Danaher Corp

NYSE:DHR

Earnings Call Analysis

Danaher Reports Strong Start and Stable Outlook

Danaher Corporation began 2024 with better-than-expected results, achieving $5.8 billion in sales and generating $1.4 billion in free cash flow. Despite a 4% decline in core revenue, the company maintained confidence in long-term growth. The diagnostics sector showed strength, whereas biotechnology faced challenges, particularly in China. For the full year, Danaher reaffirmed its guidance of a low single-digit core revenue decline with a gradual improvement to high single-digit growth by year-end. Adjusted operating profit margins are projected at 29%【4:0†source】.

Introduction and Overall Performance

Danaher Corporation started 2024 with a positive momentum, exceeding expectations in revenue, earnings, and cash flow for the first quarter. These results were driven by significant improvements in order trends in its bioprocessing division and market share gains in Cepheid. This strong start and the positive order trends support the company's full-year outlook, which remains unchanged.

Sales and Revenue Breakdown

The company's first-quarter sales totaled $5.8 billion, but core revenue declined by 4%. Developed markets saw a slight decrease in core revenues, with diagnostics showing strong performance, although this was offset by declines in biotechnology. High-growth markets declined by low double digits, particularly a high teens decline in China due to a challenging economic landscape.

Profitability Metrics

Danaher reported a gross profit margin of 60% and an adjusted operating profit margin of 30.1%, down by 170 basis points due to lower volume, which more than offset the favorable impacts of cost-saving initiatives. Adjusted diluted net earnings per share were $1.92, and the company generated $1.4 billion in free cash flow, boasting a free cash flow to net income conversion ratio above 130%.

Geographical Insights

In North America and Europe, bioprocessing customers are gradually moving back to regular order patterns as they process their excess inventory. In contrast, demand in China remains weak, as customers are conserving capital and prioritizing specific programs. Despite these challenges, the company maintains its full-year outlook of a low single-digit core revenue decline in bioprocessing.

Segment Performance - Biotechnology and Life Sciences

Biotechnology segment revenue dropped by 17%, with high teens declines in bioprocessing and ~20% decreases in discovery and medical areas. Orders improved by mid-single digits sequentially, although the book-to-bill ratio was 0.95. In Life Sciences, core revenue decreased by 3%, with mid-single digit declines in Life Sciences instruments and variability in demand based on different market sectors.

Clinical Diagnostics and Molecular Diagnostics

Clinical diagnostics achieved mid-single-digit growth, with Beckman Coulter Diagnostics benefiting from new product introductions. In molecular diagnostics, Cepheid's core revenue increased by double digits, largely driven by respiratory revenue exceeding expectations. The installed base of Cepheid systems grew significantly, contributing to robust growth in other diagnostic assays.

Future Expectations and Guidance

For the second quarter, Danaher anticipates core revenue to decline by mid-single digits and an adjusted operating profit margin around 26%. Full-year projections remain unchanged, with an expected low single-digit core revenue decline and an adjusted operating profit margin of approximately 29%. The company continues to focus on innovation and strategic investments to fuel long-term growth in attractive end markets.

Earnings Call Transcript 2024-Q1

[Operator]

Hello. My name is Todd, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's First Quarter 2024 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, executive]

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 and a note containing details of historical and anticipated future financial performance 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 7, 2024.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics relate to results from continuing operations and related to the first quarter of 2024, 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 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, executive]

Thanks very much, John, and good morning, everyone. We appreciate you joining us on the call today. We're off to a good start in 2024, with our team delivering better-than-expected revenue, earnings and cash flow. We were especially pleased to see improving order trends in our bioprocessing business and believe we continue to gain market share at Cepheid in the quarter. Now this better-than-expected start to the year, paired with improving funnel and order trends further supports our full year outlook, which is unchanged from our previous guidance.

Our first quarter results also reflect the unique positioning of Danaher's portfolio today. Our businesses are well positioned in attractive end markets, all underpinned by long-term secular growth drivers with high margin, high recurring revenue business models. Our strong free cash flow generation also positions us well to further enhance our portfolio going forward.

