Danaher Corp (DHR) 2011 Q4 法說會逐字稿

Good morning.

My name is Trisha, and I'll be your conference facilitator today.

At this time, I'd like to welcome everyone to the Danaher Corporation fourth-quarter earnings release call.

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

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

(Operator Instructions).

I'd 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, the slide presentation supplementing today's call and reconciling and other information required by SE, Regulation G, relating to any non-GAAP financial measures provided during the call are all available in the investor section of our website www.Danaher.com under the heading Financial Information, and will remain available following the call.

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

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

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

A replay of this call will also be available until February 7, 2012.

The replay number is 888-203-1112 in the US, and 719-457-0820 internationally, and the confirmation code is 4407361.

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, the other related presentation material supplementing today's call and our Annual Report on Form 10-K when it is filed, for additional factors that impacted year-over-year performance.

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 are forward-looking 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 these actual results might differ materially from any forward-looking statements that we make today.

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

2011 was another outstanding year for Danaher.

For the full year, we saw high single-digit core revenue growth, core margin expansion of 160 basis points, adjusted earnings per share growth north of 25%, and $2.4 billion of free cash flow.

However the numbers only tell part of the story.

During the year, we continued to capture market share through both innovative new product introductions and our go-to-market initiatives.

For the first time in 2011, our R&D spend exceeded $1 billion, and this continued investment has played a significant part in the share gains at many of our businesses, including Videojet, Leica, AB SCIEX, Hach, and ChemTreat.

In 2011, we significantly improved the Danaher portfolio.

We announced or closed 17 acquisitions during the year, most notably of course Beckman Coulter and ESKO, while at the same time transitioning out of some of our legacy businesses that were no longer considered significant core growth opportunities for us.

Ten years ago, approximately 50% of our revenues were derived from what we consider to be our strategic growth segments.

In 2012, that number will be nearly 90%, reflecting the evolution of our portfolio towards higher growth, higher margin, more global businesses, where our brands are clear market leaders.

Last month at our year-end meeting, we talked about seeing strengthening in our businesses in early December.

We saw that momentum carry through December, and we finished the fourth quarter with 4% core revenue growth, modestly better than we anticipated.

During the quarter, we delivered strong operational performance, with our core operating margin improving 100 basis points, despite investing $40 million in incremental year-over-year, non-Beckman-related restructuring actions.

From a geographic perspective, emerging markets continue to grow at a faster rate than developed markets, although the gap narrowed in the fourth quarter.

Excluding the impact of Beckman Coulter, sales from the developed markets grew low single-digits in the quarter, with the US doing noticeably better than Europe.

Emerging markets grew at a mid single-digits rate.

In the second half of last year, we grew our emerging markets businesses to the point where revenues, now at 23% of our total, are equal to those in Western Europe.

This balance provides a natural hedge given the headline risks in Europe today, and going forward, our emerging market exposure will undoubtedly be greater than that of Western Europe.

All-in, a strong finish to a good and important year.

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

Today, we reported fourth-quarter adjusted diluted net earnings per share of $0.81, which includes $120 million of restructuring, representing a record fourth quarter for Danaher and a 26.5% increase as compared to our adjusted diluted EPS last year.

For the full year, adjusted diluted EPS was $2.83, a 28.5% increase compared to 2010.

And as we discussed in December, we were able to accelerate restructuring across all of the businesses, with our industrial technology and demo segments receiving the largest investments.

Revenues for the quarter increased 37.5% to $4.7 billion, with core revenues up 4%.

The impact of acquisitions, primarily the addition of Beckman Coulter, increased revenues by 33.5%.

Our full-year 2011 revenues were up 28% year-over-year to $16.1 billion, with core revenues up 7%.

Our year-over-year gross margin for the fourth quarter decreased 250 basis points to 49.3%, while our operating margin in the fourth quarter decreased 80 basis points year-over-year to 16.5%.

Both decreases were primarily due to the incremental year-over-year restructuring activity, and the impact of non-cash acquisition-related costs and lower margins at Beckman Coulter.

For the full year, our gross margin was 50.8%, and our operating margin was 16.3%.

DBS continues to be the primary driver of our outstanding cash flow performance.

2011 operating cash flow was $2.7 billion, a 35% increase compared to 2010.

Free cash flow from continuing operations was a record $2.4 billion.

Our free cash flow from continuing operations to net income ratio was 124%, representing the 20th year in a row where we delivered free cash in excess of net income.

This is the first year Danaher's free cash flow has exceeded $2 billion.

In the second half of last year, we paid down more than $1.2 billion of debt.

During the quarter, we announced the acquisition of 10 businesses, including 5 in the last two weeks of the year.

The fourth-quarter acquisitions have aggregate annual revenues of approximately $100 million, and are expected to strengthen our environmental, Test & Measurement, dental, and life sciences and diagnostics segments.

Turning to our five operating segments.

Test & Measurement revenues increased 7% for the quarter, with core revenues up 2.5%.

