Danaher’s imperfect quarter is good enough for us to stay the course

Danaher shares fluctuated between gains and losses Tuesday after the life science firm’s second-quarter earnings cleared Wall Street’s fairly low bar. Revenue for the three months ended June 27 increased 3.5% year over year to $5.94 billion, topping the consensus estimate of $5.84 billion, according to LSEG. On a core basis — which strips out the impact of currency fluctuations to provide a better understanding of actual demand — sales were up 1.5% versus the year-ago period. Adjusted earnings per share (EPS) totaled $1.80, exceeding the $1.64 estimate, LSEG data showed. On an annual basis, adjusted EPS was up 4.65%. Bottom line Danaher’s release was not perfect. However, the numbers — and the market reaction to them Tuesday — are good enough for us to believe the struggling stock could finally be putting in a bottom. Our concerns going into the print, particularly around its China business, led us to trim our position on Monday. We don’t regret the sale, nor is there an imminent need to sell more since the results were stronger than feared. Danaher’s products are using across the health-care industry, helping researchers develop new drugs and doctors make diagnoses. Across all three operating segments, the company delivered better-than-expected sales and operating income. That was largely the case for every major financial metric, with the exception of cash flow results. And even there, there’s no cause for serious concern because Danaher’s free cash flow of $1.09 billion was nearly double the amount of its net earnings — a sign that those are high-quality earnings backed by cash. Geographically, Danaher remains a bit of a mixed bag. In developed markets, Danaher saw core revenue growth in the low single digits, with slight growth in North America and high-single-digit growth in Western Europe. China remains the biggest headwind to growth, though. In its high-growth markets, which include Eastern Europe, the Middle East, and parts of Asia, Danaher saw solid enough performance outside of China to deliver flat overall sales. Within China, it saw a mid-single-digit decline. To be sure, it’s not all bad in China. Some segments are doing better than others, according to CEO Rainer Blair. “Growth in our biotechnology and life sciences businesses in China was more than offset by declines in diagnostics due to volume-based procurement and reimbursement changes implemented in late 2024,” Blair said. Volume-based procurement is part of China’s national strategy to control health-care costs, and fellow Club name Abbott Labs’ issues with the VBP plan are why we were so worried about Danaher’s results here. As disappointing as Danaher’s stock has been this year, one positive part of the story has been management’s efforts to remove $150 million of structural costs from operations this year. The plan was announced in February , and on Tuesday, executives said about half of the savings have been achieved. They’re confident they will succeed in reaching the target by year-end. Putting it all together, Danaher did enough for us to stay invested. While we are reiterating our hold-equivalent 2 rating due to the uncertainty resulting from trade negotiations and Chinese demand, we are trimming our price target by $10 a share to $240. Guidance For the full year, Danaher reiterated its outlook for adjusted core revenue growth of approximately 3% versus 2024, ahead of the 2.5% estimate, according to FactSet. Despite topline expectations staying the same, the team increased its earnings target to a range of $7.70 to $7.80 per share, up from the $7.60 to $7.75 range previously expected. The midpoint of the new projection is ahead of the $7.70 per share consensus estimate, according to LSEG. While the upward earnings guidance revision is a positive, investors may have taken issue in that management didn’t “flow through” the entirety of the second-quarter beat. In other words, Danaher beat expectations by 16-cents, so investors may have been looking for the midpoint of guidance to be increased by 16-cents, as opposed to the 7.5-cent increase we got. On the call, executives were asked whether this meant the team was seeing cause for more caution in the back half of 2025. Their answer: Not exactly. Instead, outgoing CFO Matt McGrew said the company didn’t want to assume some favorable first-half developments — specifically, better-than-anticipated performance in the respiratory business and foreign exchange benefits — would continue into year-end. Had Danaher opted to extend these first-half dynamics into the back half, its earnings guide would have been roughly 15 cents to 20 cents higher. “Especially in a pretty dynamic policy and operating environment, [we] just felt like we’ll sit and see how things play out before…