Danaher Q1'16 Earnings Conference Call: Full Transcript

Operator:

My name is Eita and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation First Quarter 2016 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. If you would like to ask a question during that time simply press star and the number one on your telephone keypad if you would like to withdraw your question please press star two. I'll now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations.

Mr. Gugino, please begin your conference.

Matthew E. Gugino: Vice President of Investor Relations:

Thank you Eita and good morning everyone and thanks for joining us on the call. With us today are Tom Joyce, our President and Chief Executive Officer, and Dan Comas, our Executive Vice President and Chief Financial Officer.

I like to point out, that our earnings release, the slide presentation supplementing today's call our first quarter Form-10Q and the reconciliation and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call all available on the Investor section of our website www.danahar.com under the heading financial information. The audio portion of this call will be archived on the Investor
Section of our website later today, under the heading Events and Presentation and will remain archived until our next quarterly call. A replay of this call will also be available until April 28 2015. The replay number is 888-203-1112 within the U.S. Or 719-457-0820 outside the US and the confirmation code is 464-32-45.

During the presentation we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted all references to these remarks and supplemental materials to company's specific financial metrics related to continuing operations of the company and the first quarter of 2016 and all references for period-to-period increases or decreases in financial metrics are year-over-year.

During the call we'll make forward-looking statements within the meaning of the Federal Securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward-looking statements.

With that I would like to turn the call over to Tom.

Thomas P. Joyce, Jr.: President Chief Executive Officer:

Thanks Matt and good morning everyone. We were pleased with our start to 2016 as our team continued to outperform in the face of uncertain and challenging economic conditions. In the quarter, we delivered high-teens earnings growth, healthy operating margin expansion and free cash flow that was up over 50% year-on-year.

The Danaher Business System remains the driving force behind our performance, equipping our team with the tools to strengthen our competitive positions, the focus to invest in high-impact growth opportunities and the flexibility to position our businesses for long-term success.

This will be an exciting year, as we anticipate the upcoming launch of Fortive Corporation. Which we expect to spin out off Danaher in the third quarter. Since our last update in January, we continue to build a highly experienced leadership team that named additional members to Fortive's Board of Directors. The team is also made great progress solidifying Fortive's financial, legal and organizational structures.

This separation is a unique opportunity for Danaher and Fortive, optimized our respective portfolios and build long-term shareholder value. We look forward to sharing more information with you at our Investor and Analyst event in May at Gilbarco Veeder-Root.

Now turning to the details for the quarter. Adjusted diluted net EPS was $1.08 an increase of 18.5% over last year. Sales grew 15% to $5.4 billion and core revenue increased 50 basis points. As a number of our businesses were negatively impacted by top prior year comparisons and one less selling day.

Clearly the economic environment remains challenging in many verticals and geographies, but we were encouraged by signs of sales and order stabilization through the quarter. Our teams focus on portfolio optimization and diligent execution using DBS helped improve and sustain many of our market leading position.

Finally, the impact of currency translation ease this quarter but still decreased revenues by 2% while acquisitions increased revenues by 16.5%. Geographically the developed markets grew slightly with stability in the U.S. and Europe. High growth markets were up low single-digit as continued growth in India was offset by declines in Latin America and Russia.

In China our teams are well position to compete in several attractive markets and delivered mid-single-digit core growth in the quarter.

Gross margin for the first quarter was 53.1% an increase of 50 basis points from last year, along with the productivity initiatives undertaken in 2015, our gross margin expansion has enabled us to sustain and expand our growth investments in new product developments and sales and marketing.

Core operating margin expanded 45 basis points with reported operating margin at 16.4%. Free cash-flow is one of the most important metrics at Danaher, as it provides us with the agility to invest in both organic and inorganic growth initiatives across our entire portfolio. We had a strong quarter on this front, generating $622 million of free cash flow a significant increase over last year.

Coming up a historic year of M&A, we closed 6 bolt-on acquisitions in the first quarter deploying over $100 million in capital. These deals will strengthen our capabilities across many of our businesses. Both Danaher and Fortive have strong and active funnels and we'll continue to focus on small and mid-size transactions for both companies through the separation process.

Now let's take a look at our five operating segments. Starting with test and measurement. Revenues decreased 5.5% with core revenues down 5%. Core operating margin decreases a 135 basis points with reported operating margin coming in at 20.9%.

Core revenues for our instruments platform declined high single-digit as we continue to face a challenging global market environment. All major geographies saw decline except for China and India. Fluke core revenues decreased mid-single digit due to declines in the U.S., Western Europe and Latin America partially offset by increases in China. Well still a difficult environment, we did see some signs of stabilization in certain geographies and industrial end markets during the quarter.

A few weeks ago, Fluke announce the launch of the Fluke 279 FP thermal multimeter . The world first test tool that integrate a full featured digital multimeter with a thermo camera in one device. This combination enables technicians to check for hotspot on high voltage equipments and analyze proms at a safe distance. By combining these important test tools into one, Fluke is helping our customers troubleshoot electrical issues more quickly, safely and thoroughly.

