Danaher Corp (DHR) 2007 Q1 法說會逐字稿

Good morning.

My name is Anthony.

I will be your conference facilitator today.

At this time I would like to welcome everyone to the Danaher Corporation first quarter 2007 earnings conference call.

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

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

[OPERATOR INSTRUCTIONS] Thank you.

I would now like to turn the call over to Mr.

Andy Wilson, Vice President of Investor Relations.

Mr.

Wilson, you may begin your conference.

Good morning, everyone, and thanks for joining us.

On the call today 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 on our Web site under the heading "Investor Events".

Access to our webcast presentation supplementing today's call can be found under the same heading, "Investor Events".

Finally, in an attempt to limit our prepared remarks, we have included in the webcast presentation materials supplemental documentation detailing the impact of acquisitions and currency on Company and [segment] revenues as well as additional information identifying factors impacting Company and segment margins for the relevant periods.

The 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 888-203-1112 with the confirmation code of 2704152.

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

I'd also like to note that in order to help you understand the Company's direction, we'll be making some forward-looking statements during the 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 set forth in our SEC filings.

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

These forward-looking statements speak only as of the date they are made and we do not intend to update any forward-looking statements.

With respect to any non-GAAP financial measures provided during the call today, the accompanying information required by SEC Regulation G relating to those measures can be found in the Investor's section of our Web site, www.danaher.com, under the subheading "Earnings".

Finally, I'd like to point out that our full-year earnings per share guidance update, to be provided at the end of our prepared remarks today, excludes the favorable impact of approximately $0.02 per share related to an arbitration settlement within our Accu-Sort business which will be reported as a gain in the second quarter of this year.

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

Thanks, Andy.

Good morning, everyone.

We are very pleased to report this morning that our first quarter earnings per share were $0.78, representing another record first quarter for Danaher and an 18% increase over last year's first quarter adjusted earnings per share of $0.66, which excludes approximately a penny per share related to certain income tax reserve reductions.

Revenues for the quarter increased 19% to $2.6 billion representing a record first quarter as revenues from existing businesses, also described as core revenues, grew 3.5%.

As we previously communicated, the completion of several large U.S.

postal service projects, primarily in the first half of 2006 within our Videojet and Accu-Sort businesses, as well as the impact of emission regulations on our Jacob's Vehicles Systems business, negatively impacted core revenues by approximately 200 basis points on a year-over-year basis.

Absent these items, core revenues were up 5.5%.

Year-over-year gross margin for the first quarter improved 230 basis points to 45.1%.

Volume leverage, ongoing cost saving initiatives, and higher gross margins from recently acquired businesses, primarily Sybron, drove this performance.

SG&A expenses for the first quarter were 30.4% of sales compared to 28.9% a year ago, due primarily to the higher SG&A structures in the recently acquired medical technologies businesses.

Operating profit for the quarter was $375 million, a 26% increase over the first quarter of last year.

Operating margins for the quarter were 14.7%, an 80 basis point improvement over 2006, as 2007 first quarter core operating margins improved 55 basis points compared to the same period a year ago.

2006 acquisitions, primarily Sybron, contributed an additional 25 basis points to the operating margin improvement in the quarter.

Net interest expense for the quarter was $26 million compared with $8 million for the first quarter of 2006.

The increase in interest expense in 2007 is due to higher debt levels during the quarter, resulting from the borrowings incurred to fund the 2006 acquisitions of Sybron and Vision Systems.

Our effective income tax rate for the first quarter was 26.9% compared to 25.4% in the first quarter 2006.

The prior-year first quarter tax rate was impacted by the reduction of approximately $3 million of tax reserves resulting from the favorable disposition of prior-year tax audits.

We continue to estimate our effective tax rate for 2007 to be approximately 27%.

Net income was $255 million, an 18% increase over the comparable first quarter of 2006.

Operating cash flows were $323 million for the quarter, a 4% decline versus last year.

And free cash flow, defined as operating cash flow less capital expenditures, was $291 million, a 6% decrease compared to 2006.

The first quarter was negatively impacted by seasonal receivable growth at Sybron, which was not included in our financial results last year, as well as the higher income tax payments during the quarter.

