Danaher Corp (DHR) 2011 Q1 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Danaher Corporation first quarter 2011 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 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 Larry Culp, 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, a 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 non-GAAP financial measures provided during the call, are all available in the investors 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 in the investors section of the website later today under the heading Investor Events.

It will remain archived until our next quarterly call.

A replay of this call will also be available until April 26.

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

The confirmation code is 8183339.

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.

As announced, on January 18, we reached an agreement to sell our Pacific Scientific Aerospace businesses.

For the current quarter, the results of this business are reflected in discontinued operations in our statement of earnings, as required by Generally Accepted Accounting Principles.

In addition, our historical audited financial statements for the three years ended December 31, 2010 we revised to reflect this business's discontinued operation.

We will be filing these financial statements with the SEC later today under a Form 8-K.

All references in these remarks and the accompanying presentation to earnings, revenues, and other Company-specific financial metrics relate only to the continuing operations of Danaher's businesses, unless otherwise noted.

I'd also like to note that we will be making some statements during the call that may be forward-looking statements within the meaning of the federal securities law, including statements regarding events or developments that we believe, or anticipate, will or may occur in the future.

These forward-looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings.

It is possible that actual results may 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.

We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events, and developments or otherwise.

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

Matt, thanks.

Good morning, everyone.

We have gotten off to a great start in 2011, and I'm pleased to report an outstanding first quarter for Danaher.

We grew 10% organically in the first quarter with all of our segments reporting mid single-digit growth or better.

We feel very good about where the portfolio is today in terms of how our businesses are performing, how they are positioned in our served markets, and the macro drivers in these markets.

Over the last several years we have aimed many of our investments at the emerging markets, which positions us well in the fastest growing parts of the world.

Those investments are paying off, as we grew nearly 20% in the emerging markets this quarter, with China and Brazil leading the way.

We were also encouraged by the continued strength in the developed economies, which grew at a high single digit rate in the quarter.

I want to provide a special word of thanks to our associates in Japan, who in the face of great tragedy have shown tremendous spirit and resilience.

In addition to our go-to-market initiatives, we have also been making significant investments in innovation and new product development.

In the quarter, R&D as a percentage of sales was up 50 basis points year-over-year to 6.5%.

This level of investment is much higher than where we were just a few years ago, and is indicative of our long-term trajectory.

Our R&D efforts have led to a number of exciting new products throughout the portfolio, which, in turn, we believe are helping drive market share gains in many of our businesses, including Leica, Videojet, Fluke, Radiometer, Hach-Lange and Kollmorgan, with other imported product launches scheduled for later this year.

During the quarter we delivered strong operational performance, as evidenced by the outstanding margin performance with our core operating margin improvement up 245 basis points year over year.

Each of our segments delivered at least 200 basis points of core margin improvement.

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

Today we reported first-quarter diluted net earnings per share from continuing operations of $0.61.

Representing a record first quarter for Danaher, and a 33% increase as compared to our adjusted EPS last year.

Revenues for the quarter increased 11% to a record $3.3 billion, with core revenues up 10%.

The impact of currency translation increased revenues by 1.5%, while the impact of deconsolidating the Apex revenues more than offset sales growth attributed to acquisitions, resulting in a net decrease of revenues of 0.5%.

Our year-over-year gross margin for the first quarter increased 390 basis points to 52.7%, largely due to leverage from greater sales volumes, productivity improvements, and the higher gross margins of our newer businesses.

This is the third consecutive quarter that our gross margin has exceeded 50%.

Overall, our operating margin in the first quarter increased 370 basis points year-over-year, to 17.7%, with our core operating margin up 245 basis points.

Included in the operating results was $14.5 million in equity earnings contributed by Apex.

Absent the Apex contribution, our operating margin was 17.2%.

First quarter operating cash flow was $434 million, a 10% increase, notwithstanding a $100 million increase year-on-year in income tax payments made during the quarter.

We expect the timing of our tax payments to normalize during the balance of the year.

Free cash flow was $385 million.

During the quarter we completed two acquisitions, with aggregate annual revenues of approximately $250 million to strengthen our product ID and water quality platforms.

We also announced the pending acquisition of Beckman Coulter.

Based in Brea, California, Beckman is a leading supplier of in vitro diagnostic systems, including instruments, consumables, and software for the biomedical laboratory market.

Its clinical diagnostic systems are found in hospitals, and other clinical settings around the world, and deliver critical information to physicians to diagnose disease, make treatment decisions, and monitor patient care.

To date, we have received US antitrust approval and expect to close the transaction late in the second quarter.

We are looking forward to sharing with you more details after the closing.

Turning to our five operating segments, Test and Measurement revenues increased 27.5% for the quarter, with core revenues up 14%.

Our core operating margin for the first quarter increased 270 basis points.

Overall, our operating margin increased 170 basis points to 20.7%.

Fluke core revenues grew at a mid teens rate in the quarter, with solid demand in all major geographies and product categories.

