Danaher Corp (DHR) 2005 Q1 法說會逐字稿

Good morning.

My name is Crystal and I will be your conference facilitator today.

At this time I would like to welcome everyone to the first quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

Mr. Andy Wilson, you may begin your conference.

Good morning, everyone, and thanks for joining us today.

With me is Larry Culp, our President and Chief Executive Officer;

Dan Comas, our Executive Vice President and Chief Financial Officer; and Pat Allender, our Executive Vice President.

I would like to point out that our earnings release and 10-K are available on our website under the heading, Investor Events.

Additionally, access to a web cast presentation supplementing today's call can be found under the same heading, Investor News.

This call will be replayed through April 30th and the audio portion will be archived on our website later today and will remain archived until our next quarterly call.

The replay is number is 1-800-642-1687, and a confirmation code is 527-3258.

I will repeat this information at the end of a call for any late arrivals.

I would also like to note that in order to help you understand the Company's direction, we will be making some forward-looking statements during this call, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

These forward-looking statements are subject to a number of risks and uncertainties including those related to litigation and other contingent liabilities, our ability to achieve projected efficiencies and cost reductions, economic conditions in the end-markets we sell into, our ability to expand our business in new geographic markets, commodity costs and surcharges, competition, market demand for our new products, currency exchange rates, changes in the market for acquisitions and divestitures, and the integration of acquired businesses.

It is possible that actual results might differ materially from any forward-looking statements that we might make today.

Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings including our 2004 Annual Report on Form 10-K, and our first-quarter 2005 Quarterly Report on Form 10-Q.

With respect to any non-GAAP financial measures provided during the call today, the accompanying information required by the SEC Regulation G relating to those measures can be found on our website at Danaher.com under the section, Investor News.

With that I would like to turn the call over to Larry.

Thanks Andy, and good morning, everyone.

We're very pleased to report this morning that our first-quarter earnings per share were $0.58, a 29% increase over last year's first quarter EPS of $0.45, representing another record first-quarter.

Our strong operating performance was augmented by a gain on the sale of real estate in our tools business of approximately $0.01.

Excluding that gain, earnings per share for the first-quarter increased 27% versus the same period a year ago.

Revenues for the quarter increased 18.5% to $1.83 billion as revenues from existing businesses, also described as core revenues, grew just over 4%.

Acquisitions contributed an increase of 13% and positive currency effects contributed an increase of 1.5%.

Our gross margin improved to 42.5% in the first-quarter of '05 versus 40.9% during the same period last year.

Operating average from higher revenues, cost reductions across the Corporation, higher gross margins in our acquired businesses, primarily our Medical Technology businesses, as well as price increases offset the impact of cost increases and surcharges related to steel prices and other commodities, and contributed to this 160 basis point improvement.

Selling, general and administrative expenses for the first-quarter were 27.9% of sales versus 26.4% a year ago, driven by higher SG&A structures in our recent acquisitions, primarily our Medical Technology businesses.

Operating profit for the quarter was a record $272 million, a 21% increase over the same period a year ago.

Operating margins for the first quarter were 14.9%, a 30 basis point improvement over last year.

Absent the dilutive effect from lower operating margins of our recently acquired businesses, primarily KaVo, operating margins would have improved by more than 130 basis points.

Net interest expense for the first quarter was $12.2 million, compared with $12.9 million for the first quarter last year.

The decrease in interest expense is primarily due to lower debt levels in the first quarter of '05, as well as modestly higher earnings on cash balances.

As expected, our effective income tax rate for the first quarter was 27.5% versus 31.5% in the first quarter of 2004.

This reduction is principally a reflection of the growing percentage of profitability generated by our international operations.

Net income was $188 million, a 30% increase over the first-quarter of 2004.

Operating cash flow for the first quarter was a record $312 million, 24% higher than the first quarter of last year.

Gross capital expenditures increased 35% to $26 million with net capital expenditures of $20 million, representing a 54% increase over 2004.

Our current full year CapEx estimate remains at approximately $150 million.

Free cash flow, defined as operating cash flow less capital expenditures, was $286 million for the quarter and represented a 23% increase versus 2004.

We're pleased with our cash flow performance to date in what we project to be our first year of more than $1 billion of free cash flow generation.

Our free cash to net income conversion ratio for the quarter was very strong at 152%, placing us firmly on track to deliver free cash flow in excess of net income for the 14th year in a row.

Our balance sheet remains strong with a debt to total capital ratio of 22% and over $670 million in cash and cash equivalents at quarter end.

Turning to our operating performance and starting with our Professional Instrumentation segment, revenues here increased 37.5% for the quarter to $829 million.

Revenues from the existing businesses contributed 5%, acquisitions contributed 30.5% and currency gains contributed 2%.

Operating margins for the quarter were 17.5 percent, down 40 basis points versus the prior-year.

However without the effective acquisitions, again principally KaVo, margins would have improved over 260 basis points to over 20% for the quarter, a result of leverage from higher revenues from our higher variable margin businesses, and our cost reduction initiatives.

Environmental revenues for the quarter improved 14%, with core revenues contributing 4%, acquisitions contributed 8.5%, and a positive currency impact contributing 1.5%.

Our water quality businesses delivered another solid core growth performance for the quarter, while revenue growth at Gilbarco Veeder-Root was impacted as expected by a very strong prior year performance.

Water quality core revenues grew at a high single digit rate in the first-quarter lead by a robust performance by both our Hach Lange and our Hach ultra analytics business.

Hach Lange core revenues were up to a mid single digit rate driven by growth primarily in process instrumentation in the U.S. and in Asia, with China up more than 75% versus last year.

Core revenue growth in Europe was essentially flat, primarily due to a very strong 2004 comparison in both our laboratory and process instrumentation product lines.

Over 30 new innovative products were introduced in the last 12 months at Hach, generating more than $20 million of new product revenues in the first-quarter of 2005.

