Danaher Corp (DHR) 2014 Q3 法說會逐字稿

Good morning. My name is Debbie and I will be your conference facilitator today. At this time I would like to welcome everyone to the Danaher Corporation third-quarter 2014 earnings results conference call. Today's call is being recorded. (Operator Instructions).

I will now turn the call over to Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.

Thanks, Debbie. Good morning everyone and thanks for joining us. On the call today are Tom Joyce, our President and Chief Executive Officer, and Dan Comas, our Executive Vice President and Chief Financial Officer.

I would 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 available in the investor section of our website, www.Danaher.com, under the heading financial information -- quarterly earnings and will remain available following the call.

The audio portion of this call will be archived on the investor section of our website later today under the heading investor events and will remain archived until our next quarterly call. A replay of this call will also be available until October 23, 2014. The replay number is 888-203-1112 in the US and 719-457-0820 internationally. The confirmation code is 9389793.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year. Please refer to the supplemental materials in our third-quarter Form 10Q for additional factors that impacted year-over-year performance.

Unless otherwise noted, all references in these remarks and in accompanying presentations to earnings, revenues, and other Company-specific financial metrics related to the third-quarter of 2014 relate only to the continuing operations of Danaher businesses and all references to peer-to-peer increases or decreases in the financial metrics are year-over-year.

I would also like to note that we will 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 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 would like to turn the call over to Tom.

Thanks, Matt, and good morning, everyone. We are pleased with the quarterly results we announced this morning. Earnings came in above our expectation thanks to the Danaher team's very strong execution. Danaher Business System continues to drive superior margin expansion, increase cash flow and healthy topline performance in a modest growth environment.

The investments we have made in innovation and expansion in high-growth markets drove share gains in many of our operating companies Fluke, Hach, Veeder-Root, Radiometer, AB SCIEX, Implant Direct and ESKO are among the businesses that we believe outperformed relative to their markets during the quarter. These share gains and the team's execution also helped drive more than 85 basis points of core operating margin improvement in four of our five segments.

Our cash flow performance is also very good resulting in free cash flow to net income conversion ratio of 128%. We are encouraged by our increased M&A activity of late as we have announced $3.3 billion of deals across our portfolio in the first nine months of the year. These acquisitions will strengthen our Dental, Life Science & Diagnostics, Environmental and Test & Measurement segments. Cultivation funnels across our portfolio remain full giving us confidence in our ability to deploy our substantial M&A capacity in a strategic and disciplined way.

So with that as a backdrop let's get into the details of the quarter. This morning we reported diluted net earnings per share of $0.95, up 13% and representing another record third quarter for Danaher. Revenues grew 4.5% to $4.9 billion with core revenues up 3%. The positive impact of acquisitions increased revenues by 2% while currency translation reduced revenues by 50 basis points.

Geographically, high-growth markets led the way, increasing high single digits. Despite the headlines in China, our businesses grew double digits led by our T&M Instruments, Gilbarco Veeder-Root, Diagnostics and Dental Platforms. Developed markets remained relatively stable as the US and Western Europe both grew low single digits.

Our gross margin expanded 80 basis points or approximately $140 million to 52.7%. This increase in gross profit enabled us to increase our sales and marketing and R&D spending by nearly $60 million in the quarter and delivered 70 basis points of core operating margin expansion.

Turning to our five operating segments, Test & Measurement revenues increased 1.5% while core revenues decreased 1% primarily due to a decline in our communications platform. Reported operating margin declined 170 basis points while core operating margin decreased 115 basis points. On Monday, you saw that we announced an agreement to combine our communications business with NetScout Systems to create a premier global provider of network management solutions for both carrier and enterprise customers.

We're excited about this transaction which is the culmination of a multi-year discussion with NetScout about working together. This is a powerful opportunity to combine highly complementary businesses in a transaction that we believe will believe will benefit all of Danaher and NetScout stakeholders, associates, shareholders and customers alike.

Danaher's premier trouble-shooting, cyber security and engineering solutions combined with NetScout's high-performance monitoring technologies will give customers access to the most expansive suite of best-in-class products in the industry. The combined company will offer even greater breadth and depth across both carrier and enterprise networks, expanding opportunities for innovation and growth and improving our customers' overall experience.

