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Danaher Misses Q2 Earnings Estimates, Up Y/Y, Outlook Cut

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Danaher Corporation(DHR - Free Report) reported adjusted earnings of 93 cents a share in second-quarter 2014, which missed the Zacks Consensus Estimate by a penny.  However, the adjusted earnings increased 6.9% compared with the prior-year figure of 87 cents per share. The company’s GAAP earnings came in at 95 cents per share including 2 cents related to gain on the sale of marketable securities.


The increase in bottom-line was mainly attributable to its core revenue growth driven by the company’s operating culture- Danaher Business System. The system has been has been augmenting its margins and cash flow effectively. Specific initiatives for new product development and increased organic investments were other positives for the company. Additionally, Danaher has a strong balance sheet and over $8 billion of acquisition capacity that is likely to drive growth going forward.


For the quarter, Danaher reported total sales of $4,963.6 million, an increase of 5% year over year. Core revenues for the quarter were up 3% year over year, while revenues from acquisitions were up 1.5%, partially offset by unfavorable currency translation effects of 0.5%. Reported revenues fell marginally short of the Zacks Consensus Estimate of $4968.0 million.


Danaher’s gross margin expanded 10 basis points (bps) to 52.8%. The company’s operating margin also increased 10 bps to 17.9% in the quarter.


Revenues in the Test & Measurement segment remained flat year over year at $857 million. The segment operating margin decreased 250 bps to 18.4% compared with the prior-year figure.

Revenues in the Environmental segment were up 6% to $876 million. The segment reported operating margin of 21.0%, a decline of 60 bps from last year’s margin.

Life Sciences and Diagnostics revenues were up 7% year over year to $1,790 million. The operating margin for the quarter was up 140 bps year over year to 15.8%.

Revenues from the Dental segment grew 2.5% year over year to $528 million with operating margin declining 50 bps to 14.8%.

In the Industrial Technologies segment, revenues grew 5.5% to $913 million, while the operating margin increased 30 bps to 23.8% on a year-over-year basis.

Balance Sheet & Cash Flow

Danaher exited the second quarter with cash and equivalents balance of $3,321.1 million versus $3,115.2 million as on Dec 31, 2013. The company had a long-term debt of $3,020.0 million at the end of the reported quarter, down from $3,436.7 million as on Dec 31, 2013.

Danaher’s cash flow from operating activities increased to $992 million from $899 million in the prior-year period. The company’s free cash flow also increased to $844 million from $763 million in second-quarter 2013.

Business Update

On Jul 16, Danaher announced that its Beckman Coulter division will be acquiring the clinical microbiology business of Siemens Healthcare Diagnostics for an undisclosed amount. The acquisition is expected to have strong operational synergies for Beckman Coulter's Diagnostics business. The acquisition will be expanding Danaher’s product portfolio by offering differentiated analytical systems and menu including the crucial ID/AST solutions for their existing solutions. This is expected to significantly enhance the clinical offerings while improving patient care. The deal is expected to close in the first quarter of 2015.


Concurrent with the earnings release, management provided its guidance for third-quarter and full-year 2014 revenues and earnings.

The company has narrowed the guidance for full-year 2014 GAAP earnings in the range of $3.67 to $3.72 per share compared with $3.60 to $3.75 per share projected earlier. For the third quarter of 2014, the company’s GAAP earnings are expected to be in the range of 86 cents to 89 cents a share.

Zacks Rank

Danaher currently carries a Zacks Rank #3 (Hold). Some other stocks in the same sector worth considering include CLARCOR Inc. , Hutchison Whampoa Limited and ChinaMerchants Holdings (International) Company Limited . All these stocks carry a Zacks Rank #2 (Buy).

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