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Why Is Danaher (DHR) Up 6.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Danaher (DHR). Shares have added about 6.6% in that time frame, outperforming the S&P 500.

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

Danaher Q4 Earnings Beat, Biotechnology Sales Dip Y/Y

Danaher’s fourth-quarter 2023 adjusted earnings (excluding 59 cents from non-recurring items) of $2.09 per share surpassed the Zacks Consensus Estimate of $1.90. The bottom line declined 17.7% year over year.

Danaher’s net sales of $6,405 million outperformed the consensus estimate of $5,990 million. However, the metric declined 10.2% year over year due to a decrease in sales of COVID-related products and weakness in the Biotechnology and Diagnostics segments.

Organic sales in the quarter decreased 11.5%. Foreign-currency translations and acquisitions had a positive impact of 1% and 0.5%, respectively, on quarterly sales. Base business core sales (adjusted) declined 4.5% in the quarter.

For 2023, Danaher reported net sales of $23.9 billion, declining 10.3% year over year. For the year, the company’s adjusted earnings came in at $7.58 per share compared with $9.71 in 2022.

Segmental Discussion in Q4

On Sep 30, 2023, Danaher completed the separation of its Environmental & Applied Solutions segment. It currently operates under the operating segments discussed below.

Revenues from the Life Sciences segment totaled $1.93 billion, down 1% year over year. Core sales dipped 4% year over year. Acquisitions/divestitures led to a 2.5% increase in sales. Operating profit was $235 million for the quarter, down 40% year over year. We expected the Life Sciences segment’s revenues to be $1.84 billion.

Revenues from the Diagnostics segment totaled $2.72 billion, down 8.5% year over year. Our estimate for revenues in the quarter was $2.37 billion. The downside was due to an 8.5% decline in core sales. Foreign currency or acquisitions did not have any material impact on sales. Operating profit was $766 million for the quarter, down 22.5% on a year-over-year basis.

Revenues from the Biotechnology segment totaled $1.76 billion, down 21% year over year. Our estimate for the quarter was $1.68 billion. Core sales dropped 22.5% for the segment. Operating profit was $416 million for the quarter, down 40% year over year.

Margin Profile

In the fourth quarter, Danaher’s cost of sales decreased 9.7% year over year to $2.63 billion. Gross profit of $3.78 billion fell 10.6% year over year. Gross margin in the quarter was 59% compared with 59.2% in the year-ago quarter.

Selling, general and administrative expenses of $2.04 billion, an increase of 11.3% on a year-over-year basis. Research and development expenses were $407 million, up nearly 1.8% year over year.

Danaher’s operating profit in the reported quarter dropped 33% year over year to $1.34 billion. Operating margin decreased to 20.9% from 28% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter, DHR had cash and equivalents of $5.86 billion compared with about $6 billion at 2022-end. Long-term debt was $16.7 billion at the end of the reported quarter compared with $19.1 billion at the end of December 2022.

Danaher generated net cash of $7.16 billion from operating activities in 2023 compared with $8.52 billion in the previous year. Capital expenditures totaled $1.38 billion in the same period, up 23.7% year over year. Adjusted free cash flow was $5.1 billion in 2023 compared with $6.5 billion in the previous year.

In 2023, DHR paid out dividends of $821 million, up around 0.4% on a year-over-year basis.

Outlook

For the first quarter of 2024, Danaher expects adjusted core revenues from continuing operations to decline in high-single digits on a year-over-year basis.

The same is anticipated to decrease in low-single digits on a year-over-year basis in 2024.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -5.79% due to these changes.

VGM Scores

At this time, Danaher has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Danaher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Danaher belongs to the Zacks Diversified Operations industry. Another stock from the same industry, General Electric (GE), has gained 17.5% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.

GE reported revenues of $18.52 billion in the last reported quarter, representing a year-over-year change of -15%. EPS of $1.03 for the same period compares with $1.24 a year ago.

For the current quarter, GE is expected to post earnings of $0.64 per share, indicating a change of +137% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.

GE has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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