley catheter Sensica.
We also continue to develop new modules of Kiestra, our total lab automation system.
Kiestra as you know can improve standardization, significantly enhance lab efficiencies and staff productivity.
Within Medical, our health site platform is designed to continue to support enterprisewide medication management.
We continue to evolve our capabilities with health site diversions, which was originally launched in fiscal 2019 for Pyxis.
We have scaled tremendously over the last year in terms of our commercial sites and we have plans to expand into the OR, followed by integration of infusion data and central pharmacy.
Within this theme of enabling new care settings, you've seen us acquire Med Bank and GSL Solutions to expand our medication management offering into the faster-growth non-acute settings and strengthen our existing dispensing leadership position.
Our PureWick dry dock urine collection system has been helping women with urinary incontinence outside of the acute setting and contributing to the strong growth in our UCC franchise.
And I've already talked about how we're excited about the upcoming launch of our BD Veritor at-home COVID-19 test that enables the expansion of testing into everyday settings.
Lastly our third theme is improving diagnosis and treatment of chronic diseases.
I already mentioned Pristine and I've talked about in the past our BD Oncology HPV assay, which offers extended genotyping that supports risk stratification.
And we look forward to launching this assay on our BD core system in the United States later this year.
One other product that we haven't talked a lot about is our BD Libertas subcutaneous drug delivery system for the administration of viscous biologics.
Our Pharmaceutical Systems business is excited to offer this option to our biopharmaceutical partners as a combination product.
These products not only add value to our customers, patients and healthcare system but they add to our confidence in a sustainable, durable, mid-single-digit growth profile.
Now turning to Slide 15.
And I'm really excited today to announce a bold step in our BD 2025 strategy.
Our intention to spin-off our diabetes business to our shareholders which we believe is a value-creating transaction.
Our Diabetes Care business generated $1.1 billion of revenue in fiscal 2020, is a global leader in insulin injection devices.
Consistent with our continuing focus on delivering shareholder value, we undergo strategic reviews to identify ways to create value and determine that the strategic priorities of BD have diverged from those of our Diabetes Care business.
We believe a spin-off will position both companies for long-term growth and success by allowing both to focus on their respective core markets, innovations and customer outcomes.
Each company will be able to more efficiently allocate its resources and capital, best positioning the respective companies for their success and value creation.
We see tremendous potential to create value for our Diabetes Care business ahead.
We see the spin-off as an operating catalyst for our Diabetes Care business.
As an independent public company, NewCo will be able to more effectively allocate its human, operational and financial resources to implement a refined growth strategy that will allow it to focus on innovation, and improving the care of patients living with diabetes.
Being a separate entity, will also better enable NewCo to attract and retain talent, align management and employee incentives, and have a stock currency that it can use for future acquisitions.
For RemainCo BD, we expect the spin-off to strengthen our mid-single-digit FX-neutral revenue growth.
We estimate the uplift to our revenue growth rate to be about 30 basis points.
And see this as strengthening our double-digit total return growth profile.
The spin-off will allow RemainCo to focus on our R&D tuck-in M&A and customer growth strategies, simplify our overall focus and maintain financial flexibility.
Considering all of these benefits, we believe this transaction has the potential to create value for our shareholders, which will be owners of both companies.
Slide 17, provides an overview of the relevant transaction details.
And I've already covered many of these topics.
The spin-off is expected to be implemented by a means of a distribution of 100% of the shares of a newly traded -- publicly traded entity to BD shareholders, and is intended to be tax-free for U.S. federal income tax purposes.
Over the next several months, we'll be filing our Form 10, which will include the carve-out financial statements.
Again, we expect the spin-off to be completed in the first half of fiscal year 2022, subject to market, regulatory and other conditions, including final approval by the Board of Directors and the effectiveness of a Form 10 registration statement that will be filed with the SEC.
Turning to slide 18, NewCo will be led by an experienced management team.
And I am very pleased to share that Dev Kurdikar, who joined us earlier this year, as the Worldwide President of Diabetes Care will be the CEO of NewCo.
Dev has a long history, in the medtech sector, most recently serving as the CEO of Cardiac Science.
Dev has been engaged with the business now for the last few months and will share some of his preliminary thoughts in a moment.
I'm also very happy to announce that Jake Elguicze, the Former Treasurer and Vice President of Investor Relations of Teleflex, has joined BD and will be the CFO of NewCo upon spin.
Jake brings extensive experience, in treasury, financial planning, reporting and analysis and investor relations.
We're confident that Dev and Jake are the right team, to lead NewCo as they embark on this journey that we believe will create value for all stakeholders.
I'm incredibly excited to embark on this journey.
I see a tremendous opportunity to build shareholder value and advance care for patients who suffer from diabetes.
I'm also very humbled, to be leading this amazing organization.
The Diabetes Care business has a long history of caring for patients living with the disease, dating back to BD's introduction of the world's first specialized insulin syringe, almost 100 years ago in 1924.
Since then, BD has played a leading role in the delivery of insulin, including helping to drive the adoption of insulin pens, which utilize our pen needle technology, as a leading modality for insulin injection.
Our Diabetes Care business now reaches more diabetic patients, than any other medical device company in the world today.
We manufacture eight billion devices per year and are the global leader in insulin injection devices.
As Tom mentioned earlier, the business generated nearly $1.1 billion in revenue in fiscal 2020, derived from the sale of insulin injection devices such as, pen needles and insulin syringes as well as other accessories.
One factor that attracted me to this opportunity was the global breadth of the business with 48% of the revenues generated outside the United States, including 17% in emerging markets.
And why is this important?
As you can see on slide 21, diabetes is a growing chronic condition across the globe, with some of the higher prevalence rates expected to be in the emerging market regions.
The International Diabetes Federation estimates that the number of adults living with diabetes is expected to grow from 463 million in 2019 to 578 million in 2030 and 700 million by 2045.
Most of these patients will likely continue to rely on traditional injection devices for their insulin needs.
The rapid growth of the disease will likely place a significant burden on healthcare systems around the world, as patients with diabetes are often afflicted with multiple co-morbidities like cardiovascular disease, hypertension, diabetic retinopathy and lower limb complications.
While I've only been with the company for a few months now, I can assure you that my passion and vision for NewCo is one of growth.
Injection devices like pen needle and syringes are likely to remain a key part of their treatment paradigm for people with diabetes on a global basis for the foreseeable future.
We will look to leverage our global footprint to capitalize on these demographic trends.
However, we'll also look to invest in novel insulin delivery technologies, including our internal type 2 patch technologies.
We also plan to supplement our internal R&D product development efforts more broadly and accelerate our growth profile through strategic M&A to broaden our product offerings and enter adjacencies on new growth categories.
Let me end by saying how excited and humbled I am to have this opportunity to lead NewCo.
I am confident that our team will work tirelessly to advance care for our patients while building shareholder value.
We see this as a great opportunity for those BD associates that will be part of NewCo and we're happy to have you and Jake on board.
Turning to slide 25.
I'd like to provide an update on our ESG initiatives across BD.
Over the past quarter, we continued to advance our companywide ESG initiatives, including our recent commitment to be carbon neutral across direct operations by 2040.
We also continue to make progress toward identifying our 2030 goals and we look forward to sharing more details behind our 2030 sustainability plan with you in future engagements.
Before turning it over to Chris, I want to say again how proud I am of the organization for the progress we've made in advancing the BD 2025 strategy.
We are purposely shifting our focus to growth opportunities.
Simplifying the organization to remove complexity as I firmly believe complexity gets in the way of growth and we're empowering our associates with a growth mindset.
We are committed to doing the right things, the right way and fulfilling our purpose of advancing the world of health.
I also want to reiterate how excited I am for what's ahead for both RemainCo BD and NewCo.
BD's Board of Directors and management team believe our plans to spin-off the Diabetes Care business will create value for all stakeholders.
And before I turn to the results, let me also share my enthusiasm for the spin-off of our Diabetes Care business.
