Danaher Corp (DHR) 2014 Q4 法說會逐字稿

Good day.

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

At this time I would like to welcome everyone to the Danaher Corporation fourth-quarter 2014 earnings results conference call.

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

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

(Operator Instructions).

I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations.

Mr. Gugino, you may begin your conference.

Thanks, Aaron, and 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 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 made 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 February 3, 2015.

The replay number is 888-203-1112 in the US and 719-457-0820 internationally and the confirmation code is 1202913.

During the presentation we will describe certain of the more significant factors that impacted year-over-year performance.

Please refer to the supplemental materials in our annual report on Form 10-K when it is filed for additional factors that impacted year-over-year performance.

Unless otherwise noted, all references in these remarks and accompanying the presentation to earnings, revenues and other Company specific financial metrics related to the fourth quarter of 2014 relate only to the continuing operations of Danaher's business and all references to period-to-period increases or decreases and 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 or may occur in the future.

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

It is possible that actual results might differ materially from any forward-looking statements 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 were very pleased with the strong finish to 2014.

The Danaher Business System continued to enhance our competitive advantage driving market share gains, solid core margin expansion and record free cash flow generation.

For the full year, our targeted organic investments helped drive 3.5% core revenue growth and our total revenue is now just shy of $20 billion.

These investments in new products and go-to-market initiatives enabled us to increase market share in many of our businesses including Fluke, Hach, Gilbarco Veeder Root, Radiometer, AB SCIEX, Implant Direct and VideoJet.

From a portfolio optimization perspective, 2014 was also a very busy year for Danaher.

We announced or closed 18 acquisitions for nearly $4 billion, improving our market-leading positions across the portfolio.

Most notable among these are our two largest deals, Nobel Biocare and Devicor, which closed in December.

We also announced a combination of our communications business with NetScout which we believe will better position these two highly complementary businesses for long-term success.

Finally, we divested the electric vehicle system and hybrid product lines within our automation platform.

Going forward we remain focused on building a better, stronger Danaher by utilizing our robust balance sheet and smartly deploying our $8 billion plus of acquisition capacity.

In 2014, we generated a record $3.2 billion of free cash flow and our free cash flow to net income conversion ratio was 122%.

This represents the 23rd consecutive year in which our free cash flow exceeded net income, an important metric that represents the quality of the earnings we generate.

We also returned more of this cash to shareholders, increasing our annual dividend to $0.40 per share from $0.10 per share.

Turning to the fourth quarter, revenues grew 3% to $5.4 billion while organic revenue grew 4%, exceeding our expectations.

More than half of our platforms delivered mid single-digit core revenue growth including T&M Instruments, Water Quality, Gilbarco Veeder Root, Diagnostics, Life Sciences and Product ID.

Acquisitions increased revenues by 2.5% while currency translation decreased revenues by 3.5%.

From a geographic perspective, high-growth markets increased at a mid single-digit rate.

Performance was mixed with solid results in China and double-digit growth in the Middle East partially offset by slowing growth in Latin America and a high teens decline in Russia.

In the developed markets, both the US and Western Europe grew at a mid single-digit rate and acceleration from the low single-digit growth experienced in the first three quarters of the year.

Sales in the US increased at the fastest rate since the second quarter of 2011 with our Gilbarco Veeder Root and Life Sciences platforms up more than 10%.

Our fourth-quarter gross margin was 52.5% excluding the impact of productivity initiatives.

Core operating margin increased 70 basis points with three of our five segments improving greater than 100 basis points.

Our reported operating margin declined 50 basis points to 16.4% due primarily to increased productivity charges and the dilutive impact of recent acquisitions.

In total, we spent approximately $155 million on productivity initiatives in the fourth quarter.

For the full year, our gross margin was 52.4% and our gross profit improved nearly $500 million.

This allowed us to increase our combined investment in R&D and sales and marketing over $200 million from 2013 while expanding core operating margin 65 basis points.

We reported fourth-quarter adjusted diluted net EPS of $1.04 which compares favorably to our previous guidance of $1.00 to $1.04 and represents an increase of 8% year on year.

For the full year, adjusted diluted net EPS was $3.68, also up 8% from 2013.