Hach Homeland Security technologies distribution monitoring system saw revenue growth of more than 50% during the first quarter with threat agent testing on track and progressing well.

Hach Ultra Analytics' core revenue in the first-quarter grew at a high single digit rates, again driven by Asian and European strength and to a lesser extent North America.

Strength in food and beverage end-markets, as well as recent significant orders from the U.S.

Navy should more than offset a weaker technology end-market and continue to generate core growth this year.

Trojan Technologies, a global leader in ultraviolet disinfection, grew pro forma revenues at a mid single digit rate for the first quarter driven by project wins in drinking water disinfection.

During the quarter, we were awarded five new contracts for wastewater treatment plants in China, where bidding activity remains very active.

Also during the quarter we secured a multimillion dollar supply contract from the City of Halifax, Nova Scotia, to provide UV disinfection for the cities of Halifax and Dartmouth.

Integration activities at Trojan are on track with the recent completion of their strategic plan.

Policy deployment is now in place and a number of (indiscernible) events have been held throughout the business.

Gilbarco Veeder-Root's core revenues were flat in the first-quarter, the result of a very strong prior year comparison.

The first-quarter represents the toughest comparison we expect to see in 2005 at Gilbarco Veeder-Root.

We saw strong performance in the U.S. and in Asia, with particular strength in our retail automation products.

Europe as expected was soft due to the quick start in spending last year on the part of a few key customers.

We expect Gilbarco Veeder-Root's core growth for the balance of year to be in the mid single digit range.

In the U.S. we saw healthy demand for new products such as Passport, our new point-of-sale product integrating in-store activity and a dispenser for port.

Passport has now been approved by all major U.S. oil companies and is compatible with their corporate IT networks.

Successful Passport installations have been recently completed at shell and with Cumberland Farms.

We're launching our new Oncor 550 dispenser next month, our first dispenser to incorporate our Smart Meter, our new patented no drip, no calibration flow meter.

This is an innovative product that will save our customers money by eliminating fuel loss due to over dispensing.

We project this new technology has the potential to generate over $50 million in incremental revenue over the next three years.

We continue to make excellent progress in both India and China.

During the quarter we received a multimillion dollar award from Sinopec to supply Veeder-Root environmental systems to over 600 retail core ports in China.

Shipments are scheduled to commence in the second-quarter.

Our ISD, or in station diagnostics corporate breakthrough got a regulatory lift with the recent signing of an executive order in California which specifies that newly built stations must be fitted with an enhanced vapor recovery system and established stations have only four years to upgrade existing vapor recovery systems to comply with the new regulation.

We expect Veeder-Root's in station diagnostics equipment to receive California EPA approval by the third quarter of this year for this multimillion dollar initiative, which we believe has potential future opportunities outside California.

Moving to electronic tests, revenues grew 19.5% in the quarter, with core revenue contributing 8.5%, acquisitions contributing 9%, and a favorable currency impact of 2%.

We saw continued strength across both our Fluke and Fluke Networks businesses.

Fluke's high single digit core growth was driven by strength in both the U.S. industrial channels as well as in European electrical channels, with China again posting double-digit core growth.

We saw strong sell-through performance as well particularly in the U.S., with no visible signs of softening demand.

We continue to generate strong organic growth through new product innovation at Fluke.

We will see nine major new product programs launched this year under that powerful Fluke brand, mostly in the second half of this year.

One recent example is our new three-phase Power Quality analyzer that has generated revenues more than double our initial estimate so far.

We continue to expand our presence in major distribution channels through the same product innovation as well as through strong channel programs with key distributors such as Grainger, who grew their sales of Fluke products during the quarter at a double-digit rate.

Our branding of our new portable thermography products under the Fluke brand drove significant growth in the quarter with North American run rates double the levels from a year ago, and worldwide revenues up over 60%.

The addition of new distributors in China have continued to accelerate growth in that region as sales more than doubled over the prior year.

Fluke Networks' core revenue for the quarter grew at a low double-digit rate driven by solid performance across all major product lines and customer segments with particular strength from new product sales of EtherScope, the DTX cable analyzer, and our suite of distributed analysis products.

Solid performances in North America and Asia offset a relatively softer European market.

The evolution of Fluke Biomedical accelerated during the quarter with the integration of the Cardinal Health Medical Test Instrument business and the appointment of a full-time President for Fluke Biomedical.

In addition during the quarter we acquired Medtron, a sub $10 million Norwegian based provider of biomedical equipment and software, strengthening our current access to key markets in Europe.

Adding Medtron's complementary medical test products including defibrillator and ventilator testers, gives us approximately $70 million in the Fluke Biomedical offering, further evidence of the stretch capability of that brand.

Turning to Medical Technology, revenues grew over 200% in the quarter as a result of the establishment of the platform in the first-quarter of 2004.

Given the abbreviated period of ownership in the 2004 first-quarter, core growth comparisons for the entire platform are not meaningful.

At Radiometer, a leader in critical care diagnostics, core revenues increased at a high single the rate versus last year, driven by continued strength in instrument placements, related accessories sales and service.

Healthy North American revenues, as we continue to make progress in the U.S., led the way.

Sales of the new ABL800, our most recently launched blood gas diagnostic system which we discussed last quarter, continues to gain traction, growing sequentially at 17% in the quarter and now represents Radiometer's best-selling productline.

Success with the ABL800, as well as the new MPT-7, our single use cartridge based instrument, in enabling Radiometer to expand its installed base, and as a result its related consumables sales.

Pro forma revenue growth in our dental business improved at a low single digit rate during the quarter due in part to ongoing inventory reduction efforts within our Japanese distribution channel.

KaVo, the global leader in dental equipment, experienced growth in equipment systems and lab sales, while Gendex experienced weakness in its imaging productlines in North America in the first-quarter of '05, due in part to the previous strong quarter sales performance.

