Danaher Corp (DHR) 2015 Q1 法說會逐字稿

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

At this time, I would like to welcome everyone to the Danaher Corporation First-Quarter 2015 Earnings Results conference call.

(Operator Instructions)

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

Mr. Gugino, you may now begin your conference.

Thanks, Lisa.

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'd like to point out that our earnings release, a slide presentation supplementing today's call, our first-quarter Form 10-Q, and the reconciliation, and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call, are all available in the Investors section of our website, www.danaher.com under the heading Financial Information.

The audio portion of this call will be archived on the Investors 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 April 30, 2015.

The replay number is 888-203-1112 within the US, or 719-457-0820 outside of the US, and the confirmation code is 6588001.

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

The supplemental materials in our first order Form 10-Q describe additional factors that impacted year-over-year performance.

Unless otherwise noted, all references in these remarks and supplemental materials to earnings, revenues and other Company specific financial metrics related to the first quarter of 2015, relate only to the continuing operation of Danaher's business and all references to peer to peer to increases or decreases in financial metrics are year-over-year.

During the call, we will make 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, and the actual results might differ materially to many 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.

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

Thanks, Matt, and good morning, everyone.

We were pleased by our solid start to 2015.

The team executed well in a changing and challenging macro environment using the Danaher business system to drive strong organic revenue growth, and expand core margins in the quarter.

DBS continues to enhance our competitive position and drive share gains across the portfolio by helping us identify, direct, and execute on high impact investments in product innovation, and sales and marketing.

As a result, seven of our nine strategic platforms grew at a mid-single-digit rate or better in the quarter.

Including Test & Measurement instruments, water quality, Gilbarco Veeder-Root, Diagnostics, Life Sciences, product ID and automation.

We were also encouraged by the noticeable impact DBS has already made on many of our recent acquisitions, including Nobel Biocare, Devicor, and Aguasin that's further boosted our performance.

This is another record first quarter for Danaher.

Adjusted diluted net earnings-per-share was $0.93, including a negative $0.02 impact from the strengthening US dollar versus our previously communicated guidance in January.

Revenues for the quarter grew 4.5% to $4.9 billion, with core revenues up 5% due in part to extra selling days in the quarter.

This growth exceeded our expectations, and marks our best quarterly core growth performance since 2011.

Acquisitions contributed 6% to revenues, while currency translation negatively impacted revenues by 6.5%.

Geographically, the high-growth markets grew mid-single digits.

But performance was mixed, as strength in China and India was offset by weakness in Russia, and Latin America.

In China, sales increased nearly 10%, led by our Dental, Diagnostics, and Gilbarco Veeder-Root platforms.

The development markets also grew at a mid-single-digit rate, with both the US and Europe up mid-single digits.

In Japan, as expected, sales declined double digits due to a difficult prior-year comparison in which customers accelerated purchases ahead of the VAT increase on April 1, 2014.

Gross margin increased 80 basis points to 53.4%, marking the first time our gross margins have exceeded 53%.

Core operating margin expanded 25 basis points or approximately 60 basis points excluding the impact of foreign currency, with three of our five segments improving more than 110 basis points.

Our reported operating margin was 15.9%.

On the capital allocation front, M&A remains our primary focus.

We deployed approximately $500 million on three bolt-on acquisitions in the first quarter, including the acquisition of the Siemens microbiology business.

These acquisitions strengthened our market positions in our Dental, Diagnostics, and Product ID platforms.

In February, we also increased our annual dividend by 35% to $0.54 per share, and we expect further increases over time.

Our tremendous balance sheet and active acquisition funnel, combined with recent volatility in the global equity markets, uniquely positions us to deploy our substantial M&A capacity.

Turning to our five operating segments.

Test & Measurement revenues declined 1.5%, with core revenues up 2.5%.

Reported operating margin decreased 220 basis points, and core operating margin declined 225 basis points, largely due to lower sales in our higher gross margin communications platform.

Core revenues in our instruments platform grew mid-single digits for the second consecutive quarter, led by the developed markets in China.

Fluke core revenues were up high-single digits as its biomedical and thermography product lines each increased double-digits.

Strength in thermography was augmented by the launch of the TiX560 and TiX520 series of thermal imaging cameras during the quarter.

This expert series combines an articulating lens, on camera analytics, and the industry's largest responsive LCD touch screen.

Allowing mechanical engineers to navigate over, under, and around objects to quickly capture process, and process the highest quality infrared images on the spot.

