Danaher Corp (DHR) 2009 Q4 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Danaher Corporation Fourth Quarter 2009 earnings results Conference Call.

(Operator Instructions) I would now like to turn the call over to Mr.

Matt McGrew, Vice President of Investor Relations.

Mr.

McGrew, you may begin your conference.

Good morning everyone and thanks for joining us.

On the call today are Lawrence 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, slide presentation supplementing today's call and reconciling other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available in the Investor Section of our website www.danaher.com under the heading "earnings" and will remain available following the call.

As our year-end Form 10-K has not yet been filed, we've included as part of the earnings release the fourth quarter and full year income statement, year-end balance sheet and full year cash flow statement.

In addition, we've included data in the release reflecting our business segment results as well as supplemental income statement data to facilitate your analysis.

The audio portion of the call will be archived in the investor section of our website later today under the heading Investor Events and will remain archived until our next quarterly call.

A replay of this call will also be available until February 2.

The replay number is 888-203-1112 in the US and 719-457-0820 internationally.

The confirmation code is 574-2258.

I'll repeat that information at the end of the call for the late arrivals.

During the presentation we will describe certain of the more significant factors that impacted year-over-year performance.

Please refer to the accompanying slide presentation.

Our earnings release and other related presentation materials supplementing today's call for additional factors that impacted year-over-year performance.

And I'd also like to note we'll be making some forward-looking statements during the call including statements regarding events or developments 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 fourth in our SEC filings.

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

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

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

Matt, thanks, good morning, everyone.

I'll start this morning by providing an overview of what we are seeing across our businesses and end markets to frame up the back drop for our quarterly results and our outlook for the first quarter.

We are quite pleased with the way our business has executed in what was clearly a very challenging operating environment throughout 2009.

Despite those pressures, we were able to successfully protect and nurture our organic investments while staying quite active on the acquisition front announcing or closing 18 transactions throughout the year.

Many of our end markets have stabilized and our order book continues to improve.

In the quarter, orders were down low single digits compared to a 9% organic decline in shipments which includes the impact of four fewer selling days.

Clearly a positive going into 2010.

We believe by and large that the destocking that has occurred principally in our distribution channels in the US and in Europe has run its course.

We continue to focus our efforts on capturing market share, ChemTreat, DEXIS, Gilbarco Veeder-Root, video jet and radiometer are among the businesses where we believe we've taken notable share in 2009 driven by our increased focus on DBS sales and marketing tools as well as our investments in innovation.

After returning to modest growth in the third quarter, China domestically grew at a high single digit rate in the quarter with our Hach-Lange, and Leica businesses leading the way.

We also saw a return to growth in Latin America, India, and other emerging economies.

The US was in line with overall company results while Western Europe was relatively weaker.

During the quarter we again saw the benefits of the restructuring pay off as our core operating margin expanded 150 basis points year-over-year.

We were particularly pleased that our fourth quarter adjusted EPS was up slightly over the prior year despite the 9% organic revenue decline.

Our 2008 and 2009 restructuring activities are now substantially complete.

Over the last five quarters, we spent approximately $320 million, eliminated 5100 positions, and closed 43 facilities.

We expect $170 million of incremental benefit from these actions in 2010.

So with that as a back drop let me move to the details of the quarter.

Today we reported fourth quarter GAAP earnings per diluted share of $0.80 off 13% from last year.

Adjusted net earnings per diluted share was $1.12.

For the full year, GAAP earnings per diluted share was $3.46, a 12.5% decline compared to 2008.

Adjusted net earnings per diluted share was $3.53.

Revenues for the quarter decreased 1.5% year-over-year to $3.1 billion with core revenues down 9%.

The impact of currency translation increased revenues by 4.5% and acquisitions contributed 3% to sales growth.

Our full year 2009 revenues were down 12% year-over-year to $11.2 billion with core revenues also declining 12%.

Year-over-year gross margin for the fourth quarter increased 20 basis points to 45.9% largely relating to our 2008 and 2009 restructuring initiatives as well as lower commodity costs which more than offset the impact of lower sales volumes and incremental year-over-year restructuring costs in the quarter.

Operating margin in the fourth quarter decreased 70 basis points year-over-year to 12.6% with the impact of incremental restructuring costs more than offsetting the benefit provided by the restructuring and other cost reduction activities.

Our core operating margin increased 150 basis points on a year-over-year basis despite the core revenue decline.

For the full year, our operating margin was 13.8% compared to 14.7% in 2008.

2009 operating cash flow was $1.8 billion, a 3% decline year-over-year.

Free cash flow was $1.6 billion and our free cash flow to net income conversion ratio was 140% representing the 18th year in a row where we delivered free cash flow in excess of net income.

The Danaher Business System continues to be the primary driver of our cash flow performance.

During the quarter we completed the acquisition of six companies with aggregate annual revenues of about $250 million to strengthen our environmental, test and measurement and dental businesses and to continue the evolution of our portfolio.

For the full year, we closed or signed 18 transactions totaling approximately $1.1 billion in revenue and which will deploy capital of $1.9 billion.

Heading into 2010, we believe we have more than $2 billion of additional M&A spending capacity to expand and strengthen the portfolio.

As part of our portfolio evolution, we also completed three small divestitures, including our Holo-Krome business during the fourth quarter.

