Danaher Corp (DHR) 2010 Q1 法說會逐字稿

Good morning my name is April and I will be our conference facilitator toady.

At this time I would like everyone to join-- I'm sorry, at this time, everyone-- I would like to welcome everyone to the Danaher Corporation first quarter 2010 earnings results conference call.

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

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

(Operator Instructions)

I would now like to turn the conference 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 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, the slide presentation supplementing today's call, our first quarter Form 10-Q and the reconciling and other information required by SEC Regulation G relating to any nonGAAP financial measures provided during the call are all available in the Investor Relations section of our website www.danaher.com under the heading earnings, and will remain available following the call.

The audio portion of this call will be archived on 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 April 26th.

The replay number is 888-203-1112 in the US and 719-457-0820 internationally, and the confirmation code is 3704331.

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, our first quarter Form 10-Q and other related presentation materials supplementing today's call for additional factors that impacted year-over-year performance.

I'd also like to note that we will 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 important that actual results-- 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 that they are made and we do not assume any obligation to update any forward-looking statements whether as a result of new information, future events, developments or otherwise.

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

Matt, thanks.

Good morning, everyone.

Let me start this morning with a brief overview of what we are seeing across our businesses and end markets so as to provide you some context to our first quarter results and our outlook for the balance of the year.

We continue to see encouraging signs that the global economy is stabilizing and in many places returning to growth.

We grew 5.5% in the first quarter on a core basis.

Our core growth was broad-based with all of our segments reporting mid single-digit growth.

This represents our first quarter of core growth since the third quarter of 2008, clearly a positive heading into the remainder of 2010.

We believe this increased demand is largely end user driven.

While there has been modest restocking going on in certain businesses, distributor destocking has run its course.

We saw mid teens growth from the emerging markets, the US grew slightly less than the overall Company results, and Western Europe was modestly positive.

We are quite pleased with the way our businesses executed during the first quarter.

Core operating margin expanded 285 basis points year-over-year, with each of our segments achieving over 100 basis points of core improvement, our first for Danaher.

Throughout the last several years, we focused on making growth investments in innovation and sales and marketing to ensure that we are well positioned for both the near and long term.

As a result of that focus, we've developed a very compelling product lineup across the portfolio that should continue to drive core growth and margin expansion.

2010 we'll also see a number of exciting new product launches, and our timing couldn't be better given the improving economy.

We continue to capture market share through new product introductions and the impact of our DBS growth tools.

Leica, DEXIS, Gilbarco Veeder-Root, ChemTreat and Radiometer, are among the business where we believe we have taken market share from competition.

So with that as a backdrop, let me move to the details of the quarter.

Today we reported first quarter GAAP earnings per diluted share of $0.89, representing a record first quarter for Danaher and a 24% increase over last year.

Adjusted net earnings per diluted share was $0.96, up 33% year-over-year.

Revenues for the quarter increased 17.5% to a record $3.1 billion, with core revenues up 5.5%.

The impact of currency translation increased revenues by 3.5% and acquisitions contributed 8.5%.

Year-over-year gross margin for the first quarter increased 50 basis points to 48.4%, largely due to higher sales volumes and the benefit of our 2009 restructuring initiatives.

Operating margin in the first quarter increased 110 basis points year-over-year to 14%, resulting from higher sales volumes and the benefit of our prior year's restructuring initiatives.

As I mentioned a moment ago, our core operating margin increased 285 basis points on a year-over-year basis.

First quarter operating cash flow was a record $394 million, a 24% increase year-over-year.

Free cash flow was $355 million, and our free cash flow to net income conversion ratio was 118%.

We are optimistic about our ability to deliver free cash and excess of net income from what would be our 19th year in a row.

During the quarterly we completed the acquisition of eight companies with aggregate annual revenues of approximately $750 million, including the previously announced AB SCIEX and Molecular Devices transactions.

With the addition of these two outstanding Life Science companies, our Medical Technology segment is now $4 billion in size.

So beginning this quarter, we will break our reporting within the segment into two growth platforms, dental and Life Sciences and diagnostics.

We continue to believe the M&A environment is very attractive, and we currently have more than $2 billion of additional M&A spending capacity to expand and strengthen our portfolio with particular focus on these growth platforms.

Now turning to our operating segments, Professional Instrumentation revenues increased 14.5% for the quarter with core revenues up 6%.

Operating margin for the first quarter increased 50 basis points to 18.2% primarily due to higher sales volumes and the benefit of prior year's restructuring initiatives, and not withstanding a 75 basis point dilution from recent acquisitions.

Our Environmental platform revenues increased 15% in the quarter with core revenues up 8.5%.

Water Quality core revenues increased at a high single-digit rate in the quarter.

At Hach-Lange, core revenues grew at a high single-digit rate with solid demand for both our lab and process instrumentation, consumables and services across most major geographies.

Trojan continues to perform well achieving double-digit core revenue growth in the quarter due in part to the New York City drinking water project.

We also experienced solid new orders from our industrial and commercial customers in North America and China, specifically in the food and beverage and pharmaceutical verticals.

At ChemTreat, first quarter core revenues were up low single-digits driven by our sales of our cooling water applications primarily to commercial and industrial customers.

We continued to capture market share over the past year as we accelerate investment in ChemTreat's go to market model and we have been pleased with the early efforts to expand entries business into Canada and Latin America.

During the quarterly, we acquired Western Environmental Technology Laboratories based in Oregon.

