10-QPeriod: Q3 FY2014

DANAHER CORP /DE/ Quarterly Report for Q3 Ended Sep 26, 2014

Filed October 16, 2014For Securities:DHR

Summary

Danaher Corporation reported solid overall sales growth of 4.5% for the first nine months of 2014 compared to the same period in 2013, driven by a 3.0% increase from existing businesses and contributions from acquisitions. This growth was particularly strong in high-growth markets, which accounted for approximately 27% of total sales in the third quarter. The company announced a significant strategic move with a tender offer to acquire Nobel Biocare for approximately $2.1 billion, a move expected to bolster its Dental segment. Concurrently, Danaher is planning to distribute its Communications business to shareholders and merge it with NetScout, a transaction anticipated to be tax-free. These strategic actions highlight Danaher's focus on portfolio optimization and growth through both strategic acquisitions and targeted divestitures. Financially, Danaher maintained strong operating cash flows, demonstrating its ability to fund operations, investments, and debt obligations. The company also addressed cost management through planned restructuring actions expected to incur approximately $125 million in pre-tax charges in the latter half of 2014. While facing some challenges such as foreign currency headwinds and ongoing tax audits, Danaher's diversified business segments and strategic initiatives position it for continued performance.

Financial Highlights

51 data points
Beta

Revenue

$4.71B

52.1% Gross Margin

Net Income

$680.60M

14.5% Net Margin

EPS (Diluted)

$0.95

Total Assets

$35.54B

Cash & Equivalents

$4.03B

Free Cash Flow

$885.40M

Financial Statements
Beta
Revenue$4.71B
Cost of Revenue$2.25B
Gross Profit$2.45B
R&D Expenses$288.10M
SG&A Expenses$1.30B
Operating Income$866.20M
Interest Expense$29.60M
Net Income$680.60M
EPS (Basic)$0.97
EPS (Diluted)$0.95
Shares Outstanding (Basic)702.60M
Shares Outstanding (Diluted)716.20M

Key Highlights

  • 1Overall sales grew 4.5% for the nine months ended September 26, 2014, compared to the prior year, with 3.0% organic growth from existing businesses.
  • 2The company announced a $2.1 billion tender offer to acquire Nobel Biocare, a leader in dental implant restorations, to be integrated into its Dental segment.
  • 3Danaher is planning to spin-off or split-off its Communications business and merge it with NetScout, aiming for a tax-free transaction for shareholders.
  • 4Third-quarter sales growth was led by high-growth markets, which represented approximately 27% of total sales.
  • 5Operating profit margins improved year-over-year for both the three-month (17.8% vs 17.4%) and nine-month (17.5% vs 17.2%) periods.
  • 6The company generated strong operating cash flow of $2.5 billion for the first nine months of 2014.
  • 7Danaher plans to implement cost reduction measures in the second half of 2014, expecting approximately $125 million in pre-tax charges.

Frequently Asked Questions

Danaher is actively pursuing a strategy of both acquiring complementary businesses and divesting non-core assets. In the first nine months of 2014, they acquired fifteen businesses for $635 million and divested their EVS/hybrid product line. A significant planned acquisition is Nobel Biocare for approximately $2.1 billion. Concurrently, they are planning to spin-off/split-off their Communications business and merge it with NetScout, indicating a focus on optimizing their portfolio for growth.

Danaher operates across five segments: Test & Measurement, Environmental, Life Sciences & Diagnostics, Dental, and Industrial Technologies. While most segments showed growth in sales from existing businesses, the Test & Measurement segment experienced a decline in its communications business, although its instruments business saw growth. The Life Sciences & Diagnostics and Environmental segments showed solid growth, and the Dental segment's acquisition of Nobel Biocare is expected to be a significant driver. Industrial Technologies also demonstrated positive performance with growth in existing businesses.

Danaher expects overall sales growth to continue, though management remains cautious about macro-economic and geopolitical uncertainties. They anticipate sales from existing businesses to grow year-over-year in the fourth quarter at a pace similar to the first nine months of 2014. The company is also implementing cost reduction initiatives and managing its capital structure, with sufficient liquidity to fund its operations, investments, and strategic growth plans.

The company faces various risks, including global economic conditions, intense competition, challenges in integrating acquisitions, regulatory environments (particularly in healthcare), and foreign currency exchange rate fluctuations. Additionally, ongoing tax audits in Denmark and Germany present potential material adverse impacts to financial statements and the effective tax rate. The planned separation and merger of the Communications business also carries execution risks.