Danaher Reports First Quarter 2023 Results
On April 25, 2023, Danaher Corporation (NYSE: DHR) disclosed its Q1 2023 financial results. The company reported net earnings of $1.4 billion or $1.94 per diluted share, alongside non-GAAP adjusted earnings of $2.36 per share. Total revenues fell 7.0% year-over-year to $7.2 billion, attributed to reduced COVID-19 revenue, while core revenue decreased by 4.0%. However, the base business core revenue grew 6.0%. The operating cash flow for the quarter stood at $1.9 billion, with free cash flow at $1.7 billion. For Q2 and the full year, non-GAAP base business core revenue growth is projected to be in the mid-single digits. CEO Rainer M. Blair noted a strong start despite challenges, highlighting a robust business outlook.
- Net earnings of $1.4 billion, or $1.94 per diluted share.
- Non-GAAP adjusted earnings of $2.36 per share indicating strong profitability.
- 6.0% growth in base business core revenue amidst overall revenue decline.
- Operating cash flow of $1.9 billion, showing strong liquidity.
- Free cash flow of $1.7 billion supports ongoing investments and growth.
- Overall revenues decreased by 7.0% year-over-year, raising concerns about future growth.
- Core revenue declined by 4.0%, primarily due to reduced contributions from COVID-19 related products.
- Dependence on past COVID-19 revenues could affect future performance stability.
For the quarter ended
Revenues decreased
Operating cash flow was
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components of GAAP revenue, such as currency translation, acquisitions and divested product lines.
For the second quarter and full year 2023, the Company anticipates that non-GAAP base business core revenue growth will be up mid-single digits year-over-year.
Blair continued, "Looking ahead, we believe the combination of our leading businesses, the power of the Danaher Business System and the strength of our balance sheet differentiates Danaher and positions us to continue delivering sustainable, long-term shareholder value."
Danaher will discuss its first quarter results and financial guidance for the second quarter and full year during its quarterly investor conference call today starting at
The conference call can be accessed by dialing 800-245-3047 within the
ABOUT DANAHER
Danaher is a global science and technology innovator committed to helping its customers solve complex challenges and improving quality of life around the world. Its family of world class brands has leadership positions in the demanding and attractive health care, environmental and applied end-markets. With more than 20 operating companies, Danaher's globally diverse team of approximately 81,000 associates is united by a common culture and operating system, the Danaher Business System, and its Shared Purpose, Helping Realize Life's Potential. For more information, please visit www.danaher.com.
NON-GAAP MEASURES AND SUPPLEMENTAL MATERIALS
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains non-GAAP financial measures. Calculations of these measures, the reasons why we believe these measures provide useful information to investors, a reconciliation of these measures to the most directly comparable GAAP measures, as applicable, and other information relating to these non-GAAP measures are included in the supplemental reconciliation schedule attached.
In addition, this earnings release, our Form 10-Q, the slide presentation accompanying the related earnings call, non-GAAP reconciliations and a note containing details of historical and anticipated, future financial performance have been posted to the "Investors" section of Danaher's website (www.danaher.com) under the subheading "Quarterly Earnings."