For the year, revenues increased 19.5% with core revenues up 9.5%.

Test & Measurement's core operating margin for the fourth quarter increased 230 basis points.

Reported operating margin increased 170 basis points to 21.5%.

Fluke core revenues were essentially flat in the quarter, with solid demand in the emerging markets for our industrial, automation and calibration products partially offset by weakness in Europe.

During the quarter, Fluke acquired Martel Electronics, a manufacturer of calibration process tools for industrial applications.

Fluke also acquired two Asian distribution partners to accelerate our penetration in the region.

At Tektronix, core revenues declined slightly in the quarter, with solid demand for our video solutions and service offerings more than offset by weaker demand in our core bench top instruments.

We are encouraged by the sequential improvement in monthly sales through the fourth quarter and early signs that some of the credit issues facing our Chinese distributors are easing.

The market reception for our newly-launched MDO4000, the world's first mixed domain oscilloscope, has been overwhelmingly positive with five significant industry awards received to date.

Core revenues at our communications businesses grew high single digits in the quarter, led by healthy demand for Tektronix Network Management solutions in North America, as well as our enterprise tools and network security solutions globally.

During the quarter, Arbor Networks began shipping their Prevail Availability Protection System, and customer response has been very favorable.

Prevail's cloud signaling technology is truly an innovative solution, facilitating communication between customers and network providers during a distributed denial of service or DDoS attack, enabling the network operators to quickly block traffic from the source of the attack, minimizing down time for the customer's businesses.

Turning to environmental, segment revenues increased 7% in the quarter, with core revenues increasing 5.5%.

For the year, revenues were up 7.5%, with core revenues up 4%.

The segment core operating margin was up modestly in the fourth quarter, with reported operating margin decreasing 20 basis points to 21.9%.

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

At Hach Lange, the sales of our core lab instrumentation used in industrial applications were healthy, due in part to the recent launch of the DR 3900 Spectrophotometer, and the HQd Benchtop Meter.

We saw a modest improvement in demand in the municipal business in China, while the North American and western European municipal businesses grew at low single-digit rates in the quarter.

During the quarter, Hach acquired X-Ray Optical Systems, a provider of x-ray fluorescent instruments used in elemental analysis for applied and environmental applications.

At Trojan, core revenues increased at a high teens rate in the quarter, driven by growth in all major geographies, with particularly strong performance in Asia, where Trojan delivered a large municipal wastewater system in Hong Kong.

In December, we highlighted Trojan's ballast water treatment solution, and are pleased to report today that we received our first treatment system order this month.

Earlier this month, as well, Trojan acquired Salsnes Filter, which provides filtration technology to remove particles from municipal waste water and industrial process water.

ChemTreat's aggressive go-to-market investments continue to pay off, with revenues growing low double-digits in the quarter, their sixth consecutive quarter of double-digit core growth and market share gains.

ChemTreat revenues have increased by more than a third, with operating margins expanding approximately 500 basis points since Danaher acquired the business four years ago.

Gilbarco Veeder-Root's fourth-quarter core revenues were flat, with dispenser sales up more 10% in North America and Europe, and high teens growth at Veeder-Root, offset by a difficult year-over-year comparison resulting from enhanced industry security standards in 2010.

In 2011, Gilbarco generated over $30 million in revenue supplying truck stop operators with our new diesel exhaust fluid dispensers.

During the quarter, we signed an agreement to acquire ACIS Group, to expand GVR's global footprint, and to provide superior channel access in Eastern Europe.

The acquisition is subject to customary closing conditions and is expected to close in the first quarter.

Moving to Life Sciences and Diagnostics, revenues for the quarter increased 153.5%, largely due to the addition of Beckman Coulter.

Core revenues were up 6% in the quarter.

For the year, revenues increased 101.5%, with core revenues up 7%.

Our core operating margin was up 245 basis points in the fourth quarter, while our reported operating margin decreased 10 basis points from the prior year to 13%, as a result of restructuring and integration activities, non-cash charges related to fair value adjustments to inventory, and deferred revenue at Beckman Coulter.

Radiometer's core revenues grew at a mid single-digit rate for the quarter, driven by continued strong sales of our instruments and consumables across all major geographies.

Demand for our ABL80 blood gas analyzer in the emerging markets was particularly robust, growing more than 25% in the quarter.

We've had a number of very exciting regulatory approvals over the last couple of months, starting with the November approval of the AQT analyzer and the full Five Assay panel in China.

The Chinese market is currently growing at more than 30%.

Additionally, just last week, we received US FDA approval for AQT in the Myoglobin Assay.

Myoglobin is one of the cardiac biomarkers typically helped to diagnose or rule out heart attacks.

We're still in the process of expanding the US menu to the full Five Assay panel, but this clearance is an important first step for our US commercialization.

At Leica Biosystems, core revenues increased more than 10% in the quarter, with healthy demand for our Advanced Staining systems globally, and core Histology Systems in North America.

