Danaher Corp (DHR) 2006 Q1 法說會逐字稿

Good morning.

My name is Tiffany and I will be your conference operator.

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

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

After the speaker's remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS]

Now I would like to turn the call over to Mr. Andy Wilson, Vice President of Investor Relations.

You may begin your conference, sir.

Thank you, Tiffany, and good morning, everyone, and thanks for joining us today.

With me are Larry Culp, our President and Chief Executive Officer and Dan Comas, our Executive Vice President and Chief Financial Officer.

I'd like to point out that our earnings release and 10-Q are available on our Web site under the heading "Investor Events."

Additional access to a Webcast presentation supplementing today's call can be found under the same heading, "Investor Events."

This call will be replayed through April 30th and the audio portion will be archived on our Web site, danaher.com, later today and will remain archived until our next quarterly call.

The replay number is 800-642-1687 with the confirmation code of 6658217.

I'll repeat this information at the end of the call for those that are arriving late.

I'd 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, cost reductions, sales growth and earnings, economic conditions and the end markets to 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 market for acquisitions and divestitures, the integration of acquired businesses, regulatory approvals and the Company's ability to consummate announced acquisitions and general economic conditions.

It's 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.

These forward-looking statements speak only as of the date they are made and we disclaim any duty to update any forward-looking statement.

With respect to any non-GAP financial measures provided during the call today the accompanying information required by SEC Regulation G relating to those measures can be found on our Web site, www.danaher.com under the section "Investor News."

With that, I'd like to turn the call over to Larry.

Thanks, Andy.

Good morning, everyone.

We were very pleased to report this morning that our first quarter earnings per share were $0.67, a 15.5% increase over last year's first quarter of earnings per share of $0.58.

Included in our 2006 first quarter results is approximately $0.02.5 per share of option-related expenses as well as the benefit of approximately a penny per share from a lower effective tax rate.

Additionally, the first quarter of 2005 benefited from real estate gains of approximately a penny per share.

So on a pro forma basis, absent these long-term items, but including option expensing in both periods, earnings per share for the first quarter would have increased 20% versus the same period a year ago.

Revenues for the quarter increased 17.5% to $2.1 billion as revenues from existing businesses, also described as core revenues, grew 7.5%.

Acquisition contributed an increase of 12.5% while the negative impact of currency translation reduced reported revenues 2.5%.

Our gross margin improved to 42.8% in the first quarter of 2006 versus 42.5% during the same period last year.

Operating leverage from higher revenues, cost reductions across the portfolio, and higher gross margins in our acquired businesses principally, Leica, helped contribute to this improvement.

Selling, general and administrative expenses for the first quarter were 28.9% of sales versus 27.9% a year ago driven by higher SG&A structures and our acquisitions, primarily Leica, as well as the impact of approximately $11 million of option-related expenses.

Operating profit for the first quarter was $297 million, a 9.5% increase over the same period last year.

Operating margins for the first quarter were 13.9% versus 14.9% last year.

Absent the dilutive effect from lower operating margins and our recently acquired businesses, again primarily Leica, the impact from expensing of options, the write-down of a minority investment during the quarter and last year's real estate gains, operating margins would have improved approximately 50 basis points.

Net interest expense for the first quarter was $8 million compared to 12.2 million for the first quarter last year.

The decrease in interest expense is primarily a result of lower debt levels in the first quarter 2006, due in part to the redemption of our euro bond notes in the third quarter of last year and higher rates on short-term investments which offset lower average invested cash balances.

Our effective income tax rate for the first quarter was 25.4% versus 27.5% in the first quarter of '05.

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

In addition, we realize a small benefit from the resolution of various U.S. and international tax matters that contributed approximately one penny per share to the quarter.

Our tax rate for the balance of 2006 is expected to be 26.5%.

Net income was $216 million, a 14.5% increase over the first quarter of last year.

Operating cash flow for the first quarter was a record $337 million, 8% higher than the first quarter of last year.

Gross capital expenditures increased 6% to $27.6 million and our current estimate for the full-year is approximately 140 to $150 million.

Free cash flow, defined as operating cash flow less capital expenditures, was $310 million for the first quarter 2006 and represented an 8.5% increase versus 2005.

Our free cash to net income conversion ratio for the first quarter was very robust at 144%, an excellent start to the year and places us firmly on track to deliver free cash flow in excess of net income for what would be the 15th year in a row.

Our balance sheet remains healthy with a debt to total capital ratio of 14% and over $260 million in cash and cash equivalents at quarter end.

Turning to our operating performance, Professional Instrumentation revenues increased 27.5% for the quarter to $1.1 billion.

Revenues from existing businesses were up 6%, acquisitions contributed 24.5%, with currency having a negative impact of 3%.

Operating margins for the quarter were 15.1% versus 17.5% in the first quarter of last year.

Acquisitions, principally Leica, negatively impacted margins by over 160 basis points while the impact of option expensing reduced margins by approximately 40 basis points.

During the quarter, we recorded a $4.5 million charge related to the write-down of a minority interest held within the medical technologies platform which impacted operating margin by approximately 40 basis points.