Now turning to our operating results.

Professional instrumentation revenues decreased 1.5% for the quarter with core revenues down 10%.

For 2009, revenues decreased 11% with core revenues down 12.5%.

Operating margin for the fourth quarter increased 80 basis points to 18.6% primarily due to the benefit of restructuring and cost reduction activities.

Our environmental platform revenues increased 5.5% in the quarter with core revenues down 3%.

For 2009, revenues were flat year-over-year with core revenues down 1.5%.

Water quality core revenues decreased at a low single digit rate in the quarter and at Hach-Lange core revenues declined that same low single digit rate with strong growth in our service business more than offset by lower instrument sales.

Our China business was up more than 20% in the quarter resulting from increased enforcement of environmental regulations.

Overall we are beginning to see an increase in project activity which is a strategic focus of ours as we look to expand our install base and capture the recurring revenue stream from consumable sales.

Restructuring actions taken throughout 2009 helped to expand fourth quarter operating margin more than 100 basis points over the prior year.

Trojan's core revenues grew at a low single digit rate in the quarter with strong growth in drinking water applications primarily related to the New York City drinking water project.

Sales to industrial and commercial end markets rebounded in the quarter after experiencing declines throughout most of the year.

For the full year, Trojan core revenues grew at a midteens rate and they ended the year with a robust backlog.

At ChemTreat, fourth quarter revenues were up mid single digits year-over-year driven by sales of our boiler cooler water applications primarily to commercial and industrial verticals.

We believe that we continue to capture share across many of our end markets and are pleased with recent wins in the chemical and petroleum verticals resulting from our DBS initiatives.

During the quarter we acquired Crison Instruments, a manufacturer of electric chemistry instruments and consumables headquartered in Barcelona.

Crison's high quality, easy to use product portfolio strengthened Hach-Lange and the E-chem lab and process business.

Also in the quarter ChemTreat acquired Trident Technologies, a provider of water treatment services to commercial, institutional and industrial customers in the western US and Mexico.

Gilbarco Veeder-Root;s fourth quarter core revenues declined at a mid single digit rate year-over-year.

At Gilbarco, sales increased at a low single digit rate.

Continued growth in our passport and point-of-sale systems and payment solutions more than offset lower dispenser sales.

Veeder-Root sales were down in the quarter, partially due to a difficult year-over-year comparison around (inaudible) recovery in California.

Moving to test and measurement, revenues declined 10% in the quarter with core revenues down 18%.

For the full year, core revenues were down 24%.

Fluke core revenues declined at a low teens rate in the quarter with growth across the emerging markets and China more than offset by declines in other geographies.

Importantly, bookings solidly outpaced shipments in the quarter, driven in part by the recent launch of several new products including the 233 digital remote display multi-meter and our TI 32 thermal imager.

Also during the quarter, Fluke announced a $1.4 million award from the National Institute of Standards and Technology to develop a new instrument to calibrate and measure the magnitude and phase of voltage and current for smart grid applications.

This grant is funded by the American Recovery and Reinvestment Act to support research and to advance measurement science in areas of critical national importance.

This award recognizes Fluke's outstanding brand quality and is a testament to its robust R&D capabilities.

At Tektronix we saw strong sequential order growth in the quarter resulting from new product introductions and improving R&D spending environment.

In China, orders were up double digit year-over-year.

Shipments, however remain weak across all major product categories and geographies.

We do though remain optimistic that the broad based improvement in order activity is indicative of a strengthening in our end markets.

Core revenues from our Fluke networks and tech communications businesses collectively declined at a low single digit rate in the quarter with high teens growth of network management solutions at tech communications more than offset by weak demand across most product categories at (F Med).

During the quarter, tech com launched the G10, its Next Generation monitoring platform used to collect, correlate and analyze media and signaling data for Next Generation IP Telecom networks.

Early feedback from customers has been quite positive.

Also during the quarter, we acquired Cypress Test and Measurement and Davis Inotech.

These businesses are leading providers of calibration services, testing, and component screening products serving military, aerospace, avionics, telecommunications and medical customers.

These two acquisitions, Cypress and Davis, accelerate a key strategic initiative at Tektronix to expand its service offerings.

In the quarter, we acquired Clear Sight, a California based provider of network analysis tools for realtime application monitoring, protocol analysis and troubleshooting.

Clear Sight came to us from Toya a long time partner of ours in Japan.

The business enhances Fluke networks protocol analysis product line and strengthens its access to the Japanese network monitoring market.

Moving to medical technologies, revenues for the quarter increased 9% compared to the prior year period with core revenues down 2%.

For 2009, revenues decreased 4% with core revenues down 5%.

Med tech operating margin for the fourth quarter was down 220 basis points from the prior year period to 8.5% due primarily to the impact of incremental year-over-year restructuring costs and transaction costs associated with pending and completed acquisitions.

However, our core operating margin increased 120 basis points on a year-over-year basis as the result of the benefit of restructuring and cost reduction initiatives implemented in 2008 and 2009.

Within our dental business, core revenues declined at a mid single digit rate in the quarter.

Sybron core sales declined at a low single digit rate with strong sales of our orthodontics solution and disinfection product lines more than offset by soft sales of general dentistry consumables.