Now turning to our five operating segments.

Test & Measurement revenues increased 1.5% while core revenues were up 0.5%.

Reported operating margin improved 130 basis points while core operating margin declined slightly.

Core revenue in our Instruments platform increased at a mid single-digit rate with growth in most major geographies.

This was the platform's highest quarterly growth rate in over three years driven by improving market conditions, organic investments, and new product innovations such as Fluke Connect.

Fluke core revenues were up mid-single digits for the second consecutive quarter with our core industrial and biomedical product lines each increasing at a high single-digit rate or better.

Distribution sellout in North America accelerated sequentially growing at a high single-digit rate.

Demand in Europe was also healthy.

At Tektronix, core sales were up mid-single digits representing the highest quarterly growth rate since the third quarter of 2011.

Demand was strongest in North America with solid growth in the military and government, optical and semiconductors segments.

During the quarter, Tektronix launched the RSA 306 radiofrequency spectrum analyzer, a portable USB powered device which offers as much functionality as a bench top equipment allowing engineers in the field to ensure radio frequencies are free of distortion and interference.

Our communications platform core revenue decreased at a double-digit rate.

Mid single-digit growth in our security solution and network enterprise businesses was more than offset by a decline in network management solutions where we continued to experience delays from our North American wireless carrier customers.

Despite the weakness on the top line, we were encouraged by our book to bill ratio which was almost 1.2 times for the second half of 2014 and we believe our communications platform will return to growth in 2015.

We continue to expect the combination of our communications business with NetScout to close in mid-2015 subject to approval by NetScout shareholders and the satisfaction of customary closing conditions including regulatory approvals and the absence of a material adverse change with respect to either our communications business or NetScout.

At Arbor, North American sales increased over 25% with robust demand from enterprise security customers.

During the quarter, Arbor further strengthened its presence in the enterprise segment with the launch of Pravail Security Analytics.

This scalable cloud-based solution allows organizations of any size to detect and view attacks on their global networks in real time and in greater detail than ever before.

Fluke Networks saw double-digit growth in its network installation tools and enterprise systems products.

FNet's bookings also grew at a double-digit rate surpassing $100 million in a quarter for the first time in its history.

Turning to our Environmental segment, revenues grew 5.5% with core revenues up 5%.

Segment operating margin declined 330 basis points primarily due to the dilutive effect of recent acquisitions and incremental productivity charges.

Water quality core revenues increased at a mid single-digit rate led by robust growth in our analytical instrumentation and chemical treatment businesses.

Hach had another outstanding quarter with growth across most major product lines.

US municipal sales were up high single digits as customers are increasing their maintenance project budgets.

Sales in China were up over 20% driven by the government's continued focus on environmental protection.

Last quarter we highlighted the SL1000 portable parallel analyzer, a breakthrough product that simplifies the water quality testing process.

Hach's new product introductions including the SL1000 have exceeded expectations with revenue from new portable lab products tripling from 2013.

ChemTreat reached another sales milestone in December achieving $400 million in annual sales for the first time.

ChemTreat has now nearly doubled in size from its acquisition in 2007.

Notably this has largely been organic, the result of the development and application of their best-in-class go-to-market model.

Gilbarco Veeder Root's core revenues grew mid-single digits as sales of point of sale solutions and dispensers in the US increased over 30%.

GVR's comprehensive product suite has helped to make it the preferred solution among customers looking to upgrade their payment systems to comply with upcoming EMB security requirements.

Sales were also robust in China where demand for GVR's vapor recovery and dispenser products grew double digits.

Moving to Life Sciences & Diagnostics, revenue increased 3% with core revenues up 5%.

Core operating margin improved 135 basis points.

For the full-year, core operating margin expanded 110 basis points.

This marks the fifth consecutive year segment core operating margin has improved over 100 basis points.

Core revenues in our diagnostics platform grew mid-single digits with healthy demand in both the high growth and developed markets.

For the third consecutive quarter, core revenues at Beckman Coulter increased at a mid single-digit rate led by immunoassay, chemistry and urinalysis solutions.

Beckman also experienced strength in their automation business where new products such as Power Express drove record December shipments.

The positive momentum in the US continued with our sales team achieving record customer retention and win rates leading to mid single-digit growth.