I see the transaction is a win-win for all stakeholders, our shareholders, our employees, our customers and our patients.
I'm confident that we have the right leadership to navigate NewCo on this exciting journey ahead.
Now let me turn to the second quarter financial results.
Slide 27 summarizes our high-level revenue performance.
Our revenues came in just over $4.9 billion, up 15.4% on a reported basis and up 12.2% on an FX-neutral basis.
As Tom mentioned, we were very pleased with our results.
Our core segment results excluding COVID-19 diagnostic testings were ahead of our expectations across all segments.
Now turning to slide 28.
Our medical segment delivered 4.7% FX-neutral revenue growth led by our market leading BD Pharmaceutical Solutions Systems business, which continues to deliver robust revenue growth of nearly 10%.
We are proceeding with our capacity expansion to support the future growth of this business unit.
MDS grew a solid 8.1%, which included $43 million from COVID-19 vaccination injection device revenues.
We also benefited from higher patient acuity and higher utilization internationally particularly in China where we anniversaried the impact of COVID-19.
Now turning to slide 29.
Our Life Science segment delivered revenue growth of nearly 38% on an FX neutral basis.
Our COVID-19 diagnostic testing revenues totaled $480 million and are included in our Integrated Diagnostics Solutions business.
While BD Veritor ASPs were as expected in the low to mid-teens, the market's overall demand for symptomatic COVID diagnostic testing was lower.
Looking at our IDS business excluding COVID testing, our routine diagnostic testing has not yet fully recovered to pre-COVID-19 levels.
There was virtually no traditional flu this year, so we did not have our usual flu test revenues and this impacted our IDS growth rate by 540 basis points and our BD Life Sciences growth rate by 410 basis points.
The impact to our overall BD growth rate was 110 basis points.
Our Biosciences business unit delivered strong growth of over 12% as research lab activity has recovered nicely.
We are seeing strong demand for research instruments and reagents as well as from biopharmaceutical companies for vaccine research and development.
As shown on slide 30, the BD Interventional segment was flat this quarter, which was better than expected given the COVID-19 resurgences.
The performance in surgery and PI reflected the early impact from the COVID resurgence.
However, we did see recovery in elective procedures as the quarter progressed and this trend has continued into April.
Our urology and critical care franchise continues to deliver solid growth led by our Purewick and targeted temperature management product lines.
Turning to our results by geographic regions on slide 31.
In the United States, revenues were up 1.9%.
As we had discussed on our February earnings call, we did see some early impact from COVID-19 resurgence, which waned as the quarter progressed and we exited March with improved momentum and this continued in April.
International revenues were up 25.7% on a currency-neutral basis as we begin to anniversary the initial impact of COVID-19, particularly in China where our revenues were up 62%.
We also benefited from our COVID-19 responses, our diagnostic testing and vaccine injection delivery device revenues.
Now turning to the P&L on slide 32.
As expected our gross margin was sequentially lower as compared to our first quarter.
Our gross margin was 53.8% driven mostly by the lower COVID diagnostic testing revenues.
On a year-over-year basis, the gross margin included a 70 basis point negative impact from foreign exchange and 70 basis points from reinvestment initiatives.
Favorable impacts from our continuous improvement initiatives were offset by product quality-related expenses.
Our SSG&A spending rose 9% year-over-year on an FX-neutral basis, including a 380 basis point impact from deferred compensation, which as you know is fully offset in other income expense.
The remaining increase in SSG&A is primarily related to higher shipping costs and investment spending as part of our BD Veritor profit reinvestments.
Our R&D spending ramped sequentially as planned as we reinvested some of the BD Veritor profits behind new pipeline innovations.
R&D increased 18.7% year-over-year on an FX-neutral basis to $295 million, representing 6% of our revenues.
Our operating income grew 14.3% on a year-over-year reported basis and 13% on an FX-neutral basis.
Our operating margin was 24.5%, up 20 basis points on an FX-neutral basis.
Deferred compensation was an 80 basis point headwind.
Our interest and other expenses totaled $111 million versus $170 million in the year ago period.
The reduction of interest other net on a year-over-year basis, primarily reflects a decrease in deferred compensation offsetting increases in SSG&A as previously mentioned.
It also reflects reduced interest expense due to debt repayment and refinancing activities and lower interest rates.
Our tax rate was 12% lower than expected due to discrete tax items that occurred this quarter.
Our adjusted earnings per share increased 25.1% over the prior year to $3.19 on a reported basis and were up 22.7% on an FX-neutral basis.
The average diluted share count used to calculate our earnings per share in the quarter was $293.6 million.
Now turning to slide 33, I'd like to provide an update on our capital allocation priorities, but first I want to update you on the great progress we made with our cash flows and balance sheet on a year-to-date basis.
For the first half of the year, our cash flows from operations have more than doubled growing from $1.2 billion to $2.8 billion, driven by the improvement in our net income as well as working capital.
We ended the quarter with $3.7 billion in cash and equivalents and our net leverage ratio was 2.4 times, a full turn lower than a year ago.
Going forward our capital allocation strategy will be more balanced than it had been in the past as we were paying down our debt.
Now more of our cash can be deployed to support our growth strategy, tuck-in M&A, maintaining a competitive dividend and returning capital to our shareholders through share repurchases.
As a reminder under the existing share repurchase authorization plan, we have just under 7.9 million shares or roughly $2 billion remaining.
Also note that we would expect BD's dividend to be unaffected by the diabetes spin-off and therefore would increase BD's payout ratio.
Next I want to address our fiscal 2021 guidance and provide some general commentary on our overall outlook, which you can see on slide 34.
From a reporting perspective, we will continue to report our diabetes business with our BD results until the spin-off of the diabetes business is complete.
We're very pleased with the results for the quarter how we are building momentum in our core, advancing our pipeline and achieving critical milestones.
We are also pleased with the early progress we see from BD Veritor profit reinvestments.
We believe these projects should begin to provide incremental growth beginning in late 2022.
We are reaffirming our fiscal 2021 financial guidance ranges.
We continue to expect reported revenue growth of 12% to 14% for the full year 2021.
This reflects FX-neutral revenue growth in the range of 10% to 12%.
BD Veritor revenues toward the higher end of the $1 billion to $1.5 billion range and foreign currency adding approximately 200 basis points.
We also continue to expect adjusted earnings per share in the range of $12.75 to $12.85, which represents growth of 25% to 26% year-over-year.
Now we wanted to give you some color as you consider your models for the back half of the year.
We continue to reinvest some of the Veritor profits to fund projects in line with our BD 2025 strategic pillars of growth simplify and power.
Our investments continue to put temporary pressure on both our gross and operating margins in 2021.
As we mentioned last quarter, we continue to expect our operating margins in the second half of the year to be in the low 20s, reflecting our reinvestment initiatives as well as higher raw material costs.
As a reminder, we expect the reinvestment pressures that you're seeing on our margins to lift next year.
As you've seen in the past from time to time there can be some volatility in our tax rate.
We now expect our FY 2021 tax rate to be slightly lower than FY 2020's tax rate.
This helps to offset some gross margin pressure from the lower ASPs from Veritor as pricing is now approaching compared to our flu test price a bit faster than we originally anticipated.
Regarding 2022 given the momentum we are seeing our progress with our R&D pipeline the reinvestments of our BD Veritor proceeds and our tuck-in acquisition strategy we have increased confidence in our core outlook.
In fiscal 2022, excluding COVID-19 testing and Alaris 510(k) clearance, we expect our revenues to grow solidly in the mid-single digits.
As you heard Tom mention, while we're not intending to predict the FDA's time line we recognize the desire to have some input for modeling purposes.
We believe it would be prudent to think about Alaris' 510(k) clearance sometime during the second half of our fiscal 2022.
We believe it would also be prudent to model both our revenues and our margins gradually ramping as we scale our selling and manufacturing efforts.
In conclusion, we are really pleased with our second quarter results and the momentum across our businesses.