WET labs makes optical instrumentation used by scientists in academic and government agencies for measuring bio geo chemical parameters.

These instruments are highly complementary to our Sea-Bird oceanographic products.

Gilbarco Veeder-Root's first quarter core revenues increased at a high single-digit rate year-over-year with sales at Gilbarco up double-digits across most product categories, partially offsetting a decline at Veeder-Root due to the difficult year-over-year comparison from our California vapor recovery sales last year.

We experienced solid demand for our passport point of sale systems and outdoor payment solutions in North America as well as for our core dispenser line in North America, China and Latin America.

During the quarterly we acquired Fafnir, a manufacturer of sensors and systems for monitoring and measuring liquid levels and vapor flows.

Based in Hamburg, Germany, Fafnir's leading technology and brand broadened GVR's inventory management and inventory -- inventory management and environmental monitoring offering for our retail and commercial customers.

Also in the quarter we completed the acquisition of the assets of Larsen & Toubro, petroleum dispensing pump and systems business, located in both Mumbai and Coimbatore, India, PDP is a leader in retail petroleum equipment technology for Indian and the other emerging markets.

This is Danaher's first acquisition in India and underlines our committment to accelerating our growth in emerging markets.

Moving over to tests and measurement, revenues increased 17.5% in the quarter with core revenues up 4.5%.

Fluke core revenues increased at a high single-digit rate in the quarter highlighted by growth in our core industrial, thermography and automation products.

Demand for our temperature monitoring solutions was particularly strong in the quarter as companies increased industrial production and capacity.

Fluke continues to set a high bar on innovation.

During the quarter we launched the [810] vibration tester.

Our first product designed for the mechanical testing market space.

It 8/10 identifies and locates the most common mechanical faults, such as worn bearings, misaligned, unbalanced and loose parts, essentially focusing maintenance efforts on root causes to reduce unplanned downtime.

Our Fluke Biomedical business was awarded the prestigious Medical Device Excellence Award by Medical Device and Diagnostic Industry Magazine for it's TNT 12000 x-ray test tool, earning the highest marks in design, technology and innovation in the field of diagnostic imaging quality assurance.

Tektronix core revenues grew at a low single-digit rate led by robust global sales of oscilloscopes with particular strength in China.

We are very pleased with Tek's broad strengthening with which we believe is a result of both end user demand as well as our innovation in go to market investments.

And that should drive double-digit revenue growth beginning in the second quarter.

Test and Measurement World Magazine named Tektronix MSO 70,000 mixed signal oscilloscope Best in Test 2010 in the scope category, beating out five other notable contenders.

The MSO 70,000 launched in the fourth quarter of last year and is the first mixed signal high end oscilloscope with leading-- with industry-leading bandwidth.

Core revenues from our Fluke Networks and Tek Communications businesses collectively declined at a low single-digit rate in the quarter with mid-teens growth of our core enterprise solutions at Fluke Networks more than offset by the timing of large projects at Tek Communications compared to the prior year.

Orders collectively grew at a double-digit rate in the quarter.

Moving to Medical Technologies, revenues for the quarter increased 32.5% compared to the prior year with core revenues up 4.5%.

Med Tech operating margin for the first quarter was down 310 basis points from the prior year to 7.7% due primarily to the adverse impact of AB SCIEX acquisition-related costs.

Our core operating margin increased 150 basis points on a year-over-year basis as a result of higher sales volumes and the benefit of restructuring initiatives implemented last year.

Our Dental platform revenues increased 14.5% in the quarter with core revenues up 2%.

KaVo revenues increased at a mid single-digit rate in the quarter with particularly healthy demand for our imaging line including the new DEXIS platinum intraoral sensor as well as our new E-70 treatment unit.

Sales in Asia grew at a mid-teens rate largely as a result of solid demand across most product categories.

Sales at KaVo grew at a low double-digit rate as dentists began to invest again in their practices.

As a result of the restructuring initiatives we implemented in 2009, KaVo's core operating margin increased more than 300 basis points year-over-year.

The PaloDEx integration is progressing well.

The team is quite strong with tremendous industry experience and domain expertise.

DBS implementation at PaloDEx is gathering steam, we're driving good growth already for their products by putting some of our distribution channels at their disposal.

And we are getting good early traction on lien conversion and purchasing initiatives.

At Sybron, core sales were essentially flat in the quarter with strong sales of our orthodontia solutions and dental and medical disinfection product lines offset by soft sales of endodontic products in general dentistry consumables.

Sales of our Damon brand of orthodontia products were up mid single-digits driven by a strong response to both our new Damon Q product and the introduction of Damon Clear.

Moving to Life Sciences and Diagnostics, revenues increased 52% in the quarter with core revenues up 8%.

While the micro systems core revenues grew at a high single-digit rate in the quarter driven by substantial compound microscopy sales due in part to stimulus programs, most notably in Japan.

During the quarterly, Leica launched the new DBM line of digital microscopes for industrial R&D and quality control applications.

These DBM microscopes are designed to reach difficult to access surfaces for nondestructive inspection and feature high-quality optics enabling both 2-D and advanced 3-D surface measurements.

In the quarter we closed the previously announced acquisition of Genetix, a UK-based provider of imaging and intelligent image analysis solutions used by scientists and clinicians to facilitate clinical diagnostics, mainstream research and the development of bio therapeutics and pharmaceuticals.

We're excited about the potential synergies between Genetix and both Leica as well as Molecular Devices.

Leica's bio systems core revenues increased at a low double-digit rate in the quarter with robust demand for both our core histology and advanced scanning systems and consumables.