Beckman received 510(k) clearance for the Vitamin D Total assay on its access line of instruments.

This represents a significant addition to Beckman's bone metabolism testing menu as nearly 1 billion people in the world are estimated to be vitamin D deficient.

Beckman also introduced four immune suppressant drug assays allowing doctors to better monitor therapeutic drugs and transplant recipients.

Radiometer's core revenues were up approximately 10% with HemoCue sales increasing double digits and AQT growing over 35%.

2014 marked Radiometer's 10th anniversary with Danaher.

The results over the past decade have been extraordinary with the team increasing revenues more than 2.5 times to nearly $800 million while tripling operating profit.

Leica Biosystems' core sales were up high single digits with healthy demand across our entire suite of anatomical pathology instrumentation and consumables.

Advanced staining finished the year particularly strong in the US placing a record number of bond systems in the quarter.

In December, Leica Biosystems acquired Devicor, a leading provider of minimally invasive biopsy systems and consumables used in breast cancer diagnostics.

This acquisition moves Leica further upstream in anatomical pathology to the biopsy providing better sample control and delivering higher levels of diagnostic quality and confidence.

Core revenues in our Life Science platform were up mid-single digits led again by the US and Europe.

AB SCIEX core revenues grew mid-single digits with strength in clinical, pharma and applied markets.

We have been pleased with the market reception of our new 6600 TripleTOF with SWATH Acquisition 2.0 software with demand exceeding expectations since launch in June of last year.

Those of you who attended our Investor Day last month heard about OneOmics, AB SCIEX's innovative partnership with Illumina.

OneOmics brings together next-generation sequencing and proteomics data in the cloud to help advance research across multiple diseases such as cancer, diabetes, Alzheimer's and heart disease.

This unique solution has received significant attention in the research community and was named one of the top 15 inventions in 2014 by the Analytical Scientist magazine.

Leica Microsystems' core sales increased mid-single digits with growth across all major product lines.

The Confocal line of microscopes continues to garner industry recognition with the latest SP8 STED 3x receiving a top 10 innovation award from the Scientist Magazine.

The STED further advances research in important fields such as immunology by providing scientists a 3-D view of previously unobservable details of living cells.

Turning to Dental, segment revenues increased 6% while core revenues were up 2.5%.

Our core operating margin improved 185 basis points.

As we previously mentioned, during the quarter we closed on the acquisition of Nobel Biocare.

We are excited to have Nobel Biocare as part of the Danaher team and the business ended 2014 with its seventh consecutive quarter of core revenue growth.

While still very early, we have been pleased with the feedback from both associates and customers and we look forward to sharing further updates on Nobel's performance with you in the coming months.

Dental consumables core revenues were up low single digits with 30% growth in China and the Middle East partially offset by continued weakness in the US.

Implant Direct, our value-oriented implant business, continues to perform well growing double digits.

During the quarter, we expanded our endodontic product line with the launch of [Elements Free], a cordless hand tool featuring motorized extrusion and precise temperature control giving endodontists unmatched accuracy and flexibility to perform complex procedures such as root canals.

Dental technologies' core revenues were up low single digits led by double-digit growth in hand pieces.

Last quarter we launched the i-CAT FLX MV, our most recent advance in 3-D imaging.

Customer reception has been exceptional with over 100 systems shipped to date.

We also expanded our line of dental surgical equipment with the launch of KaVo MASTERsurg LUX.

The KaVo MASTERsurg line is our latest innovation in surgical instruments for dental implants and oral surgery improving productivity and clinical accuracy by enabling dentists to store and program settings for multiple procedures.

The MASTERsurg line also provides better surgical command and flexibility with the industry's first wireless foot control.

Moving to our Industrial Technologies segment, revenues declined 1% while core revenues were up 5%.

Core operating margin expanded 120 basis points and reported operating margin expanded 310 basis points to 20.4%.

Automation core revenues grew at a low single-digit rate led by strong demand in North American distribution and for industrial automation products in China.

This marks the third consecutive quarter of growth for the automation platform.

Core revenues in our product identification platform grew mid-single digits with high single-digit growth in developed markets and double-digit growth in Europe.

