Danaher Corp

NYSE:DHR

Earnings Call Transcript 2022-Q1

[Operator]

Good day. My name is Leo and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation’s First Quarter 2022 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference.

[John Bedford, Vice President, Investor Relations]

Good morning, everyone and thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer; and Matt McGrew, our Executive Vice President and Chief Financial Officer.

I’d like to point out that our earnings release, the slide presentation supplementing today’s call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.danaher.com, under the heading Quarterly Earnings. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events & Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until May 5, 2022.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials, the company’s specific financial metrics relate to the first quarter of 2022 and all references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices which have applications submitted and pending for certain regulatory approvals or are available only in certain markets.

During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings and our actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I’d like to turn the call over to Rainer.

[Rainer Blair, President and Chief Executive Officer]

Well, thank you, John and good morning everyone. We appreciate you joining us on the call today. We are off to a good start in 2022 with the first quarter coming in ahead of our initial expectations. The team navigated a challenging operating environment to deliver strong revenue, earnings and cash flow growth. And our performance was broad-based with high single-digit or better core revenue growth in each of our three segments. Now during the first quarter, we continued to strengthen our competitive advantage through high-impact growth investments in innovation and bio-processing production capacity, both of which we believe are contributing to market share gains. Now, clearly, our well-rounded results are really a testament to our team’s commitment to continuous improvement and to the unique positioning of our portfolio. We just have an exceptional collection of businesses, all powered by the Danaher Business System that serve attractive end markets with durable secular growth drivers and it’s this combination that differentiates Danaher today and provides a strong foundation for the future.

So with that, let’s turn to our first quarter results. Sales were $7.7 billion in the first quarter and we delivered 12% of core revenue growth. Our base business was up 8% and with broad-based strength across the portfolio and COVID-19 testing contributing 4%. Geographically, revenue in both the U.S. and Western Europe grew mid-teens, while high-growth markets were up low single-digits. China declined low single-digits, but was up high single-digits, excluding the impact of a previously called out significant bioprocessing project delivered in the prior year. The COVID-19 driven lockdowns that began in late March had a very modest impact on our first quarter results in China. However, as these lockdowns extend further into April, we are seeing more of an impact in our businesses. And we anticipate the situation will begin to ease in the coming weeks with an eventual return to normalized activity levels by the end of June.

Our gross profit margin for the first quarter was 61.2%. The operating margin decline of 80 basis points to 28.3% is largely due to year-over-year changes in foreign currency exchange rates and product mix, primarily within our Life Sciences segment. Now, adjusted diluted net earnings per common share of $2.76 were up 9.5% versus last year and we generated $1.7 billion of free cash flow in the quarter.

So, now let’s take a look at our results across the portfolio and give you some color on what we are seeing in our end markets today. Let’s start with Life Sciences where reported revenue grew 9.5% and core revenue was up 7.5% with broad-based strength across the segment. In bioprocessing, we are seeing very robust activity levels. Customers are accelerating their investments in research and production across all major therapeutic modalities. Core revenue in our bioprocessing business at Cytiva and Pall Biotech grew high single-digits and was up low double-digits, excluding the impact of that significant one-time project in China last year. The orders remain very healthy and we continued to build backlog across both businesses during the quarter.

Now over the last 2 years, our customers prioritized the development of COVID-19 vaccine and therapies to rapidly accelerate their time to market. Today, these programs require less investment in manufacturing capacity as they mature and become a part of our customers’ core business. And as a result, our customers are starting to reallocate resources back to previously paused and new programs for other modalities, notably monoclonal antibody-based therapies or MAB cell and gene therapies and mRNA-based technologies. In bioprocessing today, monoclonal antibodies are the largest investment area for our customers as they are becoming the standard of care in the treatment of many diseases. Customers are adding manufacturing capacity to support both novel MABT in clinical trials and the rapid growth of approved treatment.

