07.30.19
AT A GLANCE
Rank: #12 (Last year: #13)
$9.10 Billion ($19.9B total)
Prior Fiscal: $8.60 Billion
Percentage Change: +5.81%
No. of Employees: 71,000 (total)
Global Headquarters: Washington, D.C.
KEY EXECUTIVES
Thomas P. Joyce Jr., President and CEO
Matthew R. McGrew, Exec. VP and CFO
Brian W. Ellis, Sr. VP and General Counsel
William H. King, Sr. VP, Strategic Development
Robert S. Lutz, Sr. VP and Chief Accounting Officer
Daniel A. Raskas, Sr. VP, Corporate Development
Chris Riley, President, Beckman Coulter Diagnostics
Matt Turner, President, Ormco
Christophe Duret, President, HemoCue
Markus Lusser, President, Leica Microsystems
Susan Murphy, President, Molecular Devices
Jennifer Honeycutt, President, Pall
Inese Lowenstein, President, SCIEX
Hans Geiselhöringer, President, Nobel Biocare
Westslope cutthroats run big in the South Fork. So do bull trout, which can grow as large as 25 pounds from a steady diet of scuds, minnows, mayflies (depending on river currents), kokanee (a.k.a., sockeye) salmon, and, ironically enough, cutthroats.
Trout bite all year long in the South Fork. Big Sky biologists say the river contains 400 to 1,000 fish per mile, with cutthroats ranging from 12 to 18 inches and bulls averaging more than 20 inches (some can reportedly reach two and a half feet!). It’s not unusual to find larger-than-normal fish in this part of North America, as the cool, nutrient-rich water flow from mountain streams creates an ideal breeding ground for trout prey. These food factories are often so prolific that trout can get bigger simply by staying in one spot and feeding on their surroundings.
The 98-mile South Fork of western Montana’s majestic Flathead River begins deep within the Bob Marshall Wilderness Complex, a 1.53 million-acre tract of Congressionally-designated wild land flanking the Continental Divide. The South Fork begins at the junction of Danaher and Young’s creeks; fed by dozens of small tributaries, it runs for 45 miles due north before exiting The Bob near Spotted Bear Ranger Station.
South Fork is the site of the world’s highest morning glory spillway (water cascades 490 feet off the 66-year-old Hungry Horse Dam). It’s also the site of inspiration for Steven and Mitchell Rales’ entrepreneurial aspirations: During an early 1980s fishing trip on the river, the Bethesda, Md., brothers envisioned starting a new kind of manufacturing company—an entity committed to continuous improvement and customer satisfaction. Using their favorite fishing spot as a muse, the Rales decided their organization would operate much like the South Fork: continuously moving forward but able to quickly change flow.
The Rales’ new company began as a real estate investment trust but assumed its true mission after refocusing on manufacturing and adopting kaizen, the Japanese business philosophy of continuous improvement. In a nod to their muse, the brothers renamed the firm Danaher (quite appropriate, considering “dana” actually is an ancient Celtic word for “swift-flowing”).
Danaher spent its formative years as a group of individual manufacturing businesses. Over the past quarter century, however, the Rales have become renowned for their unique approach to business growth; the strategy involved buying other companies’ discards and subjecting them to the Danaher Business System (a set of lean manufacturing and continuous improvement principles) to raise their margins and capital returns. That method has worked rather well for the company in its evolution into a multi-billion-dollar conglomerate with operations in life sciences, diagnostics, dental, environmental services, and industrial tools.
“We have never strayed from the clarity of our intention or the inspiration of that swift-flowing river,” the company states in a brief autobiography on its home page. “We adapt quickly to the changing flow of business and the evolution of technology, but our guiding principles—continuous improvement and customer satisfaction—remain rock solid.”
Those guiding principles, though, have largely dictated Danaher’s ever-changing business flow throughout its lifetime. Case in point: The company entered the medtech industry in the early part of the millennium to offset saturation and low growth rates in its capital-intensive and cyclical industrial platform. Upon diversifying its healthcare offerings (through acquisition), Danaher spun off its industrial businesses into an independent, publicly-traded firm (Fortive) focusing on professional instrumentation, automation, sensing, and transportation technologies.
