Danaher's (NYSE: DHR) core revenue decline of 3.5% in the second quarter might not seem like anything to write home about. Still, as ever in investing, it's about context, and the company's earnings report shows that it's set to return to its long-term growth track.
The good news encouraged investors to bid the stock up by more than 7% in trading before 10 a.m. ET today.
Danaher beats guidance
As you might expect from a biotechnology, life sciences, and diagnostics company, Danaher's core revenue and earnings have bounced around in recent years due to the pandemic. Not only did Danaher manufacture PCR tests used to detect COVID-19, but it also sold life sciences equipment used to research vaccines.
The retraction from the massive boost in demand caused by the pandemic creates near-term challenges for Danaher. Therefore, management still expects this to be a year of low single-digit core revenue declines, but the evidence from the second-quarter earnings suggests that investors might have to revise their expectations at some point.
Going into the second-quarter earnings, management's guidance called for a year-over-year core revenue decline in the mid-single-digit range (implying 4%-6%) with an adjusted operating profit margin of 26%. However, the second-quarter core revenue declined by just 3.5%, and the adjusted operating profit margin came in at 27.3%.
Better-than-expected revenue and margin performance led to earnings per share of $1.72 in the quarter, compared to the analyst consensus of $1.57.
Image source: Getty Images.
Where next for Danaher stock?
Management continues to expect a core revenue decline in the low single digits for the third quarter and the full year, but it's hard not to think it's being conservative.
CEO Rainer Blair cited positive momentum in its bioprocessing business and market share gains in its molecular diagnostic testing business, Cepheid. If Danaher can sustain those improvements, the company can return to the high-single-digit growth rates Wall Street analysts expect in 2025 and 2026.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Danaher. The Motley Fool has a disclosure policy.