FORWARD-LOOKING STATEMENTS
Statements in this release that are not strictly historical, including the statement regarding the Company's anticipated second quarter and full year 2023 non-GAAP base business core revenue growth, the Company's differentiation and positioning to continue delivering sustainable, long-term shareholder value and any other statements regarding events or developments that we believe or anticipate will or may occur in the future are "forward-looking" statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include, among other things, potential future, adverse impacts on our business, results of operations and financial condition related to the COVID-19 pandemic, the impact of our debt obligations on our operations and liquidity, deterioration of or instability in the economy, the markets we serve and the financial markets, uncertainties relating to national laws or policies, including laws or policies to protect or promote domestic interests and/or address foreign competition, contractions or growth rates and cyclicality of markets we serve, competition, our ability to develop and successfully market new products and technologies and expand into new markets, the potential for improper conduct by our employees, agents or business partners, our compliance with applicable laws and regulations (including rules relating to off-label marketing and other regulations relating to medical devices and the health care industry), the results of our clinical trials and perceptions thereof, our ability to effectively address cost reductions and other changes in the health care industry, our ability to successfully identify and consummate appropriate acquisitions and strategic investments and successfully complete divestitures and other dispositions, our ability to integrate the businesses we acquire and achieve the anticipated growth, synergies and other benefits of such acquisitions, contingent liabilities and other risks relating to acquisitions, investments, strategic relationships and divestitures (including tax-related and other contingent liabilities relating to past and future IPOs, split-offs or spin-offs), security breaches or other disruptions of our information technology systems or violations of data privacy laws, the impact of our restructuring activities on our ability to grow, risks relating to potential impairment of goodwill and other intangible assets, currency exchange rates, tax audits and changes in our tax rate and income tax liabilities, changes in tax laws applicable to multinational companies, litigation and other contingent liabilities including intellectual property and environmental, health and safety matters, the rights of
DANAHER CORPORATION AND SUBSIDIARIES | |||
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS | |||
($ and shares in millions, except per share amounts) | |||
(unaudited) | |||
Three-Month Period Ended | |||
Sales | $ 7,167 | $ 7,688 | |
Cost of sales | (2,797) | (2,983) | |
Gross profit | 4,370 | 4,705 | |
Operating costs: | |||
Selling, general and administrative expenses | (2,147) | (2,092) | |
Research and development expenses | (429) | (441) | |
Operating profit | 1,794 | 2,172 | |
Nonoperating income (expense): | |||
Other income (expense), net | 24 | (20) | |
Interest expense | (68) | (54) | |
Interest income | 48 | 1 | |
Earnings before income taxes | 1,798 | 2,099 | |
Income taxes | (348) | (374) | |
Net earnings | 1,450 | 1,725 | |
Mandatory convertible preferred stock dividends | (21) | (41) | |
Net earnings attributable to common stockholders | $ 1,429 | $ 1,684 | |
Net earnings per common share: | |||
Basic | $ 1.96 | $ 2.35 | |
Diluted | $ 1.94 | $ 2.31 | |
Average common stock and common equivalent shares outstanding: | |||
Basic | 729.4 | 716.3 | |
Diluted | 737.2 | 737.7 | |
This information is presented for reference only. A complete copy of Danaher's Form 10-Q financial statements is available |
| |||
Diluted Net Earnings Per Common Share and Adjusted Diluted Net Earnings Per Common Share 1 | |||
Three-Month Period Ended | |||
Diluted Net Earnings Per Common Share (GAAP) | $ 1.94 | $ 2.31 | |
Amortization of acquisition-related intangible assets A | 0.52 | 0.52 | |
Fair value net (gains) losses on investments B | (0.03) | 0.03 | |
Separation costs C | 0.04 | — | |
Loss on partial settlement of a defined benefit plan D | — | 0.01 | |
Impairments and other charges E | — | 0.06 | |
Tax effect of the above adjustments F | (0.10) | (0.11) | |
Discrete tax adjustments G | (0.01) | (0.06) | |
Adjusted Diluted Net Earnings Per Common Share (Non-GAAP) | $ 2.36 | $ 2.76 | |
1 | Each of the per share adjustment amounts above have been calculated assuming the Mandatory Convertible Preferred Stock ("MCPS") had been converted into shares of common stock. |
Notes to Reconciliation of GAAP to Non-GAAP Financial Measures | |
A | Amortization of acquisition-related intangible assets in the following historical periods (only the pretax amounts set forth below are reflected in the amortization line item above): |
Three-Month Period Ended | |||
Pretax | $ 384 | $ 386 | |
After-tax | 310 | 311 | |