At VideoJet, core revenue was up high single digits as it continues to gain market share broadly.

During the quarter, VideoJet launched Remote Services, the industry's first virtual troubleshooting solution for printers.

With Remote Services, maintenance technicians can now resolve customer problems up to 90% faster than field visits.

Innovative solutions such as these helped VideoJet increase their service contracts more than 20% in 2014.

X-Rite finished the year strong with both sales and orders growing double digits.

In December, Pantone announced Marsala as the 2015 color of the year with extensive media coverage online, in print and on TV.

The color of the year and the billions of media impressions it generates solidifies Pantone's iconic brand and was one of the drivers of high single-digit growth in X-Rite's color standards business in 2014.

So to wrap up, we had a strong finish to the year with core revenue growth exceeding our expectations.

The Danaher Business System helped us to gain market share while also driving solid core margin expansion and record free cash flow.

While cognizant of the current macroeconomic challenges, our investments in growth in productivity initiatives combined with a robust balance sheet leave us confident in our ability to outperform in 2015 and beyond.

We are initiating first quarter adjusted diluted net EPS guidance of $0.90 to $0.94 which excludes non-cash amortization expense and certain acquisition related charges.

We are assuming first-quarter core revenue growth of 4% or better.

We are also updating our full-year 2015 adjusted diluted net earnings per share guidance which we now expect to be in the range of $4.30 to $4.40.

The strengthening of the US dollar since our December investor meeting is expected to reduce 2015 earnings by approximately $0.10 per share.

We anticipate offsetting approximately $0.05 per share of this headwind from savings associated with the incremental fourth-quarter productivity initiatives we highlighted, recent acquisitions including the Siemens Microbiology deal, which we expect to close in the near term, as well as other actions.

Core revenue for the full-year 2015 is anticipated to grow between 3% and 4%.

Thanks, Tom.

That concludes our formal remarks.

Aaron, we are now ready for questions.

(Operator Instructions).

Steven Winoker, Bernstein.

Thanks and good morning, guys.

I hope you are staying warm and dry down there.

And same to you and to all on the call.

Thanks for what might have been a challenging morning for many.

I'm sure none of us would miss this.

Anyway, core operating margin in T&M and Environmental, could you just walk us through the slight decline in T&M and the bigger one in Environmental?

What drove that?

A little more detail there would be great.

Sure, Steve, the Test & Measurement and obviously the decline in this quarter is a lot less than it has been in previous quarters and it is largely driven by the communications business which was again down midteens.

So a very high contribution margin business and that volume is really impacting Test & Measurement.

And then Environmental?

Environmental, it was pretty clear we were having a very strong quarter both at GVR and across the water businesses.

They have a number of growth initiatives and this created an opportunity to accelerate some of that R&D and go-to-market investment here in the fourth quarter.

I don't think it is indicative of a trend at all.

I think it was an opportunity to get ahead of some things given the strength we saw -- that began early in the fourth quarter.

Steve, just to add to that, on the Environmental side, certainly at Hach and the water analytics businesses, those businesses continue to perform exceptionally well.

They have covered virtually every bet they have made when it came to some incremental investment to drive topline and share gains.

So when those guys come up with an opportunity to put a little bit more at work to drive growth in share, we tend to be supportive of that if we can see our way to covering for them.

Okay, great.

And then on currency, maybe -- I know we have talked about currency a lot in the past.

You weren't able to fully offset that for your guide for the year just given how big a drop obviously it has been even since December.

But should we, what is your ability to provide do you think maybe additional offsets during the year?

And then secondly, do you have any competitive issues on pricing and whatnot in any of your markets by giving such a large move in currency and competitors' ability to price for that?

Steve, on the first point, we have in no way have we thrown in the towel on the balance of going after that extra $0.05.

We are continuing to challenge the teams as we always do to try to come back on that.

But we are encouraged by the strong start we have had here coming out of the fourth quarter, encouraged by what we are seeing in the early stages here of January.

So that deal is good but we know the strength of the dollar is a headwind.

We are doing things proactively as we did using the productivity initiatives to get a piece of that back.

Siemens is obviously going to help a bit there.

