Danaher Corp (DHR) 2015 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Danaher Corporation second-quarter 2015 earnings results conference call.

(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, Lynette.

Good morning, everyone, and thanks for joining us on the call.

With us 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 second quarter Form 10-Q, and the reconciliations 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.

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 July 30, 2015.

The replay number is 888-203-1112 within the US, or 719-457-0820 outside the US, and the confirmation code is 1995288.

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

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

Unless otherwise noted, all references in these remarks and supplemental materials to Company-specific financial metrics relate to the second quarter of 2015, and all references to period to period increases or decreases in the financial metrics are year-over-year.

During the call, we will make forward-looking statements within the meaning of 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 may 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 do not assume any obligation to update any forward-looking statements.

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

Thanks, Matt, and good morning.

This was a busy and exciting quarter for Danaher.

Our team executed well, using the Danaher business system to deliver solid core revenue growth, excellent margin expansion, strong cash flow and earnings outperformance.

In May, we also announced the acquisition of Pall Corporation, the largest in our history, and our intent to separate Danaher into two independent publicly traded companies.

Before moving to the details of the quarter, let me provide a quick update on these two big announcements.

First on Pall.

The transaction is progressing well.

We've received US antitrust regulatory approval and anticipate a ruling from the EU next month.

We're also making great progress on the planning front, have identified key leadership appointments and look forward to closing the transaction later this year.

On the separation, we have a dedicated team working diligently to execute the transaction.

At closing, we will have created two strategically focused independent companies, each with the ability to pursue meaningful M&A.

We believe these companies will be better and stronger separately than they are together and generate substantial long-term value for our shareholders.

We look forward to sharing more details on the progress of both of these transactions in the weeks and months ahead.

With that, let's move to the details of the quarter.

Today, we reported another record second quarter for Danaher.

Adjusted diluted net earnings per share were up approximately 5%, to $1.08.

Reported revenue grew 3.5%, to $5.1 billion, while core revenues also increased 3.5%.

Acquisitions increased our revenue by 6.5%, while currency translation was a 6.5% headwind.

Geographically, we saw mid-single digit growth across the US, Europe and the high growth markets.

In the high growth markets, strength in China and the Middle East was offset by weakness in Brazil and Russia.

Some of our smaller developed markets, including Japan, experienced more modest growth.

Second quarter gross margin expanded 100 basis points to an all-time high of 53.8%.

This increase in gross profit and our continued G&A leverage allowed us to accelerate our investments in sales and marketing and R&D, while still improving core operating margin by 80 basis points.

In turn, we believe these investments helped drive share gains at Fluke, Hach, Radiometer, Leica Biosystems, SCIEX, Nobel Biocare, and Videojet, among others.

Free cash flow for the quarter was $955 million, up 13% from last year, and our free cash flow to net income conversion ratio was 137%.

We had a busy quarter on the capital allocation front.

We announced not only the Pall deal, but also five bolt-on acquisitions for approximately $100 million that strengthened our competitive positions across a number of markets.

In the near-term, we expect to remain active on the acquisition front, with a focus on strengthening our existing businesses via small and mid-size transactions.

Turning now to our five operating segments.

Test and Measurement revenue declined 1.5%, while core revenue increased 2.5%.

Both reported and core operating margin increased 70 basis points, to 19.1%.

Our Instrument platform core revenue increased low single digits.

At Fluke, core revenue grew at a mid-single digit rate for the fourth consecutive quarter.

Demand was strongest in our calibration and biomedical businesses, each of which grew double digits.

During the quarter, we launched our Fluke Connect asset system to increase the functionality of Fluke Connect, our collection of wireless enabled test tools and analytics software.

The Fluke Connect assets app gives maintenance engineers the power of a complete view of all the equipment in their facilities, including baseline, historical and current measurement data in one virtual location.

This makes predictive and condition-based maintenance even easier for our customers.

Since its launch last year, Fluke Connect hardware has exceeded our expectations, with almost $50 million in sales and 45,000 software downloads.

Tektronix's core revenue was up slightly, as strong demand from technology customers in China and our distribution channel in Europe was offset by weaker demand in Russia and Latin America.

We expect similar core revenue performance in the third quarter.

Core revenue in our Communications platform decreased at a low single-digit rate.