The Fortive spinoff turned Danaher into a predominantly healthcare-focused business with offerings in acute care, pathology diagnostics, life sciences instrumentation, and dental technology. The split also has created significant shareholder value for both companies—since the July 2016 breakup, Fortive and Danaher have provided total returns of nearly 70 percent and 61 percent, respectively, (through February this year).
Sales and profits have benefitted from the spinoff as well: Fortive’s 2018 revenue grew 12 percent to $6.45 billion, and profits swelled 3.1 percent to $1.17 billion. First-quarter sales this year jumped 6.7 percent, with core revenues rising 3.7 percent. Danaher’s finances experienced a similar boost, with fiscal 2018 sales climbing 8.5 percent to $19.89 billion and profits surging 13.8 percent to $3.4 billion, according to the company’s 2018 annual report. First-quarter 2019 sales rose 3.9 percent and gross profit advanced 2.8 percent to $2.71 billion.
The Rales brothers are hoping history repeats itself with the spinout of Danaher’s dental segment, announced last July. The dental unit has been a monetary millstone for the company in recent years due to inventory restocks and product manufacturing/distribution realignments. Dental segment revenue has barely moved since fiscal 2016, edging up only $59.1 million to $2.84 billion through Dec. 31, 2018. Operating profit, meanwhile, has nosedived, falling 4.4 percent in 2017 (to $400.7 million) and a staggering 13.5 percent last year to $346.7 million.
“The dental unit has been a sore spot for Danaher amid otherwise strong organic growth and profitability,” Bloomberg opinion columnist Brooke Sutherland wrote upon learning of the spinoff. “Talking about and trying to fix that business sucked up an increasing amount of executives’ time. And while there are signs that efforts to cut costs and invest in new growth initiatives at the dental unit are yielding results, the turnaround efforts had undoubtedly become a distraction and both companies should be better off as separate entities.”
Danaher executives agree. Commenting on the spinoff last summer, Danaher president/CEO Thomas Joyce Jr. predicted the move would cultivate more focused, savvy investments that eventually will boost long-term shareholder value for both companies.
ANALYST INSIGHTS: Danaher is a company very adept at portfolio management. Watch for them to continue that focus with incremental M&A activities. Don’t be surprised if it decides to either make a large opportunistic acquisition or divest one of its current businesses or both. It’s a rare year when Danaher stands still.
“This is an important step towards realizing even greater potential for both Danaher and our Dental business,” Joyce said. “[The] announcement demonstrates our commitment to maximizing long-term value for all of our shareholders, customers, and associates. We believe that our Dental business can be more effective as a standalone company, with greater focus around both organic and inorganic investment opportunities.”
Danaher’s DentalCo (a new name is forthcoming) is expected to be completely free of its parent firm in the second half of 2019. The company will be tax free to shareholders and comprise the KaVo Kerr, Nobel Biocare, and Ormco businesses. It will employ 12,000 workers and be led by president/group executive Amir Aghdaei.
DentalCo’s diverse product offerings should help the firm succeed upon its independence. All three business divisions debuted new innovations last year, beginning with the winter premiere of KaVo Kerr’s flexible digital intraoral X-ray sensor (DEXIS FS Ergo), X Pro intraoral scanner, and Dex Voice.
Danaher branded the FS Ergo as a “new category” of intraoral sensors designed to improve patient comfort and diagnostic detail. The Dex Voice, unveiled at the 2018 Chicago Midwinter dental meeting, is built on the Amazon Echo/Alexa platform and fully integrates with the company’s Dexis software. Its smart speaker enables clinicians to deliver voice commands to Alexa to perform Dexis actions that normally would require keyboard or other manually entered commands.
