Danaher Corporation (NYSE:DHR) stock fell 2.85% (As on October 25, 11:25:08 AM UTC-4, Source: Google Finance) after the company reported better-than-expected earnings and cash flow for Q3 2023, with core revenue surpassing projections. The company recently completed the spin-off of Veralto Corporation and is now more focused on life sciences and diagnostics. Despite market challenges, Danaher’s Biotechnology segment saw anticipated declines, while the Diagnostic segment reported mid-single digit growth, and respiratory testing revenue at Cepheid exceeded expectations. Rising interest rates squeezed funding needed for drug development programs, weighing on demand for contract research services offered by Danaher and rival Thermo Fisher. On September 30, the company completed the spin-off of Veralto Corporation, a global leader in water and product quality. The company generated $1.3 billion of free cash flow in the quarter and $4.6 billion year-to-date, resulting in a year-to-date free cash flow to net income conversion ratio of more than 120%.
Moreover, the diagnostics unit, which makes kits, also used for COVID-19 testing, as well as reagents and other tools, reported sales of $2.25 billion, beating the average analyst estimate of $2.12 billion, according to LSEG data. However, the life sciences unit, which provides reagents and lab equipment used in the discovery of new drugs and vaccines, posted sales of $1.71 billion, missing estimates of $1.78 billion.
DHR in the third quarter of FY 23 has reported the adjusted earnings per share of $2.02, beating the analysts’ estimates for the adjusted earnings per share of $1.87. The company had reported the adjusted revenue of $6.87 billion in the third quarter of FY 23, beating the analysts’ estimates for revenue of $6.63 billion. Geographically, core revenues in developed markets declined low double digits, primarily driven by lower COVID-19 revenues. High-growth markets were down high single digits, including a mid-teens decline in China where the economic landscape remains challenging. The gross profit margin for the third quarter was 58.2%. The operating margin of 20.9% was down 540 basis points, primarily due to the impact of lower volume in the Biotechnology and Diagnostics segment and costs related to the separation of Veralto.
The company projects a mid-single digit decline in core revenue for Q4 and a slight decline for full-year 2023. Danaher’s forecast excludes the impact of the spinoff of its Environmental & Applied Solutions unit, Veralto, which began trading on Oct. 2.