Danaher Corp (DHR) 2016 Q1 法說會逐字稿

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

At this time, I would like to welcome everyone to the Danaher Corporation first-quarter 2016 earnings results conference call.

(Operator Instructions)

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

Mr. Gugino, please begin your conference.

Thank you, Isa, and 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, the 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 on 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 events and presentations, and will remain archived until our next quarterly call.

A replay of this call will also be available until April 28, 2016.

The replay number is 888-203-1112 within the US, or 719-457-0820 outside the US, and the confirmation code is 4643245.

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

The supplemental materials 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 continuing operations of the Company and the first quarter of 2016, and all references to period-to-period increases or decreases and 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 actual results might differ materially from any forward-looking statement 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 are pleased with our start to 2016, as our team continued to outperform in the face of uncertain and challenging economic conditions.

In the quarter, we delivered high teens earnings growth, healthy operating margin expansion, and free cash flow that was up over 50% year on year.

The Danaher Business System remains the driving force behind our performance.

Equipping our team with the tools to strengthen our competitive position, the focus to invest in high-impact growth opportunities, and the flexibility to position our businesses for long-term success.

This will be an exciting year, as we anticipate the upcoming launch of Fortive Corporation, which we expect to spin out of Danaher in the third quarter.

Since our last update in January, we have continued to build a highly experienced leadership team, and have named additional members to Fortive's Board of Directors.

The team has also made great progress solidifying Fortive's financial, legal and organizational structures.

This separation is a unique opportunity for Danaher and Fortive to optimize our respective portfolios, and build long-term shareholder value.

We look forward to sharing more information with you at our investor and analyst event in May at Gilbarco Veeder-Root.

Now, turning to the details of the quarter.

Adjusted diluted net EPS was $1.08, an increase of 18.5% over the last year.

Sales grew 15% to $5.4 billion, and core revenue increased 50 basis points, as a number of our businesses were negatively impacted by tough prior-year comparisons, and one less selling day.

Clearly, the economic environment remains challenging in many verticals and geographies, but we were encouraged by signs of sales and order stabilization through the quarter.

Our team's focus on portfolio optimization and diligent execution using DBS helped improve and sustain many of our market-leading positions.

Finally, the impact of currency translation eased this quarter, but still decreased revenues by 2%, while acquisitions increased revenues by 16.5%.

Geographically, the developed markets grew slightly, with stability in the US and Europe.

High-growth markets were up low single digits, as continued growth in India was offset by declines in Latin America and Russia.

In China, our teams are well-positioned to compete in several attractive markets, and delivered mid single-digit core growth in the quarter.

Gross margin for the first quarter was 53.1%, an increase of 50 basis points from last year.

Along with the productivity initiatives undertaken in 2015, our gross margin expansion has enabled us to sustain and expand our growth investments in new product development, and sales and marketing.

Core operating margin expanded 45 basis points, with reported operating margin at 16.4%.

Free cash flow is one of the most important metrics at Danaher, as it provides us with the agility to invest in both organic and inorganic growth initiatives across our entire portfolio.

We had a strong quarter on this front, generating $622 million of free cash flow, a significant increase over last year.

Coming off a historic year of M&A, we closed six bolt-on acquisitions in the first quarter, deploying over $100 million in capital.

These deals will strengthen our capabilities across many of our businesses.

Both Danaher and Fortive have strong and active funnels, and will continue to focus on small and mid-sized transactions for both companies through the separation process.

Now, let's take a look at our five operating segments, starting with Test & Measurement.

Revenues decreased 5.5%, with core revenues down 5%.

Core operating margin decreased 135 basis points, with reported operating margin coming in at 20.9%.

Core revenues for our instruments platform declined high single digits, as we continued to face a challenging global market environment.

All major geographies saw declines, except for China and India.

Fluke core revenues decreased mid single digits, due to declines in the US, Western Europe, and Latin America, partially offset by increases in China.

While still a difficult environment, we did see some signs of stabilization in certain geographies and industrial end markets during the quarter.

A few weeks ago, Fluke announced the launch of the Fluke 279 FC Thermal Multimeter, the world's first test tool that integrates a full-featured digital multimeter with a thermal camera in one device.

This combination enables technicians to check for hot spots on high-voltage equipment, and analyze problems at a safe distance.

By commending these important test tools into one, Fluke is helping our customers troubleshoot electrical issues more quickly, safely, and thoroughly.

At Tektronix, core revenue declined low double digits as growth in China and India was more than offset by declines in all other major geographies.