Our free cash flow to net income conversion ratio for the quarter was 114%.

Because of the aforementioned items and other timing issues, we expect our second quarter free cash flow to be significantly higher than the prior-year comparable period.

Capital expenditures increased approximately 14% to $31 million and our outlook for 2007 remains in the range of 175 to $200 million.

Our balance sheet remains strong with a debt-to-capital ratio of 25% and approximately $198 million in cash and cash equivalents at the end of the first quarter.

I'd like to turn now to the operating segments where Professional Instrumentation revenues grew 11.5% for the quarter to $741 million.

Revenues from existing businesses contributed 5% to this growth.

Professional Instrumentation segment operating margins for the first quarter were 19.5%, 40 basis points higher than the prior year despite the dilutive impact from 2006 acquisitions of approximately 10 basis points.

Environmental platform revenues for the quarter grew 8.5% with core revenues accounting for 4.5% of this growth.

Water quality core revenues grew at a high single-digit rate in the quarter.

Hach/Lange experienced broad-based strength in both process and laboratory products, with Asia growing at a double-digit rate and both North America and Europe growing at a high single-digit rate.

Trojan UV revenues grew at a low double-digit rate in the quarter versus the same period a year ago, with particular strength in wastewater applications, both here in North America and in China as sales initiatives implemented last year continue to drive results.

Gilbarco Veeder-Root core revenues increased at a low single-digit rate when compared to the same period last year as sales growth in our new Encore S dispensers and our On-Board Refueling Vapor Recovery products was partially offset by challenging prior-year comparisons due to a large tender in India in the first quarter of last year.

Growth in our Vapor Recovery business was due primarily to recent approvals for the installation of these products in Texas, which along with California and the U.K.

represents a market opportunity in excess of $100 million over the next three years.

Electronic test revenues grew 17.5% in the quarter, with core revenue contributing 7.5% to this growth.

Fluke core revenues grew at a low double-digit rate driven by strength in the industrial channel fueled by demand for thermography, power quality and indoor air quality diagnostic products.

During the quarter our Ti20 hand-held thermographer, a key contributor to this growth, won Control Engineering magazine's Best Product of the Year award for last year.

Also during the quarter we acquired DH Instruments, a $15 million company specializing in sophisticated pressure calibration instrumentation.

Fluke Network's core revenues grew at a low single-digit rate as solid performance from our copper and fiber test business, as well as general strength across Europe, helped to offset several large prior-year telecom projects.

New products such as our OptiView Series 3 analyzer, which allows for portable network troubleshooting, and our DXT cable analyzer, also helped drive this growth.

Our Medical Technology segment finished the quarter with revenues up 75% to $684 million.

Core revenues drove 8.5% of this growth.

Medical Technology's operating margins for the quarter were 12.5%, a 420 basis point improvement versus last year with solid core margin improvement of 80 basis points.

Higher margins at Sybron contributed approximately 230 basis points and the write-down on an investment last year contributed 110 basis points.

Dental revenues increased during the quarter at a high single-digit rate when compared to the first quarter of 2006, which includes the results of Sybron as a standalone company.

This was led by a strong performance at Sybron, as our dental consumables business grew low double digits in the first quarter compared to its performance last year, with solid growth at both [Cur] and Ormco.

Ormco's record revenues were driven by sales of our self-ligating bracket system as more dental professionals have now converted to the full Damon system.

Core dental equipment revenues increased at a mid single-digit rate during the quarter led by a double-digit performance at Dexis.

At the recent biannual International Dental Show, or IDS in Cologne, Germany last month, we enjoyed strong order demand and as a result, we expect dental equipment revenues in the second quarter of 2007, particularly in Europe, to be positively impacted.

This healthy order demand at the show was driven in part by the introduction of over 20 new products including the KaVo E80, a fully digital integrated treatment unit, and the new 3D exam, the next generation in 3D imaging technology.

As a reminder, we acquired Imaging Sciences International in January.

Thus far this $50 million manufacturer of 3D imaging equipment has performed very well as we continue to grow our leadership position in dental imaging.

On the DBS front, we have completed approximately 30 events now at Sybron, many of which were focused on the manufacturing floor.

