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Why Is Danaher (DHR) Down 3.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Danaher (DHR). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Danaher due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Danaher Q4 Earnings Beat Estimates, Sales View Solid

Danaher has reported impressive results for the fourth quarter of 2020, with earnings surpassing estimates by 13%. Also, the company’s sales surpassed the consensus estimate by 0.1%.

Danaher’s adjusted earnings were $2.08 per share in the reported quarter, which surpassed the Zacks Consensus Estimate of $1.84. Also, the bottom line increased 62.5% from the year-ago quarter’s figure of $1.28 mainly on sales growth and improved operating margin.

In 2020, the company’s adjusted earnings were $6.31 per share, reflecting growth of 42.8% from the previous year. Also, the bottom line surpassed the Zacks Consensus Estimate of $6.06.

Revenue Details

In the quarter under review, the company’s net sales were $6,760 million, reflecting year-over-year growth of 38.9%. The results were driven by solid segmental performances.  Organic sales in the quarter increased 12% and foreign-currency translations had a positive impact of 2.5%. Also, acquisitions/divestments boosted sales by 24.5%.

As noted, Cytiva had a 3.5% positive contribution on sales growth in the quarter. Organic sales, including the impact of Cytiva, increased 15.5% year over year. Also, the pandemic-induced demand for products boosted sales by 12%.

Also, the company’s top line surpassed the Zacks Consensus Estimate of $6,753 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 $3,361 million, rising 75.5% year over year. Acquisitions/divestments had a positive contribution of 62% to sales growth, while foreign-currency translations boosted sales by 3%. Core sales grew 10.5% year over year.
 
Cytiva had a positive impact of 8% and including this, organic sales in the quarter increased 18.5% year over year.

Revenues in the Diagnostics segment grossed $2,227 million, increasing 23.5% year over year. The improvement came on the back of a 21.5% rise in core sales and a 2% gain from foreign-currency translations.

Revenues in the Environmental & Applied Solutions segment totaled $1,172 million, increasing 2% year over year. Core sales expanded 1%, while acquisitions and foreign currency translation had positive impacts of 0.5% and 0.5%, respectively.

For 2020, the company’s net sales totaled $22.28 billion, reflecting growth from The Zacks Consensus Estimate of $21.95 billion. Also, the results increased 24.4% on a year-over-year basis.

Margin Profile

In the quarter under review, Danaher’s cost of sales increased 29.7% year over year to $2,806 million. It represented 41.5% of net sales compared with 44.5% in the year-ago quarter. Gross profit increased 46.2% year over year to $3,954 million, while margin increased 290 basis points (bps) year over year to 58.5%.

Selling, general and administrative expenses of $1,957 million witnessed a year-over-year increase of 35.1%. As a percentage of net sales, it represented 29% versus 29.8% in the year-ago quarter. Research and development expenses were $396 million, which rose 34.7% year over year. It represented 5.9% of net sales versus 6% in the year-ago quarter.

Operating income in the quarter under review increased 66.6% year over year to $1,601 million. Operating margin increased 390 bps to 23.7% in the quarter. Interest expenses in the quarter totaled $72 million, higher than $44 million reported in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Danaher had cash and cash equivalents of $6,035 million, up 6.1% from $5,687.7 million at the end of the last reported quarter. Long-term debt balance decreased 2.8% sequentially to $21,193 million.

In 2020, the company raised $8,670 million through borrowings, with a maturity of more than 90 days. It also repaid $5,933 million borrowings, with a maturity of more than 90 days.

In 2020, the company generated net cash of $6,215 million from operating activities (continuing operations), reflecting a year-over-year increase of 69.9%. Capital used for purchasing property, plant and equipment totaled $791 million versus $636 million in the previous year. Free cash flow in the year improved 79% year over year to $5,426 million.

The company paid out dividends worth $615 million to its shareholders in 2020, reflecting an increase of 16.7% from the previous year.

 

Outlook

In the quarters ahead, Danaher expects to benefit from a solid product portfolio, dedicated workforce and a strong balance sheet.

For the first quarter of 2021, the company expects core revenues, including Cytiva, to grow in mid- to high-teens. The same is predicted to increase in low-double digits in 2021, whereas it recorded 9.5% in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 7.48% due to these changes.

VGM Scores

At this time, Danaher has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Danaher has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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