Danaher Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended April 2, 2021; unaudited. Comparisons are with the three months ended April 3, 2020 unless stated otherwise. Danaher reports Life Sciences, Diagnostics, and Environmental & Applied Solutions.
Financial performance
| Metric | Q1 2021 | Prior period | Change / context |
|---|
| Sales | $6.858 billion | $4.343 billion | Up 58.0%; core sales up 20.0%, or 30.0% including Cytiva |
| Gross profit / margin | $4.253 billion / 62.0% | $2.443 billion / 56.2% | Margin increased 580 basis points |
| Operating profit / margin | $1.997 billion / 29.1% | $698 million / 16.1% | Margin increased 1,300 basis points |
| Net earnings | $1.702 billion | $595 million | Common-stockholder earnings were $1.661 billion |
| Diluted EPS | $2.29 | $0.81 | Basic EPS was $2.33, versus $0.83 |
| Operating cash flow | $1.871 billion | $819 million | Continuing-operations cash flow rose 127% to $1.871 billion |
| Capital expenditures | $251 million | $133 million | Full-year 2021 spending forecast at approximately $1.5 billion |
| Cash and equivalents | $6.330 billion | $6.035 billion at Dec. 31, 2020 | $386 million held in the U.S.; approximately $5.9 billion abroad |
| Total debt | $20.277 billion | $21.204 billion at Dec. 31, 2020 | Long-term debt was $20.267 billion; implied net debt was approximately $13.947 billion |
| Effective tax rate | 18.3% | 16.3% | Q1 2021 included $44 million of net discrete tax benefits |
Segment results
| Segment | Sales | Year-over-year sales growth | Operating profit | Operating margin |
|---|
| Life Sciences | $3.546 billion | 115.0%; core growth 20.5%, or 41.5% including Cytiva | $1.151 billion | 32.5%, up from 19.7% |
| Diagnostics | $2.178 billion | 34.0%; core growth 31.0% | $626 million | 28.7%, up from 15.4% |
| Environmental & Applied Solutions | $1.134 billion | 6.5%; core growth 3.5% | $285 million | 25.1%, up from 22.5% |
Material changes and drivers
- Cytiva, acquired March 31, 2020, contributed 34.5 percentage points to consolidated sales growth; Q1 2020 included no Cytiva operating results. Foreign exchange added 3.5 percentage points to reported sales growth.
- Management attributed growth to stronger demand across businesses, including COVID-19 testing and biopharma research, vaccine and treatment activity, as well as recovery in markets affected by prior-year shutdowns. COVID-19-related demand was estimated to contribute approximately 20% of core revenue growth including Cytiva.
- Operating-margin improvement reflected higher sales volumes, favorable mix, productivity savings and lower travel and other business spending. Acquired businesses also contributed, while acquisition-related fair-value adjustments and other items partly offset the gains.
- Recurring revenue was $5.079 billion, compared with $3.207 billion; nonrecurring revenue was $1.779 billion, compared with $1.136 billion.
- Comprehensive income was $748 million, down from $872 million, mainly due to a $922 million foreign-currency translation loss and a $42 million cash-flow hedge loss.
Cash, debt and liquidity
- Operating activities generated $1.871 billion. Investing activities used $993 million, including $419 million for six acquisitions; financing activities used $449 million, including $169 million of dividends and $279 million of net repayments of longer-term borrowings.
- The company had $20.277 billion of debt and a $5.0 billion revolving credit facility expiring in August 2024. It reported compliance with all debt covenants at April 2, 2021.
- Management said operating cash flow, cash on hand and other available liquidity were sufficient for expected needs, including investment, debt service and dividends.
- Approximately $2.9 billion of remaining performance obligations were disclosed; the company expects to recognize about 47% within 12 months.
Outlook, risks and unusual items
- Management expected core sales to grow in Q2 2021 versus the prior year. It did not provide a clear full-year sales or earnings forecast in this filing. Full-year capital spending was forecast at approximately $1.5 billion; the expected effective tax rate for the remainder of 2021 was approximately 20.5%.
- The outlook remained subject to uncertainty around COVID-19, including demand for pandemic-related products, recovery in non-COVID testing and research, government restrictions, supply chains and customer activity. The company had not experienced significant supply-chain disruptions to date.
- Q1 other income included $116 million of investment gains, including $89 million unrealized, and a $13 million pretax gain on sale of product lines. A $29 million inventory fair-value charge was recorded; acquisition-related inventory and deferred-revenue adjustments totaled $46 million and adversely affected gross margin.
- Denmark tax assessments, revised in Q1, totaled approximately DKK 2.1 billion, or $332 million including accrued interest. Danaher is contesting the assessments; management did not expect further material adverse financial impact after the revised notice and tax payments, though resolution may take years.
- Other disclosed risks include acquisition integration and indebtedness, foreign exchange, tax audits and assessments, regulation, competition, cybersecurity and litigation. Management reported no material change in the risk factors in its 2020 Form 10-K.
Most important facts for investors to verify
- How much Q1 growth and margin expansion is sustainable as COVID-related demand and shutdown comparisons normalize, and as Cytiva becomes part of the comparable base.
- The composition and repeatability of earnings, particularly investment gains, acquisition accounting adjustments, tax benefits and unusually low travel-related costs.
- Cash conversion and working-capital trends, capital spending needs, and the company’s ability to reduce debt while funding acquisitions and dividends.
- Developments in the Danish tax dispute and other tax audits, including any change to management’s assessment of potential exposure.
- Management’s subsequent updates to sales, earnings and COVID-related demand expectations; this filing provides only a Q2 core-sales expectation, not clear full-year sales or earnings guidance.