Over the summer, KaVo Kerr introduced a handheld X-ray system (the NOMAD Pro 2), cross-cut carbide burrs, a titanium sensor featuring motion detection capabilities, and a composite system (SonicFill 3) designed to fill cavities in seconds. The SonicFill 3 SingleFill system contains a nanoscale zirconsil (zirconium oxide plus silica oxide) composite filler, which provides effective blending, wear resistance, strength, and reliability for lasting restorations, according to Danaher.
Nobel Biocare timed its only product launch for the summer as well, releasing to market a two-piece ceramic implant featuring a cement-free connection to support natural soft tissue appearance. Made of zirconia, the NobelPearl is designed to encourage excellent soft tissue attachment and minimize inflammation. The product is particularly useful in thin gingival biotype cases.
Ormco debuted the bulk of its new technologies last spring and fall, including a ceramic twin bracket system, a self-litigating bracket (with twice the rotational control and more space under the tie-wing than its predecessor), and a line of stainless-steel instruments (45 pliers, 12 cutters).
“We are building a better, stronger Danaher,” Joyce wrote in his annual shareholder letter last year. “With the Danaher Business System as our driving force, we strengthened our footholds in attractive, fast-growing markets and enhanced our competitive positions. We accelerated our core revenue growth rate, led primarily by the impact of new product innovation and sales and marketing initiatives. Financially and strategically, 2018 was an outstanding year.”
Indeed, it was—for Danaher’s non-dental business segments. Sales in the company’s Life Sciences, Diagnostics, and Environmental & Applied Solutions units posted solid gains, rising 13.3 percent, 7.1 percent, and 8.8 percent, respectively.
Diagnostics revenue, which totaled $6.25 billion, was fueled by strong growth in each product division. Molecular diagnostics, for example, experienced robust infectious disease commodity sales upon the outbreak of a severe flu season last winter as well as the additions of new assays to its portfolio. The unit’s Cepheid business won U.S. Food and Drug Administration (FDA) approval for rapid flu A/B, Strep A, and carbapenem non-susceptible bacteria tests, and CE IVD marking for Hepatitis B and Hepatitis C tests.
Acute Care Diagnostics profited from strong sales of blood gas and immunoassay products across most major geographies, while new innovations in advanced staining and core histology bolstered Pathology Diagnostics sales.
Clinical Lab Diagnostics proceeds rose on higher 2018 sales in China and stronger demand for immunoassay products. The business met that demand in part last year by commercializing solutions like Access Sensitive Estradiol, a test for measuring estradiol levels in blood (for diagnosing fertility, menstruation, or puberty problems).
The E2 (estradiol) test was just one of a number of products the Clinical Lab Diagnostics business marketed last year (through Danaher’s Beckman Coulter Diagnostics arm). Other commercialized innovations included:
The 520 Hematology analyzer is made to enhance doctor office laboratory efficiency and resource management through the automation of daily tasks. Using two aqueous-based cyanide-, azide- and formaldehyde-free reagents, the system reduces the amount of time spent on lab operations and frees up time for patient care.
Two months after receiving the CE mark for the 520 Hematology analyzer Beckman Coulter scored a double regulatory victory in June 2018 with back-to-back clearances in Canada and the United States for its high-sensitivity troponin (hsTnl) assay, Access hsTn1, a test for detecting troponin l—a protein present in circulation during myocardial infarction. The FDA cleared the assay for use on the Access 2, DxI, and the entire Access family of immunoassay systems.
Rank: #12 (Last year: #13)
$9.10 Billion ($19.9B total)
Prior Fiscal: $8.60 Billion
Percentage Change: +5.81%
No. of Employees: 71,000 (total)
Global Headquarters: Washington, D.C.