And I think we would also get a little bit of help and that is part of these $0.05 that we have clawed back from what we think would be maybe a little bit of deflation that could help us on some commodity costs and perhaps some freight and transport costs.

So I think we've got a few things that give us confidence in getting the first $0.05 back but we are continuing to work on the balance for sure.

I think on the second question about competitively, clearly there has been an impact with the euro on our financial results but competitively we have not seen that impact.

We said after the third quarter we thought we were taking share in Europe.

We just posted a mid single-digit core growth number in Europe.

I suspect that is going to be towards the top of the class here after all companies report.

So despite the stronger dollar, we are performing extremely well in Europe right now.

Alright, guys.

I will pass it on.

Thanks.

Shannon O'Callaghan, UBS.

Good morning, guys.

Just in terms of the strength that you saw in the US, maybe a little more color on what particular piece of that might have surprised you most and what you feel the best about continuing?

Sure.

As I think I mentioned, it was a terrific quarter in the US, the best since the second quarter of 2011.

It was remarkably broad based, Shannon.

We saw strength at GVR, saw strength in T&M Instruments, at Tek and Fluke, continuing to execute better.

Saw good sell out associated with the Fluke business.

The Hach business continues to perform very well with our municipal customers releasing funds associated with projects.

And we are very encouraged by what we saw in Life Sciences with good performance in that platform.

So it was a number of businesses that had a very good finish to the year in the US.

And sometimes we have had a good fourth quarter and then kind of catches up a little bit in 1Q.

You didn't sense any kind of boost from just kind of year-end flush?

It is one of my favorite topics of course in the first week of any January is did we see anything that might cause an air pocket?

It looks pretty good from where we sit right now.

The early January orders and it is still early, appear pretty good.

So we are encouraged by that and we think we are off to a good start.

And then just on M&A, the world has gotten more volatile here in the market certainly in 2015.

Is that good for you guys from a M&A perspective?

Do you feel better about the acquisition environment than you did a few months ago or worse?

How does it impact you?

Generally volatility is kind of a positive for the strong corporate buyers.

We have seen some of the restrictions being put on private equity here around leverage.

That definitely has a favorable impact as well.

Okay, great.

Thanks, guys.

Steve Tusa, JPMorgan.

Good morning.

Can you just talk about what you are seeing in the emerging markets and maybe within some of your more cyclical businesses in emerging markets?

China maybe specifically?

Sure, Steve.

We are continuing to see very good performance in China but first of all just broadly across high-growth markets.

We clearly have seen a narrowing of the delta that we had seen for a long time between high-growth markets and developed markets in general.

Part of that is a function of some of the strength we have seen in the US.

Certainly our execution in Europe where we have gained share in a variety of places continues to also support good performance on our side in the developed markets.

On the high-growth market side again causing a narrowing of that delta, we have got a slower position in China in a macro sense.

Obviously some weakness in smaller markets where we have less exposure but we see a little bit of impact in places like Russia and Brazil clearly is in a slower growth mode than it had been in the prior couple of years.

Probably a bright spot in the Middle East with excellent performance from our businesses but actually we believe a pretty good macro environment there at least at the moment.

In China specifically, Steve, we have had very good performance across a number of our businesses.

The Environmental business, certainly Hach and GVR performing exceptionally well there.

Our Dental business continues to grow double digits in China and probably the core weak spot remains the Life Science business.

We have talked quite a bit over the last number of months about some of the issues there relative to some scrutiny around tenders, some slowing of the release of funding but we think there may be a point of stability that we have reached here and maybe some cause for some improvement here in 2015.

Dan was actually just there a week or so ago in China and he may have a couple of thoughts.

Steve, just to add one or two things.

We grew full-year in China kind of 8% or 9%.

Q4 was a little slower, it was more like 6% but I would say the tone there was pretty good.

Clearly Test & Measurement got better through the year, much better second half than first half.

As Tom alluded to, most of the healthcare business is Environmental.

Environmental was up double-digit, Dental was a double-digit, Diagnostic was up double-digit on a very large revenue base and Industrial, which was negative, has returned to kind of modest growth as well.

Life Sciences down mid-single digits for the full year, kind of in that zone in the fourth quarter but I think the tone in early January I think in part because 2015 will be -- is the fifth year of their current five-year plan and they are fundamentally I think still very committed as a country to Life Science research.

