This story has been updated with comments from the conference call discussing the firm's financial results.
NEW YORK – After multiple quarters of struggles in China, Danaher executives on Tuesday said they are seeing signs of improvement that, nevertheless, may not have a material impact until next year.
China has been a source of headwinds for the Washington, D.C.-based conglomerate in the past few quarters as funding for biotechnology in the country has decreased, but while the business remained weak in the second quarter as customers continue to manage liquidity, both bioprocessing demand and underlying activity levels were stable quarter over quarter, Danaher President and CEO Rainer Blair said on a conference call to discuss the firm's second quarter financial results.
The firm's overall business in China saw a decline in the high-teens percent range in Q2, but there is hope on the horizon as the recently announced stimulus funding from the Chinese government is expected to lead to an increase in orders for Danaher's bioprocessing and life sciences businesses, Blair said.
Particularly in the life sciences business, Blair noted that the stimulus measures are driving an uptick in customer interest. However, he added that Danaher doesn't expect those improvements to convert to orders until 2025 as customers are delaying purchasing decisions while they await the funding. People in the market are "getting ready" for the stimulus funding, but market players are waiting to see the financing terms and conditions for the stimulus, Blair said.
This delay was not unexpected for Danaher, as the firm was prepared for the market to wait and see what funding alternatives would arise, he added. "We're starting to see customers delaying their purchasing decisions there as they await the stimulus funding," he said.
Capital equipment constraints in the life sciences business were particularly prevalent in China, he noted. Much of the life sciences segment relies on research and academic settings, which are "where you see a lot of waiting for the stimulus funds to be disbursed," Blair said. Applications for funding have been filed, but funds have not yet come through, and it will likely take until 2025 for orders to reflect the interest.
Blair also noted that although capital equipment constraints have been notable, recurring revenues in the life sciences have remained relatively stable.
Danaher reported more broadly that its second quarter revenues fell 3 percent year over year.
For the three months ended June 30, the firm's revenues fell to $5.74 billion from $5.91 billion in the prior-year quarter, beating the Wall Street estimate of $5.59 billion.
By business unit, revenues for the life sciences business were down nearly 2 percent to $1.77 billion from $1.80 billion, while revenues for the diagnostics business rose approximately 2 percent to $2.26 billion from $2.23 billion.
Life sciences core revenues were down nearly 6 percent as the global pharmaceutical and biotechnology demand remained weak and academic markets were modestly weaker, although applied markets "held up well," Blair said. The genomics consumables business saw core revenues decline in the mid-single-digit percent range with growth in gene writing and editing offset by declines in next-generation sequencing and the impact of project timing in the plasmid business, he added.
Blair noted that the normalization process for life sciences tools and consumables is expected to continue through 2024.
Growth in the diagnostics segment, meantime, partially offset the declines in life sciences and bioprocessing as core revenues rose 3 percent. The clinical diagnostics business core revenues grew in the mid-single-digit percent range. Radiometer saw revenue growth in the high-single-digit percent range and Leica Biosystems revenues were up in the mid-single-digit percent range. Leica had noticeable strength in digital pathology, Blair said.
Beckman Coulter Diagnostics revenues rose in the low-single-digit percent range with strength in both developed and high-growth markets, Blair added. Beckman had recurring revenue growth in the mid-single-digit percent range that was impacted by challenging equipment comparisons to last year as there was a large backlog to be shipped in 2023.
For the molecular diagnostics business, Cepheid continued to gain market share and increase instrument placements, Blair said. Respiratory revenue of about $300 million exceeded Danaher's expectations and was driven by both higher volumes and a favorable mix for the firm's 4-in-1 COVID-19, influenza A/B, and respiratory syncytial virus test. Danaher continues to expect respiratory revenues of about $1.6 billion for full-year 2024 and $200 million of respiratory revenues in Q3.
In the non-respiratory business, Cepheid saw revenue growth in the mid-teens percent range for its core non-respiratory reagent portfolio, with growth of more than 20 percent in sexual health and virology testing.
Blair said that he sees the diagnostics businesses "positioned very well here both competitively and for the long term."
The biotechnology business saw revenues drop 9 percent to $1.71 billion from $1.89 billion, with core revenues down 7 percent year over year.
The firm's bioprocessing business has struggled as customers have been going through inventory de-stocking. While the biotechnology business saw revenues drop again, Blair said that the firm is seeing "sustained positive momentum" in the bioprocessing business.
The bioprocessing revenue decline has moderated from Q1 as larger customers in the US and Europe have "worked through the majority of their excess inventories and are returning to normal ordering patterns," Blair noted, adding there has been an improvement in the overall funding environment. Orders grew in the high-single-digit percent range sequentially from Q1 2024, he added.
Danaher CFO Matt McGrew noted that before the COVID-19 pandemic, biotechnology had a seasonal revenue decrease between the second and third quarters of each year. Danaher has built that normal seasonality into its Q3 2024 guidance since customers are mostly back to normal order patterns.
Danaher's Q2 net earnings fell to $907 million, or $1.22 per share, from $1.11 billion, or $1.49 per share a year ago. On an adjusted basis, Danaher reported earnings of $1.72 per share, beating the average analyst estimate of $1.57 per share.
Danaher ended the quarter with approximately $2.4 billion in cash and cash equivalents.
For the third quarter and full-year 2024, the company said it expects core revenues to decline in the low-single digits.
Danaher's shares were up 6 percent to $266.58 in afternoon trading on the New York Stock Exchange.