Danaher (DHR) to Report Q2 Earnings: Will it Disappoint?
Danaher Corp. DHR is set to report second-quarter 2017 earnings results before the opening bell on Jul 20.
The company hasn't missed estimates in the trailing sixteen quarters, which is an impressive feat. Last quarter, it posted a positive earnings surprise of 1.2%. The stock boasts an average positive surprise of 5.7% over the past four quarters.
Let's see how things are shaping up for this announcement.
Factors to Consider
In the past few quarters, Danaher has faced stunted revenue growth in its dental segment, mainly attributable to weakness in higher-margin traditional consumables business. We believe the weakness will continue to mar the second-quarter results as well. Moreover, unfavourable product mix and incremental costs associated with various new product developments, particularly in the dental segment, are expected to hurt the margin performance for the soon-to-be-reported quarter.
This apart, sluggishness in some of Danaher’s key end markets, including Latin America and some European regions, are likely to impact growth. A significant portion of its revenues is derived from regions outside the U.S., which makes it vulnerable to currency fluctuations. Over the past few quarters, Danaher has been suffering from strengthening of both the U.S. dollar and the Japanese yen versus other currencies.
Also, the company has been witnessing relatively smaller organic growth over the past few quarters. We believe Danaher's Life Science portfolio lacks a significant upstream product offering, which has been restricting growth. A decelerating organic growth is likely to affect the company’s overall top-line performance for the second quarter.
Despite these negatives, Danaher’s acquired businesses, namely Pall and Cepheid, are expected to act as key growth drivers for the quarter to be reported. Also, the company’s robust operating culture, DBS, is likely to act as a catalyst. Historically, DBS has contributed to meaningful core revenue growth, adjusted earnings per share improvement and cash flow generation.
Furthermore, positive industry trends like new regulations from the Chinese Food and Drug Administration are expected to act as tailwinds, fueling top-line increase for the second quarter. Also, market traction of the recently launched products, including SMARTmatic handpiece campaign, KaVo OP 3D Pro panoramic X-Ray imaging system and CM130 coring monitoring system, are expected to stoke growth.
Earnings Whispers
Our proven model does not conclusively show that Danaher will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.