At Tektronix, core revenues declined low double-digit as growth in China and India was more than offset by decline in all other major geographies. The Matco team continued to execute well delivering high single-digit core growth in the quarter notably Matco has posted mid-single digit growth or better for 23 of the last 25 quarters, and continues to improve its market position. In February Matco hosted its annual tool expo in Las Vegas, the expo provides Matco franchises with an opportunity to see new products, attend training sessions and stock their businesses for the upcoming year. This year almost three quarters of Matco's franchises participated resulting in record attendance and event driven sales.

Turning to our environmental segment, revenues grew 4% with core revenues up 3.5%. Reported operating margin declined 220 basis points to 17.3%. Core operating margins declined 155 basis points and was negatively impacted by incremental investments including EMV related spend at Gilbarco Veeder-Root. We anticipate segment margins to return to more normalized levels in the second quarter.

The water qualities platforms core revenues grew slightly, as one less selling day and a tough prior year comparison had a negative impact. At Hach positive momentum in the US municipal market continue. But softness in high growth markets resulted in flat core growth for the quarter. Trojan also saw strong municipal demand globally and delivered another good quarter.

Finally at ChemTreat, the team grew revenue slightly in the quarter despite headwinds in its industrial and commodity oriented markets. One of the ways that we continue to augment growth, built our capabilities and better serve our customers through M&A. Our Water Quality platform has acquired more than 40 businesses since 1996 and continued its healthy cadence to bolt-ons this quarter with Hach acquisition of Luftmas in January. Luft's long standing precision centers long lasting precision centers are a key part of weather measuring networks along roads, railways and airports enable us to deliver value to a wider range of customers around the world.

The Hach, team does an exceptional job of implementing DBS in newly acquired businesses and this is well underway already at Luft. DBS lean and growth tools are helping us drive more efficient production strengthening key account relationship and improved funnel management. At Gilbarco Veeder-Root, core revenue grew high single-digit for the third consecutive quarter. EMV related demand in the US drove double-digit growth in point of sales solutions and dispenser systems and we believe we continue to gain share on both fronts.

Many of our customers are still in the process of upgrading indoor payment systems for last Octobers credit card liability shift.

Additionally we're well-positioned to benefit from the upcoming outdoor liability shift and the Gilbarco team is already collaborating with the number of customers to phase in outdoor upgrades. Looking more about EMV and GVR other opportunities at our Investor and Analyst event next month.

Moving now to LifeSciences and Diagnostics, core revenues grew 2.5% with reported revenues up 42%, largely due to our recent Pall and MicroScan acquisition. Core operating margin expanded 205 basis points, thanks to the teams solid execution using DBS. Core revenues in our diagnostics platform increased low single-digit led by healthy demand in high growth market.

At Beckman Coulter core revenue increased at a low single-digit rate. We saw strong demand for our immunoassay solutions and used our well established installed base to help drive increased sales in India and China. Our consumable streams remains solid and we're seeing healthy utilization rates globally. Radiometer, and Leica Biosystems both increased core revenues in the quarter with growth in China and India offset by declined in other high gross markets.

Our team is focused on improving our customers experience every day and shows that commitment by extending our product offering through both innovation and adjacent bolt-on acquisition. Beckman Coulter's first major bolt-on IRS closed in 2012 and extended our footprint beyond blood testing in the year analysis. Since then IRS has delivered double-digit growth and extended operating margins over 1,000 basis points.

More recently the acquisition of MicroScan expanded Beckman's already strong presence in hospital and reference labs into the Micro Biology space. It is then one year since we close the deal and we achieved double-digit core revenue growth in the quarter. Both IRS and MicroScan are helping us serve our customers better and we believe that adjacent acquisition combined with our consistent application DBS will continue to enhance our comprehensive workflow solutions across our diagnostic businesses.

In our life-science platform core revenue was up low single-digits with growth in both developed and high-growth markets. Leica Microsystems core revenues were up low single-digits as strong performance in North America and China was offset by declines in Japan and Latin America. At core revenues grew low single-digits driven by demand in China and Middle East. We also saw healthy sales growth in certain applied end markets and our service business.

The team has placed a strong focus on improving our customers experience by pairing service contracts with instrument sale.

This is driven record contract capture rates including over 500 basis points of improvement in year-over-year attachment rates in the first quarter alone. Is a great example of how we use new products to help our customers most critical challenges. In the quarter we launched the X500R, the first model within our product family which was that teams largest ever development project. The X500R is a robust instrument that was specifically designed to serve customers in food and environmental testing lab.

Two of the fastest growing end markets in mass spectrometry. Going forward we expect this to be a significant contributor to our future growth.