Ongoing cost reductions across the segment offset higher new product development spending and a write-off of a produce development venture during the first quarter.

Environmental revenues for the quarter improved 4% with core revenues up 5%, acquisitions contributing 1.5% and a negative currency impact of 2.5%.

During the quarter our water quality businesses saw a continuation of the momentum experienced in 2005 while the core revenue performance at Gilbarco Veeder-Root was the highest since 2004.

Water quality group revenues grew at mid single-digit rate in the first quarter led by an exceptional performance from our Hach/Lange business.

Core revenues at Hach/Lange were up high single-digit, a result of the continued strength in all major geographies.

A solid performance from both our lab and process product lines, as well as improved service revenues, which increased more than 20% were the primary contributors.

Hach Ultra Analytics experienced low single-digit growth for the quarter driven by mid single-digit sales growth in Europe and good progress in China offset somewhat by softer sales in the U.S. and in other Asian markets, in part as result of several large projects in the prior year.

Our Hach Homeland Security technologies water distribution monitoring product saw revenues doubled during the first quarter.

During the quarter we acquired Marsh-McBurney, a specialist in non-contact flow monitoring.

With approximately $10 million in revenues, Marsh-McBurney's based in Frederick, Maryland and provides innovative, reliable and highly accurate flow measurement solutions for both the water and wastewater applications and represents an excellent addition to our Sigma flow measurement product line.

The Marsh family are long time friends of Danaher's and we're glad to have them on our team now.

Gilbarco Veeder-Root's core revenues increased mid single digits during the first quarter despite a tougher year-over-year comparison at Veeder-Root.

Orders grew high single digits gaining momentum throughout the quarter and showed improvement across all major geographies.

Demand for our new Encore 500S Dispenser in the U.S. along with extensive network refurbishment activity now in [Oran], Europe is contributing to our performance.

Stage Two vapor recover regulations in U.K. appear imminent and we have at received initial orders from Shell for new dispensers equipped with vapor recovery technology.

This represents an incremental $30 million opportunity for us in the U.K. over the next 3 to 5 years and is further evidence of how well we're positioned relative to increasing environmental regulations and initiatives at Gilbarco Veeder-Root.

Moving to electronic test, revenues grew 15% in the quarter with core revenue contributing 9%, acquisitions contributing 8.5%, and an unfavorable currency impact of 2.5%.

We saw a continued strong demand at both Fluke and Fluke Networks.

Fluke's low double-digit core growth was led by a healthy demand in Europe, both in industrial and electrical channels.

China was again strong with core revenues up more than 20%.

We continue to see strong, robust, sell through globally both in industrial and electrical with no visible signs of softening and user demand.

New products, such as Fluke's 434 Power Quality Analyzer, a product used to locate, prevent, pinpoint and troubleshoot problems in power distribution networks, saw very strong performance in the quarter and we were very pleased to see the product selected as Plan Engineering's Product of the Year.

Fluke Biomedical continued to build momentum with revenues up at a high single-digit rate driven by healthy demand for their radiation safety, oncology and diagnostic products.

Fluke Networks core revenue for the quarter grew at a mid single-digit rate with broadbased strength across all major geographies.

F-Med saw increased demand in its copper cable test products, in particular, the DTX Cable Analyzer, another market leading F-Med innovation.

The integration of Visual Networks is on track and DBX training and implementation activities have been going very well.

Turning to medical technology, revenues grew 84.5% in the quarter with core revenue contributing 5%, acquisitions, 84.5% and an unfavorable currency impact of 5%.

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

The U.S. led the way, up low double digits for the quarter, a result of several good market DBX initiatives implemented late in 2005.

Leica Microsystems turned in a solid quarter with pro forma revenues growing at a mid single-digit rate.

We saw strength in Europe and Asia and to a lesser degree in the U.S.

Recent new product launches led the growth here.

Successful DBS implementation activities continue with a particular emphasis on new product development process improvement.

Turning to our dental business.

Core revenues increased at a mid single-digit rate.

Imaging sales for the first quarter grew more than 30% with excellent new product success in both the U.S. and Europe.

New minimally invasive products such as our DIAGNOdent laser pen also contributed to this performance.

We continue to see the progress resulting from our 2005 restructuring activities at KaVo which we believe have strengthened and better positioned our dental business for profitable growth in 2006.

Integration activities at DEXIS and Pelton & Crane remain on track and we were bullish about the process for both these businesses in the U.S. and abroad.

The last week we announced our tender offer for Sybron Dental Specialties.

Sybron, based in Newport Beach, California, is a leading manufacturer of dental consumables and small equipment.

Sybron revenues for the fiscal year ended September the 30th 2005 were approximately $650 million.

This offer is subject to customary conditions, including the tender of a majority of the outstanding shares into the offer, regulatory approvals and the absence of a material adverse change which respect to Sybron Dental.

We expect to fund the purchase price through the combination of available cash and debt and expect to complete this transaction in the second quarter of 2006.

We believe the acquisition of Sybron Dental would represent an excellent addition to our existing dental products portfolio and we look forward to working with the talented team at Sybron.

Moving to Industrial Technologies.

Revenues increased 11% for the quarter to $761 million.