Emerging market revenues were up more than 20%, led by Brazil, where we are expanding our market presence with investments in feet on the street, and a series of mid price core service and installation test tools.

At Tektronix, core revenues were up mid teens in the quarter, led by sales of oscilloscopes and logic analyzers, which were both up over 30%, partially offset by continued softness in the video end markets.

The strength was broad-based geographically, led again by the emerging markets.

We've been particularly pleased with the sales of our new midrange line of oscilloscopes, the DPO/MSO 4000 and 5000 series which we launched last quarter.

Core revenues from our communications businesses also grew at a mid teens rate in the quarter, with healthy demand for both our core enterprise tools and our network management solutions.

During the quarter, Verizon Wireless selected Tektronix Communications to provide monitoring solutions for their next-generation LTE platform.

This was an important and exciting win for the team who were chosen in part due to the versatility and scalability of their products to provide deep end-to-end visibility into LTE network and service performance for Verizon.

Environmental segment revenues increased 9% in the quarter, with core revenues up 7%.

Our core operating margin was up 240 basis points in the first quarter.

Overall, our operating margin increased 230 basis points to 19.3%.

Water quality core revenues increased at a high single-digit rate.

At Hach-Lange, the demand was solid for our core lab and process instrumentation in all major geographies.

Industrial and food and beverage verticals in the US, Latin America, and China were particularly robust during the quarter.

Hach continues to focus on expanding its service capabilities, which have more than doubled in the past two years, and currently account for about 10% of total revenues.

Trojan core revenues increased at a low double-digit rate in the quarter, driven by robust growth in its industrial applications.

ChemTreat's core revenues also grew low double digits in the quarter.

ChemTreat continues to expand outside of the US, and their Canadian revenues have more than doubled in the last two years, as they have invested in feet on the street initiatives to expand our penetration there.

During the quarter, Hach expanded its direct sales and service team in Australia and New Zealand with the acquisition of Accurate Group, enhancing our ability to provide local training and personalized application support in that region.

This acquisition represents another example of Hach-Lange expanding its direct go-to-market capabilities.

Gilbarco Veeder-Root's first quarter core revenues increased at a mid single-digit rate, with robust shipments of dispensers and automatic tank gauges in North America and Europe, partially offset by slower global sales of payment and point-of-sale systems.

During the quarter, Gilbarco launched two new dispenser platforms specifically designed for Eastern Europe and India.

We expect these platforms to help capture additional market share in these fast-growing economies.

Moving to Life Sciences and Diagnostics, revenues for the quarter increased 21.5% compared to the prior year, with core revenues up 9%.

Our core operating margin was up 220 basis points in the first quarter.

Overall, our operating margin was up 730 basis points from the prior year to 14.4%, primarily due to the first quarter 2010 acquisition-related charges that did not repeat in the first quarter of 2011.

Radiometers core revenues grew at a high single-digit rate for the quarter.

This performance has been driven by healthy demand in Europe, China and Japan for both the ABL90 and ABL80 blood gas analyzers, which bodes well for future consumable sales.

We also continued to build AQT's installed base outside of North America, with placements up more than 30% in the quarter.

Leica Biosystems' core revenues increased in excess of 10% in the quarter, with strong demand in North America and Europe for our advanced standing systems which grew more than 20%.

We believe that we continue to take share in this market.

During the quarter, we launched our HER2 fully automated breast cancer diagnostic test for the Bond system in Europe.

This is a critically important addition to our companion diagnostics reagant offering, as we are now able to aid in the selection and identification of specific targeted therapies for breast cancer patients.

Leica Microsystems' core revenues grew at a mid single-digit rate during the quarter, which we were particularly pleased with given the difficult year-over-year comparison as a result of Japanese stimulus activity in 2010.

Compound and confocal microscopes into the life science research and industrial markets were particularly strong.

During the quarter, we launched several new research products including the SDAF inverted microscope with integrated spinning disk technology for high-speed confocal sectioning and 3D reconstruction, addressing the high-growth live cell imaging market.

We look forward to hosting investors at our Leica facility in Wetzlar, Germany in a couple of weeks to share with them more Leica success stories.

Core revenues at AB SCIEX grew at a high single digit rate in the quarter, with robust demand from the academic proteomic and applied markets.

Our new Triple TOF 5600 led the way.

Proteomics researchers are selecting the 5600 because it is able to deliver both qualitative and quantitative analysis effectively on a single platform.

Customer acceptance and feedback on the new product continues to be outstanding.

Now a full year into the acquisition, AB SCIEX is clearly seeing the benefits of new products, a much more focused go-to-market effort, and, the implementation of DBS.

Turning to dental, segment revenues increased 7.5% in the first quarter, with core revenues up 5.5%.

Our core operating margin was up 275 basis points in the first quarter.

Overall, our operating margin was up 220 basis points from the prior year to 10.7%.

KaVo revenues increased at a mid single-digit rate in the quarter, with solid demand in all major geographies for our instruments and imaging products.

