Danaher Corp (DHR) 2011 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Danaher Corporation third 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, 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, a slide presentation supplementing today's call, our third 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 provided in the investor section of our website, www.danaher.com under the heading Financial Information.

And will remain available following the call.

The audio portion of this call will be archived on the investor section of the 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 October 27, 2011.

The replay number is 888-203-1112 in the US.

And 719-457-0820 internationally.

And the confirmation code is 4721216.

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

All references in these remarks and accompanying presentations 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 the to note that we'll be making some statements during the call that are forward-looking statements within the meaning of the federal securities laws.

Including statements regarding events or developments that we believe or anticipate will or may occur in the future.

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

It is possible that actual results might differ materially from any forward-looking statements that we 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 and developments or otherwise.

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

Matt, thanks.

Good morning, everyone.

And thank you for joining us.

We are pleased to report an outstanding third quarter result for Danaher.

The quarter largely played out in line with expectations, the expectations we shared with you both in July and when we were together with many of you in early September.

Our core growth in the third quarter was 7.5%.

While we are cognizant of the macro concerns, we continue to feel good about where we are today.

The Danaher Business System continues to be a competitive advantage, helping our businesses capture market share through innovation, new product introductions and go-to-market initiatives.

We had a number of exciting new product introductions in the quarter, most notably at Tektronix, where we launched 2 game-changing oscilloscopes, which I'll talk about more later.

From a geographic perspective, what we've seen thus far is again very much in line with what we saw in the second quarter.

The emerging markets leading the way, followed by the developed markets.

While China remains healthy, third quarter revenues grew at a slower rate than what we saw in the first half.

Those of you who did join us last month in Chicago saw numerous examples of how we're building a premier global enterprise by investing in go-to-market initiatives, in-country leadership, and localization of products in the emerging markets.

Sales from the emerging markets grew at a low double-digit rate in the third quarter.

And this was the first quarter in which we surpassed $1 billion in total revenue.

Sales from the developed markets grew at a mid single-digit rate in the quarter with the US doing better than Europe.

During the quarter we delivered strong operational performance with our core operating margin improving 130 basis points year-over-year.

And 4 of our 5 segments delivering over 100 basis points of core margin improvement.

All the while, continuing to invest in growth opportunities.

We were particularly pleased with the operating margin performance at Dental, and Test & Measurement, as well as the better than expected operating margins at Beckman Coulter.

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

Today we reported third quarter adjusted diluted net earnings per share of $0.73, representing a record third quarter for Danaher, and a 26% increase as compared to our adjusted EPS last year.

Revenues for the quarter increased 46% to a record $4.5 billion, with core revenues up 7.5%.

The impact of currency translation increased revenues by 3.5%, and acquisitions contributed 35%.

Our year-over-year gross margin for the third quarter decreased 330 basis points to 48.8%.

While our operating margin in the third quarter decreased 340 basis points year-over-year, to 14.5%.

These decreases were primarily due to lower margins at Beckman Coulter.

And the impact of non-cash acquisition related costs related to Beckman Coulter, partially offset by leverage from greater sales volumes and some early productivity improvements.

Our gross margin in the quarter, excluding the impact of the non-cash acquisition-related costs for Beckman, was 50.9%.

DBS continues to drive outstanding cash flow performance.

Our operating cash flows from continuing operations for the first 9 months of 2011 were $1.9 billion, a 28% increase compared to the same period last year.

Year-to-date, free cash flow from continuing operations was over $1.6 billion, and our free cash flow from continuing operations to net income ratio was a healthy 120%.

During the quarter, we reduced our debt by over $600 million.

And expect that free cash flow will exceed $2 billion in 2011, which would be a first, again, for Danaher.

During the quarter we completed the acquisition of 2 smaller businesses, with aggregate annual revenues of about $25 million to strengthen our Environmental and Test & Measurement segments.

We remain optimistic about our ability to deploy capital in this environment and are encouraged by the opportunities in our acquisition funnels.

So turning to our 5 operating segments.

Test & Measurement revenues increased 23% for the quarter, with core revenues up 12.5%.

T&M's core operating margin for the third quarter increased 240 basis points.

Overall, their operating margin increased 320 basis points to 24%.

Fluke core revenues grew low double digits in the quarter, with solid demand in industrial, automation and calibration end markets.

Emerging markets growth remained strong in the quarter, up over 20%.

Fluke has been leading the DBS digital marketing effort.

That work was recently recognized by the Electrical Distributor magazine as the best of the best in the digital marketing campaign category for the Company's online promotion for it's iFlex clamp meter.

This is a great example of DBS using the web to build brand awareness and preference to help drive growth.

At Tektronix, core revenues were up mid single digits, led by demand for our oscilloscopes which saw greater than 20% growth in the quarter.

During the quarter we launched 2 significant new products.

The MDO4000 is the world's first mixed domain oscilloscope, which delivers the functionality of both an oscilloscope and a spectrum analyzer in a single instrument.

