Life sciences and medical diagnostics company Danaher (DHR) reported better-than-expected fourth-quarter earnings and sales. We see the price decline as unjustified and as an opportunity. According to Refinitiv, core revenue rose nearly 10% to $8.37 billion, well above estimates of $7.9 billion. Adjusted earnings rose 6.7% to $2.87 per share, beating the consensus estimate of $2.54 per share. Excluding the impact of declining sales of Covid tests — but maintaining revenue from products supporting vaccines and therapeutics — Danaher’s core business posted core growth of 7.5%. That shows the company isn’t overly reliant on the surge in pandemic sales. Conclusion This was a solid quarter from one of the best managed companies in the world. Having very little to complain about, we attribute Tuesday’s 3% drop in stocks to a combination of management pre-announcing results and stocks making a big step into the release. Also to blame: The guidance for the first quarter could be a bit weak compared to expectations. With quarterly results coming in better than expected across the board, coupled with an increase in operating margin and strong cash flow generation, we tend to view Tuesday’s sell-off as a buying opportunity, as illustrated by our 1 rating – specifically considering that the annual guide is also consistent with better than expected. DHR 1Y Mountain Danaher (DHR) 1-Year Performance Management said in the post-earnings call that the first quarter is expected to be the bottom for its non-Covid bioprocess core growth as customers work to repurpose existing inventory. In other words, the bioprocess inventory glut that has been plaguing the life sciences industry for the past few months appears to be winding down, at which point growth will accelerate again. Guidance Management expects overall core revenue growth in the mid-single-digit percentage range for the first quarter. After adjusting for expected high-single-digit to low-double-digit impact related to sales of Covid tests, vaccines and therapeutics, the team forecasts core core business revenue growth in the mid-single-digit percentage range. Operating profit margin is expected to be around 30% — above the expected 27.7%. For full year 2023, management expects overall core revenue growth to be in the mid-single digits. After adjusting for an expected “low double-digit” impact related to sales of Covid tests, vaccines and therapeutics, the team forecasts core core business revenue growth in the high single digits. Operating profit margin is expected to be around 31% — above the expected 27.3%. While we don’t have an exact comparison because of a change in the way management calculates future growth (more details on that below), the guidance for the first quarter seems a bit flippant with what some analysts are modeling and probably the reason is at least part of Tuesday’s selling pressure. However, the full-year guidance appears to be in line with analysts’ expectations. On the conference call, management said it now expects revenue from Covid-related vaccines and therapeutics “to be approximately $150 million for full year 2023, compared to approximately $810 million in 2022 and lower than ours.” previous expectation of $500 million”. The reasons: lower vaccination and booster rates and the availability of alternative therapeutics (other than monoclonal antibody-based treatments). Reporting Structure Before we delve into the results, we would like to highlight that management has slightly modified Danaher’s reporting structure. Due to the significant growth in Life Sciences in recent years, the team has decided to spin off part of the original segment into a new segment called Biotechnology. To provide a direct comparison to Wall Street estimates, we have summarized revenue and operating income for the new Biotechnology and Life Sciences segments in the table below in the Product Segments section. In addition, starting with the first quarter 2023 results, management is updating its definition of core sales growth of the underlying business to exclude the impact of Covid-related testing and the impact of Covid vaccines and therapeutic revenue streams. This is reflected in the Guidance section provided above. So far, only revenue related to Covid testing has been excluded. During the earnings call, management pointed to core revenue growth of about 10% in North America and Europe. In China, as the Chinese government scrapped its zero-Covid policy, a wave of infections hampered the performance of the company’s clinical diagnostics business there as patient and testing volumes declined. This momentum is expected to last through the first quarter before “gradually recovering over the course of the year.” In addition, the team attributed Danaher’s margin expansion to “disciplined cost management, productivity measures and pricing actions implemented to offset the impact of inflationary pressures across the board [the] Management also noted that while supply chain issues persist, they are noting a “modest improvement in component availability.” It’s also worth noting that Environmental & Applied Solutions (EAS) revenue increased 5.5% on a core basis, driven by high individual -digit growth in water quality-related sales. (These figures are not included in the table.) The EAS division is scheduled to become a separate company later this year. (Jim Cramer’s Charitable Trust has long been DHR. For a full list of stocks, click here.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. 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In this photo illustration, the Danaher Corporation logo seen on a smartphone with the Danaher Corporation stock information in the background.
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Life sciences and medical diagnostics company Danaher (DHR) reported better than expected earnings and sales for the fourth quarter. We see the price decline as unjustified and as an opportunity.