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DANAHER (DHR)
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Danaher Corporation : Danaher 1Q Profit Rises 43%; Acquisitions Supply Growth

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04/19/2012 | 08:38pm CET

--Danaher tops 1Q profit, revenue expectations

--Company narrows 2012 guidance.

--The addition of Beckman Coulter drives big increases in revenue, profit

(Updates with analyst quote and details about organic revenue growth starting in the seventh paragraph.)

By Bob Tita

  Of  
 

Danaher Corp.'s (DHR) first-quarter earnings rose 43%, driven mostly by income from the acquisition of medical-test manufacturer Beckman Coulter.

The diversified manufacturer of testing, diagnostic and medical equipment topped analysts' expectations for the quarter, but offered second-quarter guidance that was slightly below expectations because of per-share profit dilution caused by the pending purchase of X-Rite Inc. (XRIT).

The company narrowed its 2012 per-share earnings estimate to between $3.25 and $3.35 from its previous range of $3.20 to $3.35. The new forecast includes 3 cents of anticipated dilution related to X-Rite.

Danaher said geographic demand patterns for its products during the first quarter were largely as anticipated with growth in the U.S. offsetting flat demand in China and lower orders in Europe, where economic growth has stalled amid the continent's sovereign debt crisis.

"We are encouraged by a number of the booking trends we saw in the U.S. and the emerging markets," said Chief Executive Larry Culp during a conference call Thursday. "As we go through the year, China should get better. Obviously, we saw Europe soften a bit."

Danaher's product lines include calibration devices, orthodontic devices, water treatment products, medical tests and laboratory equipment. The Washington, D.C., company has been shifting its focus to high-margin, high-growth medical and science businesses and away from cyclical industrial product lines, such as hand tools and defense equipment.

Danaher has used acquisitions to realign its business portfolio. The company's acquisitions accounted for much of the 31% increase in revenue recorded for the first quarter. Revenue from the company's core of existing businesses -- also known as organic revenue -- grew by 1.5% in the quarter, while recently acquired businesses reported a 30.5% increase in revenue from a year ago. The company's overall operating margin in the first quarter slipped to 17% from 17.8% a year earlier.

Earlier this month, Danaher reached a deal to acquire color-measurement technology company X-Rite for $478 million. The purchase of the Grand Rapids, Mich., company is expected to complement Danaher's digital design capabilities and expand its offerings in the product identification sector. Danaher anticipates the X-Rite purchase closing during the second quarter.

Danaher is widely admired by investors for making shrewd acquisitions and rapidly expanding margins of the businesses it buys. But Danaher's organic revenue growth rate in the first quarter was far below the rate for its peer group. That's caused some analysts to grow concerned about Danaher becoming too dependent on large deals like the Beckman acquisition for revenue growth.

"Large enough deals are harder to come by," said Barclays analyst Scott Davis in a note Thursday to investors. "With a much larger revenue base than in the past, the need to grow at peer levels organically is imperative."

Danaher's $5.78 billion acquisition of Beckman Coulter accounted for much of Danaher's sales and profit expansion during the first quarter. Sales from the company's life sciences and diagnostics unit, which includes Beckman, increased 147% from a year earlier to $1.54 billion. Operating profit from the unit soared by 128% to $205.9 million, even as the unit's operating margin slipped to 13.3% from 14.4% a year ago.

None of the company's four other business units had revenue growth above 9%. The next-highest profit expansion after life sciences came from Danaher's dental business, which reported a 19% increase, mostly as a result of higher margins.

Moreover, Danaher faces a host of challenges to transform Beckman into an efficient, high-margin operation. In recent years, Beckman has had product recalls and was cited for inadequate quality controls by the U.S. Food and Drug Administration.

"While there is a lot of work ahead, we are happy with what the team has accomplished in the last nine months," Culp said. "We're seeing excellent progress on the cost side. The improvements are starting to turn up in the numbers."

Overall for the first quarter, Danaher reported a profit of $612.9 million, or 86 cents a share, up from $429.4 million, or 63 cents a share, a year earlier. Earnings from continuing operations were up at 73 cents per share from 61 cents. Revenue increased 31% to $4.32 billion.

Analysts had expected the company to earn 71 cents per share on revenue $4.32 billion.

For the second quarter, Danaher forecast per-share earnings of 76 cents to 81 cents, including anticipated dilution of a penny from X-Rite. Analysts polled by Thomson Reuters expected per-share earnings of 82 cents.

Danaher's shares were recently down 3.3% at $52.85 apiece.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; [email protected]

--Tess Stynes contributed to this article.

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Financials ($)
Sales 2018 19 423 M
EBIT 2018 3 760 M
Net income 2018 2 665 M
Debt 2018 6 494 M
Yield 2018 0,60%
P/E ratio 2018 25,75
P/E ratio 2019 23,39
EV / Sales 2018 3,83x
EV / Sales 2019 3,50x
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Number of Analysts 18
Average target price 109 $
Spread / Average Target 12%
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Thomas Patrick Joyce President, Chief Executive Officer & Director
Stephen M. Rales Chairman
Daniel L. Comas Chief Financial Officer & Executive Vice President
Alan G. Spoon Independent Director
Donald Jerry Ehrlich Lead Independent Director
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