Our Bond-III immuno-histochemistry platform grew its install base more than 20% in 2011, continuing to drive share gains and pulling through high-margin consumables along the way.

Leica Microsystems' core revenues grew at a low single-digit rate, driven by sales of compound microscopes used in research applications in Europe and Asia.

Our above-market core revenue growth in focal microscopy in 2011 is an excellent example of how innovation can provide a competitive advantage and drive market share gains.

Core revenues at AB SCIEX grew at a low double-digit rate in the quarter, driven by new products launched earlier in the year, as well as the continued uptake of the Triple TOF 5600.

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

We couldn't be more pleased with the first full year at AB SCIEX.

This was a challenging integration, but the team is really executing well and delivered low double-digit core growth and over 500 basis points of operating margin improvement in 2011.

During the quarter, we expanded our direct presence in India, with the acquisition of Leica and AB SCIEX's distribution partner, LabIndia.

This acquisition provides us with a strong foundation to broaden our commercial footprint in this increasingly-important region of the world.

Turning to Beckman Coulter.

We've owned the business now for just over six months, and have been very pleased with the integration, as well as the performance of the business thus far.

We have received an excellent reception throughout the organization, and the changes made so far are having a significant impact on the way the business is run on a daily basis.

Our focus early on has been implementing the Danaher Business System, and getting the organization focused on simplicity, accountability, and competitiveness.

Much of what we have done in changing the organizational structure and the team has been with those three themes in mind.

There's been a significant talent infusion, both from Danaher and from elsewhere in the industry, that compliment the tremendous team at Beckman Coulter.

We have 10 Danaher people now in senior positions, both in diagnostics and life sciences, and there are another 25 full-time equivalents elsewhere in Danaher who with working with the Beckman team to implement the Danaher Business System.

DBS has had an early impact on quality.

Beckman had some well-documented quality challenges we knew would require our utmost focus.

We've been encouraged by the early signs of progress here, particularly on the assay front, with the resolution of sodium and glucose.

And while we've been focused on product quality, we've also made progress in product innovation and new product development.

If you were with us in December you got a chance to take a look at the new AU5800 platform, which is now US FDA-approved, giving Beckman a high throughput analyzer to drive our competitiveness in this fast-growing segment of the chemistry market.

Our hematology product line has been enhanced with the launch of the DxH Slidemaker Stainer, which increases productivity and quality by automating routine slide making and staining in the hematology lab.

The cost out effort has gone better than initially expected, given the fast start in December.

As many of you know, we increased our total cost savings target by $100 million to $350 million, and believe we're on pace to achieve $250 million of cost reduction in 2012, about two years ahead of schedule.

While there's a lot of work ahead on both the quality and innovation fronts, we're very pleased with the progress to date.

Turning to Dental, segment revenues increased 5.5% in the fourth quarter, with core revenues up 2.5%.

For the full year, revenues were up 10%, with core revenues growing 4.5%.

Our reported operating margin declined 120 basis points in the fourth quarter to 10.9%.

The decline was the result of more than 400 basis points of restructuring activity, which helps position the segment for another step up in margin in 2012.

Dental consumables' core revenues grew at a mid single digit rate in the quarter, lead by robust sales for our Damon Clear Orthodontics Solutions, infection prevention products, and gentle dentistry consumables, primarily in North America and in the emerging markets.

During the quarter, we acquired the endodontic divisions of Discus Dental.

The addition of these unique and innovative products are expected to further strengthen SybronEndo's positions as a leader in the endodontic marketplace.

KaVo core revenues were flat in the quarter, with solid demand for our imaging products globally offset by weakness in equipment and instruments, particularly in Europe.

Dentists continue to express interest in digital radiography and 3D imaging products, and with our recently-completed global launch of our new hybrid digital imaging system, we're well-positioned to take advantage of these trends in 2012.

Pelton & Crane's core revenues grew low double-digits in 2011, due in part to the success of its DTE or Driven To Excellence campaign, which hosted more than 400 doctors for two-day dental office design seminars, and generated more than $10 million in sales for the year.

Moving to our Industrial Technology segment, revenues increased 15% for the quarter, with core revenues up 3%.

For the full year, revenues grew 23%, with core revenues up 11.5%.

Our core operating margin declined 50 basis points in the fourth quarter, with our reported operating margin down 70 basis points to 18.1%.

The decline was the result of more than 200 basis points of restructuring activity, which will help drive further improvements in 2012.

Product Identification core revenues grew low single-digits in the quarter, led by solid demand for Videojet's continuous inkjet printers in North America.

Videojet has seen tremendous success with its full suite of CIJ printers, and we believe meaningfully outperformed the market in 2011.

During the quarter, we launched the 6250 TTO printer to meet demand in the mid-range flexible packaging market.

At Esko, revenues were up at a mid-teens rate in quarter, compared to a year ago, when it was a standalone Company.

Demand was robust across all major geographies for both our software and our hardware product lines.

Our Motion Business's core revenues declined at a mid single-digit rate in the quarter.