Biosimilar development and production are also increasing as patents on higher volume therapies expire. This trend is making life-saving treatments more accessible and helping to accelerate adoption in underserved markets. Now, we continue to make substantial investments in manufacturing capacity to help meet our customers accelerating demand in bioprocessing. An important focus area of our expansion has been with single-use technology which are key enablers to scale the development and manufacturing of biologic and genomic-based medicines. In this first quarter, our newest plan dedicated to the manufacturing of single-use technology came online in Cardiff, Wales. Now, this plant, along with recently opened facilities in South Carolina and Beijing are critical to support our customers’ demand today. Long-term, they provide additional capacity for one of the fastest growing product categories within bioprocessing.

So turning to our Life Sciences Instrument businesses, we are seeing strong levels of activity in all major end markets. Demand is particularly robust at our pharmaceutical CRO and academic research customers where a healthy funding environment is accelerating the initiation of new projects. In the first quarter, Leica Microsystems, IDT and SCIEX each grew over 10%. At SCIEX, the ZenoTOF 7600 and Triple Quad 7500 continue to perform well and are great examples of how our investments in innovation are driving market share gains and enhancing our growth trajectory. At Leica Microsystems, Mica is another example of impactful innovation for our customers. Mica integrates wide field and confocal imaging in a single instrument while leveraging machine learning and automation to dramatically simplify the imaging workflow for our researchers. So clearly, across the life sciences portfolio, we are investing in innovation to bring meaningful solutions to our customers and to strengthen our competitive position.

Aldevron continued its great start as a part of Danaher, delivering over 40% growth in the first quarter. Since joining Danaher in late August, the team has embraced the Danaher Business System and is putting DBS tools to work. Recently completed Kaizen event which focused on increasing throughput further reducing lead times are already generating terrific results. So we are excited about the early progress at Aldevron and thrilled with the great work the team is doing.

So now let’s move to Diagnostics, where reported revenue was up 21.5% and core revenue grew 22.5% led by over 50% growth at Cepheid. Our non-COVID clinical diagnostics businesses collectively grew mid single-digits. Notably, Leica Biosystems delivered their seventh consecutive quarter of double-digit order growth driven by strength in core histology, advanced staining and digital pathology. The clinical diagnostic market volumes remain at healthy levels in most geographies as patients are returning for wellness checks, routine screenings and other elective procedures. Our customers are effectively managing through periodic outbreaks by adapting their protocols and procedures allowing them to continue providing critical healthcare services. Now in China, we are currently seeing regional lockdowns impact patient volumes and we expect our Diagnostics business to be the most effective in the second quarter.

In Molecular Diagnostics, respiratory testing volumes have moderated globally as the Omicron outbreak has subsided in most regions. However, demand for Cepheid testing at the point of care remains very strong and we believe we are taking market share. Our continued growth and share gains are a testament to the significant value the unique combination of fast, accurate lab results and a best-in-class workflow is providing to clinicians at the point of care. So, as COVID-19 moves towards an endemic disease state, we are seeing increased demand for Cepheid’s broader test menu.

In the first quarter, non-respiratory testing revenue grew double-digits, led by hospital-acquired infection, urology and infectious disease testing. Customers, including several who initially purchased our GeneXpert system for COVID-19 testing, are expressing increased interest in expanding their menu utilization. As our customers free capacity from respiratory testing, we believe there are significant opportunities to leverage our market leading installed base and testing menu to drive broader utilization and demand for Cepheid’s point-of-care molecular testing solutions. Now, respiratory testing revenue of $900 million in the quarter exceeded our expectations as customers showed an increased preference for Cepheid’s 4-in-1 combination test during the respiratory season. Our combination test for COVID-19, Flu A, Flu B and RSV represented approximately 65% of the 17 million respiratory cartridges shipped in the quarter with COVID-only tests accounting for approximately 35%.

So now, let’s move to our Environmental & Applied Solutions segment, where reported revenue grew 2.5% with core revenue up 6.5%, including [Technical Difficulty] water quality and mid single-digit growth at product identification. At water quality, ChemTreat delivered its fourth consecutive quarter of double-digit core growth, accelerating demand for our analytical chemistries and consumables was driven by activity across municipal, chemical, food and beverage end market. The equipment order rate also remained strong as customers are continuing to invest in larger municipal projects. Now Product Identification, our marking and coding business was up high single-digits partially offset by slight decline in our packaging and color management business. Videojet was up high single-digits with strong demand in food, beverage and industrial end markets.