Demand for our security solutions and network enterprise business was more than offset by a decline in our network management solutions.

Despite the core revenue decline, the platform maintained solid order momentum, with a book-to-bill ratio of approximately 1.1.

Last week, we closed the previously announced combination of our communications business with NetScout.

This is the culmination of a nine-month process in which we brought together two complementary businesses to create one company with extensive global scale and best-in-class solutions to manage and secure the networks of telecom and enterprise customers.

As a result of the transaction, our common shares outstanding have been reduced by approximately 26 million.

Before moving on, I'd like to take a moment to thank our associates at Arbor, FNET, and tech comms for their hard work during their time at Danaher.

I know I speak for our entire leadership team in wishing them well as they join NetScout.

Moving now to Environmental.

Revenue increased 2%, with core revenue up 3%.

Core operating margin expanded 145 basis points, while reported operating margin was up 150 basis points, to 22.5%.

Our water quality platform's core revenue grew mid-single digits, with growth across our analytical instrumentation, chemical treatment, and ultraviolet treatment businesses.

Hach had a good quarter, as mid-single digit revenue growth in the US and Europe was augmented by double-digit growth in China.

Strength was broad based, with growth across most major product lines.

In the quarter, Hach took steps to strengthen its platform of environmental monitoring solutions with the pending acquisition of Sutron Corporation.

Sutron provides customized monitoring and control solutions that complement Hach's offering in the hydromet and oceanographic markets.

With this acquisition, Hach will have the industry's only end-to-end suite of remote site equipment and systems that are designed for continuous reliable operation in extreme environments.

At ChemTreat, new customer wins and continued traction with new products drove growth in all major geographies.

ChemTreat continued to expand its foundation of best-in-class service and sales in Latin America, with the acquisition of [Litasa] Group, a leading provider of industrial water and process treatment solutions in Colombia, Brazil, Ecuador and Peru.

Gilbarco Veeder-Root core revenue was up low single digits.

Strength in North America and China was partially offset by a decline in payment solutions in Australia, where we had a significant project roll-out last year.

In the US, future EMV compliance requirements drove double-digit growth in point-of-sale solutions and dispensers.

We expect strong demand to continue in this area for the next few years.

Turning now to Life Sciences and Diagnostics.

Sales for the quarter were up 3%, while core revenue grew 4.5%.

Core operating margin increased 55 basis points, while reported operating margin decreased 30 basis points, to 15.5%, due primarily to a dilutive effect of recent acquisitions.

Our Diagnostics platform delivered mid-single digits core revenue growth.

At Beckman Coulter, core sales grew mid-single digits, with growth in most major product lines.

Demand in high growth markets remained strong, with double-digit growth in China and the Middle East.

In Europe, we launched our Varis molecular diagnostic system, along with four viral load assays.

The streamlined design of the Varis system is a breakthrough in work flow simplification and ease of use for our lab customers.

Its sample in, result out workflow provides test results in only four steps, thus requiring minimal training in a market that's experiencing a shortage of skilled operators.

What's more, results are generated over two times faster than traditional molecular diagnostic testing methods.

Those of you who attended our Analyst Day in California last month saw firsthand the tremendous progress we've made at Beckman over the past four years.

Using DBS, the Beckman team has worked diligently to reverse the significant quality, delivery and service shortcomings that existed at acquisition, and has vastly improved the customer experience in this process.

This effort has helped us exceed our cost savings target and more than double operating profit.

Most importantly, with these challenges largely behind us, Beckman has redeployed resources that have reinvigorated organic and inorganic growth, including the acquisitions of IRIS and Microscan.

We see a number of commonalities between Beckman and Pall, and believe we'll be able to run a similar play book at Pall in the coming years.

Turning to Radiometer.

Radiometer's core revenue increased high single digits, with growth in all major product lines and geographies.

Demand was particularly healthy at HemoCue, where sales grew double digits for the second consecutive quarter.

Since we acquired HemoCue in 2013, we've made significant progress in leveraging Radiometer's sales channel to accelerate growth, while also expanding operating margins over 1,000 basis points.

Leica Biosystems sales increased at a high single-digit rate, with balance growth across both developed and high growth markets.

Advanced staining grew nearly 20% in the quarter, as we continue to improve our relative market position.