The Matco team continued to execute well, delivering high single-digit core growth in the quarter.

Notably, Matco has posted mid single-digit growth or better for 23 of the last 25 quarters, and continues to improve its market position.

In February, Matco posted it's Annual Tool Expo in Las Vegas.

The Expo provides Matco franchisees with an opportunity to see new products, attend training sessions, and stock their businesses for the upcoming year.

This year, almost three-quarters of Matco's franchisees participated, resulting in record attendance and event-driven sales.

Turning to our Environmental segment, revenues grew 4%, with core revenues up 3.5%.

Reported operating margin declined 220 basis points to 17.3%.

Core operating margin declined 155 basis points, and was negatively impacted by incremental investments, including EMV-related spend at Gilbarco Veeder-Root.

We anticipate segment margins to return to more normalized levels in the second quarter.

The water quality platform's core revenues grew slightly, as one less selling day and a tough prior-year comparison had a negative impact.

At Hach, positive momentum in the US municipal market continued, but softness in high-growth market resulted in flat core growth for the quarter.

Trojan also saw strong municipal demand globally, and delivered another strong quarter.

Finally, at ChemTreat, the team grew revenue slightly in the quarter, despite headwinds in its industrial and commodity-oriented markets.

One of the ways that we continue to augment growth, build our capabilities, and better serve our customers is through M&A.

Our water quality platform has acquired more than 40 businesses since 1996, and continued its healthy cadence of bolt-ons this quarter, with Hach's acquisition of Lufft Mess in January.

Lufft's long-standing precision sensors -- long-lasting precision sensors, are a key part of weather measuring networks along roads, railways and airports, and enable us to deliver value to a wider range of customers around the world.

The Hach team does an exceptional job of implementing DBS in newly-acquired businesses, and this is well underway already at Lufft.

DBS lean and grow tools are helping us drive more efficient production, strengthen key account relationships, and improve funnel management.

At Gilbarco Veeder-Root, core revenue grew high single digits for the third consecutive quarter.

EMV-related demand in the US drove double-digit growth in point-of-sale solutions and dispenser systems, and we believe we continue to gain share on both fronts.

Many of our customers are still in the process of upgrading indoor payment systems for last October's credit card liability shift.

Additionally, we are well-positioned to benefit from the upcoming outdoor liability shift, and the Gilbarco team is already collaborating with a number of customers to phase in outdoor upgrades.

You will hear more about EMV and GVR's other opportunities at our investor and analyst event next month.

Moving onto Life Sciences & Diagnostics.

Core revenues grew 2.5%, with reported revenues up 42%, largely due to our recent Pall and Microscan acquisitions.

Core operating margin expanded 205 basis points, thanks to the team's solid execution using DBS.

Core revenues in our diagnostics platform increased low single digits, led by healthy demand in high-growth markets.

At Beckman Coulter, core revenue increased at a low single-digit rate.

We saw strong demand for our immunoassay solutions, and used our well-established install base to help drive increased sales in India and China.

Our consumable streams remain solid, and we are seeing healthy utilization rates globally.

Radiometer and Micro Biosystems both increased core revenues in the quarter, with growth in China and India offset by declines in other high-growth markets.

Our team is focused on improving our customers' experience everyday, and shows that commitment by expanding our product offering through both innovation and adjacent bolt-on acquisitions.

Beckman Coulter's first major bolt on, IRIS, closed in 2012, and extended our footprint beyond blood testing into urinalysis.

Since then, IRIS has delivered double-digit growth and expanded operating margins, over 1,000 basis points.

More recently, the acquisition of Microscan expanded Beckman's already strong presence in hospital and reference labs into the microbiology space.

It has been one year since we closed the deal, and we achieved double-digit core revenue growth in the quarter.

Both IRIS and Microscan are helping us serve our customers better, and we believe that adjacent acquisitions, combined with our consistent application of DBS, will continue to enhance our comprehensive workflow solutions across our diagnostic businesses.

In our life science platform, core revenue was up low single digits, with growth in both developed and high-growth markets.

Leica Microsystems' core revenues were up low single digits, as strong performance in North America and China was offset by declines in Japan and Latin America.

At SCIEX, core revenues grew low single digits, driven by demand in China and the Middle East.

We also saw healthy sales growth in certain applied end markets, and our service business.

The SCIEX team has placed a strong focus on improving our customers' experience by pairing service contracts with instrument sales.