Turning to Pall, we are very pleased with our early progress. This quarter the Pall's team delivered mid-single digit core revenue growth led by double-digit growth in our LifeSciences business due to demand for our Biopharmaceutical solutions including single used technologies. Our industrial business was down low-single digit as we face challenging market conditions. The teams enthusiastic application of DDS including over 100 kaizen events since close.

Has led to meaningful process improvements and several new product introduction across all of LifeSciences and industrial businesses. As a result of our growth in productivity initiative year-on-year operating margins were up over 250 basis points.

As we move on to dental, core revenues increased by a 0.5% due to strong demand for consumables and the implants in North America and the high-growth markets as well as healthy orthodontic sales in China. These gains were negatively impacted by 1 less selling day. Over the last several quarters, the Dental team is focused on execution and disciplined spending has paid off in margin expansion. This quarter the team grew core operating margins by 250 basis points, and reported operating margins by over 500 basis points to 14.5%.

Our continued investments in innovation have resulted in a number of differentiated product offerings by Dental customers. At the Chicago Mid-Winter Dental show in February, we launched over 15 new products including Max Kamali trauma a revolutionary new cement to dental restoration. That changes colors to indicate the correct time for a dentist to remove any excess material. The first in class color indicator simplifies the dentist procedure and reduces clinical risks.

At Nobel Biocare the teams drove mid-single-digit average daily sales of implants system this quarter. Since the acquisition closed Nobel has achieved over 400 basis points of operating margin improvement and it's focused on reinvesting those savings into future growth opportunities.

Moving now to industrial technology, revenues declined 1.5% while core revenues were also down 1.5%. Despite the revenue decline core operating margin expanded 25 basis points while reported operating margin declined 30 basis points to 24.3%. The automation platform's core revenues decreased at a high single-digit rate due to the weakness in global industrial markets and a difficult prior year comparison. While we expect this dynamic to largely persist in the near term we were encouraged by signs of stabilization in the quarter.

Products and applications core revenues grew at a low single-digit rate, as increase demand from marking and coding was offset by softer demand for the businesses, packaging, and color solution. Videojet's core revenues increased mid-single-digit driven by what we believe to be continuing share gains in North America and Europe while high growth markets remain softer. The Videojet team has delivered mid-single growth or better for nine of the past ten quarters.

Last quarter, we announced the acquisition of Laetus which extends our product ID offerings into track-and-trace inspection systems for pharmaceutical packaging plants. We're off to a good start with Laetus. The teams early adoption of DBS tools is already driving key process improvement has quicker service deployment and improved on time delivery are ensuring that our customers received the best possible support.

So, to wrap up. Our team executed well in the phase of challenging economic condition and what ease with our start to 2016. The Danaher business system remains the driving force behind our performance this quarter helping to deliver high teens earnings growth healthy operating margin expansion and 50% year-on-year free cash flow growth. We are also off to a great start at Pall, where the team drove meaningful process improvements and delivered mid-single digit revenue growth in the quarter.

We continue to make progress preparing for the launch of Fortive Corporation which remains on track to close in the third quarter. Our teams are excited about the unique opportunity to continue developing two separate portfolios of market leading businesses that we believe will create shareholder value for years to come.

We are initiating second quarter adjusted diluted net EPS guidance between $1.19 and $1.23, which assumes approximately 2% core revenue growth. We are increasing our full year adjusted EPS from $4.80 to $4.95 to $4.85 to $4.98 which would represent a 13% to 16% from 2015 adjusted EPS.

Matthew E. Gugino:

Thanks Tom that concludes our formal remarks, Eita we are now ready to take questions.

Question & Answer

Operator:

Thank you, sir. If any teleconference participants would like to ask a question please press star, followed by the one on your telephone. If you wish to cancel this request please press star, two. If any participants need assistance please press star, zero, and also to remind participants to limit your questions to one question and one follow-up.

We'll now take our first question from Scott Davis from Barclays. Please go ahead.

Scott Davis: Barclays:

Great. Good morning, Tom and guys. China was a bright spot for you guys and I know last quarter was you attract pretty comparable last quarter as well but it sounds like things may firmed up a little bit I mean and the coalmine in China having that business that can positive territory maybe just little color on what you guys are seeing there.

Thomas P. Joyce, Jr.:

Sure. Thanks Scott and good morning. China unquestionably is remains a very good market for us, despite much of the headlines that we get certainly suggest that they are slowing in various areas we were very pleased with the performance in China and I think it was relatively broad-based if you look at Danaher versus Fortive let's say Danaher was up by high single-digit in China and Fortive was up mid-single-digits in China.

So I think a number of good examples where China remains a very attractive market for us. Relative to your specific question on is just is an exceptional business overall we've had it's probably one of our most advanced businesses in terms of both go-to-market as well as local production and product development in China and while there is clearly still some softness around various industrial segment for the Chinese market is a very strong brand in that market and has a very strong share position. So I think we're encouraged by some of the stabilization we see in some of the markets and other those markets we just continue to see very strong growth, our Dental business continues to perform exceptionally well in China, LifeSciences and Diagnostics broadly continuing to perform well there.