Now it's not just the portfolio that differentiates Danaher, it's how we run the business using the Danaher Business System or DBS. Our team's commitment to executing with DBS enables us to deliver impactful new innovations to our customers and drive meaningful process improvements in our businesses, both of which are helping position Danaher for sustainable long-term performance.

Now a prime example of the power of DBS is the CEO Kaizen we kicked off just 2 weeks ago. During this pivotal annual event, our most senior leaders, operating company presidents and thousands of associates come together to address some of our most significant opportunities for material and sustained improvements in our businesses.

In fact, just last week, I rolled up my sleeves at one of our filtration manufacturing facilities in Pensacola, Florida to focus on increasing manufacturing throughput and reducing lead times. DBS is our culture, and this year's CEO Kaizen underscores how our commitment to continuous improvement at all levels of the organization can contribute to a better customer experience, and a lasting competitive advantage across our businesses.

So with that, let's take a closer look at our first quarter 2024 results. Sales were $5.8 billion in the first quarter and core revenue declined 4%. Geographically, core revenues in developed markets were down slightly with broad-based strength across diagnostics, offset by declines in biotechnology. High-growth markets declined low double digits, including a high teens decline in China where the economic landscape remains challenging.

Our gross profit margin for the first quarter was 60%. Our adjusted operating profit margin of 30.1% was down 170 basis points as the favorable impact of cost savings initiatives was more than offset by lower volume. Adjusted diluted net earnings per common share were $1.92. We generated $1.4 billion of free cash flow in the quarter, resulting in a free cash flow to net income conversion ratio of more than 130%.

So now let's take a closer look at our results across the portfolio and give you some color on what we're seeing in our end markets today. Core revenue in our biotechnology segment declined 17%, with bioprocessing down high teens and discovery and medical down approximately 20%. In bioprocessing, we had a modestly better-than-expected start to the year. Orders increased mid-single digits sequentially from the fourth quarter of 2023 and our book-to-bill ratio increased to approximately 0.95. Now this is particularly encouraging as we typically see a seasonal order decline between the fourth quarter and the first quarter.

In North America and Europe, our larger customers are making steady progress working through their excess inventory with many returning to their regular order patterns. We expect inventory levels of these customers to have largely normalized exiting the second quarter. We are also encouraged with improvements in the overall funding environment. While we don't expect these improvements to impact order activity in the near term, it is a positive indicator for the long-term health of the bioprocessing market. Now in China, demand and underlying activity levels remain weak as customers are continuing to conserve capital and prioritize programs.

Now for the full year 2024, there is no change to our expectation of a low single-digit core revenue decline in our bioprocessing business. And there's also no change to our assumption of a gradual improvement through the year to a core revenue growth rate of high single digits or better as we exit 2024.

Despite near-term headwinds, robust underlying market trends reinforce our confidence in the health and long-term growth profile of the biologics market. Underlying demand for biologic medicines is projected to grow at a high single digit or better rate again for the full year 2024. There is also an increasing number of therapies advancing through the development pipeline and breaching the market. In fact, the number of new FDA approvals for biologic and genomic medicines grew more than 50% last year. These positive trends reinforce our conviction in the significant opportunity ahead in the high single-digit long-term core revenue growth trajectory for our leading bioprocessing franchise.

Now we continue to make substantial investments in innovation geared towards helping our customers reduce the time and cost of biologic drug production. Cytiva's recently released Xcellerex magnetic mixing system is a great example of how we are improving productivity and reducing risk in biologic drug manufacturing. This innovative single-use cell culture media mixer enables faster and more consistent mixing and is specifically designed to prevent leaks common with other large-scale mixing systems that can lead to complete batch loss. This also marks another significant milestone for Cytiva as the first new product release to be developed, leveraging the capabilities of our recently combined Pall Life Sciences and Cytiva R&D team.

Now let's turn to our Life Sciences segment where core revenue decreased by 3%. Total revenue in our Life Sciences instruments businesses collectively declined mid-single digits with trends in the first quarter largely consistent with what we saw in the second half of 2023.