This has driven record contract capture rates, including over 500 basis points of improvement in year-over-year attachment rates in the first quarter alone.

SCIEX is a great example of how we use new products to help our customers' most critical challenges.

In the quarter, we've launched the X500R, the first model within our X-series product family, which was the SCIEX team's largest-ever development project.

The X500R is a robust instrument that was specifically designed to serve customers in food and environmental testing labs, two of the fastest growing end markets in mass spectrometry.

Going forward, we expect this to be a significant contributor to our future growth.

Turning to Pall, we are very pleased with our early progress.

This quarter, the Pall team delivered mid single-digit core revenue growth, led by double-digit growth in our life science business, due to demand for our biopharmaceutical solutions, including single-use technologies.

Our industrial business was down low single digits, as we face challenging market conditions.

The teams enthusiastic application of DBS, including over 100 Kaizen events since close, has led to meaningful process improvements and several new product introductions across Pall's life sciences and industrial businesses.

As a result of our growth and productivity initiatives, year-on-year operating margins were up over 250 basis points.

As we move onto Dental, core revenues increased by 0.5%, due to strong demand for consumables and implants in North America, and the high-growth markets, as well as healthy orthodontic sales in China.

These gains were negatively impacted by one less selling day.

Over the last several quarters, the Dental team's focus on execution and disciplined spending has paid off in margin expansion.

This quarter, the team grew core operating margins by 250 basis points, and reported operating margins by over 500 basis points to 14.5%.

Our continued investments in innovation have resulted in a number of differentiated product offerings for our dental customers.

At the Chicago Midwinter Dental show in February, we launched over 15 new products, including Maxcem Elite Chroma, a revolutionary new cement for dental restorations, that changes color to indicate the correct time for a dentist to remove any excess material.

The first-in-class color indicator simplifies the dentist procedure, and reduces clinical risk.

At Nobel Biocare, the team drove mid single-digit average daily sales of implant system this quarter.

Since the acquisition closed, Nobel has achieved over 400 basis points of operating margin improvement, and is focused in reinvesting those savings into future growth opportunities.

Moving now to Industrial Technologies, revenues declined 1.5%, while core revenues were also down 1.5%.

Despite the revenue decline, core operating margin expanded 25 basis points, while reported operating margins declined 30 basis points to 24.3%.

The automation platform's core revenues decreased at a high single-digit rate, due to the weakness in global industrial markets, and a difficult prior-year comparison.

While we expect this dynamic to largely persist in the near term, we were encouraged by signs of stabilization in the quarter.

Product identification core revenues grew at a low single-digit rate, as increased demand for marketing and coding was offset by softer demand for the business's packaging and color solution.

Videojet's core revenues increased mid single digits, driven by what we believe to be continuing share gains in North America and Europe, while high-growth markets remain softer.

The Videojet team has delivered mid single-digit growth or better for nine of the past ten quarters.

Last quarter, we announced the acquisition of Laetus, which extends our product ID offerings into track and trace inspection systems for pharmaceutical packaging plants.

We're off to a good start with Laetus.

The team's early adoption of DBS tools is already driving key process improvements, as quicker service deployment, and improved on-time delivery are ensuring that our customers receive the best possible support.

So, to wrap up, our team executed well in the face of challenging economic conditions, and we are pleased with our start to 2016.

The Danaher Business System remains a driving force behind our performance this quarter, helping to deliver high teens earnings growth, healthy operating margin expansion, and 50% year-on-year free cash flow growth.

We're also off to a great start at Pall, where the team drove meaningful process improvements and delivered mid single-digit revenue growth in the quarter.

We continue to make progress preparing for the launch of Fortive Corporation, which remains on track to close in the third quarter.

Our teams are excited about the unique opportunity to continue developing two separate portfolios of market-leading businesses, that we believe will create shareholder value for years to come.

We are initiating second-quarter adjusted diluted net EPS guidance between $1.19 and $1.23, which assumes approximately 2% core revenue growth.

We are increasing our full-year adjusted EPS guidance from $4.80 to $4.95, to $4.85 to $4.98, which would represent a 13% to 16% increase from 2015 adjusted EPS.

Thanks Tom.

That concludes our formal remarks.

Isa, we are now ready to take questions.

(Operator Instructions)

Scott Davis from Barclays.

China was a bright spot for you, and I know last quarter was -- tracked pretty comparable last quarter as well, but it sounded like things may have firmed up a little bit.

Fluke -- is Fluke your canary in the coal mine in China, having that business back to positive territory for the quarter?