Integration activities continue to be on track and for the quarter, Sybron margins improved more than 200 basis points versus the same period last year as a standalone company.

Radiometer core revenues grew at a mid single-digit rate in the quarter driven by continued growth in instrument placements with particular strength in the U.S.

and Europe.

Leica Microsystems core revenues grew at a mid-teens rate in the quarter fueled by very healthy sales of confocal microscopes and specimen preparation equipment.

Geographically, both the U.S.

and Europe were up double digits, a result of the new products launched in the second half of last year.

Integration activities at Vision, a global leader in instruments and consumables serving the anatomical pathology lab market, continue to go well.

Revenue growth for the quarter at Vision was up over 20% compared to the same period a year ago when Vision was a standalone company.

Moving over to Industrial Technologies, revenues increased 6.5% for the quarter to $810 million.

Revenues from core businesses contributed an increase of 2% to this growth.

Industrial Technologies segment operating margins for the quarter were 15.5%, a 90 basis point improvement compared to the same period last year.

Product ID revenues grew 1% during the quarter, with core revenues declining 5%.

As I mentioned earlier, core revenues were negatively impacted by the completion of several large USPS projects last year.

Absent these contracts, our core marking and coding business was up at a high single-digit rate driven by strength across all geographies and product categories.

The negative impact of these prior-year postal contracts, although moderating, will continue through the second quarter.

In Motion, revenues were up 5.5% in the quarter with core revenues contributing 2% to this growth.

Motion's core revenue increase was driven by growth in our custom motors and drives business, particularly in electric vehicle, elevator, and aerospace and defense applications, both in the U.S.

and Europe.

This growth was partially offset by weakness in our tech end markets, primarily semicon and electronic assembly, as well as softness in North American distribution.

Finally, moving to the Tools and Components segment, revenue for the quarter declined 2% to $321 million.

Core revenues declined 1%, primarily due to the negative year-over-year performance at Jacob's Vehicles Systems, resulting from the previously discussed change in 2007 emission standards.

Excluding the impact of Jacob's Vehicles Systems, core revenues would have increased at a low single-digit rate.

As we have mentioned, the negative comp at Jacob's will continue throughout 2007, although at a progressively lesser rate in the second half.

Tools and Components' segment operating margins for the quarter were 11.1%, a decrease of 140 basis points over the prior year.

After the impact from restructuring costs and lower volume at Jacobs, core margins improved 50 basis points.

Mechanics hand tool revenues grew 2.5% in the quarter.

Sales of both our [Sada] and Asia export businesses grew at a double-digit rate.

Shipments to Sears grew at a low single-digit rate in the quarter while Matco revenues declined at a low single-digit rate in the quarter, primarily due to the shift in the timing of a new toolbox launch.

We expect Matco to return to their more historical growth rates here in the second quarter.

Overall, we are encouraged by our 5.5% core growth highlighted in the quarter absent the Jacob's and product ID comparisons.

We're making significant progress in both our core businesses and the recently acquired businesses.

Our acquisition activities continue to be active as we have completed five transactions and deployed approximately $300 million during the first quarter.

Despite some isolated pockets of softness in North America during first quarter, we believe our businesses and end markets remain healthy and our outlook for the remainder of 2007 continues to be positive.

Given this backdrop, our earnings per share guidance for the second quarter is estimated to be in the range of 0.88 to $0.93 and we are increasing our full-year 2007 earnings per share guidance to a range of $3.70 to $3.80.

Thank you, Larry.

That concludes our formal comments.

We're now ready for questions.

[OPERATOR INSTRUCTIONS] We'll take our first question from Robert LaGaipa from CIBC World Markets.

Hi.

Good morning.

Good morning, Bob.

Good morning, Bob.

Just had a few questions.

I guess, one, in terms of the gross margin expansion, can you maybe just delve a little bit deeper into that, in terms of raw material costs, were you seeing some relief on that end?

Or what was the primary reason for the increase in gross margin?

You mentioned some things earlier, but I just wanted to dig a little bit deeper there.

It's a couple things.