The momentum in the first half of 2011 did not continue in the fourth quarter, due primarily to weakness in the industrial automation, technology and solar markets in China and North America.

Despite these headwinds, demand for Kollmorgen's engineered solutions for electric vehicle systems remained healthy, and in the quarter, the Company signed a five-year $35 million agreement to supply generators to a large multi-national OEM.

So to wrap up, it's clearly a very good fourth quarter and full year for Danaher.

The investments we've made over the last several years in innovation and go-to-market initiatives were evident in our strong free cash flow, core revenue and earnings growth in 2011.

The structural cost actions undertaken in the fourth quarter position us well for further margin expansion, and allow us to fund growth opportunities where they present themselves.

Financially, we're well-positioned to take advantage of what we believe will be an attractive acquisition environment in 2012.

We are initiating today first-quarter diluted EPS from continuing operations guidance of $0.66 to $0.71, and reaffirming our full-year guidance of $3.20 to $3.35.

The first-quarter earnings per share guidance assumes low single-digit core revenue growth in the quarter.

Thanks, Larry.

That concludes the formal comments.

Trisha, I think we're ready for questions.

Okay, thank you.

(Operator Instructions).

We'll go first to the line of Scott Davis with Barclays.

I wanted to go back to Test & Measurement a bit, and that business has always had a fairly good macro read if nothing else, but when you think about the slowdown in core growth in the quarter, can you walk us through the geographic kind of break down of where that core came from and talk to a book-to-bill there?

Sure.

I think that what we saw, Scott, at T&M and I'd say both core business at both Fluke and at Tek, interestingly was pretty good sell-through both in the US, and to a lesser degree, in Europe.

But in the face of that decent sell-through, we were seeing channel inventory adjustments which led in part to the results that we've shared with you this morning.

I think we've highlighted that we've seen some sequential slowing in China through the second half, and that certainly continued as we worked our way through the quarter.

Obviously a little bit more pronounced at Tek than at Fluke, but I think as we look at that, I think we're optimistic, that inventory dynamic won't continue, can't continue for too long given the POS that we've seen.

And having been in China earlier in the month, I think the team certainly is mindful that we've seen this sequential slowing.

They seem to be I think optimistic both at Fluke and at Tek that we would see a sequential strengthening as we move forward from here.

In terms of the book-to-bill, we were north of 1 in the fourth quarter, continuing to see very strong order growth with our Tech Coms business in the 3G LTE buildout.

As Larry alluded to, I think we're going to face, it will be a little bit tough early in the year, in part given the double-digit growth we had last year.

But clearly some signs out there in the sort of technology world, the PMI data, that's encouraging for that business.

There often tends to be a couple quarter lag between those indicators getting a little better and us really seeing the pick up, so I think it will be a little bit slower, earlier in the year but there are some signs both including the order book that are encouraging as we move through the year.

And just to add to that, the backlog position at Coms is significantly up from a year ago.

They had a very strong bookings year and as we get into 2012, obviously take a lot of confidence from that here at the outset.

Okay.

That's helpful.

And this is -- it's interesting you called out DBS as helping in Beckman, and this is the first quarter you've done that, obviously it's a new asset for you but how long does it take?

How long does it take to get critical mass in a Company of that size, to where you're ahead of the curve on the cost out, but really how long does it take to instill kind of a DBS culture into a Company that big?

Well, I think that it's clearly, Scott, a multi-year effort, but when we talk about I think the progress that we're making at Beckman, and there's a lot of progress, I'll just highlight a couple of examples.

We would attribute it to DBS.

I think if you look at just the performance thus far, we're pretty much as expected with respect to the top line.

You clearly know that we've accelerated on the cost side of things.

I think that discipline around top line execution, working the sales funnels in the developed markets in Asia, a large part of that comes as a result of DBS.

Clearly on the OP front, right, we continued to drive sequential performance with respect to the margin.

That traction that we've got around just maintaining a tighter level of spend in some of the G&A buckets, obviously some of the headcount adjustments, all signs of early progress.

And to think that we're a couple of years ahead here on the cost-out I think is a large, in large part a function of all the various tenets of the Danaher Business System being deployed.

But it's just not that, right?

We talk about quality, I think that there's no small contribution being made as we resolve the sodium and glucose issues, and the way that we have put in I think a level of rigor, a level of discipline around some of those issues.

We've talked about troponin, we're working that effort with respect to the first quarter submission.

I think that team in that case, obviously an important task making some good progress, probably a little slower there than we would have anticipated, which might impact the timing there.

But again, I think using some of the process tools to help tackle a rather complex project.

Our new product launches as well, I think important evidence that DBS is helping on the quality front, whether it be the approvals that they were able to get through at FDA in 2011, which was 2X what we did in 2010, let alone the completion of the new 5800 approval.

And even with respect to the warning letter, at Brea, we got some good news very recently relative to a re-inspection, where the FDA came in, and as a result of the work the team has done again, using many of the process tools that we have in place or are introducing at Beckman, in addition to their quality system, we ended up with no 483 observations, which is obviously very encouraging testament to the hard work that team's doing.