So stepping back, our water quality and product identification platforms have done an exceptional job of leveraging the Danaher Business System to improve their positioning both from a cost and growth perspective. While supply chain pressures have been modestly more pronounced than EAS, our teams are using DBS tools such as daily management to work with suppliers and ensure production component availability. We are also using visual project management to help us reengineer our products faster with a focus on moving from difficult to source electronic component to newer, more cost-effective next-generation chipsets. Now, we believe DBS enables us to deliver faster and more reliably than many of our competitors.

Now, our teams are also using DBS growth tools to accelerate innovation and deliver more impactful solutions to the market, innovations such as Videojet, CIJ 1880 printer and HACH’s HQ series portable meters, are helping our customers solve the many challenges they face from increasing regulatory requirements to skilled labor shortages. And we are seeing the impact in our core growth, which has averaged mid single-digits annually over the past 10 years at EAS. So we believe this combination of the rigorous application of DBS tools, paired with our proactive growth investment is driving meaningful market share gains and enhancing our long-term competitive advantage.

So now, let’s briefly look ahead to our expectations for the second quarter and the full year. In the second quarter, we expect to deliver mid single-digit core revenue growth in our base business, which includes a headwind of approximately 200 to 300 basis points from the ongoing COVID-19 related shutdowns in China. For the full year 2022, there is no change to our previous guidance of high single-digit core revenue growth in our base business as we expect the shutdowns in China to normalize as we move through the remainder of the year. We continue to expect both a low single-digit core growth headwind from COVID-19 testing and overall mid-single-digit core revenue growth.

So to wrap up, we had a good start to the year and look forward to building on this foundation as we move through 2022. Our first quarter results are a testament to the dedication of our outstanding team and their commitment to executing with the Danaher Business System. And these results also reflect the unique positioning of our portfolio and the exceptional collection of high-quality franchises that comprise Danaher today. We believe the durability of our businesses where consumables now represent 75% of revenue, positions us exceptionally well in today’s dynamic operating environment. So this powerful combination of our talented team, the strength of our portfolio and the Danaher Business System differentiates Danaher and reinforces our sustainable, long-term competitive advantage.

So with that, I’ll turn the call back over to you, John.

[John Bedford, Vice President, Investor Relations]

Thanks, Rainer. That concludes our formal comments. Leo, we’re now ready for questions.

[Operator]

[Operator Instructions] We will take our first question from Derik De Bruin of Bank of America.

[Rainer Blair, President and Chief Executive Officer]

Hi, Derik. Good morning.

[Derik De Bruin, Bank of America]

Hi, good morning. Thanks for taking my question. I got just a couple of sort of like incoming from clients. I think, first of all, just a little bit more on the difference between – I think you mentioned 19 million on the Cepheid guide, and it came in at 17. Just a little bit more color on the volume difference there? And I think also a related question, just are you seeing any sort of stockpiling in terms of either vendors for either bioprocessing or on the diagnostics side? And I’ve got more follow-up.

[Rainer Blair, President and Chief Executive Officer]

Thanks, Derik. Well, let’s start off with the cartridge shipments here in the first quarter. Early in the quarter, as many. We suffered from some absenteeism related to the Omicron outbreak in our manufacturing plant. And that affected the production levels on the one hand. On the other hand, the mix shift, larger than anticipated towards the 4-in-1 test, 65% versus our assumption of 50% ended up resulting in a beat in terms of revenue. So really a short-term contained issue that affected manufacturing volumes, ultimately, the mix and the strength of the team’s recovery ended up resulting in the 17 million cartridges of shipment. Now if we switch gears briefly and go to the topic of stockpiling, we are very, very sensitive to this particular topic and stay extremely close with our customers. As an example, in the first quarter, Cepheid continues to be sold out. If you think about bioprocessing this is an area where there continues to be in the industry manufacturing constraints. So we are very, very close to our customers, working together with them with their manufacturing schedules to ensure that we’re able to not only meet their needs but also to ensure that we don’t have inventory buildup in the system. So could there be pockets of that perhaps on the margin, but generally speaking, we don’t see a significant buildup in the supply chain.