One, it is -- we didn't have Sybron a year ago and Sybron's closer to a 60% gross margin.

And I think also our higher gross margin businesses contributed nicely to the overall growth of the Company, water quality and electronic tests were both up high single digits and that obviously benefits the mix in terms of gross profit margin.

In terms of commodities, I don't -- there are pockets like copper, which is still a headwind and some specialty steels, some specialty metals within the tool business, so I don't think commodities got easier but I'm not sure it was a headwind either in the quarter.

And as a follow-up to that, on the SG&A side, obviously the impact of the acquisitions caused a significant increase there, year-over-year and also sequentially.

How should we think about that number moving forward?

What type of actions are you taking, the amortization impact of that, et cetera?

When does that start going away and at what rate?

A lot of that, Bob, depends on the pace of acquisition and what we're bringing in.

We really focus on year-over-year improvement in operating margins and, again, in the first quarter the margins were up 80 basis points on a core basis were up 55.

It's hard to talk to that number because of the typically acquisitions that come in.

I think we're more focused on driving that down within the businesses we already own and improving the core operating margin.

Bob, I would just add to that that as Dan has highlighted, as we bring down that SG&A ratio, assuming no noise induced by new acquisitions, there is a rebalancing that occurs at the same time as we look to put more money where that can be justified into R&D and into sales and marketing while pulling that out of G&A.

The overall level comes down while there's a remix at the same time.

Last question if I could.

Just on the sales core growth, are you still expecting the 5% plus, and just what are you seeing across the regions in terms of growth?

What areas are you a little bit more excited about?

Obviously, we've been hearing some positive signs out of Europe, at least better than previous expectations, whereas North America and some areas has obviously been fairly weak.

I would say that as we look from a geographic perspective, Bob, Asia clearly has continued to lead the way for us.

We were up double-digit there in the first quarter.

Europe continues to be solid, and obviously where we saw some weakness, though isolated, that was principally in North America.

I think at this point we're not coming off that 5 plus for the year.

Obviously, given where we started, we would expect to accelerate here in the second quarter from there, clearly still have the headwind both at ID and at Brake because of the comps we've talked about many times now, but when I look across the business and see med tech up 8.5%, Fluke up at a low double-digit rate, water, high single-digit, Videojet, when you get past the postal service noise, up at a high single-digit rate, I mean those key growth engines for us are firing.

And frankly, they're firing in North America as they are elsewhere around the world.

We get past the comps, obviously we begin to include a great new company like Sybron in the numbers here later this quarter.

We continue to still be, I think, very optimistic about this year, though like everyone else, we've got a very watchful eye on the broad North American market, but where we see weakness, it's really been, I think, very isolated as we've pointed out, clearly some inventory adjustments going on in distribution here and there.

We think that's coming to an end.

So all in all, we like the economy, though obviously we'll be watching, as I know you will, as to how the year plays out in North America.

Terrific.

Thanks very much.

Good quarter.

Thanks, Bob.

Thanks, Bob.

Thank you.

We'll take our next question from Deane Dray from Goldman Sachs.

Thank you.

Good morning.

Good morning, Deane.

If we could just stay on core growth for a moment.

Sure.

If we looked at the comps versus a year ago, one of the toughest comps you had was in electronic test at 9%, and you put up very sizable 7.5% against very tough comps.

So just basically the question is, what's the ability for Fluke to grow organically?

And one of the points I'd love for you to address is Fluke Networks.

Now that you've split out a medical business or medical segment, how much synergy and opportunity is there to grow the Fluke medical side in conjunction with the businesses on radiometer and some of the other businesses?

Deane, two good questions.

Let me tackle the first one and come back to the synergies of Fluke biomed and med tech.

We were out with the Fluke team last week, in fact, in Everett, had an excellent review.

I think it's a simple story there that we've told before.

Brand plus great product with excellent distribution continues to drive exceptional growth, really all around the world.

And whether you look at China, whether you look at these new products that are really driving exceptional growth here in North America, like thermography and power quality, I think our go to market activities in Europe have gotten better over the last 12 months.

Just a lot of things that we've talked about before that gave us another good quarter at Fluke, and I think from what we see should drive a year that will be another one for the record books.