Revenues from existing businesses contributed an increase of 11%, acquisitions 3%, and currency negatively impacted sales by 3%.

Operating margins for the quarter were 14.6%, a 160 basis point improvement versus the first quarter last year, including the impact of approximately 45 basis points of option expense.

This performance was driven in part by ongoing cost improvement activities, particularly in our motion business.

Product identification revenues improved 15% during the quarter with core revenues contributing 11.5%, acquisitions 5%, and currency negatively impacting sales by 1.5%.

Videojet's high single-digit growth was broad based.

Low teen increases and equipment revenues were driven by the U.S.

Postal Service project discussed last quarter, as well as strong growth with our new laser and thermal transfer, or TTO products introduced in the last year.

Mid teen gains in North America and China were mitigated by low single-digit growth in Europe.

Accu-Sort had another good quarter with core revenues up double digits, due primarily to several large projects.

Upon completion of these projects in the second quarter, Accu-Sort will face a difficult revenue comparison in the second half of this year.

Though higher growth is expected in our higher margin [MARCO] scanning which should somewhat mitigate these more difficult comparisons and help maintain profitability.

During the quarter, Accu-Sort was awarded the Frost and Sullivan award which recognized their effort in developing specialized product lines incorporating RFID technology into existing infrastructure systems.

Moving to Danaher Motion, revenues grew 2% in the quarter with core revenues up 5%.

Acquisitions contributing growth of 1.5%, and a negative currency impact of 4.5%.

Motions improved performance was broadbased driven by gains in its controls, aerospace and defense, and flat panel display businesses.

Steady demand for standard and custom motors from OEMs, particularly here in North America, contributed to Motion's mid single-digit growth.

Thus far in 2006, we have seen an improved outlook across tech markets broadly, and that has translated into improved order rates in several of our Motion businesses.

During the quarters, our Thomson business won a key order with Siemens Medical, with the potential opportunity to pursue additional medical imaging applications with Siemens globally.

Also during the quarter we acquired Precision Dynamics, a $10 million provider of a flow measurement solutions.

This New Britain, Connecticut -based company will become part of our sensors and controls business.

Turning to the Tools and Components segment, revenues for the quarter increased 5% to $327 million driven by a solid performance by from our Matco, Jacob's Vehicle Systems, Hennessy and Delta businesses.

Core revenues accounted for 5% of the increase in the quarter as currency and acquisitions had a negligible impact.

Operating margins for the quarter were 12.5% compared to 15.1% in 2005.

Operating margins for the first quarter of 2005 included the impact of a gain on the sale of real estate of $5.3 million.

This real estate gain, along with the impact from the expensing of options in the first quarter, negatively impacted year-over-year operating comparisons by over 200 basis points.

The remaining year-over-year decline was driven by lower production levels in our mechanics hand tools businesses resulting from a reduction in activity with Sears.

These decreases were partially offset by leverage on increased sales volumes from the other businesses within the segment.

Mechanics hand tool revenues improved 5% during the quarter, all of which represented core revenue growth.

Matco, our high-end mobile distribution brand had another very strong quarter, generating low double-digit core growth driven by strength in aviation and vocational markets, as well as another record performance in traditional franchise sales.

Reduced promotional activity at Sears continued to temper our revenue growth in the first quarter as volumes declined at a mid single-digit rate versus 2005.

At this time we expect current promotional practices to continue adversely impacting our full-year performance at Sears.

Sell through at Lowe's was up at a healthy double-digit rate for the quarter what Craftsman industrial revenues grew at a mid single-digit rate during the quarter driven by strong performances at Fastenal and other U.S. industrial distributors.

On a corporate-wide basis we were very pleased with our results thus far in 2006.

The broad based strength generally experienced across the corporation coupled with a positive economic environment give us added confidence in our ability to again deliver in 2006.

We anticipate core revenue growth to be 5% or better for the balance of the year and we expect continued improvement in profitability driven by our cost and growth initiatives.

Given these factors, we are increasing our guidance for the year.

We now expect our earnings per share in the second quarter to be in the range of 73 to $0.78 per share including the impact of option expensing, with the mid point of this range representing a 16% year-over-year improvement on a pro forma basis.

Our full-year earnings per share range for 2006 are expected to be in the range of $3.07 to $3.17, including the impact of option expensing with the midpoint of this range representing a 17% improvement on a pro forma basis.

Both the second quarter and the full-year guidance ranges here exclude the impact of approximately $0.03 related to the gain on the sale of our interest in First Technology, as well as any impact from the pending acquisition of Sybron Dental.

Thank you, Larry.

That concludes our formal contents comments.

Tiffany, we're now ready for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Bob Cornell with Lehman Brothers.

Hey, good morning, everybody.

Good morning, Bob.

Hey, it looks pretty good.

Actually, I was wondering, you know, with the strong organic growth, I mean how did you see this develop as the quarter progressed and sort of how you see us exiting the quarter and April, the 7.5%?

Did it develop steadily through the quarter, guys, or was this something that accelerated as you went through the quarter?

I would say that what we saw, Bob, during the quarter was we started strong.

Let me start there.

