Big Deals Drive Growth at Danaher

Industrial conglomerate Danaher (NYS: DHR) posted first-quarter numbers that exceeded Street expectations yet failed to impress investors because of weak guidance.

Although management spoke about a better tomorrow (read: raising the earnings forecast for the full year), let's dig in to find out how good the company really looks.

Quick quarter
Danaher generated $4.32 billion in revenue, a 31% increase from the prior-year quarter, as newly acquired companies were a major contributor to sales. On the downside, Danaher's organic revenue growth was down 1.5%, reflecting problems with its core businesses.

Profits surged to $613 million from $429 million last year. The company earned $0.73 per share from continued operations, higher than analyst expectations of $0.71.

Acquire and aspire
Danaher has focused on a spate of acquisitions to grow. While less focus on organic growth may be a cause for concern, these acquisitions have put the company in a better position when compared with its conglomerate peers such as General Electric and 3M (NYS: MMM) .

Consider this: 3M's sales in the same quarter grew by a mere 2.4% to $7.5 billion, as it was affected by similar market conditions such as softness in Europe and China. This was also where Danaher's acquisitions came to its rescue, as they added to its top line.

Danaher primarily acquires companies in the field of medical technology, dental equipment, and testing and measurement. Last year, it bought a medical-diagnostic company, Beckman Coulter, for a whopping $5.8 billion -- its biggest deal so far -- which gave it a strong foothold in the growing diagnostics industry. Danaher's health-care unit contributes nearly 35% to its total revenue, and with Beckman's annual revenue pegged at around $3.7 billion, it should contribute significantly to the former's top line.

Moreover, the company recently signed a $478 million deal with a color-measurement technology company called X-Rite, which is expected to improve Danaher's digital design capabilities and broaden its scope in the product identification sector as well.

Geography matters
Another factor that caught my eye was the company's performance geographically. Danaher, like other U.S. manufacturers, has been banking on China's thriving economy for its growth. But lately its growth in China hasn't been as robust as expected, with sales remaining flat during the quarter. Moreover, European sales worsened, thanks to a weak economy. But there is a silver lining here, as Danaher expects mid- to high-single-digit sales growth in the Chinese market during the current quarter. With the company's order books currently filling up faster than its shipments, this may well become a reality, going forward.

The company also expects to benefit from a strong home market. And Danaher is not alone in this situation. Manufacturing company Eaton (NYS: ETN) also aims to benefit from strength in markets such as the U.S. and emerging nations as business in Europe remains tight. Eaton now expects U.S. markets to grow at a 9% rate, as opposed to around 6% earlier.

The Foolish bottom line
New acquisitions and improved markets such as the U.S., China and other emerging economies are likely to bring a better tomorrow for Danaher, which is why I think the company is well positioned for long-term growth. For insight into other American companies prospering overseas, take a look at our special free report, "3 American Companies Set to Dominate the World."

At the time thisarticle was published Fool contributor Navjot Kaur owns no shares of any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of 3M and creating a diagonal call position in 3M. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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