B | Net (gains) losses on the Company's equity and limited partnership investments recorded in the following historical periods (only the pretax amounts set forth below are reflected in the fair value net (gains) losses on investments line above): |
Three-Month Period Ended | |||
Pretax | $ (22) | $ 24 | |
After-tax | (17) | 18 | |
C | Costs incurred in the three-month period ended |
D | Loss on a partial settlement of a defined benefit plan as a result of the transfer of a portion of the Company's non- |
E | Charges incurred primarily related to impairments of accounts receivable and inventory as well as accruals for contractual obligations in |
F | This line item reflects the aggregate tax effect of all nontax adjustments reflected in the preceding line items of the table. In addition, the footnotes above indicate the after-tax amount of each individual adjustment item. Danaher estimates the tax effect of each adjustment item by applying Danaher's overall estimated effective tax rate to the pretax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. The MCPS dividends are not tax deductible and therefore the tax effect of the adjustments does not include any tax impact of the MCPS dividends. |
G | Discrete tax adjustments and other tax-related adjustments for the three-month period ended |
Average and Adjusted Average Common Stock and Common Equivalent Diluted Shares Outstanding | |||
(shares in millions) | |||
Three-Month Period Ended | |||
Average common stock and common equivalent shares outstanding - diluted (GAAP) 2 | 737.2 | 737.7 | |
Converted shares 3 | 8.6 | 8.6 | |
Adjusted average common stock and common equivalent shares outstanding - diluted (non-GAAP) | 745.8 | 746.3 | |
2 | The impact of the MCPS Series B calculated under the if-converted method was anti-dilutive for the three-month periods ended |
The impact of the MCPS Series A calculated under the if-converted method was dilutive for the three-month period ended | |
3 | The number of converted shares assumes the conversion of all MCPS and issuance of the underlying shares applying the "if-converted" method of accounting and using an average 20 trading-day trailing Volume Weighted Average Price ("VWAP") of |
Sales (Decline) Growth by Segment, Core Sales (Decline) Growth by Segment and Base Business Core Sales Growth by Segment | |||||||||
% Change Three-Month Period Ended | |||||||||
Segments | |||||||||
Biotechnology | Life Sciences | Diagnostics | Environmental & | ||||||
Total sales (decline) growth (GAAP) | (7.0) % | (16.0) % | 2.5 % | (10.0) % | 5.0 % | ||||
Impact of: | |||||||||
Acquisitions/divestitures | — % | — % | (1.0) % | — % | (0.5) % | ||||
Currency exchange rates | 3.0 % | 3.0 % | 3.5 % | 2.5 % | 2.0 % | ||||
Core sales (decline) growth (non-GAAP) | (4.0) % | (13.0) % | 5.0 % | (7.5) % | 6.5 % | ||||
Impact of COVID-19 related testing, vaccines and therapeutics | 10.0 % | +Low-teens | +Low-single digit | +High-teens | — % | ||||
Base business core sales growth (non-GAAP) | 6.0 % | Flat | +High-single digit | +Low-double digit | 6.5 % | ||||
Note: We expect overall demand for the Company's COVID-19 related products to continue moderating as the pandemic subsides and evolves toward endemic status. We believe certain demand for the Company's products that support COVID-19 related vaccines and therapeutics (including initiatives that seek to prevent or mitigate similar, future pandemics) and COVID-19 testing will continue, though that demand will likely be uncertain and will vary from period to period. At the beginning of 2022, the Company believed that on a relative basis, the level of ongoing demand for products supporting COVID-19 testing would be subject to more fluctuations in demand than the level of demand for products supporting COVID-19 related vaccines and therapeutics, due in part to expected COVID-19 case levels, vaccination rates and use of therapies. However, as a result of lower vaccination rates and the spread of less severe variants of the virus, 2022 demand for the Company's products supporting COVID-19 related vaccines and therapeutics fluctuated and declined more than anticipated at the beginning of the year. Therefore, beginning with the first quarter of 2023, we have revised the definition of "base business core sales growth" on a basis that not only excludes revenues related to COVID-19 testing but also excludes revenues from products that support COVID-19 related vaccines and therapeutics. We believe this adjusted definition of "base business core sales growth" will provide more useful information to investors by facilitating period-to-period comparisons of our financial performance and identifying underlying growth trends in the Company's business that otherwise may be obscured by fluctuations in demand for COVID-19 related products. |
Forecasted Core Sales (Decline) Growth and Base Business Core Sales Growth | |||
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components of GAAP revenue, such as currency translation, acquisitions and divested product lines. | |||
% Change Three-Month | % Change Year Ending | ||
Core sales (decline) growth (non-GAAP) | -High-single digit | -High-single digit | |