Just a little color on what you are seeing there?

Sure, thanks Scott, good morning.

China unquestionably is -- remains a very good market for us.

Despite much of the headlines that would certainly suggest that they are slowing in various areas, we were very pleased with the performance in China, and I think it was relatively broad-based.

If you looked at Danaher versus Fortive, let's say, Danaher was up high single digits in China, and Fortive was up mid single digits in China.

So I think a number of good examples, where China remains a very attractive market for us.

Relative to your specific questions on Fluke, Fluke is an exceptional business, overall.

We've had a -- it's probably one of our most advanced businesses in terms of both go-to-market as well as local production and product development in China.

And while there is clearly still some softness around various industrial segments of the Chinese market, Fluke is a very strong brand in that market, and has a very strong share position.

So I think we're encouraged by some of the stabilization we see in some of those markets, and in other of those markets, we just continue to see very strong growth.

Our Dental business continues to perform exceptionally well in China.

Life Sciences & Diagnostics broadly continuing to perform well there.

While clearly the headlines would show that market has pulled back a little bit, in the aggregate, it's still a very good place to be.

Okay, that is helpful, Tom.

And then just wanted to ask where you stand in Pall versus the deal model?

Help us, now that we're a year in or so, give us a sense of how you -- what is working and what is not working?

Industrial is probably far weaker than you thought it was, but the environmental, or I should say the Life Sciences side is probably far stronger than you thought it would be.

How are you managing that variability, and how does it all really stack up at the end of the day, versus what your prior expectations were?

Tom, it is Dan.

We're off to a very good start there.

We had mid single-digit growth in the quarter, as Tom alluded, that was a combination of double-digit growth in the life science side, and a slight decline on the industrial side.

Clearly, that would have been a contributor to our overall organic growth at Danaher.

From a margin perspective, we are ahead of schedule.

We talked about north of $100 million of benefit here this year on the margin side, continue to track very well to the ultimate target of $300 million.

In addition to this, we are getting favorable mix, given the life science business is more profitable, and we really saw that play out exceedingly well in the first quarter.

It will likely create some opportunities where we will be able to accelerate some investments here at Pall during this year, given we're tracking so well.

That's great.

Good luck.

Thank you.

Thanks.

Just to follow on Dan's comment a little bit.

The team at Pall has just done a tremendous job.

As we mentioned before, it's a great combination of both some seasoned Danaher leaders, as well as an exceptional group of folks who have been at Pall for a long time, who together have really brought DBS to life in that business in rapid fashion.

You heard me mention about the 100 Kaizens that have gone on, those have gone on literally around the world.

It's just one indication of the rapid rate at which the Pall team has adopted the tools of DBS, and really that has truly contributed to not only the growth dynamic that we are seeing, but certainly has assisted in us getting ahead on the cost take outs, on the margin side.

Perfect, thank you.

Steve Tusa from JPMorgan.

Just back to Pall, to follow-up on that.

I think they were doing a little bit better than $100 million in R&D a year, and R&D year-over-year was up, I think, about $20 million.

Is that a little bit of a decline in the core R&D, or are you getting a efficiencies there on the Pall site?

You also mentioned you are walking away from some business there, I think in your 10-Q, with Pall?

Can you give us a degree of magnitude on that front?

And then I have one quick follow-up.

Steve, on the -- walking away from some business.

That's something that Pall had started, prior even to our acquisition.

It's down to a relatively nominal amount here.

And will be largely done by the middle of this year.

Okay, and then on the R&D front, what was Pall's R&D?

I think it was greater than $100 million.

Are you getting more efficiencies there?

Do you expect to maintain that R&D budget, increase it?

Right now we are sustaining it and I suspect over time, that will get increased.

I would just add to that, and I think we've mentioned this maybe once before, but if you think back to the playbook that we ran post the Beckman acquisition, I think the playbook here at Pall is very similar, which is, there are a number of opportunities to get costs out of the business, broadly, and we're working on those.

Obviously, start to see the margins coming up, but the playbook is to then redeploy some of that cost take-out into investments in sales and marketing and R&D.

So you have to do that broadly across Danaher, with gross margins going up, and sales and marketing and R&D on the quarter for Danaher in total up 30 basis points.

We did that at Beckman, R&D lifted over time, we started to get the innovation engine going.

Innovation at Pall has always been a strong suit there, but we think we can take it up another level.

