Danaher Management Discusses Q2 2012 Results - Earnings Call Transcript

Danaher (DHR)

Q2 2012 Earnings Call

July 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

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

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

Nigel Coe - Morgan Stanley, Research Division

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

Scott R. Davis - Barclays Capital, Research Division

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

Charles Clarke

Jonathan P. Groberg - Macquarie Research

Terry Darling - Goldman Sachs Group Inc., Research Division

Deane M. Dray - Citigroup Inc, Research Division

Presentation

Operator

Good morning. My name is Debbie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation Second Quarter 2012 Earnings Results Conference. [Operator Instructions] Just a reminder, today's conference is being recorded. And now, I would like to 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. 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 second 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 Investor section of 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 this call will be archived on the Investor section of our website later today under the heading Investor Events and will remain available till our next quarterly call. A replay of this call will also be available until Thursday, July 26. Replay number is (888) 203-1112 in the U.S. and (719) 457-0820 internationally, and the access code is 1304801.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the earnings release, Form 10-Q and other materials previously referenced for additional factors that impacted year-over-year performance. In these remarks and accompanying presentation, all references to earnings, revenues and other company specific financial metrics relate only to the continuing operation of Danaher's businesses unless otherwise noted.

We will also make some forward-looking statements on today's call, including statements regarding events or developments that we believe or anticipate will or may occur in the future. It's possible that actual results might differ materially from those projected in any forward-looking statements. An additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is set forth in our SEC filings. These forward-looking statements speak only as of the date they are made. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events, development or otherwise.

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

H. Lawrence Culp

Matt, thanks, and good morning, everyone. We were pleased by the sequential improvement in our core growth and our strong operating margin and cash flow performance in the quarter. Despite the macro headlines, we grew 3.5% organically in the quarter, and the team did an outstanding job on the execution front with an 80 basis points of year-over-year core operating margin expansion, a 31% year-over-year increase in free cash flow and a 31% growth in EPS.

We continue to focus our efforts on capturing market share, driven by DBS, as well as our investments in innovation. Videojet, ChemTreat, Leica Biosystems, Esko, Kerr, Arbor Networks and Radiometer are among the businesses where we believe we have taken market share during the quarter.

Geographically, the U.S. largely continued its strong start to 2012, their Q2 revenues growing mid-single digits, though we did see some pockets of weakness as we exited the quarter. In Western Europe, our sales were flat in the quarter, which, by and large, resonates with the headlines. China was mixed but flat in the quarter. The bright spot in China for us has been healthcare with both our Dental and Life Sciences & Diagnostics businesses growing double digits in the quarter. The rest of the emerging markets remained strong and also grew at a double-digit rate.

We remain active and optimistic on the M&A front. Through the first 6 months, we've deployed nearly $1 billion of capital on 8 acquisitions, primarily in our Industrial, Environmental and Test & Measurement segments. Even taking into account the capital we deployed on these transactions, we still expect to have more than $5 billion of M&A capacity over the next 2 years.

Turning to details of the quarter. Today, we reported record second quarter diluted net earnings per share of $0.84, a 31% increase as compared to our diluted net EPS last year. The current period includes a $0.03 benefit from a lower-than-anticipated income tax rate and a gain from resolving a contingency related to a prior asset disposal.

Revenues for the quarter increased 25% to $4.6 billion, with core revenues up 3.5%. The impact of acquisitions, primarily the addition of Beckman Coulter, increased revenues by 25% while currency translation reduced sales by 3.5%. Our gross margin for the second quarter was 51.7%. Our reported operating margin expanded 100 basis points year-over-year to 17.8%.

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