KaVo launched a record number of new products in the quarter at two of the largest dental industry trade shows, the Chicago Midwinter Show and the International Dental Show, or IDS, held in Germany.

Doctors are particularly excited about the new OP300, a hybrid digital imaging system which integrates three imaging modalities.

Cephalometric using orthodontics along with 2D panoramic, and 3D cone beam on a single unit, giving dentists a truly adaptable, flexible imaging platform.

As the digitization of the dental practice continues, the OP300 provides general practitioners, for the first time, with a range of technologies to perform more complex procedures such as implants in their own operatories instead of referring patients to specialists.

Sybron core revenues grew at a mid single-digit rate in the quarter, with good growth in general dentistry consumables, infection prevention, and orthodontic solutions.

Sales in the emerging markets were, again, strong as we continue to invest together with KaVo in go-to-market initiatives in those high-growth areas.

During the quarter, we launched SonicFill, a new composite filling system that combines Kerr's composite technology with KaVo's handpiece technology.

Customer feedback on this new product launch has been very positive.

Moving to our Industrial Technologies segment, revenues increased 16% for the quarter, with core revenues up 14.5%.

Our core operating margin increased 200 basis points in the first quarter.

Overall, our operating margin was 21.3%, a 210 basis point increase compared to the same period last year.

Product identification core revenues were up mid teens in the quarter, with broad-based global growth across all major product categories including Videojet's full suite of CIJ printers, where we believe we continue to capture share.

Demand from electronics customers for our parts marketing instruments was again strong this quarter.

During the quarter we launched a new suite of large character marking, or LCM, systems for barcode, graphics, and alphanumeric printing and packaging applications.

While still early, we have been pleased with customer feedback thus far.

And in March, we closed on the previously announced acquisition of EskoArtwork, a leading full-service solutions provider for the digital packaging, design and production market based in Belgium.

With revenues of about $250 million, Esko is an attractive adjacency to Videojet and our product identification platform.

Our motion business's core revenues grew in excess of 20% in the quarter.

The momentum we saw build last year continued as we experienced significant growth in all major geographies and end markets.

The investments we've made during the last few years in our new AKM and AKD motors and drive product lines continue to pay off with robust demand in the quarter, particularly among industrial automation customers.

We believe we continue to capture market share with AKM and AKD with volumes there up over 100% year over year.

So to wrap up, the first quarter 2011 was an excellent start for Danaher.

Our portfolio of businesses is well-positioned.

The investments we made in innovation and emerging markets continue to drive growth and share gains.

We are pleased with our team's performance which led to outstanding core revenue and earnings growth in the quarter.

We expect the global economy to continue to improve in 2011 led by the emerging markets, with the developed markets also growing, albeit at a lower rate.

We believe we are well-positioned with DBS driving our focus on outperformance.

We are initiating second quarter 2011 adjusted earnings per share from continuing operations guidance of $0.62 to $0.67.

Due to the broad strength we are seeing in our businesses, we are increasing our full year adjusted earnings per share from continuing operations guidance from the prior range of $2.55 to $2.70, to a new range of $2.65 to $2.75 for the full year 2011.

This includes $0.04 of anticipated net dilution resulting from the impact of the Pacific Scientific divestiture and the EskoArtwork acquisition.

This updated guidance excludes the impact of the pending acquisition of Beckman Coulter.

Thanks, Larry.

That concludes the formal comments.

We are now ready for questions.

(Operator Instructions) Steve Tusa from JPMorgan.

Hello, good morning.

The gain on the sale of the aerospace business.

Did you guys disclose the size of that before?

That was $0.30 in the 10-Q.

It hasn't closed.

It's eminent.

It'll be about $0.30 after tax.

So, you're going to restructure that away obviously?

We will call that out separately.

Okay.

Will there be restructuring, will there be incremental -- (inaudible) restructure or no?

I think there will be restructurings through the year but we're not going to use that gain to offset it.

Okay.

So the numbers will be clean there.

Yes.

Okay.

And, then the core growth moving throughout the year, core growth for the second quarter, what do you think there?

And have you updated the core growth number for the year?

On the core growth side, I think with what we saw in the first quarter, we come into the second quarter here working against our toughest comp.

But I think we're looking at 6% to 8% core in the quarter, and, frankly, I think we're probably looking at that rate for the year.

But feeling very good as we get going here in April for sure.

Okay.

So you will be exiting the year at more of a 4% to 5% rate then?

No, I think if you look at where we would expect to be in the second quarter, I think we'll be in that 6% to 8% range.

I suspect we'll be at the higher end of that range, given what we see right now.

I think for the remaining three quarters of the year, I think we will be in that 6% to 8% range.

And even with the 10% first quarter, we probably could be in that range for the year.

I don't think we will be that muted come year end, but we have a long way to travel.

It's still early in the year between now and December.

Sure.

And then orders, the book to bill, one last question, for the quarter?

We were a little bit north of 1 and it trended nicely during the quarter.

Scott Davis with Morgan Stanley.

Everybody handles earnings releases differently.