Devicor, the acquisition we closed in late 2014, posted its second consecutive quarter of double-digit revenue growth.

Our Life Science platform core revenue increased at a low single-digit rate, led by double-digit in the US, partially offset by a decline in Latin America.

SCIEX core sales grew mid-single digits, driven by strength in the pharma and clinical end markets.

At June's American Society of Mass Spectrometry meeting, or ASMS, we launched a number of complete workflow solutions, including BioBA.

BioBA is an integrated offering for biologic analysis that combines the capabilities of our 6500Q trap mass spectrometer with the ExionLC high performance liquid chromatography system.

The system links ready-to-use sample prep kits with lab automation to simplify the bio pharma research workflow, enabling researchers to expand their skill sets and improve their productivity.

Leica Microsystems' core revenue decreased low single digits, due to weak market conditions in Latin America and in China.

Despite the decline, our order growth rate remained positive, giving us confidence that Leica will return to growth in the third quarter.

During the quarter, Leica closed the acquisition of Bio Optigen, strengthening its position in the ophthalmology market.

The integration of Bio Optigen's advanced optics technology with Leica's surgical microscopes will enable doctors to make better clinical decisions during eye surgery by providing more detailed images of the retina.

Turning to Dental, core sales were up 1%, while total revenues increased 30%, largely due to our Nobel Biocare acquisition.

Core operating margins declined 25 basis points, with reported operating margin down 60 basis points, to 14.2%.

Great progress continued at Nobel Biocare, as the team delivered another quarter of mid-single digit average daily sales growth.

Profitability has also improved markedly, with the operating margins up over 100 basis points in the first half of 2015, excluding restructuring.

Growth in Dental consumables and treatment units were partially offset by a decline in imaging.

While we saw continued destocking in certain areas within our North American distribution channel, we are encouraged by the normalization across many of our product lines in the quarter.

We also experienced healthy demand for our instruments in Europe, on the back of last quarter's International Dental Show in Germany.

KaVo's updated master series of hand pieces, which provide dental practitioners with exceptional power, low vibration and patented access angles for easier patient treatment, has been particularly well received and contributed to our overall performance.

Turning to Industrial Technologies, revenue increased 5.5%, while core revenues were up 4%.

Core operating margin expanded 165 basis points, while reported operating margin increased 180 basis points, to 25.6%.

Thanks to the team's excellent execution, this was the fourth consecutive quarter that the segment's core margin improved over 110 basis points.

Our automation platforms core revenue grew low single digits, led by healthy demand from defense and technology customers in North America and project wins in Europe.

Core revenues for product identification increased high single digits.

We saw broad based strength and believe we continue to gain market share across the business.

Videojet grew high single digits, led by healthy demand for equipment and consumables.

Service revenue, a key focus area for the team, grew double digits for the second consecutive quarter.

Geographically, we saw mid-single digit growth or better across the US, Europe and China.

ESKO core sales improved high single digits, led by healthy demand for both hardware and software.

And within software, demand from brand owners was encouraging, with sales up over 30%.

X-Rite had a strong quarter in which demand for our color measurement and standards products drove high single digit growth.

So to wrap it up, we're very pleased with the significant steps we've taken to enhance our portfolio and look forward to an exciting future for Danaher.

In the midst of change, our team's outstanding execution, using the Danaher business system, helped deliver solid core revenue growth, excellent margin expansion, strong cash flow and earnings outperformance.

We expect the macro environment to remain a challenge as we move into the second half of 2015, but we are confident that our focus on driving growth and optimizing our portfolio will offer our shareholders substantial value for years to come.

We are initiating third quarter adjusted diluted net earnings per share guidance of $1.00 to $1.04, which assumes core growth comparable to the second quarter of 2015.

We are also raising our adjusted diluted net earnings per share guidance for the full year 2015 to $4.25 to $4.33 from $4.23 to $4.33.

As we described in greater detail in this morning's press release, our recently divested Communications business will be reclassified to discontinued operations, resulting in a $0.03 reduction in adjusted EPS for the first half of 2015.

This reduction is largely offset by our outperformance in the second quarter of 2015.

Excluding our Communications business in both 2014 and 2015, the midpoint of our full-year 2015 guidance would represent high single digit year-over-year adjusted EPS growth.

Thanks, Tom.

That concludes our formal comments.