But I think also signs that some of the early evidence or some of the early efforts with respect to DBS is impacting the way the business is operating on a day-to-day basis.

We have a lot of work to do, Scott, but whether you talk about performance, quality, even some of the growth, some of the other growth efforts here, I think we're encouraged.

Very good.

Good luck, guys.

We'll go next to the line of Steve Tusa with JPMorgan.

Just a question of Beckman, kind of core growth looked kind of flattish.

Is that right?

Organically, yes.

A little less in currency but flat organically.

Flat organically, okay.

And then the Product ID business, sorry I might have missed that.

What did you guys grow in the quarter, and then any change for kind of the 2012 expectations, what are you guys expecting for growth there in 2012?

It was up low single-digits in the fourth quarter.

And then what are you expecting for 2012?

Low to mid single-digits.

Okay, and what do you think the market is growing there in 2012?

I think in line with that.

In line with that so you guys aren't losing any share?

No, we're pretty convinced we aren't losing share.

Okay.

That's it.

Thanks.

(Operator Instructions).

We'll go next to Terry Darling with Goldman Sachs.

Larry, I wonder if you might summarize any changes in your views on organic growth, for 2012 today relative to where we were at the analyst meeting and I guess in particular, I'm curious about your view on Life Sciences, AB SCIEX up low double digit in the quarter, a fair bit stronger, a little bit stronger than we had.

I wonder if that lifts your view on 2012 for that business in particular?

Terry, I would say we aren't quite ready to change our outlook here a month or so since we were together in New York.

Obviously, we were very encouraged by what we saw in December in terms of the way it played out, particularly here in the US.

We probably haven't had this big of spread between the US and Europe in some time, and that was really more a function of US strength than European weakness.

I think that said, just given all the headlines out there, and maybe to a degree given the surprising level of strength at the end of the year, I think we're going to watch this very carefully.

I think when you come to a year-end like that, you can ask yourself, how much of that was real versus budget flushing or any other year-end stimulation that might not carry forward.

I think thus far in January, things are fairly well in line with our expectations.

But with respect to SCIEX or Life Sciences more broadly, I don't think that strong finish would have us taking up just yet our outlook for 2012.

Now, I have been encouraged, I had the opportunity here in January to be on the ground in China, in India and in the Gulf.

I think the mindset there are by and large pretty positive for the year.

I think there is particularly in China, mindful of some of the sequential slowing they're wrestling with, but by and large, it certainly was an upbeat mood in all three parts of the world as we look at this year, and they will clearly be the geographies that drive much of our growth in 2012.

Okay, and then just on the industrial business, the motion business is down.

As we look at the guidance for the first quarter for the total Company core up low single-digits, any businesses that you would expect other than that motion business perhaps, given the difficult comps continuing, any other businesses across portfolio you'd expect to be in negative territory?

Terry, I'd say for the quarter, and frankly for the year, we don't expect any of the segments to be down.

I would say that in the quarter, the instruments business at Tek and Motion probably are going to be down call it mid-singles in the quarter and part of that I think is the way they finish, part of that is frankly the fact they've got some very tough comps here in the first quarter.

You'll recall that Motion was up 22% a year ago in the first quarter, I think Tek was up about 14%.

So I think we're mindful for that but again, don't expect any of the businesses, let alone the segments, to be down for the year.

I'm going to watch Tek carefully.

I guess there's a possibility they could be flat for the year, but probably too early to call that definitively.

Okay, and then lastly, Dan, maybe just looks like working capital was negative for the fourth quarter to a greater extent than normal, and then negative for the year.

Maybe just be a timing thing but going back in the model I can't see a negative working capital number for the Company going back to 2002.

Anything to talk about there, kind of looked like it was in the other category but maybe just a timing issue there?

No, I think we're very pleased with working capital performance and think about we generated $1 billion of organic revenue, and organically we didn't have $1 of working capital.

That's really the power of DBS and you see that in our free cash flow conversion so we get a little bit of benefit at Beckman, but still in the early days of really going after their working capital but we were very pleased across the businesses that have been with us for a long time on their performance, particularly in the fourth quarter on working capital.

Okay, we'll follow-up.

Thank you.

Thank you.

We'll go next to the line of Jon Wood with Jefferies.

So on SCIEX, Larry, obviously the trends there continue well above market, despite the tougher comps, and it seems like pretty broad-based from an end market perspective, so any color you would offer on which end markets within SCIEX lead, and which lag in 2012?

Well, I think that's, cutting it by end market, Jon is hard right now again, I think in part given the outlook around some of the governmental roles here, and certainly perhaps maybe some of the uncertainty around pharma.

I think we were pleased with the way virtually all of the end markets really ran through at a good clip at year's end, but I don't think that we would, we're clearly not banking on anything that's government funded being particularly robust, maybe with a couple exceptions given what we suspect will happen in China and perhaps in Germany.