We anticipate that this transaction will close in 2015. Subject to customary closing conditions including regulatory, NetScout shareholder and other approvals. Upon close, our Executive Vice President, Jim Lico, will join NetScout's Board of Directors while retaining his responsibilities at Danaher.

Now back to the results from the quarter. Our communications platform core revenues decreased at a double digit rate. High teens growth in our security solutions business was more than offset by a decline in network management solutions due to spending delays from our wireless carrier customers primarily in North America. Despite the revenue decline, we were encouraged by the positive order growth for the platform that we believe will continue for the remainder of the year.

At Arbor, demand for Prevail Enterprise Security products grew more than 50% as IT security customers continue to rely on Arbor to prevent and mitigate attacks on their networks. Around the world conducting business has become increasingly virtual and Arbor is responding with flexible solutions to help customers of all sizes quickly and cost effectively launch or expand best-in-class security solutions.

Fluke Network saw robust demand for its enterprise TruView system and portable network tools which were each up 15%. FNet's TruView system continues to receive industry recognition and was honored with the 2014 Communications Solutions Product of the Year award from the global media company, TMC.

Our instrument platform's core revenues increased at low single-digit rate with growth in most major geographies. Fluke core revenues were up mid-single digits representing its highest quarterly growth rate in over three years. Growth was solid across most major product lines led by calibration and biomedical which each increased double digits.

Distribution sellout remained strong globally particularly in North America and China where growth was mid-single digits or better. Fluke plans to build on this momentum by launching Fluke Connect in China later this month.

At Tektronix core sales were up slightly with modest growth in point-of-sale in North America and healthy demand for power supplies and oscilloscopes in China.

Turning to our Environmental segment, revenues increased 10.5% with core revenues up 5%. Segment core operating margin improved 85 basis points with reported operating margin down 30 basis points due to the dilutive effect of recent acquisitions. Water quality core revenues increased at a mid single-digit rate with strength in analytical instrumentation and chemical treatment solutions.

Hach executed well in a temperate municipal spending environment driving above market growth in both North America and Europe. Sales were also healthy in China growing double digits. This month Hach will launch the SL1000 portable parallel analyzer or PPA, a breakthrough system that dramatically streamlines water quality testing. The PPA system is the only testing solution on the market that uses a disposable cartridge to improve ease of use and reduce the manual steps by over 50% in an EPA compliant drinking water testing environment. Importantly, it provides technicians of all experience levels with a failsafe way to achieve highly accurate and consistent results.

At Trojan, demand for large municipal projects remained weak globally. Encouragingly we received two ballast water treatment system orders that will be installed in a total of 15 ships. We anticipate that delivery of these systems will start in the second half of 2015.

On the regulatory front, we received Alternative Management System, or AMS acceptance from the US Coast Guard for our full suite of UV ballast water tubing products in July. This is a temporary designation that allows customers to use Trojan solutions in US waters while our application for US type approval is pending.

Gibarco Veeder-Root's core revenues grew mid-single digits with real robust demand for our dispensers, vapor recovery products and point-of-sale solutions. Vapor recovery sales grew more than 50% in China as businesses continued to work towards compliance with environmental regulations. In point-of-sale, North American customers are choosing GVR's reliable and affordable payment security solutions as they upgrade their systems in advance of the new EMV regulations that begin to take effect in 2015.

In the quarter, Gibarco Veeder-Root acquired FuelQuest, a leading provider of fuel management solutions for suppliers, distributors and buyers of petroleum products. This acquisition further expands the capabilities of our Insight 360 cloud-based fuel management platform by allowing our customers to remotely monitor fuel acquisition, planning and distribution.

Moving to Life Sciences & Diagnostics, revenue increased 4% with core revenues up 3%. Core operating margin was up 120 basis points while our reported operating margin increased 100 basis points. Core revenues in our Diagnostics platform grew mid-single digits.

At Beckman Coulter core revenues increased in a mid single-digit rate with double-digit growth in immunoassay, urinalysis and automation. Growth was particularly strong in China where revenues grew over 20%. Beckman received FDA 510 clearance for its power express sample processing system in the quarter further expanding its world-class suite of automation products. The power express is a scalable, high speed system designed to automate sample processing in labs of all sizes across all core disciplines including chemistry, immunoassay and hematology.

The Power Express is just one of several new FDA cleared solutions that will help our US customers improve efficiency and reduce turnaround times for critical diagnostic tests.