We are excited about our plans to spin-off of the diabetes business and see this as an important opportunity to create value for our shareholders.
With that, Tom, Alberto, Simon, Dave and I are happy to take any questions you have.
Operator, please open up the line for Q&A.
 Assistant:

Chosen response:
compname reports q2 adjusted earnings per share $3.19.
q2 adjusted earnings per share $3.19.
q2 revenue $4.9 billion.
bd - qtrly bd's covid-19 testing sales were $480 million.


Prompt:
Human: Please note that the financial results to be presented in this commentary are preliminary.
These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.
Lexington's business provides us the exposure to a critical growth area in the alternative asset business, and we cannot be happier with this new partnership.
We will cover on this transaction in a few minutes.
I'll start by reviewing this year's milestones.
Then Matt will go through our financial results for the quarter and the fiscal year, as well as spend some time discussing today's important transaction in greater detail.
Throughout Franklin Templeton history we have invested in our business to build a truly diversified and resilient organization that performs across market cycles with a commitment to serving our clients, employees and shareholders.
The results that we announced today represent the first full fiscal year since we closed the Legg Mason acquisition, a transformational transaction that created a more balanced business across asset classes, client mix and geographies.
We are pleased to report that the strategic and financial benefits from our acquisition of Legg Mason exceeded our goals, and we have added important growth opportunities.
We have maintained our culture while invigorating collaboration and innovation across the firm.
Through the hard work and dedication of our employees we've successfully brought two firms together to maximize our collective potential, one that successfully combines the attributes of global strength with boutique specialization.
We've made strong progress, and yet in so many ways, we're just getting started.
Turning to investment performance, there's been an improvement in performance across a broad base of investment strategies.
Through September, 71%, 69%, 72% and 77% of strategy composites outperformed their respective benchmarks across the four key time periods.
During the year, we focused on updating our global distribution efforts by enhancing our generalist, specialist model, reshaping client coverage and deepening relationships in each sales region, particularly with the largest global financial institutions.
Fiscal year long-term inflows doubled to $365 billion from the prior year, notably, the U.S., which is our largest sales region with over $1.1 trillion in AUM was net flow positive for the year.
In terms of notable organic growth, we saw positive net flows in our core growth areas, including alternatives, SMAs, wealth management and ESG-specific strategies.
We executed important acquisitions to further grow and diversify our business in alternative assets, customization and distribution of investment strategies.
In terms of other accomplishments, our alternative asset strategies, an important area of focus for us, generated positive net flows in each quarter during the year and grew by 19% from the prior year to $145 billion in AUM with contributions from a diverse group of strategies, including real estate infrastructure, private debt and hedge funds.
Several years ago, we announced our intention to create a full suite of alternative strategies and we've been very deliberate in building our capabilities.
In 2018, the acquisition of Benefit Street Partners brought us a leading alternative credit manager.
In 2020, we added a world-class real estate manager with Clarion Partners.
This focus on alternative led us to today's announcement of the acquisition of Lexington Partners, a leader in secondary private equity and co-investments.
We now have top tier specialist investment managers in all of the key alternative categories, with Benefit Street Partners, Clarion Partners, Franklin Venture Partners, K2 and now Lexington Partners.
Specifically with the Lexington Partners transaction I'm excited that Franklin will be partnering with such an outstanding firm that is led by an experienced and talented team, immediately bringing a scale and capabilities in an interactive and growing global market.
There will be no changes to the team or its independent investment management process, and they will continue to operate autonomously as Lexington Partners.
Upon the close of this transaction, we expect our alternative AUM to approach approximately $200 billion and over $1 billion in revenue, excluding performance fees.
Matt will review the additional details of the transaction shortly.
Another core growth area is our separately managed account business.
We are a top three provider in SMAs with $125 billion in assets under management, which is one of the fastest growing segments in retail.
Our SMA business grew by 22% in AUM year-over-year and generated positive net flows in each quarter during the fiscal year.
Our recently announced acquisition of O'Shaughnessy Asset Management and its Custom Indexing Platform, Canvas, will take our existing strength in SMAs to the next level, enhancing our tax management factor-based and ESG customization capabilities.
Canvas was launched in late 2019 and has seen strong growth since its inception and now represents $1.9 billion of the firm's total AUM of $6.3 billion as of September 30.
The transaction will bring compelling benefits to the clients that both companies serve across multiple channels.
There's no question that investors are more focused on ESG goals than ever before.
Increasingly, there are three dimensions to ESG that investors consider; ESG factors as understood risks in a portfolio, how ESG contributes to overall returns, and the overall impact of ESG considerations to society and the environment.
As an active manager approximately 95% of our AUM represents strategies that consider ESG factors as part of the investment process and ESG specific strategies representing over $200 billion in AUM were net flow positive in each quarter this fiscal year.
All this being said, none of our accomplishments this past year would be possible if it weren't for our employees.
We're extremely fortunate to have such dedicated colleagues who are focused on achieving investment excellence, fostering enduring relationships and delivering superior service to our broad range of investors around the globe.
Fourth quarter long-term net outflows were $9.9 million, which were partially offset by the acquisition of Diamond Hill's high yield focused U.S. corporate credit mutual funds, which added $3.5 billion in AUM and closed in July.
This quarter included the previously disclosed $5.4 billion 529 plan redemption, which included $4.7 billion of long-term assets and $2 billion fixed income, institutional redemption that have minimal impact to revenue and $800 million of fixed income outflows from the non-management fee, earning India credit funds that are in the process of liquidation.
Reinvested dividends were $2.3 billion in this quarter.
1% higher average assets under the management of $1.55 trillion compared to the prior quarter, plus $69 million of performance fees generated $1.66 billion in adjusted revenue for the fourth quarter.
Investment management fees, excluding performance fees was 3% higher compared to the prior quarter.
Adjusted operating expenses of $1.01 billion for the quarter were 3% lower due to lower compensation and lower G&A as a result of last quarter's upfront closed-end fund expenses.
This led to an 80% increase in adjusted operating income of $647 million and an adjusted operating margin of 39%.
Fourth quarter adjusted net income and adjusted diluted earnings per share increased 31% to $645 million, or $1.26 per share.
These results include favorable discrete tax items of $135 million or $0.30 per share for the quarter.
Turning to 2021 fiscal year financial results, which benefited from favorable market conditions and a full year of Legg Mason versus two months last year.
For the full year, adjusted revenues were $6.32 billion and adjusted operating expenses were $3.94 billion, an increase of 63% and 65% respectively.
This led to fiscal year adjusted operating income of $2.38 billion, which was 60% higher compared to the prior year.
Our adjusted operating margin was 37.7%.
Compared to the prior year, fiscal year adjusted net income increased 46% to $1.92 billion and adjusted diluted earnings per share increased 43% to $3.74 per share, which included the impact of favorable discrete tax items of $175 million or $0.34 per share for the full year.
As planned, we have achieved a run rate of 85% of our targeted merger-related cost synergies of $300 million this year.
We anticipate that 100% of these synergies will be achieved by the end of fiscal year 2022.
As a reminder, none of these cost efficiencies involved our specialist investment managers or our investment teams.
Moving on to capital management, we believe our strong balance sheet continues to provide us with financial and strategic flexibility to evolve our business.
For the fiscal year ended September 30, we returned $782 million to shareholders through dividends and share repurchases.
During the year, we also pre-financed a large portion of legacy Legg Mason debt with lower cost of debt, reflecting our credit profile.
Specifically, we issued $850 million of 1.6% senior notes due 2030 and $350 million, 2.95% notes due 2051.
We redeemed $250 million of 6.38% Legg Mason Junior subordinated notes due 2056 on March 15, 2021, and $500 million of 5.45% Legg Mason Junior subordinated notes due 2056 on September 15 2021.
We ended the quarter with $6.93 billion of cash and investments.
We will continue to prioritize our dividend and intend to repurchase enough shares to at least offset our employee equity grants.