Given how well, particularly, the businesses that performed last year finished, I think we were struck by how strong they then in turn started the year and then the businesses, at Motion and Gilbarco that obviously had a bit of a lag effect last year.

They came out strong and I think we feel momentum, built strength during the course of the quarter.

March was a very, very positive month for us and obviously as we talk about the full-year now being five-plus, we're encouraged by what we have seen thus far in April.

So I mean it's a very, very, encouraging start to the year.

I think coming into the year you had the swings that you looked at were Motion, Gilbarco, maybe KaVo as well as tools.

I mean you touched on those in the presentation.

Could you maybe expand on that on that [inaudible] sort of swing factors a little bit more?

Sure.

I think that we've got now two quarters of real performance from Motion, obviously, they're doing a terrific job with respect to expanding margins.

Here again in the first quarter you see further evidence of good DBS activities and I think the fruits of our restructuring labors, but I think that's also helping us in the market.

The team there is doing, I think, a very good job.

The improvement in Gilbarco really has caught us here, I think positively.

Asia is exceptionally strong for us right now at Gilbarco [inaudible] new products.

I mentioned the Encore, the new 500 product here in the U.S. that has gotten a very good response.

And we see customers investing which obviously bodes very well for us.

Sears, clearly a bit of a, still a bit of a wild card for us.

Didn't help us here in the first quarter, but with everything else going on, we're, I think, feeling very good not only about the first quarter but for the outlook for the year.

Hence, the increase in the ESP range for the full-year.

KaVo, Larry?

KaVo, obviously, if we weren't feeling great about our dental business, Bob, we wouldn't be talking about putting 2-plus billion dollars on the table for Sybron.

We saw, as we indicated in our prepared remarks, positive impact, positive results from the restructuring activity, but more importantly, the new products, the sales force changes and the go to market programs, very pleased with what we're seeing.

I think when you see the imaging sales up the way they are, you're seeing tangible evidence of how DBS can have impact not only new product development, but also in our go to market activities in the dental space.

And as we look to Sybron, a company we think will be an excellent addition, we see more opportunity to do just that.

Obviously a different context because Sybron more successful historically than KaVo, but in both instances we see a lot of runway, a lot of opportunity.

Final thought, Larry.

Would you expand on the comment you made about Radiometer U.S. doing better?

Historically, U.S. has really not grown at the rate that Radiometer globally has, and what we've tried to do at Radiometer with, I think, clear success here of late, is install our value selling tool, install some of our, actually, our value stream mapping tools to help us really understand, take DBS to the customer.

Understand some of their processes better so that we cannot only sell our products more effectively, but have them create more value for our customers and to see the U.S. up, given that it's largely and install base expansion play right now, you don't drive consumables revenues up that rapidly.

I think we're seeing real impact as a result, and I think clearly more to come in that regard.

Sounds good.

Thank you.

Your next question comes from Jeffrey Sprague with Citigroup.

Hi.

Good morning.

Jeff Sprague.

Good morning, Jeff.

Two in a row.

Exactly.

Just a couple of things.

First on dental, Larry, I kind of lost track with all the pieces coming into play.

How big is imaging as a percent of dental?

And I guess where I'm going with the question is dental up mid single-digit but imaging up 30.

So can you maybe talk to the pieces that weren't quite as strong?

Clearly, imaging lead they way, particularly in the developed markets.

I think with the Instruments business as we indicated, quickly ran some of the [inaudible] base initiatives, that was up at a respectable rate.

I think in terms of the laggard there it would have been in the big ticket equipment in large part because many of the competitors like ourselves saw a very strong first quarter a year ago due to really a carryover from the fourth quarter of 2004, so that there's a tough, dynamic there as well, Jeff.

But we really like where we are across the portfolio both in terms of the products and, frankly, our go to market activity, what we're seeing and the U.S. at Pelton & Crane, at DEXIS, very encouraging in terms of the momentum that we have there.

I think KaVo's getting better every month.

We clearly have more new products we intend to bring to market this year outside of imaging.

There's a new product launch planned at KaVo in the equipment area later this year which I think is eagerly anticipated.

So again, I think we feel very good about the performance.

We see the impact that new products can have in this marketplace.

It's very pronounced, so as we lay the DBS activities n, clearly we're going to be looking to take some of that money and increase the spending in new technology innovation, which is why I think you see some of the tempering on the op margins.

We want to continue to invest particularly where we see these good opportunities in medtech.

Jeff, just further to your question.

Imaging's about 15% of the total group.

Actually, my second question, Larry, expands on the comment you just made about margins.

So kind of backing out all the puts and takes and options and everything, I mean the operating leverage is okay, but not great.

You know, last year, there was a lot of talk about new product spending going up.

It sounds like there's more.

Can you give us a little bit more color on kind of where you are on spending, gross spending versus last year and how that might may impact the second half of next year?

Sure.

I think the balance we try to strike, Jeff, as we always do, is to make sure that we deliver and put in the investments that present themselves that we find for the future.

And clearly, in an environment like this, we look for those opportunities to step up investment and clearly, if you look in Professional Instrumentation where we have some of our better performing businesses, where we have, frankly, some of our better organic opportunities, we are looking for those step ups particularly in medtech all the time.