I think the tone is a little bit better there as well.

I'm not saying we are going to bounce back to double-digit growth here in Life Science but would not be at all surprised if we turned positive here in 2015.

Great.

Thanks for the color.

Jeff Sprague, Vertical Research Partners.

Good morning, gents.

Just a couple of quick ones here too.

Could you elaborate a little bit, Tom, on the comments on US municipal, do you think there is actually a turn going on there or was there just kind of some project activity in the quarter?

Jeff, I think in general we see some macro strength in the muni market with some of the situations in a variety of municipalities getting marginally better and that has allowed some projects to get released.

I wouldn't say that is the whole story though.

The Hach business continues to execute exceptionally well.

Many of their digital marketing initiatives and their expansion of feet on the street across both the muni market and the industrial market I think has helped them to continue to gain share.

So I think a combination of a marginally improving macro environment is part of the story and share gains being the other part.

Have you seen any change in kind of seller's attitude here with kind of all the turmoil in general and the QE in Europe?

Just any change in tone or activity at this point?

Jeff, it is hard to point to anything specific other than less competition from private equity which is a positive.

Right, right.

Then could you just elaborate a little bit more on the acceleration you had in Europe?

Was there something that stood out?

Was it broad-based across the businesses?

It was relatively broad-based, Jeff.

Life Science executed extremely well.

We saw good growth there.

Our dental business, particularly on the equipment side of the dental business, also executed very well, and PID.

Those would be at least three that I would highlight.

If I added a fourth, it would probably be the Beckman Diagnostics business also executing very well.

So it was markedly broad, but I wouldn't necessarily think about that as something indicative of a change in the macro environment in Europe.

We saw nothing that would perhaps really indicate that, but instead we had some teams that I think did an excellent job with some new products.

And we are really driving their sales and marketing initiatives very effectively.

And that is in Europe for Europe, right?

There is not any kind of export kick-out of there on lower euro, right?

That is correct.

That is revenue into Western Europe, right.

Perfect.

Thanks a lot, guys.

Brandon Couillard, Jefferies.

Thanks, good morning.

Just a quick one on the Nobel deal.

Do the changes in the FX reality affect how you view accretion there for the year?

And any chance you could give us the actual point estimate on 4Q organic growth for that business?

Brandon, it won't have much of an impact.

They do have some cost base over there as we also have some costs related to some of our other healthcare businesses.

The offset is all told we have about $200 million of revenues in Switzerland so that will be a benefit.

Net net, neither for Nobel nor the corporation do we think what has happened with the Swiss currency -- it will be relatively neutral to us.

That business continues to kind of grow at kind of a 2% to 4% clip and that has been over the last couple of quarters and then they were in that zone for Q4 as well.

Thanks.

And then secondly, on the Dental business, I mean a number of companies have pointed to strength in the US in the back half of the year.

To what degree at all have you seen any vitality in the developed world particularly in the US and is there any sign of optimism in terms of an acceleration perhaps this year?

Brandon, I think we are probably most excited about what we see on the equipment side in Dental.

The new product innovations I think you saw many of those when we were out in California earlier during the year in 2014.

The digital initiatives and I think some of the potential that we have as we integrate the components of the workflow that Nobel Biocare can bring to the table along with what the KaVo Kerr Group of businesses bring, I think that is really where our optimism sits relative to the US dental market.

On the consumables side, we see it really as a continuing relatively modest growth market.

You have seen pretty consistent low single-digit growth from us.

We have seen some inventory destocking in the latter part of last year that may be carrying over here in the first part of this year.

But generally our business continues to perform pretty well in what arguably is kind of a slow growth macro environment there.

Time will tell as to whether or not some of this reduction in oil prices that will translate to the cost of filling up a tank ends up improving overall consumer sentiment and gives us a little tailwind there but probably too early to tell.

Super.

Thank you.

Julian Mitchell, Credit Suisse.

Thank you.

I guess first of all I just wanted to see if there was any change in the expectations on core growth by segment for 2015 given you had a pretty good core growth quarter in Q4?

And also just on industrial tech specifically, you had the highest growth rate in core since mid-2011.

