Danaher Corporation (DHR) reported adjusted earnings of 90 cents a share in third-quarter 2014, in line with the Zacks Consensus Estimate. Adjusted earnings increased 7.1% compared with the prior-year figure of 84 cents per share. The company’s GAAP earnings came in at 95 cents per share including a gain of 4 cents on divestures and 1 cent of discrete tax gain, an improvement of 13% year over year.
The increase in bottom line was mainly attributable to core revenue growth, driven by the company’s operating culture – Danaher Business System. The system has been effectively augmenting the company’s margins and cash flow. Specific initiatives undertaken for new product development and increased organic investments marked other positives for the company. Additionally, Danaher has a strong balance sheet and a significant acquisition capacity that is likely to drive growth, going forward.
Revenues and Margins
Danaher reported total sales of $4,870.3 million, an increase of 4.5% year over year. Core revenues for the quarter were up 3% year over year. Revenues from acquisitions climbed 2%, partially offset by unfavorable currency translation effects of 0.5%. However, reported revenues fell short of the Zacks Consensus Estimate of $4,910.0 million by 0.8%.
Danaher’s gross margin increased to 52.7% from 51.9% reported in the prior-year quarter, whereas its operating margin increased to 17.8% from 17.4% in the quarter.
Segments
Revenues in the Test & Measurement segment increased 1.5% year over year to $821.0 million. The segment operating margin declined 170 basis points (bps) year over year to 17.5%.
Revenues in the Environmental segment were up 10.5% to $914.1 million. The segment reported an operating margin of 20.4%, a decline of 30 bps year over year.
Life Sciences and Diagnostics revenues were up 4% year over year to $1,741.20 million. The operating margin for the quarter was up 100 bps year over year to 15.7%.
Revenues from the Dental segment grew 3.5% year over year to $528.4 million with operating margin increasing 110 bps to 17.2%.
In the Industrial Technologies segment, revenues climbed 2% to $865.6 million, while the operating margin increased 170 bps to 24.3% on a year-over-year basis.
Other Financial Details
Danaher exited the third quarter with cash and equivalents balance of $4,025.3 million versus $3,115.2 million as on Dec 31, 2013. The company had a long-term debt of $2,964.7 million at the end of the reported quarter, down from $3,436.7 million as on Dec 31, 2013.
Danaher’s cash flow from operating activities increased to $1,016 million from $971 million in the prior-year period, while free cash flow increased to $873 million from the prior-year quarter level of $832 million.
Business Update
On Oct 13, Danaher announced the merger of its Communications business with NetScout Systems, Inc. (NTCT), valued at about $2.6 billion. Danaher's Tektronix Communications, Fluke Networks and Arbor Networks form part of its Communications business. Post Merger, the combined entity will become a leading network management tools and security solutions provider across the globe. Per the contract, Danaher’s investors will get about 60% of NetScout’s shares. Synergies from this deal are likely to benefit both companies significantly.
Outlook
The company expects fourth-quarter 2014 GAAP earnings in the range of $1.00 to $1.04 per share which also includes a gain of 7 cents related to the sale of marketable securities and a loss of 13 cents owing to the productivity charges.
Zacks Rank
Danaher currently has a Zacks Rank #3 (Hold). Two other better-ranked stocks in the diversified operations sector are CLARCOR Inc. (CLC) and Noble Group Limited (NOBGY), both holding a Zacks Rank #2 (Buy).
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