We continue to see excellent customer response to the Bond-III advanced staining system that was introduced in the fourth quarter of last year.

Compared to a year ago, advanced staining instrument placements were up 45%.

Radiometer core revenues grew to a mid single-digit rate for the quarter driven by consumable sales across all major geographies with particular strength in China and the US.

Our transcutaneous monitoring business grew at a mid teens rate driven by exceptional performance in Latin America.

The rollout of AQT in Europe continues with sales of approximately 50 instruments, a 150% increase from a year ago.

During a quarterly, we've launched the ABL90 FLEX blood gas analyzer which targets mid volume point of care testing in clinical applications.

And shortly after the launch, the ABL90 was awarded the Medical Design Excellence Award for in vitro diagnostics.

So along with Fluke Biomed, we're very pleased to have two of our businesses recognized with this prestigious award.

As we mentioned at the outset, during the quarter we closed the previous acquisitions of AB SCIEX and Molecular Devices.

While still in the very early days of integration, we've been pleased with the customer and associate feedback we have received to date.

Our initial operating reviews have been very positive and we look forward to sharing future success with you in the coming months.

Shortly after closing, AB SCIEX completed it's first bolt-on acquisition.

Eksigent Analytical, based in California, is a leader supplier of nano and micro liquid chromatography systems for proteomics and other analytical applications.

AB SCIEX's successful entry into this high-priority adjacency just 14 days after joining Danaher certainly sets a new benchmark for our M&A in strategic efforts.

Moving to our Industrial Technology segment, revenues increased 10.5% for the quarter with core revenues up 5%.

Operating margin for the first quarter was 18.9%, a 520 basis point increase compared to the same period last year due to the benefit of restructuring and cost initiatives implemented in 2009 as well as higher sales volumes in the segment.

Product Identification revenues were up 22% in the quarter with core revenues increasing 11%, driven by both equipment and consumables demand across all major geographies.

Our suite of CIJ printers continues to be well received in the market as evidenced by a large order from a Turkish customer for 40 [1610] high-performance printers, one-third of which will replace competitive offerings.

Motion core revenues were up 11.5% in the quarter driven by a significant pickup in semiconductor electronics assembly and industrial automation end markets, primarily in North America and China.

At Kollmorgan, sales of our AKM motors and drives reached record levels in the quarter as these products continue to be well received in the market.

During the quarter our Sensors and Controls business acquired ViOptix, a manufacturer of fiber optic temperature monitoring solutions for offline and online measurement based in Canada.

Finally moving to Tools and Components, revenues for the quarter increased 7% with core revenues up 8%.

Operating margin for the quarterly was 14%, an increase of 740 basis points from the prior year due to the benefit of our 2009 restructuring as well as higher sales volumes.

In addition, the impact of higher commodity costs and the settlement of litigation matters during the first quarter of 2009 had a positive impact on year-over-year comparisons.

Mechanic Hand Tool core revenues grew 4% in the first quarter led by sales to the retail channel across all major geographies, due in part to a number of new product launches.

Sales of our domestic China tool brand Sata grew at a double-digit rate.

Our niche tools businesses also performed well during the first quarter.

As many of you know, in the quarterly we announced our intention to form a strategic joint venture with Cooper Industries to combine certain operations of our tools businesses in order to create a premier global business with leading brands, greater scale and a more diversified product portfolio.

We expect the combination to generate significant cost and revenue synergies over the next three to five years, resulting from increased purchasing leverage, geographical and channel footprint expansion, cross branding initiatives and other consolidation opportunities.

Since the public announcement, we have been quite pleased with the industry and customer reactions and continue to find additional opportunities between the businesses.

The transaction remains subject to regulatory approvals and other customary closing conditions, and we anticipate that it will close in the second quarter.

Upon closing, we will deconsolidate the financial results of our Tools businesses and record them based on the equity method of accounting.

So to wrap up, we're very pleased with our DBX execution in the quarter which led to solid core growth supported by our continuing commitment to organic growth investments and our very good cash flow performance.

With DBS driving our focus, we believe we are well positioned in 2010 for continued outperformance.

This morning we are initiating second quarter 2010 adjusted earnings per share guidance of $1 to $1.05, which at the midpoint represents a 29% increase year-over-year.

For the full year 2010, we are increasing our adjusted earnings per share guidance from the prior range of $3.86 to $4.16 to a new range of $4.25 to $4.40.

Thanks Larry.

That concludes our formal comments.

We're now ready for questions.

(Operator Instructions) We'll first hear from Scott Davis of Morgan Stanley.

Thanks, good morning, guys.

Good morning, Scott.

Can-- these Industrial Tech margins are just -- are greatly and your operating leverage there was fantastic.

I mean can you speak to the sustainability of it?

I mean I guess what I'm getting at is I understand the restructuring there is somewhat permanent, but were there any mix issues in the quarter or anything that, anything that would impact those margins going forward, I guess?

Well I think the underlying performance that you see there, Scott is strong.

Obviously part of what's at work here is the comparisons both in Industrial and Tools.

They are easy here in the first quarter, they get tougher as the year plays out.

But I think the underlying performance that you see coming from the restructuring, the cost out for most programs, the read through and turn from the incremental volume is what it is.

So we're very pleased with that execution.

But I think we would anticipate that that fall through that you see in Industrial and Tools, Tools what nearly 100%, that will certainly fade as the year goes forward.