And so some of those cost take outs will ultimately translate into either higher spending, or potentially more efficient spending, if we find opportunities to do a better job innovating at the same cost rate.

We will see.

Okay and just lastly, on the free cash flow, a very strong quarter obviously.

You are paying down some debt, beginning to delever here a little bit.

Is anything about the timing of that free cash flow, or should we think about normal seasonality off of that base?

I know there were some accruals, year-over-year accruals were less of a drag, maybe there is just some timing?

Bottom line is, what is the annual free cash guide?

Steve, you know we don't give a specific guide, but we're off to a very good start.

There was a little bit of timing benefit around some tax payments, but broadly our cash flow was quite strong.

As you know, we ended last year with a record number and a very strong second half of free cash flow.

We expect that trend to continue.

We are not going to be up 40% year on year, but we expect a very healthy double-digit increase in free cash flow this year.

Right, okay, thanks a lot.

And our first quarter last year was --

We were a little bit light.

A little lighter last first quarter, so a little bit of benefit there from a comp standpoint.

Thanks.

Nigel Coe from Morgan Stanley.

Tom, you so you mentioned you are seeing signs of stability.

I think that was in relation to Fluke specifically, but maybe just broaden out the conversation to maybe some of the more applicable businesses within industrial tech, Tektronix.

What you seeing today compared to what you saw back in January?

Sure, thanks Nigel.

Our comments about stability will are not exclusively associated with Fluke.

In fact, I think there are some pockets, even around the Fluke business, where we have seen stability, but we've also seen still some real headwinds.

But I think we have seen stability in some other areas.

You asked specifically on the industrial tech side, the automation businesses, our sensors and controls businesses.

As we look at those throughout the course of the quarter, February and March, we saw indications of stability.

We saw those order rates firm up a little bit.

And while we wouldn't call it an upward trajectory, we would call those a bit more stable than we had seen in the trajectory of the fourth quarter, and maybe at the very opening of the year.

You mentioned Tektronix.

I wouldn't necessarily put Tektronix quite in that category, yet.

It had one of the more challenging quarters.

It's in one of the tougher markets probably, that we face today.

And so I think while we are very encouraged by the new product flow, at Tektronix, and we expect to see those new products drive some improved performance in the back half of the year, tech remains in a pretty challenging environment.

Okay, that's helpful.

And switching to environmental margins, obviously a lot of noise this quarter.

You called out investment spending.

I'm wondering if you could maybe help us size that impact.

And it seems that this quarter, you had a negative mix of consumables versus GVR growth.

Is that true, and would you expect that to normalize over the balance of the year?

I'll need you to clarify that last question.

I'm not exactly what you sure by negative mix relative to GVR growth, unless you're talking about water quality versus GVR, within environmental?

GVR to the margin, yes.

You are absolutely right, yes.

Thanks, Nigel.

You are right on.

If you look at environmental, which as all of you know both has our GVR business, as well as our water quality businesses.

GVR had stronger growth during the course of the quarter.

Very encouraging signs of the EMV dynamic taking hold, and GVR comes through that with a lower margin mix, relative to our water quality platform, which has higher margins, and specifically Hach.

So a little bit softer Hach business, a little bit stronger GVR during the course of the quarter together causes some of that headwind that you saw on the margin line there.

The reference to investment spend is specific to what we need to do to build the capacity, to step up to the demand associated with EMV.

We see that in, specifically in our GVR business, and those are investments that clearly will payoff as we continue to ramp our capabilities.

And as we go into the second quarter and beyond, we expect those margins overall in the segment to return closer to normal levels.

Obviously, some continued investment there, but we expect water quality to come up a bit.

So overall, I think there were just a couple unique factors here in the first quarter.

That's great, Tom, thanks a lot.

Shannon O'Callaghan from UBS.

Tom, you mentioned execution and disciplined spending at dental, with a big margin improvement there.

That's a segment that you've always targeted getting to much higher margins over the years, but it's been more of a challenge.

Is this something of a breakthrough here, or how should we read the performance in those comments?

You are absolutely right Shannon, it's been a challenge in the past, and we did set our sights and commit to making a difference there.

We have some new leadership in place over the platform.

Many of you have met Amir Aghdaei, who has led a number of our businesses over the last several, and some of our more challenging businesses, and he's really put a terrific team together.

They have set their sights on specific margin improvements over time.

There was some outstanding execution, some disciplined cost control.