I choose to eat donuts and drink lots of coffee and generally abuse myself.

On another note, your gross margin was just fantastic and on probably the most bullish of models.

Talk about what drove that.

Obviously, you must be getting price out there because clearly you couldn't have had any headwind on price cost with that kind of gross margin.

How much of it is mix, how much of it is price?

Could you just give us a little granularity on that?

Sure.

I think while we do see some of those inflationary pressures, and price was a positive, we nearly had a point in price.

And I think that price/cost balance is in a good place.

Because as a 50% gross margin business, we don't have a lot of those core commodity exposures that some other folks obviously will.

I think that with the core growth being better, particularly with some of our newer and/or our higher gross margin businesses, that certainly helped.

And I think we've just had very good execution from a COGS and from the other variables in the gross margin calculation.

I was very pleased with the execution across-the-board in that regard.

I think you saw that really in all five segments.

Okay, fair enough.

As a follow-up, you've got a big one to bite off with Beckman.

But are you still out there looking at deals?

Is there capacity to look at deals?

Just talk to us about how you think about forward M&A and forward cash reinvestment.

Scott, I think we are very much in the position that we said we would be when we announced Beckman.

Obviously, that transaction is still pending.

But we are very much in the deal game, not as much as we typically would be.

But you saw us announce another small acquisition here for water.

We're looking at a number of things.

We probably are talking about a deal envelope, barring other sources of capital, in the $300 million range for the rest of the year.

But I think by and large, we get back into probably the $2 billion range in 2012, which at this point is only nine months out.

I don't think, at this juncture, we are feeling unduly pinched by obviously the implications from the Beckman deal.

Bob Cornell of Barclays Capital.

I'm surprised nobody asked about Beckman Coulter yet.

There is a press release talking about delays in the FDA address of the high throughput machine.

Maybe give us some color on that and what it means.

Good morning Bob.

What Beckman put out earlier this week was an update, I think really for investors, given the delay in their submission to the FDA for the approval or the re-approval of the Troponin test on their two major testing platforms.

I think we want to respect the company's primacy on commenting on those sorts of matters in great detail.

But I think given the work required, they basically wanted to make sure investors and their customers understood that they were going to be submitting to the FDA later than they had initially flagged.

I don't think we were wildly surprised by that.

There's a lot of work to do in preparing for those submissions.

And it's work, obviously, that the company is very focused on.

But in terms of the big picture relative to Beckman, I don't think the delay that they have announced is material.

Given your comment, that it is a late second quarter close, could you update us on the accretion dilution comments for '11 and '12?

Bob, it does appear that opposed to closing, and we may be having the business for two months in this quarter, it is more likely going, it could well be toward the end of June and we won't have much of an impact here in the quarter.

We will come back and update as we get closing, or if we close at the end of June maybe we will do it in the third week of July with earnings.

It could have some modest impact here in 2011.

But, given the things that we are working on, we have planned, I don't see that impacting our 2012 outlook here.

Did you guys say at one point that this could be $0.05 to $0.10 accretive this year and $0.25 to $0.30 accretive next year?

My memory may be failing me.

That is correct Bob.

Given the delay here, that obviously could have some impact on this year but we don't see that impacting next year at this point.

Not next year.

Final point, bigger picture point.

You guys mentioned a couple times the lower price point products in a variety of the end markets.

Could you just address the broad opportunity for Danaher to get into the local products at lower price points and make good margins?

You mentioned at a couple points, and I'm sure that's a part of the R&D boost and so forth and so on.

Is that strategy going to impact gross profit margins?

How is that all low price point emerging market development going to reflect itself in the results?

Bob, I think that when we talk about our emerging market product strategy, we really want to play up and down the price point continuum for two reasons.

The first being, of course, the deeper we penetrate those markets, the faster we plug into the underlying growth in those markets.

And secondly, the further we go down that price point continuum, because by and large we really have started at the high price point segment with our Western brand, the tougher we make it for local competitors to come up the experience curve and take that volume into the developed markets.

I think when you look at what we have done in building the China businesses, and are now really trying to drive in earnest in India and Brazil, we really start, not with the high price point products and taking their prices down, but really putting together product specifications, bills of material, cost targets and the like so that we are geared towards meeting that differentiated customer need at a cost position that allows us to drive margin maintenance, and hopefully, we often aim for this, margin expansion.

So I don't believe there is an inherent trade-off in coming down that price point continuum and your gross margins if the product specs and the cost targets are designed up front with that market reality in mind.

Steve Winoker with Sanford Bernstein.

First question on, maybe at this point, working capital and your cash conversion which was looks like still healthy, 90%-plus, 92% but down.

And as you built for all of this growth, what was your experience?

It looks like the receivable days up, inventory days up a bit.

How did that go, or any issues?

Steve, it is Dan.

The build we had in working capital was very consistent with what we have had in prior years in the first quarter.

The biggest driver of the year-on-year -- on the 90% sub, 100% conversion was we had a $100 million increase in tax payments year on year in the first quarter.