In developed markets, pharma and biotech activity remained stable but at lower levels of demand. We did see improving funnel activity as the quarter progressed, but this increased activity has not yet translated to orders. Academic and applied markets performed comparatively better, particularly for our more advanced instrumentation. In China, declines were driven by difficult comparisons as a result of the prior year stimulus programs and lower demand as a result of weaker underlying activity levels.

Our genomics consumables business delivered low single-digit core revenue growth in the quarter. Double-digit growth across plasmids and protein was partially offset by declines in next-generation sequencing and gene writing and editing solutions.

While current end market conditions remain challenging, our Life Sciences businesses are well positioned for the long term. A combination of investments in innovation and strategic acquisitions over the last several years has increased our exposure to attractive end markets in Life Sciences and accelerated our growth trajectory. Additionally, with high-margin recurring revenue now comprising more than 60% of the segment, we see opportunities for future margin improvement.

Let's move to our Diagnostics segment, where our core revenue increased by 7.5%. Our clinical diagnostics businesses collectively delivered mid-single-digit core revenue growth. Beckman Coulter Diagnostics was up mid-single digits for the fifth consecutive quarter with solid growth in both instruments and consumables. The segment's recent strong performance is a direct result of leveraging the Danaher Business System to improve both innovation and commercial execution, new product introductions over the last few years, including the DxI 9000 Immunoassay Analyzer, the DxC 500 Chemistry Analyzer and the DxA 5000 Fit Automation System have expanded our offerings and improved Beckman's competitive positioning. We're also seeing better win and retention rates across the portfolio.

And like a biosystem system, the Aperio GT 450 DX Digital Pathology slide scanner recently received FDA 510(k) clearance. Now with this significant milestone, the GT 450 can now be more widely used in pathology labs, moving digital pathology one step closer to becoming the standard of care for clinicians. Digital pathology provides many benefits to clinicians, including improving analytical capabilities through predictive algorithms, enhancing slide imaging and increasing productivity. All of which help provide a more accurate and timely diagnosis of patients. So this clearance also highlights how proprietary innovation is driving long-term core growth at Leica.

In molecular diagnostics, Cepheid's core revenue increased double digits. And as I mentioned earlier, we believe the team continued to gain market share during the quarter. Cepheid's respiratory revenue of approximately $675 million in the quarter exceeded our expectation of $575 million, driven by both higher volumes and a favorable mix of our 4-in-1 test for COVID-19, Flu A, Flu B and RSV. Now based on current global trends and respiratory infection rates, we continue to expect respiratory revenue of approximately $1.6 billion for the full year of 2024.

Cepheid's installed base continued to grow in the quarter to over 55,000 systems globally, a more than threefold increase since 2019. The team's thoughtful approach to placing systems that customers with clinical use cases beyond the pandemic has continued to drive increased menu adoption and utilization.

We're seeing this today through growth rates in assays such as Group A Strep and sexual health, which were each up more than 40% in the first quarter. We're also seeing customers return to testing protocols that were suspended during the pandemic, which helped drive mid-teens growth in hospital-acquired infection assays.

Now in January, Cepheid received expanded FDA clearance with a CLIA waiver for the Xpert Xpress MVP test, which is the latest addition to our growing women's health portfolio. With the addition of the CLIA waiver, Cepheid's customers can now provide critical testing in care settings that are more easily accessible to patients, like a physician's office or a local clinic, reducing the need for multiple office visits and significantly narrowing the tested treatment gaps often associated with therapeutic failure. This is a great example of how bringing accurate, easy-to-use molecular testing closer to patients is improving treatment outcomes and driving long-term growth at Cepheid.

So now let's briefly look ahead at expectations for the second quarter and the full year 2024. In the second quarter, we expect core revenue to decline in the mid-single-digit percent range. Additionally, we expect a second quarter adjusted operating profit margin of approximately 26%. For the full year 2024, there is no change to our previous guidance. As a reminder, we anticipate a core revenue decline in the low single-digit percent range and a full year adjusted operating profit margin of approximately 29%.

