Danaher Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended July 2, 2021; comparisons are with the periods ended July 3, 2020. Financial statements are unaudited. Amounts are in U.S. dollars.
Business context and results
Danaher operates in Life Sciences, Diagnostics, and Environmental & Applied Solutions. Management attributed growth to recovering demand across served markets, demand related to COVID-19 research, treatments, vaccines and testing, and the contribution of Cytiva. The second-quarter comparison also reflects pandemic-related demand changes in 2020.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Sales | $7.218bn | $5.297bn | $14.076bn | $9.640bn |
| Operating profit | $2.005bn | $844m | $4.002bn | $1.542bn |
| Net earnings from continuing operations | $1.699bn | $927m | $3.401bn | $1.522bn |
| Diluted EPS from continuing operations | $2.28 | $1.24 | $4.57 | $2.06 |
| Gross margin | 60.9% | 53.8% | 61.5% | 54.9% |
| Operating margin | 27.8% | 15.9% | 28.4% | 16.0% |
Q2 sales rose 36.5%; management reported 31.5% core sales growth excluding acquisitions and currency. First-half sales increased 46.0%, with 26.5% core growth; core growth including Cytiva was 31.0%. Q2 segment sales were Life Sciences $3.734bn, Diagnostics $2.336bn, and Environmental & Applied Solutions $1.148bn. Segment growth was broad-based, with particularly strong core growth in Diagnostics and Life Sciences.
Cash flow, debt and liquidity
- First-half operating cash flow from continuing operations was $3.991bn, versus $2.271bn; capital expenditures were $556m, versus $288m.
- Cash and equivalents were $7.322bn at July 2, 2021, up from $6.035bn at year-end 2020. Total debt was $20.423bn, including $593m of euro commercial paper; long-term debt was $20.400bn. The company reported compliance with its debt covenants.
- Current assets were $15.392bn and current liabilities $6.825bn. Danaher said cash, operating cash flow and other available liquidity should be sufficient for operating needs, investment, debt service and dividends.
- First-half cash used for acquisitions was $1.065bn. The company forecast 2021 capital spending of approximately $1.5bn, primarily for diagnostic-testing and biopharma capacity.
Material changes, outlook and risks
- Profitability improved substantially year over year, supported by higher sales volumes and favorable mix, productivity savings, reduced travel and business-activity spending, and lower Cytiva acquisition-related inventory and deferred-revenue fair-value charges than in 2020. Management also noted continued investment in product development and growth initiatives.
- Other income included $202m of investment gains in the first half of 2021, compared with $13m of investment losses in the prior-year period. The prior-year comparison included a $455m gain on a product-line sale; 2021 included a $13m gain on divestitures.
- Net earnings included $86m from discontinued operations, reflecting a tax-reserve release related to jointly filed returns with Fortive after statutes of limitations expired. This is an unusual, non-operating item.
- Management expected core sales to grow in Q3 2021 versus the prior year, but at a lower rate than in the first half as comparisons became tougher. COVID-related demand was expected to continue, alongside recovery in non-COVID markets. The company cautioned that renewed restrictions, demand shifts and supply constraints could affect results; it reported some component and commodity constraints but no significant or widespread supply-chain disruption.
- Danaher agreed to acquire Aldevron for approximately $9.6bn in cash, subject to customary closing conditions and regulatory approvals. It expected to fund the purchase with cash and/or commercial paper. The company also forecast an effective tax rate of approximately 20.5% for the remainder of 2021.
- A Danish tax assessment relating to 2004–2015 totaled approximately DKK 2.1bn (about $335m at the period-end exchange rate). Danaher is contesting the matter and said it did not expect further material adverse financial impact, although final resolution could take years.
- Other stated risks include COVID-19 uncertainty, competition and pricing, acquisition integration and increased indebtedness, foreign-exchange movements, regulation, litigation, and tax and supply-chain exposures. Disclosure controls were reported effective.
Important facts for investors to verify
- Whether sales growth and margins persist as COVID-related demand changes and prior-year comparisons become more demanding.
- The sustainability of earnings excluding investment gains, tax benefits and acquisition-accounting effects.
- Aldevron’s closing, financing, integration, and effect on debt and liquidity.
- Developments in the Danish tax dispute and other tax audits or contingencies.
- Whether supply constraints, capital spending and recovery in non-COVID markets develop as management expected.