Probably have pretty heavy tax payments here in Q2, but then that will flip in the second half.

I think, from the broader issue on cash flow conversion, I think we're going to have a very strong year, particularly as we get in the second half with likely lower tax payments as compared to the second half a year ago.

On the working capital side, as we did last year with double-digit core growth, we had a very modest increase in working capital.

I think if we are in that 6% to 8% range, though that could suggest a multi- $100 million increase in working capital, we don't expect that at all.

We think working capital by the end of the year will be flat to slightly up.

Okay.

And then maybe on dental margin increase which has been a long road.

Can you comment about what the dynamics were in that business and how much was the result of initiatives versus maybe just tail winds?

I think with KaVo being up nearly 400 basis points they would argue they earned most of that.

Obviously, the growth helps, both at KaVo and at Sybron.

But I really think, Steve, it is fundamentally the story that you are well aware of, and we have told many times in terms of the efforts just to get that cost structure right, and to make sure that we are driving growth that is accretive both in terms of our market share positions and our gross and operating margins.

Jon Wood from Jefferies & Company

Good morning guys.

Larry, could you talk about test and measurement, the book to bill in the first quarter, and just talk about the year.

Is it reasonable to assume that franchise can do double-digit in 2011 at this point or is it too early to go there?

I think, we look at just book to bill for T&M.

Where that matters most, I think, is at Tek.

They had north of 1.0 on a book to bill basis.

And we were very pleased with that.

I think if we look at Tek, we see a very good stream of new products forthcoming which we are excited about.

I think given our sense of the market, and we probably have maybe a little more market risk in the wake of the Japan tragedy in T&M than we do some other businesses.

But by and large, I'd suspect, even with the tough comps, that T&M will be one of the lead businesses for us this year relative to our core growth.

I'd certainly expect them to be in the double digit range here in the second quarter, and certainly would not rule it out for the full year.

They are very well positioned, not only at Tek, but frankly across that segment.

Okay great.

Thanks.

One last one on SCIEX.

This is another big year for product introductions, feasibly.

Do you need another major product line turn this year to maintain that high single digit trajectory, in your view?

Or is the Triple TOF really in the early innings of penetration?

I would say that, first of all, we were very pleased with the performance at SCIEX, really the first full quarter outside of the transition arrangement because we obviously anniversaried that deal.

So to see the top line performance and the bottom line performance at SCIEX was reassuring and frankly they did better than we would have anticipated, in part, because there's just been so much work done, but also they probably had one of the tougher comps given the Japan stimulus of any of our businesses.

Clearly the 56 has been impactful.

I think we are in the early innings.

But that said, there are other things forthcoming and we are looking forward to being at ASMS in Denver come June and talking about the next wave of innovation at AB SCIEX

John Inch with Merrill Lynch.

Thank you.

Good morning, everyone.

We start with Japan.

Japan, I think, is about 5% of your total revs.

And I think you guys had called out roughly 1 point of top line expectation drag from Japan this quarter which implies Japan, all else, would be down about 20%.

What did you actually see and what are you seeing there?

Maybe you can comment on if you have seen any sort of supply chain issues and how you're dealing with that.

Yes.

I think that, first of all, John, what we saw since the earthquake is just an incredible level of strength, of character, of leadership on the part of our team.

I don't think I have ever been more proud of our people, particularly given the circumstances, than I have been with our Japan team.

What we were flagging, obviously, immediately following the quake was some concern that we could have some immediate revenue impact.

We did not see that.

That really did not materialize in any meaningful way in the quarter.

Now, as you know, Japan's year end is March, so it was an important time, and there was real revenue at risk.

Thrilled that it did not materialize.

I think what we, like most companies at this point, are trying to sort through is just what happens as the ramifications from everything that has transpired here work their way into the Japanese economy.

It's less than 5% of sales, it's obviously important, but it's not like it is going to have, I think, significant impact for us going through the rest of the year, as best we see it in terms of our sales in Japan.

But I would characterize the situation as being a bit fluid at this point.

I think our greater concern, again, like most companies, is how supply chains come back online during the course of the year.

We have not really baked in anything here relative to the negative effects, but it is probably one of the variables in our outlook, and certainly getting a lot of management attention.

Because it only takes one specialty material, it only takes one IC that may come from a northern Japanese facility, obviously, to ricochet through a particular product line on a global basis.

But at this point, I think as each day passes, the news in that regard becomes more encouraging.

But again, I think it is a dynamic that is getting a tremendous amount of work on this end, and we will be smarter about things as we go through the course of the year.

I don't think we can wholly categorically rule out some risk in that regard as we look out to the last nine months of the year.

Larry, understanding the broader risk, I'm just wondering, a lot of your products have some kind of electronic content in them, right?

They do.

Have you identified the one area that may be an issue?

I'm just trying to think.

You wouldn't want to hit a quarter and one of your segments skips simply because you could have supply chain issues.

I'm just wondering if you've thought about -- well, if there's anything, it's probably this area and it's pertaining to this, and right now we are trying to dual source or do something like that?