Gendex has now been fully integrated into KaVo and beginning with the midwinter dental show in Chicago, the combined sales organization is now marketing the entire product portfolio.

IDS, or the International Dental Show in Cologne, Germany, the largest dental show in the world, took place last week and we were thrilled with the results, as orders at this biannual show were up more than 30% versus the show two years ago.

Significant interest was driven by the 15 new products and the five product improvements launched at the show, which was KaVo's most active new product introduction season ever.

New products such as the Gentle Silence hand piece and the Gendex 8500 panoramic digital imager, were major contributors to the excitement, which was particularly impressive given the backdrop of a soft start to the year in Germany due to reimbursement changes.

We expect these new products to be fully available in the third quarter and we anticipate accelerating core growth at KaVo as a result through the second half of 2005.

During the first-quarter KaVo delivered a multimillion dollar equipment installation at the University of Munich's dental training facility.

The installation of KaVo equipment in one of Germany's most renowned universities, helps build brand loyalty early in those dental students and ultimately the dentist's career.

Integration activities remain on plan as DBS implementation and restructuring activities continue to gain traction at KaVo.

On April the 8th, we reached an agreement with the workers council and union in Germany and shortly should complete negotiations on the social plan.

Implementation will begin of the end of next month and are important elements of our plan to improve KaVo's cost competitiveness and operating margins.

Also during the quarter we acquired DEXIS, a $30 million leader in dental intraoral sensors.

The acquisition of DEXIS will significantly expand and strengthen our presence in the U.S. digital imaging segment with an established brand and product.

We look forward to working together with the DEXIS team.

Moving to the Industrial Technologies segments, revenues increased 10% for the quarter to $687 million.

Revenues from existing businesses contributed an increase of 3.5%, acquisitions contributed 5%, and currency gains provided an increase of 1.5%.

Operating margins for the quarter were 13%, a 20 basis point improvement versus the same period last year.

Businesses acquired since the first-quarter of 2004 diluted overall operating profit margins by about 35 basis points for the quarter.

Product Identification revenues increased 18.5% during the quarter with core revenues contributing 4%, acquisitions contributing 12.5%, currency gains contributing 2%.

Growth was driven by our Accu-Sort scanning businesses offsetting low single digit declines in our Videojet business.

These declines resulted from softer overall market conditions during the quarter as well as some disruptions caused by acquisition and related restructuring activities within the platform, which had an impact on our selling organization.

Countermeasures are being implemented to address these issues, although these trends are not expected to reverse until the latter part of a second-quarter.

Videojet won a significant order from Huawei (ph), a DVD manufacturer, to print identification codes on their products for tracking purposes.

And the Alltec CS-10 laser was chosen over competitive products because of its lower running costs and quick service response time.

Accu-Sort core revenues were driven primarily by significant U.S.

Postal Service projects and the team secured an additional two-year multimillion dollar order from the USPS during the quarter.

We continue to make progress with our high-speed RFID storing systems in both Wal-Mart and Target.

They both installed our high-speed tracking and sorting RFID tunnels in live distribution center applications.

The testing is going well and we project the total opportunity to be north of $5 million for these two customers.

The system can track RFID tags at speeds greater than 60 per second and is designed for working with a variety tag and box types.

We are emerging, we believe, as a leader with our tracking and sorting algorithms and our unique antenna design.

During the quarter we completed the acquisition of Linx Printing Technologies, a UK based leader in continuous inkjet and laser marking equipment, complements well our existing Product Identification business through geographic expansion, especially in Europe and Asia.

Moving to Danaher Motion, revenues grew 9% in the quarter with core revenues providing growth of 3%, acquisitions contributing growth of 4%, and a favorable currency impact contributing 2%.

As mentioned last quarter, tougher comparison and the slowdown in the semiconductor market have created headwinds for our Motion business.

However the softness has been somewhat offset by the strength we have seen in our Otis and electric mobility businesses.

Both are experiencing more than 20% growth thus far as compared to the first-quarter of 2004.

Sales in Europe were strong and high single digit growth there was driven by progress in electric mobility and standard motor and drive sales.

By the third quarter we expect to see our core growth return to more customary levels as we lap the difficult high-tech comparisons.

Flat-panel display continues to win market share with Asian OEMs and sales growth for 2005 continues to be healthy, although at a somewhat slower pace than we experienced last year.

Motion received several awards during the quarter including Motion Industries Key Supplier Recognition Award for our commitment to quality, service, and products, and our cartridge direct drive rotary motor was selected as the Best New Product of the Year by both Design News and Electronic Product News.

During the quarter we acquired the $15 million G&L Controls business from ThyssenKrupp complementing our MEI acquisition last year.

G&L specializes in motion control for printing, converting, and packaging applications.

G&L represents an important addition to the portfolio so as to improve our control capability in these important verticals.

Our focused niche businesses within the Industrial Technologies segment revenues were up at a mid single digit rate compared to 2004, driven by particular strength from our Aerospace and Defense business.

In March we acquired PMA, a $25 million German leader in temperature controllers and complementary process automation products, which will become a part of our sensors and controls group.

Turning to the Tools and Components segments, core revenue for the quarter increased by 3.5%, driven by strength in Mechanics' Hand Tools, Hennessy, and Jacobs Chuck.

Total revenue for the quarter was down 2%, a result of the divestiture of Joslyn Manufacturing in the fourth quarter of 2004.

Operating margins for the quarter were 15.1%, an increase of 100 basis points over the prior year.

The increase was primarily driven by cost reduction programs completed last year, including the closure of the Armstrong facility in Chicago.

In addition, price initiatives helped offset a portion of this deal and commodity cost increases and contributed to the margin performance.

The previously announced relocation of our Springfield, Massachusetts operation to existing Tool Group facilities in Arkansas and Texas is on track with initial production already underway in Texas.