Lynnette, we're now ready for questions.

(Operator Instructions)

Steve Tusa, JPMorgan.

Good morning.

Good morning, Steve.

I would say this is not that exciting, which is actually pretty good in the context of this environment.

Boring is good.

There's a compliment for you.

That's the best I'm going to do.

The Pall deal, you've got some approvals in tow now.

Any chance you can close this thing a little bit earlier than expected?

Steve, it's Dan.

Clearly, we are happy with how we are progressing in terms of the various approvals.

But again, we don't know until we get the last one in.

But there is a decent chance this happens sooner this year.

But until we get the last one, it's hard to forecast.

Right.

Then in the second half of year, the environment is obviously pretty challenging, 3.5% core growth is good.

Any views on getting ahead of further weakness and any restructuring in the second half of the year?

I assume the gain you're going to take, that's going to be in this comp.

So it's not like that will be used to offset anything.

But what are your views on restructuring in the context of the current environment?

Steve, we're constantly challenging our teams throughout the course of the year to be looking for opportunities to improve productivity, to position themselves better, to realign cost structures, to align those cost structures to the best growth opportunities.

And that's really been going on throughout the course of this year.

Obviously, as we do assess the macro environment, we will figure out whether anything more significant needs to be done.

But I think at the moment, the teams are doing a nice job continuing to look for opportunities as the year progresses.

Okay.

Is there anything, lastly, that gets, fundamentally within the businesses, gets materially better or worse in the second half, anything moving around from an organic perspective?

I think probably one I'd highlight for you, Steve -- there are probably a few others that I wouldn't bring immediately to mind -- but maybe a headline would be GVR.

As we see the EMV regulations continue to come closer, meaning the outdoor regulations that have a deadline in the end of 2017, the indoor regulations that are currently driving some encouraging performance in our POS-related technologies, I think those dynamics will continue to improve GVR's performance.

GVR was a little lighter here in the second quarter, but I think good year-to-date.

But I think we'd look to see that accelerate in the back half of 2015 and clearly into 2016.

Okay.

Great.

Thanks a lot.

Just to name one

Thanks a lot.

Thanks, Steve.

Nigel Coe, Morgan Stanley.

Thanks.

Good morning.

Just want to echo Steve's comments, boring is good.

I think this quarter is going to stack up very well versus the pack.

So just wanted to focus a little bit on margin here, because I think that was the real swing from 1Q, where you had a little bit of softness on the FX and conversion this quarter is much, much better.

So I wondered maybe if you could talk about whether the impact of FX moderated, whether that was offset by efficiency metrics.

And if I could just then drill into the core test measurement margins, outstanding margins, looks to be about 24 and change.

That's up about 3 points year-over-year.

How sustainable is that?

And is that driven by mix?

Is that restructuring?

What's driving that strength?

Nigel, we're clearly continuing to feel the impact of the FX on our margin.

Until the anniversary, the big move in the euro, that will continue.

But overall, very good cost action fall through.

One of the dynamics in Q2, our consumable business after market, our core growth remained very, very healthy.

Our equipment business was slightly softer.

I think that's not unlike what we are hearing from a lot of other or equipment-based businesses, so we can actually get a favorable mix from that, from a margin perspective.

But the FX impact is still very much there.

Okay.

It looks like the 3Q guide, looks like you're forecasting on an apples-to-apples basis a pretty significant sequential decline in margins, looks to be like a 17 handle versus a mid-18 this quarter.

Is that the right math?

Yes.

Clearly, there's seasonality here.

We're typically down $0.03 or $0.04 on slightly lower revenues Q2 to Q3, and we expect a similar dynamic here.

Okay.

And then finally, on the Pall, you pre funded ERU2.7 billion of debt.

The Q mentions CP funding.

And any intention to get ahead further on the pre funding as you get closer to the close?

Clearly, we've done the [EUR3 billion].

We've set up all the bank facilities to backstop the commercial paper.

And we'll likely do a US bond deal as we get closer to closing.

Okay.

Thanks a lot, Dan.

Scott Davis, Barclays.

Good morning, guys.

Good morning, Scott.

I don't think you mentioned anything about any updated timing of the breakup or any additional details.

Is there any change?

You've had a few months to dial that in a little bit.