Sales of our Damon branded orthodontics system were up more than 20% in the quarter driven by an excellent response to our new Damon Q product and the introduction of Damon Clear.

During the quarter, we expanded the distribution channels for Sybron twisted file which thus far has been very positively received by the market.

Cable revenues declined at a mid-single digit rate in the quarter with improved performance on a sequential basis across most geographies and product categories.

A number of recent product launches including the DEXIS platinum sensor, the KaVo ComfortDrive handpiece, Gendex 8500 2D Panoramic Imager and cable E70 treatment unit contributed to this improved performance.

Additionally we believe channel inventory reductions are largely complete.

Recent restructuring initiatives benefited KaVo's bottom line with fourth quarter operating margins increasing more than 200 basis points year-over-year.

During the quarter we also closed the previously announced acquisition of PaloDEX, a Finland based manufacturer of dental imaging products which is expected to strengthen our digital imaging product portfolio in all key categories.

Leica core revenues were essentially flat in the quarter with strength across Asia and Latin America offset by weaker demand in the US and Europe.

I'm pleased to report though that for the second year in a row, Leica has exceeded $1 billion in sales.

Leica micro systems continues its success in Japan where we have been awarded orders totaling more than $15 million including the large forensic order we referenced last quarter as part of that countries stimulus program.

In the US, stimulus funding has begun to flow, although microscopy awards to date have been modest.

Subsequent to quarters end, we acquired Genetix, a UK based provider of imaging and intelligent imaging analysis solutions used by scientists and clinicians to facilitate the development of pharmaceuticals and biotherapeutics, mainstream research and clinical diagnostics.

The acquisition of Genetix strengthens Leica's position in the high growth virtual microscopy market and expands the reach of our research and clinical business.

Leica biosystems core revenues increased at a mid single digit rate in the quarter.

In October we launched the Bond III advanced staining system which combined with our Bond Max product, contributed to a significant increase in instrument placements during the quarter.

We've been very pleased with early customer demand for the Bond III and we recently won a multi-unit order from one of the most influential diagnostics labs in the UK.

Overall, our advanced standing and instruments consumables business grew more than 30% in the quarter.

Radiometer's core revenues grew at a low single digit rate for the quarter driven by continued strong consumer sales primarily in Europe and Asia.

In 2009 we sold approximately 200 AQT instruments which is nearly five times the number sold in 2008 and the customer feedback has been very encouraging.

AQT's launch in the US and Japan is still pending as we await regulatory approvals.

Moving to our industrial technology segments, revenues declined 9.5% for the quarter with core revenues down 15%.

For 2009 revenues decreased 18.5% with core revenues down 16%.

Operating margin for the fourth quarter was 11.5%, a 220 basis point decrease compared to the same period last year due primarily to incremental year-over-year restructuring costs incurred in the quarter.

Despite the revenue decline, core operating margin increased marginally on a year-over-year basis as a result of the benefit of restructuring and cost reduction initiatives implemented in 2008 and 2009.

Product identification revenues were up 7% in the quarter with core revenues declining 1.5%.

For the year, product ID sales decreased 10.5% with core revenues down 8%.

Videojet core revenues grew at a low single digit rate in the fourth quarter primarily a result of higher consumable sales.

We saw sequential improvement across most geographies with the recovery in China outpacing that in the US and in Europe.

While still a challenging market, we are very pleased with the performance of our refreshed CIJ product line during the year and we believe we continue to take share.

Motion was down 24% in the quarter with core revenues down 30%.

For the year, sales decreased 33.5% with core revenues down 30%.

On the bright side we saw sequential improvement in several technology and industrial end markets during the quarter primarily in the US and Asia.

European end markets remain difficult.

During the quarter, Thompson received a $6 million multi-year order from a large power infrastructure supplier to provide an array of automation assemblies for a nuclear refurbishment project.

And finally moving to tools and components revenues for the quarter decreased 9.5% with core revenues down 9%.

For the year revenues were down 18.5% with core revenues down 18%.

Operating margin for the quarter was 10.5%, an increase of 70 basis points from the prior year due to the benefit of lower commodity costs, increased productivity and cost savings attributable to 2008 and 2009 restructuring which helped to offset both lower sales volumes and incremental year-over-year restructuring costs incurred in the quarter.

Mechanics hand tool core revenues declined 9% in the fourth quarter and 11% for the year, primarily due to lower sales to both the consumer and professional channels.

We're pleased with our sell-through (inaudible) in the quarter.

Sales of our domestic China tool brand [Sadda] grew at a double digit rate during quarter.

And in addition, our US government business was up substantially in the quarter and for the full year and we expect this growth to continue in 2010 with a solid backlog already in place.

So to wrap up, we continue to execute well in a difficult but improving economic environment.

Our investments in innovation, sales and marketing are driving market share gains.

Our restructuring and cost reduction progress is evident in our margins.

Our free cash flow remains strong and we are putting it to good use in acquisitions and strengthening our competitive positions and accelerating our sales and earnings growth potential.

We believe we are well positioned heading into 2010 with DBS driving our focus on outperformance.

We are reaffirming this morning our full year 2010 GAAP earnings per share guidance of $3.80 to $4.10.