I think we always watch the pharma end market with some conservative posture, just given some of the issues that are going through the resets of R&D spend and R&D operations, at least with Big Pharma but by and large, I think that's probably how we would characterize the landscape here at the end of January.

Okay, great.

My follow-up is on Beckman.

It actually looked pretty good from a revenue perspective, if I'm doing my math right.

Can you comment on any changes at the margin in kind of that core chemistry business, given that you've got sodium and glucose back on the market?

Have you seen any vitality related to that, or are those trends still going to come in your view?

Well, I think we've actually been quite encouraged, Jon, by the underlying metrics in the business.

As you know, the core revenue performance of the business is often indicative of decisions the customers have made some time ago, as opposed to what's happening here and now.

I think with respect to core chemistry, maybe more a function of the launch now of the AU5800 particularly in Europe, we're seeing our chemistry business really kind of back up on its feet.

We had a significant win, in fact in the quarter, in the fourth quarter in Europe, where the 5800 was a big part of that, and that was business we weren't retaining or competing to retain, it was frankly business we had lost a couple years ago.

So I think now that we've got the 5800 approved in the US, and we get some of the other operational issues behind us out of Mishima, as you saw in December at the Analyst meeting with their implementation of DBS, we're encouraged in that regard.

I think more broadly, if you look at what we saw in December, or really in the fourth quarter, both with respect to our retention activity as well as our competitive win rates, we were again encouraged.

The growth, more room activities, the gross implementation of DBS clearly helping us just be more competitive as we get out and work to retain our install base and in December, I think we had the best competitive win rate numbers that we've seen, at least that we saw in the second half of last year.

So I think the trends are certainly helpful and reinforce the work the team is doing, but we would say that it's still early and a lot of work lies ahead.

Okay, great.

Very good.

Thanks.

We'll go next to Jeffrey Sprague with Vertical Research.

I may not have followed all of the color on environmental.

What was kind of the drag?

I heard decent trends at water quality and Trojan and ChemTreat.

I might have missed Gilbarco, but what held you back to the 2% growth in the quarter?

Well, the growth is primarily the payment security comp at Gilbarco Veeder-Root, Jeff.

I think we had really surprisingly strong growth in all the other product lines and at the core automation and the environmental products, but that security comp that was the tough one all year for us was particularly onerous in the fourth quarter.

And that's also part of what you see in the environmental margins, that mix shift at Gilbarco away from payment didn't help us.

Obviously the reporting margins were suppressed I guess about 20 BPs or so given the restructuring but that was further challenge given the mix pressures at GVR.

Great, and then just the idea of kind of the year-end noise in various businesses.

So did you actually think you saw some budget flush activity going on in parts of your business because you might have had the opposite in some of the distribution businesses, right, where people were drawing down inventory and trying to free up cash.

But perhaps there was a different set of behaviors going on elsewhere in the portfolio?

Any color on that?

Yes, Jeff, I think you'd characterized what we saw pretty well.

I think across a portfolio like ours, you don't necessarily anticipate customer behavior being similar business-to-business-to-business, but we did see just a cross-section of our channel partners take a fairly conservative posture on inventory despite POS and many instances being good, so I think you put your finger on it.

I think with respect to where we sell on a direct basis, we're still on a piecing together what we saw and what it means for the first quarter here, but there probably was some of that.

It's hard to pinpoint it but the fourth quarter again, particularly in the US December, all the more was quite strong, and it's quite strong all the way to the end so it's hard to discount the possibility that there was some of that in there.

Which again I think back to one of the earlier questions is why we're not trying to get too far ahead of ourselves here early in 2012.

Right.

And then on troponin, I don't think it's a news flash things are going a little slow there but you did mention maybe a little slower than expected.

Can you just give us an update on what the challenges are at this point, and what kind of the main hurdles you're working on?

Yes, I think the process of going through the recertification, as we've described before, it's complex and we're working on very closely with the Agency to make sure that we have a regimen in place that satisfies their objectives as well as ours, and that's just a big complex project.

Again I think the team is making good progress here but at this juncture maybe a little slower in some cases than anticipated, and that's the nature of that type of work.

But again, I think all in all, the balance of progress that we've made on the regulatory front is very encouraging, and on that front, I think we knew those were risks that would have to be well-managed at the outset with Beckman, and I'm very pleased not only in terms of, if you will, the Danaher contribution but the very strong effort on the part of the Beckman leadership and the Beckman team that have been involved in that work.

Great.

Thanks for the color.

We'll go next to Nigel Coe with Morgan Stanley.

I just wanted to get into your guidance.

I realize the range is consistent in line with typical seasonality for your guidance but if I add back your restructuring this quarter, the drop down to Q1 is obviously a lot heavier than we normally see, so what are the big swing factors between Q4 and Q1, aside from your normal conservatism?

Well we've probably added a little bit to the seasonality with Beckman.