I think what you saw here in addition to some of the other comments were made in our prepared remarks relative to the write-down in one venture is evidence that we are finding those opportunities, we're excited about them and putting money to work.

And I guess just finally, I don't know how detailed you want to get on Sears, probably not tremendously but, you know, you wonder at some point how viable the business is for them on their end of the equation if they keep kind of squeezing the inventory out of the channel.

I mean, what's your view on stock outs and kind of the competitive position in that format, and you know, maybe share shifts in distribution that may be underway?

What I would say, Jeff, is that Craftsman franchise is still the crown jewel of both the industry and, in my view, the Sears portfolio.

We clearly have a little time yet here to run before we anniversary some of the changes they've put into effect.

But I believe strongly that the team there at Sears understands how valuable this franchise is and is committed to its long-term success.

And we obviously share that view, share that commitment, and are working with them to make sure that as they change Sears for the better, change K-Mart for the better, that the Craftsman franchise is very much a part of that success.

So we're clearly going through some integration, some merger noise, but that brand resonates quite well.

What we can do from a new product perspective can and will have impact.

And I think things get better but, again, it's a bit of a wild card in the short-term.

Thanks a lot.

Thanks, Jeff.

Your next question comes from Nicole Parent with Credit Suisse.

Good morning.

Morning, Nicole.

I guess just a follow-up on a couple of the questions.

Larry, we've heard you talk a lot about new product introduction and kind of what the focus of the Company has been.

Could you give us a sense of what percentage of sales maybe last year came from NPI and where is that going because it really does seem to be a significant factor in accelerating the organic growth?

Yeah, I think we were, I don't have that in front of me, Nicole, but I think we're up about 300 basis points on our new product vitality index which would put us in the high 20s, still a lower rate than I would have anticipated.

Were do you think that can go?

Well, I'd like to think that over time that is a figure in the 35 to 40% range.

It's going to change different businesses from time to time, but we clearly look at that as one, but not the only measure of our impact with our innovation investments.

Sure.

And I think it was in Professional Instrumentation you cited a product development loss.

How big and what was it for?

Which subsegment?

It was in our Gilbarco business and it would have been, you know, kind of a mid single-digit eight-figure number.

And I guess just on the seasonality of the Leica business obviously impacted the business in the first quarter.

Could you just talk a little bit about how we should think about that business as it plays out through the rest of the year?

I think that what you saw our of Leica in the first quarter is what we would, on balance, expect to see during the course of the year.

In terms of growth or margin or both?

I'm sorry.

I thought the question was with respect to top line.

So my response is really with respect to top line, Nicole.

I think during the course of the year, obviously, we would be looking to see the fruits of our DBS labors there as well and have the margins gradually increase.

That's very much a part of the commitment we've made to you and to the board relative to that investment.

Great.

Nicole, I meant to say a seven-figure number.

I'm sure you figured that out.

Yes.

And just one last one on water quality.

The business is, you know, I guess sometimes lumpy, you cited tough comps in North America.

How should we think about that business on a go forward basis just based on, you know, the products that you're rolling out and who you're selling to?

I think with our market position across that portfolio, that's a mid to high single-digit growth business over time.

Clearly, we have a leading franchise with the Hach/Lange, we like what we have been able to do both at Ultra and at Trojan, but those pieces will be, as you say, a little more lumpy than the core Hach/Lange business.

And we didn't mean to downplay it too much in the text, but the water business grew north of 6% in the first quarter.

Great, Sure.

Thanks very much.

Thanks, Nicole.

Your next question comes from John Inch with Merrill Lynch.

Thank you.

Good morning.

Good morning, John.

Hey, guys, I want to flush out this leverage question a little bit more.

You know, you compare your ongoing margins to a year ago, I guess if you add back the negative impact of acquisitions options, we're kind of flat.

I know you've got a couple of other things in there but, you know, with 7.5% organic growth, I'm just curious, why aren't seeing the margins expand at a, well, expand period, or expand a little bit?

Well, I mean, there are a couple of factors.

I mean you did have a real estate gain last year, which was 30 basis points.

We mentioned the write-down of a kind of minority venture capital investment that was 20 basis points.

I think we look at more as sort of 50 basis point improvement year-over-year and that doesn't include what I just referenced in terms of what happened at Gilbarco.

So kind of after those one items, you're probably 70, 75 basis point improvement for the year-over-year with a pretty significant step up in R&D spending in addition to that

And are you seeing on your businesses that have been with you for a while are they still continuing to realize profit improvement or is there something else?

I mean does it go back to spending more on R&D or having to spend more to get into Asia or, how do you want us to think about it?

I think the way you should think about it, John, is that DBS has impact in all our businesses regardless of how long they've been with us.

And those gains, coupled with our corporate procurement activities, where we're buying now the $9 billion company, obviously give us the opportunity with core growth like this to step up the marketing and the R&D where we see those opportunities and we will do that.

We think that's a good balance.

Again, as Dan highlighted, we would look at this quarter as we suggested in our prepared comments, is up 50% plus basis 50% basis point improvement year-on-year and that's not including some of the things we can put in there.