[Derik De Bruin, Bank of America]

Great. And just can you on the China headwind in the quarter, that 20 to 30 basis points, what’s supply versus demand?

[Rainer Blair, President and Chief Executive Officer]

Well, this is entirely related to supply accessibility of customers. So the demand in China continues to be very robust. As you may have noted, without the – in the first quarter without this large project in the prior year, China was up high single digits for us, orders very strong. So this is really related to customer accessibility in hospitals, in labs and of course, the one or the other manufacturing plant that’s affected by these shutdowns. Now as we sit here today, we’re already receiving the news from our team that we’re able to open up not just our plant, and so those are starting to open up here as well slowly but surely, as well as we would expect throughout the quarter client – I’m sorry, as well as lab accessibility to improve already in May and then get back to more normal levels here by the end of the quarter.

[Derik De Bruin, Bank of America]

Great. And if I can sneak one more in, the 2Q hit, nice to see you reiterating the full year guide with that. Is that expected as you expect all that China business to come back? Or do you think you’ll see stronger growth in other regions offsetting it? Thank you. I am done.

[Rainer Blair, President and Chief Executive Officer]

This is mostly about China getting back to normal activity levels and both customers as well as our plants having the makeup capacity to make up for what we think are relatively short shutdown period. Having said that, the business is a large one, and there is always pockets that will grow faster. So between the two things, we feel confident that our guide for the full year holds.

[Operator]

We will take our next question from Vijay Kumar of Evercore ISI.

[Rainer Blair, President and Chief Executive Officer]

Good morning, Vijay.

[Vijay Kumar, Evercore ISI]

Good morning, Rainer. Congrats on a solid Q1 print. Maybe one on the vaccine side. Rainer, I know it’s part of the base. But I guess yesterday, J&J did pull out their vaccine guidance. They are not guiding to vaccine. Not news anymore. Obviously, there is been a lot of questions on the vaccine side and base bioprocessing. So maybe just talk about the bioprocessing trends in the queue. What were order trends were orders above revenues? And are you still confident about the 2 billion of vaccine outlook for fiscal ‘22?

[Rainer Blair, President and Chief Executive Officer]

Well, thanks, Vijay. So let’s just level set on the numbers briefly here. If we think about bioprocessing Q1, and as I mentioned during my opening commentary, we extract that very large Q1 shipment last year in China, our bioprocessing business was up low double digits here in Q1. Very, very strong order activity, and I’ll come back to that in a minute. Now if you look at our first quarter last year, our sales were up over 70%. And so if you look at the 2-year stack for Q1, we’re in the 35% to 40% growth area, which we think is very robust and more than representative of what is going on in the market and think that, that compares extremely well. In fact, we still think that we’re taking share there. So that’s sort of one marker that I want you to have.

And then the second point is the order activity continues to be very, very strong. Last year, our orders in the first quarter were up over 90%. And so we anticipated that our orders in Q1 of this year would be down but nonetheless, we continue to build backlog here in Q1 as well in the bioprocessing area. And this is why we’re so confident in our core growth guide here for the year and bioprocessing of high single digit, low double digits between the robust growth that we’re seeing and the backlog that we have, that’s really important. So now let’s unpack that a little bit and think about what’s going on and why COVID is sort of one variable, but that there are other variables here that are incredibly important and explain why we talk about the bioprocessing business and its growth in aggregate. So first of all, as you think about the activity levels outside of COVID in the bioprocessing business, it’s important to see what’s going on in clinical trials. And I’ve talked about this, but you know that the project pipeline for monoclonal antibodies is 50% larger today than it was 5 years ago. For cell and gene therapy, it’s 10x larger, driving extraordinary activity here in the clinical trial area. And what you see, and as I mentioned in the opening comments, you see customers really starting to focus on these new projects across all modalities and not just allocating the resources to COVID, but to these new modalities. So that’s really important to note that customer activity level continues to be very, very high, and that plays through in the clinical trials.