We've had a little bit of time here, Scott, but we're still looking at the same timing that we've spoken to earlier.

We have a team assembled, as I mentioned.

Team's gotten to work building action plans.

There is a lot to do.

I think one of the great things that I've seen recently is how the team is applying principles and the practices of DBS to the whole process.

Many of you have seen some of those examples of visual management and project management as you've toured our facilities.

We're applying that same approach here.

And I think as we do that and time progresses here a bit and we understand some of the details in a deeper way, we will look for every opportunity to accelerate that.

The facts of the matter are that the complexities associated with work to do, associated with the audits that will need to be done, the filings associated with that, the associated tax-related work will take time.

And we're going to do everything we can to accelerate the process, but it's still early days in defining all those details

Okay.

Understood.

Just getting back, I think to Steve's question, if you look at the deeper cyclicals around the world, it almost feels like things are falling apart in front of our eyes.

But you guys don't touch oil and gas or commodities any real way, so you don't see it real time.

But do you worry that we are on the verge of something that's bigger, from a recession perspective, and you have to start thinking about getting ahead of it now?

Is that something you guys consider, or do you have enough visibility in your book to say this is generally not going to touch you?

Scott, I don't know that we have any clearer crystal ball, necessarily, on the macro environment than a lot of other folks.

I think we feel very good about how well our portfolio is positioned to weather storms in various markets.

Today, I think we are certainly cognizant of the headlines.

We've seen the high growth markets become very uneven.

While we are still seeing relative strength and excellent execution in places like China and the Middle East, we very cognizant of the weaknesses in Latin America, specifically in Brazil, the challenges in Russia.

And yet, I think in many cases in the overall, we are performing quite well.

As we've said in the last couple of calls, our businesses are really well positioned in Europe.

We don't see Europe as a particularly robust market at the moment, but we continue to post good growth across a number of our businesses.

The US has been steady for us.

But again, I think we would look to our own execution as being the underpinnings of that and not so much any great confidence in macro stability going forward.

And Tom, what's your view on China, more specifically?

We still think China is a very good market for a number of our businesses, Scott.

If we look specifically at performances across the portfolio, our Diagnostics business, our Dental business continues to perform exceptionally well in China.

So we're seeing strength across some of our other businesses, as well.

Water grew double digits in the quarter.

So it's not the same market that it was a year ago or two years ago; it is a more challenging market in a macro context.

We've seen some pockets of weakness in areas like academic-related and research funding.

But in general, we continue to invest there.

We still remain bullish that it will be one of our better growth markets across the whole global landscape

Okay.

That's helpful.

Thanks, guys, and good luck.

Thanks, Scott.

Steven Winoker, Bernstein.

Thanks and good morning, all.

Looks like the core growth ex-Coms for this past quarter would have been closer to 4% than 3.5%.

And if that's right, Tom, can you talk through maybe what it would've been or how we think about the new co versus remain co core growth rates?

Sure.

Good morning, Steve.

Your assessment is right that the quarter ex-Coms would have been about 4% rather than the 3.5%.

When you look at the portfolio within the context of new co and Danaher going forward, the new co businesses grew about 3% in the quarter and the Danaher remain co portfolio grew about 4% in the quarter.

And that remain co would have been closer to 4.5% then, ex-Coms now?

It would have been a little over 4%, yes.

Okay.

All right.

And then as you see that growth pacing, you talked a little bit about it, but for Q3 versus Q4, how do you maybe see core growth pacing through those two?

Again, we believe, as of now, Q3 will be comparable to Q2.

We have a few less selling days in Q4, which benefited Q1, but adjusted for that, we're not looking for a fundamental change, despite arguably a tougher, incrementally tougher macro environment, we're looking for core growth to stay relatively steady with where we are today.

Steady ex-Coms, right?

Yes.

And then maybe just a comment on Dental would be helpful.

You talked a little bit about it in the prepared remarks.

But are you seeing a fundamental improvement then in the business, and how should we think about that business progressing going forward?

Steve, we are seeing some improvement in our performance in Dental.

The Q2 growth that I mentioned of 1% was better than where we were in Q1.

We're not yet where we want to be, but we saw some improvement in a number of areas.

We're particularly enthusiastic about the great start that we've had with Nobel.

It's not in the core numbers, but having a very good start, with mid-single digit core growth for the second quarter and the second quarter in a row.