We expect GAAP diluted earnings per share for the first quarter to be in the range of $0.77 to $0.82 on flattish revenues.

Both the full year and first quarter EPS guidance represents an approximately 8 to 15% increase over the comparable prior year period.

Thanks, Larry.

That concludes the formal comments.

We're now ready for questions.

Thank you, (Operator Instructions) We'll move to our first question.

We'll take our first question from Nigel Coe, Deutsche Bank.

Thanks, good morning.

Good morning, Nigel.

So we seen some very nice trends in dental quarter-over-quarter.

How much of this do you think is inventory swings and how much do you think is genuine end market improvement?

Maybe any relation to sort of year-end sort of budget coming through in Q4?

Nigel, I think it's a bit of all of the above to be straight.

The inventory adjustments have been more pronounced for us at KaVo than at Sybron.

We saw less of that in the fourth quarter, we're by and large confident that that's now behind us.

We certainly saw a better uptake not only in terms of our sales in but our sales out.

Again probably more so at KaVo than at Sybron as we ended the year.

End of year on the equipment side is often a positive or an uptick in buying.

We didn't really know how to best forecast that but we were pleasantly surprised with our results.

I have to share perhaps the most important data point for me having been with a number of the businesses, having been at two sales meetings in the last two weeks, let alone seeing a couple weeks worth of orders, we've also gotten off to a good start.

So it's not as if there was a lot of business that got pulled forward or there was simply a year-end phenomenon there.

I think we're seeing a return to a more typical mind set on the part of the docs I think we're very much in a sweet part of the new product launch cycle as well.

That would apply to both KaVo and to Sybron, so I think right now from a top line perspective, we're not going to suggest we're blot out the top line at dental but I think particularly at KaVo we should have a better year in 2010.

Great.

And then on KaVo could you maybe just talk about you talked about the revenue trends but could you maybe just address the margins?

Obviously you had a tough first half of '09, better second half.

Can you maybe just frame where they are right now and then maybe switching gears to industrial and tools margins we took a sizeable step down from 3Q to 4Q.

Can you maybe just talk about that as well?

Nigel, on the KaVo question, we did have a good Q4 at KaVo It is seasonally the strongest quarter in terms of margins but on a year-over-year basis we're up about 200 basis points, we went from ex-restructuring mid single digits last year to high single digits 7-8% in the quarter.

We do benefit from some higher volume but we also got a lot of restructuring done towards the end of the year at KaVo as well and it gives us some confidence going here into 2010.

And the tic down in margins for industrial and tools?

Well, tools, some of that is the incremental consumer business which at slightly lower volumes in the fourth quarter, creates slightly lower margins in the fourth quarter.

On the industrial segment, some sequential improvement in motion which is a lower margin than our product ID business.

Okay, so principally mix rather than inflation?

Yes, and not atypical either.

Okay, great and then a couple quick ones.

Obviously we saw the announcement yesterday on AB [Ckyex].

When is your best guess on getting that closed and maybe if you could just as well give us your best guess on the AKT launch on the US and Japan.

Maybe I'll take the first one and let Larry talk about AQT.

Nigel, we now have all regulatory approvals and we're finishing up a couple small final transition issues and we expect to close very shortly.

Nigel, as you can appreciate the authorities like us to limit what we say about timing both here in the US and Japan.

Suffice it to say we're hopeful that we are through both of those efforts at some point in 2010.

Okay, great.

Thanks.

We'll take our next question from Deane Dray, FBR Capital Markets.

Thank you, good morning.

Good morning.

Larry, would be very interested hearing your comments regarding potential restocking.

You said destocking has run its course but based on your assessment at channel inventories you think they stayed low here for a while or are there any indications of the restocking wave is coming?

Well, Deane, I think it's a little hard to call right now but again I'm encouraged by what we're seeing both in terms of sell out and sell in early in the year.

Other companies have reported as well a strong finish and encouraging start.

It does not a year make but I think that will be helpful to certainly a company like ours particularly where we go to market through distribution.

I would also add that when we turn the year like this, distributors are not necessarily going to be out aggressively loading up.

We are at low levels in a number of places and in some cases probably too low.

We like to work with a short supply chain with a number of those distributer partners so they don't have to blow in a lot of inventory, they can rely on our quick turn and our manufacturing capability to provide some of that, but undoubtedly some of that will seep in if we see this rising tide last for a bit longer here at the start of the year.

Just on that point on the start of the year, we heard that MedTech has gotten off to a good start in January.

Can you just calibrate for us since the meeting at December and what experience you've seen so far in January across the businesses just in terms of what changes at the margin you'd call out?

Yes, I think that we finished a little bit better than we would have anticipated.

Certainly if you look at tech and motion businesses have certainly felt the brunt of the downturn, they're certainly in a good place, built backlog.

We did that in MedTech as well, more so at Leica, and in dental than we did at radiometer so I think that backlog build was encouraging during the fourth quarter and I think by and large, we similarly have not missed a beat here thus far in January.

Again it's early so I don't want to get too far ahead of myself but we were thrilled to walk in with the backlog and I think even more so to see just the general pulse across the businesses.

What I'm describing, Deane is really not limited to one pocket or another.

It's characterized quite simply as broad based at this point but again it's early.