At Tektronix, our core revenues increased at a mid single-digit rate for the second consecutive quarter.

Healthy demand for military and government customers in North America was coupled with strength in the semiconductor segment in China.

During the quarter, Tektronix introduced the new high-performance ATI oscilloscope, the DPO70000 SX.

The DPO offers the most accurate real-time performance, and highest analog bandwidth on the market.

It combines the patented signal capturing technology, compact design, and highly scalable architecture to help reduce noise and distortion so electrical engineers can better understand and solve their most common complex problems.

Core revenues from our communications platform decreased at a double-digit rate.

Double-digit growth in security solutions and high single-digit growth at Fluke networks was more than offset by a decline in network management solutions.

Platform orders grew over 20% in the quarter, which gives us confidence that we'll achieve positive core growth in 2015.

We continue to expect the combination of our communications business with NetScout to close in mid 2015.

And this morning, we announced that NetScout has received clearance from the US Department of Justice with respect to the proposed transaction.

Close is subject to approval by NetScout shareholders, and other customary closing conditions.

Moving to our Environmental segment.

Revenues increased 7%, with core revenues up 8.5%.

Core operating margin expanded 175 basis points, while reported operating margin was up 60 basis points to 19.5%.

Our water quality platform's core revenues grew approximately 10%.

With robust growth in our analytical instrumentation, chemical treatment, and ultraviolet treatment businesses.

Hach had an outstanding quarter, with growth across most major product line.

Sales in the US and Europe grew double digits, as the team's application of DBS growth tools such as funnel management and transformative marketing continue to drive share gains.

We've built on this momentum by launching our breakthrough water quality testing system, the SL1000 portable parallel analyzer, or PPA, in over 40 countries.

Notably, the PPA's ease-of-use has already started to change the way our customers perform critical water quality tests, making it one of the most important new products in the market.

At ChemTreat, we saw a robust demand for our chemical treatment solutions and services in both North America and Latin America.

ChemTreat's consistently strong performance is a direct result of its targeted investments in feet on the street and development of its best in class sales force.

The ChemTreat team has done a fantastic job implementing this approach in Latin America, with its most recent acquisition, Aguasin, which grew more than 20% in the quarter.

Gilbarco Veeder-Root core revenues grew mid single digits, driven by strength in China and the US.

In US, upcoming EMV regulation changes drove over 20% growth in point-of-sale solutions and dispensers.

We're pleased that customers have continued to make Gilbarco their supplier of choice when implementing these necessary payment system upgrades.

Turning now to Life Sciences & Diagnostics.

Revenues grew 2% with core revenues up 5%.

Core operating margin expanded 115 basis points, and reported operating margin was 12.7%, which was negatively impacted by one time non cash charges related to the recently closed acquisitions of Devicor and the Siemens microbiology business, which is now known as Beckman Coulter Microscan.

Core revenues in our Diagnostics platform grew at a mid-single-digit rate.

At Beckman Coulter Diagnostics, the core sales were up mid-single digits led by double-digit growth in our immunoassay and urinalysis product lines.

In the US, increasing customer utilization and higher win and retention rates helped drive mid single digit growth for the third consecutive quarter.

This improvement in win and retention rates is an example of the team's persistent focus on product innovation and enhancing the customer experience over the past three plus years.

Beckman Coulter is a fantastic example of how thoughtful application of DBS growth, lean and leadership tools can make a good company even better.

We hope you'll join us in Brea, California at our investor and analyst event in June to hear more of this terrific story.

In January, Beckman closed the previously announced acquisition of Microscan.

Microscan expands our well-established footprint in hospitals and reference labs.

With a suite of highly accurate automated instruments and consumables that help identify infection causing bacteria and determine appropriate antibiotic treatments.

Radiometer's core sales increased high single digits, its 13th consecutive quarter of high single digit growth or better.

Demand was solid across all product lines, led by double-digit growth in blood gas and AQT consumables.

During the quarter, we expanded our AQT testing menu in Europe with the launch of the procalcitonin assay or PCT.

PCT detects life-threatening sepsis infections on site in operating rooms and other critical care centers, enabling doctors to provide timely antibiotic treatments and ultimately save more lives.

Sales at Leica Biosystems were up high single digits, led by advanced staining which grew over 20% in the quarter.

We posted double-digit growth in the US where the stabilizing reimbursement environment resulted in improved capital spending.

We were also encouraged by a strong start at Devicor, an acquisition we closed last December where a reinvigorated product portfolio and implementation of DBS tools, helped to drive approximately 10% growth in the quarter.