Now another point to take here is monoclonal antibodies are becoming the standard of care and the predominant class of biologic drugs. So what’s going on in monoclonal antibodies is the primary growth driver in the market and also for our business and recently launched products that are ramping to new treatment and new indications are driving an exceptional amount of volume here. And then you add to that, that emerging markets and high-growth markets, such as China and India, are starting to have access to these monoclonal antibody treatments that provides additional and significant volume leverage. At the same time, you have biosimilar growth, Vijay. So these biosimilars are leveraging the fact that some of the biologic drugs, monoclonal antibody that are higher volume are starting to come off patent, and that’s increasing the penetration of those drugs throughout the world where the penetration has been lower. And that’s providing another growth impetus. And then lastly, I’ll start with this now. We’ve been talking about single-use technology and their adoption for a while, which is an additional leverage growth vector within the bioprocessing business. So all that helped the activity that we talked about provides for volume, but SUT on top of that is substituting more traditional technologies and is growing even faster. And we have well over $1 billion of single-use technology. And we’ve just announced that our third new plant coming on for single-use technologies in Cardiff, Wales. So we feel very confident on the basis of what’s going on outside of COVID. And that’s why we look at it together because it’s the aggregate that we look at and that really ultimately count that, that will drive that high single-digit, low double-digit growth here for 2022 and also supports our high single-digit perspective beyond that.

[Vijay Kumar, Evercore ISI]

That’s helpful, Rainer. And maybe one quick one for Matt McGrew, I think incremental margins we were looking at perhaps mid-30s. Q1 came in below. Matt, was this was this supply chain inflation impact in Q1 or perhaps FX or maybe just talk about incrementals and have expectations assuming for fiscal ‘22.

[Matt McGrew]

Yes. No, for Q1, I mean, we kind of came through about 25%. I think that was pretty much in line with what we thought, Vijay. So no real difference, I think – from a year-over-year perspective, the difference between that $35 million to $40 million that we normally talk to in this 25, it was all FX, right? So in the quarter, I mean you think about it, it was kind of like a $0.07 headwind here for us. So I don’t think we saw anything. Obviously, supply chain is what it is, but I think we were able to kind of work our way through that. I really think it was all FX here – excuse me. In the quarter and first quarter. As far as – I think you bring up a good point then as far as the full year goes, so I would say there is no change to the full year fall through other than the FX impact that we’re seeing. And just to kind of lay that out. We continue to expect mid-single-digit core growth from kind of the core and acquisitions, and that will have that 35% to 40% fall through.

In January, we thought that FX was going to bring that 35% to 40% down to, say, 30% to 35%. But given the currency moves we’ve seen since January, as we sit here today, I think it’s going to be more like 20%, 25% fall-through for the year versus the 30 to 35 that we sort of guided to the last time. So look, it still leaves us, if we deliver that, that still leaves low single-digit EPS growth for the year despite what I think is some pretty significant FX headwinds year-over-year. And maybe just to give you a color on the sizing of that headwind, I mean right now, FX is going to be a $0.35 EPS headwind year-over-year, and that’s a pretty meaningful number for us here during the year. It’s probably half of what we initially thought. So it’s a pretty big headwind here for the year, and it was a little bit here in the quarter, too.

[Vijay Kumar, Evercore ISI]

That’s helpful, Matt. Thank you.

[Operator]

We will take our next question from Scott Davis of Melius Research.

[Rainer Blair, President and Chief Executive Officer]

Scott, good morning.

[Scott Davis, Melius Research]

Good morning, guys. Thanks for all the detail here. The price dynamic, I mean, I know it’s FX is FX. I can’t do much about that perhaps. But – do you – are you still out there capturing additional price to offset the general inflation and general cost and logistics issues that are so prevalent?

[Rainer Blair, President and Chief Executive Officer]

Scott, we have been working price directly and indirectly, and we’re seeing very good traction. Let me lay that out for you here. And let me start off with the fact that there are inflationary pressures out there. We’ve talked about that in the past. And that moves from sort of the classic topics of memory chips and other types of chipsets and freight and perhaps labor to seeing more broadly inflation. But nonetheless, with the Danaher Business System, our teams have been able to do a number of things here in order to contain this. One, of course, is related to ensuring the robustness of the supply. Many of our businesses today are gaining share because we are able to continue our supply, have shorter lead times because we’re able to access and secure the components necessary to drive our manufacturing in our business. So it’s an important aspect to this entire equation of growth and share gain.