We plan to cease production in Springfield by the third quarter of this year.

A gain on the sale of the Armstrong real estate offset restructuring costs associated with this closure.

Mechanics' Hand Tool revenues improved 5% during the quarter, all of which represented core revenue increases.

Matco, our high-end mobile distribution brand, had a very strong quarter, generating low double-digit core growth driven by strength in tool boxes and hardlines.

During the quarter Matco won a key corporate contract with Cessna as we continue to expand our presence in the multimillion dollar aviation tool market.

Our retail business with Sears has begun the year with particular strength as we drove mid single digit revenue growth in the quarter.

Sell-through at Sears grew at a high single digit rate due in part to additional ad space and incremental promotional activity.

We are encouraged by the tone and tenor of our conversations with the new Sears holding team.

During the quarter Sears Holdings announced the conversion of 400 Kmart stores to the Sears brand.

Sears also awarded us two Partners In Progress awards, and we were one of two companies distinguished for superior service and innovation.

Inventory reductions by Sears tempered our sales growth in the first-quarter and these tighter inventory policies could impact sales in the short-term.

Nevertheless our forecast remains positive as we implement robust promotional plans and introduce new products.

Currently Sears Holdings is testing our tools under the Craftsmen brand at several Kmart locations and feedback thus far has been encouraging.

While it is still unclear as to the overall impact of this conversion on our tool offerings, we do believe it will be a net positive with 85 to 100 stores, which include the 50 Kmart stores acquired by Sears last year slated for conversion in 2005.

Our sales to Lowe's and in turn their sell-through were both up over 20% in the quarter.

Our Craftsmen industrial revenues grew at a mid single digit rate during the quarter, driven by strong performances at MSE (ph), Bassano (ph) and AIT (ph).

We are pleased with the progress that we have made across our businesses thus far in 2005.

As we look to the remainder of this year, we continue to see strength throughout the portfolio, albeit against a backdrop of a positive although somewhat less robust economy that we all enjoyed last year.

We anticipate core growth to remain in the mid single digit range for the year but expect sales growth comparables to improve from our first-quarter performance.

We continue to see improvement in profitability driven by cost and growth initiatives.

While we have not at this time raised our revenue outlook, the relative strength in our higher margin businesses coupled with good traction from cost initiatives give us confidence in raising our full year earnings per share outlook.

We now expect our earnings per share in the second quarter to be in the range of $0.62 to $0.67, and our full year earnings per share for 2005 to be in the range of $2.67 to $2.77.

As many of you have seen in our press release, our Board of Directors has authorized the repurchase of up to 10 million shares of our common stock.

We believe this represents an excellent long-term investment and demonstrates our continued commitment to enhancing shareholder value.

Thank you, Larry.

That concludes our formal comments.

Crystal, we are now ready for questions.

(OPERATOR INSTRUCTIONS).

Deane Dray.

First of all, thank you very much for putting the slides together.

Very appreciated.

A question on the core growth in the quarter.

Can you split out and address how much -- what was volume and what was price, and just broadly the process of increasing price and the success in getting price in the quarter?

Sure, we would say that if you look at the four plus points of core growth, rough cut about one would be price.

The rest would be core growth, nonprice core growth.

I think we are making progress in getting price, perhaps a reflection of more than anything of having been at it for some time now in the light of some of the steel price pressures that we've seen particularly.

And I think the environments overall is a little easier in which to pursue price.

I don't think there is any one area where we have been more effective than others, but certainly those businesses that consume steel more than others, Gilbarco, Tools, Motion, have probably been at it a little more than perhaps the other businesses.

Do you have a sense of how much of the raw material cost increase has been offset by price?

Are you at parity and where do you expect that to be throughout the year?

Well, I think if you look at that dynamic on an overall basis, it was a net positive for us because as you know we continue to drive material cost reduction through stronger purchasing and in our low-cost region sourcing initiative on an ongoing basis.

In fact, if you look at our LCR sourcing we are up 500 basis point as a percent of total spend from where we were a year ago.

So that continues to help us.

Price obviously helps us.

The cost increases obviously are on balance limited, at least in a material way to a few commodity categories like steel.

So I think in steel specifically, we probably have not offset all of the pressure.

But it is far less than it was a year ago, we're in a much better position.

On an overall basis I think we were ahead in terms of pricing and cost reduction versus cost pressures in the quarter and we would expect to be so for the year.

Okay just a clarification.

Other the repurchase announcement, is there any signal here that the acquisition market is tougher?

And just how does that reflect in balance versus the ability to put cash into the repurchase?

And what are your return requirements, increasing requirements and repurchases?

Let me say a couple of things.

I think first of all, given the environment, the new rules and the like, we want to make sure that we had a full and fresh authorization handy.

It had been some time and I think it really had not been since the aftermath of 9/11 that we had been in the market buying shares.

So the authorization was a dated.

We wanted to go back, get that reloaded with the Board, which we did.

I think as we look at our capital allocation strategy, acquisitions continue to be option 1.

I would share with you that we are -- we continue to be quite busy, ever mindful that in certain sectors pricing is still a challenge.

But we are busy and we continue to think that we will put money to work this year.

That said, from time to time we have been in the market when we think that appropriate.

We consider proprietary our views as to how and when we get into the market.

But again as we look at how we put capital to work, there is no better company out there than our own in which to invest, in our view.

I think as a context of our cash flow and our debt capacity, and we talked about that being 5 billion plus over the next 2.5 years, I don't think we're trying to communicate anything.

At current prices this would represent $500 million if we utilized all of it.

So I don't think we're trying to signal anything here about our acquisition activity.

Great, thank you.

Jeffrey Sprague.

Could you, Larry, flush out the little bit more detail the snag you head in Videojet?

It is just kind of unclear to me, and you said you've probably got maybe another quarter working through that.

Sure, I think we've got two things going on there, Jeff.