Core sales in our Life Science platform increased mid-single digits, with solid performance in the US and Europe.

Notably, we saw China sales return to growth in the quarter.

Sciex' core sales grew double digits, led by strength in clinical and applied end markets.

Strong commercial execution and investments in new products have resulted in meaningful share gains over the past several quarters.

Leica Microsystems core sales declined mid-single digits, due in part to a difficult comparison in Japan where we saw record shipments ahead of last year's VAT increase.

Despite the sales decline, we are confident in Leica's steady stream of new product innovation including the DMI-8 inverted microscope platform that launched during the quarter.

The DMI-8 improves customer workflow for industrial applications by enabling users to prepare and change samples more quickly than with traditional microscopes.

It also features a configurable design, providing one solution for both basic and advanced industrial users.

Turning to Dental.

Our Dental revenue increased 30%, with core revenues down slightly due in part to lower volumes related to inventory destocking within our US distribution channels.

This occurred across many of our higher-margin product lines.

And combined with our continued investments in sales and marketing and product development, resulted in a 385 basis point core operating margin decline.

Robust demand in high growth markets and strength in our orthodontic and value implant solutions were more than offset by the previously mentioned inventory destocking.

That said, we are encouraged by the improving sell out data we're seeing in the US market, and believe the business will show improving growth trends throughout the course of the year.

Nobel Biocare completed its first full quarter with Danaher, and we've made great progress so far.

While it's still early, we were encouraged by Nobel's mid-single digit average daily sales growth for the quarter.

One of Danaher's core values, innovation defines our future, certainly rang true at the biannual International Dental Show in March where KaVo Kerr Group and Nobel Biocare launched more than 35 new or updated products.

The innovations unveiled ran the full spectrum of dental care, from digital imaging to treatment units to consumables.

Notably, attendees were able to preview our first integrated chairside CAD/CAM solution, which will allow dentists to design and manufacture custom prosthetics quickly and easily in their offices.

In Industrial Technologies, revenues declined 2.5%, with core revenues up 7%.

Our core operating margin expanded 185 basis points, while reported operating margin increased 210 basis points to 24.6%.

Automation core revenues increased mid-single digits as continued growth in our industrial automation, North American distribution, and medical end markets was partially offset by weakness in agriculture.

This represents the platform's best quarterly performance since early 2011.

Product identification core revenues increased high single digits, with robust demand for our marking and coding, color management, and software solutions.

Videojet had a solid start to the year, delivering high single digit growth as our substantial and growing installed base continues to drive broad share gains.

The team delivered mid-single-digit growth or better in all major geographies, with particular strength in Western Europe, China, and India.

During the quarter, Videojet launched its 1620 and 1650 high resolution micro-printers that enable fast, high-quality printing on very small surfaces.

This technology is essential in such industries as electronics and personal care where legibility and clarity are critical to consumer safety and industry regulations.

In March, Esko acquired MediaBeacon, a leader in digital asset management software.

MediaBeacon saves our customers time and money by allowing them to store, repurpose and share their digital media efficiently across projects, departments and channels.

Bringing together these specialized companies equips us better to serve our global network of customers, and meet a growing industry demand for more integrated packaging and artwork management tools.

So to wrap up, we had a very good start to 2015, delivering our highest quarter of core revenue growth since 2011.

The team's solid execution using the Danaher business system continued to drive relative outperformance and enhance our competitive position.

We remain cognizant of a strengthening US dollar and a changing macro environment.

However, we're confident that our focus on optimizing our portfolio and seizing high-impact growth opportunities will help us build a better, stronger Danaher in 2015 and the years to come.

We're initiating second-quarter adjusted diluted net earnings-per-share guidance of $1.01 to $1.05, which assumes core revenue growth of 3% to 4%.

We are also updating our full-year 2015 adjusted diluted net earnings-per-share guidance to the range of $4.23 to $4.33.

We expect the strengthening of the US dollar since our fourth-quarter earnings release in January, to reduce 2015 earnings by approximately $0.07 per share.

We continue to expect core revenue growth between 3% and 4% for the full year 2015.

Thanks, Tom, that concludes our formal remarks.

Lisa, we're now ready for questions.

(Operator Instructions)

Scott Davis, Barclays.

(Technical difficulties) ask a little bit about FX.

And I think we understand the impact of translation, I think most people at least for the group overall.

But what does FX really mean for you guys as it relates to global competition?