The remainder of our capacity will focus on continued investments in our business and acquisitions to further diversify and increase our sources of cash flow, while positioning our firm for new growth opportunities as the industry continues to evolve.
As outlined in the transaction summary document, Lexington Partners is a global leader in secondary private equity and co-investments with current fee based AUM of $34 billion.
Since its founding in 1994, Lexington has raised over $55 billion in aggregate capital commitments and currently has a team of 135 employees across eight global offices.
It is expected to generate revenue of approximately $350 million and EBITDA of approximately $150 million in 2022.
With this acquisition, we now have strong and complementary capabilities in alternative credit, real estate, hedge fund solutions and PE related activities.
Given the overall size and growth of private equity and the likelihood of further private market expansion, having a specialist investment manager tied to this sector alternative assets is a logical step in the diversification of our business.
Furthermore, providing access to diversified versions of high returning investments will continue to increase in importance to meet savings and retirement goals of our broad group of clients.
This could also be important in both our multi-asset solutions business and the continued development of our customization capabilities.
As Jenny mentioned earlier, this transaction takes us one important step further in creating a larger and more diversified alternative asset business that will result in pro forma fiscal year 2022 alternative asset AUM of approximately $200 billion, producing approximately $1 billion in annual management fee revenue, excluding performance fees at a margin of approximately 40%.
We intend to continue adding complementary business in both wealth management and asset management, including asset class and geographic expansion.
This will be both organic investment through allocating capital into our existing specialist investment managers and via acquisitions.
Given our global reach, financial flexibility, business model and experience in execution, we're able to attract highly talented teams and partnerships, looking for a combination of independence, support and collaboration on a global and local scale to create new growth opportunities in what is a very large and expanding segment of the asset management industry.
Turning to financial terms of the transaction, we're acquiring 100% Lexington Partners for $1 billion in cash at closing plus a further $750 million in cash over the next three years.
We have also structured this transaction to ensure continuity and strong alignment of interest with Lexington's clients, partners and employees over the long-term.
Consistent with this, we will be simultaneously issuing grants equal to 25% of Lexington to employees of Lexington, subject to five year vesting and establishing a performance based cash retention pool of $338 million to be paid over the next five years.
The transaction is expected to close by the end of our fiscal second quarter, subject to customary approvals.
 Assistant:

Chosen response:
compname reports q4 adjusted earnings per share of $1.26.
q4 adjusted earnings per share $1.26.
qtrly total assets under management were $1,530.1 billion at september 30, 2021, down $22.0 billion during the quarter.


Prompt:
Human: These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them.
We refer you to B&G Foods' most recent Annual Report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition.
Bruce will then discuss our financial results for the third quarter, as well as expectations for 2021.
The company's performance in the third quarter was strong.
Base business net sales, which excludes Crisco, grew at plus 9.2% versus the same period two years ago, accelerating from plus 7% in Q2.
With the addition of Crisco, our Q3 2021 net sales are ahead of last year's COVID period.
Bruce will talk categories and brands later, but we are generally seeing strength across the portfolio.
Most of our key categories performed well when compared to 2019's pre-pandemic third quarter results.
Net sales of Green Giant and spices & seasonings were up double digits compared to 2019.
Net sales of Ortega and Las Palmas are two leading Mexican food brands, were up high single digits compared to 2019.
Our baking brands also had a strong performance for the quarter compared to 2019, led by Crisco, Clabber Girl, Baker's Joy, etcetera.
While demand was strong, resulting in elevated sales.
We are also managing through many of the same challenges to supply chain and costs that have plagued the industry.
Inflation in full year 2021 is in the mid single digits, with the second half increasing to a double digit increase across the portfolio.
As discussed last call, inflation on Crisco is significantly higher than the base portfolio, given the major increases in soybean and canola oil.
We have responded with significant price increases, where appropriate raising list prices and or optimizing trade to directly offset higher input costs.
While we did accurately to identify and address inflationary pressures, the majority of our price increases are effective in the second half, with the largest increase on Crisco effective at the end of September.
We project continued inflationary pressure into first half 2022 and we'll price to recover year-over-year cost increases.
Additionally, we're driving aggressive cost optimization efforts to offset continued inflation.
From a supply standpoint, we continue to deal with shortages in packaging materials, freight delays and contract manufacturing capacity.
However, overall customer service levels are improving in recent weeks, aided by lifting allocations on Green Giant SKU with the new crop pack.
Our goal is to manage our business to stable steady margins.
For the current portfolio, the goal is roughly an 18% adjusted EBITDA margin, with pricing and productivity actions recovering cost pressures on margins.
Longer term, our goal is to improve to a 20% adjusted EBITDA margin with a creative M&A, efficiencies and some base business organic growth.
In the near term, inflation will make that more challenging, but we believe that is the right target for this business.
During the third quarter, we successfully completed the integration of Crisco.
And I want to congratulate our team for a smooth transition.
Crisco is our second largest acquisition, and we are happy with the performance year to date under our ownership, despite some volatility in commodity prices.
In August, we also announced that we reached an agreement to sell our Portland, Maine manufacturing facility.
We expect the sale to close during Q1 2022.
While shutting a factory is never an easy decision, it became clear the 100 year old Portland facility had reached the end of its useful life and was no longer cost competitive.
The site will become the future home of the Roux Institute at Northeastern University, which is a great outcome for the Portland community.
We also continue to make investments in our existing facilities, including a new high tech automated line in the Ankeny, Iowa spices and seasonings facility, as well as new lines that are Hurlock, Maryland and Yadkinville North Carolina facilities to increase our capacity for Ortega Taco Sauces and Taco Shells respectively.
So finally, after four months in the business, I wanted to share the key priorities and choices that we -- the B&G team are laser focused on.
First, managing B&G Foods effectively through the current inflationary and pricing environment; second, improving organic growth performance beyond COVID recovery; third, focusing on brands and categories where we have the capabilities, scale and right to win in terms of both resources and structure; fourth, making disciplined acquisitions that are creative to our portfolio; and with our core expertise in centre store dry distribution;, and fifth, accelerating cost savings and productivity efforts to eliminate non value added costs and strengthen margins, so more to come on those in future calls and discussions, including specific plans and updates.
As Casey mentioned, we had a strong financial performance during our third quarter, despite a very challenging operating environment.
Net sales continue to be elevated and are tracking closely to the initial set of assumptions that we used to create our annual budget for fiscal 2021.
Similar to our plan for the year, we are showing an acceleration in net sales growth, as we go through the year when compared to last year, and our pre pandemic 2019 numbers.
As we continue to work our way through the balance of the year, we are approaching a period that we expect to be more similar to last year still not quite normal, with more Americans eating at home more frequently than they did pre-pandemic, but also no longer laughing the height of the pantry loading that coincided with the early days of the pandemic.
The result is that, after adjusting for the impact of Crisco, and the impact of an extra week in last year's third quarter, we not only have a net sales increase compared to 2018.
But we also have sales trends that are much more similar to those during last year's COVID-19 enhanced third quarter.
Separately, but not entirely unrelated industrywide supply chain challenges, and input cost inflation has served to catch some of the upside that we would otherwise be seeing as a result of this robust demand.
For some of our brands, this means that sales could be higher, absent out of stocks for certain items.
For many of our brands, we have the sales, but margins are challenged relative to what we typically expect from a portfolio.
Input cost across our portfolio generally continue to be up mid-single digits for most products with extreme cases for certain products like soybean, and canola oils, transportation, and napkins which are all up double digits.
And like virtually everybody in the food manufacturing industry, we are aggressively increasing price where appropriate, plus cutting costs were possible to protect profitability and ensure the long term viability of our margin structure.
Now, for the third quarter 2021 highlights.
We reported net sales of $515 million adjusted EBITDA before COVID-19 expenses of $96.4 million.
Adjusted EBITDA of $96.2 million, and adjusted diluted earnings per share $0.55.