Secondly, the DBS toolset that we have been putting in place are also helping us offset costs in the sense, and as I mentioned in the introductory comments that, look, we are able to now reengineer more quickly to other types of – again, I’ll use the example of chipsets to next-gen chip set more broadly consolidate those and not only gain supply, but then also reduce our costs. So there is an entire DBS machine, if you will, that is driving to secure supply and to offset costs. At the same time, of course, we are driving price, and we see strong traction there. In fact, we are well over 200 basis points of price here in the first quarter, and that’s a quarter that still had a fair amount of, if you will, 2021 backlog in it, right. So, we have now worked through the majority of that backlog and expect to see continued momentum there. So, thinking about price at these levels of 200-plus basis points, that’s the right way to think about that. And it’s just another testament to the strength of our portfolio, the degree of differentiation of our product and the leverage that this razor/blade business model provides us with 75% consumables, many of which are specked in or keyed into the equipment or instruments that they supply.

[Operator]

We will move next to Dan Brennan of Cowen.

[Rainer Blair, President and Chief Executive Officer]

Hi Dan. Good morning.

[Dan Brennan, Cowen]

Good morning Rainer. Thanks for taking the questions. Congrats on the quarter. So, if I could just go back to bioprocess, obviously, a really nice quarter with a high-single digit growth against so extremely tough comp. I appreciate COVID is part of the base, and it’s great about all the robust demand, obviously, ex-COVID, which is a big driver long-term. But given the interest in kind of dissecting COVID at this point from investors, it would be helpful to learn if the 2022 high single, low-double digit guide continues to incorporate $2 billion from COVID. And if it does, any color you can provide there about like how much of that $2 billion is blocked in with firm orders?

[Rainer Blair, President and Chief Executive Officer]

Thanks Dan. Really, the way we are thinking about that business is, again, in aggregate, and we do believe that both the underlying strength of the markets as I just laid out, as well as the strength of our backlog, which continues to grow, support both the high-single digit, low-double digit bioprocessing guide for the year. And as you think about COVID within that, COVID is going to do what it does, but there is a larger market that is growing rapidly and we are going to continue to see fluctuation as it relates to COVID volumes, whether there is a decision on booster for different age groups, whether it becomes part of an annualized immunization regimen. All of these are open questions. And our belief is that COVID is a part of our business, but there is another part of this business, which is larger, it is growing at a faster rate and we are making investments to ensure that we capture the appropriate shares here. So Dan, high-single digits, low-double digits bioprocessing growth for 2022.

[Dan Brennan, Cowen]

Thanks Rainer. So, I will get on a really strong quarter out of the gate. Maybe can you give us a little color on how the integration is going – and in light of the really strong first quarter, how do we think about Aldevron for the full year in 2022 and beyond?

[Rainer Blair, President and Chief Executive Officer]

I mean we couldn’t be more pleased with the team. I have been up there several times working with the team, seeing how they are growing, bringing on capacity. We continue to invest in expansions there. And that 40% growth exceeded our expectations and gives you a sense of how quickly the Danaher Business System has gained traction. And that’s a combination of a couple of things. The first thing is the leadership and the team at Aldevron that is pulling and open to applying the Danaher Business System as fast as possible to fortify their competitive advantage in lead times, in quality and to ensure that we drive this business to the growth of its potential. And we think for 2022, we continue to think that the $500 million revenue number is a good number, 40% in Q1. We certainly expect to be in the first half year, well over our expectation of 20% plus that we previously talked about. So, $500 million for the year is a good number, and that team is firing on all cylinders.

[Dan Brennan, Cowen]

And if I could squeeze one more in. Just on China. Obviously, good news that you guys are managing through this and the full year guide is maintained. Maybe if you could just give us an update like in Q2, like what you are actually expecting for China? Maybe you said the number, I missed it. And kind of how do you think about China for the full year since you are expecting a nice rebound beginning Q2? Thank you.