Does it change how you think about where you produce and where you ship out over?

Does it change or impact the price dynamic at all, or is it really not much of an impact?

Well, Scott, I guess we first start and think about FX from a competitive perspective.

And it's hard not to think that the competitive dynamics shift a little bit in certain markets where the US dollar is strengthened against that local currency.

That being said, let's take Europe for example.

We continue to perform exceptionally well there.

We have during the entire shift of the currency.

We've seen solid mid-single-digit growth in that market.

We know that market generally across a number of our businesses is probably more of a low single-digit market on a core growth basis.

And so we're continuing to perform exceptionally well and taking share there.

You can look at Japan as another example where those shifts have happened, and certainly there has been some modest shifts in the competitive dynamics there.

But again, our business is generally in spite of a very challenging environment there, overall, we haven't seen really any meaningful shifts in the competitive dynamics and we're continuing to perform well.

So we start there and think about competitiveness.

Relative to the overall operational footprint, we're going to see currencies move up and we're going to see currencies move down.

It takes quite a while to shift your manufacturing footprint, and the day you've think you've got that right is the day a currency might turn against you and you end up in a very different place than you had hoped.

So in general, over a long period of time, we've had a balanced footprint that has provided a certain level of a natural hedge for us.

Obviously, the shifts here have been far more dramatic, and therefore, the impacts have read through the P&L.

So we continue to put ourselves in the best position possible from an operational footprint.

Putting manufacturing operations in the best costs positions that we can, with the best logistics and supply chains.

But these shifts do not cause any knee-jerk reactions on our part in terms of a repositioning.

Okay.

That's helpful.

And then just as a follow-up on Dental.

I guess I don't remember a time where you had, call it, flattish core growth where you saw -- it looks on the slides core margins down 385 bps.

Is that just a mix impact of the higher margin stuff being destocked or was there some other stuff in there like restructuring or anything else?

It really starts with the volume itself.

And that volume being slightly up in one side of the business, slightly down in another side of the business.

But generally, it starts with that volume position.

And then the destocking, yes, in fact, was a primary driver relative to the higher-margin products.

Being the areas where we very cooperatively and teaming with our distribution channels made very conscious decisions about what we needed to do in the channel from an inventory perspective.

I think what's really important to recognize about that situation is that we track sellout very closely with those distribution partners.

And we're very encouraged by what we see from a sellout perspective.

So we're confident in our competitive positions.

We understand that we're performing well, that those distribution partnerships are working very effectively.

This has been going on for a period of time now.

We think we're getting toward the end of that.

Q2 is probably more of a transition quarter, and we're optimistic that we'll see better growth going forward.

But back to your question around the margins.

It's really that combination of volume and negative mix.

Now one last point there.

Because we're confident in our competitive position, because in a number of areas, particularly outside the US, the Dental platform is performing extremely well.

Driving anywhere from mid-single digit to, in certain markets like China, growing doubled digits.

We continued to invest in that business.

Investing in new products, and you heard me talk about the 35 new products across the platform.

Investing in sales and marketing.

So while we've got some headwind there in terms of doing the right things relative to the channel, we're confident that those investments are going to pay off as time goes on.

Okay.

Great answer.

Thanks, guys.

I'll pass it on.

Thanks, Scott.

Steve Tusa, JPMorgan.

Can we get more into the specs of the TBX thermal imaging camera for a second?

I love the high hard ones.

On the R&D and SG&A, both up in the quarter.

Was there a little bit of a discretionary loading as you saw the organic growth come through there, or is that just kind of normal course?

Steve, I would say that we set a course to continue to invest in the highest impact opportunities that we saw from a product development standpoint, as well as from a go-to-market standpoint.

So we set that course quite a while ago.

We had terrific reviews last fall, in our strategic plan reviews, I think we got a good sense of where those opportunities were.

And I think on a discretionary basis, we made the call in a number of places where we knew we were doing well.

We knew that as things got choppy, continuing to invest and stay the course would ultimately prove out to our benefit on a long-term basis.

I think one of the areas I'd point to specifically to that staying that course would be in Europe.

Again, where we've seen this lower growth environment, and where we've continued to perform above market rates in most of our businesses.

And that's largely a function of staying the course from an investment standpoint.

It's true today, also, in our high-growth markets.

Where we've seen a few of our markets, I'd cite specifically Latin America, and specifically Brazil and Mexico, where we've got some challenges there.

But we're continuing to stay the course from an investment standpoint, but also making some thoughtful decisions about shifting investments carefully where there's higher growth opportunities.

