10-QPeriod: Q3 FY2004

DANAHER CORP /DE/ Quarterly Report for Q3 Ended Oct 1, 2004

Filed October 21, 2004For Securities:DHR

Summary

Danaher Corporation's Q3 2004 report shows robust financial performance, driven by significant sales growth across both its Process/Environmental Controls and Tools and Components segments. Total sales increased by approximately 33% year-over-year for the quarter, with existing businesses contributing 9% growth and strategic acquisitions adding a substantial 22%. Net earnings for the quarter reached $200.8 million, a significant increase from $138.6 million in the prior year period, leading to diluted EPS of $0.62. The company's acquisition strategy remains aggressive, with eleven businesses acquired in the first nine months of 2004 for approximately $1.4 billion, primarily within the Process/Environmental Controls segment, and the establishment of a new Medical Technology platform. This aggressive M&A activity has substantially increased goodwill on the balance sheet. Despite increased investment in working capital to support higher sales and integration costs from acquisitions, operating cash flow saw a healthy increase of 24% year-over-year for the nine-month period, reaching $769 million.

Key Highlights

  • 1Total sales for the quarter ended October 1, 2004, surged by 33% to $1.75 billion compared to the prior year, driven by strong organic growth and significant contributions from acquisitions.
  • 2Net earnings for the quarter increased by approximately 45% to $200.8 million, with diluted earnings per share rising to $0.62 from $0.44 in the prior year period.
  • 3The Process/Environmental Controls segment demonstrated impressive sales growth of 41% year-over-year, fueled by acquisitions and organic expansion in environmental and motion businesses.
  • 4Danaher completed eleven acquisitions during the first nine months of 2004, investing approximately $1.4 billion, significantly boosting goodwill and establishing a new Medical Technology platform.
  • 5Operating profit margins showed improvement, with the Process/Environmental Controls segment at 17.2% (vs. 17.2% prior year, but higher sequentially) and Tools and Components at 16.6% (vs. 15.9% prior year), reflecting operational efficiencies and pricing adjustments.
  • 6Operating cash flow for the nine-month period increased by 24% to $769 million, underscoring the company's strong ability to generate cash despite significant investment in acquisitions and working capital.
  • 7The company's balance sheet reflects substantial growth in goodwill, increasing from $3.06 billion to $3.79 billion due to recent acquisitions.

Frequently Asked Questions

Danaher's revenue growth was driven by a combination of factors. For the quarter, total sales increased by 33% year-over-year, with 9% attributed to existing businesses and 22% to acquisitions. The Process/Environmental Controls segment saw particularly strong growth, partly due to contributions from newly acquired businesses and organic growth in areas like environmental and motion products. Favorable currency translations, particularly the strengthening Euro, also contributed about 2% to the sales growth.

Danaher has been very active in acquisitions, completing eleven businesses in the first nine months of 2004 for approximately $1.4 billion. This aggressive strategy has led to a significant increase in goodwill on the balance sheet, which rose from $3.06 billion to $3.79 billion. The acquisitions have also formed a new Medical Technology platform, contributing to revenue growth, but also leading to higher selling, general, and administrative expenses and initial integration costs.

Management noted continued strength across most businesses, supported by economic growth in key markets. However, they are sensitive to recent softness in the semiconductor market and with certain retail customers. The company anticipates that the growth rate from existing businesses may temper in the fourth quarter as they lap stronger prior-year periods. Potential headwinds include increased competition, changes in regulations, currency fluctuations, and the challenges and uncertainties associated with integrating acquired businesses.

Profitability has seen significant improvement, with net earnings growing substantially year-over-year. Gross profit margins improved to 42.4% in the quarter due to leverage from higher sales, cost improvements from the Danaher Business System (DBS), and higher margins in acquired businesses. However, selling, general, and administrative expenses as a percentage of sales increased slightly to 25.9% due to increased spending for growth, the impact of newly acquired businesses with typically higher expense structures, and unfavorable currency translation effects on non-U.S. cost structures.