Danaher 3Q23 Results Show Continued Headwinds From Bioprocessing, China, and COVID-19; Management Believes Inventory Draw Downs Will Lead to Improved Trends in 2024
Danaher Corporation, has reported its results for the third quarter of 2023. Total revenues experienced a 10.5% year-over-year decrease, amounting to $6.9 billion. Non-GAAP core revenue decreased by 11.5%, including a 3.0% non-GAAP base business core revenue decline. The majority of the decline was due to lower respiratory revenue associated with COVID-19 testing. The company also highlighted a mid-teens decline in revenue to China given the challenging market environment. Management cited that China currently comprises about 12% of revenue.
The company’s biotechnology segment which consists of life science tools and products for bioprocessing including cell and gene therapy declined 19%. The company noted that bioprocessing revenue was down 20% and cited a book-to-bill rate of 0.8 highlighting continued headwinds. The company noted inventory builds during the pandemic and more conservative purchasing trends, as well as China biotechnology revenue which was down 45% in the quarter. However, management cited the strong pipeline of biologics and recent FDA approvals to support the longer-term fundamentals of the business. They also highlighted the recent launch of Cytiva’s NanoAssemblr for nucleic acid therapy manufacturing and noted the potential for inorganic growth through the recent acquisition of protein antibody maker Abcam which the company believes will be accretive to core growth and long term earnings.
In diagnostics, the company saw a revenue decline of 16%, with core growth in the mid-single digits offset by significantly lower COVID-19 testing revenue from the company’s Cepheid division which makes rapid molecular tests. However, the company cited that expansion of Cepheid’s installed base during the pandemic (increased 2.5x) led to 20% core growth in non-respiratory testing and even higher in group A step and STD testing. Respiratory testing from Cepheid was $350 million, above expectations of $100 million due recent COVID-19 activity. The company also raised its respiratory outlook for the year by $400 million to $1.6 billion.
The company reported net earnings of $1.1 billion, equivalent to $1.51 per diluted common share. Non-GAAP adjusted diluted net earnings per common share were $2.02. Operating margins were 20.9%, a 540 basis decline from last year due to lower revenues in biotechnology and diagnostics. Operating cash flow for the third quarter reached $1.7 billion, highlighting the company’s sound financial health. Non-GAAP free cash flow was reported at $1.3 billion, further emphasizing Danaher’s strong cash management.
Danaher Corporation provides its sales forecast solely on a non-GAAP basis due to the complexity of estimating the various components of GAAP revenue, such as currency fluctuations, acquisitions, and divestitures. Their outlook for the fourth quarter and full year 2023 excludes the impact of Veralto. For the fourth quarter of 2023, the company anticipates that non-GAAP base business core revenue from continuing operations will experience a mid-single-digit decrease year-over-year. Looking at the full year 2023, Danaher foresees a slight decline year-over-year in non-GAAP base business core revenue from continuing operations. However, the company highlighted cost-cutting initiatives and guided to 4Q adjusted operating margins of 48%.
Rainer M. Blair, President and Chief Executive Officer of Danaher Corporation stated, “Revenue in the third quarter came in ahead of our expectations, with Biotechnology performing as anticipated, and higher respiratory testing revenue more than offsetting slightly softer-than-anticipated demand in Life Sciences. DBS-driven execution also enabled us to deliver better-than-expected earnings and cash flow in what remains a challenging operating environment.”