Danaher Corporation First Quarter 2014 Review; Announces CEO Transition

Danaher’s first-quarter revenue and adjusted EPS were essentially in line with expectations. Adjusted EPS from continuing operations of $0.81 were above management’s guidance range of $0.76-$0.80 and slightly above the consensus estimate of $0.80. Revenue increased 5%, to $4.66 billion, about in line with consensus expectations for $4.67 billion. Organic revenue growth of 3.5% was broad-based, with all segments reporting at least 1% organic growth. Dental reported the strongest organic growth, up 6% in the first quarter.

Management reaffirmed the full year 2014 adjusted EPS guidance range of $3.60-$3.75, with a midpoint below the consensus estimate (at the time of the release) of $3.76. Management also reaffirmed that full-year core revenue growth is expected to be 2%-4%. Management expects core revenue growth in the second quarter to be similar to the first quarter (up 3.5%) and expects second-quarter EPS to fall within a range of $0.90 to $0.94, below the consensus estimate (before the release) of $0.96.

Key highlights in the first quarter include 1) high-single-digit core growth in emerging markets; 2) 10% growth in China, with a more equitable balance between healthcare and industrial product sales (healthcare had been driving growth in China over the last three years); 3) Beckman Coulter having its best quarter since the acquisition in expanding its installed base and also receiving closure on its last two FDA warning letters; 4) 6% core growth in dental driven by broad-based strength across all product categories (although we expect core growth to moderate in the second quarter); 5) core operating margin expanded by at least 125 basis points in 4 of the 5 segments; 6) an improving motion business as the company begins to lap the negative impact from exiting some low-margin business in early 2013; and 7) productivity and efficiency investments in 2013 (totaling $100 million) are expected to yield $75 million in savings in 2014. Management expects to invest another $70 million in productivity and efficiency in 2014.

The company also announced that Thomas P. Joyce, Jr., previously an executive vice president, will succeed H. Lawrence Culp, Jr. as chief executive officer upon Mr. Culp’s retirement on March 1, 2015. Mr. Culp will continue in an advisory role into first quarter 2016. Mr. Joyce was responsible for the company’s water quality and life sciences/diagnostics platforms, which collectively represent more than $9 billion of annual revenues. Mr. Joyce has worked at Danaher in various capacities since 1989. Mr. Culp indicated that his decision to leave the company was completely his choice and expressed a desire to do something different in the next chapter of his life, focus on areas of personal interest, and spend more time with his family.

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