Why is Danaher (DHR) up 6.7% since its last earnings report?

A month has passed since Danaher’s (DHR) last earnings report. Shares have risen about 6.7% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Danaher headed for a decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Good results for Danaher in the first quarter, decline in biotechnology sales y/y

Danaher’s first-quarter 2024 adjusted earnings (excluding 47 cents from non-recurring items) of $1.92 per share beat the Zacks Consensus Estimate of $1.72. The financial result decreased by 27.1% year on year.

Danaher’s net sales of $5.8 billion topped the consensus estimate of $5.6 billion. However, the ratio declined 2.5% year-over-year due to lower core sales in the biotechnology segment.

Organic sales were down 4% this quarter. Currency translation and acquisitions had a positive impact on quarterly sales by 0.5% and 2.0%, respectively.

Segmentation discussion in the first quarter

On September 30, 2023, Danaher completed the spin-off of its Environmental and Applied Solutions segment. It currently operates within the operating segments discussed below.

Life Sciences segment revenues were $1.7 billion, up 2% year-over-year. Core sales declined 3% year over year. Acquisitions/divestitures led to 6% sales growth. Operating profit for the quarter was $235 million, down 26.8% year-over-year.

Diagnostics segment revenues were $2.5 billion, up 6.5% year-over-year. Core sales increased 7.5% year over year. Foreign currency had a positive impact of 1%. Operating profit for the quarter was $830 million, up 22.6% year-over-year.

Biotechnology segment revenues were $1.52 billion, down 18% year-over-year. Core sales in this segment decreased by 17%. Operating profit for the quarter was $325 million, down 45.5% year-over-year.

Margin profile

In the first quarter, Danaher’s selling expenses increased 1% year over year to $2.3 billion. Gross profit of $3.5 billion declined 4.8% year-over-year. Gross margin for the quarter was 60.2% compared to 61.6% in the year-ago quarter.

Selling, general and administrative expenses of $1.8 billion increased 2% year-over-year. Research and development expenses were $368 million, up 1.3% year over year.

Danaher’s operating profit in the reported quarter fell 13.5% year-over-year to $1.3 billion. Operating margin decreased to 22.6% from 25.5% in the same quarter last year.

The story continues

Balance sheet and cash flow

At the end of the first quarter, DHR had cash and cash equivalents of $7 billion, compared to approximately $5.9 billion at the end of 2023. Long-term debt was $16.4 billion at the end of the reporting quarter, compared to $16.7 billion at the end of December 2023.

Danaher generated net cash from operations of $1.7 billion in the first three months of 2024, compared to $1.9 billion in the prior-year quarter. Capital expenditures were $291 million during the same period, up 9.4% year-over-year. Adjusted free cash flow was $1.4 billion in the first three months of 2024, compared to $1.5 billion in the year-ago period.

In the first three months of 2024, DHR paid a dividend of $177 million, an increase of approximately 13.2% year-over-year.

Perspectives

Danaher expects adjusted core revenues from continuing operations to decline by mid-single digits year-over-year in the second quarter of 2024.

In 2024, the same figure is expected to decline in low digits on a year-over-year basis.

How have estimates changed since then?

Over the last month, investors have seen a downward trend in estimate revisions.

VGM results

Currently, Danaher has a Weak Growth Score of D, although slightly behind its Momentum Score of F. Following the exact same trajectory, the stock was rated an F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Danaher carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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