KEY EXECUTIVES
Thomas P. Joyce Jr., President and CEO
Matthew R. McGrew, Exec. VP and CFO
Brian W. Ellis, Sr. VP and General Counsel
William H. King, Sr. VP, Strategic Development
Robert S. Lutz, Sr. VP and Chief Accounting Officer
Daniel A. Raskas, Sr. VP, Corporate Development
Chris Riley, President, Beckman Coulter Diagnostics
Matt Turner, President, Ormco
Christophe Duret, President, HemoCue
Markus Lusser, President, Leica Microsystems
Susan Murphy, President, Molecular Devices
Jennifer Honeycutt, President, Pall
Inese Lowenstein, President, SCIEX
Hans Geiselhöringer, President, Nobel Biocare
Westslope cutthroats run big in the South Fork. So do bull trout, which can grow as large as 25 pounds from a steady diet of scuds, minnows, mayflies (depending on river currents), kokanee (a.k.a., sockeye) salmon, and, ironically enough, cutthroats.
Trout bite all year long in the South Fork. Big Sky biologists say the river contains 400 to 1,000 fish per mile, with cutthroats ranging from 12 to 18 inches and bulls averaging more than 20 inches (some can reportedly reach two and a half feet!). It’s not unusual to find larger-than-normal fish in this part of North America, as the cool, nutrient-rich water flow from mountain streams creates an ideal breeding ground for trout prey. These food factories are often so prolific that trout can get bigger simply by staying in one spot and feeding on their surroundings.
The 98-mile South Fork of western Montana’s majestic Flathead River begins deep within the Bob Marshall Wilderness Complex, a 1.53 million-acre tract of Congressionally-designated wild land flanking the Continental Divide. The South Fork begins at the junction of Danaher and Young’s creeks; fed by dozens of small tributaries, it runs for 45 miles due north before exiting The Bob near Spotted Bear Ranger Station.
South Fork is the site of the world’s highest morning glory spillway (water cascades 490 feet off the 66-year-old Hungry Horse Dam). It’s also the site of inspiration for Steven and Mitchell Rales’ entrepreneurial aspirations: During an early 1980s fishing trip on the river, the Bethesda, Md., brothers envisioned starting a new kind of manufacturing company—an entity committed to continuous improvement and customer satisfaction. Using their favorite fishing spot as a muse, the Rales decided their organization would operate much like the South Fork: continuously moving forward but able to quickly change flow.
The Rales’ new company began as a real estate investment trust but assumed its true mission after refocusing on manufacturing and adopting kaizen, the Japanese business philosophy of continuous improvement. In a nod to their muse, the brothers renamed the firm Danaher (quite appropriate, considering “dana” actually is an ancient Celtic word for “swift-flowing”).
Danaher spent its formative years as a group of individual manufacturing businesses. Over the past quarter century, however, the Rales have become renowned for their unique approach to business growth; the strategy involved buying other companies’ discards and subjecting them to the Danaher Business System (a set of lean manufacturing and continuous improvement principles) to raise their margins and capital returns. That method has worked rather well for the company in its evolution into a multi-billion-dollar conglomerate with operations in life sciences, diagnostics, dental, environmental services, and industrial tools.
“We have never strayed from the clarity of our intention or the inspiration of that swift-flowing river,” the company states in a brief autobiography on its home page. “We adapt quickly to the changing flow of business and the evolution of technology, but our guiding principles—continuous improvement and customer satisfaction—remain rock solid.”
Those guiding principles, though, have largely dictated Danaher’s ever-changing business flow throughout its lifetime. Case in point: The company entered the medtech industry in the early part of the millennium to offset saturation and low growth rates in its capital-intensive and cyclical industrial platform. Upon diversifying its healthcare offerings (through acquisition), Danaher spun off its industrial businesses into an independent, publicly-traded firm (Fortive) focusing on professional instrumentation, automation, sensing, and transportation technologies.
The Fortive spinoff turned Danaher into a predominantly healthcare-focused business with offerings in acute care, pathology diagnostics, life sciences instrumentation, and dental technology. The split also has created significant shareholder value for both companies—since the July 2016 breakup, Fortive and Danaher have provided total returns of nearly 70 percent and 61 percent, respectively, (through February this year).