We look at sell out and sell out remains very good.

It's in probably the 3% to 4% range.

Again, will vary a bit across product categories, but I think sell out continues to be good.

I think as we look at consumables and equipment, generally a number of areas performing better than they were.

Still some work to do, but we think we're approaching the tail end of some inventory-related de-stocking activities that impacted primarily the equipment side and were more or less isolated to the North American market.

So I think quite a number of things to be encouraged about and clearly still some work to do in some spots.

Thanks.

Jeff Sprague, Vertical Research Partners.

Good morning, gentlemen.

Just a couple quick ones.

First, China overall, can you say -- if you did, I missed it -- what the China growth rate was in the quarter overall?

Jeff, we were about 8%, 9%, which has been remarkably consistent, we were just talking about with the China team, the last five or six quarters.

That is solid.

On water treatment, Dan or Tom, what's actually driving the activity there?

Can you provide a little granularity on muni versus industrial or geographic and how you think that trends in the back half of the year?

Sure.

Absolutely, Jeff.

Let's start with the Hach business.

The Hach business continues to perform very well.

Another very good quarter.

I just mentioned their growth in China, double digits on the quarter.

But continued good performance in developed markets, specifically, obviously, in the US and in Europe.

And in general, that would span across industrial and muni.

So I think we're seeing pretty good progress there.

They continue to invest in growth, both on the sales and marketing side, as well as in R&D.

And I think we're seeing the benefits of consistent year-over-year investment in that business and very, very good execution.

If you look at Trojan, Trojan more on the equipment side, keep in mind that Hach is a little bit more of and OpEx-related business, a little bit less CapEx exposure, Trojan a little bit more CapEx exposure.

Had a good quarter, second consecutive positive core growth quarter.

We're starting to see some improvement in bid volume on a global basis.

This is a lumpy business, given the project nature, more CapEx-oriented.

But generally, we're feeling pretty good about where Trojan is.

We've talked number of times about the investments that we've made in balast water.

We've noted that we filed formally for US type approval, via the Coast Guard.

We're waiting for any questions or follow-up on that filing.

But we remain encouraged about the potential for growth there.

And the finally, at ChemTreat, another good quarter at ChemTreat, performing very well.

Probably faces a few more challenging pockets in the macro environment.

There actually is a little bit of oil and gas exposure in that business.

We've had some success up in the oil sands in Canada.

And so we've seen some softness there.

The steel market has been a little bit more challenging.

So while ChemTreat continues to grow very positively and gain share, there's a few pockets of softness there that we will need to offset.

Just one more quick one.

Thank you, Tom, for all that.

It sounds like the smaller bolt-ons might be ramping up.

Did any of those happen in what's going to be the new co in the quarter, and do you anticipate bolt-ons in the new co as you work through this process?

Jeff, we definitely do.

And we are spending a lot more time with Jim and his team ramping up that effort.

And I would expect to see some bolt-ons here in new co in the next 12 to 18 months.

Thank you.

Thanks, Jeff.

Shannon O'Callaghan, UBS.

Good morning, guys.

Good morning, Shannon.

Can you talk a little bit about the variation in the core margin improvement across the segments?

You had a couple real strong runs, with Environmental and Industrial, and then LS&D, up a little less on core, and then Dental down.

I know you're doing some investments and some restructuring there.

Maybe just give us a feel for what you're doing there and what kind of benefit we might see coming out of it?

Sure.

It's Dan, Shannon.

Lifescience Diagnostics, that is the segment we get probably hit the hardest from an FX perspective.

So on a constant currency basis, they would have been up 100 basis points.

So feel underlying, from a core perspective, we're making the progress we should be making, but just paying a lot of FX pain right now.

Good core growth numbers.

We are investing, high growth markets, new products.

So I think you're seeing some of the impact there, but you're seeing it on the core growth side.

Dental is a function of very modest core growth, growing 1%, tougher to expand those margins.

We'll need a little better core growth to see margin, core margin expansion here in the second half.

Okay.

Great.

How do you guys feel about the overall healthcare market?

You said, I think, Life Sciences was up double digits in the US, which seemed remarkably strong.

I know you guys in a lot of your businesses have new products driving a lot of growth.

