Danaher reported 1Q19 earnings results this morning. Core revenue growth of 5.5% is solid, and core operating margins expanded 90bps (ex-FX). Results were good across each segments. During the call, management reassured that sales in China remained healthy, with no signs of destocking as peers have experienced in Q1. The risk around generics and pricing in healthcare does not directly impact them (they see themselves as 2nd or 3rd derivative from this issue). The 2019 EPS guidance has been adjusted for the equity dilution (related to the GE Biopharma acquisition), although that was partially offset by the higher than expected Q1: the EPS range moved from $4.75-4.85 to $4.72-4.80. DHR expects 4-5% core revenue growth in FY19. Recently this week, the healthcare group suffered a sell-off driven by fears of “Medicare for All”, which pushed Danaher lower as well. While it pared some of the GE Biopharma advance the stock gained following the announcement, we think Danaher continues to offer an attractive defensive business with high recurring revenue mix (something that we liked about Fortive!), potential for more synergies tied to the deal, and a margin expansion story.
Core revenue growth by segments:
· Life Sciences: +7%. Biotech business (single use) drove growth. End markets remain very good
· Diagostics: +5%. Good flow of new products coming to the market. Margins were negatively impacted by FX and tariffs together as well as mix
· Dental +2.5%. Pricing was negative again. Management comments: seeing market stabilization in the North American market, and channel inventories in good shape. Margin decline due to investments to develop new products.
· Environmental & Applied: +5.5%
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Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109