Sales and profits have benefitted from the spinoff as well: Fortive’s 2018 revenue grew 12 percent to $6.45 billion, and profits swelled 3.1 percent to $1.17 billion. First-quarter sales this year jumped 6.7 percent, with core revenues rising 3.7 percent. Danaher’s finances experienced a similar boost, with fiscal 2018 sales climbing 8.5 percent to $19.89 billion and profits surging 13.8 percent to $3.4 billion, according to the company’s 2018 annual report. First-quarter 2019 sales rose 3.9 percent and gross profit advanced 2.8 percent to $2.71 billion.
The Rales brothers are hoping history repeats itself with the spinout of Danaher’s dental segment, announced last July. The dental unit has been a monetary millstone for the company in recent years due to inventory restocks and product manufacturing/distribution realignments. Dental segment revenue has barely moved since fiscal 2016, edging up only $59.1 million to $2.84 billion through Dec. 31, 2018. Operating profit, meanwhile, has nosedived, falling 4.4 percent in 2017 (to $400.7 million) and a staggering 13.5 percent last year to $346.7 million.
“The dental unit has been a sore spot for Danaher amid otherwise strong organic growth and profitability,” Bloomberg opinion columnist Brooke Sutherland wrote upon learning of the spinoff. “Talking about and trying to fix that business sucked up an increasing amount of executives’ time. And while there are signs that efforts to cut costs and invest in new growth initiatives at the dental unit are yielding results, the turnaround efforts had undoubtedly become a distraction and both companies should be better off as separate entities.”
Danaher executives agree. Commenting on the spinoff last summer, Danaher president/CEO Thomas Joyce Jr. predicted the move would cultivate more focused, savvy investments that eventually will boost long-term shareholder value for both companies.
ANALYST INSIGHTS: Danaher is a company very adept at portfolio management. Watch for them to continue that focus with incremental M&A activities. Don’t be surprised if it decides to either make a large opportunistic acquisition or divest one of its current businesses or both. It’s a rare year when Danaher stands still.
—Dave Sheppard, Co-Founder and Managing Advisor, MedWorld Advisors
“This is an important step towards realizing even greater potential for both Danaher and our Dental business,” Joyce said. “[The] announcement demonstrates our commitment to maximizing long-term value for all of our shareholders, customers, and associates. We believe that our Dental business can be more effective as a standalone company, with greater focus around both organic and inorganic investment opportunities.”
Danaher’s DentalCo (a new name is forthcoming) is expected to be completely free of its parent firm in the second half of 2019. The company will be tax free to shareholders and comprise the KaVo Kerr, Nobel Biocare, and Ormco businesses. It will employ 12,000 workers and be led by president/group executive Amir Aghdaei.
DentalCo’s diverse product offerings should help the firm succeed upon its independence. All three business divisions debuted new innovations last year, beginning with the winter premiere of KaVo Kerr’s flexible digital intraoral X-ray sensor (DEXIS FS Ergo), X Pro intraoral scanner, and Dex Voice.
Danaher branded the FS Ergo as a “new category” of intraoral sensors designed to improve patient comfort and diagnostic detail. The Dex Voice, unveiled at the 2018 Chicago Midwinter dental meeting, is built on the Amazon Echo/Alexa platform and fully integrates with the company’s Dexis software. Its smart speaker enables clinicians to deliver voice commands to Alexa to perform Dexis actions that normally would require keyboard or other manually entered commands.
Over the summer, KaVo Kerr introduced a handheld X-ray system (the NOMAD Pro 2), cross-cut carbide burrs, a titanium sensor featuring motion detection capabilities, and a composite system (SonicFill 3) designed to fill cavities in seconds. The SonicFill 3 SingleFill system contains a nanoscale zirconsil (zirconium oxide plus silica oxide) composite filler, which provides effective blending, wear resistance, strength, and reliability for lasting restorations, according to Danaher.
Nobel Biocare timed its only product launch for the summer as well, releasing to market a two-piece ceramic implant featuring a cement-free connection to support natural soft tissue appearance. Made of zirconia, the NobelPearl is designed to encourage excellent soft tissue attachment and minimize inflammation. The product is particularly useful in thin gingival biotype cases.