And there's some countries right now in Latin America where the teams are doing a terrific job shifting that investment.

Staying the course in China, right now as well, staying the course in India from and investment standpoint.

Both of those countries paying off very well for us across a number of platforms.

So staying the course, making some discretionary choices, even when the temptation is to pull back hard to make sure we take advantage of what's a choppy environment.

And so I guess on that, I'm getting to something in the range of a 25% to 30% core incremental for the quarter.

Which, I usually think of you guys as more like 35% to 40%.

Should that migrate higher over the course of the year, or are we in a -- are we in this trade off now where organic growth is going to be higher but maybe we should expect a little bit lower incremental?

Steve, I think they are a couple of things going on.

Some of which Tom alluded to, where we are confident we're taking share, we want to sustain those investments.

I think the second element is we're having pretty high fall through on the FX hit.

The fall through on the FX has been closer to 22% to 23%, so we're feeling some impact on that.

But I think it's a combination.

But as we went through the quarter and saw the strength, we saw some opportunity to step up some of the investments.

And will navigate that carefully.

But if we're in this mode of outperforming our vis-a-vis competition, we're probably going to take a little more latitude on investments.

And days sales impact on the quarter?

That's my final one.

Thanks.

I think the five is probably closer to a four when you look at days adjusted, which again, would be consistent with what we put up in Q4.

Okay, thanks a lot.

Thanks, Steve.

Steven Winoker, Bernstein.

I have no thermal camera imaging questions, can't top that.

So let's see, I think from a high level here stepping back for a second.

This is another quarter of solid core growth.

You guys have been putting this up and talking about gaining share quarter after quarter for a long period of time now.

And I'm just trying to get a sense going forward as of the business model and the extent to which that and these higher gross margins you think are sustainable, or a function more of some of the cyclical markets think you're in a new norm at this point?

How are you looking at that Tom and Dan?

Steve, I think we do think that the trajectory that we're on is sustainable.

Clearly, we're in some challenging macroeconomic times here.

But, again, we feel like the investments that we're making in the right places are driving core growth in a number of our businesses and translating into those share gains.

And those are also businesses where we do have good gross margins.

And we always look at those gross margins and the improvement of those gross margins as indicative of higher value propositions that we're delivering to our customers.

Those are sometimes value propositions associated with new product innovations, sometimes they're associated with improvements in our technical service and support, our ability to get price across a number of our markets.

So, this is the model of the Danaher that we are working on building quarter after quarter and year after year.

So that's the way we tend to think about it.

And I would extend that by the way to the way we think about capital allocation.

Is looking at businesses and opportunities in the market that represent those same characteristics.

Good growth opportunities across global markets, high brand preference to professional end users.

Representing solid gross margins and the ability to build sustainable business models with strong consumable streams that really speak to a level of resilience and ultimately competitive advantage.

So that's the playbook.

Okay.

And then let me ask the obligatory M&A question following your capital deployment point.

Which is a little bit different though this time.

We're hearing commentary from other CEOs on how pricey they view the current environment.

So how are you thinking about that, how is your outlook changing if at all?

I don't know that our outlook has changed very much, Steve, over the last couple of quarters.

Clearly, outstanding businesses with a number of the characteristics that I mentioned just a few minutes ago are our assets that are well valued in the marketplace.

And those assets, while highly valued, tend to be outstanding businesses with great long-term opportunities for growth.

So I'm not sure we've seen much change in that, but we continue to be very encouraged by the conversations we're having and the funnels that we have across the businesses.

We made some progress here in the first quarter, deploying half $1 billion.

And we're optimistic about more to come.

Okay, great.

See you in Brea.

Thanks.

Thanks, Steve.

Nigel Coe, Morgan Stanley.

So just I want to come back to the Dental destock.

Inventory movements are something we've heard from other companies.

It doesn't feel like it was elsewhere, but did you see any of that dynamic elsewhere portfolio?

Nigel, I can't think of -- not to suggest there couldn't be a pocket here or there.

But in general, anything material across any of the other segments, I would say no.

We're not hearing much if anything in that regard.

Okay.

And then just want to pick up on Steve's points on capital allocation rather than the thermal imaging.

You mentioned in the prepared remarks the ambition to keep raising dividends.

And is that an ambition to raise the dividend payout ratio or dividend in line with earnings?

Nigel, I think the expectation that we would, in the intermediate term, continue to raise it faster than overall earnings and cash flow growth.