Just in that last question for me and related to that comment about backlog, we don't normally hear Danaher talk about backlog, the end of the third quarter you called out a hundred million in backlog.

How did you finish this quarter?

Was all that backlog burned through and how might that have added to the core revenue growth this quarter?

Well Dean, as Larry talked about in the prepared remarks, while the shipments were down 9%, orders were only down a couple points year on year so we built another comparable about 100 million of backlog in the quarter and that's one of the reasons is when we were together in December we talked about the first quarter probably being down organically, we're now talking about it being relatively flat.

Great.

Thank you.

Thanks, Deane.

Before we move on to our next question, we ask all of our participants please limit to one question and one follow on question.

We'll take our next question from Bob Cornell, Barclays Capital.

Yes, thanks.

Hi guys.

Could you give us a little more color on your first quarter outlook in terms of what business is doing well, what are sort of on the soft side, I hear the commentary maybe just to flush out the color for me a little bit.

Sure, Bob.

I think as we talk about again as Dan highlighted probably a flattish outlook compared to the slightly down outlook we had back in December.

I think MedTech is going to lead the way.

It will probably be MedTech and T&M fighting it out with water ever so slightly behind in terms of the start here.

I think we're going to have some challenges at Gilbarco in tools but I think they are going to be up as well.

Probably in industrial is where we'll lag a bit but again, certainly encouraged by the sequential trends.

If for no other reason our A&D exposure obviously is a little later cycle than that I think it will be down in all likelihood double digits in 2010.

So all in all I think the businesses that lead us in the fourth quarter particularly from an orders perspective, a backlog build perspective are the ones that are going to be strong for us this year and certainly are getting stronger here at the outset.

And what was the balance in the first quarter of the restructuring benefit versus some of the temporary cost recoveries and the possibly the cost price catch up in terms of matching of price and materials?

Yes, I try to cut that.

I mean, as we confirmed again today we expect about $170 million of restructuring benefit in the full year.

We'll probably get at least a quarter of that maybe even a little bit more than that in the first quarter.

It should be on a relative basis the biggest beneficiary of the restructuring benefit as we got some of the other stuff during '09.

In terms of the one-time stuff on the cost side we talked about it being about a $60 million headwind in '10 and that should be roughly $15 million a quarter, so obviously the restructuring benefit a lot more than the headwind from some of the one-time cost actions.

We did see in the fourth quarter a little less price benefit and a little bit more commodity inflation but it's hard to quantify.

I think it will be kind of relatively, it will be a slight headwind but it's not a big number for us.

And just second, an update on AB Ckyax, both timing and accretion?

Bob, we've got all of our regulatory approvals, we expect to close this very shortly.

We're not going to provide any update beyond what we've already done until we get to closing.

As I said, it's imminent.

Okay, thanks very much you guys.

Thanks, Bob.

We'll take our next question from Steve Winoker Sanford Bernstein.

Good morning.

Good morning, Steve.

First question is around that core growth number again down 9% versus what you talked about being up 4% for the full year back in December.

As you sort of look at that and you talk about the first quarter now more flat versus your prior thoughts of it being down and the progression, it is still going to require very dramatic increase for the rest of the year.

Do you see that having changed at all in your mind as you've looked at the sequence as you've talked about some of the businesses?

Well, I think, Steve, that what we said in New York is we thought we would be up 1 to 5% but we wouldn't be positive until the second quarter.

I think with the finish, again, yes we were down nine but keep in mind orders and we don't want to talk a lot about orders but I think with the tide changing it's important.

We were probably down 2% in orders and that's with fewer days, for fewer days which obviously it works against us in the quarter.

So I think with the order book, the backlog build and the start of the year and the new news today is we think we'll be flattish, I think we got a shot, an outside shot at a positive number in the first quarter.

That simply makes it easier for us to be in that 1 to 5 range or potentially higher.

And I might have missed this but Tech specifically in Q4 was down what?

Tech Communications was up in the fourth quarter.

I'm looking for the number here in how much tech instruments, I'm sorry, was down a comparable--

It was down 25-30% I think in the third quarter.

Yes, and what you saw at techtronics was down comparable in the fourth quarter but orders were up sequentially double digit and year-over-year were down kind of midteens and we had a significant, the book-to-bill was about 115% in the quarter.

Okay, and were you able to hold margins?

Yes, in fact we saw outside restructuring tech instruments improved sequentially from 10% to midteens in the fourth quarter.

You do get a little more seasonal lift.

But, clear sign that that the restructuring paid off pretty nicely there.

Okay and something I just want to understand.

I know you took R&D down from 5.3 to 4.9% about 40 basis points.

Your product vitality and other things how should I think about the R&D reductions?

Steve, I think you should look at it as a very modest sequential decline in terms of the dollars spent.

We had a couple of programs wrap, some of that expense went to the launch, you saw how those launches highlighted in New York.

I really don't think it's particularly meaningful.

So there was no shift in particular businesses?

No, there's no strategy shift.

There's really nothing to report behind that slight sequential down tic.

And the SG&A increase, that 130 basis points does that include the restructuring or not, the increase of SG&A?

The restructure also included as Larry talked about the significant go to market launches with some of the new products we introduced in the mid year and third quarter.

Okay, great.

Last question, sorry.

Return on capital that looked like it was down year on year again also.

