Danaher (DHR) Beats On Q3 Earnings & Revenues, Guides Well

Danaher Corporation (NYSE:DHR) reported adjusted earnings of $1.00 a share in third-quarter 2017, beating the Zacks Consensus Estimate of 95 cents by 5%. Notably, adjusted earnings increased 13% on a year-over-year basis.

The improvement in the company’s bottom line can largely be attributed to Danaher Business System (“DBS”) that focuses on three critical areas -- quality, delivery, and cost & innovation. Moreover, a decent top-line performance led to mid-teens adjusted earnings per share growth, strong margin expansion and cash flow during the quarter.

Inside The Headlines

The company reported total sales of $4,528.2 million, reflecting an increase of 9.6% year over year. Moreover, the sales figure surpassed the Zacks Consensus Estimate of $4,460 million. Also, core businesses grew 3% year over year, partially offset by adverse effect of currency translation.

Life Sciences revenues recorded an increase of 5.1% year over year to $1,393 million. Operating margin for the quarter increased 230 basis points (bps) to 17.7%. Impressive growth in operating margin came on the back of increased sales volumes. Revenues at the Diagnostics segment increased 19.5% year over year to $1,449 million. Also, operating margin at the segment increased 80 bps year over year to 16.8%.

Revenues at Dental were up 2.7% year over year to $694 million. However, operating margin decreased 30 bps to 14.7%. The Environmental & Applied Solutions segment witnessed revenue growth of 8.2% year over year to $993 million. However, operating margin declined 190 bps to 22.4% on a year-over-year basis.

On a year-over-year basis, operating profit margin remained same at 16.9%.

Liquidity

Danaher exited the third quarter of 2017 with free cash flow of $935.4 million compared with the year-ago figure of $703.4 million.

Outlook

Concurrent with the earnings release, Danaher provided its guidance for fourth-quarter 2017. The company projects adjusted earnings per share in the range of $1.12–$1.16.

Moreover, Danaher raised its full-year 2017 adjusted earnings guidance. The company currently expects adjusted net earnings per share in the band of $3.96–$4.00 compared with the previous guided range of $3.90–$3.97. The company reported impressive key metrics largely driven by its effective business model, DBS.

Danaher currently carries a Zacks Rank #2 (Buy).

Our Take

Danaher’s DBS model helped it to deliver yet another impressive quarter. The company has successfully repositioned itself as a healthcare company, broadening its presence in the healthcare and dental markets, which are expected to benefit from the rise in aging population and increased spending on healthcare and fitness. Additionally, lucrative prospects in pharma and clinical end-markets bode well for the company.

Moreover, the company’s aggressive acquisition strategy is proving to be a strong profit churner. The company also expects core growth rate to accelerate going forward in light of improving order trends and recent acquisitions like Cepheid and Phenomenex.

Furthermore, the company’s constant focus on introduction of products to penetrate new markets has enabled it to gain a competitive edge over peers. Further, Danaher remains optimistic about core revenue growth on the back of improving order trends and DBS.

Other Stocks to Consider

Other stocks worth considering in the same space include Nutanix Inc. (NASDAQ:NTNX) , Leucadia National Corporation (NYSE:LUK) and ITT, Inc. (NYSE:ITT) . While Nutanix sports a Zacks Rank #1 (Strong Buy), Leucadia National and ITT carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutanix has an excellent earnings surprise history, beating estimates in each of the trailing four quarters with an average beat of 12.9%.

Leucadia National has a modest earnings surprise history over the trailing four quarters, having beaten estimates twice. It has delivered an average beat of 5.4%.

ITT has posted earning beats thrice in the trailing four quarters. It boasts an average beat of 6.0%.

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