Danaher Corporation DHR has kept its earnings streak alive in the second quarter of 2020. Its earnings surpassed estimates by 35.8% and sales exceeded the same by 6.7%.
The company’s adjusted earnings were $1.44 per share in the reported quarter, which outpaced the Zacks Consensus Estimate of $1.06. The same also grew 32.1% from the year-ago quarter’s figure of $1.09 mainly on sales growth.
In the quarter under review, the company’s net sales were $5,297.4 million, reflecting year-over-year growth of 19.2%. Organic sales in the quarter declined 0.5% and foreign-currency translations had an adverse impact of 2%. On the other hand, acquisitions/divestments had a positive impact of 21.5% on sales.
As noted, Cytiva had a 4% positive contribution on sales growth in the quarter. Organic sales, including the impact of Cytiva, increased 3.5% year over year.
It is worth noting here that Danaher completed the acquisition of General Electric Company’s GE BioPharma business in first-quarter 2020. The acquired BioPharma business is included in Danaher’s Life Sciences segment and is called Cytiva.
Also, the company’s top line surpassed the Zacks Consensus Estimate of $4,963 million.
It reports net sales under three segments — Life Sciences, Diagnostics, and Environmental & Applied Solutions. The segmental information is briefly discussed below:
Revenues for the Life Sciences segment totaled $2,642.4 million, rising 54.5% year over year. Acquisitions/divestments had a positive contribution of 55.5% to sales growth, while forex woes had an adverse impact of 1%. Core sales were flat year over year.
However, Cytiva had a positive impact of 8% and including this, organic sales in the quarter increased 8% year over year.
Revenues in the Diagnostics segment grossed $1,660.2 million, increasing 2.5% year over year. The improvement came on the back of a 5% rise in core sales, which was partially offset by a 2.5% negative impact of foreign-currency translations.
Revenues in the Environmental & Applied Solutions segment totaled $994.8 million, decreasing 10.5% year over year. The decline was due to an 8.5% fall in core sales and a 2% adverse impact of foreign-currency translations.
In the quarter under review, Danaher’s cost of sales increased 24.7% year over year to $2,444.8 million. It represented 46.2% of net sales compared with 44.1% in the year-ago quarter. Gross profit increased 14.8% year over year to $2,852.6 million, while margin decreased 210 basis points (bps) year over year to 53.8%.
Selling, general and administrative expenses of $1,685.4 million reflect a year-over-year increase of 21.3%. As a percentage of net sales, it represented 31.8% versus 31.3% in the year-ago quarter. Research and development expenses were $322.6 million, which rose 14.4% year over year. It represented 6.1% of net sales versus 6.3% in the year-ago quarter.
Operating income in the quarter under review increased 4.1% year over year to $844.6 million. Operating margin decreased 240 bps to 15.9% in the quarter. The results were adversely impacted by 80-bps adverse impact of core business and 400-bps impact of miscellaneous sources, partially offset by 240-bps contribution from acquisitions.
Interest expenses in the quarter totaled $78.6 million, higher than $19.7 million reported in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the second quarter, Danaher had cash and cash equivalents of $5,539.3 million, up 26.8% from $4,367.7 million at the end of the last reported quarter. Long-term debt balance decreased 1.6% sequentially to $22,370 million.
During the first half of 2020, the company raised $7,691.3 million through borrowings, with a maturity of more than 90 days. It also repaid $3,750 million borrowings, with a maturity of more than 90 days.
In the quarter, the company generated net cash of $1,445 million from operating activities, reflecting a year-over-year increase of 37%. Capital used for purchasing property, plant and equipment totaled $155.4 million versus $154.3 million in the year-ago quarter.
Free cash flow (non-GAAP) in the quarter improved 41% year over year to $1,289.9 million.
In the first half of 2020, the company paid out dividends worth $283.1 million to its shareholders.
In the quarters ahead, Danaher expects to benefit from solid product portfolio, operational execution, dedicated workforce and a strong balance sheet.
For the third quarter of 2020, the company expects core revenues growth in low-to mid-single digits. In addition, it believes that Cytiva’s impact on core sales will be 300-400 bps and including this contribution, core sales growth in the quarter will be in mid to high-single digits.
Danaher Corporation Price, Consensus and EPS Surprise
Danaher Corporation price-consensus-eps-surprise-chart | Danaher Corporation Quote
Zacks Rank & Other Stock to Consider
With a market capitalization of $136 billion, the company currently carries a Zacks Rank #2 (Buy).
Two other top-ranked stocks in the industry include Macquarie Infrastructure Company MIC and Griffon Corporation GFF. Both the companies currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for the two companies improved for the current year. Also, average earnings beat for the last four quarters was 3.13% for Macquarie Infrastructure and 21.76% for Griffon.
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