If you listened to the competitive call the other day, clearly the market, particularly in Europe, a little softer than I think any of us would have anticipated early in the year here.

But by the same token I don't think -- as we look in the mirror we are convinced that we have been competing in a way that represents our capability.

As we have integrated Willet with Videojet and as we have had the looming Linx integration hanging over us here the last several months, I think as we have pulled the sales and service organizations together, there have been a couple of situations where we might not have been able to have a full team on the field for the whole game in particular markets.

So that’s often natural, I think, when we go through integrations of where we put competitors together like that.

It can create some short-term noise.

That is what I think we are experiencing.

We wanted to share that with you because we think that is something that we understand.

The team, frankly they are mad as hornets about it.

They're working hard to address it.

I had a review with them just last week on the subject and I think we're going to, here in a couple months, be back to a competitive position and back to full strength in a way that I think bodes well for that business.

Just also kind of thinking about the guidance and the revenues and just kind of the tone of markets, Videojet probably played somewhat into this, but core growth for the quarter was at the lower end of your expectations, and as you said in your guidance really the upside is around margins.

If you just give us a little bit more color about how you see the broad macro backdrop that you are playing against, and should we think that you can get it up into your kind of 5 to 7% organic long-term target by the time we are exiting the year?

I think what we are saying, Jeff, without trying to be too pessimistic or too optimistic about the macroenvironment, because we are no better at forecasting that than anyone else, we think we came in in the range that we said we would.

And this morning we are not changing that range for the year, though I think acknowledging that our current projections would suggest we're going to accelerate our core growth performance off of this 4% number in the quarter.

We did not anticipate that Sears, for example, would be cutting inventory in the run-up to the acquisition and that that would be as high a priority as it has been since the merger.

That obviously hit us a little bit.

The way we calculate out the Med Tech numbers, put a little bit of a drag on us.

A flat panel project here or there in Motion gets pushed out.

That puts a little bit more pressure.

So I'm not concerned about that.

I look around the Company and I think we have excellent core growth prospects in our markets.

We're at Gilbarco on Tuesday.

The new product launches there, particularly this new Oncor product, Jeff, I think bodes very well for their ability to drive growth, and with the oil prices being what they are that creates a lot of excess cash flow for some of our customers.

I was in China last week.

We were up double digits strongly in China across the portfolio with a number of programs there and no signs of softening.

We were at Fluke the week before.

We're going to have a banner new product year at Fluke and these new biomed and thermography products are hot.

Dental's performance at IDS, and as we get later in the year, obviously dental is a full part of that core growth calculation.

We knocked the cover off the ball at IDS.

Motion as semi and flat-panel screening plays out later this year the way we think it is, is going to be strong.

And we, despite the inventory correction, we are genuinely excited about the tone of things at Sears.

So we are feeling good about those things that we can control.

Obviously there are some things that we cannot control, but on balance we would expect at this point we will hold to that 4 to 6 range and obviously hope to do better.

Thanks a lot.

Robert Cornell.

Just exactly flush out the change in the guidance, Larry.

Is it just you're more comfortable with some of the acquisition profit contribution or some of the forward-looking growth expectations you just made?

What is behind the tweak in guidance?

Well you've got a couple of things, Bob.

I think you've hit the most important thing.

We're 90 days plus into the year.

We got a quarter behind us and a little bit more visibility, better visibility on the rest of the year.

Obviously we get a little bit of a positive impact from the gain that is behind us here in the first quarter.

Linx kicks in a couple of pennies as well.

The mix of growth that we're seeing, right, the mix from the higher margin businesses we talked about.

Fluke water did terrific quarters and they are looking pretty good for this year.

So I think all of that in addition to the success we have had on the cost side overall, particularly with our LCR efforts, I think gives us just a little more confidence that we will deliver what we said we would in December and a bit.

You mentioned Radiometer briefly and you made some headway on the top line I think in the U.S.

How is the bottom line or the operating profit side in Radiometer doing in the U.S., North America?

Very good.

We don't break down the profit by geographies, but that revenue has been high margin revenue.

Yes, so what percent are you up to in terms of the European non-U.S. operating profit target?

I think Radiometer overall is in the '20s and the U.S. and breakeven, so how much of that gap have you closed?

We have not closed all of it, but we're making rapid progress.

I guess one other comment.

In Europe overall you mentioned in some of the business units, but in general some of the other companies you have talked to on the conference calls so far, (indiscernible) weak Europe.

How is that overall market in your view?

I would say that it is mixed with a bias toward weakness as opposed to strength.

We know that at Gilbarco, for example, we had the tough comp in Europe.

So it is a little hard to lay that on Europe as opposed to a one-off situation.

But you look across, Videojet again weak there.

If we look at where we saw strength we really saw some nice performance in Motion, particularly in Germany and Italy which I think flies in the face of what a lot of folks in Danaher and outside Danaher are saying.

I would say it is mixed with a weakness bias, but not absolutely and universally weak across the continent.

Thanks, Larry.

I will pass the baton.

Nicole Parent.

I guess to a slice at the big picture a different way, it seems to me the consumer portion of your business, albeit small, is actually still humming along.

Could you just give us a sense, excluding the inventory issues you have with Sears, how are you feeling about the consumer?

You're right, we have a limited window on the consumer, primarily sell-through at Sears and at Lowe's given performance we just outlined.

What we see is encouraging.

Now we're not unmindful of some of the economic statistics that come out which suggests the consumer might be a little bit more jaded than our sell-through numbers suggest.

But the first quarter performance is what it is.

We are pleased with that.

And I guess with respect to the timing of a Kmart/Sears decision on Craftsmen, what do you think the timing would be?

Well, I don't think there is any decision, Nicole.

I think there is a keen recognition of the highest levels of that organization that Craftsmen is part of the solution.