So again well clearly the headlines that would show that the market is pullback a little bit in the aggregate it still a very good place to be.

Scott Davis:

Okay, helpful Tom and then just wanted to ask where you stand in Pall versus the deal model and help now that where you're the year end or so I mean give us a sense of what's working what's not working, what industry is probably far weaker than you thought it was but the environmental or the as you said time to far stronger than you thought it would be. So, how you managing that variability and how does it all really stock up at the end the day versus what your prior expectations were.

Daniel L. Comas: Executive Vice President and Chief Financial Officer:

Scott we're in it's Dan. We're also a very good start there. We've mid-single-digit growth in the quarter as Tom eluded that was combination of double-digit growth in the LifeScience side and a slight decline on the industrial side.

Clearly that would have been a contributor to our overall organic growth at Danaher.

From a marking perspective we are ahead of schedule, we've talked about north of a $100 million of benefit here this year on the margin side continue to attract very well to that to the ultimate target of $300 million. In addition to this we are getting favorable mix given the LifeScience business is more profitable and we really saw that play out exceedingly well in the first quarter. Likely creates some opportunities where we'll be able to accelerate some investments here at Pall during this year given we're tracking so well.

Scott Davis:

That's great. Good luck guys. Thank you.

Thomas P. Joyce, Jr.:

Thanks. Just a follow on Dan's comment a little bit. The team at Pall has just done a tremendous job, as we've mentioned before it's a great combination of both some season Danaher leaders as well as an exceptional group of folks who have been at Pall for a long time, who together have really brought DBS to life in that business in rapid fashion.

You heard me mentioned about the 100 kaizens that have gone on those have gone on literally around the world and just our -- just one indication of the rapid rate at which the Pall team has adopted the tool the DBS and really that has truly contributed to not only the growth dynamics that we're seeing but that certainly is assisting as getting ahead on the cross take outs out in the margin side.

Scott Davis:

Perfect thank you.

Thomas P. Joyce, Jr.:

Thanks Scott.

Operator:

Our next question comes from Steve Tusa from JPMorgan. Please go ahead your line is open.

Stephen C Tusa: JPMorgan:

Hey guys good morning.

Thomas P. Joyce, Jr.:

Hi Steve. Good Morning.

Stephen C Tusa:

Just back to Pall just to follow up on that. I think they were doing a little bit better than a $100 million in R&D a year, I mean R$D year-over-year was up, I think about that 20 million bucks is that, a little bit of a decline in the core R&D or are you kind of getting efficiencies there on the Pall side. You also mentioned you are kind of walking away from some business there I think in your10-Q at Pall . Could you just give us a degree of magnitude, on that front and then I have a one quick follow-up.

Daniel L. Comas:

Steve on the walk it away some business that something that Pall had started prior even to our acquisition. It's down to a relatively nominal amount here, it will be a and it largely done by middle of this year.

Stephen C Tusa:

Okay and then on the R&D front, what was kind of Pall's R&D, I think it was greater than a $100 million, are you guys getting more efficiencies there, do you expect to maintain that R&D budget increase it.

Daniel L. Comas:

Right now we're sustaining and I suspect overtime that will get increase.

Thomas P. Joyce, Jr.:

I would just add to that. I think we had mentioned this maybe once before of it. You think the exit of to the playbook that we ran, post to Beckman acquisition. I think the playbook here at Pall is very similar which is there has been number of opportunities get cost out of the business broadly defined and we are working on those obviously, start to see the margins coming up.

But the playbook is to then redeploy some of that cost take out into investments in sales and marketing and R&D. You see us do that broadly across Danaher with gross margins going up and sales and the marketing and R&D on the quarter for the Danaher in total up 30 basis points we did that at Pall -- at Beckman R&D lifted overtime we start to get the innovation engine going.

Innovation at Pall is always been a strong suite there but we think we can take it up another level and so some of those cost take outs will ultimately translate into either higher spending or potentially more efficient spending if we find opportunities to do a better job innovating at the same cost rate. We will see.

Stephen C Tusa:

Okay, and then just lastly on the free cash flow a very strong quarter obviously you are paying down some debt beginning to delever here a little bit. Is there anything about that the timing of that free cash flow or should we think about kind of normal seasonality after that base I know there were some accruals year-over-year accruals were less of the drag maybe there is just some timing what's maybe bottom line is what's kind of the annual free cash guidance.

Thomas P. Joyce, Jr.:

See we don't give a specific guide but we have also a very good start, there was a little bit of timing benefit around some tax payments. But broadly our cash flow was quite strong as you know we ended last year with a record number and a very strong second half of free cash flow. We expect that trend to continue you know, we're not going to be up 40% year-on-year but we would expect that very healthy double-digit increase in free cash flow this year.