The mixed domain allows engineers to see time-correlated analog, digital and wireless signals at the same time, driving quantum gains in test productivity.

We also launched the 70000D series oscilloscope with an industry-leading combination of 33 gigahertz bandwidth and 100 giga-samples per second This ground-breaking new product provides the industry's highest level of measurement accuracy for today's fastest electrical signals across multiple channels.

Core revenues from our communications businesses grew over 20%, led by healthy demand for our network management solutions in North America and our network security and analysis solutions globally.

The strong third quarter growth also benefited from some earlier-than-expected installations of new systems on customer networks, which will in turn negatively impact fourth quarter results.

During the quarter, Tektronix acquired Optametra, a provider of fiber optical test systems used in telecommunications applications.

Environmental segment revenues increased 8.5% in the quarter, with core revenues increasing 4.5%.

The segment core operating margin was up 35 basis points in the quarter, with overall operating margin increasing 50 basis points to 21.6%.

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

At Hach-Lange the demand continues to be healthy for our core lab instrumentation, particularly in North America and Western Europe.

The North American and Western Europe municipal business grew at a solid mid single-digit rate in the quarter.

However, muni growth in China, while positive, continues to be at lower levels than in prior years.

In this, the first year of China's 12 five-year plans.

Trojan core revenues increased at a low teen rate in the quarter, driven by growth in all major geographies.

Large municipal-based UV systems employing Trojan's new Solo lamp technology will be delivered over the coming months to Vancouver, Canada for a drinking water application, and Melbourne, Australia for a water reuse application.

Both of these municipalities selected Trojan's technology, in part, to take advantage of the sustainable features, including reduced power consumption, a smaller footprint, and lower carbon generation than competitive products.

Since the introduction of the new Trojan Solo lamp technology, over $100 million of new opportunities from around the world have been quoted.

With market interest being particularly high in the North American wastewater market, as plants consider replacing their existing chemical disinfection systems with Trojan's new products.

ChemTreat's core revenues grew at a low double-digit rate in the quarter, their fifth consecutive quarter of double-digit core growth, as they continue to aggressively invest in sales activities, and grab market share throughout North America.

Gilbarco Veeder-Root's third quarter core revenues increased slightly.

We continue to see healthy demand for dispensers in North America and Europe.

And double-digit growth at Veeder-Root.

Offset by a difficult year-over-year comparison resulting from enhanced industry payment security standards in 2010.

During the quarter we expanded GVR's global footprint with the acquisition of Stratema, a manufacturer and distributor of dispensers in Sao Paolo, Brazil.

Stratema strengthens GVR's position in Brazil by providing them with manufacturing and service capabilities, and localized products for the Brazilian market.

Moving to Life Sciences & Diagnostics.

Revenues for the quarter increased 180%.

As a reminder, Beckman Coulter's operations are reported in this segment and contributed to overall revenue growth, but are not yet considered core.

Core revenues were up 6% in the segment for the quarter.

Our core operating margin was up 120 basis points in the third quarter.

Overall, our operating margin decreased 900 basis points from the prior year to 3.3%, as a result of lower operating margins at Beckman Coulter due partially to restructuring and integration activities, as well as non-cash charges related to fair value adjustments to inventory and deferred revenue.

We expect these adjustments will be completed in the fourth quarter of this year.

Radiometer's core revenues grew at a mid single-digit rate for the quarter, driven by continued success for our ABL90 and ABL80 blood gas analyzers and consumables across all major geographies, with particular strength in China.

The roll-out of AQT continues to go well, with year-to-date revenues doubling the prior year.

In Leica Biosystems, core revenues increased at a high single-digit rate in the quarter.

We saw strength across all major geographies, which was led by demand for our advanced staining instruments and consumables, which grew in excess of 20% in the quarter.

Leica Microsystems core revenues grew at a mid single-digit rate in the quarter in most major geographies, driven by continued strong sales of confocal microscopes used for research applications.

Core revenues at AB SCIEX grew at a low double-digit rate in the quarter, driven by continued momentum from our TripleTOF 5600 and from the new products launched at ASMS, including new food testing and clinical research solutions.

Demand was broad-based with academic, applied and research markets all growing in excess of 10%.

We've now owned Beckman Coulter for just over 3 months and it's completed our first full quarter of integration.

As we've mentioned before, there's still a lot of work ahead of us, but we are genuinely excited about where the business is today.

The leadership team is fully engaged and driving improvements on all fronts, including sustainable quality improvements.

We remain very comfortable with both the financial and strategic opportunities inherent at Beckman Coulter.

Turning to Dental.

Segment revenues increased 11% in the quarter, with core revenues up 4.5%.

Our core operating margin was up 200 basis points in the third quarter.

Overall, our operating margin was up 160 basis points from the prior year, to 14.5%.

KaVo core revenues increased at a mid single-digit rate in the quarter with solid demand for instruments in North America and Europe.

Customer feedback on our recently introduced 3-in-1 digital imaging system for TD panametrics, supplementrix and 3D imaging continues to be very positive.

