The operator welcomes everyone to Danaher Corporation's Second Quarter 2024 Earnings Results Conference Call and introduces the speakers. The company's earnings release, slide presentation, and other information are available on their website. The audio of the call will be archived and a replay will be available. The speakers will discuss factors that impacted year-over-year performance. All references to financial metrics are from continuing operations and are for the second quarter of 2024.

During the call, the company will discuss products and devices with pending regulatory approvals or limited availability. They will also make forward-looking statements about future events or developments, but acknowledge the risks and uncertainties involved. The company had a successful second quarter, with better than expected revenue, earnings, and cash flow, particularly in the bioprocessing and Cepheid businesses. Market conditions were as expected, with improvements in the US and Europe, stable demand in China, and healthy demand globally in Life Sciences and Diagnostics.

Danaher is well positioned for long-term value creation as they navigate through a transitional period. They saw a 3.5% decline in core revenue in the second quarter of 2024, with strength in Diagnostics but declines in Biotechnology and Life Sciences. Despite this, their growth profit margin and adjusted operating profit margin increased, and they generated $1.1 billion in free cash flow. They also repurchased 19 million shares and remain focused on M&A for capital deployment. In the biotechnology segment, core revenue declined 7%, with the bioprocessing business down high single digits and the discovery and medical business down mid-single digits.

The bioprocessing business saw a moderation in revenue declines in the second quarter, indicating that larger customers are returning to normal ordering patterns and there is strong momentum for therapeutics in late stage pipelines. Funding environment for emerging biotech customers is improving. The biologics market is healthy with a significant increase in FDA approvals and production volumes, leading to a high single digit growth rate. The company continues to invest in innovation, such as the launch of Supor Prime, to support customers in producing life-changing therapeutics.

The Supor Prime filters are designed to address challenges with high concentration biologic drugs. Cytiva's Cepheid Cell Therapy manufacturing platform helps with cost and capacity constraints associated with CAR-T Cell Therapy. In the Life Sciences segment, core revenue decreased due to weak demand in global pharma and biotech, but applied markets performed better. In China, sales and coding activity are improving, but customers are delaying purchasing decisions. SCIEX recently released a new mass spectrometer at the American Society of Mass Spectrometry Meeting, solidifying their market leadership.

The 7,500-plus pairs ultra-high sensitivity with faster acquisition speeds and the ability to maintain high sensitivity quantitation for twice as many sample runs, making it ideal for complex applications like PFAS analysis. In the genomics consumables business, revenue declined due to declines in next generation sequencing and project timing, but a new manufacturing facility has been opened to support the growing demand for DNA synthesis. In the Diagnostic segment, core revenue increased 3%, with strong growth at Radiometer and Leica Biosystems, and a recent FDA clearance for Beckman Colter Diagnostics' Access NT ProBNP on the DxI 9000 immunoassay analyzer.

Beckman's expansion of their cardiac testing menu has been cleared by the FDA, allowing for quicker and more accurate diagnosis of acute heart failure. This is another confirmation of the DxI 9000 platform's ability to develop sensitive and relevant diagnostics. Cepheid's respiratory revenue exceeded expectations, driven by higher volumes and a favorable mix of their 4-in-1 tests for COVID-19, Flu A and B, and RSV. They expect respiratory revenue to reach $1.6 billion for the full year 2024. The company continues to gain market share, with mid-teens growth in their non-respiratory reagent portfolio and expansion of their installed base. The FDA also granted marketing authorization for Cepheid's Hepatitis C RNA test, which allows for same-day testing and treatment, improving outcomes and driving growth for the company.

Danaher recently released its 2024 Sustainability Report, highlighting milestones in its sustainability program. They have committed to setting science-based greenhouse gas emission reduction targets and reaching net zero value chain emissions by 2050. In the third quarter, they expect a low single-digit percent decline in core revenue and an adjusted operating profit margin of 26%. For the full year 2024, they anticipate a low single-digit percent decline in core revenue and an adjusted operating profit margin of 29%. The company's strong second quarter results were attributed to their team's commitment to innovation and execution, as well as their ability to navigate the current environment and support customers while delivering breakthrough innovation.

The speaker discusses the transformation of their portfolio and the company's strong position in the Life Sciences and Diagnostic industry. They express confidence in the future and the potential for sustainable shareholder value. The speaker also addresses questions about the consumables and capital equipment sectors, stating that they have seen a return to normal order patterns and actively monitor their customers to ensure normalized inventories.

In the paragraph, the speaker discusses the performance of equipment and consumables in the second quarter, noting that there was positive order growth for both categories, particularly among larger customers. They also address the discrepancy between their bioprocessing orders increasing while their peers declined, attributing it to differences in company positioning. The speaker expresses confidence in the future of the business and mentions that the third quarter guidance reflects a continuation of the positive trend seen in the previous three quarters.

The speaker explains that the company's bioprocessing revenue will likely decrease slightly in the third quarter due to seasonality and lower volume in biotechnology and respiratory. They also mention that orders for bioprocessing and respiratory may be affected by seasonality as well. Overall, the speaker believes that the company will see a continued improvement in bioprocessing revenue compared to previous quarters.

The speaker addresses a potential question about margins and explains that the guidance for approximately 26% adjusted operating margin in the quarter is due to lower margins in two businesses. They also mention that they are focused on the current quarter and will revisit 2025 plans after the third quarter is completed.