Stephen C Tusa:

Right. Okay, thanks a lot guys.

Daniel L. Comas:

First quarter last year was - and we were a little bit late lighter in last first so a little bit of benefit there from comp standpoint.

Stephen C Tusa:

Got it. Thanks.

Thomas P. Joyce, Jr.:

Thanks Steve.

Operator:

Our next question comes from Nigel Coe from Morgan Stanley please go ahead your line is open.

Nigel Coe: Morgan Stanley:

thanks Good morning

Thomas P. Joyce, Jr.:

Good morning Nigel.

Nigel Coe: Morgan Stanley:

Yes Hi, Tom so you mentioned you have seen signs of stability I think those in relation to speak specifically but maybe just broad enough to the competition to maybe some of the more typical businesses within industrial Techtronics what do you see in today compared to what you still back and generating.

Thomas P. Joyce, Jr.:

Sure thanks Nigel. Our comments about stability were not exclusively associated with in fact I think there is some pockets even around the business where we've seen stability but we've also seen you know still some real headwinds. But I think we have seen stability in some other areas you ask specifically about on the industrial tech side the automation businesses our sensors and control businesses as we look at those throughout the course of the quarter February and March we saw indications of stability we saw those order rates kind of firm up a little bit and why we wouldn't call it an upward trajectory we would call those a bit more stable than we had seen in the trajectory the fourth quarter and maybe at the very opening at the year.

You mentioned Tektronix, I wouldn't necessarily put Tektronix quite in that category yet it had one of the more challenging quarters it's one of the tougher markets probably that we faced today and so I think while we are very encouraged by the new product flow at Tektronix and now we expect to see that those new products have got some improved performance improved performance in the back half for the year. Tech remains in a pretty challenging environment.

Nigel Coe:

Okay that's helpful and then switching to environmental margins there is lot of noise this quarter, you call that investment spending I am wondering if you could may help us size that that impact and it seems that this quarter you had a negative mix of consumables versus a GVR growth is that true and would you expect that to normalize over the balance for the year?

Thomas P. Joyce, Jr.:

I need you to clarify that last question I am not exactly sure what you meant by negative mix relative to GVR growth and that's you're talking about what a quality versus GVR in within environmental is that we

Nigel Coe:

Exactly I mean the GVR margin yes.

Thomas P. Joyce, Jr.:

Yes no absolutely right yes thanks Nigel, that you're right on. If you look at environmental which as all of you know both has our GVR business as well as Water Quality businesses, GVR had stronger growth during the course of the quarter very encouraging science of the EMV dynamic taking hold and GVR comes through that with a lower margin mix relative to a Water Quality platform which has higher margins and specifically Hach. So little bit softer Hach business little bit stronger GVR business during the course of the quarter together causes some of that headwind that you saw on the margin line there.

The reference to investment spend is specific to what we need to do build the capacity to step up to the demand associated with EMV and so we see that in specifically in our GVR business and those are investments that clearly will pay off as we continue to ramp our capabilities and as we go into the second quarter and beyond we would expect those margins overall in the segment to return closer to normal level obviously some continued investments there but we expect Water Quality to come up a bit. Overall I think there was a just couple unique factors here in the first quarter.

Nigel Coe:

Okay. That's great, thanks now.

Thomas P. Joyce, Jr.:

Thanks Nigel.

Operator:

Our next question comes from Shannon Callaghan from UBS. Go ahead your line is open.

Shannon O'Callaghan: UBS:

Good morning guys.

Thomas P. Joyce, Jr.:

Good morning Shan

Shannon O'Callaghan:

Hey Tom, you mentioned execution and discipline spending at Dental with the big margin improvement there I mean that's a segment that's you have always targeted getting much higher margins over the years but it's been more of a challenge I mean, is this something of a breakthrough here or how should we read the performance on those comments?

Thomas P. Joyce, Jr.:

Well you're absolutely right, Shannon it's been a challenge in the past and we did set out sites and commit to making a difference there. We have some new leadership in place over the platform many of you have met who is read a number of our businesses over the last several years and some are more challenging businesses and he is really put a terrific team together they've set their sights on specific margin improvements overtime there was some outstanding execution some disciplined cost control but, it's similar to the comments I made earlier around the playbook I made reference to that Beckman playbook and how that applies to Pall, while we continue to drive margin improvement at Dental under the teams leadership we'll also take some of that improvement and continue to invest in sales and marketing in an R&D because we do have opportunities for improvement in terms of our innovation cadence we saw some modest improvement there in our core growth in the platform during the quarter. But we know there is opportunities to continue improve that we expect it to continue to step up but some additional investment overtime with some of that cost take out will certainly be a help.

Shannon O'Callaghan:

Okay, great, and then Dan maybe a question for you on tax obviously a lot of new tax policies being contemplated and put into place that impact a lot of multinationals, I need your thoughts on that in general and potential impacts on Danaher's as well as how should we think about kind of the two new folks tax rate and any differentials there.

