Danaher Beats on Q1 Earnings - Analyst Blog

Danaher Corporation DHR reported earnings of 81 cents a share in first-quarter 2014, which surpassed the Zacks Consensus Estimate by a penny and increased 8% from 75 cents in the prior-year quarter.

However, the company's GAAP earnings decreased 17.3% to 81 cents per share compared with 98 cents a share in the prior-year quarter.

The healthy increase in earnings was mainly attributable to core revenue growth and better margin expansion. Specific initiatives for new product development and increased investment were other positives for the company.

The company's robust cash and balance sheet position and the effectiveness of the Danaher Business system were some of the key catalysts which drove the company's results. In addition, all of its segments reported a decent year-over-year improvement in both revenues and margins.

Revenues

For the first quarter, Danaher reported total sales of $4,662.7 million, up 4.9% year over year. Core revenues for the quarter were up 3.5% year over year, while revenues from acquisitions were up 2%, partially offset by unfavorable currency translation effects of 0.5%. Reported revenues fell marginally short of the Zacks Consensus Estimate of $4676.0 million.

Margins

Danaher's gross margin expanded 30 basis points (bps) to 52.6%. The company's operating margin also increased by 60 bps to 16.9% in the quarter.

Segments

Revenues in the Test & Measurement segment rose 2.0% to $871 million year over year. The segment operating margin increased by 20 bps to 22.1% compared with the prior-year figure.

Revenues in the Environmental segment were up 60% to $769 million. The segment reported an operating margin of 18.9%, an increase of 30 bps from last year's margin.

Life Sciences and Diagnostics revenues were up 6% year over year to $1,660 million. The operating margin for the quarter was up 50 bps year over year to 13.2%.

Revenues from the Dental segment grew 6% year over year to $510 million with operating margin surging 170 bps to 14.8%.

In the Industrial Technologies segment, revenues grew 4.5% to $854 million, while the operating margin increased 160 bps to 22.5% on a year-over-year basis.

Balance Sheet & Cash Flow

Danaher exited the first quarter with cash and equivalents balance of $3.3 billion versus $3.1 billion as on Dec 31, 2013. The company had a long-term debt of $3,422.9 million at the end of the reported quarter, marginally down from $3,436.7 million as on Dec 31, 2013.

However, its cash flow from operating activities declined to $511 million from $636 million in the prior-year period. The company's free cash flow also declined to $380 million from $520 million in first-quarter 2013.

Outlook

Concurrent with the earnings release, management provided its guidance for second-quarter and full-year 2014 revenues and earnings.

The company has reaffirmed the guidance for full-year 2014 earnings in the range of $3.60 to $3.75 per share. For the second quarter of 2014, the company's GAAP earnings are expected to be in the range of 90 cents to 94 cents a share.

Danaher currently carries a Zacks Rank #4 (Sell). Some other stocks in the same sector worth considering include Federal Signal Corp. FSS, Noble Group Limited (NOBGY) and Sumitomo Corporation (SSUMY). All these stocks sport a Zacks Rank #1 (Strong Buy).