So to wrap up, we're pleased to deliver first quarter results ahead of our expectations and look forward to building on this momentum as we move through the year. Our team's commitment to innovating and executing with DBS is driving meaningful improvements in our businesses and enabling us to deliver more breakthrough solutions to our customers, so there's a bright future ahead for Danaher. The transformation in our portfolio paired with our organic growth investments has created a lineup of outstanding franchises that are all well positioned in highly attractive end markets.

We are a focused life science and diagnostics leader positioned for higher long-term growth, expanded margins and stronger cash flow. So we believe this unique combination of our incredibly talented team, the strength and differentiation of our portfolio, and leading financial profile provides us with a strong foundation to create sustainable, long-term shareholder value.

And so with that, I'll turn the call back over to John.

[John Bedford, executive]

Thank you, Rainer. That concludes our formal comments. Operator, we're now ready for questions.

[Operator]

[Operator Instructions] Our first question will come from Jack Meehan with Nephron Research.

[Jack Meehan, analyst]

I wanted to focus on the bioprocessing business here. So orders to start the year bucking seasonal trend in a positive way. Rainer, can you unpack for us what do you think is driving that? Any commentary across customer types like pharma versus CDMO? And any comments on cancellation trends would be great.

[Rainer Blair, executive]

Jack, thanks for the question. Maybe we start off with Q1 and what we're seeing today. So as we talked about from a revenue perspective, we had a modestly better-than-expected start to the year. And looking at orders, we grew mid-single digits sequentially, and typically orders decline from Q4 to Q1, so that's encouraging. And our book-to-bill increased to approximately 0.95, which was right in the middle of our expected range, Jack.

So -- we've also gotten some questions here regarding recurring versus equipment orders and sales, I thought I'd talk about that for a minute. And I'd characterize both our equipment and recurring orders and revenues as in line with our expectations. Our recurring business was better than equipment growth in both orders and revenue and grew sequentially versus the fourth quarter. And our equipment was down sequentially versus the fourth quarter and while we saw some modest headwinds, those were as we expected. So there's really no new news here.

Geographically, our larger customers in North America, Western Europe are increasingly returning to pre-pandemic ordering patterns. So we continue to expect destocking to be largely behind us as we enter the second half of the year. Now while the emerging biotech funding environment is improving, we're not yet seeing it translate into orders. So early days, but helpful.

Moving on to China. Demand and underlying activity levels remain weak. So if you put it all together, the first quarter was an encouraging start to the year. And as we look ahead to the second quarter and the rest of the year, there's really no change to how we're thinking about the full year. We expect the first half to be down mid-teens. As we talked about in January, we continue to believe we'll exit the year with high single digits or better core revenue growth.

[Matt McGrew, executive]

And Jack, as far as cancellations goes, I know you brought that up. So I would say that during the quarter, like Rainer said, the book-to-bill was kind of 0.95-ish, right around there. It wouldn't have been much different. Cancellations really were pretty minimal here this quarter, which I think is another sort of positive sign. I think, we saw the last several quarters, they were much, much bigger than they were here in the quarter. So a little bit of a tailwind there as well.

[Jack Meehan, analyst]

Excellent. And another bioprocessing question. As we get back to the new normal or I guess, what is the new normal here, everybody is trying to compare and contrast your commentary versus others. I was curious how you see competitive dynamics shifting at all in the industry.

Just if you think back over the last couple of years, there is this narrative that second-tier players were picking up some share when Cytiva and others were out of stock. I'm curious if there's anything you would call out in that regard that you're seeing.

[Rainer Blair, executive]

Jack, I really wouldn't. I would tell you that through the acquisition of the GE Biopharma business and now bringing Pall Life Sciences and that business together in Cytiva, we really feel like we have a very strong bioprocessing franchise. And we continue with the Kaizen mantra, the continuous improvement mantra, to improve what we do every day. And so we believe that we have a highly competitive franchise, and that will not only continue to be the case but increasingly so as we move through the year and the near future.

[Operator]

Our next question comes from Michael Ryskin with Bank of America.

[Michael Ryskin, analyst]

Congrats on the strong trend. I'm going to ask one follow-up on bioprocess, and then I'll move on from that topic. So just to start, I mean, Rainer, as you were saying, you were surprised that orders improved 4Q into 1Q and it seems like you had some positive commentary on inventories exiting the second quarter.