Radiometer's core revenues increased at a mid single-digit rate led by more than 35% growth in AQT sales. High-growth market sales were up more than 20% as we continue to expand our market position in China.

Leica Biosystems core sales were up low single digits as midteens growth in high-growth markets was offset by weakness in core histology instruments in Europe. Advanced staining instrument placements were particularly strong as revenues increased over 20% in the quarter. We expect our advanced staining growth rates to remain healthy as our growing installed base continues to drive sales of reagents and other consumables.

Core revenues in our Life Science platform grew at a low single-digit rate compared to high single-digit growth in the third quarter of last year. Sales in the US and Western Europe were positive but we continue to experience uncertainty in tender timing and funding in China.

AB SCIEX core revenues grew mid-single digits with strength in academic, clinical and applied markets. We continue to expand our in vitro diagnostic offerings by launching the Triple Quad 4500MD and QTRAP 4500MD systems. The 4500 Series offers greater flexibility, exceptional sensitivity and faster data acquisition affording doctors and patients quicker access to reliable and accurate diagnostic test results.

Leica Microsystems core sales increased low-single digits. Our SP8 microscope continues to be very well-received and drove double-digit growth for our Confocal Microscope systems.

Last Wednesday, the Nobel Prize in Chemistry was awarded to three scientists including Leica's long-time collaborator and key opinion leader, Professor Stefan Hell. Professor Hell and others were recognized for their work in developing a way to use optical microscopy to study the molecular processes in the living cells.

This work is especially meaningful to Leica as we collaborated with Professor Hell to commercialize the first microscope that uses this technology back in 2004. Remarkably this is the fourth year in a row that Leica Microscopes have been cited in Nobel prize-winning work and we are honored that our products continue to be used to support this and in other important scientific research.

Turning to Dental, segment revenues increased 3.5% while core revenues were up 2%. Our core operating margin increased 100 basis points and reported operating margin increased 110 basis points to 17.2%. The team has done a terrific job in using DBS to drive productivity and improve segment margins over the past several years.

In early September, we announced the pending acquisition of Nobel Biocare, a premier global brand and a pioneer in dental innovation. Nobel Biocare's expertise in implant dentistry, digital prosthetics and software combined with our extensive capabilities in 3-D imaging, inter-oral scanning, and digital restorative solutions will benefit both patients and dentists by further optimizing clinical workflows.

We believe DBS will make a significant impact on Nobel Biocare's performance by helping to drive further innovation, growth and collaboration with our other dental companies. We are confident that Nobel Biocare is an outstanding fit for Danaher and we look forward to working with this capable team. The purchase price of $2.2 billion equates to approximately 3 times revenues and less than 4 times gross profit which we believe positions us well from a return perspective.

The acquisition remains subject to customary closing conditions including regulatory approvals and is expected to close in the fourth quarter of 2014 or the first quarter of 2015.

Dental consumables core revenues grew low single digits as healthy demand in China and the Middle East was partially offset by a modest decline in the developed markets. In the US, the sluggishness we saw in the second quarter continued. Encouragingly demand for our implant products remained robust increasing globally at a double-digit rate.

Dental technologies core revenues were up mid-single digits driven by demand for our dental hand pieces and imaging equipment globally. In mid-September, we introduced the newest member of our family of Cone Beam 3D imaging products, the i-CAT Flex MV for a medium field of view. The Flex MV allows dentists to capture a high resolution, lower radiation 3D image of the upper and lower teeth. Our Tx STUDIO 5.3 software is also integrated into the Flex allowing dentists to both scan patient's mouths and prepare a full digital treatment plan from one location on a touch screen.

In our Industrial Technology segment, revenues increased 2% while core revenue were up 4.5%. Core operating margin expanded 145 basis points and reported operating margin increased 170 basis points to 24.3%. Motion's core revenues increased at a low single-digit rate marking the second consecutive quarter of growth for the platform.

Demand in the high growth markets was particularly strong led by an industrial automation in China. During the quarter, we completed the divestiture of our electric vehicle systems and hybrid products lines which had annual revenue of approximately $100 million. Core revenues in our product identification platform grew mid-single digits as Europe and the Middle East both saw double-digit growth.

At Videojet, core revenues grew mid-single digits as the growing install base of equipment and solid execution in service helped drive high single-digit aftermarket revenue growth. During the quarter, Videojet launched its 1000 series of continuous inkjet printers. These printers feature an extended life printing core that reduces downtime and enables customers to print almost continuously for five years.

