Danaher's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Danaher (DHR)

Q1 2012 Earnings Call

April 19, 2012 8:00 am ET

Executives

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

Analysts

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Nigel Coe - Morgan Stanley, Research Division

Deane M. Dray - Citigroup Inc, Research Division

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

Charles Stephen Tusa - JP Morgan Chase & Co, Research Division

Scott R. Davis - Barclays Capital, Research Division

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

Jeffrey T. Sprague - Vertical Research Partners Inc.

Jonathan P. Groberg - Macquarie Research

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good morning. My name is Agasta, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation First Quarter 2012 Earnings Release Call. Today's call is being recorded. [Operator Instructions] I would like to now turn the call over to Mr. 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, a slide presentation supplementing today's call, our first quarter Form 10-Q 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 on our website, www.danaher.com, under the heading Financial Information and subheading Quarterly Earnings and will remain available following the call.

The audio portion of the call will be archived in the Investors 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, 2012. The replay number is (888) 203-1112 in the U.S. and (719) 457-0820 internationally, and the confirmation code is 4431956.

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. 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 statements 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 on our SEC filings. It's possible that 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 a result of new information, future events and developments or otherwise.

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

H. Lawrence Culp

Matt, thanks. Good morning, everyone. The first quarter progressed largely as anticipated against the highest core growth quarter of last year. Sales from the developed markets grew slightly, with the U.S. again noticeably better than Europe, which declined this quarter. China revenues were essentially flat while the rest of the emerging markets grew at a high single-digits rate.

Overall, we were encouraged by a number of factors. Both shipment and orders improved sequentially through the quarter. Organic order growth was about 2 points higher than revenue growth as we built backlog across many of our businesses. This was most noticeable in China where our book to bill exceeded 1.1.

Also, in a number of markets, sellout by our distribution partners was stronger than our sell-in. We were pleased with the team's execution in the quarter, which led to 85 basis points of year-over-year core operating margin expansion, a 37.5% year-over-year increase in free cash flow and a 19.5% increase in EPS.

We continue to aggressively invest in new product introductions and go-to-market initiatives. During the quarter, we launched a number of exciting products, a few of which we will highlight through the call today.

We remain active and optimistic on the M&A front. As you saw last week, we announced the pending acquisition of X-Rite, a global leader in color measurement. Even after closing X-Rite and 3 other deals in the quarter, we expect to have approximately $5 billion of M&A capacity over the next 2 years.

So with that as a backdrop, let me move to the details of the quarter. Today, we reported record first quarter diluted net earnings per share of $0.73, a 19.5% increase as compared to our diluted net EPS last year. Revenues for the quarter increased 31% to $4.3 billion, with core revenues up 1.5%. The impact of acquisitions, primarily the addition of Beckman Coulter, increased revenues by 30.5%, while the negative impact of currency translation reduced sales by about 1 point.

Our gross margin for the first quarter was 51.8%, a 250-basis point sequential improvement from the fourth quarter. Our operating margin in the first quarter decreased 80 basis points year-over-year to 17%.

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