News Feature | April 24, 2017

Danaher CEO Expects Acquisitions, R&D To Fuel Long-Term Growth

By Jof Enriquez,
Follow me on Twitter @jofenriq

danaher logo 2016

Danaher Corporation's recent acquisitions, reinvestments, and the Chinese market will continue to help drive long-term growth, according to the company's CEO, Thomas P. Joyce, Jr.

Two years ago, Danaher completed its $13.8 billion purchase of Pall Corporation, then spun off its industrial business into Fortive Corporation in 2016 to concentrate on life sciences, diagnostics, and biomedical products. Last September, Danaher added molecular diagnostics company Cepheid for approximately $4 billion to expand its diagnostics portfolio.

The two large acquisitions contributed significantly to Danaher's top-line growth for the first quarter ended March 31, 2017. Net earnings surged 18 percent to $483.8 million, while revenues climbed 7 percent to $4.2 billion, compared to the same period last year.

"We are off to a good start in 2017," said Joyce in a press release. "During the first quarter, our two most recent large acquisitions, Pall and Cepheid (CPHD), performed very well. We drove share gains in a number of our operating companies and achieved high-single-digit adjusted earnings per share growth. We also continued to reinvest in our businesses to enhance our long-term growth trajectory, and we feel well-positioned to benefit from a number of compelling market drivers across the portfolio."

Cepheid – which has the largest global installed base of instruments and the broadest test menu available in molecular diagnostics – posted double-digit core revenue growth in the first quarter, and has been integrated successfully into Danaher and achieved cost savings through the company's DBS process improvement tools, according to Joyce. The business is ready for expansion in underpenetrated but promising markets, such as China.

"As we’re investing more aggressively Cepheid in the high growth markets, China will become an increasingly important part of Cepheid’s geographic profile," Joyce told analysts during the first quarter earnings call.

Joyce added that Cepheid's in-development Omni platform, which is slated for launch in the first quarter of next year, will "extend the already well-characterized, Cepheid menu to lower volume environments to physician labs and closer to the point of care" – a space rife with commercial opportunities.

Unlike the Pall and Cepheid deals, however, Danaher's two most recent acquisitions amounted to a relatively modest $100 million, and Joyce said the company will likely continue to focus primarily on small and midsized acquisitions this year.

By segment, Life Sciences grew 4 percent on increased demand for mass spectrometers, microscopy, flow cytometry, and genomics products; Diagnostics rose an impressive 17 percent on strong performance in China, North America & Western Europe; Environmental & Applied Solutions gained 4.5 percent; and Dental revenue was relatively flat due to weakness in traditional consumables.

Danaher remains committed to the dental segment, though, with 10 upcoming products from across its dental platform presented at the International Dental Show in March. Increased R&D will help realize future opportunities in the competitive dental market.

"Our goal is continue to invest in innovation in the traditional consumables side as well as to continue to improve the performance in the businesses that quite frankly are already performing quite well at a mid-single digit rate," said Joyce. "We 2x [doubled] the number of software engineers; they’re focused on digital dentistry across the platform, and I think that’s an example of something we’re working on internally that’s an investment that will pay off over time."

Danaher’s R&D expense in the first quarter was 6.4 percent of sales, and Joyce said the company will continue to invest in R&D across all five of its platforms to sustain growth.