With respect to Fluke biomed, obviously we have a larger presence in the hospital segment with everything we're doing in med tech, but I'd have to say from a buyer perspective, the synergies to date are relatively modest between radiometer and Leica, which are the big businesses we have serving the hospital and Fluke biomed, which obviously is a, on a relative basis, a smaller business.

And a follow-up, if I could.

In the supplementals and part of the K that you released, which is a great help and you're one of the only companies that does that, I know that's a lot of work, is, I think it's a new disclosure about a reconciliation on the operating margins by business where you break out the different restructurings and so forth.

And one of the numbers there looks interesting is the Tools business went through the regulatory downsizing that impacted a couple 100 basis points.

Can you just clarify what was going on there?

Sure, Deane.

Maybe we didn't have the best choice of words.

That really reflects to, talks about the downsizing of Jake Brake given the regulatory change here and the significant year-over-year revenue drop we're seeing in that business.

So both the cost of restructuring that business to more appropriate kind of workforce level giving the lower volumes as well as the margin impact.

And is that essentially complete, Dan?

It is, though I mean Jake Brake both top line and bottom line will continue to be negative year-over-year for the balance of the year.

And if you follow any of the other companies serving the heavy-duty truck market, they've seen a similar dynamic.

Great.

Thank you.

Thanks, Deane.

You bet, Deane.

We'll take our next question from Steve Tusa.

Hi.

Good morning.

Hey, Steve.

Good morning, Steve.

Hey, I noticed you did about $300 million of acquisitions in the quarter.

I know it was a small sales base, about $80 million, but can you just walk through a couple of those?

Yes.

I think the most important, frankly, in the quarter was ISI, the 3D dental imaging business that we bought, clearly an important technology for us to add to both our intraoral and our pain [assess] business globally.

That was a business, clearly, where we were paying for the technology and have very high expectations of continuing to grow at a significant double-digit rate, which we saw them do obviously, here in the quarter.

The rest of the transactions, as you would imagine, were smaller.

We mentioned a few in the prepared remarks.

Just classic bolt-on acquisitions for us that had either products or technologies or market access, particularly around the key growth platforms for us, Steve.

Great.

Steve, just one other point on that.

Of the $300 million, about 80 or $90 million of that was part of buying the remaining shares of Vision.

Right.

So I wouldn't compare the 300 to the 80.

Right.

And then I'll be the one that asks the questions about the sequential trends through the quarter, specifically on your North American industrial type of businesses.

I think on balance we saw things get better as the quarter played out, Steve.

Not unusual given the way first quarters play out, both globally and here in North America.

But I would say it was more steady than some sort of acceleration there at quarter end.

And April looks okay?

It's early, but yes.

Okay.

Thanks.

We'll take our next question from Bob Cornell, Lehman Brothers.

Yes, let's keep going on the organic growth issue.

If you were to include some things like Vision that are growing nicely in an organic growth comparison, what would that have done like the aggregates, and a couple other things like I think is not in.

Well, good morning, Bob.

Hi.

Clearly, as we adjust out for the two big lumps that we've talked about for a while, we get to a 5.5% core.

If you did a back-of-the-envelope and you threw Vision and Sybron into that on a pro forma basis, you probably had a, call it 100 basis points of incremental core, so you get to 6.5.

There's some other things we could highlight as well, but that's not our way, obviously.

But I think when we get past some of the one-offs, get this inventory adjustment behind us, have the full affect of some of these product launches which are just underway, let alone get to take full credit for Sybron and Vision, we like where we're going to be.

Yes, I guess sort of a, with maybe the only unasked question on organic growth is, where did the businesses surprise in the quarter both positive and negative?

Well, I would say that in terms of the positive surprises, Leica just knocked the cover completely off the ball in the quarter.

That was very much a pleasant surprise.

I'd have to say that while there are folks who are concerned about North American Cap Ex, our Videojet and product ID businesses in North America really had an exceptional start to the year against that backdrop, so those in my view were two of the positive surprises.

I think we thought that, on the other side of the ledger, Bob, I thought that the Mexican program of Gilbarco Veeder-Root would be a little stronger start to the year.

