Danaher reported first-quarter earnings of $0.98 per share, after adjusting for one-time gains related to the sale of the Apex tool joint venture, earnings of $0.75 per share, a modest 2% increase over the prior year. Earnings growth of 2% was held back by sluggish core revenue growth and foreign currency translation, with no one individual segment standing out as either over- or under-performing expectations.
While the Street responded favorably to last quarter’s surprising strength, this quarter was more in line with our near-term view for Danaher that weak global markets, and tepid spending for capital projects and research and development would hinder growth in the industrial businesses. Versus the prior year, core revenue was flat in test and measurement, up 1% in environmental and down 1.5% in industrial technologies.
While analysts do expect growth in key parts of the economy, like housing and auto demand, Danaher’s lack of meaningful exposure will weaken its growth prospects. That said, life sciences and diagnostics and dental both increased organic revenue 2.5% in the quarter with stable volume and some contribution from price increases. The company did mention relative strength in China lifting results.
While this quarter’s result does not change our long-term opinion of the company, it does highlight one of our primary concerns about Danaher’s portfolio: a lack of organic growth potential. Operating earnings declined marginally in the quarter, and while the company attributes that to drag from newly acquired businesses, which is rarely an excuse that we hear from Danaher.
Historically, the company has been proficient at growing through cycles via acquisitions, but as the firm gets bigger and needs larger acquisitions to make a difference, that tactic becomes more difficult and risky for shareholders. Analysts anticipate the company will continue to drive growth through acquisition, though it remains unclear that this is value accretive for long-term shareholders.
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