Is that Life Sciences number of function of just overall market, or just how do you feel about the market?

Shannon, we think about the market, first of all, in, probably to keep it simple, two different dimensions.

We think about in terms of truly more of a healthcare oriented market, the term you used, that would impact our diagnostic businesses more, and then more of a life science market that is more skewed towards selling to life science related academic and research institutions, universities, pharma, big pharma, food testing, et cetera.

So first and foremost, we've separated into those two segments of the market.

Specific to your question about our Life Science platform in North America, we have some businesses that executed extremely well.

Leica Microsystems, for example, despite the modest performance overall during the quarter due to some high growth market challenges, had a very strong quarter in the US.

SCIEX had an excellent quarter in the US.

And that's really just good commercial execution.

I wouldn't say it's a function of the macro environment.

Back on the healthcare side, we've seen utilization in hospitals increase very modestly.

Generally, hospitals are in better shape financially today, so we've seen some investment coming through.

So I think that's certainly a little bit of a help.

But again, I would point to our execution, improvements in Beckman's overall performance, certainly Radiometer, a consistent performer, Leica Biosystems growing 20% in advanced staining and growing in some of the core histo applications also underpinning that.

And those would all be growth rates that would be higher than the underlying market and certainly higher than the increases in utilization.

Okay.

Great.

Thanks, guys.

Thanks, Shannon.

Ross Muken, Evercore ISI.

Good morning, guys and congrats.

Thanks, Ross.

I thought I'd start -- you were talking a bit about Life Sciences -- digging in just a little more on the bio pharma side.

It's obviously going to get more important when you close Pall.

But it seems like a very healthy sub segment.

We've seen it across the board.

Maybe a little color of what you saw in SCIEX in that segment.

And I know you obviously haven't closed Pall yet, but filtration numbers across the board have been consistently spectacular this quarter.

And so as you're thinking about where you touch today, particularly on the biotech side, but where you will be going forward, how do you feel about that end market specifically?

Ross, we feel very good about that end market, as we, I think, pointed out in a number of our conversations about the Pall transaction.

We see the bio pharma market to be one of the most attractive markets from a sustainable growth perspective in the years to come.

You saw that in Pall's reported numbers coming out of their last quarter.

So we feel very good about the growth prospects there.

Specific to our business, I would probably point to SCIEX specifically as a business that performed very well.

Their approach in that market is broad based, in terms of the full range of pharma customers.

And we continued to see good growth.

They were one of our best performers in the life science platform, and specifically a very strong performer in North America.

So we remain very bullish on that market.

And maybe, Dan, just building off of the prior question on tuck-in activity at new co.

One of the things I've heard from folks is a concern about valuations across that complex and a lack of targets that fit the old Danaher model.

As you look at the pipeline there and the types of businesses or the size of businesses and public versus private, do you see a pretty good plethora of opportunities and do you feel like it's difficult, given valuations there, to do deals, or do you feel like there's pockets where you still could see some pretty good high return type acquisitions?

I don't think we would have announced the separation if we didn't see a significant opportunity there.

Just in the last 45 days, as we really geared up again the M&A activity for many of what will be Jim's businesses, we're already starting to see some bolt-ons that I think will come through in the next six months.

But I think there are also larger opportunities in time.

And that is a team, at Fluke, Gilbarco, that have executed extremely well on their bolt-on adjacent-type acquisitions.

And we feel very good about that opportunity going forward.

Great.

Thanks, guys.

Julian Mitchell, Credit Suisse.

Hello.

Thanks.

Just had a question around industrial on the product ID side.

Looks like you are still echoing the market may be 2 times or so.

Maybe give color as to what is driving that.

Is there some disruption at Domino because of the merger?

Is it a product suite issue?

Or do you think it's more fundamental around the software expertise?

Thanks, Julian, and good morning.

Product ID, specifically Videojet, I will start with Videojet, has performed very well.

I would say that it is largely a function of very strong DBS oriented execution at BJ.

Some of the growth oriented tools of DBS that we've spoken about in the past, tools around funnel management and transformative marketing, have really been developed and brought to maturity at Videojet.

And we've seen the impact of the utilization of those tools in their commercial execution and the resulting growth performance and share gains.

So it's a great job by that team, and I think we'll continue to see good performance there.