We thought that would help offset the Indian tender a year ago, obviously, now we're looking at Mexico being a little bit more smooth during the course of the year.

And maybe one other item, I think we thought we'd do a little bit better with the timing of some of the product launches, particularly the one we talked about at Matco, but that's obviously out there now and we have higher expectations there in the second quarter.

So those are probably the two on each side of the ledger.

I guess, you know, you mentioned Cap Ex.

I mean your own Cap Ex is in a reasonably wide range.

What is defining that range and where are you looking to put the Cap Ex?

Maybe a little color around that, please.

Sure.

Well, I would say the 175 to $200 million range is more or less in line with what we looked at during the course of budgets.

Principally, that's going to go to new product introductions and some capacity expansions in low-cost regions.

Clearly, there's some IT and some maintenance capital in there as well, but it's really new products and expanding the international footprint that I think garners most of the capital budget that we're looking at.

Okay.

Thanks.

I got it.

Thank you, guys.

Thank you, Bob.

Thank you, Bob.

[OPERATOR INSTRUCTIONS] We'll take our next question from John Inch with Merrill Lynch.

Thank you.

Good morning.

Good morning, John.

Good morning, John.

Larry, Dan.

So Jake Brake, does it get worse in the second quarter versus the first quarter?

And kind of the supplemental question would be, just core growth at Motion and then the Tools business, do you expect those to pick up sequentially here in the second quarter given the puts and takes?

John, I would say that Jake Brake gets a little better each quarter through the year, [though] down.

It probably cost us across the Company a little bit more than half a point of core growth in Q1.

It'll cost us probably right around a half a point in Q2 and then be a fraction of a point kind of in the two-tenths of a point sort of in the back half.

Okay.

And then to the core growth trends, I mean you call that semicon and [inaudible] in Motion and then obviously Jake Brake, and then Larry, you talked about the new product introductions.

Where do you see both of those core businesses kind of trending sequentially?

Well, in Motion, clearly, we'd like to think that the inventory adjustments that we've seen in distribution are coming to a close, but you never know and, clearly, the end demand there is probably the biggest question mark that we have.

I think I would describe tech at Motion not too differently than the way Dan described Jake Brake.

I think it's going to get a little bit better from here, but we don't have high expectations for that to have a pronounced recovery during the course of the year.

I think we've always been cautious when tech gets soft and it's clearly soft at this point.

Many of the new products, John, that we highlighted -- hopefully this was clear -- are not necessarily in Motion, although they have a lot going on and their exposure to aerospace, clearly, commercial construction serving them very well right now.

But at dental and at Fluke and at Matco, certainly Gilbarco as well, a number of products that were launched during the first quarter we think will help those businesses as early as the second quarter here.

And do you guys have a sense of how much that inventory destocking impacted the Motion business this quarter?

We didn't try to quantify that.

We know where it occurred and we certainly saw it play out at the end of last year and certainly during the first quarter, but I don't think -- we wouldn't want to try to quantify that as some sort of add back here this morning, John.

That's fine.

Maybe just finally, you called out 55 bips of margin improvement on the core I guess due to the benefits of restructuring and volume and so forth.

Where do we stand on that front?

So if Danaher were not to make incremental acquisitions, which I know is not what you do, but if you just look at your core businesses what kind of margin runway would you think there would be kind of as you look out over the next one to two years?

Is 55 a good number?

Is it higher or lower?

How to think about it?

John, I would think it'd be in the range of 50 to 75 basis points without any acquisitions.

Naturally, it's a little harder to generate as much margin improvement on a 3.5% growth rate, and again, the margin improvement we got in Sybron, which was very significant, is not part of that 55 basis point improvement and it will help us as we at least reported core margin improvement as Sybron comes into core as well.

John, if we froze today's portfolio, there's no reason Danaher couldn't be a 20% OP business, all things being equal.

Not in the second quarter this year, not next year, but I think that's what the quality of this business is, their gross margins in DBS gives us the potential to do.

We may never get there because we'll continue to acquire businesses not at that level, but I think when you look at today's portfolio, that's certainly within reason.

Thanks much.

Thanks, John.

Thank you.