So why aren't you raising the bioprocess guide for the year, just given where you are sitting at the end of 1Q? Is there any additional conservatism you're putting in? Or just like what are you waiting to see from the market to feel more confident than you did 3 months ago, just given the progress you've seen so far?

[Rainer Blair, executive]

Thanks, Michael. Well, I mean, like we said, we had an encouraging start to the year, but it's still early. There's -- there's really no change, as you said, to our full year core revenue growth of down low single digits. And what we're really looking for here is the order momentum to continue to build through the second quarter and some continued stability in the run rate consumables.

And of course, longer term with a view towards the longer term, we'd like to see equipment demand improve. While that's a small part of the business, only about 15%, of course, it's important for the long term. And it's good to see then the emerging biotech funding solidify, stabilize but we don't see that materializing in orders yet. So there's a little bit more to go here, and we think we're properly positioned with the guide.

[Michael Ryskin, analyst]

Okay. That's helpful. And then switching over to the margin side of things, again, really, really solid quarter. When we think about how you came in ahead in 1Q versus expectations, it seems like a combination of just overall volume, but then also mix from Cepheid and bioprocess, I'm sure contributed. Anything we should think about as you go through the rest of the year? You're pointing to 26% margins in the second quarter and then 29% for the year unchanged. I mean anything in terms of mix that's leading to that? Or just how do we think of the key pieces there?

[Matt McGrew, executive]

Yes, Mike. So for Q2, I think that's definitely right. You talked about approximately 26% adjusted operating margins. That is a sequential decline versus Q1 that was about 30%, and that is all due to lower respiratory volumes at Cepheid. It's -- the Q2 respiratory revenue was 6 -- or sorry, Q1 was $675 million. We're thinking more like $200 million for Q2. So a pretty big drop off. And given the margin profile of that business and the operating leverage we get, it's pretty meaningful when that declined. So I would say the 2Q decline is all related to respiratory volume at Cepheid and maybe some FX as well.

But you bring up a good point as we sort of think about the way that you're likely to see sort of maybe different seasonality out of our margin progression than you have in the past, given that we're sort of in an endemic state now versus where we were in COVID and it really does come back to that respiratory season.

So if you think about the respiratory season, which is both Q1 and Q4, those are the highest volume quarters at Cepheid by a lot, right? Q1 and Q4 are going to be quarters that we anticipate being north of $500 million each. You saw that we did $675 million in Q1. In Q2 and Q3, as we sort of guided to, we're talking about revenue of only a couple of hundred million dollars.

So the margin profile, operating leverage, I think you're going to see Q4 and Q1 be Danaher's higher volume -- higher volume and margin quarters going forward. And that's a little different than maybe what we saw in the past pre-pandemic, and that's largely because respiratory was a much smaller business. Only $250 million pre-pandemic 2019 and now it's $1.6 billion. So hopefully, it gives a little bit of color and help people modeling as we go forward because I do think we have a little bit of a different dynamic that probably is just showing itself a little bit now here as we get through some of this stuff.

[Operator]

Our next question comes from Scott Davis with Melius Research.

[Scott Davis, analyst]

Guys, I'm looking at the Life Sciences margins, and I see the breakdown of why they're down. They seemed down a little bit more than I would have thought on a minus 3% core. Can you give us a little bit more detail on perhaps some of the ebb and flow there and mix issue?

[Matt McGrew, executive]

Yes. Scott, I thought the margins in Q2 actually came in probably a little bit above where we thought at 23%. I mean I think if you look at kind of the volume there being down, and also, you've got Abcam that has come in here, and we've got some transition costs related to Abcam that are either in that number as well. And so operating leverage with core growth down, low single digits and as expected, kind of had some of the dilutive impact of Abcam is probably the big thing here in the quarter, but I still think it came in around where we thought.

[Scott Davis, analyst]

Okay. Fair enough. So guys, just going back to Abcam, I mean, you didn't talk about it in your prepared remarks, but you've had a little bit of time with the business now. Can you talk us through perhaps some of the early reads of positives and negatives?