ESKO also experienced robust demand in the quarter with double-digit growth in our workflow automation software and digital imaging products. In September, ESKO released its new packaging design and workflow automation software, Suite 14. This comprehensive set of software tools helps brand owners interact with their global supply chain in the cloud improving efficiency and control at every stage of the packaging design and preproduction process. Reception of Suite 14 has been exceptional and over 1000 customers have already upgraded since launch.

So to wrap up, the Danaher team executed well this quarter using the Danaher Business System to expand margins, generate strong cash flow performance and deliver higher than expected earnings. Across the portfolio, our expanding presence in high-growth markets, investments in innovative new products, and focus on improving sales and marketing have helped our businesses continue to take share in their markets.

As we plan for 2015, we remain mindful of the challenging macroeconomic outlook including the recently strong dollar. Thus we are continuing to invest in high impact areas while also increasing spending on productivity initiatives to approximately $125 million in the second half of 2014. We believe our focus on growth investments and margin expansion combined with our robust balance sheet and M&A capacity position us to finish 2014 well and drive long-term results.

We are initiating fourth-quarter diluted net EPS guidance of $1.00 to $1.04 which assumes fourth-quarter core revenue growth similar to the first three quarters of 2014.

So before we go to Q&A, I wanted to take a moment to share a few thoughts after the first six weeks of my time as Danaher's CEO. When this transition began, I knew that Danaher's future was bright. My belief is now firmer than ever. The caliber of our team, the depth of incredible talent, their deep commitment to DBS and our culture is second to none. Financially, our balance sheet has never been stronger. Much as we have done in the past and more recently with the $3.3 billion we have committed so far this year, I look forward to channeling this strength to build upon our leading portfolio companies.

At Danaher, we compete for shareholders and that is on the top of my mind every day. We continue to look for smart ways to create value for our shareholders and other stakeholders such as this week's announcement regarding the combination of our communications business with NetScout, the recent divestiture of our electric vehicle and hybrid motor product lines and our pending acquisition of Nobel Biocare. As you know, we are always in the process of evaluating our portfolio and our focus will be on acquiring smartly, partnering smartly, and managing smartly.

Lastly, our team's culture of continuous improvement using the Danaher Business System will remain our primary focus because that is who we are and that is what truly defines our competitive advantage.

Thanks, Tom. That concludes our formal remarks. We are not ready for questions.

(Operator Instructions). Scott Davis, Barclays.

Good morning, guys. Welcome, Tom, to the game.

Thanks, Scott. Game on.

Speaking of that, the equity markets are telling us that there is bad stuff out there but you guys don't seem to sense any panic amongst your customers or anything do you? I mean can you tell us if anything has changed in October, any activity amongst your customers particularly in your more cyclical businesses like industrial, tech or Fluke that folks are starting to hunker down a bit?

Scott, it is obviously still pretty early here in October and I am sure they are all watching their screens or reading the paper day to day. But I think the simple answer to your question is no, we have seen a start to October here that is pretty consistent with what we have seen through the last couple of quarters. But that is certainly not to suggest that as this environment unfolds day to day here that those screens and those headlines won't start to influence people's behavior. Obviously over time we have seen that happen.

And frankly not that the last week has necessarily been the overriding influence on us but concerns over the macroeconomic situation, obviously the changes in currency, the shifts in the strengthening of the dollar have all influenced the way we want to position ourselves going into 2015. But again going back to the short answer to your question no, we are not seeing customer panic in the order book at the moment.

Okay. And then the natural follow-on to that is the sellers -- the bid ask spreads have been a little frustrating I think for most guys in industrials the last couple of years and the sellers have gotten a little -- I don't want to call it greedy -- but it is certainly opportunistic. Have you seen your phone light up in the last couple of weeks where sellers might be a little bit more minimal to compromise?

Again, I don't know that there has necessarily been any particular inflection in the last couple of weeks or phone lines lighting up but I would say that as a general direction, we have seen some increased activity. We have seen the sellers interested in keeping -- in taking advantage of what are still some pretty rich valuations. But those same sellers are interested in a transaction.

So I think we would generalize by saying that we are pleased with how the funnels are sitting today, the cultivation conversations are good and we seem to be making progress in some of those conversations. So directionally, we feel pretty good about where we are.

