What a year it's been so far for life sciences giant Danaher (NYSE:DHR). The stock is trouncing the S&P 500 index. Danaher investors really liked the company's decision to acquire the biopharma business of General Electric.
Danaher announced its third-quarter results before the market opened on Thursday. Did the company manage to keep shareholders happy? Here are the highlights from Danaher's Q3 update.
By the numbers
Danaher posted third-quarter revenue of $5.04 billion. This reflected a 4% increase from the prior-year period total of $4.85 billion. It also beat analysts' consensus estimate of $5.02 billion.
The company reported net income of $648.4 million, or $0.89 per share, based on generally accepted accounting principles (GAAP). This reflected deterioration from the prior-year period's net income of $663.7 million, or $0.93 per share.
Danaher posted non-GAAP adjusted earnings per share (EPS) of $1.16. This represented a 5.5% increase from the year-ago quarter's adjusted EPS of $1.10. It narrowly topped the average analyst earnings estimate of $1.15 per share.
Behind the numbers
The company's core business generated 5% year-over-year revenue growth. Acquisitions kicked in another 0.5% of growth. However, the negative impact of foreign exchange fluctuations reduced overall revenue growth by 1.5%.
Two of Danaher's business segments performed well. Sales for its life sciences segment increased 6% to $1.7 billion. Diagnostics revenue jumped 6.5% to $1.6 billion.
However, the company's environmental and applied solutions segment muddled along in Q3. Revenue increased by only 0.5% year over year to nearly $1.1 billion.
Danaher's significant GAAP earnings decline compared to the prior-year period stemmed partially from a higher cost of sales, increased operational spending, and higher income tax expense. The company also incurred an expense of $19.6 million related to mandatory convertible preferred stock dividends that it didn't have in last year's quarter.
The company also made progress recently on a couple of important fronts. Its dental business began trading as a stand-alone public company, Envista, on Sept. 18. Danaher announced last week plans to divest some of its businesses to Sartorius to help smooth the way with regulators for its GE Biopharma acquisition.
Danaher expects fourth-quarter GAAP EPS between $1.06 and $1.09, with adjusted EPS between $1.32 and $1.35. For full-year 2019, the company projects GAAP EPS will come in between $3.38 and $3.41. The upper end of that range is lower than the previous guidance of $3.43. Danaher anticipates adjusted non-GAAP EPS for the full year will be between $4.74 and $4.77.
CEO Thomas P. Joyce Jr. said that the company thinks its "differentiated portfolio and the power of the Danaher Business System position us well through the end of 2019 and beyond." Investors are paying a premium for that differentiation, though. Danaher stock trades at nearly 24 times expected earnings. And its relatively low yield of 0.5% isn't going to be very attractive to investors looking to find great dividend stocks.
Danaher's pending acquisition of GE Biopharma, however, could be just what the stock needs to keep up its winning ways enjoyed so far in 2019.