How should we think about that, your goals for sort of return on capital going forward this year?

Well, the decline in '09 was clearly a function of the lower sales and lower earnings.

You should see an improvement consistent with our earnings growth during the year but factoring in that when new acquisitions come in they come in at a lower return.

Okay, thanks, guys.

Thank you, Steve.

We'll take our next question from Stephen Tusa.

JPMorgan.

Hi, good morning.

Sorry I may have missed this but the first quarter dynamics from an earnings perspective is that because you're going to take some charges when you close these deals?

It just looks a little bit light from a seasonal perspective.

I think, Steve, it's fundamentally in line with the increase for the year that we talked about back in New York so I realize that may catch some people this morning but I don't think there's news there.

We're going to continue to invest as we have here in the fourth quarter in our innovation and growth activities begin to get more of that $170 million from incremental restructuring benefit with obviously some other costs going back in the business but that's just I think a clarification of what we'll do here in the next 90 days based on what we said we would do in the full year in December.

It's not like unusual charges or anything in the first quarter like that?

I think if you look, Steve, you look at our profitability in the first quarter versus full year over time I think it's consistent on a seasonal basis it's very consistent looking back over time.

I think it's very simple looking at the EPS stuff so sorry to say it's a little bit busy morning here.

Just a second.

Professional instrumentation, very strong but MedTech was light on the margins.

Was there anything specific in the quarter that lead to that?

Was it a mix impact a little bit lower than we would have expected even X'ing out the restructuring?

Well they did on a reported basis they had more restructuring dollars in any segment but if you adjusted out the restructuring, they ran about 14% which is actually up over 100 basis points year on year and the biggest driver of the year on year improvement came out of dental equipment.

Okay, great, thanks.

Thanks, Steve.

Yes

We'll move on to our next question and as a reminder to our audience please limit your questions to just one question and one follow on due to time constraints.

Our next question comes from Scott Davis, Morgan Stanley.

Hi, good morning guys.

Good morning Scott.

Just a couple small items.

The R&D decrease and overall spend or at least percent of sales.

Should we think about that 4.9% being more or less the run rate from here or will you have to ramp up for kind of another product cycle somewhere down the road?

No, I think we'll take that up in 2010 even with a little bit of a better top line environment.

We don't necessarily target that per se.

We're really trying to fund the strategy if you will, Scott, more than trying to hit a number but as you've seen we've taken that up with the increased emphasis and I suspect we'll be meaningfully north of 4.9% where we were in the quarter on a full year basis.

I think on a full year to full year basis we'll be up modestly as a percent of sales.

And if you look at the full year we were at 5.7% which was flat versus '08 and I think it will be 5.7% is a little bit higher than that in 2010.

Okay, it's hard for us maybe to picture how the spend can be that volatile.

It just seems like most of R&D spend would be people and not sure how that changes quarter to quarter.

Is there something I'm missing there?

Sometimes in a project not all of the human costs if you will are on your payroll, third parties contractors and the like and if a program is tailing off some of that becomes variable expense, some of that money in the P&L will go out of R&D and into sales and marketing for the launch.

That's really all you're seeing again sequentially in terms of the dollars let alone the ratio.

Okay, that makes sense and just this is kind of a bigger picture question but when you do make an acquisition say the size of Techtronics, or maybe Ckyax, let's say, how do you integrate the R&D?

Do you keep them decentralized and focus on specific projects or is there a way to get scale out of that spend?

Scott, I think the way we've always operated with respect to innovation and technology as well as other areas is to make sure first and foremost that activity is very focused around that business, those customers, those applications, those problems.

And then only.

if you will quite tacticly there are touch points, be it optics out of Leica, out of micro processing say out of tech where there's that sort of core technology capability that can be reported elsewhere, you'll see us do that and in fact I think you'll see a couple of announcements through the year that may not be material but I think there will be evidence that we are connecting some of the potential share technologies across businesses in often not so obvious ways.

Okay, I think I understand.

It's more application specific R&D and it's where you can cross-pollinate you do so.

Is that what you're saying?

Whether we're solving water quality changes or at tech in test and measurement we want those folks first and foremost focused on their customers and those applications.

We don't run a corporate R&D center but what we do is to make sure that there is a challenge in one business, a potential solution in another, that with a light touch we bring those folks together to see if there's something there and again, a light touch, not a big corporate apparatus.

Okay, that's clear.

All of my other questions were asked and answered, so thank you.

Thanks, Scott.

We'll take our next question from John Baliotti FTN Equity Capital Markets.

Good morning, Larry.

Good morning, John.

I was just curious, you said you closed 43 facilities and the market seems to be has this generalization that customers will start building inventories back and your base of locations is obviously smaller, so you individually I wouldn't expect to be certainly not out of the gate ramping up, your inventories, your CapEx to where you were entering this downturn, right?

I think that's fair.

Right and you guys are pretty realistic, pretty conservative so I would imagine that you're expecting your customers to act much differently than that, right?

Well, it's hard to generalize but I think again, with the finish and with the start, lots of people I talk to will be coming more confident about what could happen in 2010.

But if you look at durables and so on, so far the trends have been that orders are turning into shipments right away that backlogs really aren't being built.

