Shares of Danaher jumped more than 7% Tuesday after the life sciences company beat all three of its top businesses — a sign that the biotech industry’s long-awaited turnaround is finally here. Revenue for the period ended March 29 declined 4% organically year over year to nearly $5.8 billion in total sales, beating analyst estimates by 5. $62 billion, according to LSEG. Total sales on a reported basis fell nearly 2.6% year-over-year. Adjusted earnings per share (EPS) declined 6.3% annually to $1.92, ahead of the consensus estimate of $1.71 per share, according to LSEG data. Danaher Why We Own It: Danaher is a leading life sciences and diagnostics company, with a management team that has repeatedly proven its ability to find new ways to grow. We expect to see an increase in bioprocess-related orders this year, as biotech financing comes back online and larger customers wind down their efforts to clear excess inventory from the Covid era. Competitors: Sartorius and Thermo Fisher Scientific Portfolio weight: 4.6% Most recent purchase: October 24, 2023 Initiated: January 3, 2022 Conclusion A slowdown in financing for the biotechnology industry as larger customers deal with inventory surplus weighed on Danaher shares for several quarters. The turnaround is now in effect, with bioprocess orders increasing sequentially. This led to a new orders-to-bills ratio for the first quarter of approximately 0.95. As a reminder, book to bill is a ratio that measures the amount of business booked in relation to the amount invoiced. A ratio greater than one is favorable because it means that demand exceeds supply and leads to growth in the order book. We’re just below that level, but we’re going in the right direction and direction is what the street is focused on. Given the improving order trend, we believe management is being cautious in confirming its full-year guidance. The company should be able to beat it. There are still headwinds. Core revenue declined slightly in developed markets as broad-based strength in the diagnostics sector was offset by weakness in the biotechnology sector. High-growth markets, defined as “developing markets around the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure,” also fell, a result that includes a significant decline in China, where management noted that “the economic landscape remains difficult”. “But there was much more to like about this impression. Strong overall results driven by strength in all key operating segments, better-than-expected profit margin results and solid cash generation metrics. Based From these results and the bottoming of the bioprocessing market, we increase our price target from $260 to $280 per share DHR YTD mountain Danaher YTD Guidance For the current quarter, the second of fiscal 2024, Danaher expects. to a drop in core revenue of about 5% on a percentage basis – roughly in line with the 4.7% decline expected by analysts, according to Bloomberg Expectations of a low double-digit decline in biotech, the. segment that hosts bioprocessing, a single-digit decline in life sciences and a low single-digit decline in diagnostics, contribute to this forecast. about 26% is roughly in line with Street estimates of 26.5%, according to FactSet. For the full year, management’s forecasts remained unchanged. The team expects total sales to decline by less than 10%. That compares to Street expectations of a 1.7% annual decline. This view is based on an expected low-single-digit decline in biotechnology, a single-digit decline in life sciences and an increase in the diagnostics sector. ‘one figure in the lower range – all unchanged from the previously provided outlook. A full-year adjusted operating margin of around 29% is expected by management, in line with analyst estimates. Quarterly Results As shown in the product segments section below, all operating units generated better-than-expected sales and adjusted operating profit. Biotech sales fell nearly 17% on a baseline basis to $1.52 billion. Within this segment, bioprocess sales fell by a “high” percentage, while the discovery and medical sectors declined 20% year-over-year. As noted above, bioprocess orders increased sequentially, leading to an improvement in the category’s book-to-bill ratio – a good sign since the company typically sees a seasonal decline in orders between the fourth and first quarters. In North America and Europe, Danaher’s largest customers are making steady progress in managing their excess inventory and many are returning to their usual ordering habits. “We expect inventory levels for these customers to have largely normalized by the end of the second quarter,” Blair said. “We are also encouraged by improvements in the overall funding environment. “While we do not expect these improvements to impact order activity in the near term, it is an indicator positive for the long-term health of the bioprocessing market.” Management once again stated that strong underlying trends in its end markets support biologics market growth at a high single-digit or higher rate for throughout 2024. There are also a growing number of therapies progressing through the development pipeline and reaching the market, the team said. Life sciences sales fell by less than 3%. % on a core basis, at $1.75 billion On the call, CEO Blair said that while pharmaceutical and biotechnology activity in developed markets was stable, albeit at demand levels. lower, the team had seen some improvement as the quarter progressed, although this has not yet led to order growth. China remains a source of weakness due to falling demand and the end of stimulus programs a year ago. Investments in innovation and previous key acquisitions have prepared the segment for accelerated growth, Blair said. He added that high-margin recurring revenue now represents more than 60% of the segment, meaning more opportunities for margin improvement. Sales of diagnostic products grew 7.5% on a base basis to $2.53 billion. Clinical diagnostics revenue grew at a rate of between 5 and 10 percent, while subsidiary Beckman Coulter achieved a growth rate in the same range for the fifth consecutive quarter. At subsidiary Cepheid, respiratory revenue of $675 million exceeded management’s expectations by $100 million, driven by both higher volumes and a favorable combination of its 4-in-1 test. 1 for Covid-19, influenza A, influenza B and RSV. Blair said the company is “seeing better success and retention rates across the portfolio.” Free cash flow was better than expected at $1.45 billion, down 6% from last year. The company also achieved a free cash flow to net income conversion ratio above 130%. This means that its profits are backed by cash and are therefore of higher quality than profits without an equal or greater amount of cash on hand. (Jim Cramer’s Charitable Trust is long DHR. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. 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In this photo illustration a Danaher Corporation logo displayed on a tablet.
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Actions of Danaher surged more than 7% Tuesday after the life sciences company beat all three of its top businesses — a sign that the biotech industry’s long-awaited turnaround is finally here.
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