And the early acknowledgment in Kmart's own filings about the conversion, the accelerated pace of the store conversions, and the early trials of putting Craftsmen into the Kmart stores themselves, I think suggest they are going to be working hard to make this brand a real growth driver for them.

So those are the decisions that are being made really all around, trying to drive a stronger retailer and we're happy to be part of that solution.

I guess how many stores is it being tested in today and what would you expect that to potentially ramp up on the low and high ends?

Well, the testing is -- the Kmart stores in which they are testing the Craftsmen brand today is a fairly modest number.

And it is unclear as to how far they're going to push that test.

It is in early stage test form.

I think the most important numbers, frankly, are the conversions and they've been talking about being in the 100 store conversion range this year and really running at that pace in all likelihood over the next couple of years, if not accelerating that.

They have talked about, remember, they have talked about converting 400 stores by the end of '07.

The early experience here in those conversions will clearly help us all and perhaps ultimately dictate the pace.

But there is a keen priority on time and speed with this new organization, which is great to see.

We are thrilled.

I guess just one follow-up.

In terms of divestitures rather than acquisitions, particularly some of the defense and space portfolio, could you just talk about given where we are in the cycle, those businesses continue to I guess produce decent revenue and good profitability.

When you think about divestitures is there anything left in the portfolio that might not be a keeper longer-term?

I think I am on record of saying that none of us and certainly none of our businesses have a permanent place at Danaher.

We all have to earn our keep.

I think we will continue to look at the portfolio and trim as we have in the past, but again I don't think anything major is imminent.

Thank you.

Richard Eastman.

Just a follow upon the geography.

I just want to -- could you just big picture your geographic cut?

Europe now, we talked about maybe pockets of weakness, some strength.

How about Asia?

Is there anything there that would factor into your overall core growth rate moving one way or the other first quarter?

Rick, I think if you look Asia, clearly Asia was the hottest geography for us all up, with China clearly being the engine in the quarter.

Having been there last week, I was very encouraged by the conversations I had with our own people about our programs and planning for the rest of this year.

Just the tone, the confidence levels were quite positive.

When I spoke to people outside of our Company, I think again that the expectation for the rest of this year are very encouraging.

So if we see an acceleration in growth in China, obviously that does nothing but help us.

If things were to slow down in China, obviously that works the other way.

But I think right now we feel very good about the contribution our Asian businesses, particularly our Chinese businesses, will make this year.

So no strength or weakness that moves your core growth rate around for the year?

Rather we should look at the business segments and the tone of business within each, the influence to core growth rate for the year?

I think that's fair.

One must question, or follow-up.

If I look at last year in the first quarter, we had some extra business days.

How did this quarter compare to a year ago first quarter in terms of the number of business days?

Rick, it is a little harder to quantify.

Last year we went through that reconciliation because it was clearly material.

I think if you looked at the fact we lost a day and there is probably close to one point of core growth we could have missed, and I'm sure the timing of Easter, particularly in Europe, didn't help anybody this first quarter as well.

But those are things we're not trying to hang our hat on.

That will all come out in the wash and that may be part of the reason we feel optimistic about our ability to accelerate our overall core growth going forward, but we would not have talked about it unless you had raised it.

Okay, fair enough.

Thank you.

(OPERATOR INSTRUCTIONS).

John Baliotti.

I just had a question about Hach Lange and Trojan.

I'm just wondering, I know it's early in the integration, but are you seeing any change in demand projects or customers with respect to the test and measurement now with Trojan coming into the portfolio versus before?

I can't say that we have in the U.S., John.

I think in Europe and in China where clearly the Hach Lange infrastructures is going to be quite helpful to Trojan, it is probably pretty mature.

But I was in a customer meeting in China last week with Hach, with Trojan, and it was clear to me that particularly in those developing markets where relationships perhaps are key, that these companies will help each other selling even when the products themselves don't go in side-by-side.

Okay, thanks.

Ann Duignan.

I am curious to hear your insights on acquisitions and what is out there.

Is getting tougher to find attractive franchises at reasonable prices, particularly in the water segment?

I would just like to hear your thoughts on what is going on on the acquisition front.

Sure, let me make a couple of comments and perhaps Dan will want to add something.

I don't think it has gotten any tougher broadly or in the water market specifically.

I think it has been challenging for the better part of a year in certain situations where expectations are high and we continue to believe that U.S. public valuations in many cases are prohibitive.

Obviously the recent softness that some have seen in the market helps, but whether that helps us get anything done remains to be seen.

I think on the private side in Europe and Asia, we tend to see better values right now in those areas where we looked, where we have particular strategic interests in water and certainly beyond water.

Ann I would just add, obviously we, just like the overall market, the M&A market goes in cycles here and while it has been tougher, there are a couple of signs out there.

I think they are pretty early but you do have a -- you've got a high yield market that has gotten tougher here in the last month or two that is net-net positive for us.

Obviously a little more of the choppy stock market as well.

That tends to be a plus on the M&A side.

You get Boards thinking a little bit differently.

And the short-term increase in interest rates is again probably net-net a small positive to the overall environment.

So the pricing is still tough.

There are couple of small signs out there saying that like all cycles it may be changing a little bit.

Thank you and just a follow-up on KaVo.

That business exhibited significant seasonality last year.

Are you planning to make any business changes going forward that would reduce the seasonality, or should we assume the same kind of fourth quarter loaded for this year and going forward?

I'm sorry, Ann, which business were you asking?

I think it was KaVo.

KaVo exhibited significant seasonality in fourth quarter last year.

I think the industry has that dynamic and while we would like to think we are going to change the industry, that is a buying behavior both by end-users and by the channel that we will work on, but I would not necessarily want you to believe, Ann, that we are going to be able to change that in the short-term.

So we'll just assume the same type of seasonality going forward?

I think that is fair from what we have seen so far.

Keep in mind that we had, because of the timing of the acquisition, we had four months worth of revenue in the fourth quarter to catch up for the revenue recognition delay we had when we first bought the business.