Beckman had a terrific fourth quarter but it is also seasonally the strongest, and Q1 is seasonally the weakest for Beckman, so I think if you look historically the step down is not that far out of line with what you normally see, and you add to that the impact of Beckman, that probably explains most of it.

And then Larry, could you calibrate your inventory commentary, because it sounds like we saw a big inventory drop in China particularly with Tektronix in the early part of Q4 and then that normalized.

How would you comment on just general inventory trends you saw during Q4, and when do you think you'll be done with that process?

Well, I think that it probably is too early to declare that we're through it.

I think our partners are, like everyone else, trying to sort out what sort of start to the year we're going to see, and have come into the year, I think conservatively positioned.

But again as we saw that play across the portfolio in the quarter, in a whole host of different places, it was clearly I think almost in defiance of what we're seeing with respect to POS in the US and even in Europe.

Obviously we did see slowing in China.

I mentioned some of the credit contraction that we saw.

I can't think of an example, Nigel, where we had distributors who were having credit issues or at least situations where that was flagged in the US or in Europe, in the way that it was in some of the emerging markets, particularly in China.

So I think we're optimistic that this does have a short life to it, but ultimately, those inventory positions will be a function of sell out, and we'll see how that plays out here in the first couple of months of 2012.

Okay, and then just finally on the deals for Q4, it looks like you paid over a sales multiple of about 1.3 times.

That's quite a bit lower than your normal multiples.

Are you seeing any signs that the multiple was off by sellers coming in a little bit?

It's a little bit hard to make a broad read, but we were encouraged by the real step-up in bolt-on activity that happened in the latter part of the year and the amount of deals that we closed at the end of the year.

I wouldn't quite yet extrapolate that to the more mid and larger-size deals, but I think an encouraging sign.

Because even on bolt on, 12 months ago, they were pricier.

Right, right.

Okay, thanks guys.

Thank you.

We'll go next to Steve Winoker with Sanford Bernstein.

Larry, just I hate to bring it back to the troponin thing for just a little bit more clarity.

Are you guys actually calling out explicitly then your expectations for submission in which quarter now?

No, no, I think we're just suggesting that we've got a major project that is experiencing some good encouraging progress, but again, kind of slower than we originally anticipated, so we'll keep you posted, but that's kind of what we know today.

But at least slipping off of the first-quarter expectation, or not even saying that yet?

I've said what I've said, and again, it's one part of the puzzle.

It's not a part that in any ways material financially here in 2012.

We've said that, I think from the outset, so that's kind of what we know today.

Okay, and then I know back in December, you talked about the $40 million spend on molecular diagnostics, sort of on a run rate basis.

Any visibility there about progress in that area, and how we might think about some announcements over time as we progress through the year?

Steve, I think somebody earlier suggested we were conservative.

We take that as high praise, and I think when we have the opportunity to share with you what we're doing with respect to investments, we'll do that, but I think when we're talking about large and perhaps above-average risky efforts, I think we're going to be keen not to put ourselves in a box with respect to the timetables, because things happen.

I don't think our teams are well served by that.

Frankly, I'm not convinced investors are well-served either.

So in this instance we start from a blank piece of paper, maybe unlike some of the other situations, and we'll keep you posted.

And certainly as we get closer to submissions and launches, we will let everybody know.

But I think right now, we simply want to share with folks that this is a serious undertaking on the part of the Company.

We've removed a lot of cost at Beckman Coulter, but has done nothing to diminish or undermine our support for the molecular effort there, and obviously we do that with an eye toward a healthy meaningful return, but at this juncture, that's probably the extent of what we're comfortable sharing publicly.

Okay, thanks for that.

Just gross margin, maybe one other thing that may be easier on this front.

Could you give us a better sense of what gross margin was ex all of the acquisitive dilution at the GM line?

Steve, if you kind of backed out the one-time non-cash charges at Beckman, and kind of used a more typical fourth-quarter quiet restructuring as opposed to the $120 million we spent, it would have been about 51% versus the reported 49%.

Okay, so pretty consistent there, and therefore, as indicative of pricing that you haven't experienced deterioration on the pricing front then?

We have not.

Okay, great, and the $120 million in restructuring and I may just have missed this but I know you called out the percentages in Dental and IT, but just the rest of the business, how did it, how did you end up spending it?

It was about we talked about over 200 basis point impact in IT and over 400 in dental.

It was about more like 100 basis point, more like a 50 basis point impact in the other segments.

In each of the other segments?

Yes, I'll get you the precise numbers, but in that range.

Okay, great.

Thanks guys.

Thank you.

We'll go next to Jon Groberg with Macquarie Capital.

Larry, can you maybe -- it sounds like a little bit of a mixed message in emerging markets such as China kind of thing, sequential slowing, but I think you said you expect it to lead for the year.

Can you maybe provide a little bit more color around each of your businesses there, and how you expect that to play out?

Sure.

I think what we were saying, John, was that we would expect the emerging markets to lead the developed markets again here in 2012, and certainly if you look at the fourth quarter, China was not kind of at the top of the lead table there.