The speaker discusses the company's margins and how they will be affected in the upcoming quarters. They mention the potential for growth in bioprocessing and the company's cost structure. They also touch on their buyback plan, stating that it is not a change in their capital allocation strategy and that they will continue to prioritize M&A opportunities. They evaluate all investment options based on expected returns.

The relative value of a buyback is generating attractive financial returns in today's environment. The company is confident in its future and has strong conviction about its business while maintaining a meaningful M&A envelope. The company's free cash flow is nearly $6 billion and its net leverage is about two turns. The book-to-bill for Cytiva is at 0.9 and in order to meet the full year guide of low single-digit growth, it needs to maintain this level. The company does not guide to book-to-bills or orders, but expects to exit the year with high single-digit or better growth. The competitive pricing environment for Danaher was up 100 basis points in the second quarter.

In 2024, the company expects to be slightly above their historical average of 75 to 100 basis points. They are confident in their portfolio and pricing strategy. The bioprocessing price for the quarter was 2.5%, which is expected to be a good marker for the full year. In China, there has been an increase in activity levels and funnel volumes due to the stimulus funding, but there has also been a decrease in funnel velocity as people wait for more information on financing terms. This is expected and the company is monitoring the situation.

The Life Sciences segment of the company is still struggling, with instruments down high single digits and consumables and services holding up better. The market conditions in the second quarter were similar to those in the first quarter, with capital equipment being more constrained in China. In developed markets, pharma and biotech are stable, while academic markets are weaker and applied markets are holding up well. The recent stimulus measures in China are expected to improve funnels and coding activity, but orders are not expected to be seen until 2025.

Customers are delaying their purchases of Life Science tools and consumables as they wait for stimulus funding. The comps are expected to ease in the second half of 2024, but the normalization process will continue until then. In the Diagnostics division, respiratory sales were strong at $300 million, but the rest of the division was choppy with a decline in core sales. Cepheid's strategy is showing success, with an increase in installed base and menu adoption leading to mid-teens growth in non-respiratory reagents. The company also saw growth in virology and sexual health assays, and is expecting growth from the recently launched Hepatitis C assay. However, equipment sales were down, resulting in a small negative growth for the division in the second quarter.

The remaining businesses at Beckman grew low single digits, with recurring revenue growing at mid-single digits. The moderation in growth is due to challenging equipment comparisons from last year. Beckman Diagnostics is expected to be a mid-single-digit long-term grower, with a strong innovation pipeline and excellent commercial execution. The company has recently introduced new products in the cardiac, immunoassay, chemistry, and automation categories. The management team is confident in the competitive positioning and long-term growth potential of the diagnostics businesses. During the past 5 and 10 years, Danaher stock has been a top performer, with attractive return on invested capital (ROIC) from buybacks. The company's business model is focused on M&A and deploying DBS, but there have been obstacles in the current M&A environment. The management team is confident in their ability to deploy capital for M&A in the future.

The speaker discusses the company's positive outlook for the future and their satisfaction with their current portfolio. They mention the impact of COVID on their business and how it has made it difficult to accurately assess their potential growth. They believe that their business has the potential for high growth and strong financials, but their current stock price does not reflect this. They explain their decision to prioritize share buybacks in the current market, but their overall preference is still towards M&A. The speaker also clarifies that there were no significant changes in Q2 that would affect their outlook for the bioprocessing and respiratory sectors.

The speaker discusses the expected decline in bioprocessing revenue for the third quarter and attributes it to a normal seasonal pattern. They do not see any significant changes in the underlying business and expect continued improvement in the end market. They also mention the potential for growth from new modalities in the near future. Finally, they address the slowdown in purchasing in China related to pending stimulus.

Rainer M. Blair discusses the company's view on bioprocessing and its future, highlighting the improvement in revenue and orders in the second quarter. He also mentions that destocking is largely behind them and orders are returning to pre-pandemic levels. Large customers with on-market drugs continue to grow, providing a strong demand signal. Development pipelines, especially in Phase III, remain solid.

The company believes that its long-term growth expectations have been strengthened due to the pandemic. While smaller biotech customers have been impacted by funding contractions, the company's broader portfolio, particularly its focus on commercialized drugs and late-phase projects, has remained strong. The company sees new modalities, such as nucleic acid-based therapies, as an exciting but small part of its business and the overall market, with potential for variability in success rates and reimbursement dynamics. The company also mentions the potential for growth in the Chinese market.

The slowdown in the company's portfolio is broad-based and particularly evident in the Life Science Equipment segment, where there has been a delay in the disbursement of stimulus funds. The company does not expect this to significantly impact their performance in 2024. In the instruments sector, there may be a muted replacement cycle due to equipment being pulled forward during the pandemic. The company expects the replacement cycle to resume in 2025. There is also a focus on yield improvements in the bioprocess sector.

The speaker discusses how the company's focus on improving customer yields in bioprocessing will not hinder growth, but rather create more opportunities. They also believe that there is a need for increased capacity in the industry, which will lead to growth in equipment orders. The company is also investing in their services to help their customers.

Danaher Corporation provides services to help pharmaceutical companies with complex and new therapies, and then transfers the technology to either the pharma company or its CDMO partner. The company's CEO, John Bedford, thanked everyone for joining the call and stated that they will be available for questions throughout the day and week. The operator then concluded the call.

This summary was generated with AI and may contain some inaccuracies.