We'll take our next question from Ajit Pai with Thomas Weisel Partners.

Good morning.

Good morning, Ajit.

A quick question about your cash flows from operations.

When you're looking at the biggest driver for the decline in cash flows, I know a year ago [inaudible] I think you mentioned something about accounts receivable.

So could you give us more color on that and also from a broader level whether you're seeing some of your customers try and push out payments right now?

Sure.

I think there are two elements.

One, you can see at the bottom of the cash flow statement, last year we had a tax refund in the first quarter and this quarter we had tax payments.

But as you point out on receivables, we collect -- we generated about $30 million less in cash flow from receivables than we did a year ago.

The biggest component of that was Sybron.

Sybron has historically tended to have a very strong receivables collection in the fourth quarter, which obviously benefited us in the fourth quarter last year, and they tend to build receivables in the first quarter as they did here.

So I don't -- we don't think it's a wider trend, we think it's just largely attributable to Sybron.

And what happened at Sybron to make that happen this year?

Ajit, if you remember, their fiscal year end used to be September, and is often your best quarter is your last reported quarter, so they would have a great fourth quarter revenue-wise for the quarter ended September and then a slower first quarter, which was the October to December quarter, they tend to, on the slower revenue base, collect a lot of receivables and then build it up again in that January to March quarter.

Got it.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from Chris Kotowicz at A.G.

Edwards.

Good morning, guys.

Hey, Chris.

Good quarter.

Thank you.

On Sybron, real quick while we're talking about it.

Are you going to have any of the same type of headwinds you had with sales incentives kind of rolling off at Sybron after you've owned it for a year that you had with some of the other med tech businesses early on or is that pretty much a nonissue?

I think that's a nonissue.

Keep in mind that what we were doing at KaVo, pardon the pun, was major surgery with respect to the footprint and some of the go to market activities.

We have none of that at Sybron, both on the distribution business, [Cur], and some of the related brands let alone on a direct basis, Ormco where we go to the specialists, those guys haven't missed a beat, doing great work in the factories.

I was in two of their facilities last week, in fact, very impressed with the traction we're getting from DBS.

You see some of that in their margins already, but you should not expect any of that at Sybron.

Okay.

Then you mentioned in your Q the significant management attention you're putting into this, which makes a lot of sense.

Has that at all impacted your appetite for additional acquisitions?

Obviously you've done some smaller deals.

I think a lot of us are probably thinking over the next six to 12 months we might see another, whether it's a Sybron or something more like a KaVo, a little smaller that there'd be something looming.

But, I don't know, is it management attention being absorbed or is it they're just the assets and the quality or the price hasn't met your requirements?

Can you talk about that?

Well, we did five deals in the quarter.

We did Vision straddling the fourth and the first, we didn't include it in that inventory of five.

We're as busy as we could be, Chris.

And while I think all the folks that help us with the Q want to make sure we have that sort of language in there, we continue to be very active on the acquisition trail.

I wouldn't say that the environment is in any way different than it was during the course of last year.

And if you have an expectation for us to do another Sybron or another KaVo, to do another 12 to 15 transactions, to spend more or less an amount equivalent to this year's free cash flow, those would be very reasonable expectations.

Okay.

So you're not seeing any deterioration in asset quality out there?

No, no.

I mean the trade that you get with today's pricing environment is, of course, higher quality assets coming to the forefront.

Fair enough.

Thanks, guys.

You bet, Chris.

Thank you.

We'll take our final question from Mr.

Scott Davis with Morgan Stanley.

Good morning, guys.

Good morning, Scott.

Excuse me, I've got a bit of a cold here.

Being new to your stock, I'm still trying to understand DBS a little bit better and I was taken back by the 200 basis points of core margin expansion that you got out of Sybron.

Can you walk me through, understanding that I'm new to this, kind of how you get there so fast and what's the potential, what inning are we in, how do you go about getting from point A to point Z?

Scott, I think we're in the very early innings here.

Some of the things we can typically do with a public company in terms of taking out corporate expense, we've seen the benefit of that, Sybron was a public company.

We're seeing very good leverage and I think we've as much helped them with maybe a little bit more discipline of getting the fall through on what has been very attractive revenue growth since we've bought the business.

