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Danaher Q2 Revenues Decline 8 Percent, Beat Estimates

This story has been updated to include comments from a call with investors.

NEW YORK – Danaher reported on Tuesday that its second quarter revenues fell approximately 8 percent year over year due to ongoing declines in COVID-related product demand and a drop in biotechnology business revenues.

For the three months ended June 30, revenues fell to $7.16 billion from $7.75 billion in the prior-year quarter but were well above the Wall Street estimate of $6.39 billion.

On a call with investors to recap Q2 earnings, Danaher CEO Rainer Blair said that the firm saw 2 percent growth in its base business, which was more than offset by a COVID-19 revenue headwind of approximately 9 percent.

"High single-digit base business core revenue growth in life sciences and diagnostics, paired with better-than-expected respiratory testing revenue, helped offset softer base business demand in bioprocessing," Rainer said on the call.

Geographically, core revenue in developed markets declined in the high single digits, he said, while high-growth markets declined in the low single digits. Revenues in China were down approximately 10 percent, Rainer also said.

By business unit, revenues for the life sciences business were up 6 percent to $1.80 billion from $1.70 billion, while revenues for the diagnostics business declined approximately 15 percent to $2.23 billion from $2.56 billion.

The biotechnology business saw revenues drop 17 percent to $1.89 billion from $2.27 billion, while revenues from the environmental and applied solutions business dipped more than 2 percent to $1.25 billion from $1.22 billion in the year-ago quarter.

Danaher's biotechnology and diagnostics segments saw lower sales volumes in the quarter and incurred costs to adjust capacity and cost structure in response to COVID shifting to an endemic state, Rainer said during the call.

Within the bioprocessing portion of the biotechnology business, Rainer said larger customers are working through inventory built during the pandemic while emerging biotech customers continue to conserve capital. The ongoing biopharma market correction in China has also intensified as Q2 progressed, he said.

"In these dynamics, where we can, we've started actively working with our larger customers to help them more quickly manage their inventory down to normalized levels," Rainer said.

Also within biotechnology, Danaher completed the combination of Cytiva and Pall Life Sciences in May, "creating a premier global bioprocessing franchise," Rainer said, adding that the combined business will go to market under the Cytiva name.

Within life sciences, core revenues were up nearly 6 percent, including high single-digit growth in the base business, Rainer said. This was led by nearly 10 percent growth at Leica Microsystems and high single-digit growth at Sciex.

"Healthy demand across our life science research, academic, and applied markets, particularly for our more advanced instrumentation, helped offset softness in pharma and biopharma customers," Rainer said.

The Danaher genomics consumables base business had low single-digit growth in the quarter, he also said, with "robust" growth in plasmids, proteins, and gene writing and editing solutions primarily used in commercialized products or late stages of the drug-development pipeline, Rainer said. This was partially offset by a decline in next-generation sequencing and basic research, he added.

In diagnostics, core revenue declined approximately 12 percent, with high single-digit growth in the base business more than offset by lower COVID-related respiratory testing volumes at Cepheid.

"Our clinical diagnostics businesses collectively delivered mid-single digit core revenue growth," Rainer said, highlighting growth in the Leica Biosystems and Beckman Coulter Diagnostics businesses.

In May, Beckman launched the DxI 9000, which Rainer said is a next-generation immunoassay analyzer that automates up to 90 percent of standard daily maintenance routines while delivering high throughput. The system will also enable Beckman to provide a full menu of blood virus assays over time, "closing an important menu gap and further enhancing the breadth and clinical value of our testing menu," he said.

Within molecular diagnostics, Danaher saw more than 30 percent core revenue growth in non-COVID respiratory testing, Rainer said.

Cepheid GeneXpert customers who primarily used the platform for COVID-related testing are increasingly adding other assays, he said, most notably group A Strep and hospital-acquired infection assays. The firm is also seeing "strong momentum" for its multiplex vaginitis panel, called GeneXpert Xpress MVP.

Cepheid's respiratory testing revenue of $300 million in the quarter exceeded Danaher's expectation of $175 million and was driven both by higher volumes and a customer preference for the four-in-one test for COVID-19, influenza A and B, and respiratory syncytial virus, Rainer said.

"We continue to expect approximately $1.2 billion of respiratory revenue for the full year," he said.

Furthermore, "With COVID now in an endemic state, we believe Cepheid is continuing to take share as many customers look to consolidate their point-of-care PCR testing platforms onto the GeneXpert for both respiratory and non-respiratory testing," he also said.

Danaher is also continuing a previously announced scale down of the Cepheid business related to lower COVID-19 product sales. And, it continues to plan for the spinoff of its environmental and applied solutions business into a firm called Veralto in Q4.

Danaher's Q2 net earnings fell to $1.1 billion, or $1.49 per share, from $1.66 billion, or $2.25 per share a year ago. On an adjusted basis, Danaher reported earnings of $2.05 per share, beating the average analyst estimate of $1.80 per share.

The firm's Q2 R&D costs were down 3 percent to $418 million from $431 million in the prior-year quarter, while its SG&A expenses increased approximately 5 percent to $2.19 billion from $2.09 billion.

Danaher ended the quarter with $8.60 billion in cash and cash equivalents.

For the third quarter, the company said it expects core revenues to decline in the low-single digits, while for full-year 2023 it expects core revenues to grow in the low-single digits.

Danaher's shares were up more than 2 percent to $263.90 in morning trading on the New York Stock Exchange.