But if you look at Industrial Tech about 19% we-- I don't think we'll get higher than that during the year in part because of some of the investments that we are accelerating, but something in the high teens is something we believe we can sustain in that segment.

Okay, that's helpful.

Guys, maybe I miss, this is a little nitpicky, but your typical 1Q is 20% of your full year, which would imply a bit higher than what you're guiding.

Is there again any timing issues?

And I guess the real heart of my question is I know a quarter ago we asked about price and there was still some uncertainty, year-over-year your price was going to be more flattish, and obviously commodity costs have gone up.

Is there-- does that cause some conservatism for the rest of the year, or is this -- is there something else there?

No, I think as we look forward, Scott and we're feeling very good about the near-term outlook here in the second quarter.

I think that the second quarter core growth likely to be high-single, could be double-digit based on the order book that we saw in the first quarter the way we've started out here.

Certainly T&M has been (inaudible) a white hot starting in that regard.

But I think as we look forward through the rest of the year, particularly as we think about the second half, the comps do get tougher, you know that.

China has been very strong.

Dan and I were over last week.

The government's obviously trying to temper some of that growth.

So that's something we need to keep in mind as we think about the rest of the year.

And if we're-- if we're being a tad conservative so be it.

But I think as we look out through the second half I would expect, all things being equal right now for our core growth to be, if you will, in line with what we've seen here in the first quarter.

I think we'll get good follow through, but again because of the comps get a little tougher, we end up with the range today that we've highlighted.

Yes, that makes sense.

Okay.

Thanks, guys.

Thank you, Scott.

Next we'll hear from Steven Winoker of Sanford Bernstein.

Good morning.

Good morning.

First question just related a bit little more on the margin side.

The incremental, implied incrementals across the whole business, I've got on the core business close to 70% it looks like.

A bunch of that looks like Industrial, as Scott mentioned.

But as you look forward in terms of the progression of those margins throughout the business and given the organic growth as it continues to increase, how do you see costs coming back in the rest of the business and impacting those kind of stellar incrementals outside of Industrial Tech?

Well the way I think about the cost size, Steve is again we think we will have positive price this year, as Scott alluded to, it will be less than it has been the last couple of years.

But I think the costs that comes back that's frankly mostly material are the growth investments that we're going to make, we've said that all long, as the economy permits.

We certainly got off to a much better start than we anticipated here in the first quarter.

We were able to put some additional monies to work particularly in Med Tech and Professional Instrumentation.

And just this week we've let loose some additional funding, again both around sales and marketing investments that can help us this year in the R&D innovation programs that will help us in the out years.

So that's probably the most material incremental spend as we think about the rest of the year and how that may impact the margins in the business.

Okay and the secondly on core growth, clearly this has been an area where I and others have been more critical in looking for evidence of improvement.

5.5% is a big number and you talked a lot about product launches.

Do you have-- when you look across the portfolio in terms of vitality index and the many product launches from last year a way to think about the 5.5% in terms of how much is coming from new product development and what's sort of changing on that front in aggregate?

Well I think it's hard.

We certainly look at vitality given the-- where we are in the cycle right now.

We're going to be up in the 30% plus range in that regard continuing to I think show progress.

I say it's a little misleading to focus on that exclusively given that many of those new products go top market hand-in-hand with not only the increased investment, but also the increased intensity around our go to market DBS tools, all of which are helping us right now, not only in emerging markets where we saw exceptional double-digit growth, but in the western markets, where we were up more so in the US and in Europe but where we think we are taking market share.

So I think I'm very pleased, Steve, with the way we're able to free money up from the restructuring and obviously a better top line environment right now to put more money to work in the areas where I think we are executing better than we have in some time.

And what do you see as the biggest risks to that core growth as you look forward to the rest of the year?

Well I think that we are benefiting from a rising tide right now, we're taking full advantage of the market opportunities.

So I would say in terms of risks, the biggest risk is probably the one outside of our control, and that's the macro question.

I mentioned China earlier.

I tend not to bet against the Chinese Government to the extent that they are looking to temper our growth there.

Again we were thrilled with what we say, it was an incredible start to 2010 based on our reviews last week.

But to the extent that that slows a bit, it will still be great growth.

It will just be a little less than what we're seeing right now.

Thanks.

Thank you, Steve.

Next we'll hear from Bob Cornell with Barclays Capital.

A great quarter, guys must say.

Thanks, Bob.

Good morning.

Hi.

How about some comment about the acceleration through the quarter?

I mean other companies have talked about a strong March, I mean when you gave the earlier guidance, you said mid-March and obviously the quarter came in better than the pre-announced.

How about a little color there?

Well, I don't think we're an outlier in that regard, Bob.

We saw very good progress through the quarter again, really without exceptions both in terms of the major businesses and geographies.

I think you see that-- you've seen obviously as you look at how we've adjusted guidance several times over the last three or four months.

I say the piece, just to underscore, the piece that isn't in the printed core numbers here is the big backlog bill we had in T&M.

The book-to-bill there was nearly 110%.

Both Fluke and Tek are performing very well right now.

We're pleased with that.

And again talking about seeing them in the double-digit range here in the second quarter going forward, we're thrilled to see that sort of bounce back particularly given the road traveled the last five or six quarters.

Absolutely.

I guess you answered a couple of these questions, but again going back to this-- your preview of the quarter, you talked a lot about a focus on a growth and invest in organic growth and you talked about new product launches here in 2010, the market share gains.

You might want to take a minute and just sort of highlight some of the things that you noticed maybe where you sort of gain market share that was incremental what you previously expressed.

