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Danaher Q4 Revenues Rise 3 Percent Despite Difficulties in China

NEW YORK – Despite struggles in the fourth quarter of 2022 into the first quarter of 2023, Danaher is preparing for its business in China to bounce back throughout 2023.

While the company saw Q4 revenue growth in the low-single-digit percent range in the country on the strength of its life sciences instruments and acute care diagnostics businesses, China's loosening of its COVID restrictions, which resulted in increased infections, reduced patient and testing volumes in the clinical diagnostics business, Danaher CEO Rainer Blair said during the company's conference call to discuss its Q4 and full-year 2022 financial results.

The firm is anticipating those lower volumes to continue through Q1 2023 as hospitals continue to be overwhelmed with COVID-19 patients, with revenues down in the high-single-digit percent range, but will gradually recover throughout the year as the Chinese population persists through various infection waves, he added.

Blair said the firm is expecting its business in China to be resilient once patient volumes start recovering, with the opportunity for potential upside due to pent-up demand in the Chinese economy. That upside depends on how quickly people can get back to work and normalcy returns to the market, he noted, but for the full year, Danaher expects revenue growth in the low-single-digit percent range.

Beyond China, the firm reported on Tuesday a nearly 3 percent year-over-year increase in total sales for the fourth quarter, beating the consensus Wall Street estimate.

For the three months ended Dec. 31, the Washington, D.C.-based conglomerate posted $8.37 billion in total sales compared to $8.15 billion in the year-ago period. The analysts' average estimate was $7.90 billion.

The results are in line with the firm's preliminary results announced earlier this month.

Core revenues grew at nearly 8 percent year over year, the company said. 

By sector, Life Sciences grew 8 percent year over year to $1.95 billion from $1.80 billion, while Diagnostics rose 3 percent to $2.97 billion from $2.88 billion. Environmental and Applied Solutions increased nearly 2 percent to $1.24 billion from $1.22 billion. The firm's Biotechnology segment, which was separated from its Life Sciences segment and includes subsidiaries Cytiva and Pall, declined slightly to $2.22 billion from $2.24 billion.

The previously announced spinout of the company's Environmental and Applied Solutions business is on track to be completed in Q4 2023, CFO Matt McGrew noted.

The Life Sciences sector was strong across the instruments and consumables businesses, with all major subsidiaries delivering revenue growth in the high-single digits or better, Blair said on the conference call. Leica Microsystems and Beckman Coulter Life Sciences led the instruments businesses, with solid demand across major geographies and end markets, he noted.

In Diagnostics, the core revenue contribution from COVID-19 testing was neutral year over year, Blair said. Cepheid saw growth in the mid-teens, while Radiometer revenues grew in the double digits due to blood gas testing demand in China. Leica Biosystems also saw double digit growth.

Core revenues from Cepheid's non-respiratory testing menu were up more than 20 percent year over year in the quarter due to infectious disease, sexual health, and hospital acquired infection testing, Blair said. The installed base of Cepheid GeneXpert instruments has doubled since 2020 to nearly 50,000 systems. He added that the firm is increasingly seeing its customers consolidate their point-of-care testing platforms onto the GeneXpert for both respiratory and non-respiratory testing. That consolidation is likely a driver for continued adoption of the non-respiratory testing menu, he said.

For respiratory testing, including COVID-19 testing, Blair said global PCR testing volumes were continuing to moderate but that demand for point-of-care testing remained robust. The company saw approximately $1.1 billion in respiratory testing revenues in Q4 2022, which significantly exceeded Danaher's prior expectation of $375 million. Part of the increase was due to the respiratory season starting earlier than anticipated and the high prevalence of circulating respiratory viruses, which also drove demand for Cepheid's 4-in-1 respiratory test. Blair said Cepheid expects to ship 30 million respiratory tests in 2023 with $1.2 billion in revenue.

In its Biotechnology segment, Blair said the company expects its customers to further reduce their COVID-19 vaccine and therapeutics programs and that COVID-19-related revenue is anticipated to be about $150 million for the full year, down compared to previous expectations of $500 million. Core revenue growth in the sector, however, is expected to be in the high-single-digit percent range in 2023, he noted.

Net earnings were $2.21 billion, or $2.99 per share, in the recently completed quarter compared to $1.75 billion, or $2.39 per share, a year ago. Non-GAAP EPS for Q4 2022 was $2.87, beating the consensus Wall Street estimate of $2.54.

For full-year 2022, Danaher's revenues increased 7 percent year over year to $31.47 billion from $29.45 billion in 2021. It beat analysts' average estimate of $30.97 billion. Core revenues grew 10 percent, Danaher said.

Life Sciences revenues improved 10 percent to $7.04 billion from $6.39 billion. Diagnostic revenues also grew 10 percent to $10.85 billion from $9.84 billion, and Environmental and Applied Solutions revenues increased 4 percent to $4.83 billion from $4.65 billion. Biotechnology revenues grew 2 percent to $8.76 billion from $8.57 billion.

The firm posted net earnings of $7.10 billion, or $9.66 per share, in 2022 compared to $6.27 billion, or $8.61 per share, in 2021. Non-GAAP EPS for 2022 was $10.95 and beat the consensus Wall Street estimate of $10.63.

The company ended the year with $6.00 billion in cash and cash equivalents.

Blair noted that the firm's M&A funnels are continuing to be active and that Danaher's balance sheet is in great shape. He added that the M&A environment is improving as the marketplace is recognizing and accepting lower valuation levels and that Danaher intends to deploy its capital in a value-creating way. 

For the first quarter of 2023, Danaher forecast non-GAAP core revenue growth in the base business of mid-single digits. For the full year of 2023, Danaher forecast non-GAAP core revenue growth in the base business in the high-single digits. Total core revenue growth for both the first quarter and full year is expected to decline in the mid-single digits due to lower demand for COVID-19 products, Blair said. The firm will exclude revenues related to COVID-19 testing, vaccines, and therapeutics in its definition of base business core growth, starting in Q1 2023.

In early morning trading on the Nasdaq, Danaher's shares were down about 3 percent to $267.81.