Danaher (DHR)

Q4 2011 Earnings Call

January 31, 2012 7:30 am ET


Matt R. McGrew - Vice President of Investor Relations

H. Lawrence Culp - Chief Executive Officer, President, Director, Member of Finance Committee and Member of Executive Committee

Daniel L. Comas - Chief Financial Officer and Executive Vice President


Scott R. Davis - Morgan Stanley, Research Division

Scott R. Davis - Barclays Capital, Research Division

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

Terry Darling - Goldman Sachs Group Inc., Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Jeffrey T. Sprague - Vertical Research Partners Inc.

Nigel Coe - Deutsche Bank AG, Research Division

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Jonathan P. Groberg - Macquarie Research

Deane M. Dray - Citigroup Inc, Research Division



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Good morning. My name is Tricia, and I will be your conference facilitator today. At this time I'd like to welcome everyone to the Danaher Corporation Fourth Quarter Earnings Release Call. [Operator Instructions] I'd now like to turn the call over to Sir Matt McGrew, Vice President of Investor Relations. Mr. McGrew, you may begin your conference.

Matt R. 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, slide presentation supplementing today's call, and the reconciling and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available in the Investors section of our website, www.danaher.com, under the heading Financial Information and will remain available following the call.

As you read -- as our year-end Form 10-K have not yet been filed, we have included as part of the earnings release the fourth quarter and full year income statement, year-end balance sheet and full year cash flow statement. In addition, we've included data in the release reflecting our business segment results to facilitate your analysis. The audio portion of this call will be archived on the Investor section of our website later today under the headings Investor Events and will remain archived until our next quarterly call. A replay of this call will also be available until February 7, 2012. The replay number is (888) 203-1112 in the U.S. and (719) 457-0820 internationally and the confirmation code is 4407361.

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, the other related presentation materials supplementing today's call and our annual report on Form 10-K when it's filed for additional factors that impacted year-over-year performance.

All references in these remarks in the accompanying presentation to earnings, revenues and other company specific financial metrics relate only to the continuing operation of Danaher's businesses, unless otherwise noted.

I'd also like to note that we'll be making some statements during the call that are forward-looking within the meaning of the federal securities laws, 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 these actual results might differ materially from any forward-looking statements that we 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 statements, whether as a result of new information, future events and developments or otherwise.

With that, I'll turn the call over to Larry.

H. Lawrence Culp

Matt, thanks. Good morning, everyone. 2011 was another outstanding year for Danaher. For the full year, we saw high single-digit core revenue growth, core margin expansion of 160 basis points, adjusted earnings per share growth north of 25% and $2.4 billion of free cash flow. However, the numbers only tell part of the story. During the year, we continued to capture market share through both innovative new product introductions and our go-to-market initiatives. For the first time in 2011, our R&D spend exceeded $1 billion. And this continued investment has played a significant part in the share gains at many of our businesses, including Videojet, Leica, AB SCIEX, Hach and ChemTreat. In 2011, we significantly improved Danaher portfolio. We announced or closed 17 acquisitions during the year, most notably of course Beckman Coulter and Esko, while at the same time transitioning out some of our legacy businesses that were no longer considered significant core growth opportunities for us.

10 years ago, approximately 50% of our revenues were derived from what we consider to be our strategic growth segments. In 2012, that number will be nearly 90%, reflecting the evolution of our portfolio towards higher growth, higher margin, more global businesses where our brands are clear market leaders.

Last month at our year-end meeting, we talked about seeing strengthening in our businesses in early December. We saw that momentum carry through December, and we finished the fourth quarter with 4% core revenue growth, modestly better than we anticipated. During the quarter, we delivered strong operational performance with our core operating margin improving 100 basis points, despite investing $40 million in incremental year-over-year non-Beckman-related restructuring actions.

From a geographic perspective, emerging markets continue to grow at a faster rate than developed markets, although the gap narrowed in the fourth quarter. Excluding the impact of Beckman Coulter, sales from the developed markets grew low single digits in the quarter with the U.S. doing noticeably better than Europe. Emerging markets grew at a mid-single-digits rate.

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