So are there opportunities to do better?

There always are in the spirit of DBS, but I think we're trying to find that balance, manage that balance between delivering here in the short- term and investing in the long-term.

A balance we're very comfortable with.

Larry, I wouldn't say the industrial economy is on fire, but there's certainly a lot of heat been thrown off.

Is there any reason that your Motion business, which is industrially tied, couldn't go from sort of 5% to 8 to 10 organic?

I think we're going to be maybe a bit cautious, maybe a tad conservative with respect to Motion given the history, but you have to like the sequential momentum those guys are building.

I don't want to say that anything's impossible, but I think it may still be less tempered in our thoughts there, but I like what that team has done both on the top of the bottom of late.

Maybe just a final one on Sybron.

I see it's trading above your offer price.

If I remember, Dan, on the 12th you made the comment that to get to your ROI, you have to look our five years.

I mean if someone does counter, can I interpret or can we interpret those comments to suggest that it would be unlikely that you could counter that just based on the ROI dynamic?

John, can I jump in there?

I think that it's, and what we read here in the last day or so actually gave us great encouragement.

We know this is an excellent company, as we indicated last week.

We think it's a great addition to Danaher, we like the product balance here, equipment consumables, we like the geographic balance given where they are here in the U.S.

We like the joint opportunities, short-term, long-term between the businesses.

As you indicated, like Fluke, like Hach, while we're paying a, perhaps a full price here, we think this is a value creator for our shareholders.

The documentation that they filed clearly, I think, encourages us.

There are no other firm offers out there.

The other parties that were in the hunt, to use that term, clearly admitted they had more work to do and they have significant regulatory hurdles.

So you put all that together, I think we clearly think this is going to be a winner for us.

And if I can add, I was out there Monday.

The first opportunity I've been able to have with the team since we made the announcement.

I was very encouraged by the reaction that we received.

The team's very pumped up and I'm talking not only the senior team but the broader management group.

The quality group of people.

All of them have their own list of ideas of things that we can do together.

The public response, and I speak not really to the market, but those in the industry, has been very positive really without exception.

So we're excited about doubling the size of our dental business.

We're excited about what this does from our medtech platform and, obviously, would position Danaher at very close to a $10 billion revenue level.

So, obviously, this is a big move for us, but one that we're excited and confident about.

And Dan, can you just remind us what is the hard date, the 30-day tender whatever, and then presuming you guys get the deal, when is expected to close again?

It was, I believe it's May 15th or May 16th.

And then it closes then?

We would, I mean assuming we got more than 50%, we would take that down and have control of the company.

We think we've got all our regulatory filings done in the next day or two we would expect to take down control of the company within the next four weeks.

Okay.

Thank you.

Thanks, John.

Your next question comes from Ann Duignan with Bear Stearns.

Hi.

Good morning.

It's Ann Duignan.

I think I'm just going to change my name.

Just following-up on John's question there, assuming that the deal does go through, you're 10-Q states that management and other personnel would be required to devote significant attention to the successful integration of the business.

Larry, should I read any more into that than just a standard statement or does this imply somewhat that once you get this acquisition that the pace of acquisitions may have to slow for a while?

Ann, I think your first take is spot on.

Obviously, there are requirements in those filings that some of our attorneys help us with, but without in any way understating the magnitude of the investment that we're making in Sybron, it's really -- we're inheriting, I think, a very competent team out there.

A team that we're excited to have as part of Danaher and based on what I saw Monday, a team that will be part of what we're about.

We think that we actually have limited impact elsewhere.

This doesn't really pull on our [electronic] test team, our product ID team, I can go right down the line, and while it's our largest transaction, we don't think it puts us out of the deal game this year.

So we would still expect, as I tried to indicate last week, that we will be active this year elsewhere, outside of Sybron in making investments that we think create long-term value and competitive advantage for Danaher.

And following-on along the same lines, do you see any changes in your organizational structure coming about now that you've build out the scale in some of these new business segments?

For example, would you consider an office of COO or some structure like that or are you comfortable with the way that this businesses are kind of spand of control like they stand today?

Ann, that's an excellent question because it's something that we always are thinking about given the growth, growth always demands, I think, adjustments in the work structure.

But we've had in five years that I've been CEO what we call our office of the chief executive which is really the senior team, Pat and Dan, Phil Misely, Steve Simms.

We added Jim Leica to that group last year, I think not only in recognition of his tremendous performance, but also the growth that we've had and the growth that we anticipate.

So as we look at that OCE, as we call it, we go through the leadership team more broadly.

We feel good about our capital and our bandwidth in that regard but, obviously, as the organization evolves, we'll make adjustments as appropriate.

But again, I think in the case of Sybron, they were in the process of an organizational transition themselves, a CEO succession, Dan Eben, their CEO steps up here and we're excited about having him take the reins of that business with us.

Okay.

And just one quick follow-up.

We attended a water quality show recently were Hach was demonstrating new products and it seemed to me like they were leveraging the technology, similar technology that we saw at Radiometer last year were the actual dose was placed in the cap of the test tubes.