But similar to the comments I made earlier around the playbook, I made reference to the Beckman playbook, and how that applies to Pall, while we continue to drive margin improvement at Dental under the team's leadership, we will also take some of that improvement and continue to invest in sales and marketing and R&D, because we do have opportunities for improvement in terms of our innovation cadence.

We saw some modest improvement there in our core growth in the platform during the quarter, but we know there's opportunities to continue to improve that.

We expect it to continue to step up, but some additional investment overtime with some of that cost take out will certainly be a help.

Okay, great.

And then Dan, maybe a question for you on tax, obviously a lot of new tax policies being contemplated and put into place that impact a lot of multinationals.

Any thoughts on that in general, and potential impacts on Danaher, as well as how should we think about the two new co tax rates and any differentials there?

Sure, Shannon.

Obviously it's something we're spending a lot of time on, trying to understand better.

Our initial read of this is, this is not going to be an impact to us, a material impact to us in the near-term.

But over time, we could see some rates creep because of that.

That assumes nothing else happens and there are no other opportunities.

So sitting here right now, it's not something that worries us a great deal, because obviously a potential risk going forward.

I don't think there's a big change in how we think about the tax rates of the two entities.

We have talked about Fortive likely coming out closer to a high 20s tax rate.

Again, I think, as they begin to do some acquisitions, they'll have an opportunity to bring that down, and I would expect that Danaher would be at our current rate, or lower.

Danaher remain co would be at our current rate, or lower.

Okay, great.

Helpful, thanks a lot.

Steve Winoker from Bernstein.

Could you maybe just clarify, you talked about Fortive versus Danaher core growth in China.

What was it globally for the quarter?

Danaher was up a couple points and Fortive was down 1 to 2 points, maybe 1.5% I believe.

And everybody, what you thinking about, in terms of -- current thinking I should say, on capital structure for the two entities?

Where are you still heading for that?

I know there have been some prior conversations but don't have a sense for where that is now.

I don't think much has changed versus what we communicated a year ago.

We would expect Fortive to come out as an investment grade company.

Likely they will not be an A-rated Company but triple something, in the BBB range where they would be strong investment grade and clearly have a fairly amount of latitude to execute M&A.

Great, and if I could one more.

Tom, in terms of the R&D profile, I know you talked a little bit about it before, specifically with Pall.

But overall for the Company, where is -- what level of R&D are we talking about for the new Danaher, going forward?

And do you see an opportunity to accelerate that at all, as you think about also accelerating core growth in new Danaher?

Sure, thanks Steve.

I've said for a long time, I have always believed that there is -- there is no magic number for a business with the diverse portfolio that we have today.

We really look at continuing to invest in R&D to certain levels, specifically at an operating Company level, and that's obviously relevant for -- or relative to what's important to those markets, what's important for our competitiveness, what yields the greatest levels of competitive advantage from an innovation perspective.

So we really look at it operating company by operating company.

Our track record is a great one, and it will continue, of taking R&D up year-on-year pretty consistently.

We've used our operating margin expansion that's been driven by improvements in gross margin, to put some of that back into not only R&D, but into sales and marketing, as well.

And again, we have done that very consistently.

I would expect that we will continue to do that.

One of our five core values is innovation defines our future, and we represent that in our metrics by continuing to see that percent of R&D go up year on year.

Again, it will vary in terms of the number that we achieve year on year, by operating Company, or even buy platform.

But using innovation to drive competitiveness is key to our strategy.

What was it in the quarter at least for the current -- for the new Danaher?

Probably in the same -- we have the dynamic around Pall, where a lot of the application expertise they bring to their customers which is a big part of their value add, they include sales and marketing and R&D.

So the fact you saw R&D as a percentage of our overall revenues go down 40, 60 basis points year-on-year, that's entirely driven by the Pall dynamic.

But I would say that Danaher is probably in that zone where you've got some higher R&D businesses, but because of the way Pall accounts for their R&D, it probably averages to where Danaher is today.

Around the 50% range.

Great, thanks a lot guys.

Ross Muken from Evercore ISI.

Maybe on the life science business, just a little bit more color commentary.

You called out pharma as a strong end market.

It seems like on the SCIEX side, that market has been running hot for a while.

How do you see the trajectory there?

And then secondarily, on the Pall side, biotech, there's obviously been a lot of concern in the market, particularly with the smaller companies on funding and the like.

And have you seen anything in that side of the business, particularly with small to mid-sized biotechs in terms of any relevant slowdown?

Thanks.

Thanks Ross.

Yes, no question, the Pharma market is an important driver of our growth across the life science portfolio.