But that's not with an expectation of getting to a market yield, but getting to a more meaningful yield.

Okay.

And do you have a target payout ratio over time?

Well, if you think of the market 2%, 2.5% and maybe if we were half of that in time out 3 to 5 years, that might not be a bad place to be.

Okay, great.

And then just finally, congratulations on the news on the NetScout transaction this morning.

Is the impact of that transaction built into -- I know it's not built into organic growth guidance, but is it baked into your EPS outlook?

And how do you expect the EPS impact of that transaction to play out?

Nigel, first of all, very good news.

That really is the long pole in the tent to get to closing.

Still some other -- a few other things we need to get through, but it's much more common today that we get to a close here early in the summer.

It is not factored in.

A lot of that will depend ultimately whether we do a spin or a split.

Based where their stock is trading today, if we did a split, on an annual basis, it would approximately wash.

So the earnings we would get -- we would give up there would reduce our share count and would be roughly an equal offset.

Now that may impact first half second half, but an annual basis, it would be roughly a full offset.

And core growth accretive by about 50 bps in the second half of the year roughly?

As we mentioned, orders were very good in the communications business in the first quarter, and the last couple quarters orders were up 20%.

So I don't think it necessarily will be accretive to revenue growth in the back half.

It would be accretive in the first half on a pro forma basis, but wouldn't expect that to impact the second half because that business is definitely building.

Okay.

Very good.

Thanks, Dan.

Shannon O'Callaghan, UBS.

Could you talk a little bit more about what you're seeing in the mix between equipment and consumable growth?

And then on the equipment side specifically, you talked about the product innovation, sales and marketing, and clearly, you're getting some share in some places.

But it seems like other guys are also struggling just with customer's willingness to spend right now.

And it seems like you're overcoming that.

Can you just maybe give a little sense of what you're hearing from customers as you're having more success getting them to step up and buy?

Shannon, we're very encouraged by what we see in the balance of growth, both in the equipment and the consumable side.

Both of those both sides of the house posting good growth.

That obviously bodes well for continued performance.

Because as we build that installed base across a number of the businesses, those annuities streams that accrue to the consumables business obviously are very important to the resiliency of the business model, and also to margins.

Relative to your question about customers willing to spend in CapEx.

I'd say we have a number of examples where, even in challenging markets, our teams are performing quite well and seeing great penetration in terms of the installed base.

I'd point to the Videojet business and the performance there, the continued growth of that installed base in the consumable stream.

Clearly, what we've seen on the Diagnostic side, a little bit more favorable environment in terms of diagnostic utilization.

The macro indicators around the healthcare market are improving marginally quarter over quarter.

So we're seeing a little bit of loosening in capital spend in hospital environment.

As I mentioned, we saw the first quarter returning to growth in Life Science in China, which is also encouraging.

That's more of an equipment market than a consumables market.

So I think there's a number of places we'd point to where we're seeing our teams execute extremely well in gaining share driving that installed base without necessarily strong tailwinds from market perspectives.

And, Shannon, we were in the quarter, equipment, we were up mid-single-digit.

Which was the best quarter we've had in equipment, we probably have to go back to maybe almost 2011.

Interesting.

All right, thanks.

And then maybe just a follow-up on PID.

So Videojet, clearly, still gaining some share.

But overall, that market actually just seems like one of the better places to be right now.

Are there certain verticals that are particularly good there, or favorable things you're seeing in the overall market?

I think Videojet has performed pretty well across a number of their verticals.

When you look at, for the food market, when you look at the beverage market broadly defined packaging overall, clearly a very competitive market.

But one where the Videojet team both through a combination of product innovation and a number of improvements using DBS growth tools have driven an enhanced go-to-market model, their clearly gaining share and they have over an extended period of time.

If we look back really through the cycle, VJ has continued to perform above the market growth rates on a consistent basis.

And again, a combination of product innovation and go-to-market execution really has contributed there.

But yes, I think to the vertical end markets, they are good, steady, verticals, and VJ is taking advantage of those.

Great.

Thanks a lot, guys.

Julian Mitchell, Credit Suisse.

Just wanted to follow-up on your comments at the beginning around the changing macro environment.

Because your tone across the businesses sounds pretty good, so I just wondered if you're seeing that changing macro play into your own orders today in parts of T&M or industrial tech?

And maybe just any color on how in recent months, you've seen the short cycle industrial demand moving?

Sure.

I think when we talk about the macro, it's probably easiest to articulate that, Julian, on a geographic basis.