[Rainer Blair, executive]

Sure. Scott, as you know, we closed in December on the business and now have the first full quarter behind us. And we put a new Danaher President and CFO in place, and they're really focused on the transition into Danaher and implementing the Danaher Business System. So we're going to continue to work through it, and we're going to need a little time to get after some of the growth and cost opportunities we spoke about. And long term, of course, we continue to believe this is a great high single-digit grower in a fantastic market.

[Matt McGrew, executive]

Yes. And Scott, we've seen this before. I mean, you've followed us long enough that sometimes these -- as you put in a new team, you've got a business that had some challenges on the cost side. As we introduce DBS, we've sort of seen maybe slow starts before like this. And as we get going, IDT was very, very similar.

So it's sort of -- it's not really surprising, but I do like what Rainer said, I like where we're at in the long term. And I think we are going to get after some of the costs here pretty quickly as well. So I think it will cost some money to do that, but we're getting after it, and I think you should expect us to do that here for the balance of the year as well.

[Operator]

Our next question comes from Vijay Kumar with Evercore ISI.

[Vijay Kumar, analyst]

Rainer, I guess, for my first one, on bioprocessing, those comments were helpful. With the 0.95x and the order trends, could you perhaps talk about the progression in the quarter? I know the guide didn't change, but given the 0.95x in customer activity levels, should the exit rates for fiscal '24 change? I think the prior was exiting maybe 1x or north of 1x. And I'm wondering if those assumptions have changed.

[Matt McGrew, executive]

Maybe I'll take that first, and Rainer can add some color. I would say that as far as the pacing through the quarter goes, I would say that we saw a little bit better start in January, and that really did continue through the quarter. So I'm not sure that it was a big inflection in any given month.

As far as the exit rate, I still think we're going to exit here, high single digits. We've talked about that. I don't think there's any change to that. And I would not change anything from our initial revenue guidance where we sort of framed that as -- in order for us to deliver the down low single-digit revenue for the full year, we would need to see every quarter, the book-to-bill in the 0.9s. And so I think we were right in that range here in Q1, and I don't think that there's any change for that, and that's reflective of why we have also not updated or changed anything with the guidance.

[Vijay Kumar, analyst]

Understood. And maybe my follow-up, perhaps, Rainer, on the China and IDT commentary. China, I know you mentioned comps, but there's been some noise around new loan programs, stimulus, et cetera. Does that change your view on China? Is this incremental? Does it matter in IDT? I think given some of the business have come up in the BIOSECURE Act, what is IDT's exposure, if any, to China? And I think you mentioned IDT declined in the quarter. Was that China, ex-China, was that share loss or end market? Any comments would be helpful.

[Rainer Blair, executive]

Sure. So starting off with China. I mean we have not changed our perspective for the full year, which we expect to be down high single digits. And certainly, we are closely following these discussions around the stimulus that's in play that you know is very broad-based in terms of an equipment replacement program that ranges from agriculture to heavy industry and also includes health care markets like our own.

But it's very early days, and it's not clear yet how that's to be implemented, whether that's via the central government, whether it trickles through to the provinces. So a lot to be seen there. And at this point, we don't expect that to have a large impact here in 2024, and that's why we stick with our perspective of a high single-digit decline for the year. So of course, we'll keep moderating -- monitoring that.

Now when it comes to IDT, IDT is a very small exposure in China. And that's really not the part of the IDT playbook at this point. IDT is doing well, and we're actually very happy with IDT's performance, which has been growing mid-teens since we've acquired the company and has operating margins over 30%.

[Operator]

Our next question will come from Doug Schenkel with Wolfe Research.

[Douglas Schenkel, analyst]

So Life Sciences, that as a segment, that was better than you guided. You talked about instruments declining mid-singles. You sounded actually pretty good on what was going on reagents and consumables. I guess what I'm wondering is, were instruments a little weaker than you expected? And then sort of by extension, were reagents and activity stronger than expected? I'm just trying to think about the trends there and kind of what that could mean for the rest of the year.