That performance is replicated, or is very similar, when we look at ESKO and X-Rite, two terrific acquisitions that the platform has done, really broadening its footprint, bringing a broader suite of solutions to brand owners.

And so I think all is tracking in the right direction in terms of the platform.

Relative to Domino, we have not seen any particular impact to that.

The PID business in general and VJ specifically is performing exceptionally well in Europe, and so I think we're in good shape.

Thanks.

And then just to follow up on Dental, it sounded like the sell out has been pretty good, which I guess would mean the inventories have run their course.

But Dan sounded fairly circumspect about the scope for the margin expansion in Dental in the second half.

So I just wanted to understand, do you think Q3 and Q4 will see an acceleration in Dental?

We will.

I think it will still be relatively modest.

But it would be better than what we've seen here in the first half.

We were encouraged by consumables returning to a more normal growth level, more typical margin performance.

And while equipment was a tad better, and the sell out numbers are fine, I'm not sure we're entirely done from a destock perspective.

I think we've got the biggest pieces behind us, but I still think there will be a little bit more here in the second half.

Thanks.

And lastly, just very quickly, the SG&A costs in Q1, I think, had caused a bit of consternation around their increase, more normal in Q2.

Do you think the SG&A sales should continue to -- the increases should level off there in the second half?

Yes.

On a sequential basis, clearly part of that's Nobel, which comes in with a direct selling model, so it's a pretty hefty selling expense.

But it should see some continued normalization.

Great.

Thank you.

Isaac Ro, Goldman Sachs.

Good morning, guys.

Thank you.

I just want to stay on the Dental theme for a minute here.

The destocking dynamic, it's the second quarter in a row.

And I think, if I understood Dan's comments, that previously sounds like there might be a little more to go.

I'm just curious why that is?

I think these are the types of things that obviously take some time.

They work, Isaac, in collaboration with our distribution partners.

You've got some balancing going on between different product lines.

And so it's really just an evolutionary process.

Got it.

So if we were to try and look at the year holistically, the first half has been pretty flat.

The last few years, you've been closer to 3% or so.

Is it unrealistic to think, given the destocking dynamics, that 3% is possible this year for the full year?

I think it might be a stretch for the full year, but I think in the second half, we'd be looking to try to achieve that kind of number.

Got it.

Appreciate it, guys.

Thank you.

Thanks, Isaac.

Deane Dray, RBC Capital Markets.

Thank you.

Good morning, everyone.

Good morning, Deane.

Considering all the transactions you have going on, you still were able to complete five bolt-ons.

Maybe a comment on what that pipeline looks like and capacity, both capital and management eyeballs, to get more deals done.

We're pretty happy.

We did see the pace of bolt-ons ramp up last year.

That's continued here in the first half.

On the margin, some of the incremental choppiness in the macro environment is helping get some of these bolt-ons to the finish line.

Now that we're geared up here with Jim and many of his businesses, I expect that pace to continue.

We're not going to do any multi-billion dollar deals here the next 12 months, but I think you should see a very healthy continued pace of bolt-ons across the platform.

Just last question.

If you could put the spotlight on the Sutron deal for a moment in hydrological monitoring.

It's interesting, that's part of Environmental, but it's Hach Environmental.

What are the linkages with Sutron and water quality, both from a technology standpoint, but also go to market?

Sure.

Dean, we have a suite of products in our Hach portfolio, Hach line of portfolio, that we refer to as Hach Environmental.

And we use that term to reference the fact that that suite of products, those instruments and software and various communications modalities, allow us to provide capabilities outside of municipal and industrial water, namely in rivers, lakes, streams, tributaries, and all the way out into the blue -- the deep ocean areas, through businesses like Seabury.

What Sutron provides us is a bolt-on acquisition that adds capabilities in satellite communications and remote data transfer, that adds significant potential to instruments that are already installed in those applications.

So it's a tremendous add.

Its a business that we've known for a long time.

We've had an excellent relationship over many years with the leaders of that business, and we're thrilled to have them join the portfolio.

Great.

Thank you.

Thanks, Deane.

And that does conclude our question-and-answer session.

Mr. Gugino, I'd like to turn the conference back over to you for any additional or closing remarks.

Thanks, everyone, for joining us today.

We're around all day for questions.

And that does conclude today's teleconference.

We thank you all for your participation.