Well I think it's hard to necessarily pinpoint share gains say in the last 30 days.

But we know we have been doing very well, particularly with the new products in Med Tech and in Professional Instrumentation.

[Wykoscout] probably the highest vitality in the organization.

The new digital microscope, the slide scanner that we talked about with folks in New York, those products are going very well.

The Bond III Stainer for the pathology customer at Leica Biosystems had an exceptional first quarter.

It's a long list, Bob, but I think again what we've tried to do very systematically across the businesses is make sure that we're putting in the funds to support this sort of investment level.

We're up to what, 6, a little over 6% R&D as a percent of sales.

It's higher in a lot of these Med Tech and Instrumentation businesses.

And the products are going to market both in the west or in developed markets as well as in the emerging markets with a full complement of DBS growth tools driving the sales and the marketing.

It sounds to me like Motion had maybe a better quarter than maybe you've sort of indicated when you went through the preview talking about (inaudible) and motors at record levels.

Can you just flush out the Motion outlook and maybe what they did in the quarter in terms of profitability?

Sure.

Well if you look at Industrial, which is obviously a combination of both Motion and Product ID, I think we saw in Motion very strong end user demand, particularly in the tech end markets and in some of the industrial automation markets, and that's just built through the quarter.

As we look out through-- and for Motion that was again high single-digit growth in the first quarter.

They're going to clearly be one of our better growers as we look here in the second quarter because of the backlog build and the capital investment programs that we see particularly in some of those end markets.

So we're pleased with that.

They had a big hand in that strong margin expansion in the Industrial segment where we saw fall through what nearly at 60%.

Again that will -- that will fade a bit as we move forward and we take advantage of some of the growth and investment opportunities in Motion.

But all in all, their execution I think was really quite strong in the start of the year.

They had mid-teen margins,Bob and that was really encouraging because that's where we got them to-- that's where they got to right before the downturn.

So to come out and get right back there was very encouraging.

As Larry mentioned, we will be accelerating some investments there, but think we can sort of sustain in the mid teens for the balance of the year.

That's a wow.

Thank you.

Next we'll hear from Jeff Sprague of Vertical Research Partners.

Thank you, good morning, everybody .

Good morning, Jeff.

Good morning, Jeff.

Could we maybe step back and get into kind of a little bit of a bigger picture discussion of M&A?

And-- I mean the follow on deal of AB SCIEX 14 days after the deal closed obviously kind of highlights the Danaher strategy of when you do a deal, you know what the next two or three or four are going to be.

And it does look like we're moving into an environment where assets are starting to break free.

We saw the Millipore go.

Obviously that probably had to be on your board.

Maybe it all happened too fast before you could react to it.

But I guess the heart of my question is, as you mentioned you have $2 billion of capacity but in actuality, you probably have more than that if you think about the EBITDA of the acquired company and your willingness to use equity from time-to-time.

So I'm just wondering if you could comment on your appetite to actually do something of that size, the $5 billion, $6 billion, $7 billion deal and what you might be willing to do with the balance sheet or stock issuance if you saw the right property in that size range?

Jeff, I think the M&A environment in our view has been good.

I think things have been available for some time.

Obviously with the 18 deals we closed or announced last year we're spending what nearly $200 million already here in the first quarter on another handful of new situations.

I think our M&A approach through the cycle has been pretty consistent.

The bulk of what we're going to do are going to be these bolt-ons that strengthen our competitive positions around existing businesses.

I think in a normal year when we do a dozen deals that they're going to represent a half to three quarters of the deal flow.

They're going to be the midsized transactions.

A handful of those be it of Molecular Devices, a couple hundred million in revenue.

And then every year there's going to be, in all likelihood, a larger transaction be it in AB SCIEX, be it the Tektronix, be the Sybron.

I think every once in a while you could expect us to do something bigger; but again I think that will be the exception as opposed to the number one priority.

As you point out we certainly, if required, if the opportunity presented itself, could spend more than $2 billion in a single shot.

But I think, if you look at our track record, while we look at a lot of things, our body of work is probably the best indicator of the deal flow we're likely to present to you going forward.

Okay.

And currently there would not be any strategic objection though to stepping up if something that's been on the Danaher wish list for a long period of time kind of broke free and looked like it was available?

I think the short answer there is yes.

I think if something was strategically compelling, if we knew or at least had a view with conviction that we could add value, and the math worked, we would take a very serious look at it.

But again I think that the way we think about capital deployment, let alone strategy, has played itself out in a very consistent way over time, and I think that's the best indicators as to what the next year or two or three is likely to look at, or look like, excuse me.

Great, thanks.

Just totally totally switching gears, you said you saw a backlog of capital projects in Automation and Motion.

Are there any particular vertical markets that stand out there as being a pickup in activity?

I would say the pickup at Motion, Jeff, has been most pronounced in the tech end markets, particularly semi.

Great.

Thanks a lot.

Thank you, Jeff.

Next we'll hear from John Inch of Merrill Lynch.

Thank you.

Good morning, everyone.

Hey, John good morning.

Hey, John.

Good morning.

I wouldn't worry too much about China, your business is doing pretty well there.

We do expect Tools to be doing deals soon after the deal with Cooper closes.

How should we think about that and the opportunity there?

I think that there is the potential in the new structure or the venture with its own balance sheet to look at things that the business is on with either parent may not have done previously.

But I think as we get this venture consummated, I think the organic growth potential be the cost out synergies are going to be the higher operating priorities for that team.

