Danaher Corporation Q3 FY2025 earnings call

• Strong third quarter results with sales at $6.1 billion, 3% core revenue growth. Gross profit margin 58.2%, adjusted operating profit margin 27.9% up 40 basis points y-o-y. Adjusted diluted net earnings per share $1.89 up ~10% y-o-y. Generated $1.4 billion free cash flow in the quarter. - Deployed ~$2 billion for share repurchase, Board approved new $35 million share repurchase program. - Launched leading-edge products like Cytiva's ÄKTA readyflux TFF system 500, IDT's high-purity customizable guide RNAs, Beckman Coulter's Access and BD-tau assay. - Leveraging Danaher Business System to mitigate geopolitical and policy pressures, drive productivity gains, and invest in innovation.

Biotechnology and Life Sciences: Core revenue increased 6.5%. Biotechnology segment saw core revenue growth, with bioprocessing at high single-digit growth (consumables up double digits, equipment down). Life Sciences: Core revenue decreased 1%. Instrument businesses slightly up, but consumables declined due to lower demand from some customers though offset by growth in other areas. Diagnostics: Core revenue increased 3.5%. Clinical diagnostics had low single-digit growth, Leica Biosystems over 10% growth, Beckman Coulter mid-single-digit growth outside China, Cepheid mid-single-digit growth with respiratory revenue exceeding expectations.

• Full year 2025 adjusted diluted net EPS guidance $7.70 to $7.80. - Fourth quarter core revenue expected low single-digit growth, adjusted operating profit margin ~27% including productivity investments. - 2026 core revenue growth 3%-6%, with bioprocessing high single-digit growth, Life Sciences modest improvement but below historical levels, Diagnostics higher growth due to China policy resolution, respiratory revenue ~$1.7 billion. - Anticipate over 100 basis points adjusted operating profit margin expansion in 2026.

• Geopolitical and policy-related pressures. - Uncertainty in academic and government research funding affecting Life Sciences. - Impact of China policy changes on Diagnostics business. - Volatility in equipment spending due to policy environment.

Q: Maybe just start where you left off, Rainer, on fiscal year '26. The 3% to 6% range...

A: Thanks, Mike, and good morning, everyone. Let me just dive right in...

Q: I want to probe on the biotech comments here a little bit. Just maybe talk about some of the puts and takes in the guide for the fourth quarter...

A: Yes, Tycho, let me just give you -- for the fourth quarter, I can give you a little color on the numbers...

Q: One quick one on recent events. Have you seen any change in activity over the last few weeks or even just -- even in the tone of discussions with biotech and pharmaceutical customers since the Pfizer MFN announcement came out...

A: Doug, I think I would say, yes. We -- and also correct that we have not reflected that in our guidance here neither for the fourth quarter nor for our initial thoughts on '26 because we like to see the shift in tone turn into demonstrated order patterns so that we actually see the trend...

Q: My first one on -- if I wanted to touch on the fourth quarter Diagnostics assumptions. I think ex-respiratory and ex China, it looks like the business has done around mid-singles for the past 2 quarters. I think your guide implies for Q4 double digits. So maybe talk about what changes sequentially from 3Q to 4Q and what drives the optimism for Diagnostics ex China, ex respiratory...

A: I think the uptick is VBP lapses. That's the delta. I don't think anything changes with the rest of the core business. I think that's mid-singles, that base business, if you will. But remember, we took the first hit in respiratory in China with VBP and reimbursement in Q4. So I think it's the VBP that gets better, not the base business...

Q: Maybe just going back to bioprocess and the equipment side. I know you talked about in the prepared remarks how Cytiva has built up a lot of capacity. You're ready for any demand that comes from this onshoring. Can you just kind of zoom out a little bit and give us a flavor how we might think about this?...

A: Sure, Dan. I mean the investment announcements that we've heard from pharma differ in terms of what they include and exclude depending on which pharma company you're talking about. And then, of course, many times, the time lines were 5 and 10 years. So those numbers grow pretty quickly, especially if the research and development investments were considered in those investment numbers as well...

Q: So my first question is, I appreciate your qualitative comments on the mAbs and biologics growth and bioprocessing being high single digit. But just wondering if you could provide any color on the order growth or book-to-bill in the quarter. I believe it was about 1 last quarter. And we have seen weakness in the AAV segment and some of the innovative modalities. So just wondering what's your level of confidence on monoclonal antibody growth offsetting some of that to still deliver high single-digit growth? And I have a follow-up on China...

A: Yes. I mean the book-to-bill was pretty similar to what we've seen all year around 1. So maybe, Rainer, you want to comment on that? Rainer Blair: Sure. Well, I mean, we continue to see monoclonal antibodies growth as strong, not only because the commercial volumes on existing indications are growing more quickly, but also because we see new applications of existing on-market drugs being approved. And then we also see biosimilars here that are pretty close to the launch as well. So we do think that, that very, very large part of our business, 75% of our business is in those monoclonal antibodies and the growth that's associated with that takes care of some of the volatility that we have seen here in some of the AAV business. Some of which has been around for some time, so it's also lapping. But just to say that it's really driven by protein and these nucleic acid therapies, while they are interesting and efficacious, they will continue to take time to find it into the first line of standard of care. And while we're very well positioned there, what's driving the growth here is really protein monoclonal antibodies going forward...