Danaher Corp. Q1 2010 Earnings Call Transcript

Danaher Corp. Q1 2010 Earnings Call Transcript
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Danaher Corp. (DHR)

Q1 2010 Earnings Call

April 22, 2010 08:00 am ET

Executives

Matt McGrew - VP of IR

Larry Culp - President and CEO

Dan Comas - EVP, CFO

Analysts

Scott Davis - Morgan Stanley

Steven Winoker - Sanford Bernstein

Bob Cornell - Barclays Capital

Jeff Sprague - Vertical Research Partners

John Inch - Merrill Lynch

Nigel Coe - Deutsche Bank

Steve Tusa - JPMorgan

Ajit Pai - Thomas Weisel Partners

Richard Eastman - Robert W. Baird

Terry Darling - Goldman Sachs

Presentatio

n

Operator

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Good morning. My name is April and I will be your conference facilitator today. At this time I would like to welcome everyone to the Danaher Corporation’s first quarter 2010 earnings results conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Matt McGrew, Vice President of Investor Relations. Mr. McGrew, you may begin your conference.

Matt McGrew

Good morning everyone and thanks for joining us. On the call today are Larry Culp, our President and Chief Executive Officer and Dan Comas our Executive Vice President and Chief Financial Officer. I’d like to point out that our earnings release, a slide presentation supplementing today’s call, our first quarter Form 10-Q and the reconciling and other information required by the SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available in the investor section of our website www.danaher.com under the heading earnings and will remain available following the call. The audio portion of this call will be archived on the investor section of our website later today under the heading Investor Events and will remain archived until our next quarterly call. A replay of this call will also be available until April 26. The replay number is 888-203-1112 in the US and 719-457-0820 internationally and the confirmation code is 3704331.

During the presentation we will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the accompanying slide presentation, our earnings release, our first quarter Form 10-Q and other related presentation materials supplementing today’s call for additional factors that impacted year-over-year performance.

I would also like to note that we will be making some forward-looking statements during the call including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings. It is possible that actual results might differ materially from any forward-looking statements that we might make today. These forward-looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward-looking statement, whether as a result of new information, future events, developments or otherwise.

With that, I’d like to turn the call over to Larry.

Larry Culp

Thanks, good morning everyone. Let me start this morning with a brief overview what we are seeing across our businesses and end markets to provide you some context to our first quarter results and our outlook for the balance of the year. We continue to see encouraging signs that the global economy is stabilizing and in many places returning to growth. We grew 5.5% in the first quarter on a core basis, our core growth was broad based with all of our segments reporting mid-single digit growth. This represents our first quarter of core growth, hence the third quarter of 2008 clearly and positive heading in the remainder of 2010.

We believe this increased demand is largely end user driven. While there has been some modest restocking going on in certain businesses, distributor destocking has run its course. We saw mid-teens growth from the emerging markets, the US grew slightly less than the overall company results and Western Europe was modestly positive. We are quite pleased with the way our business has executed during the first quarter, core operating margin expanded 285 basis points year-over-year with each of our segments achieving over 100 basis points of core improvement; our first with Danaher.

Throughout the last several years, we focused on making growth investments in innovation and sales and marketing to ensure that we are well positioned to both the near and long term. As a result of that focus we’ve developed a very compelling product line-up across the portfolio that should continue to drive core growth and margin expansion.

2010 will also see a number of exciting new product launches and our timing couldn’t be better given the improving economy. We continue to capture market share through new product introductions and the impact of our DBS growth tools. Leica, DEXIS, Gilbarco Veeder-Root, ChemTreat and Radiometer are among the businesses where we believe we have taken market share from competition.

With that as backdrop let me move to the details of the quarter. Today we reported first quarter GAAP earnings per diluted share of $0.89 representing a record first quarter for Danaher and a 24% increase over last year. Adjusted net earnings per diluted share was $0.96, up 33% year-over-year. Revenues for the quarter increased 17.5% to a record $3.1 billion with core revenues up 5.5%. The effect of currency translation increased revenues by 3.5% and acquisitions contributed 8.5%.

Year-over-year gross margin for the first quarter increased 50 basis points to 48.4% largely due to higher sales volumes and the benefit of our 2009 restructuring initiatives. Operating margin in the first quarter increased 110 basis points year-over-year to 14% resulting from higher sales volume and the benefit of our prior year's restructuring initiatives.

As I mentioned a moment ago our core operating margin increased 285 basis points on a year-over-year basis. First quarter operating cash flow was record $394 million, a 24% increase year-over-year. Free cash flow was $355 million, and our free cash flow to net income conversion ratio was 118%. We are optimistic about our ability to deliver free cash and excessive net income for what would be our 19th year in a row.

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