Is that, Larry because there aren't a lot of deals, or just because there's just a lot of internal stuff that should be done first?

Well I think as an operating priority, in many respects, the task ahead for the team is not unlike that of an acquisition, right?

We've got two businesses coming together obviously under a different type of governance structure, but the work of putting these businesses together, getting the cross branding, the cross selling underway, getting the consolidated purchasing activity underway, that clearly has to be the first order of business.

We've obviously talked about putting these businesses together with Cooper.

Gosh this is the conversation that goes back nearly ten years.

I think we're really thrilled to be partnering with these guys, these are guys we know and trust.

The primary motivation here is the organic agenda, both top line and bottom line, and that's clearly where the team needs to be focused in the near term.

But I think there are opportunities that we could avail ourselves of going forward.

But that, if you will, John, is the second step.

Yes.

no I understand.

Hey, Dan, is there a way to frame out or quantify some of this growth spending that you'd talk about?

And I'm presuming this has not much to do with capacity, this is to do with R&D?

This is R& D and the feet on the street.

If you look at the kind of fall through in the first quarter, and we obviously have the benefit of being able to strip out all that kind of acquisitions, we're probably about 50% fall through.

Yes.

And would expect that that would sort of modulate down.

We talked in December about 30%, 35%.

My guess is the balance of the year will be 35% to 40%.

Part of that-- a piece of that comps, margin comps get a little tougher, but the bigger piece of that is an acceleration of investment.

And I'm assuming this is also proportionately to the back half, right, versus the second quarter?

Like I assume this is going to take a little bit of time to implement.

We've started to let some things go even in the middle of the first quarter.

So we'll see a full, pretty full ramp of some of that in Q2, but there will be probably more even more in the second half.

And then how are you guys managing the supply chain issues that you've talked about before?

Obviously the risk here is the upside, but as you've seen in other circumstances, not so much with Danaher, but just scenarios where the supply chain can't manage the upside, it creates cost overages and that sort of thing.

I mean what-- maybe a little bit of an update in terms of your activities there and why that's not a risk.

Well I suspect, John, as we've discussed, I mean that is one of the key operating challenges on the plant floor and in the supply chain as this rising tide courses through the businesses, ours and others.

I think we are seeing isolated situations, particularly in electronic components, where lead times are being extended, which just creates a bit of a scramble.

So I think being very close to certain suppliers, making sure that we have our place in line, if you will, it's just a lot of hand-to-hand daily work which is the -- I think the way we are managing through that.

In a number of cases we've got monthly or quarterly sessions with vendors to make sure that a specific operating company or Danaher large is having its needs met.

Obviously we need to make sure we're calibrating forecasts with them vis-a-vis capacity and the like.

But I think it's really just a lot of again kind of hand-to-hand daily work to make sure we have what we need to keep pace with this increase in demand.

So it's not like you're signing new suppliers up or anything, it just sounds like you're just working more closely with the existing chain, is that fair?

I think by and large.

But again we buy tens of thousands of components.

In some cases there'll be situations where we'll have to add or switch vendors, but I think by and large our preference and our practice is to work with existing vendors.

They've obviously been through rather rigorous qualifications with respect to quality, capacity, obviously price as well.

And lastly I think the tax rate guide in the Q said that you are now expecting it at 26.5, is that because of strength in higher tax jurisdictions or is there something else going on?

It's primarily because Congress-- the R&E tax credit has not been put back in.

A lot of people think it will be some time this year, which would probably bring the rate back down a little bit, but that's the biggest driver.

Okay.

Thank you.

Thanks, John.

(Operator Instructions) We'll now hear from Nigel Coe of Deutsche bank.

Good morning.

Good morning, Nigel.

Good morning, Nigel.

Obviously a great performance on the [core] line.

Any strong sense on the extent to which you benefiting from-- you mentioned stimulus and [Leica Med], assume that's not a big deal.

But certainly Imaging restocking could be.

Do you have any sense on that?

Nigel, again I think we are getting a little bit of stimulus benefit.

Interestingly it is, I think, primarily out of Asia, China and Japan as opposed to the US right now.

And you're right, it's principally in Med Tech at Leica.

The restocking I don't think is driving a lot of this upside.

I'm sure there's some of it in particular distributors and in certain OEM situations, but by and large, as we look at sell through and where we see demand on a direct basis, the businesses are reporting very healthy conditions.

So I really, again, attribute the vast majority of what we're seeing right now and certainly the basis for the high-single double-digit outlook for the second quarter to end user demand.

Okay, that's good.

And I think, Larry, you mentioned the book-to-bill in [test] measurements to 1.1.

I know you don't generally give out this metric, but you have been the last couple quarters, I mean how does that look for the entire portfolio?

It's-- for Danaher at large, it's just slightly less.

Okay.

Great.

Emphasis on slightly.

And, Nigel I think as you can appreciate that's not a number I think we try to get out there with regularity.

But I think it's important to understand what's happening in T&M right now.

We had significant backlog built, again very strong order books and we talk about double-digit growth there starting in the second quarter, it's largely on the back of this very robust order book of late, again broadly based in T&M.

We want to make sure people understand the first quarter and the outlook in that context.

Okay.

R&D, you'd mentioned a couple times about putting some money to work there.

Where do you think that goes this year?

I mean the 6.1% the first quarter.

We've got AB SCIEX coming in where I'm assuming the R&D intensity is a little bit higher.

What is a good number for the full year?