[Rainer Blair, President and Chief Executive Officer]

Sure. So, just to revisit, we have talked about China here. In the first quarter, it was really the end of March when we started to see the impact of some of these larger scale shutdowns, and we continue to see those here in the first week of April, although we have just spoken to the team here yesterday and they received approval to start opening up plants and we also see more activity at our customers. And so we do expect to work through the shutdowns here in the second quarter. Again, that was the 200 basis points to 300 basis point headwind that we included in our Q2 guide of mid-single digits. So, as we think about the quarter here and for China, remember, we had a very strong activity level in Q1, high-single digit growth minus that large transaction last year. And we expect that in China will probably be down in Q2, mid to high-single digit percentages for the quarter. Now once again, we expect that to unwind in Q2 and then continue to catch back up here through the year where we continue to see China as a high-single digit market.

[Dan Brennan, Cowen]

Great. Thank you.

[Operator]

We will take our next question from Jack Meehan of Nephron Research.

[Rainer Blair, President and Chief Executive Officer]

Good morning Jack. How are you?

[Jack Meehan, Nephron Research]

Thank you. Good. Good morning. So on Life Sciences, I wanted to turn to some of the capital heavy businesses, SCIEX, Leica Micro, Pall Industrial. Can you just talk about the durability of the growth you are seeing there? How are order trends – and any change to the growth expectations for the year?

[Rainer Blair, President and Chief Executive Officer]

So, in Life Sciences, if we now pivot from bioprocessing and more to the life science analytical businesses, as you suggest, Jack, we are seeing very strong underlying activity in the various sectors of the business. If you think about the Pharmaceutical segment, CROs, academic research customers, our funnels are strong and continue to outpace quarter-over-quarter what we have seen in 2021. I think that buttressed for us, particularly because of the strong innovation track record and the recent launches that we have had. I have talked to those at SCIEX, the ZenoTOF, the accurate mAb instrument as well as the 7500 Triple Quad, those are class-leading innovations that are growing exceptionally well and driving market share gains. Beckman Life Sciences, with their CytoFLEX Benchtop sales order the most recent launch. And then of course, we talked about Mica, which is that combination of wide field and confocal leveraging machine learning. So, we are firing on all cylinders here in a strong investment environment. And we think that, that’s sustainable here for the foreseeable future as we continue to see investments from both the biotech sector, but also academic sectors, as well as institutions that are very, very bullish on the innovation and the science that they want to drive forward.

[Jack Meehan, Nephron Research]

Great. And then just a broader question on M&A. It’s been obviously a very choppy macro environment. You look at the cash flow statement, it was a light quarter for you on M&A. Just curious how you are seeing assets in the market, do you feel like expectations have changed at all from sellers and just your own willingness to do M&A kind of in a choppy environment? Thanks.

[Rainer Blair, President and Chief Executive Officer]

Well, Jack, I will tell you, we have excelled in these kind of environments historically from an M&A perspective. These environments of dislocation inevitably show opportunity and we feel very good about how we are positioned with our funnel. Now having said that, the volatility that we are seeing today is while it might not feel that way relatively recent and it’s probably a little too early to see the full impact of that volatility. Having said that, we are sitting here with 2x a turn, very strong free cash flow of over $7 billion and over $10 billion of EBITDA. So, we feel like we are in a very good position both in terms of the strength of our balance sheet as well as the opportunities that lie ahead.

[Operator]

We will take our next question from Patrick Donnelly of Citi.

[Rainer Blair, President and Chief Executive Officer]

Good morning Patrick.

[Patrick Donnelly, Citi]

Good morning Rainer. Thanks for taking the questions. Maybe you want to kind of jump from away from China on the geographic side. Over in Europe, obviously, a lot going on there on the geopolitical side. Can you just talk about if you have seen any change in customer behavior? Any change in funding over there, what your guys’ perspective is on that region as we work through this?