In addition to the solid organic growth, core operating margins were up meaningfully, both year-over-year and sequentially.

And we continue to execute on restructuring activities and invest in go-to-market programs.

Sybron core revenues grew at a mid single-digit rate in the quarter, led by sales of DamonClear othodontics solutions, infection prevention products, and general dentistry consumables across all major geographies.

Moving to Industrial Technologies, revenues increased 21.5% for the quarter, with core revenues up 9.5%.

Our core operating margin increased 130 basis points in the third quarter.

Overall, our operating margin was 21.6%, a 40 basis point increase compared to the same period last year.

Product identification core revenues were up high single digits in the quarter with broad-based growth across most major product categories and geographies.

During the quarter, Linx launched the CJ400, a self-service portable continuous inkjet printer designed for easy movement across multiple production lines.

Customer response for this new product at Pack Expo in Las Vegas earlier this month was extremely positive.

While it's still early, we've been very pleased with the customer and associate feedback we've received to date at EskoArtwork.

Our initial operating and strategic reviews have been very positive.

And we look forward to sharing future successes with you in the coming months.

In Motion, core revenues grew at a mid single-digit rate in the quarter.

The momentum we experienced in the first half of the year has slowed, particularly in the industrial automation, technology and solar markets.

However, demand for Kollmorgen's engineered solutions and Thomson's linear and mechanical products, remains healthy.

So to wrap up, Danaher clearly had a very good third quarter.

We're excited to have Beckman onboard, and the integration remains very much on track.

We were particularly pleased with our team's execution across the Danaher portfolio.

We're certainly mindful that the environment is likely to get more challenging as we go forward.

So given our strong performance to date, we're in a position, and believe it prudent, to accelerate further our structural cost reductions here in the fourth quarter.

As a result, we anticipate increasing our previously-announced fourth quarter quiet restructuring efforts from $50 million to approximately $100 million.

This excludes the ongoing restructuring efforts at Beckman.

Our focus on gaining market share, while also accelerating cost actions in a slowing macro environment, coupled with a potentially more attractive acquisition marketplace, positions us well for the balance of 2011 and beyond.

We are increasing our full year adjusted diluted EPS guidance from continuing operations from a previous range of $2.75 to $2.82, to a new range of $2.79 to $2.84.

Which includes both the $100 million of fourth quarter restructuring as well as the ongoing Beckman restructuring efforts.

Our fourth quarter 2011 adjusted diluted EPS from continuing operations guidance is now $0.75 to $0.80.

Thanks, Larry.

That concludes the formal comments.

Dave, we are now ready for questions.

(Operator Instructions).

Steve Tusa with JPMorgan.

What's the core growth for the fourth quarter?

Steve, I think the guidance that we just shared with you would assume mid single-digit core growth, call it 4%, 5%.

And then obviously you're upping the restructuring.

I think one of your higher quality competitors in Europe also talking about incremental restructuring today.

Do you worry that you're pulling the trigger here too soon, given what we're seeing out there?

Obviously there's a lot of macro cross-currents but the micro for most seems to be somewhat holding in.

How convinced are you that you need to do this in the fourth quarter?

And then, if you're growing 4% to 6% in the fourth quarter, how does this play out into early next year?

Are there comp issues where that accelerates?

Or is that a good way to think about the ongoing, is that more of a trend line rate in the medium term?

I think we'll speak to the top line outlook for 2012 when we get everybody together in December.

We've just literally kicked off our budgeting process, having wrapped up our annual strategic reviews with the businesses.

Steve, I would say that, first off, we come to the fourth quarter restructuring with the view that it's always time to take out costs that you don't need.

I think we're pleased with the performance thus far and the momentum we have going into the fourth quarter.

That gives us the opportunity and the ability to go after the programs inherent in the $100 million of spend.

That's going to be split roughly 50/50 between the US and Europe.

Dental's going to get a big chunk of that, as will the industrial businesses, both at Motion and PID, as well as in T&M.

So it's a broad-based effort both by business and by geography, I think very characteristic of the way we always operate.

Clearly, we're seeing some moderation in the economy.

We all read the headlines.

It certainly is prudent at any time in the cycle.

But I think our view is particularly so right now, given the uncertainties around 2012.

Better to be prepared and ready for what may come than to postpone what we think is a very prudent action here.

And then just one more question.

In September, where did you see, if you did see, deceleration?

Which it sounds like a little bit towards the end of the quarter maybe a little bit of deceleration.

What was the worst business from a deceleration perspective?

And did you have any businesses that were negative?

Steve, I would say that if you look at the third quarter, I think what we were particularly pleased with is that it was steady pretty much start to finish in that regard.

We didn't see a dramatic tail-off in September with all the headlines out there and whatnot.

Clearly, we had some businesses that had, I think, just gang buster quarters.

AB SCIEX being one, ChemTreat another, it looks like TID did well here again.

But clearly I think what we saw in the businesses looks pretty well with what others are saying.

