Sunday, November 9, 2014

Danaher Corporation Earnings Analysis

The market gave Danaher's  (NYSE: DHR  ) third-quarter earnings results the thumbs-up and sent the stock up more than 3% on the day of their release, last Thursday. The numbers weren't fantastic, but they reassured Danaher investors that management is dealing well with an uncertain macroenvironment. But did we learn anything new about Danaher's prospects?

Danaher's earnings beat cautious guidance

Danaher declared that third-quarter earnings per share of $0.95 were above expectations, but management arguably had given cautious guidance the last time around. At the time of its second-quarter earnings, management had forecast that core revenue growth would be 2%-4% for the full year, and discussed ongoing weakness in two of its higher-margin businesses: communications testing (test and measurement segment) and U.S. dental consumables (dental).

In truth, nothing really changed from an end-market perspective in the third quarter. Core revenue growth came in at 3%, and the two specific product lines remained weak. However, there was some positive news on the weak product areas. Earlier in the week, Danaher announced the merger of its communications unit with NetScout Systems. Plus, strong growth in other parts of the dental segment more than offset ongoing sluggishness with U.S. dental consumables.

The end result was core operating margin growth in four of its five segments -- note the return to form in dental -- and action has been taken on its ailing communications (test and measurement) product line. The following chart is measured in basis points, in which 100 basis points is equivalent to 1%:

Source: Danaher Presentations.