In fact, I think we saw our best growth in India where we were up I think over 30% in the fourth quarter.

I think with respect to the businesses in country, certainly Life Sciences and Diagnostics is a business that is exceptionally well-positioned both given the clinical buildout and the research mandates coming down from the government.

That's all part I think of the 12 five-year plan here, we're well positioned, and so I think good reinforcement of that on this trip a few weeks back.

I think with respect to the T&M business, again, we've talked earlier to some of the channel dynamics, some of the sequential slowing in tech, but again, I think the team there feels optimistic that we'll see improvements sequentially as we go through the year.

In environmental, we clearly have been wrestling with some of these municipal water projects.

And I was encouraged to see, Jon, that we have a double digit increase in our sales funnels at Hach Lange earlier in the year compared to where we were a year ago.

That bodes well, but as we learned last year, getting those projects out of the funnel and into the order book is really a function of how funds are released by the government.

And again, while I think our teams are optimistic, we'll I suspect need a little bit more time here to actually see that play out in that regard.

Industrial is kind of a mixed story.

The Product Identification businesses have done pretty well there, continue to do so, but our automation businesses have clearly been hit by some of the slowing build levels broadly in industrial automation, but also particularly in some of the green tech applications, i.e.

solar, where they were well positioned.

Dental is frankly too modest a base to talk about but we were up significantly last year and the team is well-positioned to be up significantly again this year.

The base is so modest there, apparently they don't even care about market growth.

They can just go out and compete for their fair share of the existing market.

So hopefully that gives you a little bit of a run around China, given what we know here in January.

That's very helpful, thanks and if I could follow-up quickly on the Life Science and the Diagnostic business as you said you expect to be strong and you mentioned Beckman, you said you're encouraged by retention rates and win rates, and you think historically at Beckman, basically they grew were retentions, win and also pricing on new contracts.

I don't know if you'd be willing to share a little bit more specifics and when you say you're encouraged, how what you're seeing today stacks up relative to their history?

Well, Jon, I think the short answer if you'll allow me, is that the baselines that we established once we were in control mid-year last year, really give us the best base for an apples-to-apples comparison in that regard.

And again, I think if we look just at I guess six months of sequential data both with respect to retention, vis-a-vis the install base and wins vis-a-vis competition, we've been heartened by the stability it and some of the recent upticks in that regard.

We could debate whether six months is an ample sample set or not, but that's what we have, and we'll continue to work that, rest assured.

I think that there's also frankly two other elements that have been part or at least can be part of the Beckman growth curve.

One is a more aggressive globalization of that business, and as you know better than most, from a step up in expectations in Life Sciences, and it hasn't been a business that has grown for Beckman the last several years, but there's no reason that they can't grow and certainly grow in line with the rest of the Life Science portfolio at Danaher.

So we're going to push those efforts aggressively, obviously innovation plays an important part, as we look forward to getting Beckman through the current phase that they're in, and get them back fully up on their feet, competing in the market and contributing to our growth and our earnings flow.

Okay, thanks a million.

We'll go next to Deane Dray with Citi Investment Research.

We covered a lot of ground here.

One data point I thought was interesting that was this new order, first order for Trojan in the ballast water market, and this is again what we consider to be the biggest new water market opportunity in this sector, so any color regarding what this order was, is it how many ships, is this a prototype system, and how set is the technology, do you expect this to, you're still looking for the optimal solution?

Well, I think that Deane, we would agree with you, this is a tremendous breakthrough opportunity in the water space.

We obviously feel that with Trojan, we're very well-positioned.

I think that we want to respect the customer confidentiality at this point and limit our disclosure to what we've said, but we're obviously encouraged because as you know, adoption here has to start somewhere, and to be able to take the product that Marv showed many of you there at the meeting in December, and now have customers beginning to write orders, is very helpful to send a signal to the rest of the market that Trojan is a key partner here.

I think it's hard with respect to the technology to suggest that the solution that we have today is the solution that's going to exist for all time.

Innovation here won't sit still, and I think as you saw the footprint, the overall efficiency level and the efficacy of the product that we have at Trojan is very compelling, and as the global agreements gets set is these fleet operators begin to look at not only new installs but retrofit relative to their compliance program, we expect it to be a very significant contribution to Trojan and the water group going forward.

And then just to clarify, these orders or this order is all coming in prior to the international standards having been fully adopted; is that right?

That's right, but I think any good operator is going to look at the trend here and recognize that they are well served to anticipate what is highly likely now, as they think through again both new construction outfitting, as well as their retrofit and maintenance schedules.

Great.

Thank you.

And I apologize, but due to time constraints, we'll take no further questions.

I'd like to turn the conference back over to Mr.

McGrew for any additional or closing remarks.

Thanks, Trish.

Thank you, everybody for joining us.

Dan and I are around pretty much all afternoon for any follow-ups.

That will conclude today's conference.

Thank you for your participation.