Danaher Corporation (DHR Quick QuoteDHR - Free Report) reported adjusted earnings of $1.05 a share in fourth-quarter 2016, beating the Zacks Consensus Estimate of $1.03 by 1.9%. Also, adjusted earnings jumped 15.4% on a year-over-year basis.

The upside in the company’s bottom line can be attributed to its effective Danaher Business System (“DBS”) that focuses on three critical areas - quality, delivery, and cost & innovation. Moreover, a decent top-line performance led to impressive adjusted earnings growth during the quarter.

For full-year 2016, Danaher’s adjusted earnings came in at $3.61 per share, up 21.1% on a year-over-year basis.

Revenues by Segment

Danaher reported total sales of $4,584.3 million, reflecting an increase of 6.0% year over year. In addition, the figure surpassed the Zacks Consensus Estimate of $4,548 million.

For full-year 2016, Danaher reported net sales of $16,882.4 million, up 17% on a year-over-year basis.

Improvement in fourth-quarter revenues came on the back of positive contributions from both non-core and core businesses. While acquired businesses contributed 4.0% to overall growth, core businesses contributed 3.5%, both on a year-over-year basis. Also, the company’s diversified portfolio proved conducive to top-line growth.

Life Sciences revenues rose 6.0% year over year to $1,454 million. Operating margin for the quarter expanded 710 basis points (bps) to 16.8%. Positive contributions from both core and non-core businesses drove growth for this segment.

Revenues at the Diagnostics segment increased 11.0% year over year to $1,432 million. However, operating margin at the segment contracted 570 bps, year over year, to 12.6%. The growth of this segment mainly came on the back of acquired businesses (up 9.5% year over year).

Revenues at Dental inched up 0.5% year over year to $739 million. Operating margin shrunk 40 bps to 15.4%. Weak core business growth and absence of contributions from acquired businesses led to the dull performance of this segment.

At the Environmental & Applied Solutions segment, revenues were up 3.5% year over year to $959 million. Additionally, operating margin advanced 190 bps to 24.0% on a year-over-year basis. Impressive performance of core business (up 4%) drove growth for this segment.

Also, on a year-over-year basis, operating profit margin improved 80 basis points to 15.9%.

Notable Activity during the Quarter

During the quarter, Danaher completed the buyout of molecular diagnostics company, Cepheid. Copper Merger Sub, Inc. – an indirect wholly owned subsidiary of Danaher – has been merged into Cepheid. Consequently, Cepheid has become an indirect wholly owned subsidiary of Danaher. This deal makes strategic sense as Danaher does not enjoy a strong foothold in molecular diagnostics, in which Cepheid is a market leader.

Cepheid’s comprehensive installed base, test menu and pioneering product portfolio will fortify Danaher’s presence in this high-growth segment. Per Danaher, Cepheid’s addition will boost operational efficiencies and expand margins in its $5 billion-worth diagnostics unit. Cepheid is likely to generate $618–$635 million in revenues this year, which will add to Danaher's $5-billion revenue base.

Liquidity

Danaher exited 2016 with free cash flow of $2,498 million, an increase from $2,319 million.

Guidance

Concurrent with the earnings release, Danaher provided its guidance for first-quarter 2017. The company projects adjusted earnings per share in the range of $0.82–$0.85.

Furthermore, Danaher offered its full-year 2017 adjusted earnings guidance. The company projects non-GAAP adjusted earnings per share to be in the range of $3.85–$3.95, assuming non-GAAP core revenue growth in the range of 3–4%.

To Conclude

The year 2016 was a spectacular year for Danaher, marked by solid quarterly performances, accretive acquisitions and a strategic divesture, which split the company into two units and will help drive focused growth going ahead. The company’s fourth-quarter results, like the ones preceding it, have been largely impressive, with double-digit earnings growth, meaningful margin expansion, and solid free cash flow.

The year 2017 holds a unique set of opportunities as well as challenges for this Zacks Rank #3 (Hold) company. While the recent acquisitions of major firms, including Cepheid and Phenomenex, are anticipated to reinforce its Diagnostics and Life Sciences businesses; the impact of the Fortive Corporation (FTV Quick QuoteFTV - Free Report) spin-off remains to be seen. We believe the ability to execute its restructuring plans will play a crucial part for the company’s future.

Key Picks

Some better-ranked stocks in the industry include Leucadia National Corp. and Hitachi, Ltd. (HTHIY Quick QuoteHTHIY - Free Report) . While Leucadia National flaunts a Zacks Rank #1 (Strong Buy), Hitachi holds a Zacks Rank #2 (Buy).

Leucadia National Corporation delivered a whopping average positive earnings surprise of 179.0% for the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi has a long-term earnings growth expectation of 13%.

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