Okay. Thank you. I'll pass it on and good luck, Tom, and hope for all the best here.

Nigel Coe, Morgan Stanley.

Thanks, and good morning. Just wanted to pick up on the comments about what might be changing. And you're obviously planning for a pretty similar growth environment to what we've seen both in 3Q and year to date. But I'm wondering if the mix of that 3% is somewhat different. And obviously, Europe, there's this sort of some tension here. Are you predicting maybe a weaker Europe, maybe stronger US? Any change in the mix of that 3%?

Thanks, Nigel, and good morning. I wouldn't necessarily say we are thinking about any dramatic shifts in that mix but I would say there are probably a few things to note. I would say we have seen and perhaps would expect to see some marginal improvement here in the US. I would say while the European environment has been stable quarter to quarter, obviously there is a bit of concern out there right now about Germany and potential slowing there. So as Germany goes as we know sometimes Europe goes and so I think there is a reason for some caution as it relates to Europe.

More recently we have seen softness in Latin America, specifically in Brazil and of course the situation in Russia has changed the trajectory of that market. So I think when you put all of that together and then you add some continued very good growth in China, maybe not quite as hot over a long period of time but certainly some continued very good growth, I think you see some shifts on the margins but we still consider the high-growth markets to be the leaders, the developed markets sort of hanging in there. But maybe within each of those two major, that split, you might see some shifts here and there.

Nigel, maybe just to add one thing on Europe. As Tom and I went through the strategic reviews here over the summer and the fall, we actually think on a relative basis Europe is one of the places we are doing pretty well and some businesses where we felt we were taking share.

A chunk of that was in Europe. Hard not to be worried about all the headlines here in Europe and the news about Greece today and their sudden rise again in interest rates, foreign rates over there but actually at a relative basis feel like we performed pretty well there.

Okay, so the low-single-digit growth reflects some market shakings. That is pretty clear.

And then just digging a little bit deeper. One of the hospital providers called out some benefit from the Affordable Care Act on their patient volumes and I'm wondering if you are seeing some benefit from that on your consumables? Then on top of that, Life Sciences remains pretty challenging in China. I am wondering if you have a line of sight on when that might start improving?

Sure. So on the Affordable Care Act and the impact on consumables, first of all, we are very encouraged by the progress that we are making at Beckman. And I would say largely the progress we are making there at Beckman and frankly across the entire diagnostic portfolio is very good execution across those businesses. And those businesses, I think particularly Radiometer taking share and Leica Biosystems doing very well, particularly in advanced staining which is an important area of future growth and one of the market segments.

We think utilization is probably marginally improved as a function of the Affordable Care Act and I think there are some out there who would certainly say that the states with Medicaid expansion are the ones where we are seeing that uptake. We are also seeing improvements in hospital's balance sheets with a little bit of pressure taken off the bad debt side.

So you kind of put those things together and yes, there is a marginally improving environment there. But relative to any improvement beyond that right now, I think it is probably still a little early to tell but improvements on the margin.

In terms of Life Science and in China specifically, that is probably one of the most challenging environments out there today. You have heard us talk and perhaps others talk about some of the delays in funding in the life science market, some of the concerns around compliance in that market that may be underpinning some of those delays as China enforces what we believe are ultimately good policies for how that market will operate.

But nevertheless, that is a market that continues to be a slow market today and we don't think that is necessarily a phenomenon that is going to ease up here in the next couple of weeks let alone perhaps even in the next couple of months. So I think we are sort of thinking that that could be something that continues to be under some pressure in the slower growth market maybe into 2015.

Okay, thanks, Tom and best of luck.

Thank you, Nigel.

Steven Winoker, Bernstein Research.

Thanks and good morning. Tom, maybe a little perspective on Tektronix specifically. It has been -- I guess this is the first quarter in 11 quarters, almost three years I suppose where it has turned positive even if you said it was up low single digits but slightly. Is this the start of something a little more significant? What drove that turn? Is there something fundamental that is starting to shift a little bit in that business that you are seeing?

It has obviously been a challenging time over a number of quarters but we are very encouraged by what we have seen the last couple of quarters in the change there. I think that team has executed very well. I think they have done some very good things from a product and from a go to market standpoint. Stringing two data points together is always a good thing to do on the positive side, but I think that is still a business that will be probably a low single-digit grower here over the near term.