Adjusted EBITDA both before and after COVID-19 expenses, as a percentage of net sales was 18.7%.
Net sales of $550 million was up $19.2 million, or 3.9% from Q3 2020, up $108.7 million, or 26.7% from pre-pandemic 2019.
Crisco which we acquired in December 2020 generated $71.2 million of net sales in Q3 2021 ahead of our forecast for the quarter, and well ahead of our understanding of 2018 net sales for the same time period under prior ownership.
Based business net sales, which primarily excludes Crisco decreased by $52.1 million, or 10.5%, in the third quarter of 2021, when compared to the third quarter of 2020.
As a reminder, when comparing to our previous performance in our base portfolio Q3 2020 not only included COVID-19 enhanced sales, but also the benefit of an extra week due the timing of our 53rd week in 2020, which we estimate benefited net sales for the third quarter of 2020 by approximately $35 million.
The negative comparisons to 2020 are driven by a decline of $68.5 million in unit volume, which is offset in part by $14.5 million benefit from an increase net pricing, inclusive of list price increases trade spend optimization, and a little bit of mix.
Foreign exchange added $1.9 million of benefit.
On a year-to-date basis, the cumulative benefit of net pricing index is approximately $27.3 million.
Base business net sales, which primarily excludes Crisco were up 9.2% compared to 2019, representing a two-year compound annual growth rate of 4.5% over our pre-pandemic net sales.
Our base business net sales growth in the third quarter of this year represents continued sequential acceleration in growth versus 2019, relative to our performance in this year's first and second quarters.
We generated adjusted EBITDA of $96.2 million in the third quarter, a decrease of $8.4 million or 8.1% when compared to the prior year period, but an increase of $10 million, or 11.5% compared to 2019.
The decrease in adjusted EBITDA versus Q3 2020 was largely driven by the reduction in base business volumes coupled with increases in input costs, including materially higher costs for raw materials, factory labor and other costs, transportation and warehouse spending, and one fewer reporting week.
These costs were offset in part by locking in prices through short term supply chain contracts, advanced commodities purchase agreements, implementing cost savings initiatives, coupled with lowest price increases, trade spend optimization and the addition of Crisco to the portfolio.
Adjusted diluted per share was $0.55 in Q3 2021 compared to $0.74 per share in Q3, 2020 and $0.54 per share in Q3 2019.
The majority of our key brands had declined the net sales when comparing Q3 2021 to Q3 2020.
However, approximately two-thirds of the decline resulted from one fewer recording week of net sales in Q3 2021 versus Q3 2020.
The majority of our brands had substantial increases in net sales when comparing Q3 2021 to Q3 2019.
In some cases, for brands like Ortega, and our spices and seasonings business, which were up compared to 2019 the upside was kept by limitations on production.
In other cases, for brands like back to nature and New York style, supply chain constraints resulted in declines in net sales when compared to prior years.
Net sales of Ortega were $37.6 million in the third quarter of 2021 represent an increase of $1.6 million or 4.2% compared to the third quarter of 2020 and an increase of $2.6 million or 7.3% when compared to the third quarter of 2019.
If we had unlimited manufacturing capacity, net sales growth for Ortega would have been even higher.
Demand for Ortego taco sauce, taco shells, taco seasonings and salsa remain very strong.
And as Casey said previously, this is a category and a brand that we will continue to invest in and where we believe that our recently added capacity for sauce, Shells and seasonings will lead to increased performance in 2022.
Net sales of Las Palmas were $9.1 million in the third quarter of 2021, representing an increase of $2.5 million or 37.1%, when compared to the third quarter of 2020, and an increase of point $6 million, or 7.3%, when compared to the third quarter of 2019.
Last year Las Palmas was an early harbinger of the industry wide supply chain lows that we continue to see today.
And as you may recall, that last year at this time, we were unable to fully meet demand for a tomato sauces.
Our Las Palmas issues have fortunately been resolved this year, which helps to account for the large increase versus Q3 2020.
Spices & Seasonings continues to be one of the leading drivers of our portfolio.
Net sales of our spices and seasonings including our legacy brands such as accent and Dash, and the brands that we acquired in 2016, such as Tones and Weber were approximately $92.9 million, a little bit less than 20% of our total company net sales for the quarter.
Net sales of spices & seasonings were down by approximately $14 million or 13.1% compared to Q3 2020.
The shortfall is driven primarily by capacity constraints, as demand outran our supply and manufacturing capacity.
While this phenomenon is getting better, and we expect will be alleviated in part by some additional capacity that we have coming on in the fourth quarter of this year or in early 2022, we are also lapping a massive quarter for spices & seasonings in last year's third quarter.
When comparing Q3 2019, net sales of spices & seasonings were quite strong and increased by approximately $10.3 million or 12.5%.
We are now largely through the 2021 pack season, and fully caught off on supply for Green Giant.
The result is an acceleration of performance beginning in the second half of the third quarter and continuing today.
Green Giant generated net sales of $141.2 million in the third quarter of 2021, which well down $17 million or 10.7% when compared to Q3 2020 is up $20.9 million or 17.4% when compared to Q3 2019.
Assuming a healthy holiday season in November and December, we expect continued strength for Green Giant net sales through the fourth quarter of this year.
Among our other large brands, Maple Grove Farms, which generated $20.2 million in net sales for the quarter was down $0.5 million or 2.4% compared to Q3 2020 and up $2.7 million or 15.3% compared to Q3 2019.
Similarly, Cream of Wheat, which generated $15.2 million in net sales for the quarter was down $1.2 million or 7.4% from Q3 2020, but up $1.2 million or 8.5% compared to Q3 2019.
We generated $105.7 million in gross profit for the third quarter of 2021 or 20.5% of net sales.
Excluding the negative impact of a $14.1 million accrual for the estimated present value of a multi-employer pension plan withdrawal liability that we expect to incur upon the closing of our Portland manufacturing facility and $2.8 million of acquisition, divestiture related in non-recurring expenses, including cost of goods sold during the third quarter of 2021, gross profit would have been $122.6 million or 23.8% of net sales.
Gross profit was $136 million for the third quarter of 2020 or 27.4% of net sales, excluding the impact of $0.1 million of acquisition divestiture-related and non-recurring expenses, included in cost of goods sold during the third quarter of 2020, gross profit would have been $136.1 million or 27.5% of net sales.
During the third quarter of 2021, gross profit was negatively impacted by higher than expected input cost inflation, including materially increased costs for raw materials, factory expenses and transportation.
We have attempted to mitigate the impact of inflation on gross profits by locking in prices for short-term supply contracts and advanced commodities purchases agreements, and by implementing cost savings measures.
As discussed earlier on the call, we also executed list price increases and reduced trade promotions for certain products.
The short term result is that margins have been pressed -- impressed relative.
So we expect business to generate in the short-term.
And while this trend may continue into our fourth quarter and early 2022, we do expect our efforts to return to business to its historic margin profile over time.
Selling general and administrative expenses were $46.4 million for the quarter or 9% of net sales.
This compares to $43.4 million, or 8.8% for the prior year, and $38.1 million or 9.4% in the third quarter of 2019.
The dollar increase in SG&A compared to a year ago levels is almost entirely driven by a $3.5 million increase in warehousing costs coupled with $3.3 million incremental acquisition related and non-recurring expenses, which primarily relate to the acquisition and integration of the Crisco brand and the sale of our Portland facility.
The increase in warehousing costs was primarily driven by the Crisco acquisition and customer finds relative to COVID-19 shortages and delays.
As I mentioned earlier, we generated $96.4 million in adjusted EBIT DA before COVID-19 expenses, and $96.2 million in adjusted EBITDA in the third quarter of 2021.
This compared to adjusted EBITDA of $104.6 million in Q3, 2020, and $86.2 million in Q3 2018.
Interest expense for the quarter was $26.6 million, compared to $26.4 million in the third quarter last year.
