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Why Is Danaher (DHR) Up 6.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Danaher (DHR). Shares have added about 6.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Danaher Q1 Earnings Beat, Biotechnology Sales Dip Y/Y

Danaher’s first-quarter 2024 adjusted earnings (excluding 47 cents from non-recurring items) of $1.92 per share surpassed the Zacks Consensus Estimate of $1.72. The bottom line declined 27.1% year over year.

Danaher’s net sales of $5.8 billion outperformed the consensus estimate of $5.6 billion. However, the metric declined 2.5% year over year due to lower core sales in the Biotechnology segment.

Organic sales in the quarter decreased 4%. Foreign-currency translations and acquisitions had a positive impact of 0.5% and 2.0%, respectively, on quarterly sales.

Segmental Discussion in Q1

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 $1.7 billion, up 2% year over year. Core sales dipped 3% year over year. Acquisitions/divestitures led to a 6% increase in sales. Operating profit was $235 million for the quarter, down 26.8% year over year.

Revenues from the Diagnostics segment totaled $2.5 billion, up 6.5% year over year. Core sales increased 7.5% year over year. Foreign currency had a positive impact of 1%. Operating profit was $830 million for the quarter, up 22.6% on a year-over-year basis.

Revenues from the Biotechnology segment totaled $1.52 billion, down 18% year over year. Core sales dropped 17% for the segment. Operating profit was $325 million for the quarter, down 45.5% year over year.

Margin Profile

In the first quarter, Danaher’s cost of sales increased 1% year over year to $2.3 billion. Gross profit of $3.5 billion fell 4.8% year over year. The gross margin in the quarter was 60.2% compared with 61.6% in the year-ago quarter.

Selling, general and administrative expenses of $1.8 billion recorded an increase of 2% on a year-over-year basis. Research and development expenses were $368 million, up 1.3% year over year.

Danaher’s operating profit in the reported quarter dropped 13.5% year over year to $1.3 billion. Operating margin decreased to 22.6% from 25.5% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, DHR had cash and equivalents of $7 billion compared with about $5.9 billion in 2023 end. Long-term debt was $16.4 billion at the end of the reported quarter compared with $16.7 billion at the end of December 2023.

Danaher generated net cash of $1.7 billion from operating activities in the first three months of 2024 compared with $1.9 billion in the previous year’s quarter. Capital expenditures totaled $291 million in the same period, up 9.4% year over year. Adjusted free cash flow was $1.4 billion in the first three months of 2024 compared with $1.5 billion in the year-ago period.

In the first three months of 2024, DHR paid out dividends of $177 million, up around 13.2% on a year-over-year basis.

Outlook

For the second quarter of 2024, Danaher expects adjusted core revenues from continuing operations to decline in mid-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?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Danaher has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth 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.

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