So I would probably attribute it a little bit more on the execution side than necessarily a fundamental shift or an inflection point in the market. Clearly there are some things going on that will drive market growth over time but I'd put a little bit more on the team's execution here more recently.

And you mentioned ballast water for Trojan. That is another encouraging sign. Is this just a one-off do you think or something more significant again?

No, we would not consider this to be just a one-off. We would consider it to be just the beginning and early and very positive indication of the market's acceptance. And I think it is just important to remember that these regulatory approvals are really kind of threshold events for starting to bring this market to an inflection point of higher growth.

So we were excited by the approval that we got, the AMS approval that I mentioned, but that is not as big a deal quite frankly as getting the formal US type approval that I mentioned that we expect next year. So more to come on that, very encouraging early indication of acceptance and it is I think an indication of good things to come.

And if I could just sneak one more in, on the separation earlier this week, the value of the business combination you have made it abundantly clear just maybe a little more thinking on the shareholder value of doing this outside of Danaher rather than within Danaher?

Steve, it is Dan. I think it is a reflection of our long-held view, NetScout's long-held view that there is a lot of -- this is a one plus one equals three, able bit like our tools joint venture but again we think with a greater growth profile and we just ultimately concluded this was the best way to affect that.

Okay, great. Thanks, guys.

Steve Tusa, JPMorgan.

Good morning. So you mentioned ballast water and I guess are there any other businesses maybe Beckman perhaps, that just from some company specific dynamics should perhaps look better at this time next year versus what they are doing now, just outside of the macro?

Steve, I think I saw several opportunities that business has had as I came through the strategic reviews that would point towards growth potential in a number of businesses. I think, for example, if you think about Gilbarco Veeder-Root and what we are seeing around the early indications around the customer base moving towards compliance with the EMV regulations that I mentioned, I think that is an indicator of some momentum that we can see later in 2015.

I think you mentioned Beckman Diagnostics specifically. I think if Beckman continues to drive their improvement in quality, in service, in delivery and the overall customer experience, and then you combine that with some of the new product clearances and then the introduction of our molecular diagnostics platform, Varis, next year, I think that too has exciting potential for Beckman.

So I think those would be two I could cite, and there would be a number of others if we walked across the portfolio.

Right, and from a macro perspective it sounds like this is a 3% type of economy. It doesn't sound like you think, even though you highlight the macro challenges out there, it doesn't sound like you think this is kind of a 1% to 2% economy. This is just kind of a stable and steady growth type of environment we're in right now.

Yeah, I don't think we want to go Chicken Little on you here, but I think we want to be ready for what comes. We've done that, obviously, over a long period of time when cycle move through. We try to anticipate where challenges come, and we think there's some indications out there there'd be challenges, but we're not trying to call a crisis here.

Then one last question just on portfolio mix. I mean buying Nobel and doing this deal for the comm's business, I would assume this kind of re-enforces the view that you guys aren't particularly stuck in a frame of mind of a certain percentage from healthcare and a certain percentage from industrial businesses, you are going to go where the opportunities provide the best strategic and financial returns.

Steve, I probably couldn't have said it any better than you just said it. We are not stuck on percentages and we absolutely move to where we can add the greatest value for our shareholders by making those portfolio moves that come our way and that we can make happen over time.

Is it too late for sellers to get something done by the end of this year or is everybody just kind of looking more towards 2015? How robust is the pipeline?

Steve, there is not a tax driver here but on the margin here the last two, three months and just what we have seen the last four or five months has been encouraging regarding conversations.

Okay, great. Thanks.

Jeff Sprague, Vertical Research Partners.

Thank you, gents. Good morning. Just a quick one or two. Just on the kind of on the sell side of things, Tom, the NetScout deal is interesting in an environment where it is tough to buy perhaps it makes sense to sell a few things. I just wonder, I think we are all fairly acquainted with your portfolio but what is the prospect for other moves perhaps structured in different ways but kind of pruning opportunities in the portfolio?

Good morning, Jeff. First of all, important to recognize that there was no motivation behind the partnership with NetScout that had to do with it being tough to buy. We thought that was just a great opportunity no matter what as you might have expected. But we will continue to evaluate the portfolio and make sure that our businesses are well positioned for the future.

I think we have a tremendous portfolio today. I think going across the strategic plans that I did, not that I saw every operating company during the season but I saw all of the major operating companies and certainly all of them from a platform point of view and I think there is just a lot of potential that we have across the entire portfolio today.