The primary driver of the increase in interest expense was the acquisition of Crisco, which, as you may recall, was financed in its entirety with a combination of revolver draw and incremental term loans.
The revolver currently costs us a little less than 2% in interest, and the term loans a little less than two or three quarters percent.
Depreciation and amortization are also up year-over-year driven primarily by Crisco.
Depreciation expense was $15.3 million in the third quarter of 2021, compared to $10.9 million in last year's third quarter.
Amortization expense was $5.4 million in the third quarter of 2021 compared to $4.7 million in last year's third quarter.
We are tracking to an effective tax rate of approximately 26% to 26.5% for the year, with taxes a little higher and this year's third quarter, due to some discrete tax items at an effective rate of 26.8% for the quarter compared to 24.7% in last year's third quarter.
We generated $0.55 in adjusted diluted earnings per share in the third quarter of 2021 compared to $0.74 per share in Q3, 2020 and $0.54 per share in Q3 2018.
We remain encouraged by these trends.
And while adjusted EBITDA margins will remain challenge this year due to higher than expected input cost inflation, including increased cost of raw materials, factory costs, transportation and warehouse costs, we also expect to generate adjusted EBITDA of $358 million to $365 million for the year.
Also similar to what we discussed last quarter, we expect the following for full year 2021.
Interest expense of $105 million to $110 million, including cash interest of $100 million to $105 million, depreciation expense of $60 million to $65 million, amortization expense of $21 million to $22 million, and an effective tax rate of approximately 26% to 26.5%.
As I said at the beginning of the call, we had a fairly strong quarter despite lapping elevated COVID-19 demand and an extra week in Q3 2020.
We remain on track to deliver the mid to high single digit growth against 2019 that we set as a target for the year, and we continue to implement pricing actions to offset inflation in the portfolio.
This concludes our remarks.
And now we would like to begin the Q&A portion of our call.
 Assistant:

Chosen response:
q3 adjusted earnings per share $0.55.
q3 sales $515 million.


Prompt:
Human: Before we get started, I want to let you know that we have slides to accompany our discussion.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
Turning to Slide three, you'll see the agenda for today's call.
I'll start with some highlights of the first quarter before handing over to John, who will go into more detail on our performance.
Let's start with an overview of the quarter, turning to Slide four.
We brought positive momentum into the quarter, and we continued to capture the opportunities in front of us, delivering our sixth consecutive quarter of increased earnings.
Operationally, our team did a fantastic job maximizing our assets.
We reached a new high watermark for crush capacity utilization, and we continued to reduce unplanned downtime.
We also executed well in the marketplace through outstanding customer service, innovation, agility and partnership.
Our strong results over the past few quarters reflect the value of working as a unified global company and the benefits of our integrated model delivers to our customers on both ends of the value chain, from farmers to customers to consumers.
We're committed to continuous improvement and managing risk effectively because while we're incredibly proud of what we have achieved, we recognize there's always more we can do, especially in an industry that doesn't always offer a straight-line path from quarter-to-quarter.
The dramatic swings in consumer and customer behavior during the COVID pandemic are case in point.
COVID is still very much a factor in most parts of the world, especially in Brazil and India, and our thoughts are with all of those who are still in the center of the battle with this pandemic.
In regions where restrictions are easing, we're seeing increased demand in pricing across the range of products as people begin to get back to regular life patterns.
And regardless of those more encouraging trends, our top priority continues to be the safety of our team, their families and communities.
Turning now to our segment performance.
As you saw last week, we changed our reporting to better align with our new value chain operating structure.
John will go into more detail on that later in the call, but our new segments more closely reflect the way we manage our business.
In the first quarter, we delivered especially strong results in Agribusiness.
Earnings were driven primarily by oilseed processing, particularly in softseeds, and our merchandising value chains.
Refined and Specialty orders -- Oils had a record quarter, benefiting from tightening global supplies, improved demand, particularly in North America, and our continued focus on customers and innovation.
And before handing the call over to John, you'll note that with our strong first quarter results and favorable outlook across a number of our markets, we raised our full year adjusted earnings per share forecast to approximately $7.50.
I'll share some additional thoughts on the remainder of 2021 before opening the call for Q&A.
In -- you may have seen our announcement last week that we have changed our segment reporting to align with our new value chain model and to reflect how we manage the business and review financial information.
Within Agribusiness, we have realigned grains and oilseeds operations in the processing and merchandising.
The Fertilizer segment has been eliminated with those results now included in the processing component of Agribusiness.
Processing, in addition to fertilizer, is principally the oilseed operations plus the soy and softseed crush-related origination activities previously included in grains.
Let's turn to earnings highlights on Slide five.
Our reported first quarter earnings per share was $5.52 compared to a loss of $1.46 in the first quarter 2020.
Our reported results include a net gain of $1.09 related to the previously announced sale of our Rotterdam oil refinery as well as our packaging plant in Mexico.
Reported results also include a mark-to-market timing difference of $1.30 per share.
Adjusted earnings per share was $3.13 in the quarter versus $0.91 in the prior year.
Adjusted core segment earnings before interest and taxes, or EBIT, were $737 million in the quarter versus $354 million in the prior year driven by strong performances in our Agribusiness and Refined and Specialty Oils segments.
As Greg noted, Agribusiness results in the quarter reflect outstanding execution by the team, managing our crush capacity and trade flows.
In processing, improved performance in the quarter was driven by higher results in all softseed and soy crush value chains, which included an increased contribution from U.S. soybean origination.
In addition, we achieved record Q1 soy and rapeseed crush volume capacity utilization, reflecting reduced unplanned downtime and excellent coordination between our commercial and industrial teams.
This improved crush output brings immediate financial benefits, especially in periods of strong margins like we have been experiencing.
In Merchandising, improved volumes and margins in our global oils, corn and wheat value chains were primarily driven by increased export demand, strong grain origination in North America and Australia and outstanding execution of logistics and risk management.
Results in our Financial Services business were also higher.
In Refined and Specialty Oils, the strong performance reflected higher results in all regions driven by improved execution as well as favorable market trends.
Margins in North America refining benefited from early stage recovery in foodservice and increased demand from the renewable diesel sector.
Higher margins in South America and Europe more than offset lower volumes.
Asia benefited from strong demand in India prior to the reimposition of restrictions due to the surge in new COVID cases.
In Milling, results were down in both North and South America primarily due to lower margins.
Additionally, volumes in Brazil were negatively impacted by the resurgence in COVID cases.
The increase in corporate expenses during the quarter was primarily related to the performance-based compensation accruals, a portion of which was not allocated out to the segment.
The decrease in Other was related to our captive insurance program.
Results for our Sugar & Bioenergy joint venture benefited from higher sugar and ethanol volume and higher sugar prices in local currency.
Prior year results reflect less favorable environment and were also negatively impacted by approximately $25 million in FX translation losses of the joint venture due to depreciation of Brazilian real.
For the quarter, income tax expense was $192 million as compared to an income tax benefit of $55 million for the prior year.
The increase in income tax expense was due to higher pre-tax income.
Adjusted for notable items, the effective tax rate for the quarter was 21%.
Net interest expense of $64 million was in line with our expectations.
Here, you can see our positive earnings trend adjusted for notable items and timing differences over the past four years, along with the most recent trailing 12-month period.
This improved performance not only reflects a strong operating environment, but also the hard work of our global teams and the benefits of our new operating model that brings organizational alignment across the regions and, importantly, has shifted our culture to one of continuous improvement and capital discipline.
Slide seven compares our first quarter SG&A to the prior year.
We achieved underlying addressable SG&A savings of $16 million, of which approximately 80% was related to indirect costs.
COVID-related restrictions continued to impact areas, such as travel, but we also realized lower employee and professional services costs.
Moving to Slide 8.
The most recent trailing 12-month period, our cash generation, excluding notable items and mark-to-market timing differences, were strong at approximately $2.2 billion of adjusted funds from operations.