I mean, I guess what I'm saying is that it seems like you guys are pretty realistic about the expectations given your own patterns and probably your better customers acting pretty efficiently, pretty prudent.

Yes, I'd like to think that we are taking a a prudent approach to thinking about the sequential ramp that's likely the scenarios that could occur in 2010 without getting too far ahead of ourselves but at the same time making sure we're not so conservative that we don't have the labor plan or the material plan in place to catch the wave, whatever size it may come in.

Sure, no, I could appreciate that.

Just thinking looking at all that you've done to the portfolio over say the last five to 10 years, as your going through this, what are you thinking the profile of the firm looks like of your company looks like say through this next cycle?

Is it higher core growth?

Is it more offsetting cyclicality so it's steady longer growth?

How do you-- as you're going through options how do you think about what the eventual look will be?

Well I think what we've tried to do with the move say since the last cycle or even the moves we've made in 2009, John, is to make sure first and foremost if we were never to do another acquisition that we have high growth, high margin, innovative science and technology oriented portfolio that they can perform while over the long term, and I think that very much is in place, certainly as we look forward, we have an opportunity to do quite well from a core growth perspective given what we've done but from a product and go to market side.

With respect to acquisitions, I do think the past is prologued, look over the last year, last five years, I do believe that we have improved the quality and the capability of this company so we'll look to add like type businesses, again with an emphasis toward higher growth, higher margin, more global, more technical businesses where our DBS skill sets are applicable and can add value.

Okay, great.

Thanks for your time.

Thanks, John.

We'll take our next question from John Inch, Merrill Lynch.

Thanks, good morning guys.

Good morning, John.

So I want to go back to the first quarter dynamic.

Historically your first quarter is about 20% of your year and if you take the mid point, $0.80 and the mid point of your guide of $3.95 it would be $0.20 but the first quarter has flat organic revenues, you're thinking you're going to do up and even in your analyst appendix roll forward there was 10 to $0.40 of contributions from the positive organic trend coming beyond the first quarter and then I think Dan, you even called out the fact that the cost headwinds were going to be linear, right so equally spread so I'm just trying to understand why would the first quarter not be low relative to the sequential ramp which is what you're actually expecting which is not really embedded in the dynamic of first quarter being 20% of the mid point?

Well one thing I did say on a relative basis, Q1 will be the biggest beneficiary of 2009 restructuring.

Yes, you did.

How much is that?

I mean that's, it's probably it could be a penny or so, a penny or two, so you're talking full year guidance is 2.5-3% core and we've got zero here.

I mean that cost us a couple cents from a fall through perspective but that should be roughly offset with the restructuring and it's early in the year, so that's kind of our best look at this point.

If we thought organic was going to be down the first quarter our Q1 guidance would have been a little bit lower so we think it captures it as best we can at this point but I understand the question and the point.

But you're still expecting, Dan, to get call it $.25 at the mid point from core growth spread over the next three quarters, right?

Yes.

I understand the question.

I mean, we had exceptionally strong margin performance across the business in Q4 so our confidence that we can kind of replicate that the next quarter is pretty high but going out four quarters, there are more unknowns and probably we factor that in a little bit as well.

That's fine.

I'm just trying to gauge-- make sure there's nothing else unusual that you're just being conservative.

The following question really was about what's going on in Europe?

If I remember last year, right, Europe all of a sudden kind of deteriorated for you and I think a lot of it-- it's somewhat on a relative basis deteriorated for you and it had to do a little bit with your mix.

What are you seeing in Europe versus the sequential and how does that float with your outlook for the year?

John, I would say that what we're seeing in Europe broadly defined is just a slower maybe more sluggish sequential improvement.

I wouldn't say it's universal in every single one of our businesses but it's not coming back.

If I look at China, if I look at India, it's come back in the second half very strongly, the US has been getting better month to month but not nearly in as pronounced a way.

Europe is just in that third slot.

It's just getting better but on a relative basis much more slowly.

Is there any reason to think it could pick up for any reason based on your business mix or order trends or do you think it's just going to lag throughout the year?

Well, I think there's a potential for Europe to lag more of a macro call than a Danaher call but I would think it would be hard for Europe to sit out what appears to be a strengthening outlook for the global economy at least here in the early half or the first half of 2010.

I'm sorry Larry you're talking about Danaher or macro Europe?

Well I'm talking about macro Europe but obviously we've got a big footprint there, John.

If you were to look at the emerging markets the US and Europe as your three big buckets of growth potential and improvement, I think Europe will be in that third slot when all is said and done for 2010 but that doesn't mean it isn't getting better, it's just getting better at a slower relative rate.

I understand and that's consistent with what you're seeing on your order book?

That's what you're saying?

Indeed.

Okay, thank you very much.

Thank you, John.

We'll take our next question from Jeff Sprague, Citi Investment Research.

Thank you, good morning.

I actually have a couple questions left despite people asking five or six at a time on the call here.

Good morning, Jeff.

Good morning, gentleman.

Thanks for starting half hour early to ease up the mess here this morning.

Larry, just kind of two strategic type of questions.

I know this MDS thing is probably a tad sensitive but were you surprised given that the concentration was only going to take the players from four down to three that there was an FTC objection there and I'm really kind of asking it even from a bigger picture type of thing and some of these sub niches that you're carving out in MedTech, is there concentration issues that maybe you're going to make the navigation of the M&A a little bit more difficult?