You mentioned 1 competitor here in Europe this morning, I think the last several weeks in the papers, relative to China, still growing nicely, but at a slower rate.

We clearly saw certain of our technology end markets that we serve, both at Motion and Tektronix soften up a bit.

And I'd say in the industrial world, particularly with some of our OEM exposure at Kollmorgen softened up.

Now, there's some overlap there between both China, frankly, and some of the end markets.

But those are probably the 3 pools with some overlap where we saw slowing through the quarter.

And that's mostly Tek, not industrial automation, right?

When we say technology end markets, we'll feel some of that at Tektronix.

And we'll feel some of that particularly at Kollmorgen where we serve those end markets from the OEM side.

Not the test bench side, as we do at Tektronix.

Scott Davis with Barclays Capital.

You've had 3 months of time to dig into what's going on at Beckman.

Where's your view now versus where it was 3 months ago?

Is the opportunity bigger?

Is it less?

Is it the same?

Is there any kind of change in what you think you can get out of it?

Scott, I would say that 3 months in here, we've been pleased by the absence of surprises on both sides of the ledger.

I'd say that 90 days in, we're very pleased with the performance of the business.

I think the integration has gone very well.

And we're really having, I think, significant impact on the way we run the business.

You look at just the third quarter performance, top line very much in line with expectations, so no surprise there.

Margins came in a little bit better than we expected.

They were up about 100 basis points sequentially.

Some of that's the faster traction I think we've gotten on the headcount reductions.

A little bit more discipline on the G&A spend.

And on the cash flow side, we said we would get after working cap and CapEx.

That's happening.

So good early results in that regard.

I think with respect to the integration, that is going well.

We had an excellent reception there throughout the organization.

And they are rapidly adopting DBS.

I think you know we've split the Company largely into 3 discrete businesses.

The diagnostics business being one.

The molecular effort being a second.

And the life science area being a third.

The public company costs are out now.

Tom Joyce, one of our EVPs, has got overall leadership and partnership with Bob Hurley there.

So that is set up, I think, just as we had intended.

From a talent perspective, there's a lot of good talent there.

We knew that to be true, and they're showing us their capability.

We've put in now 10 full-time Danaher folks in senior roles, including the CFO spot, the Head of Operations, the Head of Service, and as well as the Head of Marketing, in addition to a Chief Transition Officer.

We've actually been pleased with the response we've gotten inside the industry.

We've been getting a lot of inbound inquiries about folks wanting to join the team.

And we're pleased to recently announce a new head of US sales who is an outstanding industry veteran.

DBS team fully deployed there.

We probably have about 25 full-time equivalents working with the Beckman team to get DBS laid in.

And in terms of the way the business is changing its day-to-day cadence and rhythm, I think if you look at quality, you look at growth, you look at cost, again, real good progress here.

Obviously, quality is job one.

We're being very aggressive in this regard.

A lot of work to do.

And I think you see some of the early signs perhaps, primarily where we're getting after some of the customer-facing issues.

We've got the sodium issue behind us now.

That's closed out.

I think we're progressing well with glucose and troponin.

Obviously, we've gone public now with a new submission timetable for the troponin assay, looking at a first quarter 2012 filing.

Feel like that's a prudent, smart timetable that we'll deliver on.

Lots of work internally on quality.

But as we continue to look at that work plan in the wake of the warning letter that we got out at Brea, I think we feel like we're working on the right things and making progress.

Clearly from a growth perspective, getting sodium behind us helps.

Getting a 510(k) approval for Lactate I think helps demonstrate to customers that we're making good headway here.

You look at retention rates, they've been steady the last couple of quarters.

We are winning in competitive situations, as well.

So I think that while we've got clearly some headwinds in front of us relative to the top line this year and next, there's no reason to think this isn't a mid single-digit grower, at least, for us.

And that's before the molecular contributions kick in.

And on the cost side, as you I'm sure pick up in the margins, we're more than 75% of the way through the 1,000 person headcount reduction that we had laid out early on.

That's helping us in a whole host of ways beyond just the P&L.

And again, continue to feel very comfortable about our ability to take at least a $250,000 out of the overall cost structure.

So again, lots to do.

Sorry to run on here a bit, but I think we're excited about the opportunity and would make the same decision given the opportunity today.

Sounds complicated.

But, anyways, the restructuring, $100 million that you're going to spend, how much of that is Beckman related and a pull-forward of, you know what you need to take out in costs and now you're able, business conditions are good enough that you can afford to do it?

How much of that is Beckman versus just general Danaher?

Scott, the $100 million is all outside of Beckman.

So in Q3 we spent about $50 million of restructuring on Beckman.

We'll probably spend another $25 million, maybe north of $25 million on Beckman here in Q4.

So our total restructuring will be probably north of $125 million in the fourth quarter.

So where is the restructuring at?

Is it SCIEX, is it Tek?

Where is the delta, the $50 million to $100 million?

The $100 million is in all 5 segments.

The 3 segments that are probably getting the biggest share of that would be Industrial, Test & Measurement and Dental.