Similar growth rate to Q3 but a tougher base so maybe just an update on that.

Julian, I would say that PID clearly the biggest piece of industrial tech continues to perform quite well.

I don't think they are really looking for a change in that growth trajectory here in 2015.

In the first quarter as we highlighted, we think we will do 4% or better.

Again, we are talking 3% to 4% for the full year.

Our internal numbers right now are rolling up around 4% for the first quarter.

But as Tom alluded to, we finished Q4 pretty strong and we are off to a very good start here in the first three weeks of January.

We also have some extra days here in the first quarter that should be a benefit as well.

I think the offsets there are two of those extra days is the Thursday and Friday before Easter which tends to be kind of slow days.

Japan, which was a big grower last year ahead of the VAT increase will likely be down here in Q1 year on year.

And as we alluded in the call, we expect our tech [comms], this will be the last we think really poor quarter for that business similar to what we saw in the second half of 2015.

We are encouraged by what we are seeing in terms of bookings but from shipments we are going to have a tough Q1 as well.

But all up, things are looking pretty good out of the gate here early in the first quarter.

Thanks.

And then just secondly, when you talked about the Q1 EPS guidance, I think there was a comment around some M&A charges being excluded.

I just wondered if I had misheard that or if there was anything new in terms of presentation of adjusted earnings?

That is correct.

I mean consistent with our past practice for deals that are over $1 billion, we call out kind of the early charges, non-cash charges so we still have a little bit left in Nobel in the first quarter and I think that will be about $0.02.

Great, thank you.

Scott Davis, Barclays.

Good morning, guys.

Excuse me, I dialed in about 10 minutes late if you commented on price and I apologize.

But is there -- and I know your raw material costs are generally lower, it is not a big deal for you guys but are you out there with price increases for 2015 more broadly?

Scott, if you think about where your question might go specifically geographically, it might go to Europe and interestingly we are outperforming in Europe.

We think we are taking share in Europe.

We saw broad based performance across the businesses in Europe and so no particular concern there.

I think teams are clearly are looking very selectively market by market.

These currency shifts have not been exclusively in Europe, they have been in quite a number of markets.

Generally we are pretty well positioned in terms of the functional currency that we transact in.

But where there are issues, our teams are carefully looking at those situations and we will take price very selectively where we need to or compete on price if it comes to that.

I guess I don't want to beat a dead horse but do you anticipate having positive price for 2015 on an aggregate basis?

Yes, Scott, and again where we will get that in all likelihood will be the 40% of revenue that [comes up] in the aftermarket.

Yes, that is what I was alluding to if you were already out there -- catalogs, etc.

with price increases?

Absolutely right, Scott.

Those plans were locked and loaded in the fourth quarter and we are on the street virtually across the businesses right now with those plans and in the market with those numbers.

Okay.

And then just as a follow-up and kind of the inverse of Jeff's question on private equity and competition, have you seen the opposite which means private equity I think for probably the last five years have been buying up industrial and even some healthcare assets.

Have you seen those guys come back to the table and say they are looking to start unloading?

Scott, they are always in the marketplace and clearly there are assets out there held in the hands of private equity that we would have some interest in.

I wouldn't say that has gotten better or worse here recently, those discussions.

Okay.

Last but not least, I know you changed your -- to cash earnings.

Have you changed internally your hurdle rates at all?

Historically you guys have had a pretty strict discipline around hurdle rates.

I am just wondering given your lower financing cost and such if that has dropped at all?

Scott, we have not changed our internal hurdle rate.

That discipline that we have had over a long period of time remains internally around returns for bolt-ons at three years and bigger, larger more adjacent businesses, or new businesses over a five-year period.

That discipline has been really important to the overall performance that we've demonstrated.

What we have said is that we want to be thoughtful and cognizant of this environment relative to what might be larger transactions that could have significant strategic value for the corporation where we might need to take a hard look at those returns.

And the team here and the Board is supportive of making the right decisions strategically for the corporation in the event that those returns may be not where we might like them to be.

But that is a bridge we will cross when we have that opportunity and we will make the right decision that really drives the long-term strategic competitive advantage of a platform or a segment.

Great.