So it is not quite as extreme as the reported numbers, which would kind of tell you, but it is still very seasonal business.

I think on a normalized basis it's probably what, about 45/55 first half/second half or slightly more skewed to the second half?

Yes, and even more so toward the fourth quarter.

Okay, thank you.

Brian Langenberg.

Excellent first quarter.

I'm going to take an opportunity here, I can't remember ever being able to ask you about integration issues on anything, so why don't we do it now.

On the product ID side, obviously there is not like any kind of big problem going on here, but Larry when you talk about not having a full team on the field for the whole quarter, and there are also some comments about maybe let's call it aggressive pricing behavior in the market, was this a situation where you actually had some people in managerial positions or where they were not in those positions?

Or situations where you had two salespeople trying to keep their jobs and got too aggressive on price?

What exactly are we really talking about?

And then I have a minor follow-up question.

Sure, good morning and I appreciate those comments.

I don't think we have suggested anything about pricing.

I think one of the competitors may have made some of those types of comments earlier in the week, but we are not talking about that here this morning.

With respect to the integration challenge, it really is a field sales, field service dynamic here where as you merge territories, as you're putting these teams together, there is movement.

And sometimes that means you are playing inside baseball rather than focusing on the market and on the customers.

And I think as we have analyzed our performance there are pockets where that integration went well, we were at full strength, we were fully competitive and we did well.

And there are pockets in a market here, a country there, where we could have and should have, with the benefit of hindsight, done better.

Now some of this noise is just natural.

We have seen it before.

But in this instance, I think against the backdrop of a softer market, we're talking about it.

Also I think committing that we are going to get this fixed and we're going to be at full strength and we are going to do better.

So this wasn't about prices to your units because people were a little bit focused on the inward stuff.

That's how I am interpreting that.

Then a second question, just on the tools components, what would have been the year-on-year change in -- what was a margin impact of jobs from not being in the mix?

Because as I recall, I think it is margins are a bit lower than that segment average.

I will reword that.

Your tool margins year-on-year, just wondering what the impact was of no longer having jobs (multiple speakers).

I don't have the exact number.

I can probably get closer to it after.

Joslyn is a very small piece of the tool segment and it was a profitable piece, albeit a little lower.

So it was a very small impact.

Probably no more than 10 basis points.

That's what I would say.

Okay, minor.

That's good enough.

David Giroud (ph).

Most of my questions have already been answered.

I did want to ask you about -- we talked about obviously the second half of the year, Motion was doing a little bit better against easier comps.

You said Gilbarco gets a little bit better.

I'd say second half Videojet gets a little bit better.

Larry, is there anything in the portfolio where you looked at the growth we're seeing in the first half of the year and say -- or in the first quarter -- that it should get worse or tougher comps, or is there any negatives going against a lot of those positives?

Good morning, David.

I think the only one that comes to mind really might be the FNET business, Fluke Networks, in so much as we obviously had a terrific quarter here in the first.

We don't think we're going to accelerate off that note double-digit base.

And as you might recall, they had an exceptional fourth quarter last year with the SPC program.

So we would expect that to moderate a bit and they clearly will be working us on tough comp in the fourth.

But other than that, I think the way you characterized our sequential acceleration, all things being equal in the macroeconomic world, is spot on.

Can I just ask you one other follow-up question with regard to Videojet being down in the low single digits?

How much of that is sort of the market weakness comment versus some internal, inside of baseball, as you have described it?

As we move into the second half of the year, does this return back to sort of more normalized 5, 6% kind of organic revenue growth?

I think the comps also get a little bit easier in the second half of that business as well.

We would expect that business is a mid single digit grower.

I don't think that we have tried to pinpoint how much of this was internal, how much of it with external.

Clearly we had confirmation this week that the market is soft.

But you know the way we operate.

We're not going to spend a lot of time looking at those numbers and saying watch the market, the market is soft, don't blame us.

We can't do better.

We're going to get in there as we already have, try to figure out how we grow that business regardless of what is going on in the market.

That is DBS, that is how we operate.

That's great.

I really appreciate it.

Wendy Caplan.

Thank you, good morning.

A question about the gross margin.

You ticked off a couple things that caused the gross margin to be up at what appears to be somewhat record levels.

Given that, would we be correct in assuming that the acquisition impact was the largest and does that therefore imply that going forward, this 42.5% gross margin or more, is sustainable?

Wendy, this is Dan.

That would be correct, if you had (indiscernible) at the largest impact would be the acquisitions.

So I think this is a level that we will continue to build off.

And also, Dan, the incremental margins excluding acquisitions are likely to be better than what was ho-hum margins posted.

Can you comment on that as well please?

I think Larry tried to break out the impact of the acquisitions, KaVo and a number of the other bolt-on acquisitions impact in the first quarter.

And some of that will last throughout the year as we continue to do acquisitions.

But because of the seasonality of the KaVo business, the profitability is very low in the first quarter and the combination of the restructuring plus the better revenue in the second half contrasts dramatically to the first quarter.

Thank you.

John Inch.

Good morning.

Quick question on the cash flow.

If you look at the cash flows, it seemed to be really fairly swing factors in the receivable line on the positive side, and then on the prepaid expenses and other assets on the negative side versus last year.

Maybe Dan or Pat, just a comment on how to interpret that?

Sure, on the receivable side a couple things going on.

One, I think just our continuous efforts on collection is improving that.

Two, we had lower core growth this quarter versus prior year.

So that actually helps with the receivable side.

And with KaVo this is a seasonally high collection period.

As Ann talked about, KaVo tends to have a very strong fourth quarter.

So collecting some of those receivables in the first quarter, and we did not have KaVo in the first quarter a year ago, would probably be those three primary factors.

On the prepaid expense, the drop, Matco has essentially been winding down their external financing and that really reflects that.