This cash flow generation enabled us to comfortably fund our cash obligations over the past year and retained approximately $1.4 billion to strengthen our balance sheet in support of our credit rating objective of BBB/Baa2.
On Slide nine details our capital allocation of adjusted funds from operations for the first quarter.
After allocating $32 million of sustaining capex, which includes maintenance, environmental, health and safety and $8 million to preferred dividends, we had $493 million of discretionary cash flow available.
Of this amount, we paid $71 million in common dividends to shareholders and invested $21 million in growth and productivity capex, leaving approximately $400 million of retained cash flow.
Moving on to Slide 10.
The $400 million of retained cash flow and other cash sources, including proceeds from the sale of assets, more than offset our approximately $700 million of cash outflow this quarter for working capital.
As a result, net debt decreased by approximately $100 million.
We also took action to increase our availability under committed credit lines to $5.8 billion, leaving us with ample liquidity to support potentially higher working capital needs.
As you can see on Slide 11, we further strengthened our balance sheet during the quarter to a point where the entirety of our net debt funded 91% of our readily marketable inventory with the 90% balance of RMI being funded with equity.
The trailing 12 months adjusted ROIC was 18.7% or 12.1 percentage points over our RMI adjusted weighted average cost of capital of 6.6%.
ROIC was 13.4%, 7.4 percentage points over our weighted average cost of capital of 6% and well above our stated target of 9%.
The widening spread between these metrics reflects how we have been effectively using RMI in our operations as a tool to generate incremental profit.
Moving to Slide 13.
Our discretionary cash flow and cash flow yield have continued to increase, reflecting strong cash flow generation that is available for strengthening our balance sheet, investing in growth and returning to shareholders.
For the trailing 12 months, we produced a discretionary cash flow of almost $1.9 billion and a cash flow yield of nearly 29%.
As Greg mentioned in his remarks, taking into account our strong Q1 results, forward curves and market conditions, we've increased our full year adjusted earnings per share outlook from at least $6 per share to approximately $7.50 per share.
This is based on the following expectations.
In Agribusiness, full year results are expected to be up from our previous expectations, but down from 2020.
In Refined and Specialty Oils, we expect full year results to be up from our previous outlook and significantly higher compared to last year due to strong first quarter results and positive demand trends in North America.
Results in Milling and Corporate and Other are expected to be generally in line with last year.
In noncore, full year results in our Sugar & Bioenergy joint venture are expected to be a positive contributor driven by improved sugar and Brazilian ethanol prices.
Additionally, the company expects the following for 2021: an adjusted annual effective tax rate in the range of 20% to 22%, net interest expense in the range of $230 million to $240 million, capital expenditures in the range of two -- $425 million to $475 million and depreciation and amortization of approximately $415 million.
With that, I'll turn things back over to Greg for some closing comments.
Before opening the call to Q&A, I want to provide some perspective on the balance of 2021.
As we noted, with our strong first quarter performance and what we see from the forward curves, we're forecasting full year earnings per share to be around $7.50.
While we don't have full visibility in the back half of the year, the market and demand trends are favorable.
We expect higher volumes because of increased post-COVID foodservice demand in several countries as well as from the U.S. renewable diesel industry in the second half of the year.
Because of the work we've done, we now have the ability to pursue the type of projects that help us meet growing demand and continue to improve our platform.
We have a number of projects in various stages to enhance the efficiency of our core oilseeds business.
We're taking a thoughtful approach as we invest in our specialty fats and oils and our plant-based proteins businesses.
And we're staying disciplined, but also recognize that the demand for sustainable products is providing us more opportunities than ever to grow our business as we continue to connect farmers to consumers.
The leadership team and I are incredibly proud of the entire Bunge team's continued focus on execution, and we're confident in our capabilities and the business model we have here at Bunge.
While there's always more work to be done, we're making progress every day, and the results are evident.
 Assistant:

Chosen response:
q1 gaap earnings per share $5.52.
sees fy adjusted earnings per share about $7.50.
optimistic that favorable demand environment in q1 will continue through 2021.
increasing full-year 2021 earnings per share outlook to reflect strong q1 and positive market trends.
sees 2021 capital expenditures in range of $425 million to $475 million.
qtrly adjusted net income per common share $3.13.
in agribusiness, full-year results are expected to be higher than previous outlook, but still forecasted to be down from last year.
bunge - in refined and specialty oils, full-year results expected to be up from previous outlook and significantly higher compared to last year.


Prompt:
Human: Today, we will review the third quarter of 2020 and with me on the phone today are Norman Schwartz, our Chief Executive Officer; Ilan Daskal, Executive Vice President and Chief Financial Officer; Andy Last, Executive Vice President and Chief Operating Officer; Annette Tumolo, President of the Life Science Group; and Dara Wright, President of the Clinical Diagnostics Group.
Our actual results may differ materially from these plans and expectations and the impact and duration of the COVID-19 pandemic is unknown.
We cannot be certain that Bio-Rad's responses to the pandemic will be successful that the demand for Bio-Rad's COVID-19-related products is sustainable or that Bio-Rad will be able to meet this demand.
Our remarks today will also include references to non-GAAP net income and non-GAAP diluted income per share, which are financial measures that are not defined under Generally Accepted Accounting Principles.
I'll now turn over the call back to Ilan Daskal, our Executive Vice President and Chief Financial Officer.
Now, before I begin the detailed quarterly discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's operations in light of the current pandemic-related environment that we are experiencing globally.
So I'd like to take a few minutes to review our current state of operations around the world.
Before I begin, we would like to recognize our employees globally who have continued to work above and beyond to serve our customers during the pandemic.
We truly appreciate the hard work and dedication across our organization.
As a reminder, we have three key areas of focus as we continue to manage through this challenging period, the ongoing safety of our employees, continuing manufacturing operations to ensure product supply and support of our customers, and making sure we make progress on our core strategies.
We have now established routine practices around the world to improve employee safety.
We have adapted our policies and approaches to local conditions and requirements and are very pleased with the productivity we have been able to achieve.
Work from home continues where required and for those in our facilities, we are continuing to implement broad safety procedures and we continue to experience minimized case numbers.
In the US, we have now implemented a fast turnaround testing solution for suspected cases using a Droplet Digital PCR test and can rapidly deliver results back to an employee.
This has enabled us to avoid significant work downtime, summing to over a full-year productivity equivalent so far.
In manufacturing, our operations teams continue to be flexible and meeting the demand shifts driven by the pandemic.
We have flexed well to meet the high demand for our PCR products which increased in Q3 and we have scaled back where needed, mainly for our Diagnostics products.
We are now past the majority of the initial scale-up issues we encountered with supply chain disruption early in the pandemic and believe we are well-positioned to meet future needs.
Lastly, we continue to work on our core initiatives and strategies, in particular in R&D, where we now have all our labs operational.
Now I would like to review the results of the third quarter.
Net sales for the third quarter of 2020 were $647.3 million, which is a 15.5% increase on a reported basis versus $560.6 million in Q3 of 2019.
On a currency neutral basis, sales increased 14.9%.
On a geographic basis, we experienced currency neutral growth across all three regions.
We saw a strong demand for products associated with COVID-19 testing and related research.
However, we saw lower demand in the rest of our business.
Overall in Q3, we have seen a gradual improvement in demand for both our Life Science and Diagnostics products in all regions as compared to Q2.
Generally, we are seeing most academic and Diagnostics Labs now running between 70% and 90% capacity and slowly continuing to improve.
Biopharma labs are broadly running at a slightly higher capacity rate of 80% to 90% and we continue to monitor the situation closely.
We estimate that COVID-19-related sales were about $98 million in the quarter.
Sales of the Life Science Group in the third quarter of 2020 were $324 million compared to $215.7 million in Q3 of 2019, which is a 50.2% increase on a reported basis and a 48.8% increase on a currency neutral basis.
The majority of the year-over-year growth in the third quarter was driven by our core PCR products, Droplet Digital PCR, and Process Media.