Impact of COVID-19 related testing, vaccines and therapeutics | +Low-double digit | +Low-double digit | |
Base business core sales growth (non-GAAP) | +Mid-single digit | +Mid-single digit | |
Operating Profit Margins and Year-Over-Year Core Operating Margin Changes | ||||||||||
Segments | ||||||||||
Biotechnology | Life Sciences | Diagnostics | Environmental | |||||||
Three-Month Period Ended | 28.30 % | 36.10 % | 19.10 % | 33.50 % | 20.30 % | |||||
First quarter 2023 impact from operating | (0.15) | (0.15) | (0.45) | — | 0.15 | |||||
First quarter 2022 impairments of accounts | 0.55 | 0.60 | 1.45 | 0.10 | 0.10 | |||||
First quarter 2023 costs incurred related to | (0.40) | — | — | — | — | |||||
Year-over-year core operating profit margin | (3.30) | (4.55) | (1.30) | (5.10) | 3.95 | |||||
Three-Month Period Ended | 25.00 % | 32.00 % | 18.80 % | 28.50 % | 24.50 % | |||||
Note: The Company deems acquisition-related transaction costs incurred in a given period to be significant (generally relating to the Company's larger acquisitions) if it determines that such costs exceed the range of acquisition-related transaction costs typical for Danaher in a given period. |
Cash Flow and Free Cash Flow | |||||
($ in millions) | |||||
Three-Month Period Ended | Year-over-Year | ||||
Total Cash Flows: | |||||
Net cash provided by operating activities (GAAP) | $ 1,947 | $ 1,968 | |||
Total cash used in investing activities (GAAP) | $ (304) | $ (503) | |||
Total cash used in financing activities (GAAP) | $ (262) | $ (274) | |||
Free Cash Flow: | |||||
Net cash provided by operating activities (GAAP) | $ 1,947 | $ 1,968 | ~ (1.0)% | ||
Less: payments for additions to property, plant & equipment (capital expenditures) (GAAP) | (275) | (250) | |||
Plus: proceeds from sales of property, plant & equipment (capital disposals) (GAAP) | — | 2 | |||
Free cash flow (non-GAAP) | $ 1,672 | $ 1,720 | ~ (3.0)% | ||
We define free cash flow as operating cash flows, less payments for additions to property, plant and equipment ("capital expenditures") plus the proceeds from sales of plant, property and equipment ("capital disposals"). |
Statement Regarding Non-GAAP Measures
Each of the non-GAAP measures set forth above should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measure, and may not be comparable to similarly titled measures reported by other companies. Management believes that these measures provide useful information to investors by offering additional ways of viewing
- with respect to Adjusted Diluted Net Earnings Per Common Share, understand the long-term profitability trends of our business and compare our profitability to prior and future periods and to our peers;
- with respect to core sales and related non-GAAP sales measures, identify underlying growth trends in our business and compare our sales performance with prior and future periods and to our peers; and
- with respect to free cash flow and related non-GAAP cash flow measures (the "FCF Measure"), understand Danaher's ability to generate cash without external financings, strengthen its balance sheet, invest in its business and grow its business through acquisitions and other strategic opportunities (although a limitation of free cash flow is that it does not take into account the Company's debt service requirements and other non-discretionary expenditures, and as a result the entire free cash flow amount is not necessarily available for discretionary expenditures).
We expect overall demand for the Company's COVID-19 related products to continue moderating as the pandemic subsides and evolves toward endemic status. We believe certain demand for the Company's products that support COVID-19 related vaccines and therapeutics (including initiatives that seek to prevent or mitigate similar, future pandemics) and COVID-19 testing will continue, though that demand will likely be uncertain and will vary from period to period. At the beginning of 2022, the Company believed that on a relative basis, the level of ongoing demand for products supporting COVID-19 testing would be subject to more fluctuations in demand than the level of demand for products supporting COVID-19 related vaccines and therapeutics, due in part to expected COVID-19 case levels, vaccination rates and use of therapies. However, as a result of lower vaccination rates and the spread of less severe variants of the virus, 2022 demand for the Company's products supporting COVID-19 related vaccines and therapeutics fluctuated and declined more than anticipated at the beginning of the year. Therefore, beginning with the first quarter of 2023, we have revised the definition of "base business core sales growth" on a basis that not only excludes revenues related to COVID-19 testing but also excludes revenues from products that support COVID-19 related vaccines and therapeutics. We believe this adjusted definition of "base business core sales growth" will provide more useful information to investors by facilitating period-to-period comparisons of our financial performance and identifying underlying growth trends in the Company's business that otherwise may be obscured by fluctuations in demand for COVID-19 related products.