You know, I thought it was great that we were seeing synergies across engineering or across product development.

Are there other areas, Larry, where there are opportunities, maybe opportunities that we don't see, obviously, to leverage technologies across the businesses?

Ann, that's a great pick up.

We have to give credit to the Hach/Lange team, which really the [dosie] cap technology which is a Dr. Lange specialty that Radiometer adopted in putting that new product out there.

So credit to the team in Dusseldorf and Berlin.

But we try to do that.

I think it's one of the great aspects of our culture.

It's very easy for a company that has a challenge to put their hand up and anyone else in the company who can help will jump in.

There are other efforts like that both informal and, frankly, formal, obviously we have a number of different businesses involved in imaging, core imaging technology, whether it's our dental X-ray business, whether it's our bar code scanning business at Accu-Sort, even some of our aerospace and defense businesses get into imaging.

We bring that group together as we have a couple times in the last six months just to see where they might be able to help each other, maybe where we could pool some energy to invest on an internal project, maybe, on the outside.

So that's an ongoing effort as your question suggests, as we look to drive more technology and innovation across the Company.

One final real quick one.

I'm seeing a lot of these franchise VitalDent stores spring up around New York.

I don't know if they're national or not.

I'm just curious if you're seeing them or if it's just very local?

And then are any of your dental equipment business is supplying these new franchises?

We actually do supply those organizations.

In fact last time I was out at KaVo in Lake Zurich, we had one of those groups in and were actually consummating a nice arrangement with them.

They have been out there, Ann, over time.

I think they've had a mixed history as an industry, so I'm not sure I'm in the best position to suggest whether that business model in dentistry will thrive or not over the next 10 years.

But it's clearly one potential change in the marketplace that our team is very aware of and on top of.

Okay.

Thank you.

Your next question comes from Deane Dray with Goldman Sachs.

Thank you.

Good morning.

Be interested in hearing some more color around Fluke because it really sounded like in your commentary that you were seeing some of the strongest end markets.

Now, and if I heard correctly, you said robust sell through and no signs of softening demand.

I know a lot of this goes through distribution, but could you give us a sense of where you see the verticals, where these products are going into the geographies, you said China was strong and how about contribution from new products?

Deane, I could go through a long answer, but frankly, I'd be saying the same thing almost without respect to channel or geography or new products.

Strong across the board.

As you well know, that Fluke brand would probably have no better in terms of new products and innovation that team performance second to none within Danaher.

And in this economy, with the go to market programming that we have, were just saying very strong activity.

And again, the thing that I look at as you point out, most intently is the sell through.

And we like what were seeing across the channels, we like what we're seeing, I mean Europe's nice pleasant surprise to start the year.

And new products across the board whether we're talking biomed, whether we're talking power quality, the electrical initiatives, thermography, and we've just and introduced this month, in fact, the TI20, the new lower-priced point thermal imager here with a global rollout underway in the second quarter.

It's just a lot of good things going on there against the backdrop of demand which is pretty darn good as well.

Larry, since Fluke does have such a broad base of end markets, does that give you increased confidence or could you discuss what your outlook is in terms of from your perspective the duration of the current expansion?

Well, keep in mind a lot of what we do with Fluke is over the counter business which could turn more quickly than some of the longer-term investments.

But we really are hearing or seeing no signs of anything other than current trajectory continuing with a lot of optimism again with our distributor partners and are larger end users that we talk to directly about this year.

Okay.

And then Danaher is one of the few manufacturers that didn't comment about raw material cost headwinds and so forth so I would presume it was not material in the quarter.

But can you just give us a sense of what that raw material cost headwind has been across the Company and what sort of pricing power you had?

Well, I think where we see it is primarily in our tool business and we did see some acceleration of raw material costs throughout the quarter.

We did get price in the quarter as well.

So I think we were hopeful going into the quarter that it might be a benefit and I think at best it was neutral because of the rise in prices throughout the quarter.

So it was a net parity?

You know, Deane, I think roughly, and again, I think we were more optimistic at the beginning of the quarter and probably worked out something closer to net parity at the end.

Okay.

Thank you

Thank you, Deane.

The next question comes from Steve Tusa with JPMorgan.

Good morning.

Good morning.

Just a question for you.

SG&A looked pretty darn big in the quarter and obviously that's the impact of the acquisitions.

I'm just wondering, through the rest of the year you talked about Leica improving.

You know, typically, you guys do a good job throughout the year when SG&A spikes.

I know that's what happened last year, it was down about 100 basis points as it moved through the year.

What do we think of as a trajectory there if you could just put some numbers around that maybe?

You know, I'm not sure I can comment specifically, but we did have some, you know, one-time items within SG&A we talked about as well as the impact of option expense.

So I would expect to see some better leverage as we go through the year.

Okay.

And as far as the absolute margin or actually what was the sales contribution of like this quarter and then if you could give us where the margin is currently?

I don't have that handy.

The first quarter tends to be about 150 million in revenue in the first quarter with a kind of mid to high single-digit operating margins.

Okay.

That's it.

Thanks.

Thanks.

Your next question comes from Ajit Pai with Thomas Weisel Partners.