Daniel L. Comas:

Sure, Shan. Yes obviously it's something we are spending a lot time on trying to understand better, I mean our initial read of this is this is not going to be an impact some material impact on us in the near term but overtime we could see some rate creep because of it, now that assumes nothing else happens and there is no other opportunities, and so sitting here right now it's not something that worries us a great deal but obviously a potential that's kind of going forward.

I don't think there is a big change in how we think about the tax rates of the () we've talked about Fortive likely coming out closer to kind of a high 20 tax rate again I think as they begin to do some acquisitions we'll have an opportunity bring that down, and I would expect that Danaher would be at our current rate or lower Danaher remain will be at our current rate or lower.

Shannon O'Callaghan:

Okay, great. Helpful, thanks a lot.

Daniel L. Comas:

Thanks, Shannon.

Operator:

Our next question comes from Steven Winoker from Bernstein. Please go ahead your line is open.

Steven Eric Winoker: Sanford C. Bernstein & Co. LLC.:

Thanks and good morning all. Could you maybe just to clarify you talked about Fortive versus Danaher core growth in China was it globally for the quarter.

Thomas P. Joyce, Jr.:

The Danaher was up a couple of points and Fortive was down 1 to 2 points maybe 1.5% I believe.

Steven Eric Winoker:

Okay, and well I guess everybody what you thinking about in terms of current thinking I should say on capital structure for the two entities, where you still heading for that I know there have been some private conversations but don't have a sense for where that is now.

Thomas P. Joyce, Jr.:

I don't think much has change for as what we communicated a year ago. We would expect Fortive to come out as an investment grade company. Likely, not going to be as A rated company but something in a BBB range where there will be strong investment grade and clearly have a fair amount of latitude to directly to execute M&A.

Steven Eric Winoker:

Okay, great and if I could just one word Tom in terms of the R&D profile, I know, you talked a little bit about that before specifically with Pall but I guess an overall for the Company, where is, what level of R&D we are talking about for just for the new Danaher going forward and do you seen an opportunity to accelerate that at all, as you think about also accelerating core growth in new Danaher.

Thomas P. Joyce, Jr.:

Sure Thanks Steve. I've said for a long time, I always believe that there is no magic number for a business with the diverse portfolio that we have today. We really look at continuing to invest in R&D to certain levels specifically at an operating company level on and that's obviously relevant for what relative to, what's important to those markets, what's important for our comparativeness what of the greatest levels of competitive advantage from an innovation perspective.

So we really look at it sort of operating company by operating company.

Our track record is the great one and it will continue of taking R&D up year-on-year pretty consistently. We views our operating margin expansion that's been driven by improvements in gross margin to put some of that back into not only R&D but into sales and marketing as well and again we have done that and again we have done that very consistently I would expect that we will continue to do that one of our five core values innovation to finds our future and you know we represents that in our metrics by continuing to see that a percent of R&D go up year-on-year so again it will vary in terms of the number that we achieve year-on-year by operating company or even by platform but using invention to drive competitiveness is key to our strategy

Steven Eric Winoker:

Okay so was it in a quarter release just for the current or for the new Danaher?

Thomas P. Joyce, Jr.:

Not probably in the same Steve we have the dynamics around Pall where lot of the application expertise they bring to their customers which is a big part of their value add, they include in sales and marketing then R&D. So fact that you saw R&D as a percent of our overall revenues go down 40, 50 basis points year-on-year. That's entirely driven by the Pall dynamics but I would say that Danaher is probably in that zone where you've got some higher R&D businesses but because of the way Pall accounts for their R&D is probably averages to where Danaher is today around that a 6% range.

Steven Eric Winoker:

Great thanks a lot guys.

Thomas P. Joyce, Jr.:

Thanks Steve.

Operator:

Your next question comes from Ross Muken from Evercore ISI please go ahead your line is open.

Ross Muken: Evercore ISI:

Hi, good morning guys maybe on the LifeScience business, just a little bit more color commentary you know you called that form up as sort of a strong end market it seems like on the side that market is been running harsh for a while I mean how to you see the trajectory there and then secondarily on the Pall side you know Biotech is actually been a lot of concern the market particularly with the smaller companies on funding in the like and have you seen anything in that side of the businesses particularly with small to mid-size Biotech in terms of any relevant slowdown? Thanks.

Thomas P. Joyce, Jr.:

Thanks Ross. Yes no question the pharma market is an important driver of our growth across the LifeScience portfolio. We have exposure to that growing market across virtually every one of our LifeScience businesses.

Pall specific to your question around BioTech in small and mid-size continuous to perform exceptionally well across the BioTech market. Just to go back and talk about a few things about what's going on in that market Pall has a billion dollar business today that's oriented towards biopharmaceuticals and the combination of the solutions that they have had for a number of years along with the newer products in single used technologies continue to drive the exception of growth that we see there.