But they're all getting pretty healthy chunks of restructuring here.

Nigel Coe with Morgan Stanley.

Could you maybe just parse out the 7.5% organic between major territories, North America, Europe, and maybe emerging markets?

Sure, Nigel.

It played out pretty similar to Q2.

Emerging markets grew low double digits.

As you mentioned, China, which was growing 20%, the first half of the year was low teens in Q3.

We actually saw faster growth in Brazil and Latin America than we had seen in the first half.

So overall quite comparable to Q2.

The US was right about 5% and Western Europe was about 2%, 2.5%.

Again, pretty consistent with what we saw in Q2.

The obvious follow-on is, the 4% to 5% that Larry threw out for 4Q, how does that look by geography?

I'd say for all the reasons, slightly less.

We think we'll see a similar distribution between emerging markets being the strongest, the US in the middle, and Europe the weakest.

Though we're not looking for a particular outlier from those 3 at this point.

And then again, just looking at 4Q, we saw some weakness, some weakening come through in Motion.

And a little bit within Test & Measurement, Technology verticals.

But in 4Q do you expect any of your businesses to go negative, maybe Motion or perhaps KaVo?

No, no.

I think on the contrary, Nigel.

I think if you look at mid single digit, 4% to 5% fourth quarter, I think we're going to have 4 of the 5 segments very much in that zone.

I think what we would expect is, as I think Dan just alluded to, Environmental, Dental and Life Sciences and Diagnostics be fairly steady.

We are seeing a little bit of pressure in Motion and Industrial.

But I think all 4 of those are going to be in the zone.

T&M is probably the outlier.

They'll probably be in that low single-digit band, largely because of the timing on some of the Tek Comm projects.

We are seeing, again, some slowing in the technology end markets and in China at Tektronix on the core instruments side of the business.

But to have T&M as the outlier there is largely going to be a function of the timing at Tek Comm.

Elsewhere in distribution, at Fluke, for example, they continue to do very well.

And then just finally, fantastic job on the delevering during the quarter.

Does that change at all your time line for getting back into the M&A market in any meaningful way?

Sure.

Clearly, paying down over $600 million of debt in the quarter really puts us in a good position here.

We think we probably have a $4 billion to $5 billion envelope over the next couple years.

As we've talked about, we were a little discouraged by the industrial M&A market and the prices being paid up through about May or June of this year.

I think we've been encouraged that you've seen very little industrial M&A.

To me, that's a first sign of maybe things getting better.

And I think we're going to be very well-positioned and we're gearing back up, as we speak.

And the $4 billion to $5 billion, are you still looking at $2 billion for next year?

Correct.

Jon Wood with Jefferies.

Larry, so, SCIEX, again, over 10% despite you lapping the 5600 launch.

Obviously a lot of consternation out there about the government research budgets.

Can you just parse out what you see from an end market perspective going forward in the SCIEX business?

Sure.

Keep in mind, Jon, we're lapping the launch.

We really began to ship that product in earnest in the fourth quarter of last year.

In fact, I was up in Toronto with the team yesterday.

They've come a long way in really just 1.5 years.

I think if we look at just Life Sciences and Diagnostics more broadly, it's important to keep in mind that pro forma with Beckman, that's about a $6.5 billion segment for us.

About 25% of that is geared towards research applications.

And of that, call it $1.6 billion, just under $1 billion is probably what we would frame as classic academic research, government funded sort of activity.

I think if you look at SCIEX as well as some of the other businesses, be it Leica, be it Beckman, they're certainly seeing some pressure this year really as they try to comp the US stimulus from 1 year ago.

But I think, by and large, they are certainly reading all the negative outlooks that are out there.

But are of the view that if you go back to, say, '06 to '08 when, at least in the US, we saw flat funding, we were able to grow at a double-digit rate really by focusing on where innovation was occurring and in turn where money was being spent.

So I think if you look at some of the correlation studies in microscopy, obviously stem cell, ultra high resolution for Leica, for example, there's just a number of different ways in which these businesses, I think, are positioned to not be wholly dependent on the top line budget trends.

And you have some dynamics.

We were talking with the SCIEX team yesterday, for example, about what's happening in Germany.

Obviously a lot still to be sorted out but you have some countries that are decidedly taking a pro investment stance, particularly with respect to scientific research and innovation.

Well-positioned in those countries, well-positioned around those applications.

So, I think all--in that hopefully frames the exposure that we have, but also provides a little bit of color as to why we're going in with, I think, optimism to whatever the funding environment may be in '12 and '13 in Life Sciences.

One last one.

If you look within T&M you talked about the low single digits in the fourth quarter being largely a result of the Comm side.

What do you expect from the core Fluke and core Tektronix businesses in the fourth quarter?

I think Fluke we're looking at a mid single-digit growth rate.

Tek could be a low single digit growth rate but would expect the book-to-bill to still be north of 1.

John Inch with Bank of America.

China didn't really sound like there was a lot of change.

Is there any way, Larry or Dan, to provide a little more color?