Both core PCR and Droplet Digital PCR products revenue increases were largely COVID-19-related.
Process Media, which can fluctuate on a quarterly basis saw strong double-digit year-over-year growth in the quarter over the same quarter last year.
Excluding Process Media sales, the Life Science business grew 53% on a currency neutral basis versus Q3 of 2019.
Growth in the overall Life Science segment was offset by continued softness in the academic research demand as these labs around the globe were operating below capacity.
We expect a continued gradual increase in lab utilization and are carefully monitoring the situation.
On a geographic basis, Life Science currency neutral year-over-year sales grew across all regions.
We continue to be encouraged by our Droplet Digital PCR business, which is becoming more broadly adopted in wastewater testing as the gold standard.
Droplet Digital PCR is now being used at the Environmental Protection Agency, The Water Research Foundation and more than two dozen labs globally for wastewater testing, including the state of Michigan, which is establishing a standardized and co-ordinated network of COVID-19 monitoring systems across the states.
In addition, last month we launched two new PCR systems, the CFX Opus 96 and the CFX Opus 384, which strengthens our global response and contribution to the fight against the pandemic.
With the launch of the CFX Opus systems, Bio-Rad also introduced access to a cloud-based instrument connectivity, data management, and analysis platform.
These new PCR systems, along with our Droplet Digital PCR offering provides a complete solution for our customers.
Sales of Clinical Diagnostics products in the third quarter were $322.2 million compared to $341.8 million in Q3 of 2019, which is a 5.7% decline on a reported basis and a 5.9% decline on a currency neutral basis.
On a sequential basis, we experienced improved performance across all regions and product lines and we believe this reflects the recovery of routine testing trends.
During the third quarter, strength in our quality controls products was offset by weakness across the rest of the Diagnostics portfolio.
Although clinical labs have seen a significant negative impact by the pandemic, we are now experiencing a gradual recovery from the trough of Q2 and expect incremental recovery until the end of the year.
We will be closely monitoring the potential impact of the recent pandemic resurgence.
On a geographic basis, the Diagnostics Group posted declines across all regions.
The reported gross margin for the third quarter of 2020 was 56.7% on a GAAP basis and compares to 54.8% in Q3 of 2019.
The current gross margin benefited mainly from better product mix, higher manufacturing utilization, and lower service cost, tempered somewhat by higher logistics costs.
Amortization related to prior acquisitions recorded in cost of goods sold was $4.8 million compared to $3.9 million in Q3 of 2019.
SG&A expenses for Q3 of 2020 were $198.2 million or 30.6% of sales compared to $201.6 million or 36% in Q3 of 2019.
We continue with cost saving initiatives to reduce our SG&A.
Total amortization expense related to acquisitions recorded in SG&A for the quarter was $2.3 million versus $1.9 million in Q3 of 2019.
Research and development expense in Q3 was $59.5 million or 9.2% of sales compared to $47.9 million or 8.6% of sales in Q3 of 2019.
Q3 operating income was $109.6 million or 16.9% of sales compared to $57.5 million or 10.2% of sales in Q3 of 2019.
Looking below the operating line, the change in fair market value of equity securities holdings added $1,580 million of income to the reported results, and is substantially related to holdings of the shares of Sartorius AG.
Also during the quarter, interest and other income resulted in a net expense of $5.5 million compared to $2.1 million of expense last year.
The effective tax rate for the quarter was 21.9% compared to 22.8% in Q3 of 2019.
Reported net income for the third quarter was $1,315 million and diluted earnings per share were $43.64.
This is an increase from last year and is again substantially related to the changes in the valuation of Sartorius Holdings.
Moving on to the non-GAAP results.
Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins as well as other income.
Looking at the non-GAAP results for the third quarter, in cost of goods sold, we have excluded $4.8 million of amortization of purchased intangibles and a small restructuring benefits.
These exclusions moved the gross margin for the third quarter of 2020 to a non-GAAP gross margin of 57.5% versus 56% in Q3 of 2019.
Non-GAAP SG&A in the third quarter of 2020 was 29.4% versus 35.5% in Q3 of 2019.
In SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2.3 million, legal related expenses of $6 million and restructuring and acquisition-related benefits of less than $1 million.
Non-GAAP R&D expense in the third quarter of 2020 was 9.2% versus 8.5% in Q3 of 2019.
In R&D, on a non-GAAP basis, we have excluded negligible restructuring benefits.
The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 16.9% on a GAAP basis to 18.8% on a non-GAAP basis.
These non-GAAP operating margin compares to a non-GAAP operating margin in Q3 of 2019 of 12%.
We have also excluded certain items below the operating line, which are the increase in value of the Sartorius Equity Holdings of 1,580 million and a small loss associated with venture investments.
The non-GAAP effective tax rate for the quarter was 22.5% compared to 25.5% in Q3 of 2019.
The lower rate this quarter was primarily driven by a change in our geographic mix of earnings and the taxation of our foreign earnings.
We now estimate the full year tax rate on a non-GAAP basis to be approximately 24%.
And finally, non-GAAP net income for the third quarter of 2020 was $90.3 million or $3 diluted earnings per share compared to $48.6 million and $1.61 per share in Q3 of 2019.
Moving on to the balance sheet.
Total cash and short-term investments at the end of Q3 were $1,160 million, an increase of $123 million from the end of Q2 of 2020.
During the third quarter, our inventory increased by about $12 million from the second quarter of 2020.
The increase of inventory in Q3 of 2020 was driven by the continued expectation of higher demand for COVID-19 related products.
We expect inventory levels to come down over the next two quarters to three quarters.
We plan to use the cash on hand to repay the $425 million of outstanding senior notes in December.
In addition, the market value of our holdings in Sartorius AG has increased, which technically may deem us as an investment company under the 1940 Investment Company Act.
While we are working on the resolution, our access to the capital markets may be restricted.
We feel that we have adequate resources to effectively run our business in the near term.
During the third quarter, we did not purchase any shares of our stock, we had a total of $273 million available for potential share buybacks.
For the third quarter of 2020, net cash generated from operating activities was $135.7 million, which compares to $99.8 million in Q3 of 2019.
The adjusted EBITDA for the third quarter of 2020 was 22.9% of sales.
The adjusted EBITDA in Q3 of 2019 was 17%.
Net capital expenditures for the third quarter of 2020 were $20 million and depreciation and amortization for the third quarter was $33.7 million.
We project that the full-year capex spend will likely be between $80 million and $90 million.
Moving on to the guidance.
We continue to be uncertain about the duration and impact of the COVID-19 pandemic, although we do assume a gradual return to pre-pandemic activity levels and business mix.
With that in mind, we currently believe that the full year 2020 year-over-year currency-neutral sales to be up 5.9% to 6.3%.
We estimate 27% to 28% currency-neutral revenue growth for Life Science and estimate about 7% currency-neutral revenue decline for the Diagnostics Group in 2020.
This assumes that the fourth quarter will see a gradual improvement in non-COVID-19 related product sales and a smaller relative benefit of COVID-19 related product sales versus Q3.
Full year non-GAAP gross margin is projected to be between 56.5% and 57%.
R&D is around 9%.
Full year GAAP operating margin between 16% and 16.5% and full-year adjusted EBITDA margin to be between 21% and 21.5%.
Our significantly higher operating profit over the last year was driven by discretionary cost control measures and better product mix.
As our operations begin to return back to normal, we expect a gradual reversal of these benefits that we experienced in 2020.
Lastly, due to the uncertain nature of the current pandemic we will not host an Investor Day this year and instead look to host it in 2021 when business activity normalizes.
With that said, in December, we plan on updating you with our revenue growth and margin targets.
 Assistant:

Chosen response:
q3 earnings per share $43.64.
q3 sales $647.3 million versus refinitiv ibes estimate of $570.6 million.
bio rad laboratories - currently believes full-year 2020 yoy currency-neutral sales may be up 5.9 to 6.3 percent.