We have exposure to that growing market across virtually every one of our life science businesses.

Pall, specific to your question around biotech and small and mid-sized, continues to perform exceptionally well across the biotech market.

Just to go back and talk about a few things, about what's going on in that market.

Pall has a $1 billion business today, that's oriented towards BioPharmaceuticals.

And the combination of these solutions that they have had for a number of years, along with the newer products in single use technologies, continue to drive the exceptional growth that we see there.

That growth, as I think many of you know, Ross, and others know, is driven by this move.

The growth and the transition from small molecule drugs to large molecule drugs.

And not only are those the fastest-growing segment of the market, but they are also the drugs that are most significantly represented in the pipelines of both small, as well as large pharmaceutical companies today.

So we remain optimistic and bullish on that market, and I think there is every reason to believe that we will continue to see good growth, not only from Pall, but from our other life science businesses that have exposure to that market.

Great, and maybe just quickly on the capital allocation side, so a lot of equity market volatility to start the year.

Private equity has probably been more of a net seller than bio, how has it impacted asset prices on the private side, in terms of what you are looking at, and does it make sellers more apt to maybe approach a process, given they saw equity prices up, down, up again?

Maybe they're afraid they go down again, and so they want to take advantage of maybe an opening in the credit markets, where larger companies can acquire them?

I'm just kind to get a feel for how all this volatility has maybe helped you a little bit on the deal front?

Volatility is a net positive for us, as a well-capitalized acquirer.

Your comment about private equity, it's getting a little better for them, but the leverage markets are still pretty tough.

I think all those factors play to our benefit.

Now granted, there are a number of other well-capitalized corporate players here, but we are happy to compete in this environment, when there's a little more volatility and uncertainty.

Great, thanks Dan.

Jeffrey Sprague from Vertical Research Partners.

Just a couple.

First on SG&A, Dan, you partially answered it, speaking to the Pall R&D.

The SG&A moving up as a percent of sales, is there anything to flag there and you expect that upward pressure over the balance of the year?

Well, if we first just take Pall out of the equation entirely, R&D as a percent of sales was flat year on year, but sales and marketing was up 30 basis points, and that was intentional.

We have stepped up some investment, we have talked about some of the opportunities in the high-growth markets where we see people pulling back, and we see there's some opportunity, I think some of the success Fortive is having in China right now is probably a little bit of an example of that.

And Pall brings in a pretty high sales and marketing expense, when you layer that in.

That probably sustains itself.

We see that as an important part of their go-to-market, not only their go-to-market, but as I mentioned also, part of their R&D as well.

We don't see ourselves cutting back on those investments, if anything, given we've had a little bit more strength here earlier in the year, we may step some of that up.

On tax, you mentioned creep and maybe there could be some offsets.

Have you looked at this FASB change on stock comp and determined what, if any, benefit you will have, when you choose to adopt that?

We don't think it would be meaningful.

And then just finally the six small deals, were any of those in Fortive?

And if so, what?

One was Fortive.

It was an acquisition for Gilbarco.

That's on top of a couple more we did late last year.

So in the last four or five months, it's three deals, Jeff.

Great, thanks Tom, thanks Dan.

Appreciate it.

Deane Dray from RBC.

I'd like to go back to the 2016 guide, and just to clarify, has there been any change to the core revenue outlook for 2% to 3%?

And then, maybe a bit on the cadence of that through the year.

And how might that split with Fortive?

Deane, no real change to our view of the full-year at 2% to 3%.

I think our comments referring to some stabilization that we've seen here in the last couple of months I think suggest as well as by the way, how that was represented in the order rates, not just the sell out, but the order rates in the last couple of months, suggest that we still feel pretty good about the 2% to 3%.

So I think we are going to stay there.

And how about the expectations for Fortive in the second quarter?

Yes, we would expect that Fortive would be in the same zone, maybe a little bit better.

Danaher ex-Fortive would be slightly better and that would roll up to be approximately 2% versus 0.5% of core we delivered in the first quarter.

Great.

And then maybe some clarification on Hach.

The softness in the high growth markets, is there anything specific there?

Is it tougher comps, or why might there be some slowing there?

It certainly was a very challenging comp year-on-year.

The platform overall, I think comp did 10% versus last year, Deane.

So was probably, among be platforms that we have, it was probably the toughest comp perhaps across the entire corporation.

That was certainly a challenge.

We have seen some delays in some key projects in a couple of the high-growth markets.

