Danaher Corporation’s (DHR) third quarter 2010 financial results were impressive as adjusted earnings per share of 60 cents increased 33% over 45 cents reported in the year-ago quarter. Results also surpassed the Zacks Consensus estimate of 55 cents and the company’s guidance range of 50-55 cents.
GAAP earnings per share in the quarter were 95 cents, up a staggering 79% compared with 53 cents in the year-ago quarter. GAAP earnings included gains of roughly 34 cents related to the Apex Tool Group joint venture.
Revenue
Sales in the third quarter were $3,190.2 million, up 16% from $2,750.7 million in the year-ago quarter and above the Zacks Consensus Estimate of $3,139.0 million.
Of the total revenue, core revenue grew 12.5% year over year, acquisitions added 5.0%, while currency translation had a negative impact of 1.5% to the overall sales growth.
Sales for the Professional Instrumentation (10.4% of total sales) segment increased 20.6% year over year to $1,278.1 million. Medical Technologies (31.4% of total sales) sales registered a 30.9% increase to $1,002.8 million.
Industrial Technologies (24.5% of total sales) sales in the quarter soared 19.6% year over year to $783.0 million while Tools & Components (4.0% of total sales) of $126.3 million decreased 53.1% year over year.
Cost of goods sold shot up 7.8% year over year and represented 48.3% of total revenue versus 52.0% in the year-ago quarter. Gross margin expanded 3.7% to 51.7% on the back of a strong revenue growth.
Selling, general and administrative expenses, as a percentage of total revenue, declined 70 basis points, while research and development expenses expanded 60 basis points year over year.
Impressive gross margin results offset partially by a 15% increase in operating expenses led to a 110 basis points growth in operating margin which stood at 18% in the quarter.
Balance Sheet
Exiting the third quarter, Danaher’s cash and cash equivalents increased 32.6% sequentially to approximately $1,635.0 million compared with $1,232.9 million in the second quarter of 2010. Long-term debt, net of current portion increased to $2,822.3 million versus $2,755.0 million in the second quarter of 2010.
Net cash flow from operating activities was $579.3 million, up from $503.1 million in the third quarter of 2009. Capital expenditure increased to $52.9 million versus $31.5 million in the year-ago quarter.
Outlook
The company estimates fourth quarter 2010 adjusted earnings per share to be in a range of 61-66 cents. For the full year 2010, the company is increasing its adjusted earnings per share guidance from the prior range of $2.16 to $2.23 to a new range of $2.25 to $2.30.
We currently maintain a Neutral recommendation on the stock.
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