I will pass it on.

Thanks, guys.

Nigel Coe, Morgan Stanley.

Good morning, guys.

Yes, so just a couple of questions on core growth, pretty strong performance across the portfolio ex-T&M.

But you are sort of alluding to market share gains it sounds like particularly in Europe.

And I am just wondering is that the case, Tom?

Which businesses would you call out where you are gaining share?

And perhaps maybe if you could comment on whether we are seeing the delayed impact from some of the R&D and marketing investments you made over the last 12 months?

We are continuing to make those investments, Nigel, in sales and marketing and in R&D as I noted in my opening comments.

The good performance on the top line and the good gross margin expansion that we have seen has allowed us to continue to invest aggressively in growth initiatives around both new product innovation and go-to-market feet on the street.

The share gains we noted earlier were pretty broad-based.

And yes, they were in some cases specifically in Europe.

A couple of the businesses that I mentioned earlier were around our Life Science platform, our Dental equipment business and product ID just to name a few.

Okay, that is great.

That is helpful.

And then we have seen consumables leading the way on topline, I guess this cycle with equipment lagging behind.

Are we seeing any change -- I mean just thinking here about the comments on US and Europe particularly in Life Sciences Diagnostics, are we seeing an inflection point in equipment?

We definitely saw a modestly better Q3 and a definitely better Q4 in terms of equipment.

So if you look at our 4%, we were 5% aftermarket and 3% or maybe even a little bit over 3% on the equipment side.

And that is one of the better numbers we posted on equipment and that includes our communications business which was again down midteens.

So if you adjust for that, our equipment business was probably up more like 4% plus.

So we are not quite prepared to kind of call it a trend here but we are encouraged by what we have seen the last four or five months in terms of our overall equipment flows.

And that 4% ex-comms would be the best in how many years?

Probably have to go back to the 2011 recovery.

And then just going back to the comments on the M&A process, a little bit of FX and emerging market volatilities does wonders to shake the complacency of sellers.

Have you seen any kind of change out from sellers?

Are they a bit (inaudible) spreads (inaudible) narrow?

Nigel, as you know, a lot of this has been just in the last 30, 45 days.

I think it is a little early to tell but it is hard not to be a little bit more optimistic.

Okay.

Thanks, Dan.

Andrew Obin, Bank of America Merrill Lynch.

Good morning.

Just a broader long-term question.

If I look at the emerging markets what is happening in Russia and Brazil, people are talking about euro going to parity.

Do you think you need to change anything about your strategy about your manufacturing footprint for the next several years?

Even China is growing at 6%; I am not sure when was the last time that happened?

You know, Andrew, we have got a long history of moving manufacturing into lower-cost regions.

Not all of that has been into China.

In some cases it has been into Eastern Europe, in some cases it has been into India and we will continue to position our cost structure I think in a way that is resilient over the long term.

I think we want to be a little careful not to change up a supply chain prematurely or in a destructive way not knowing what maybe the sustained currency position is ultimately going to be.

So I think the teams are doing an exceptional job positioning that footprint well for the long term.

And it is not all about the cost of an individual region.

It is also about the way we execute in any region and I think we have got a number of examples where businesses that you might say are in higher cost operating regions.

In fact continuing to deliver exceptional profitability and have driven a real competitive advantage because of their cost structures despite their regional positions.

So I think we feel pretty good about where we are.

That is very fair.

Just a follow-up question.

On free cash flow, what should we expect for FY15 versus $3.2 billion you did in 2014 or if you want to talk about cash flow realization?

Andrew, it is early here.

We are very pleased with the way we ended the year in terms of free cash flow so I think we would be in the sort of zone here.

Again, we got a benefit in 2014 given our cash tax rate was a fair amount lower than our actual provision for the year, it is probably too early to kind of make a call on that where we stand right now.

But relatively flat is a good sort of hold for now in the model?

I think that is a good starting point.

Thank you so much.

Ladies and gentlemen, this does conclude the question-and-answer session of today's program.

I would now like to turn the program back over to Matt Gugino for any closing remarks.

Thanks, Aaron.

We are around all day for questions.

Thanks for joining us, everyone.

This does conclude today's program.

You may disconnect at any time.