Have you identified anything in that regard yet or not really?

John, I think we're well aware that we cannot ship product if we're missing a particular component.

I think given the nature of our products and the diversity of our portfolio, the risk that we're talking about here could crop up anywhere.

I think what you really have to do, what we are doing, and I get an update on this every 48 hours, is you literally have to go to the component level.

Right?

This isn't about northern Japan, it's not about a particularly company or a commodity category.

You've got to go to that SKU and understand the current inventory position, where that supplier is relative to their own production capability, and verify that.

So, we are at that point where we think we have risk, even a potential risk.

We are working through sourcing inventory in other locations, looking at resourcing options, availing ourselves of all those array of options.

I think if you look at what we have been able to do over time in terms of holding on time delivery in the face of growth, driving margin expansion, in good times and in bad, we've got an outstanding procurement materials management team standing up to that test right now.

But, again, I think there's still a lot of work to do to work through our supply base to make sure that we have no disruptions to our customers, let alone our investors, as we look through the rest of 2011.

No that's fair.

Can I ask you about China?

You called China out as a continued source of strength along with Brazil.

China has obviously been trying to rein in growth, to a degree, and obviously Japan is a big trader with China.

What are your folks on the ground saying, Larry, with respect to the runway or trajectory for the rest of the year?

Do you think macro tightening is going to have much of an impact in your businesses?

And clearly, Beckman has got a pretty good position in China, as well.

I'm just wondering if there are implications for Beckman as it pertains to China?

John, while we don't have a macro economist on staff in China, Dan and I did have the opportunity just two nights ago to do an in-depth review with the China team.

On the back of an outstanding first quarter, despite the very real policy direction that you referenced, our teams see nothing but very robust demand across the portfolio.

It was striking, their level of conviction and confidence given the start to the year and what they are hearing from customers.

Again, I think we need to be very mindful of the issues that the Chinese government are trying to bring to the floor, but right now, we are very excited about the year we could have in China.

And for a number of our companies over there, we have had a very significant year on year increase in feet on the street in salespeople over there.

In some cases, where they are seeing some modest slowing, we've got much better coverage and we think we can grow through that at these sort of rates.

Just lastly, Larry, the big picture delay with respect to Beckman and the FDA that you called out, you said it was not material.

Can you just help us understand with respect to you guys, why is it not material?

Meaning, just again, from a very high level, isn't there a risk that this gets further delayed?

At what point does it really become material?

Or is this simply because the deal is based purely on cost synergy and you're not really that concerned about this testing stuff getting into market on a timely basis?

John, just to be clear.

What I intended to convey is that the delay here is not something that, in our view, is unanticipated.

I think we didn't assume, as I think we referenced back in January, that we were planning for perfection here relative to the resubmissions.

There's slippage a bit here.

As long as they get that application in and it is approved.

And, again, you go back to their 8-K, there are caveats there, but given the planning assumptions that are in place on this end, I think we are still going to be in a very good place.

(Operator Instructions) Deane Dray from Citi.

Thank you, good morning everyone.

I wasn't planning on asking a question about motion, but when you go across the businesses and motion stands out as really upside performance, you said 20% plus growth, all geographies, all end markets.

So, if you just take us through some additional color here on was it retrofits or new capacity being added with the customers, share gains?

Any further color would be helpful.

Deane, thanks for asking because they really had a terrific performance on the back of, I think, an excellent 2010.

I think that there really is no one silver bullet here.

In essence, what we referenced in the prepared remarks is very important.

These new product introductions have really helped us with design wins.

I think we are doing a much better job, not only investing but executing on the ground in the emerging markets, particularly in China.

With that said, overall, the commercial execution on the part of the core Morgan & Thompson teams, Dan and I were just with them, as well, the other day, I think is dramatically improved vis-a -vis where it was just a few years ago.

You have got technology, you have got better commercial capability, you've got more emerging market exposure.

And obviously, you've got a market dynamic where the tail winds are strong.

Put all that together, they are leading the way right now for us on the core growth side.

I know Motion does not have much in the way of backlog.

But in terms of visibility, quote activity, how sustainable does this look over the next couple of quarters?

Obviously, the comps get tougher for them.

And I think we will see their core growth taper a bit as we go through the year.

But I would still expect them to be a growth leader for us this year.

While they don't have maybe booked backlog per se, Deane, I think as you look at their design wins and their likely shipments, assuming certain build rates on the part of their OEM customers, they are looking at a good 2011.

Great.

And then just last one from me.

Regarding the 2011 guidance increase, looking at the incremental margins based upon what we talked about in December, 35%, 40%, it looks like you could be tracking towards the upper end of that range.

Is that still your outlook for the year on incrementals?

Yes, I think that is a fair assessment, Deane.

Obviously, with a range of $2.65 to $2.75, if you dialed in the high end of that core growth range for the year of 6% to 8%, with a mid to high 30s ECM, you get into that zone.