So that was certainly a factor there.

In certain of those high-growth markets, we actually have a little bit more industrial exposure than purely municipal exposure.

And that obviously had an impact in those markets.

Again, that business you know it well, Deane, it's just one of our exceptional franchises, and we are confident that business continues to -- will continue to grow over time, and we will see that business's core growth rate improve here in the second quarter.

Great, and just last one, and still on the topic of Hach.

I don't recall ever there being a time where water quality has been more front page news in the US, with Flint, Michigan.

And what is your expectation about the longer-term implications on water quality, water test, and how is Hach positioned?

Believe me, we wish we had an answer today to the infrastructure challenges that lead pipes represent in that situation.

It is just terrible to see the challenges that community has gone through.

But I think if we try to look on the bright side, from the standpoint of the overall market dynamics, situations like that always turn the spotlight up on the importance of regulatory oversight in municipalities around the country, and frankly throughout the world.

And so if those regulatory drivers continue to be strengthened, to be pointed at the greatest vulnerabilities in municipal and industrial systems, again, while challenging for those communities, ultimately benefits consumers and certainly benefits us.

Regulatory drivers have those have always been a key macro driver for that platform, and they will continue to be so for as long as we anticipate.

Great, thank you.

Andrew Obin from Bank of America Merrill Lynch.

In the Q, you indicated that you are still on track to pay the $3 billion dividend from Fortive to Danaher.

Is there any flexibility around that number, if Fortive discovers a good acquisition?

How flexible are you there?

That's something obviously the Board would need to determine, depending on obviously the size of the acquisition, and what else they have in the pipeline.

But its fair to assume there is some flexibility there?

Nothing is set until it is set.

And then just going back to GVR.

The EMV investment, and both growth and investment.

Is it fair to assume that investment is going to be front-end loaded Q1 and Q2, but we might see growth throughout the year?

Is that the right way of thinking about it?

Yes.

There's clearly some upfront cost, and as Tom alluded, we also have some one-time items in the quarter, and that will normalize as we get through the year.

Terrific, thank you very much.

Julian Mitchell from Credit Suisse.

Just a question on Dental, first.

The growth rate was lower than I thought, particularly as Nobel should have automatically pushed up the organic growth a little bit.

And the comp was pretty easy.

So I saw you called out Middle East and Africa equipment, but I wouldn't have thought that was a very sizable piece of the business.

Maybe just give a bit more color there.

Sure.

Our Dental growth overall Julian was, at 0.5%, was basically in line with our expectations.

Modest improvement from where we had been over the last few quarters.

And obviously, as we talked just a few minutes ago, we are very pleased with seeing the OMX up at the rate I talked about earlier.

We saw solid low single digit growth in consumables and sell-out continues, and actually is a fraction better than even our sell-in.

So we always look at that sell-out.

We have good transparency with our distribution partners and we are encouraged by that.

The Nobel Implant Systems business, mid single-digit average daily sales growth in the quarter, we were pleased with that.

The Ormco business, the orthodontic business, continues to do well, and we are continuing to see on a geographic basis, as I mentioned, a couple of the high-growth markets, specifically our business in China, continuing to do well.

On the flip side, on the equipment side, we have seen we have seen some challenges in Europe, actually, and a couple in those high-growth markets, where the equipment side has been held back a little bit more significantly.

I think as we annualize over some of those more challenging comps, we will continue to see that growth during the course of this year.

Got it, thanks.

And secondly on the Test & Measurement I wondered, obviously, the trends year-on-year are similar Q1 as in Q4.

I wonder if there was any specific end market you would call out that is dragging on the growth?

Now, obviously you do have some electronics exposure, for example in T&M, or if you thought it was fairly broad-based, the weakness?

There is certainly some broad-based weakness, but if I had to call out a couple of the softer spots, it would probably be the end markets were tech is most exposed.

And probably secondarily it would be in the -- on the Fluke side, probably the US point of sale has been a weaker spot here through the quarter.

Those would be the two I would probably highlight.

And you are expecting those to be little changed in Q2?

We are, that's right.

There is no indication right now of pickup there.

Obviously we can always be optimistic, but we are not projecting for any improvement there, certainly in the second quarter.

Very helpful.

Thank you.

I would now like to turn the call back to Mr. Matt Gugino for any additional or closing remarks.

Thanks Isa, and thanks everyone for joining us.

We are around all day for questions.

Thank you.

Ladies and gentlemen, that will conclude today's conference call.

You may now disconnect.