Danaher Corporation (DHR Quick QuoteDHR - Free Report) has reported better-than-expected results for the third quarter of 2020, with earnings surpassing estimates by 25.5%. Also, the company’s sales surpassed the consensus estimate by 6.6%.

The company’s adjusted earnings were $1.72 per share in the reported quarter, which outpaced the Zacks Consensus Estimate of $1.37. The bottom line increased 62.3% from the year-ago quarter’s figure of $1.06 mainly on sales growth and improved operating margin.

Revenue Details

In the quarter under review, the company’s net sales were $5,883.2 million, reflecting year-over-year growth of 34.5%. The results were driven by solid performance in Life Sciences and Diagnostics segments.

Organic sales in the quarter increased 9% and foreign-currency translations had a positive impact of 1%. Also, acquisitions/divestments boosted sales by 24.5%. As noted, Cytiva had a 5% positive contribution on sales growth in the quarter. Organic sales, including the impact of Cytiva, increased 14% year over year.

Also, the company’s top line surpassed the Zacks Consensus Estimate of $5,520 million.

On a geographical basis, its sales increased 39.5% year over year to $2,379 million in North America, while the same expanded 43.9% to $1,374 million in Western Europe. Also, sales in high-growth markets were $1,803.6 million, up 26.3% year over year, and that in other developed markets increased 12.4% to $326.2 million.

It reports net sales under three segments — Life Sciences, Diagnostics, and Environmental & Applied Solutions. The segmental information is briefly discussed below:

Revenues for the Life Sciences segment totaled $2,922.5 million, rising 72.5% year over year. Acquisitions/divestments had a positive contribution of 63% to sales growth, while foreign-currency translations boosted sales by 1%. Core sales grew 8.5% year over year.
 
However, Cytiva had a positive impact of 10% and including this, organic sales in the quarter increased 18.5% year over year.

Revenues in the Diagnostics segment grossed $1,889.1 million, increasing 18% year over year. The improvement came on the back of a 17.5% rise in core sales and a 0.5% gain from foreign-currency translations.

Revenues in the Environmental & Applied Solutions segment totaled $1,071.6 million, decreasing 1% year over year. The decline was due to a 1% fall in core sales.

Margin Profile

In the quarter under review, Danaher’s cost of sales increased 37.2% year over year to $2,657.7 million. It represented 45.2% of net sales compared with 44.2% in the year-ago quarter. Gross profit increased 32.1% year over year to $3,225.5 million, while margin decreased 100 basis points (bps) year over year to 54.8%.

Selling, general and administrative expenses of $1,795.3 million reflect a year-over-year increase of 29.9%. As a percentage of net sales, it represented 30.5% versus 31.6% in the year-ago quarter. Research and development expenses were $342.6 million, which rose 21.2% year over year. It represented 5.8% of net sales versus 6.5% in the year-ago quarter.

Operating income in the quarter under review increased 40% year over year to $1,087.6 million. Operating margin increased 80 bps to 18.5% in the quarter. Interest expenses in the quarter totaled $76.7 million, higher than $24 million reported in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter, Danaher had cash and cash equivalents of $5,687.7 million, up 2.7% from $5,539.3 million at the end of the last reported quarter. Long-term debt balance decreased 2.5% sequentially to $21,806.1 million.

During the first three quarters of 2020, the company raised $7,691.3 million through borrowings, with a maturity of more than 90 days. It also repaid $5,000 million borrowings, with a maturity of more than 90 days.

In the third quarter of 2020, the company generated net cash of $1,722.7 million from operating activities, reflecting a year-over-year increase of 93%. Capital used for purchasing property, plant and equipment totaled $187.3 million versus $162.1 million in the year-ago comparable period. Free cash flow (non-GAAP) in the quarter improved 110% year over year to $1,536 million.

The company paid out dividends worth $445.4 million to its shareholders in the first three quarters of 2020, reflecting an increase of 15.7% from the year-ago period.

Outlook

In the quarters ahead, Danaher expects to benefit from a solid product portfolio, operational execution, dedicated workforce and a strong balance sheet.

For the fourth quarter of 2020, the company expects core revenues growth in high-single digits. In addition, it believes that Cytiva’s impact on core sales will be 300-400 bps and including this contribution, core sales growth in the quarter will be in low-double digits.