I think, again, one of the things we want to make sure we share with folks, is that we had an outstanding first quarter.

Great start to the year.

We are mindful of the Japanese risks that are out there, maybe more so on the global supply chain than local sales, but they are both real.

Still fluid.

Clearly some inflationary pressures out there.

I think, with all of that said, we certainly want to make sure, in a year like this, we are investing ahead, both with respect to growth and margin expansion.

So we have already begun some of the dialogue here about what are some of the things we might have thought were really 2012 initiatives that we might be able to action this year.

And that is part of what we want to do here, is make sure we have the latitude, not only to deliver a good 2011, but also continue to build for '12 and '13.

Mark Douglas from Longbow research.

If we can talk through margins a little bit.

Very strong move in industrial tech margins.

Do we see these fairly sustainable given the continued strength that is going to be likely in product ID and motion, or is there going to be small drop-offs, certainly in 2Q with Esko being folded in now?

Operationally, we expect to see these sort of margins for the balance of the year.

We will have about $25 million of non-cash expenses related to the Esko acquisition that will bleed out, primarily in Q2 but some in the second half, as well.

So, the margins we are seeing in motion, product ID, the other business, industrial remain quite strong.

We're seeing a little bit of inflation, but we're also getting pretty good price, particularly at motion.

And we think that absent some of these non-cash charges, which will bring the reported margin down, the true operating margins we think we can sustain at these levels.

Great.

Thanks.

I was going to ask about, with steel prices going up, if motion would be safe as well.

So, thanks for that.

And then just the thing about margins on test and measurement.

As you continue to integrate Keithley, do you see a pretty good trajectory there, assuming T&M stays pretty healthy, which it seems that it will, at least through '11?

Sure, we had almost 21% in the first quarter.

I think you will see some modest sequential improvement, maybe 50, 100 basis points over the next couple quarters in T&M margins, as well.

In part, as we partially get the benefit of integrating Keithley.

Thanks for bringing Keithley up, Mark, because that is an acquisition, obviously rather recent, perhaps overshadowed by Beckman.

That integration, that activity, has gone exceptionally well.

We are very pleased with the team, their embrace of Tektronix.

The opportunities, really, to partner both from a new product development and technology view, but also in terms of leveraging the Tektronix global channels to help accelerate Keithley sales.

Very pleased to have that one onboard.

Right.

Was there core sales for Keithley, similar to the segment average or were they closer to what Tek put up?

They were very much in line with the rest of the team.

The rest of T&M.

Nigel Coe with Deutsch Bank.

Thanks, good morning.

Obviously, the delay in the closure of Beckman.

Does this change in any way the size of the (inaudible)?

The reason I ask, you guys are earning roughly $4 million of free cash flow a quarter.

In theory, it might reduce the need to raise cash.

Just any comment on that would be helpful.

I think our previous disclosure of around $1 billion of equity, I think that still stands.

We are pleased with the cash flow, very strong with our cash position which will, hopefully, in the coming days, as we close Pacific Scientific, will be north of $2 billion and that obviously will go towards the Beckman acquisition.

I think we're still comfortable with equity in that range.

In part, we want to give ourselves some latitude here on the M&A side.

Okay.

And then, GVR.

It doesn't get a lot of air time.

High oil prices, retail gas prices pushing $5 a gallon, how does the investment environment change with high gas prices?

Do they tend to spend more CapEx and could that benefit GVR?

Anything you've seen in the past that might suggest that?

I think there have been some rules of thumb in the past that would suggest, at least in developed markets, that retail spend tracks pretty well with retail margin.

But, the market has really undergone, I think, a good deal of change over time.

Obviously the emerging markets are far more important.

They're a bit less sensitive to that regard.

The offering that we have, given the automation around payment POS and card list, has also been a driver that has defied some of the underlying economics.

So I think we worry about that dynamic less.

But clearly what we have seen is a real uptick in investment broadly that we think will continue over the next several years.

In the short term, though, Nigel, as you know, we had an exceptional year last year in payment, particularly given some of the compliance deadlines.

And that is where we are probably facing some of our stiffest headwind here in the second quarter and through the rest of this year.

GVR, looking at the second quarter, just here in the short term, likely is going to be down low double digits, in part because of these tougher comps that will bring the core in environmental down to probably a flattish figure, offsetting some good performance in water quality.

But long-term, I think we see good investment levels around the world, and that combined with these automation requirements, positions GVR very well.

Let alone, of course, the uptick in environmental concerns at retail.

Sure.

Then just, finally, just to clarify your comments on Japan.

It is encouraging that you don't see a major impact on the financials for the balance of the year.

But just to clarify.

In late March and through April, you haven't seen a significant deterioration in your Japanese business?

That is right.

When we were together in New York, what we were watching twice-daily was just what the implications would be from the disruptions to the infrastructure, let alone customer operations and the like.

That news got better virtually every day as we went through March, and they finished pretty much in line with the original expectation, which I thought was simply remarkable.

I think at this point, as things evolve, we don't see today tremendous negative headwind there.