[Rainer Blair, President and Chief Executive Officer]

So, Western Europe has continued to perform very well for us. As I mentioned in our opening comments here, we had strong growth in the mid-teens in Western Europe here in the first quarter. And while we think that moderates a little bit here in Q2 just because of some of the prior year performance is, the activity levels remain very strong. Certainly, in Western Europe, that is the case. And as you think about your reference to the geopolitical side, Eastern Europe just has not been that large of a factor in the life science research and bioprocessing area as an example. And from a diagnostics perspective, we continue to see a very high, let’s say, close to normal activity levels as well. So, Western Europe for us continues to perform as expected.

[Patrick Donnelly, Citi]

Okay. That’s helpful. And then maybe on the diagnostics business, just looking at the core performance there ex-COVID, looks pretty strong. Can you just talk about that? And then maybe Matt can talk about the diagnostics margins also really strong, just the sustainability there.

[Rainer Blair, President and Chief Executive Officer]

As we think about the business momentum really in all regions, with the exception of China, which I talked about, we are seeing patient levels, activity levels really at or very close to pre-pandemic levels. And so from a macro perspective and patient volume, it’s a positive environment for us. And then if you put on the back of that, the recent product launches that we have had, the DxH900 hematology as well as the DxA Fit and automation for small and medium-sized labs, we are also continuing to benefit from that NPI pace that we have invested in here over the past year. So for us, diagnostics continues to be a strong forward momentum. Matt, do you want to take this?

[Matt McGrew]

Yes. I mean on the margin front, I mean I think you think about that that is going to be a big part of that will be Cepheid and the volume that we are seeing there. So, as long as we have got that volume and we expect to have a touch less here into next quarter. But I think those margins are pretty sustainable at that level. We have talked about and importantly, I think the margin profile of the Cepheid respiratory is no different than the margin profile of other Cepheid tests, right. It’s actually very similar to the flu. So, I think it’s a sustainable number here as we look forward.

[Patrick Donnelly, Citi]

Thanks guys.

[Operator]

We will take our final question from Luke Sergott of Barclays.

[Rainer Blair, President and Chief Executive Officer]

Good morning Luke.

[Luke Sergott, Barclays]

Good morning. Thanks again for the question here. So, I guess I just wanted to kind of dig in on the long-term growth target, the biopharma high-single digits and really trying to figure out where the offsets are coming from? You talked about the mAbs. I know you are adding new capacity, but as COVID kind of is completely up in the air, and that rolls off, give us a sense of how much that could roll off and you guys continue to maintain that long-term growth target?

[Rainer Blair, President and Chief Executive Officer]

Happy to. So Luke, the way we are thinking about that is – the strength of our underlying business, which I laid out here in some details, some clinical trials, mAbs, biosimilar volumes, keep in mind, it’s the commercialized drugs that really drive volume here in this business. And then of course that additional growth accelerator of the single-use technology adoption. Those are really the foundations that are driving the growth of this business. And the COVID business, it will do what it does, but that variation is within the realm of what we have been casting as the overall growth rate of the business. And so you take the backlog, which continues to grow quarter-over-quarter and you take the growth drivers that I have laid out. That is what supports the high-single digit, low-double digit growth for 2022 and the high-single digit longer term growth guide that we have talked about.

[Luke Sergott, Barclays]

Great. Thanks. It’s helpful. And on – so back to Aldevron here, I know they are continuing to add capacity. Is that still – is that coming in faster than you guys expected, or should we still expect that to pace out through ‘23 and ‘24?

[Rainer Blair, President and Chief Executive Officer]

That’s going to continue to pace out as we add line after line after line. But I would say that these are programs that are coming on, on or better than schedule as the team continues to gain speed here not only with their subject matter expertise, which is differentiated. So, unique in the marketplace, but also with their adoption of the Danaher Business System. So, we look for that $500 million here in 2022.

[Luke Sergott, Barclays]

Okay. Great. That’s it all for me. Thank you.

[Operator]

And this does conclude our question-and-answer session. I would be happy to return the call to our host for any concluding remarks.

[John Bedford, Vice President, Investor Relations]

Thanks, everyone. We will be around the rest of the week for questions.

[Operator]

This does conclude today’s call. You may now disconnect your lines and everyone, have a great day.