Nigel I'm not sure I have a number handy, but even with a pretty high organic growth, we kept R&D constant with a percentage of sales for the-- verse last year, but we're ramping that up and would expect to continue to ramp that up.

But we'd probably be north of 6% for the year.

That's with obviously good core revenue growth.

Sure.

And one final one, FX for the year, full year?

Well given the news this morning, when you get double-digit returns on Greek bonds, with the Euro down I think it's 132, 133 this morning.

FX is probably neutral to revenues in Q2 and probably negative 2% to 4% in the second half.

There's clearly some headwinds there.

Hopefully we have enough other good things going on.

Sure.

Thanks.

Thanks, Nigel.

Next we'll hear from Steve Tusa of JPMorgan.

Hi, good morning.

Good morning, Steve.

Hey, Steve, good morning.

How much was your China, specifically your China business up in the quarter?

It was up north of 25%.

Okay.

And what would you expect, I guess just geographic core growth dynamics through the rest of the year?

I would assume that slows and that US and Europe pick up a bit?

I mean can you just talk about those dynamics?

I think if you look at the first quarter, we'd say that obviously the emerging markets led by China were up double-digit.

North America was up 3%ish.

Europe was positive, but very modestly so.

As we look forward, I think the emerging markets are good here in the second quarter.

We might see a bit of a tail given China.

But they're definitely going to lead the way.

I think US could stay in this range, get a little bit better.

I think Europe's a bit of a wildcard, frankly.

You'd like to hope Europe does better than slightly positive.

But as Dan just alluded in that last answer, number of dynamics going on over there right now.

Okay, then--

But all in all, Steve I think we feel good about the macro backdrop in the second quarter and don't have major concerns about the second half.

Right.

And then just an unrelated question, what is-- what should we be thinking about as the bar there, is there a revenue number, is there a size of deal that where we would be stripping out and adjusting earnings?

Is it a new platform because the EPS for stripping out this quarter I guess it's kind of a new platform, but it's in Med Tech, it's not $1 billion deal or from a revenue perspective.

Maybe you could just give us some sort of a bar so that we can-- when you guys announce these deals, we can figure out if it's going to be adjusted or not out of the EPS number.

Well I mean the best way would be to look at some examples.

What-- the only thing we're calling out this year is the SCIEX Mole Dev transactions which are combined north of $1 billion.

The other deal that we've done, PaloDEx that were $200 million and some of the other deals in that size range we have not called out.

So that would be as good a frame as any we would have right now, Steve.

And when we announce deals, Steve, I mean rest assured we'll tell you what our intent in that regard is.

Okay, thanks a lot.

Thanks, Steve.

Thanks, Steve.

Next we'll hear from Ajit Pai of Thomas Weisel Partners.

Yes, good morning.

Good morning.

Just going back to the commentary that you provided in terms of your business conditions by geography.

Ignoring the headlines, just looking at western Europe you said that it sort of was modestly positive, the growth over there.

The trend in Europe right now, is it an improving trend?

Is it deteriorating or is it just sort of jogging along?

I'd say it's kind of straddling steady and improving.

Okay.

And then looking at China, you talk about the 25% growth in China, and then for all of 2009, it is about 6.2% of revenue.

You've probably seen the fastest growth if your businesses are larger sort of geographies out of China.

Do you expect China over the next 18 months to break into double-digits as a percentage of your revenue?

I think even if they maintain that clip, I think they don't get that high that quickly given the growth we're seeing everywhere else.

But I-- we'd have to pencil out some of the math.

Okay.

And then to the same point, when you're looking at the emerging markets and you talked about your first sort of real acquisition in India, the Indian market, how are you looking at it?

Are you looking at it like what the manner in which you looked at invest in China about ten years ago?

Do you plan to be much more active in that market over the next three to five years or you think things will be progressing more slowly there in terms of building up your presence there?

Well despite the greater than 25% growth in China that we saw in the first quarter, they didn't win the growth challenge in the quarter, the Indian team did.

They did better, admittedly off a smaller base.

We were on the phone in fact just yesterday with that team.

I think the playbook we're trying to run there is very similar, largely an organic opportunity, but one where frankly across all of our growth platforms, particularly in Med Tech, Environmental, certainly in T&M product ID as well, just a wealth of opportunity, and we're trying to make sure that we are investing as aggressively and as smartly as we can there.

We'd like to find the inorganic opportunities like the [L&T] situation, but there are some.

But I think much like we've built this billion plus $1 billion business in China, it will largely be on the back of the organic play.

Interestingly SCIEX comes in given their strong position with the pharmaceutical companies and other life science researchers in India, they represent our-- one of our bigger footprints in India straight way.

That's going to be helpful not only as we help them accelerate their own growth as we will the rest of SCIEX, but I think that will have a spillover benefit for the rest of the group particularly as we think about Leica, Molecular Devices and some of the other lines there.

Got it.

Thank you so much.

Thanks, Ajit.

Thank you.

Next we'll hear from Richard Eastman of Robert W.

Baird.

Yes, good morning.

Good morning, Rick.

Hey, Rick.

Just two quick questions.

I wanted to circle back for a second or so to the fall through in margin on basically on Med Tech and Professional Instrumentations-- Instrumentation.

When I kind of work the math here and I pull out the inventory charges, both look surprisingly low again relative to the core growth in those businesses, namely PI.

And I -- it sounds like from your commentary that's where the biggest growth investments took place.

But if you look at the fall through without those incremental growth investments, are we looking at something that's closer to 35% or 40% fall through at the EBIT line in those--?