Ormco debuted the bulk of its new technologies last spring and fall, including a ceramic twin bracket system, a self-litigating bracket (with twice the rotational control and more space under the tie-wing than its predecessor), and a line of stainless-steel instruments (45 pliers, 12 cutters).
“We are building a better, stronger Danaher,” Joyce wrote in his annual shareholder letter last year. “With the Danaher Business System as our driving force, we strengthened our footholds in attractive, fast-growing markets and enhanced our competitive positions. We accelerated our core revenue growth rate, led primarily by the impact of new product innovation and sales and marketing initiatives. Financially and strategically, 2018 was an outstanding year.”
Indeed, it was—for Danaher’s non-dental business segments. Sales in the company’s Life Sciences, Diagnostics, and Environmental & Applied Solutions units posted solid gains, rising 13.3 percent, 7.1 percent, and 8.8 percent, respectively.
Diagnostics revenue, which totaled $6.25 billion, was fueled by strong growth in each product division. Molecular diagnostics, for example, experienced robust infectious disease commodity sales upon the outbreak of a severe flu season last winter as well as the additions of new assays to its portfolio. The unit’s Cepheid business won U.S. Food and Drug Administration (FDA) approval for rapid flu A/B, Strep A, and carbapenem non-susceptible bacteria tests, and CE IVD marking for Hepatitis B and Hepatitis C tests.
Acute Care Diagnostics profited from strong sales of blood gas and immunoassay products across most major geographies, while new innovations in advanced staining and core histology bolstered Pathology Diagnostics sales.
Clinical Lab Diagnostics proceeds rose on higher 2018 sales in China and stronger demand for immunoassay products. The business met that demand in part last year by commercializing solutions like Access Sensitive Estradiol, a test for measuring estradiol levels in blood (for diagnosing fertility, menstruation, or puberty problems).
The E2 (estradiol) test was just one of a number of products the Clinical Lab Diagnostics business marketed last year (through Danaher’s Beckman Coulter Diagnostics arm). Other commercialized innovations included:
- DxM 6100 Autoplak Advanced automated plate streaking system, a fully contained automated solution for boosting lab productivity, workflow, flexibility, and testing quality. The DxM 6100 automates and integrates core aspects of microbiology specimen processing, including plating and streaking, Gram stain slide preparation and enrichment broth inoculation. The solution streamlines routine tasks and helps laboratories manage increasing testing volumes by enabling them to reallocate technical resources as needed.
- DxM MicroScan WalkAway system, a diagnostic solution for bacterial identification and antibiotic susceptibility testing that uses direct minimum inhibitory concentrations for antimicrobial resistance detection. Added workflow enhancements include a new fluid-level sensing technology, external LED indicators that show status at a glance, quick bottle release for simplifying reagent maintenance, and integrated reliability improvements to maximize uptime.
- DxONE PROService, a custom remote service application that helps labs achieve fast turnaround times for patient test results through continuous instrument monitoring. The PROService allows Beckman Coulter to work in collaboration with labs to identify potential system issues with alerts for possible workflow disruptions.
- DxH 900 hematology analyzer, a device that gives mid- to high-volume clinical labs the ability to perform complete blood count and white blood cell differential tests with minimal repeats. Its core technologies—an enhanced Coulter Principle, VCS 360, and DataFusion—offer high-resolution analysis of cells in their near-native states, providing a precise cellular assessment for red blood cell, platelet, and white blood cell test results on the first pass.
The 520 Hematology analyzer is made to enhance doctor office laboratory efficiency and resource management through the automation of daily tasks. Using two aqueous-based cyanide-, azide- and formaldehyde-free reagents, the system reduces the amount of time spent on lab operations and frees up time for patient care.
Two months after receiving the CE mark for the 520 Hematology analyzer Beckman Coulter scored a double regulatory victory in June 2018 with back-to-back clearances in Canada and the United States for its high-sensitivity troponin (hsTnl) assay, Access hsTn1, a test for detecting troponin l—a protein present in circulation during myocardial infarction. The FDA cleared the assay for use on the Access 2, DxI, and the entire Access family of immunoassay systems.