Are you seeing changes in terms of intentions on the part of customers?

Is there a regional difference, say, between the west versus the coast?

Or are you just being somewhat cautious ahead of what's obviously an attempt by the government there to slow things down because of inflation?

John, I think that we certainly grew at a lower rate in the third quarter than we did the first half.

So I think we certainly saw the government's actions or whatever else is happening there.

I think for us, that was principally in some of the technology end markets that we serve, many of which that have obviously migrated heavily to China the last several years.

And again, we have that exposure at Tektronix and Kollmorgen, principally.

I'd say we also saw some of the municipal pressure that was talked about through the year.

They're just getting off to a very slow start in this regard relative to the 12th 5-year plan.

But in that regard we saw, frankly, some encouraging signs.

We also have some exposure, primarily at Kollmorgen, to some of the clean tech efforts that the government has put in place.

And we saw those OEM customers slow considerably during the course of the quarter.

So still one of the best growth markets we've got.

We've got excellent competitive positions there but it is what it is.

And again, I think that, as you alluded to, the government is trying to manage a number of different competing objectives there.

But I think long term we want to be there to see these leadership positions continue to grow, and that's what we're going to do.

Where I'm going, Larry, you had expected China to slow, not even just at the emerging markets meeting but before then.

There was comparison issues and just natural trends as your base gets bigger.

Over the course of the quarter, did it appear, and maybe based on your exit rates and what you're looking at today, has it slowed a little bit beyond expectations, or is it in line?

That was the context of what my question was.

I think we're very much in line in that regard.

Beckman, are you guys still thinking Beckman is up a little bit next year?

Or is it still a little too early to tell, in terms of the organic trajectory?

John, I don't think we're going to change our top line outlook for Beckman today.

We said that, I think, from the outset that this year and next would be challenging top line, given the issues we were inheriting.

And that a flattish performance is what we're expecting and in turn you should expect.

So far, we're in line with those expectations and really no reason to alter that course today.

And is Beckman in China, which is a big contributor, is that still the same or has that changed at all?

No, Beckman China is a high-performing business, a real growth catalyst for the Company.

And they continue to be, I think, very well-positioned in obviously an exceptionally important market.

Lastly, Larry, obviously there's pretty obvious risks of a European recession, some big slowing here.

It's reflected in the actions you were taking.

Could you comment on how you're thinking about your playbook maybe in contrast to '08?

And I don't know, maybe you could comment around how you're thinking about Dental, for example, and the performance then versus heading into a possible mild recession this time.

Or perhaps some of the other businesses.

All else equal your portfolio looks a little more defensive, especially with Beckman.

But I'd like to hear your thoughts.

Certainly you bring on a $4 billion book of business at 75% in the aftermarket, that just creates a lot more ballast in the hull here if tough times are ahead.

But I don't think that we would see anything like an '08, '09 collapse of the economy, as we all saw just a few years ago.

But I think your frame, John's, a good one, relative to the playbook that we intend to use going into next year.

Regardless of what the macro scene ultimately is, I think you're going to see us continue to be aggressive in and around our investments to grab share.

And that's both investments in technology and sales and marketing.

I think you will continue to see us be equally aggressive on the cost side of things.

You see that partially in the $100 million spend here in the fourth quarter.

Obviously, as Dan just highlighted, we're spending almost that much at Beckman this year to get that cost structure straight.

And that just gives us both, I think, earnings protection, as well as, frankly, latitude to invest in growth, organic growth, at a time when others won't.

You couple that with the, I think, positioning we're going to have, both strategically, operationally and financially to be an active acquirer at a time when, all things being equal, evaluations are probably more reasonable and attractive for a strategic acquirer.

I think that means we're set up for 2012.

Again, our crystal ball is no better than anyone else's.

But I think that playbook, very similar to the playbook we had a couple years ago, but modified given, again, we don't expect to see that sort of paralysis next year, is going to serve us very well.

Yes, in other words, it sounds like a mild recession, maybe to a degree, might actually play a little bit to your long-term strategic hand in terms of share gains and some other investments in M&A.

John, we would never wish for a downturn but if you go back to '08, '09, go back to '01, '02, in an odd way, perhaps, they have served us well.

Steven Winoker with Sanford Bernstein.

When you think about that $4 billion to $5 billion of additional M&A spend over the next 2 years, given how human resource constrained you probably are, and integration constrained on Life Sciences and Diagnostics, you have acquisitions I'm sure throughout the pipeline everywhere in all the divisions, how confident can investors be that should the right, big, good ones come up in LS&D, or the medical side of the business, that you would actually still hold those off and wait for the industrial side over the next 2 years?

Or could it come out more balanced?

Steve, I think what we've said in the past is obviously we've got our hands full with Beckman Coulter.

Again, pleased with where we are 90 days in.

But investors should expect us, all things being equal, to deploy that capital elsewhere in the portfolio.

And if you look at T&M, you look at Environmental, couple of things in Industrial, could be interesting, particularly around product ID, I think that Dan and I this morning don't talk about that $4 billion to $5 billion envelope without conviction that those opportunities exist.