But that being said, and you have heard Larry say it over a long period of time that no business has a permanent home in Danaher and we will continue to evaluate whether each one of our businesses is well positioned in the portfolio and if we see opportunities for smart partnering or an opportunity where that business is better served to be in a better place we will certainly look to make that happen but in general I am thrilled with the portfolio we have today.

Right, and then I was just wondering if we could get a little additional color on just what is going on with structuring, just kind of a couple of questions and points around that. Tom, I think you said $125 million in the second half, implying some of it started in Q3 and wondering, Dan, if you can give us a little color Q3 versus Q4 and if there is any change in deal costs and other things that are going on in the fourth quarter? And maybe just a little thought if you could on where the activity is taking place and what the payback might be?

Jeff, on the point about where it is taking place obviously a lot of communication to do here so we are going to avoid to get into specifics. But the $125 million is largely in the over 90% of it will be in the fourth quarter, broad based. We would expect about a little bit less than a one-year payback, so on an annualized basis, expect about $100 million of savings or roughly $0.10 a share. Probably don't get all that until we get to the end of the first quarter given there is often some kind of lag effect. But found a lot of good projects and obviously made the decision to execute upon them.

Any change in deal costs on that?

Jeff, if I just might add to that. I think as Dan and I went through each of the individual businesses both during the operating reviews earlier in the year and during the strategic plan reviews, it was clear that the businesses were already thinking ahead as to where those opportunities might be and how to take advantage of them. So we were really pleased with how the businesses looked broadly across the portfolio and came up with really a terrific group of projects.

And then, Jeff, just in terms of deal costs, we highlighted some of that in July. I don't think it has changed much. Clearly losing the motion business and the earnings in the fourth quarter that is obviously in the guide here. We continue to work on the integration of the Siemens business, that is going well but we are spending money on that.

The only thing that could be of significance and we would call it out is if we would have closed Nobel here in the fourth quarter, which is a possibility, we would have some one-time expense which given the magnitude we would call out separately.

Great. Thank you, guys.

Julian Mitchell, Credit Suisse.

Hi, thank you. Just a question on dental firstly. You know, in sort of earlier in the quarter you talked about US sell-through of consumables being a little bit better. It doesn't seem to have shown up yet in your numbers. Is that something you think reverses pretty soon?

Also on dental, very, very strong core margin improvement performance in Q3. That was after a pretty weak Q2. What do you think the steady-state run rate on that dental margin trajectory should be?

On the dental consumables, Julian, it clearly is a business that is still closely tied to what we think is a fairly slow growth macro environment. So while I think we are doing a good job from an execution standpoint, I think clearly we don't have any tailwind from a market standpoint. So we have got work to do there, but I don't think there is anything perhaps any more noteworthy than the environment in which that business is performing today.

Dan will comment in a second on kind of an outlook on margins, but you are right to note certainly the good performance from dental on the margin side in Q3. Dental technologies in particular did a very good job on driving margins; some of that a function of some of the things we did last year around productivity, some of that just continuing good work this year from an execution standpoint.

And then a little bit of help overall across the segment from a mix standpoint with consumables, despite the slightly slower growth that you commented on generally providing a pretty good mix for the segment overall.

And Julian, in terms of margins, for the full year -- and there will be some noise in Q4 obviously because of restructuring but from a core basis, we would expect core margin expansion in that 75 basis points to 100 basis points of core margin improvement during the year. You obviously saw more than that here in the third quarter.

It is a little bit hard for me to kind of quote a number here given the expectation of Nobel coming in. So we will have a lot of noise for a couple of quarters, but ultimately with Nobel what we have, we think this is a 20% segment in four to five years from now.

Thank you and then just on the outlook, you obviously talked about the restructuring measures you are enacting now and you talked earlier about the decent increases in SG&A and R&D in Q3 funded by the gross margins. Have your own spending plans whether OpEx or CapEx changed in light of the macro conditions that you cite? Or for now you are kind of proceeding as you were and you will just watch the order book closely for changes?

Julian, probably important to note here that we are just now entering into the budget season here so we will have work to do with each of the individual operating companies to understand how they are positioning for 2015.