I mean both of those segments had north of 100 basis points accrual margin improvement.

And both of their fall through, when you strip out the acquisition but including the growth investments, they were both in the 35% to 40% range.

With-- okay with the growth investments?

Yes.

Okay.

And then just maybe the last question I had, Larry on the Industrial Tech side of the business, was the -- I'm going to just assume the book-to-bill, was it as strong as it was on the PI side or Electronic Test side?

I mean can we see revenue continue to ratchet up from the first quarter base in Industrial Tech?

Yes, I think if you look at Industrial, we would-- we would certainly look to see both Motion and PID in the, I think it'd be in the high single-digit range for the year.

So for the year, okay.

Yes, so I think they-- they're off to good starts and are building backlog, have built backlog.

And most notably Motion, we've given the order book to backlog despite that roughly 10% organic growth, that actually should get better here in the next-- in Q2.

Certainly easy comps.

Okay.

Great.

Thank you.

Well and some momentum, too.

Thanks, Rick.

Yes.

Terry Darling of Goldman Sachs.

Thanks, just wanted to follow up on some of the color on the cadence on the organic.

The 8% to 10% upper single-digits, low double-digits organic for Q2, that's essentially the pace you had in March and so you're expecting that to continue?

And then also to continue in the second half of the year roughly at that level.

Is that the right color there?

No, I-- if-- no, let me be clear.

I think we're going to be high-single possibly double-digit in the second quarter.

I think that at this point we'd characterize the second half as likely to be in line with what we've seen here in the first quarter, which is the 5.5%.

Okay.

That makes sense.

And--

So obviously if we continue to see the conditions that we've seen here recently, even with the tougher comp in the second half, it could play out more favorably.

But right now I think that's what we're going to go with.

Well you had talked about the potential for a snapback on a couple quarter basis because of the under investment last year, and so that's the cadence you've laid out there is sort of more consistent with that idea.

And as you said, who knows where the second half goes from an upside perspective if CapEx kind of kicks in more.

But I'm wondering if I can follow up on the expectation within that second quarter core growth color around Med Tech, kind of breaking out Life Sciences and Diagnostics versus Dental.

And any color on kind of orders to support that outlook would be helpful?

Sure I think at Med Tech as we look at core, and obviously excludes the new businesses, which by the way are doing nicely, and the integration is I think proceeding very well.

I think Med Tech's likely to be up mid-singles in the second quarter.

I suspect we'll see Life Sciences and Diagnostics do better than Dental.

The Consumables business has been a little sluggish here domestically.

But the Equipment business globally has started, has bounced back a little better than we would have anticipated.

But nonetheless when you compare the two, I think Leica and Radiometer are going outpace KaVo and Sybron, but all will be positive.

And with the product launches we've got at Sybron forthcoming, we could do a little bit better perhaps than we have dialed in here right now.

Okay.

And then just following on your comments there on the integration of AB SCIEX, I think we had all looked back at some of the margins that that business did a couple years ago where you got- they got into the low 20s.

I think EBIT level I think back in 2006 or 2007 and said, hey why can't we get back there with the implementation of DBS and some time by 2011 or so, I think you guys were a little more cautious than that, thinking upper teens, mid to upper teens.

Can you calibrate us on that?

Sure.

Well I think some of those data points, Terry may be Molecular Devices as opposed to SCIEX, but nonetheless, I think just the update on the transactions is again the integration is going very well.

I think we're very pleased with the way the team has embraced the new structure and certainly DBS.

I want to underscore that SCIEX and Molecular Devices are two different business.

And part of what's been kind of neat at Molecular Devices so far is we've kind of gotten them back to their independent status reminiscent of what we did back in 2002 with Videojet and Gilbarco.

The Mole Dev sign is back on the door.

We've put in a dedicated full-time President.

That is quickly becoming a very focused team, and they're jazzed about their opportunities, as we are.

Obviously at SCIEX, we're excited about the new product pipeline, we'll have some news here next month at the ASMS show.

Eksigent, the bolt-on obviously very important for us on the LC side.

And keep in mind that there's another transaction in the mix here, that's the genetics deal that Leica did.

A number of cross connections probably more than we even realized early on between Leica, Mole Dev and Genetics which we think will be interesting both on the academic and on the drug discovery side in time.

In terms of margin expectations, these are 50% plus gross margin businesses, Terry.

So I think as we do our normal drill, 15% to 20% operating margins, that's the zone they're going be in.

And obviously as you get towards the higher end of that we're going to look to make sure we're making the right decisions between margin expansion and growth investments.

But with those sorts of gross margins as you've seen it do elsewhere, the operating margin should be very healthy, the cash gen should be strong.

And 20--

That's where we're headed.

That's very helpful.

But 2010--

Next year's a push but we're going to be making a lot of progress here this year, next year going forward in that very direction.

So in 2010 you're closer to the low end of that 15% to 20% range?

Well they're below that when we announced and not much has changed.

The SCIEX was low double-digit, Mole Dev was actually losing money.

We've-- that's already seem to have turned, so we're starting at those sort of bases but ramping up.

Thanks very much.

Thanks, Terry.

At this time, there are no further questions.

Mr.

McGrew, I'd like to turn the conference back over to you for any additional or closing comments.

Thanks, April.

Want to thank everybody for joining us today.

And Dan and I are going to be around all day for any follow-up calls for those who want it.

That does conclude today's teleconference.

Thank you all for your participation.