But I think, probably next to some of the specific issues at GVR, we are expressing some caution around the situation on the ground in Japan.

But thus far, I think we feel like that's manageable.

Richard Eastman from Robert W.

Baird.

Yes, good morning.

Larry and Dan, could you address, in the life sciences LSD segment, the operating margin there, just on an absolute basis.

I think I understand the basis point improvement year over year with the restructuring costs and things at AB SCIEX.

But at this 14.4% level, again, is that sustainable?

Was that helped by mix?

It sounds like the TSA is out, that probably helps and should be sustainable.

So do we build off of that margin level for the balance of the year?

Rick, I think, at this point, we will be in that range.

It was a quarter that everything went right for LSD, both top line, and the mix is very favorable.

As you know, a year ago, the segment margins were 7%.

So we doubled it year-on-year.

Also, in part because some of the strength we are seeing there.

We've ramped up some investments both on the growth side.

We've got some clinical studies at both Radiometer and Leico Bio that will cost some money here in the next couple of quarters.

There's also some restructuring.

I think we are very pleased where we are.

I'm not sure you will see movement here.

In fact, I think sequentially in Q2, because some of this growth investments and restructuring, sequentially margins will come down a little bit.

So I think we will be in the mid teens range for the full year but we will be doing things this year that will hopefully get us another leg up in 2012.

Okay.

And then, Larry, is there any movement that you can mention on the AQT product in the US in terms of approval?

There is movement.

That is probably all I should say.

I think what you've seen us try to do is avoid being specific given the process that we're going through right now with the authorities, that we continue to make progress.

But in terms of when we will be able to launch, I think I am going to defer that to the day we launch.

But we are thrilled.

I think it is important to recognize that that product outside of the US continues to be well accepted.

We saw another good quarter of placements.

Globally, we're up to nearly 500 instruments installed.

That obviously really begins to build, I think, an exceptional foundation for the consumable stream as utilization picks up.

So we are very encouraged that we have the right product.

We want to make sure we address the questions and the needs of the US regulators.

And once we do, we will be ready to go.

Is it likely this year?

We hope this year?

I stand by my prior comment.

Okay, there's positive movement.

Got it.

One other thing.

It felt like we maybe took a little extra time to highlight some of the new products in some of the segments.

We've got some key major price point products, like the 5600, that have come to market now.

Would you look at your growth rate this year thinking 6% to 8% core for the full year?

Would you feel like there's maybe a point, probably not two, but a point or two of incremental growth that is more than end market recovery and it is a fairly aggressive new product intro this year relative to past?

I think we're getting better at execution in terms of conception, development, and launch.

We are obviously spending more money, you see that in the uptick in R&D.

I think it's really, in many respects, table stakes in some of these industries and markets that we've entered.

What's really hard to segment, Rick, is when we drive growth, even with tailwind, how much of that where we've got this increased vitality would we attribute to the new products, vis-a-vis the improved commercial and go-to-market execution.

It's just very hard.

I don't think we want to try to internally get into that game.

If we are winning, we're winning, we're doing everything we can to do so.

To try to parse that for ourselves, let alone for you, I'm not sure that's high value add.

Terry Darling with Goldman Sachs.

Thanks.

Just a couple quick ones.

On second quarter core, you guys had talked about a number of different segments.

Just wondered if you could follow-up on industrial and dental.

Sure, Terry.

I think dental, we continue to see the mid-single digit rate.

Industrial, probably double digit.

10%, 10%-plus.

Where is Apex in full year guidance at this point?

They contributed about $15 million in the quarter, we expect that to be about $60 million for the full year.

Good ramp-up over last year, but they are also doing a fair amount of restructuring, which, again, I think will get us another step up in 2012.

Okay.

And then, lastly, a follow-up on the last question, Larry.

A lot of benefits from new products.

Growth, better margins.

The question is, as we move into 2012, does the curve or the impact of all that start to flatten, or do you see the flattening further out beyond 2012?

I know it's tough because you have a lot of different segments and products, but maybe just touch on that.

I think we feel very good about those things that we can control both from an innovation and a go-to-market perspective.

I think with all the history that has been made, in the macro scene the last three months, we're not going to get too far out ahead of ourselves on those calls.

But I think we like the positions that we have and we like the markets that we are in.

If the global recovery continues apace, we're going to be very well-placed, well-positioned going into '12 and '13.

So, does R&D stay at 6.5% through the year or should we expect that to come back down?

It should be in that zone.

Part of the latitude that we want to make sure we retain through the years to take that up, above plan, above budget, where those opportunities present themselves.

We had a couple of discussions just this week in that direction.

Maybe just squeeze one last one in.

Did you call out Videojet core in the quarter?

We did.

It was in midteens.

Thank you.

And at this time I'll turn the conference back over to Matt McGrew for any additional or closing remarks.

Thanks, Casey.

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

Thanks everyone.

Thank you.

Ladies and gentlemen, this does conclude today's presentation.

You may now disconnect.