Good morning and congratulations on a very solid quarter.

Thank you.

Good morning.

On the product ID segment you had about 11.5% organic growth and that's very differ from a number of the other companies I think in that space.

Could you give us some indication, you know, one, as to whether it's more sort new initiatives, new products that are driving that, what kind of trend is supporting that?

And also the mix of what was driving sort of the acceleration, was it more capital equipment or was it more consumables?

Well, one of the key differentiators there is that we try to highlight are some of these large projects, particularly with the U.S.

Postal Service, which clearly have helped us for some time now and will create some tougher comps for us as we go through the course of the year.

But even when you take that out, I think it was really a combination of things that led the product ID businesses to perform very well, both Videojet links and Accu-Sort.

I'd have to say it's a combination of new products.

As you know, we launched some products in the fourth quarter of last year, are in the process of retooling some of the key CIJ products in the first half but, also, I think the sales force adjustments that we made a year ago, almost a year ago now, clearly have continued to help us here.

The sales and service ads don't take, don't have immediate impact once you bring them on board.

They go through their training, get comfortable with their territories, the full product basket and the like, and as that happens, you just build momentum both with new installs of equipment as well as, frankly, growing the aftermarket business.

So I really would suggest it was those three things, some of the projects, the new products and the go to market investments that have helped us here.

Right. [Inaudible] Electronic Test business?

Could you give us some color on Fluke network so that was growing faster than the overall Electronic Test business on an organic basis was slower?

At FNET, I think what we try to highlight there with another strong performance by the business.

Again, without respect to geography or products, very strong performance.

Probably the only area where we saw some weakness, it was weak on a really, on a relative basis, was here in the U.S. with some of the enterprise customers, some of the higher ticket test products.

The cable test products, which really go into the infrastructure segment, we're very strong.

But with that one footnote, a very good quarter for FNET.

And the last question would be about your guidance.

You've had core growth of about 7.5% in this quarter.

I think I heard you suggest that for the rest of the year, you're going to see above 5% growth for each of the rest of the quarters.

We said 5% plus for the rest of the--

5% plus, yes.

But it's still sort of a deceleration from current levels while last year you had quarters like the September quarter were your organic growth was quite slow.

So is this something that you see in the environment further out?

I think this quarter most of the color you've provided is quite positive about near-term trends that is making you cautious?

I don't think I've ever been called cautious in the course of raising guidance.

But it is one quarter of four and I think that we feel very good about the quarter.

I think we feel very good about the year but it's early.

And we think this increase in the guidance, both with respect to our core revenue guidance and our EPS guidance, is what's proven at this point in time.

And if we beat it, but presumably that wouldn't be a bad thing.

But the impact of a number of these sort of key developed economies raising interest rates, you're not beginning to see it impact the businesses yet?

We're reading about it in the newspaper more than we're seeing in our order books.

Okay.

Thank you so much and congratulations, again, on a very strong quarter.

Great.

Thank you.

Your next question comes from Brian Langenberg with Foresight.

Thank you, gentlemen.

Good morning.

Good quarter.

Thank you, Brian.

Two things.

On tools, not to get down to gross margins by SKU but-- We could do that offline.

Sounds good.

On the tool side, understanding that Sears was down in your view, the overall core was up five, so I was surprised with the margins for that segment, you know, even backing out the real estate and things like that.

Just kind of walk through a couple of things.

Number one is, is there any kind of a significant structural change going on in the profitability with Sears?

And did I hear correctly that the Craftsman brand is actually being carried at Fastenal?

I know you do work through industrial distribution, but is the Craftsman brand going into those channels?

I think the answer to your first question, there is no structural change in the profitability of the Craftsman franchise as we know it with Sears.

The comment with respect to Fastenal and some other industrial distributors was really around our Craftsman industrial initiatives.

You'll recall a couple years back where we agreed with Sears to basically take that brand to market through that channel and what we're seeing is Fastenal it's the best example, obviously, a company that many of you know, we've gotten very good traction there.

Okay.

Okay.

Just wanted to confirm that.

Brian, on the margin side within tools, we were down at Sears so we're building less product, we have a more tempered outlook so we're also building less product going forward, so, you know, we're expensing [on] more overhead.

I think that will change here after the first quarter and I think you'll see some improvements.

So it really was an absorption issue.

I think it was a piece of the issue.

And as I said, we thought price would give us some benefit over materials here, and I don't think it really played out that way as we got to the quarter.

Okay.

Then I just want to confirm, did I hear you guys say that Fluke overall was up double digits and Fluke Networks was up 4 to 6% on top line or did I reverse those?

Fluke Networks was a little better than that, but that's largely correct.

So Fluke Networks was up, say, 5 to 7-ish or something?

That's right.

But then the Fluke part excluding Networks was up low double-digit?

Correct.

Okay.

Thank you very much, gentlemen.

Thanks, Brian.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

Mr. Wilson, are there any closing remarks?

Yes, Tiffany.

Just as a reminder the replay number is 1-800-642-1687, confirmation code 6658217, and as always, Dan and I will be available for any follow-up questions you might have.

Thanks for joining us.

This concludes today's conference call.

You may now disconnect.