NEW YORK – On the back of a "transformational" 2023, Danaher is forecasting a slow start to the new year that will gradually improve as 2024 continues.
Danaher President and CEO Rainer Blair said on a conference call to discuss the firm's fourth quarter and full-year 2023 financial results on Tuesday morning that he expects an opposite dynamic compared to 2023, with a slow first half of 2024 but returning to growth in the second half. By the second half of the year, Danaher expects destocking will largely have been completed in the bioprocessing field and that normalization in the life sciences instrument business will continue. Pharmaceutical and biopharmaceutical activity is expected to stabilize at lower levels of demand, while China will likely remain weak.
For full-year 2024, Blair said Life Sciences is forecast to be down in the low-single-digit percent range, and Diagnostics is expected to be up in the low-single digits. Danaher expects a "slow start" for Life Sciences in the first half of the year with growth improving in the second half of the year, he said.
The firm "sees no change to the underlying trends" in Diagnostics and expects growth in the non-respiratory business in the mid-single-digit percent range.
Meanwhile, he expects the Biotechnology segment to decline in the low- to mid-single digits with core revenue in the bioprocessing business to decline in the low-single-digit percent range. Bioprocessing is expected to see a mid- to high-teens decline in the first half of the year and a mid- to high-single-digit growth rate at the end of the year. "Despite the near-term headwinds from destocking, our confidence in the health and long-term growth trajectory of the biologics market remains as strong as ever," he said.
Blair added that Danaher continues to believe China is "an attractive market in the long term that is going to be accretive to our overall growth," despite current downturns in the country. Although China's attempts to build its own pharmaceutical industry have "taken a pause or certainly slowed as the funding environment has become more difficult in the short term, we expect that process to work itself out here in the midterm," he said.
In China, "it's going to be a tougher start to the year as the activity level essentially remains where it has been here in the second half of 2023, particularly in biotechnology and life sciences," Blair said. However, that activity level may improve, and the comparisons between the second half of 2023 and the second half of 2024 will likely be better, he said.
For the first quarter of 2024, Danaher forecast non-GAAP core revenues to decline in the high-single-digit percent range. For the full year of 2024, Danaher forecast non-GAAP core revenues to decrease in the low-single-digit percent range.
Danaher reported a 10 percent year-over-year decrease in total sales for the fourth quarter but beat the consensus Wall Street estimate.
For the three months ended Dec. 31, the Washington, D.C.-based conglomerate posted $6.41 billion in total sales compared to $7.13 billion in the year-ago period. The analysts' average estimate was $5.64 billion.
The results are in line with the firm's preliminary results announced earlier this month.
Core revenues declined nearly 12 percent year over year, with base business core revenues down nearly 5 percent, the company said.
Core revenues in developed markets declined in the low double digits, which Blair said was driven by lower respiratory and COVID-19 vaccine and therapeutic revenues and ongoing investment normalization in pharmaceutical and biopharmaceutical end markets.
High growth markets were down in the high-single digits, with a mid-teens decline in China, "where the economic landscape remains challenging," Blair said.
By sector, Life Sciences revenues declined 1 percent year over year to $1.93 billion from $1.95 billion, while Diagnostics revenues fell nearly 9 percent to $2.72 billion from $2.97 billion. The firm's Biotechnology segment revenues, which includes subsidiaries Cytiva and Pall, fell 21 percent to $1.76 billion from $2.22 billion.
In Biotechnology, Blair said on the call that bioprocessing core revenue was down more than 20 percent year over year in the fourth quarter, with revenue and order trends "largely consistent" with the third quarter, although there was modest sequential improvement in orders. North American and European customers are continuing to work through inventory they built up during the COVID-19 pandemic, and demand in China remains weak as customers continue to conserve capital, Blair said.
Life Sciences, meantime, saw a low-single digit decline in its base business, with the instrumentation business down in the mid-single-digit percent range. Investment levels from pharmaceutical and biopharmaceutical customers were constrained, particularly in China and North America, but the academic and life science research end markets saw continued growth, Blair said. The genomics consumables base business was essentially flat in Q4, as the demand in plasmids, proteins, and gene writing and editing solutions was offset by a decline in next-generation sequencing and basic research.
In Diagnostics, the segment saw high-single-digit growth in the base business more than offset by lower respiratory testing revenue at Cepheid, Blair said. The clinical diagnostics businesses collectively delivered high-single-digit core revenue growth, driven by Beckman Coulter Diagnostics, which had double-digit growth in both instruments and consumables.
On the molecular side, Cepheid saw core revenue growth in the low-teens in its non-respiratory testing business, with high-teens or better core revenue growth in group A strep and sexual health testing, Blair noted. The subsidiary's $650 million in respiratory revenue in Q4 exceeded Danaher's expectation of $350 million in respiratory revenue due to the high prevalence of circulating respiratory viruses driving higher volumes and a preference for Cepheid's 4-in-1 test for SARS-CoV-2, influenza A and B, and respiratory syncytial virus. Respiratory testing revenue was $1.9 billion in 2023 and is anticipated to be $1.6 billion in 2024. Blair said that "based on what we saw the last two years and discussions with customers and public health experts, we believe annual respiratory revenue in a typical respiratory season [to] be approximately $1.5 billion."
Cepheid's respiratory franchise is six times larger than before the pandemic and is "well positioned to help customers meet their clinical needs and continue gaining market share," he noted.
Net earnings were $1.08 billion, or $1.45 per share, for the recently completed quarter compared to $2.23 billion, or $2.99 per share, a year ago. Non-GAAP EPS for Q4 2023 was $2.09, beating the consensus Wall Street estimate of $1.76.
"We delivered better-than-expected revenue in each of our segments in the fourth quarter — led by respiratory revenue at Cepheid," Blair said in a statement. "The combination of higher-than-expected revenues and our team's strong execution enabled us to exceed our margin and cash flow expectations in what remains a dynamic market environment."
Blair noted that earlier pandemic tailwinds became headwinds during 2023, but added that the company is "maintaining a healthy cadence of growth investments and productivity initiatives geared towards improving our cost structure." COVID-19 provided a revenue headwind of almost 10 percent during 2023 and approximately 7 percent in the fourth quarter, he said.
For full-year 2023, Danaher's revenues decreased nearly 11 percent year over year to $23.89 billion from $26.64 billion in 2022. It missed analysts' average estimate of $24.86 billion. Core revenues fell 10 percent, Danaher said.
Life Sciences revenues rose almost 2 percent year over year to $7.14 billion from $7.04 billion. Diagnostic revenues fell nearly 12 percent to $9.58 billion from $10.85 billion, while Biotechnology revenues declined 18 percent to $7.17 billion from $8.76 billion.
The firm posted net earnings of $4.76 billion, or $6.38 per share, in 2023 compared to $7.21 billion, or $9.66 per share, in 2022. Non-GAAP EPS for 2023 was $7.58, beating the consensus Wall Street estimate of $7.53.
The company ended the year with $5.86 billion in cash and cash equivalents.