Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Danaher Corp (DHR, Financial) delivered better than expected revenue, earnings, and cash flow for the second quarter of 2024.
- The bioprocessing business showed sustained positive momentum, with larger customers returning to normal ordering patterns.
- Cepheid gained market share in molecular testing and saw mid-teens growth in its core non-respiratory reagent portfolio.
- The company repurchased approximately 19 million shares, indicating confidence in its long-term growth and cash flow outlook.
- Danaher Corp (DHR) maintained a strong gross profit margin of 59.7% and an adjusted operating profit margin of 27.3%, up 60 basis points year-over-year.
Negative Points
- Core revenue declined 3.5% year-over-year, with significant declines in biotechnology and life sciences segments.
- High growth markets, including China, saw a high teens decline in core revenue.
- Life sciences capital equipment investments remained constrained, impacting overall segment performance.
- The company expects core revenue to decline in the low single-digit percent range for the third quarter of 2024.
- Bioprocessing core revenue is expected to decline low single digits for the full year 2024, indicating ongoing challenges in the segment.
Q & A Highlights
Q: Can you elaborate on what's giving you the confidence that the stock is drawing to a conclusion here? And thoughts on how long the capital equipment side will remain depressed?
A: We've seen ordering patterns return to normal with very few exceptions. We actively monitor our customers and have taken measures to ensure inventories are normalized. On the capital equipment side, larger customers are showing higher activity levels, while smaller customers remain more constrained.
Q: Your bioprocessing orders increased high single digits while your peers declined sequentially. Can you weigh in on what you think is the right signal and what's noise?
A: Competitive positioning varies by product category, geography, and customer type. We have a broad and deep portfolio, both upstream and downstream, which may differ from others who are more concentrated. The good news is that the business is recovering as expected, and we are confident about the future.
Q: Can you walk us through what's contemplated in 3Q guidance for bioprocessing? How much of this is seasonality versus conservatism?
A: For bioprocessing, we expect a low single-digit decline, showing continued improvement. Historically, we've seen a mid-single-digit step down from Q2 to Q3, and we are assuming that pattern again. Respiratory revenue is expected to be $200 million versus $300 million in Q2.
Q: How are you feeling about the 2025 EPS estimate of $8.70?
A: We still have a lot of work left in 2024 before thinking about 2025. However, we are seeing improvements as expected, particularly in bioprocessing. Historically, we've talked about 35% to 40% incremental fall-through, and we don't see any reason why that wouldn't be the case as we return to growth in bioprocessing.
Q: Can you provide color on the buyback? Is it a statement that M&A is slow, or is it more like housekeeping?
A: This is not a change in our view on capital allocation. We maintain a strong bias towards M&A. However, in today's environment, the relative value of a buyback generates attractive financial returns. We are buying a great business we know well while maintaining a meaningful M&A envelope.
Q: Will the book-to-bill ratio in Cytiva cross one in 3Q?
A: The book-to-bill ratio is around 0.9. To meet our full-year guide of bioprocessing being down low single digits, we need to maintain this ratio. We are confident that this will continue to be the case.
Q: Can you talk about the competitive pricing environment? Any changes?
A: For the second quarter, pricing was up 100 basis points. For 2024, we expect to be a little above our historical average of 75 to 100 basis points. In bioprocessing, we saw about 2.5% price increase, which is a return to normal levels after higher increases during supply chain challenges.
Q: What's the historical relationship between quoting activity and order conversion in China?
A: We are seeing increased activity levels in our funnel, driven by stimulus measures. However, we don't expect this to convert to orders until 2025 as customers await funding. This is consistent with our expectations.
Q: Can you dive more into what you're seeing in the life sciences end market?
A: The second quarter came in as expected, with market conditions largely consistent with the first quarter. Capital equipment remains constrained, particularly in China, while consumables and services held up better. We expect the normalization process for life science tools and consumables to continue through 2024.
Q: Can you talk about the diagnostics segment outside of respiratory?
A: We saw mid-single-digit growth in non-respiratory businesses. Cepheid's non-respiratory reagents were up mid-teens, driven by increased menu adoption and system utilization. Beckman Diagnostics grew low single digits, with recurring revenue growing mid-single digits. The moderation was due to challenging equipment comps.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