That growth as I think many of you know Ross and others know is really driven by this move the growth and the transition from small molecule drugs to larger molecule drugs and not only are those the fastest growing segment of the market but there also the drugs that are most significantly represented in the pipelines of both small as well as large pharmaceutical companies today. So we remain optimistic and bullish on that market and I think there is every reason to believe that we'll continue to see good growth not only from Pall but from other LifeScience business that have exposure to that market.

Ross Muken:

Great and maybe just quickly on the capital allocation side. So lot of equity market volatility to start the year on private equities is probably been more of a net sellers than buyer I mean that how had that sort of impact you know that prices on the project side, in terms of what you are looking at and does it make sellers more ask to maybe approach a process given they saw equity prices up down up again maybe they are afraid they go down again and so they wanted to take advantage of maybe an open in the sort of credit markets where larger companies can acquire I am just trying to get a feel for kind of how all this volatility is maybe help to a little bit on the deal front.

Daniel L. Comas:

I mean volatility is a net positive for us is that well capitalized for. Your comment about private equity gets a little better for them. But it's the leverage market are still pretty tough.

So I think all of those factors play to our benefit now granted there are other a number of other well capitalize corporate players here. But we are happy to sort of compete in this sort of environment where there is a little bit more volatility and uncertainty.

Ross Muken:

Great, thanks Dan.

Daniel L. Comas:

Thanks, Ross.

Operator:

Our next question comes from Jeff Sprague from Vertical Research Partners. Please go ahead your line is open.

Jeff T. Sprague: Vertical Research Partners LLC.:

Thank you. Good morning everyone.

Daniel L. Comas:

Hey, Jeff.

Jeff T. Sprague:

Hey, just a couple, first on SG&A I guess Dan you kind of partially answered to speaking to the Pall R&D but the SG&A moving up as a percent of sales is there anything that's lag there and do you expect that sort of upward pressure over the balance for the year?

Daniel L. Comas:

Well if we first just take Pall out of the equation entirely R&D as a percent of sales was flat year-on-year but sales and marketing was up 30 basis points and that was intentional, I mean we have stepped up some investments we've talked about some of the opportunities in high growth markets where we see people pulling back and we see there some opportunity I think some of the success Fortive's having in China right now probably a little bit of an example of that and Pall brings in a pretty high sales and marketing expense then you have kind of layer that in that probably sustains itself. We see that is important part of their go-to-market not only their go-to-market but as I mentioned also set of parts their R&D as well, so we don't see ourselves sort of cutting back in those investments if anything given we have had a little bit more strength here early in the year we make step some of that up.

Jeff T. Sprague:

And on tax you mentioned were negative to be some offset, did you guys looked at this fact to be change on stock comp and determined what if benefit you'll have when you choose to adopt that?

Thomas P. Joyce, Jr.:

We don't that it will be meaningful.

Jeff T. Sprague:

And then just finally, the six smaller deals for any those in Fortive and so what..

Thomas P. Joyce, Jr.:

One was Fortive I think we have done an acquisition for Gilbarco and that's on top of the couple more we did late last year. So, in the last four to five months it's three deal just.

Jeff T. Sprague:

Right. Thanks Tom thanks guys.

Thomas P. Joyce, Jr.:

You bet.

Operator:

Our next question comes from Deane Dray from RBC, please go ahead your line is open.

Deane Dray: RBC Capital Markets:

Thank you. Good morning everyone. Hey just like to go back to the 2016 guidance just to clarify is there any change to the core revenue outlook for 2% to 3% and then maybe a bit on the cadence of that through the year and how might that split with Fortive?

Thomas P. Joyce, Jr.:

Deane, no real change to our view of the full year at 2% to 3%. I think our comments referring to some stabilization that we've seen here in the last couple of months, I think suggest as well as by the way how that was represented in the order rates not just to sell up with the order rates in the last couple of months suggest that we still feel pretty good about the 2% to 3%. So I think we are going to stay there.

Deane Dray:

And how about the expectations for Fortive in the second quarter.

Daniel L. Comas:

Yes. We would expect that Fortive would be in the same zone maybe a little bit better Danaher x-Fortive will be slightly a better and that would roll up to be approximately 2% versus that 0.5% we delivered in the first quarter.

Deane Dray:

Great and then maybe some clarification on Hach the softness in the high growth market is there anything specific there is it tougher comps, why might there be some slowing there?

Thomas P. Joyce, Jr.:

Well it certainly with the very challenging comp year-on-year, the platform overall, I think comps did 10% versus last year deem so it was probably among the platform that we have solid to toughest comp perhaps is got the entire corporation. So that was certainly challenged. We have been some delays in some key projects in the couple of the high growth markets.

So that was certainly a factor there. In certain of those high-growth markets, we actually have a little bit more industrial exposure than purely municipal exposure and that obviously had an impact in those markets.

Again. We don't, that business you know well deemed is just one of our exceptional franchises and we are confident that business continues to will continue to grow over time and we will see that business is core growth rate improving in the second quarter.