And some of the changes that we've seen have clearly been in Latin America, for one, where we've seen some significant weakening in that market.

Clearly Russia, again, a much smaller position fortunately for us, but a challenging market there.

China, while still a very good market, we're performing quite well in that market.

You've obviously read the headlines about a little bit of softening there from GDP growth rates of the past.

So we see those shifts.

On the other side, we've seen some geographic markets improve.

India being one, again, teams performing quite well there.

So I think that's one way to look at it.

Europe is still steady, but again, we think we're outperforming in that market.

So I think those would be a few of the things that we would point to.

On the short cycle industrial side, really, Dan Daniels' teams, a number of those businesses, automation we talked to a little while ago, really are performing very well.

And that's really just a function, again, of I think a combination of new product innovation in a number of places as well as good day-to-day go-to-market execution.

And, Julian, I would add, just you asked about very recently.

I think similar to some other companies, we did see in some pockets in March, in the US, particularly in the US, in the equipment a little bit of softness.

It's hard to tell if it's any trend.

Through the first half of April, we're pretty much in line here.

But if there is any slight shifts here in the last 4 to 6 weeks, I would say the US equipment piece is slightly weaker.

Great.

And then just my second question around the relative appeal of valuations for acquisition in the healthcare and non-healthcare sides of the business.

In particular, I guess with regards to industrial tech.

Where certainly on organic growth, you seen on a much more stronger footing today.

How are you seeing valuations in that arena, and is that area somewhat more attractive now because we've got the core really firing again?

Julian, it's overall pretty balanced, as Tom alluded to, nothing is expensive right now.

But there are some good assets out there, both on the healthcare and the industrial side that we're active around.

So I wouldn't put up a highlight more to one space versus the other.

Great.

Thank you.

Richard Eastman, Robert W. Baird.

Tom, could you just double back for a second.

On the dental business, I'm curious, within North America, with the destocking phenomena that you saw here in the quarter.

Given consumer income is up and disposable personal income is up and spending is up, I'm curious, is there anything structural in North America on the Dental side of your business that's creating the destock?

And maybe you could share with us just with the sellthrough stats are that you are watching.

Rich, I would not say there's anything structural about our business or our position relative to the North American market.

We would agree that the market is improving marginally, based on a couple of the things you mentioned around consumer spending and discretionary income and so on.

This is more a cooperative agreement with our distribution Partners where we're working with them to ensure that the channels are right sized from an inventory perspective.

From a sellthrough perspective, we see mid-single-digit or moving from low single-digit to the lower end of mid-single-digit kinds of sellthrough coming out of the channels to the end user.

And we know that based on how our products are performing specifically, as well as how to categories are improving.

So that reinforces our belief that we are well-positioned, and that there's nothing structurally going against us in terms of our position in the market.

Okay.

And then just a quick question for Dan as a follow-up.

It appears to me when we do some basic math against the TechComm's NetScout transaction as its pending, and given NetScout's stock price and maybe TechComm's EBIT as it finished the year in 2014.

Is there a scenario where this plays out that that transaction and the buyback given NetScout's valuation here that buyback of Danaher shares, that that's actually accretive to EPS?

Because it looks like you could do some math that would show maybe $0.10 accretion from that transaction.

Rick, if you look backwards, so if we would've closed the deal given where their respective stock prices are today and we did a split, looking backwards, it would be accretive.

But because of the building backlog in order book, if I look over the next 12 months, it would be about a wash.

Okay.

We were down double-digit Q4, down double-digit Q1.

We expect better performance probably getting to around flat here in the second quarter.

But given what we are seeing in the order book and the backlog, we expect growth in the back half year.

And when you factor that in, it changes the economics on the buyback a little bit.

I see.

Okay.

All right.

Well thank you.

Isaac Ro, Goldman Sachs.

Question about Europe.

I think you guys said that it had mid-single-digit growth in that region, and it slightly outpaced the end market growth like for like.

So I was curious if you could maybe give us a little color as to where you think the implied share gains are happening?

Thanks, Isaac.

They're coming in a number of places.

Clearly in our environmental segment, performance at Hach would be one of the places that we would point to that's done an excellent job.

Again, a continued focus on investment in that market, both in terms of new products as well as in terms of feet on the street.

I think a good example there also of approaching those investments across multiple verticals are end markets.

So strength in both the municipal side, and interesting particularly on the industrial side.

So I think I think good performance there.

The PID business, particularly Videojet, I think continuing to perform well there.