I think one of the things we try to make sure we do through that process is to recognize that there is not a one-size-fits-all across the portfolio when it comes to investment and where those gross margin improvements either come from and/or where they get reinvested. And so as we walk across the businesses we will be I think thoughtful as we have always been about making sure that we are investing smartly into those businesses that have the best opportunities, that are the best positioned in their markets and that is where you see lifts for example in R&D and in sales and marketing and perhaps in some other spots you might see us stay a little tighter.

Richard Eastman, Robert W Baird.

Just a couple of quick questions. On Siemens, is that transition that is tracking on the timeline, is that a first-quarter close? Dan, could you just give the IT integration expenses? In Q3 and Q4 are those still kind of summing to maybe $10 million split between the quarters?

That is directionally correct. I don't have the breakdown. We just debriefed with the Beckman team the other day on the integration. It is going well and all of our expectations are for a Q1 close.

And then also, Tom, just in terms of China, we continue to put up some very nice double-digit growth there as mentioned and I think we understand the issues in the life sciences marketplace there and being regulatory and hopefully they clear sooner rather than later. But it feels a little bit contradictory your growth in China coming in some of these more cyclical markets, T&M, I think motion was mentioned. It seems contrary maybe to the macro perspective that people have in China. So do you attribute your double-digit growth to your initiatives, distribution, sales, marketing or how do you reconcile that?

Sure, Rick, thanks for the question. Jim Lico and I work together in China I think it is now two or three weeks ago for a number of days and we sat with each one of our individual businesses. In many cases I was sitting with businesses that I was less familiar with. But clearly I think what we saw was we saw a very good group of people, an outstanding set of teams that are continuing to build commercial reach in those markets. We are seeing teams now putting innovation-related resources on the ground, product-planning resources. We are adding to our local R&D presence developing products for that local market and commercializing those products in ways that I think are helping to drive our growth.

And you are right to observe that that growth is coming fairly broadly across not just for example places where we have talked about it in the past like Beckman Diagnostics continues to do an excellent job and of course that is a very big business over there so that is obviously a part of that growth but it is broad-based.

The dental team for example, an outstanding team over there that is continuing to drive double-digit growth and that is not only a good market but the team executing very well.

So I think you put that all together and it is a good portfolio, well-positioned in a number of good markets with good teams that are continuing to invest aggressively.

Okay, great. Thank you.

Isaac Ro, Goldman Sachs.

Good morning, guys. Thank you. Just one follow-up question on the Life Science business. If I look at your comments here you did cite a combination of pressure in China both in terms of the overall demand environment as well as budget delays and I was wondering which of the two was maybe a bigger factor just to give us some insight on what your visibility is on a recovery there heading into next year?

Isaac, tough to parse what you described as budget delays versus overall demand. But if I were to try to generalize, we know that there has been and continues to be scrutiny over particularly the larger tenders, the instrumentation related tenders and whether you call that budgetary or you call it demand, I am not sure.

Now that being said, there is another dimension which is where on a macro basis are investments going at the moment and clearly we see investments going into the diagnostics or the healthcare side of the house and we are seeing obviously the benefit of that and our business is doing very well there. And perhaps that means slightly less into the true research side of the house but I think it is a little tough to parse that much more precisely.

I would say compared to 90 days ago and this really goes to kind of Rick's previous question, there are some parts in China that we actually incrementally feel a little better about but I think to be fair on Life Science we would have to say we are incrementally a little bit more negative than we were 90 days ago.

That is helpful. And then on T&N, you guys I think in the Q did call a little bit about expectation for continued negative growth there in the wireless business into 2015. So just wondering how broad-based that is across your customers and just confirming that you don't think it is an issue of market share just more of the environment?

We think it is largely environment and I think the thing that is most encouraging here is we saw orders turn positive in the third quarter for the platform. That trend actually looks pretty good heading here into Q4 as well. The issue there as you know we often get some of the orders we actually get upfront payment. You see that in some of the numbers in our cash flow statement but we actually won't book revenues for six, nine, 12 months out. So we are seeing a nice turn in terms of orders.

The next couple of quarters are going to be challenged here. I don't think that has changed but I think the outlook is looking a little better here.

Got it. Thanks so much, guys.

Ladies and gentlemen, that does conclude our question-and-answer session. Mr. Gugino, I will turn it back to you for closing remarks.

Thanks everyone for joining us. We will be around all day for questions.

Ladies and gentlemen, thank you so much for your participation this morning. This does conclude today's conference.