Christopher J. DelOrefice
Executive Vice President and Chief Financial Officer at Becton, Dickinson and Company
Thanks, Tom, and good morning, everyone. As Tom noted, we executed well on our performance goals in Q2. As expected, we delivered strong acceleration in our revenue growth, we exceeded both our margin and earnings goals and delivered very strong free cash flow growth. I'll now provide some insights into our revenue performance in the quarter. Q2 revenue was $5 billion, with organic growth of 5.7%, driven by strong volume. Growth was led by double-digit growth in BD Interventional with low single-digit growth in BD Medical and BD Life Sciences. Total Q2 revenue growth of 4.7% reflects the divestiture of our surgical instruments platform. Regionally, organic growth was driven by the U.S., partially offset by expected market dynamics in China.
In BD Medical, growth was led by Medication Management with strong performance in infusion systems driven by the BD Alaris return to market and mid-single-digit growth across our Medication Delivery Solutions portfolio in the U.S. and EMEA. Strong demand in our Pharmaceutical Systems, pre-fill devices for biologic drugs offset transitory market dynamics across the industry, including customer inventory destocking. BD Life Sciences performance was led by Integrated Diagnostic Solutions with high single-digit growth in our microbiology platforms and mid-single-digit growth in specimen management, which offset a comparison to the prior year and transitory market dynamics in select segments in Biosciences. BD Interventional Organic growth was led by continued strong growth in UCC with continued momentum in our PureWick franchise, delivering another quarter of double-digit growth, along with related licensing revenue.
Surgery delivered another strong quarter with double-digit organic growth, supported by global adoption of our Phasix resorbable scaffold. Lastly, growth was supported by Peripheral Intervention with double-digit growth in our peripheral vascular disease platform, where we continue to drive market penetration with our Rotarex atherectomy system and our venous portfolio. The quarter's performance reflects the breadth of the BD portfolio that delivers a durable growth profile. Now moving to our P&L. We realized strong sequential margin improvement with adjusted gross margin of 53% and adjusted operating margin of 24.3%, both above our expectations. For adjusted gross margin, our simplification and BD Excellence initiatives are continuing to drive net cost improvement and sequentially, as planned, we saw a reduced impact from prior year inventory reductions that increased cash flow, driven by strong SSG&A, expense reductions and leverage, our adjusted operating margin increased sequentially by 410 basis points and year-over-year by 160 basis points with Q2 being above our fiscal year '23 full year margin.
As a result of these items, we exceeded our Q2 operating income and adjusted diluted EPS expectations resulting in adjusted diluted EPS of $3.17, which grew double digits or 10.8% on a reported basis. Regarding our cash and capital allocation. Year-to-date free cash flow increased more than $900 million year-over-year to over $1.1 billion. This reflects continued improvements around working capital, including our actions to optimize inventory levels, continued discipline around capital investments and leveraging our fixed asset base as a result of the benefits from our BD Excellence operating system. We remain focused on free cash flow conversion and are on track to deliver another double-digit step improvement in FY '24 and remain well positioned to achieve our long-term cash goals. With our strong cash flow, year-to-date, we returned over $1 billion in capital to shareholders, including dividends and $500 million in share repurchases. We improved our net debt position ending Q2 with a net leverage ratio of 2.6 times.
Our cash and short-term investments balance was almost $3.2 billion, inclusive of about $2 billion in proceeds from debt refinancing during the quarter that will be utilized to repay maturing debt over the balance of the calendar year. Collectively, this positions us well to capitalize on accretive value-creating tuck-in M&A. Moving to our updated guidance for fiscal year '24. The detailed assumptions underlying our guidance can be found in our presentation. As we look ahead for the balance of the year, we remain focused on driving areas of momentum, including Alaris and continue to monitor transitory market dynamics. For the full year, we are maintaining our organic revenue growth guidance range of 5.5% to 6.25%. Based on our Q2 margin performance, we are raising our adjusted diluted EPS guidance range to $12.95 to $13.15 on a reported basis, which is an increase of $0.11 at the midpoint. Strong delivery in Q2 positions us well to achieve our second half earnings growth targets. Regarding foreign currency, based on current spot rates, the impact of currency has moved modestly since our last update.
And for illustrative purposes, we see an additional headwind of approximately 40 basis points to full year revenue from translational currency impacts. As you think of the second half of fiscal '24, the following are some considerations: First, regarding revenue, the midpoint of our guidance reflects about 7.5% second half organic sales growth with nearly 250 basis points contribution from Alaris and just over 5% growth in the remainder of the BD portfolio. We expect Q3 organic growth of at least 6% with Q4 further accelerating, driven in part by Alaris momentum and improving grow-over dynamics in China. For the full year, our assumptions imply just over 100 basis points revenue contribution from Alaris or at least $300 million in FY '24 revenues. Second, we are well positioned to achieve our updated adjusted operating margin guidance of at least 50 basis points improvement, which implies full year operating margins of at least 24%. We expect Q3 adjusted operating margin will be modestly higher than Q2, given the strong performance in this quarter.
We continue to expect margin acceleration in Q4, driven by our BD Excellence and continuous improvement efforts and continued expense leverage on expected strong revenue performance, including Alaris. Lastly, we expect our tax rate to be ratable across Q3 and Q4 at about 15% when considering the midpoint of our updated full year guidance range. In summary, based on the strength of our portfolio and momentum in Alaris, we have clear line of sight to deliver our fiscal year '24 revenue guide and another year of strong growth. Our team's execution supported over-delivering on our margin expectations. And as a result, as we enter the second half, we are on track to achieve our full year margin improvement goals and once again increased our fiscal year '24 earnings outlook. Additionally, we remain well positioned to deliver another year of double-digit free cash flow growth, which increases our capacity to support additional value-creating opportunities, including M&A. Our strategy is demonstrating positive momentum, and we remain well positioned to continue to deliver on our BD 2025 growth objectives.
With that, let's start the Q&A session. Operator, can you please assemble our queue?