So it's fairly broad-based.

Got it, okay.

And then just maybe a bit more of an open ended question on capital allocation.

And I'm just sort of curious if you could talk to the extent that your deal funnel has evolved since you took over last fall, and any things you could really highlight to help us appreciate how you're looking at acquisitions going forward?

Just general themes that might help us appreciate what you're doing.

Sure.

I think what we're really trying to do, Isaac, as we look at markets and companies in those markets platform by platform.

Is ensure that we are looking for the best opportunities to strengthen our existing platforms strategically.

I mentioned when we were together in December, that we're much more focused on the existing five segments and nine strategic platforms as they exist today.

And going deeper into those individual segments, strengthening each of them in terms of their competitive positions as opposed to going wider to the right or to the left.

So I think that's probably the primary focus that we have across each of the platforms is looking for the best opportunities to strengthen our positions in the markets in which we participate today.

You see a couple of examples there recently.

You look at Siemens micro, how that strengthened our position at Beckman.

You look at Devicor, and how that strengthened our position in the workflow of anatomical pathology.

Most recently, MediaBeacon in our PID platform.

And the way that strengthened the value proposition of managing digital assets to brand owners.

All good examples of strengthening a competitive position in the places we play today.

Got it.

Thanks a bunch.

Andrew Obin, Bank of America Merrill Lynch.

Just a question on environmental.

Could you just talk in a little bit more detail, core growth was just really strong.

How much of it was end market dynamics, and how much of it was you guys just taking market share or putting new products into the market?

Well particularly in water quality, where were up almost double-digit, it's very hard to think the markets growing more than 3% to 5%.

As Tom alluded to, we were exceptionally strong in Europe, up over double-digit.

Again, at least for the quarter, that would probably be at least 2X what the market grew in the quarter.

Got you.

And as I look at Life Science & Diagnostics, once again, core growth just seems to accelerate.

Why would -- can you talk about the momentum into the second quarter and second half of the year?

Particularly, it seems US consumer is improving with lower energy prices or at least it should improve.

Why would core growth slow down into the second half, given those fundamentals and given that Beckman Coulter has very nice momentum at that point?

Andrew, I'm not sure we're suggesting much of a slowdown.

We were a little bit over 5%.

And as we said in December and January, if we're 3% to 4% for the year, that segment could be more in that 4% to 5% range.

Got you.

But what I'm saying is why -- sorry, just to rephrase.

It just seems that 5% could be sustainable or better given the consumer trend and given Beckman Coulter finally executing quite well.

That's what I don't --

Sure.

Well we're certainly on a good trajectory there.

There's also probably important just to note quickly that there was an impact of days here in the first quarter.

We have a high proportion of certainly the diagnostic business that is represented on the consumables side of the house.

And the consumables side of the houses is where you get a little bit more of the bump on a days basis.

So there's a little bit of a factor there, Andrew, as well.

Got you.

Thank you very much.

And it appears we have time for one more question.

Brandon Couillard, Jefferies.

Tom, with respect to the Life Science business in China, could you quantify the growth in the period and perhaps peel back the onion in terms of where you saw the strength?

And do you feel like your research budgets, particularly around the high-end instrumentation, are maybe starting to loosen up a little bit?

Thanks, Brandon.

We saw mid-single-digit growth in China in Life Science, again, the first really good signs of life there in terms of growth in the last few quarters.

So we're encouraged by that.

I think we've reached a point of probably stability there.

A lot of what the government has done relative to the scrutiny that they've applied around tenders, we think has sort of now reached a kind of a level set or a steady-state in the market.

There is, we believe, a little bit of a lift in spending overall as well.

We're in the last year of the 12 5th year plan, and usually get a little bit of a bump from a spending standpoint in that regard.

And in general, as we've said for a long time now, we really believe quite strongly in the structural drivers of that market.

That there will be continued investment over time in the Chinese market in Life Sciences.

And we've seen a number of examples of where the government maintains a consistent outlook that that's an important segment for investment.

As are number of other segments that where we're well-positioned like an environmental, like in different segments of healthcare, in diagnostics as well as in dental.

So we think if we were to choose some segments in China where government spending is likely to continue to be a focus, we think we've chosen those that are probably best positioned.

Super.

Thank you.

And that concludes today's question and answer session.

At this time, I'll turn the conference back to Matt Gugino for any closing or additional remarks.

Thanks for joining us, everyone.

We're around all day for questions.

And that does conclude today's conference call.

Thank you for your participation.