We can get at those investments in ways that I think will generate real returns for shareholders.

So I don't think there's any change in that regard.

And again, as I think Dan alluded to, the better valuations in the industrial world, at least today and going forward, than maybe we've seen the last couple of years, are certainly conducive to the effort that we intend to lay in at T&M, Environmental and Industrial.

And you didn't mention Dental there.

I take it, intentionally.

Would that fall under the same category as Life Sciences even though you don't have as much acquisition work going on there?

I think at Dental, again, a hyper fragmented market, by and large.

Don't be surprised if we do a small thing here or there.

But in terms of big bets, I think they're going to be elsewhere.

Then just a couple follow-ups.

One, the comments on $100 million restructuring spend, just to be clear, is any of that being directed at capacity reduction, as well?

I don't mean shifting footprints, but I assume you're getting more productivity out of other areas.

Should we think about you're taking capacity out, net capacity out?

I think we're taking structural cost out.

We don't view it as capacity.

These are basically projects that were in the 2012 budget that we're starting to go through.

And I think given the progress we had with the Beckman margins, the very strong core margins we had in Q3, we just felt we had the room to pull it forward and get it done here.

Finally, on price-cost, could you give us some flavor in terms of how that dynamic progressed through the quarter across the businesses, maybe?

It hits us most in Industrial.

We got about 20 basis more price this quarter versus Q2.

Clearly, there's been a fair amount of inflation probably through the end of July.

We've seen some of that subside, obviously in spot rates, but we haven't really seen that benefit yet across the businesses.

Hopefully, in Q4, there is often a lag, obviously you bring inventory in and run it through the P&L.

So net-net, it was probably a slight negative in the quarter, the price-cost dynamic.

Hopefully that may be a slight positive for us.

But, again, given our business mix, it's not a huge issue overall for our P&L.

So it would be a marginal potential upside to the fourth quarter.

Yes, but marginal.

Shannon O'Callaghan with Nomura.

So on Beckman, just an update.

Are you still thinking the $0.05 of accretion in the fourth quarter?

And what are you thinking about next year?

And maybe just give us a sense of milestones that we should be thinking about.

Shannon, just maybe briefly on the accretion.

Clearly, we trended better in the margins through the third quarter than we had forecasted at the beginning of the summer.

I think that puts us in a position where there's probably a couple more cents of accretion in Beckman in Q4.

We're taking some of that and putting that back into that $50 million of incremental restructuring.

I think we'll avoid updating any '12 numbers until December.

I don't know if you want to talk about any additional milestones, Larry.

Shannon, any particular areas of the business that you're thinking about, vis-a-vis milestones?

You mentioned some of the FDA milestones already.

Maybe from an organizational standpoint on the cost side of things, obviously you've got 75% of the 1,000 done.

What comes next?

From an organizational perspective, obviously we have the remaining 25%, or 250 people, that we need to transition, or will be transitioning out here in the fourth quarter.

So obviously a new structure.

You have a reconstituted leadership team with Beckman veterans and some Danaher folks.

And again, with some industry experience being brought in, as well.

Obviously, with nearly 10% of the headcount reduced, that changes a lot in the organization.

So I think what you're going to see -- well, let me phrase it differently because you're not going to see a lot of this.

It will be happening inside the business.

That new structure, that new leadership team, the new organization is really going to begin to, again, work more like a Danaher business than perhaps they have in the past.

To Scott's question earlier, I alluded to some of the progress that we're making with respect to quality and growth, very much the focus here.

And that's just daily work.

That's what we do in transforming and building businesses.

We're thrilled with the progress.

Obviously from a quality perspective, there will be some things that you'll be able to see from the outside in terms of some of these public customer-facing issues.

Again, I mentioned some of the product recalls that have been widely publicized.

We've got 1 of those behind us.

We're making good progress on the other 2.

And are obviously keen to have all 3 remediated in the not-too-distant future.

Obviously, there's a lot more to the quality challenge at Beckman.

I think that presented itself in the warning letter.

But again, to reiterate, we really didn't find that there was new news in the wake of that FDA audit.

The work that the Company had disclosed previously, the progress that they've made, all of that combined I think gives us conviction that we will not only fix the issues of the past but ultimately make quality a competitive advantage for Beckman Coulter.

And then on Dental, one of the real weak spots, I think, last quarter and a sharp recovery, maybe talk a little bit about what got done.

But yet it's still a focus area for restructuring, so what still needs to happen?

Clearly we've talked about Dental in the past as a business that ought to be a 15% to 20% segment OP performer, very much in line with some of the other segments.

Shannon, it's a long list of different items that constitute what they'll do here in the fourth quarter.

There will be, obviously, as Dan was alluding to earlier, some structural cost that comes out.

That will be fairly well balanced between what we do here and what we do in Europe.

And as we go through the quarter, I think we'll be able to give you a little bit more color as to some of those specifics.

But again, pleased with what they've done this year.