As you know, that industry, the mobile distributors often outsource some of their financing.

Matco has basically, as of this quarter, eliminated that.

So all their customer financing stays with them and they are not outsourcing any of that to the banks.

That is the biggest part of that drop.

How much of the cash flow growth this year might have been from improving efficiencies or DBS-ing your medical platform?

I think we, from a turns, I would have to look at the specific numbers.

I know from a working capital turns perspective we will probably have the biggest percentage increase in KaVo and Radiometer as opposed to our other businesses, in part because we are starting with very low turns.

But I don't know the specific numbers.

And then Larry, I just got a question for you on water.

I guess I am looking at Trojan as kind of an anchor company.

You have articulated in the past that you don't feel the need to buildout a complete solution in water treatment.

By the same token, it strikes me that there are potentially a variety of companies.

Vetigo (ph) seems to be doing pretty well at ITT.

Is Trojan sort of the one horse wonder here, or should we be thinking about you building out this water treatment platform opportunistically or deliberately?

I wouldn't sell a Canadian company liked Trojan short.

They are no one trick pony.

I hope you're smiling.

The strategy there is that we think the UV technology is a critical technology in disinfection.

I think it stands on its own.

The view going in, the view today is that we don't need to be all things to all people in treatment in order for Trojan to maintain and enhance its position in UV.

Even some of the recent key AO (ph) reports would suggest from a security perspective, UV has some very positive attributes.

We think that bodes well for the technology and obviously we think we have got the horse to ride in that race.

So if we do things, I think you should think about more as you frame it, opportunistic as deliberate.

Okay, thank you.

Steve Tusa.

Good morning.

ATS tests the intra quarter trends question that is customary, but it sounds like you have some pretty decent visibility on how things are going to go.

At least you're talking about the ramp through the rest of the year.

I'm not saying exactly what is going to happen.

But maybe just talk about how January, February, March played out for you.

I think, Steve, that clearly we made the quarter as you always do in the first, in March.

January and February were choppy here and there.

I think as I said before, I never try to get too excited or too concerned in January or February because it is choppy for a number of different reasons.

But I think as we have hit March, as March played out, clearly we saw some nice strength in a number of our businesses, even in businesses where perhaps a reported number of shares this morning are a little less than any of us would like.

They were pockets of real strength.

So I think that trend, the isolation of the weakness, the understanding of those pockets of weakness, the tone, the color, the leading indicators just give us the confidence we have in taking up the guidance this morning.

You mentioned the two areas earlier in the year, Europe and technology, it sounds like you're feeling about as you did about Europe but you're feeling a little bit better about the tech end markets.

Yes, maybe that is a function, Steve, of just being a little closer to that second half renewal of spending.

We have, I can share with you in our Motion business, seen book-to-bills come back north of 1.0, which I think is an encouraging sign.

Obviously intel, two days ago, talked about taking CapEx up.

Signals like that are never bad.

FPD is holding nicely.

We did see some projects slip from the first to the second quarter, from the first half to the second half, but that really seems to be more about the ability to actually pull off the manufacturing ramp up as opposed to actual project deferrals.

So given the color that we have, yes, we are feeling good that the balance in the tech markets that Motion wants and needs to have this year, will be there.

One more follow-up.

The gross margin was very strong but SG&A was also very, very high and you talked about the acquisition impact.

Is there anything else in SG&A?

Is there some sort of investment spending or anything like that that is more frontloaded from a quarterly perspective?

Steve, as you know we've been trying to increase our spending on the growth drivers, on the corporate breakthroughs.

So clearly there is a level of spending there that you might see or you might characterize as optional.

But we think we're making good long-term investments in the Company.

I think a number of these growth projects that we talked about this morning are firm evidence of that.

That is pretty smooth across the year, correct?

Steve, if you remember we kicked in a number of projects after we saw the strong growth in the first quarter over and above the project, and of course they do have continuation impacts.

So it is a little -- most of the margins, the SG&A change is the acquisition but there is some level of noncomparability between the additional gross projects we put in after the first quarter numbers came out last year.

Great, thanks.

Ajit Pai.

Congratulations on a very solid quarter.

Two quick questions.

The first one would be on your capital structure and the EPS guidance that you provided for the full year.

I think you have about 387 million in Eurobonds that are coming due in July.

Does your guidance factor in refinancing that with some other form of debt or just presuming that that is paid back?

It does factor in refinancing at a somewhat lower rate.

Okay.

And the second question would be about Gendex and your dental imaging business in the U.S.

It seems like you had a somewhat soft quarter over there, and in your 10-Q you are attributing that to just tougher comps.

I think over time in that business your competitor there has been gaining share on the imaging side of things.

Right now what are the trends you see there in terms of competitor dynamics?

I think when we look imaging we know that a year ago, as the business was being sold, there was a lot of product being sold as part of that effort.

And we talked about that in the fourth quarter of last year.

We're talking about it again here.

The team has been very focused since the acquisition in really revitalizing the productline.

I don't think you were able to make it over to Cologne last week but we had basically the unveiling of the new line-up.

Those products with all be in the market for the second half and the team is very optimistic that we will be out there with outstanding new products in the second half.

So we will, I think, have better comps, fairer comps, to work against and clearly a revitalized productline.

And when you're combining those two businesses, Gendex and KaVo --.

That is coupled with the benefit we get in distribution from a cable relationship, a much larger more prominent company in the channel, we think lays a good foundation for that to be a product category within the dental platform that does well.

Okay, thank you.

At this time, there are no further questions.

Mr. Wilson, are there any closing remarks?

Yes, the replay number that we mentioned at the beginning of the call is 1-800-642-1687.

Confirmation code 527-3258.

And I want to let people know that if they had any additional questions they were not able to ask on the call that Dan Comas and I will be available for the rest of the day.

Thank you.

Thank you for participating in today's first-quarter earnings release conference call.

You may now disconnect.