Management uses the non-GAAP measures referenced above to measure the Company's operating and financial performance, and uses core sales and non-GAAP measures similar to Adjusted Diluted Net Earnings Per Common Share and the FCF Measure in the Company's executive compensation program.
The items excluded from the non-GAAP measures set forth above have been excluded for the following reasons:
- With respect to Adjusted Diluted Net Earnings Per Common Share:
- Amortization of Intangible Assets: We exclude the amortization of acquisition-related intangible assets because the amount and timing of such charges are significantly impacted by the timing, size, number and nature of the acquisitions we consummate. While we have a history of significant acquisition activity we do not acquire businesses on a predictable cycle, and the amount of an acquisition's purchase price allocated to intangible assets and related amortization term are unique to each acquisition and can vary significantly from acquisition to acquisition. Exclusion of this amortization expense facilitates more consistent comparisons of operating results over time between our newly acquired and long-held businesses, and with both acquisitive and non-acquisitive peer companies. We believe however that it is important for investors to understand that such intangible assets contribute to sales generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.
- Restructuring Charges: We exclude costs incurred pursuant to discrete restructuring plans that are fundamentally different (in terms of the size, strategic nature and planning requirements, as well as the inconsistent frequency, of such plans) from the ongoing productivity improvements that result from application of the Danaher Business System. Because these restructuring plans are incremental to the core activities that arise in the ordinary course of our business and we believe are not indicative of Danaher's ongoing operating costs in a given period, we exclude these costs to facilitate a more consistent comparison of operating results over time.
- Other Adjustments: With respect to the other items excluded from Adjusted Diluted Net Earnings Per Common Share, we exclude these items because they are of a nature and/or size that occur with inconsistent frequency, occur for reasons that may be unrelated to Danaher's commercial performance during the period and/or we believe that such items may obscure underlying business trends and make comparisons of long-term performance difficult. For example, we excluded the first quarter 2022 charge for asset impairments, accruals for contractual obligations and similar items related to our
Russia operations because, even though it is possible we could incur additional charges in the future, we do not believe these charges are indicative of Danaher's ongoing operating costs. - With respect to adjusted average common stock and common equivalent shares outstanding, Danaher's Mandatory Convertible Preferred Stock ("MCPS") Series A converted into Danaher common stock on
April 15, 2022 and the MCPS Series B mandatorily converted into Danaher common stock on the mandatory conversion date ofApril 17, 2023 (unless converted or redeemed earlier in accordance with the terms of the applicable certificate of designations). With respect to the calculation of Adjusted Diluted Net Earnings Per Common Share, we apply the "if converted" method of share dilution to the MCPS Series A and B in all applicable periods irrespective of whether such preferred shares would be dilutive or anti-dilutive in the period. We believe this presentation provides useful information to investors by helping them understand what the net impact will be on Danaher's earnings per share-related measures once the MCPS convert into Danaher common stock. - With respect to core sales related measures, (1) we exclude the impact of currency translation because it is not under management's control, is subject to volatility and can obscure underlying business trends, and (2) we exclude the effect of acquisitions and divested product lines because the timing, size, number and nature of such transactions can vary significantly from period-to-period and between us and our peers, which we believe may obscure underlying business trends and make comparisons of long-term performance difficult.
- With respect to the FCF Measure, we exclude payments for additions to property, plant and equipment (net of the proceeds from capital disposals) to demonstrate the amount of operating cash flow for the period that remains after accounting for the Company's capital expenditure requirements.
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components of GAAP revenue, such as currency translation, acquisitions and divested product lines. Additionally, we do not reconcile adjusted operating profit margin (or components thereof) to the comparable GAAP measures because of the difficulty in estimating the other unknown components such as investment gains and losses, impairments and separation costs, which would be reflected in any forecasted GAAP operating profit.
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