Certainly saw that present itself in the third quarter.

And we continue to have tremendous conviction that the Dental segment can and will be an in-line contributor at Danaher.

Jeffrey Sprague with Vertical Research.

Larry or Dan, can you give us Beckman's actual pro forma core revenue growth in the quarter and some color on how it splits between equipment and consumables?

Jeff, it was, again, basically a flattish performance at Beckman on the top line.

And I would characterize that as fairly well balanced between the split between the 2.

And could you give us a little bit more color on what you're seeing in muni markets both in the US and Europe?

Yes, I think if you look across where we have that muni exposure, it's been steady in both places.

We're certainly having a very good year at Trojan in that regard.

I think on both sides of the Atlantic, again, very much in line with the headlines, the teams are maybe a bit cautious thinking about next year, particularly with some of the bigger ticket products.

But be it on the drinking water side or on the wastewater side, I think we saw good growth here in the third quarter, expect to do the same in the fourth quarter.

And see no reason why that platform isn't a grower for us next year.

But again, as we alluded to, the more significant muni softness has been in China.

But Western Europe and US has held in pretty nicely.

And the signs in China, again, are encouraging as we get toward the end of the year here.

The slow start to this new 5-year plan is perhaps fading a bit on us, which would be welcome.

Do you actually see, Larry, any sign from just the chatter or people you talk to over there that the foot start's coming off the brake from a credit standpoint or other economy-cooling type of initiatives that they've had in place?

I have heard that from a number of people who have, I think, a thoughtful perspective on China.

The exact timing and the magnitude is perhaps a bit of a guessing game.

But yes, I have heard that.

And then finally, just on tax, Dan, how much more of these type of opportunities do you think you have?

And it looks like they're starting to push down your structural tax rate even a little bit lower.

As we roll into next year, should we think that the underlying structural tax rate is still on a southward trajectory here?

I think it appears that with Beckman coming in it's probably taken our effective rate down maybe about 100 basis points from 25%-and-change to 24%-and-change.

Absent any changes out there, whether it's US or internationally, I think we're probably in that zone, probably in that 24% to 25% rate, which is below obviously what we're running at the first half of the year.

Deane Dray with Citi Investment Research.

I wanted to follow up on the comments earlier about the opportunity in network security analysis.

And it seems like every day there's another report of a security breach, a hacking or so forth.

But what is the commercial opportunity, both at the enterprise level, local area networks for Fluke Networks and then broader from the carriers with Tek Communications?

Deane, as you just highlighted, we see a breadth of opportunities, both under our Tektronix Communications and our Fluke Networks and Arbor brands to plug into both the physical security challenges that are out there for network operators, both on the enterprise and the carrier.

More on the enterprise side.

But also in terms of some of these so-called hacking or cyber security threats.

Clearly, we acquired Arbor for Tek Communications to give them an outstanding position in that application with the carriers.

That business has been probably 1 of the top 3 growers for Danaher this year.

They continue to be just chock full of opportunity in their sales funnel.

And we expect them to have a very strong run here going forward.

That's not the only play in and around Tek Communications, obviously.

Much of what we do in the network management space is akin to what Arbor does most directly as networks tackle the challenge not only of growth but security.

Clearly, part of what we've done at Fluke Networks, particularly with a recent acquisition called AirMagnet, is improve our wireless test capability with, again, a strong slant there with respect to enterprise security.

So that's a very hot topic, it courses through all of the businesses.

So whether we're talking about the carriers, whether we're talking about corporate IT, we think we're well-positioned.

And the good growth we've seen this year is in no small part because of that exposure to cyber security, broadly defined.

Do you have all the right pieces to be able to address the market opportunity?

You had the Arbor acquisition but will this be home grown from here or are there still pieces that you might need?

Deane, as you well know, and this is a rapidly evolving space, I think we really like not only what we have today but the R&D capabilities we have in those businesses.

So it's hard for me to say that we have everything we need for all time.

Given that, we'll certainly be relying largely on our organic bets.

But I wouldn't be surprised, and you shouldn't either, if you see us make some other inorganic bets to complement what we have currently going forward.

And then just last question would be on Tek Communications.

What's the quote activity like on the carrier network next generation systems?

And any changes in the competitive dynamics there?

I wouldn't say we've seen any marked change there over the last 90 days, Deane.

They are exceptionally busy, as you can imagine, given the wireless growth and the challenges that they help carriers tackle.

It can be, at times, a bit of a lumpy business.

They came into the third quarter thinking they were going to have a good quarter.

They had a very good quarter, given the urgency certain customers had around installations.

That will soften them up a bit here in the fourth quarter.

But I think if you look long term, that part of Tek Communications, really perhaps in many respects the unsung hero in the Tektronix acquisition, should continue to be a strong growth contributor to Danaher.

At this time I'd like to turn the conference back to the presenters for any additional or closing comments.

Thanks, everyone.

Dan and I are around all afternoon today for follow-ups.

That does conclude today's conference.

Thank you for your participation.