Deane Dray:

Great and then just last one and still on the topic of Hach I know we're call ever there being a time where Water Quality has been more front page news in the US with front Michigan and just what's your expectation about the longer-term implications on Water Quality Water Test and how is that positioned?

Thomas P. Joyce, Jr.:

Sure we wish we had an answer today to the infrastructure challenges that led quite to represent in that situation is just we just terrible to see the challenges that community has gone through but I think if we try to look on the bright side from the stand point of the overall market dynamics situations like that always turn the spotlight on the importance of regulatory over sight in municipalities around the country and frankly throughout the world and so as those regulatory drivers continue to be strengthened to be point to that at the greatest vulnerabilities in municipal and industrial systems that again while challenging for those communities ultimately benefits consumers and certainly benefits us our regulatory drivers have always been a key macro driver for that platform and they will continue to be so for as long as we can anticipate

Deane Dray:

Great thank you

Thomas P. Joyce, Jr.:

Thanks Deane.

Operator:

our next question comes from Andrew from Bank of America Merrill Lynch please go ahead your line is open.

Analyst:

Hi, good morning

Thomas P. Joyce, Jr.:

Hi Andrew.

Analyst:

I guess on the queue you sort of indicated that you are still on track to pay the $3 billion dividend from Fortive to Danaher is there any flexibility around that number if Fortive discovers a good acquisition how flexible are you there?

Thomas P. Joyce, Jr.:

Well that something obviously the Board would need to determine depending on obviously the size of the acquisition and there what else they have in the pipeline.

Analyst:

Better it's fair to assume there is sounds like stability there.

Daniel L. Comas:

Nothing said to a debt.

Analyst:

And then just going back to GVR the EMV investment and both growth and investment is it fair to assume that investment is going to be front end loaded Q1 and Q2. But you might see growth throughout the year, is that the right way of thinking about it.

Daniel L. Comas:

Yes, there is currently some upfront cost and as Tom eluded we also have some one-time items in the quarter and that will normalize as we get through the year.

Analyst:

Well said. Thank you very much.

Daniel L. Comas:

Thanks Andrew.

Operator:

We will now take our next question from Julian Mitchell from Credit Suisse. Please go ahead, your line is open.

Julian Mitchell: Credit Suisse Securities LLC.:

Hi. Thank you. Just a question on Dental first. The growth rate was as lower than I thought particularly as Nobel should have automatically pushed out the organic growth a little bit and the comp was pretty easy.

So I saw you called out Middle East and Africa equipment but I wouldn’t have thought that was a very sizable piece of the business, () just give a bit more color there.

Daniel L. Comas:

Sure, well our Dental growth overall Julian was at 0.5% was basically in line with our expectations modest improvements from where we've been over the last few quarters, and obviously as we talked just a few minutes ago we are pleased with seen OMX up as the rates that I talked about earlier. We saw a solid low single-digit growth in consumables, and sell-out continues and actually is the fraction better than even our sell-in. So we always look at the sell-out we have good transparency with our distribution partners and we are encouraged by that.

The Nobel implant systems business mid-single-digit average daily sales growth in the quarter we're pleased with that the onco business orthodontic business continues to do well and we're continuing to see on a geographic basis as I mentioned the couple of the high growth markets specifically the our business in China continuing to do well. On the Fluke side and the equipment side we have seen some challenges in Europe actually in a couple in those high growth markets where the equipment side has been held back a little bit more significantly. So, I think as we annualize over some of those more challenging comps, we'll continue to see that growth improved in the course of this year.

Julian Mitchell:

Got it. Thanks so much. Secondly just on the Test & Measurement I wanted obviously that the trends year-on-year a sort of similar Q1 as in Q4. I wondered if there was any specific end market you'd call out that the sort of dragging on the growth now obviously you do have some electronics exposure for example in TNM or if you thought it was sort of fairly broad base the weakness.

Thomas P. Joyce, Jr.:

Well there is certainly some broad base weakness but if I had the tough call at a couple of the softer spot that probably would be the end market where tech is most expose and then probably secondarily it would be on the Fluke side probably the U.S. Point of sale has been a weaker spot here through the quarter those would be the two I probably highlight.

Julian Mitchell:

And you are expecting those to be little changed in Q2?

Thomas P. Joyce, Jr.:

We are, that's right, there is no indication right now of pick up there obviously we can always be optimistic but we're not projecting for any improvement there certainly in the second quarter.

Julian Mitchell:

Very helpful. Thank you.

Thomas P. Joyce, Jr.:

Thanks Julian.

Operator:

I would now like to turn the call back to Mr. Matthew Gugino for any additional or closing remarks.

Matthew E. Gugino:

Thank you and thanks everyone for joining us for our Danaher Corporation.

Operator:

Thank you ladies and gentlemen that will conclude today's conference call. You may now disconnect.