So I think in terms of planning and strategy, we've helped bring some discipline through DBS, but in terms of going after the facilities, we're not even in those innings yet and I think that's more to come.

I would just add to that, Scott, that one of the things that DBS helps drive in the manufacturing area is throughput.

As they bring these products to market, these new products, particularly at [Ormco] that are driving exceptional growth and good mix benefits, being able to get that product as it grows rapidly out of the factory to satisfy customers, being able to get it out of the factory without a lot of friction, meaning cost, is also a contribution that we're already seeing from DBS and Sybron.

You there, Chris?

Scott, that concludes our answer to your question.

Okay.

We'll take our final question from Ann Duignan with Bear Stearns.

Hi.

Good morning.

Just a quick question on pricing.

You noted that the pricing environment was pretty favorable across some of the businesses.

Could you give us some color maybe on where you are seeing pricing power and where maybe you're not?

And then by region, are there any differences?

Is it easier to get pricing in North American then in Europe or vice versa?

Just some color on the pricing environment would be beneficial.

Sure.

Ann, I think as we highlighted I think when we last were together in December, we really got aggressive in the second half of last year with respect to driving price really across the business.

I think we saw that benefit again here in the first quarter.

From a geographic perspective, I'd say Europe is a little bit better, or excuse me, North America's a little bit better than Europe in that regard.

You can get price in both place.

Asia is tougher, as you might imagine just given some of the dynamics there.

Clearly, as you look across the businesses where we're seeing exceptional growth and/or where we have a significant part of the business in the aftermarket, whether that be in dental consumables, at product ID, at Hach/Lange, at radiometer, we have a little bit more latitude and opportunity than we do say when initial instruments or pieces of gear are being placed.

I guess that would make sense that pricing power in consumables are in the aftermarket would be a little bit easier than in the original equipment.

I think that's fair, though I think we can be a lot better at getting price and it's certainly a key point of emphasis for us with virtually all the operating businesses again this year.

Okay.

And then just a quick follow-up on Videojet or product ID.

You noted that the business surprised you to the upside.

Do you think that you are outgrowing the end market in product ID, or is the market stronger than you might have anticipated?

And if so is there anything like regulations driving new labeling or anything like that going on in the industry that might be supportive going forward?

Ann, I would say that that market has held up pretty well from what we can see.

Obviously, there'll be some other folks here over the next couple of weeks announcing results.

Our view is that we are winning at a greater rate, taking share as a result.

I'd say some of the end user trends around whether it's regulatory driven or supply chain management driven continue to be broad-based and subtle.

There's no one rule, there's no one effort that is propelling that growth.

When we got into the space back in 2002, we thought the cumulative affect of all of those drivers and what we've seen more recently, the product personalization and some of the marketing efforts that also impact demand for marketing and coding products, come together to create a pretty good growth wave we think for a long time to come.

When you couple that, obviously, with a significant part of this business in the aftermarket, the inks, the makeups, the parts and services, we like this business a lot and obviously are quite proud of the start that they've gotten off to here, first part of the year.

Is it a business segment that you would like to expand more into?

You better believe it.

So we hear.

Okay, I'll leave it like that.

Yes, I wish we were five times larger in product ID and there are a lots of adjacencies, lots of vectors to go with that brand, with that channel, other businesses, other segments that play off those same macro drivers.

So as we look at our acquisition priorities, our product ID is very much up there with some of the other businesses that we speak to with frequency vying for that next big check.

Yes, it is interesting when we go to the trade shows in that industry to see how fragmented it is and how many different verticals there are within the industry segment, it's not surprising.

Just don't tell too many people, Ann.

Okay.

Great.

Thanks, Ann.

Thank you.

That does conclude today's question-and-answer session.

At this time I would like to turn the call over to Mr.

Wilson for any additional or closing remarks.

I want to thank everyone for joining us today.

As a reminder, the replay number is 888-203-1112 with a confirmation code of 2704152.

And as always, Dan and I will be available for any calls that weren't answered today.

Thank you for joining us.

Bye.

That concludes today's conference.

You may now disconnect.