Well, I think what I can share, Jeff, is we had a productive conversation with the authorities and as Dan indicated that has come to a positive conclusion and I suspect that going forward we may well have other like conversations but I think we'll continue to be an active acquirer this year in and around the businesses that we highlighted in December and I don't really see any reason to think that the landscape has changed in a way that will prevent us from continuing to put our acquisition capital to good use in the neighborhood.

And then on the flip side, on the divestiture side, those sound small but what's the circumstances there?

Are you guys actually getting some reverse inquiry from people who know what's non-core to Danaher and expressing some interest or are you actively looking to print a few things?

I would say, Jeff, it's more the latter, that there's certainly things on the margin that we thought might be in better hands elsewhere and with the economy stabilizing, there's probably a better time for us to do that here at year's end and obviously, there's some folks who were the counterparty, if you will.

Great.

So it's modest strategically probably important strategically more so than it is financially but I would suspect we'll continue to look for those opportunities where we can over time.

What was the annualized revenue divestiture that you completed?

It's about $50 million.

All right, gentlemen.

Thanks a lot.

Have a good day.

Thanks, Jeff.

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

Yes, good morning.

Good morning.

The first question I think is to do with your consumable business.

You talked about strength on the video jet side but across your portfolio, your consumable team held up quite well during the downturn but could you discuss the pricing?

Could you discuss whether those pushback on pricing or what the sustainability was particularly in the product ID side but also in the other businesses?

I think with respect to pricing, as Dan indicated, we were positive again in the fourth quarter but we've seen some sequential softening through the second half.

I think by and large the consumables and frankly our entire after market exposure which is about 30% of our business now has held up pretty well.

Is it sustainable?

Frankly I think we've seen in a downturn let alone in good times that we can get price in the after market across the business not only at Videojet but at Hach and with the medical businesses.

I would suspect that going forward, we'll be smart about price and should get it, so I guess that makes it sustainable.

Got it, and then the second question would just be regarding your M&A and in a go forward basis you talk about continuing to be active there.

Over the past decade, you've diversified internationally quite substantially but where you are right now do you think that's still a focus to further diversify your business internationally or do you think that right now it's the activity is likely to be sort of equal and that's not really a focus anymore?

I'm sorry, in terms of the international exposure?

Yes, international exposure.

Yes, I think that you'll continue to see us both organically and inorganically focus our energy globally with a particular emphasis as many companies are on the emerging markets.

When I look at our new product cycles, I look at some of our localization efforts in China and India, I'm very encouraged by the progress in that regard.

You heard us talk about a Brazilian acquisition this year, we're working on and hopefully soon we'll complete the Indian acquisition at Gilbarco Veeder-Root so we're going at those markets aggressively, inorganically as well as organically and there will be clearly a bigger part of our business I suspect bigger portion of our overall revenue every year going forward.

Okay, thank you.

Thank you.

We'll take our final question from Richard Eastman, Robert W.

Baird.

Hi, Larry, Dan, good morning.

Hi, Rick.

So just, Larry, when I look out to calendar '10 and I look at maybe the mid point of the EPS guidance back up to the operating margin line, it looks like maybe you need about 120 basis points of improvement there, year-over-year, with all of the puts and takes on which platform is absorbing restructuring cost, if you just look at the four platforms, can you just characterize which of the four you would expect the greatest margin improvement to occur given the trailing restructuring efforts are largely complete?

Rick, we think it will be pretty broad based and if you looked at the '09 margins and you back out the incremental restructuring, we ended the year probably about 15% and I think to get to the mid point if we have kind of 2.5-3% organic growth I think we need more like 70 or 80 basis points of core margin improvement and I think we could get 100 plus if we're more at the high end of that core growth number.

It should be most pronounced in medical technologies and the biggest driver of that hopefully is encouraged by what we saw in Q4 will be KaVo, but also should see some nice lift at Leica as well.

The second largest contributor should be industrial tech and professional instrumentation and tools will be probably the lowest.

We have a low bar here for Q1 at tools but thereafter, we've got a pretty tough comp so I suspect for the full year tools and components could be the smallest year on year contributor but as you know it's also the smallest segment.

Dan as you referenced earlier the MedTech piece in the fourth quarter excluding the restructuring was around 14% I think you said?

Yes

Is that a margin we could hold in '10?

Well, absent that, (inaudible) coming in with a lot of one time costs, but absent that, we would expect well over 100 basis points year on year margin improvement in MedTech.

Now the 14% is kind of the we do get the seasonal volume lift in MedTech but it might not be a bad target overall outside Ckyax.

Okay, I understand and lastly on price, are we treating that as neutral for '10?

Or are we going to attempt to get some gain?

I think we've still got a point of price here in Q4 and we think pricing is positive in 2010.

Yes, okay, great.

Thank you.

Thanks, Rick.

And it appears there are no further questions at this moment.

Thanks, William.

Just as a reminder the replay number is 888-203-1112 in the US and 719-457-0820 internationally with the confirmation code of 574-2258.

Dan and I will be around all day today for any follow-up calls.

Thanks for joining us everybody.

That concludes our conference call for today and we thank you for your attendance.