[Rainer Blair, executive]

Thanks, Doug. Well, thinking about Life Science tools, which you know represents just around 10% of our businesses, what we saw in the first quarter is largely consistent with what we've seen through the second half of '23 with core growth in the first quarter down mid-single digits. And to give you a sense, in developed markets, pharma and biotech customers are stable, albeit at a lower level of demand. And academic and applied markets held up better comparatively particularly for our more advanced instrumentation.

So we're actually starting to see improved funnel activity for later in the year, but those haven't translated to orders yet. So it's good to see more activity, but it's not showing up in the order book yet with the cycle times being what they are for that -- those kind of deals.

Now if you think about China, and that's an important part of this market, of course, you -- last year, we were sort of at the peak of the execution of the stimulus plan in China last year. So the comps are tough here, both in Q1 and Q2. And in addition to that, of course, you've got lower end market demand just due to the weaker macro there.

And then lastly, and as I mentioned to Vijay, we're closely following those discussions around the stimulus but it really is early days here, and we're not able to include that yet in any view towards the future. So we'll continue to monitor that as we go forward.

And then I'll just conclude here on the life science tools market that what we're seeing is as expected, this normalization trend coming off tough comps in the first half of last year. And we expect that to continue here in the second quarter. But then in the second half, we should see some improvement there.

[Douglas Schenkel, analyst]

Super helpful, Rainer. One very quick unrelated follow-up. I think as we sit here today, Danaher probably has $30 billion, maybe as much as $40 billion if you stretched for the right deal in M&A capacity. I'm just wondering, how you're feeling about the environment right now, especially given where rates are and where funding is as we sit here today?

[Rainer Blair, executive]

Doug, as you know, our bias for capital allocation is towards M&A. But there's no doubt that with higher interest rates, the bar is higher. And as active as our funnel work is, we're not going to compromise on our earnings expectations here, our return on invested capital targets. And that just means that we have to work all the harder here to meet those higher hurdle rates. But nonetheless, we're very active as we always are, and we'll continue as we have with great discipline around M&A.

[Operator]

We'll take our next question from Dan Leonard with UBS.

[Daniel Leonard, analyst]

Rainer, you've mentioned a couple of times that the improvement in biotech funding hasn't benefited the business yet. Can you elaborate a bit on your thinking there? How long of a lag do you think you'd see between improved funding and improved business activity? And how does that differ across your different operating units?

[Rainer Blair, executive]

Thanks, Dan. So we have seen a stabilization or perhaps even the slightest improvement in biotech funding. But for that to be operationalized here, will take some time. In fact, we believe so much time that we have not changed our perspective on our guide in any of the businesses as it relates to biotech funding.

So it's early days. It's positive to see and helpful to see the biotech funding stabilize and even showing the slightest of growth. But it's just too early and that will take several quarters here to make any discernible difference across the business.

[Matt McGrew, executive]

Just to give you a sense of color on it, we really haven't contemplated anything from an order perspective until kind of next year in how we've thought about our goods.

[Daniel Leonard, analyst]

Got it. Appreciate that. And just a quick follow-up on China. I know you framed the high-teens core decline as being in line with plan, but curious how different end markets within China progress versus plan. And also curious whether that comment you made on improving funnels in Life Sciences, whether that applies to China as well. Or are the trends in China different?

[Rainer Blair, executive]

So back to the first quarter. In China, our biotechnology segment was down nearly 40%, which is in line with what we've seen over the last quarters here. In Life Sciences, we were down high teens that gives you a sense of not only what's going on in the market, but the high comp of the prior first half in 2023. And then in Diagnostics, we were down low single digits, to give you a sense of how that's developing.

As it relates to biotech funding, you are correct that we expect the biotech funding to be skewed more towards developed markets than in China, and it remains to be seen when that returns. So while we're seeing a stabilization there, that stabilization is at a very low level in contrast to what we see in the developed markets.

[Operator]

Our last question will come from Rachel Vatnsdal with JPMorgan.

[Rachel Vatnsdal Olson, analyst]

Congratulations on the quarter. So I just wanted to ask on BIOSECURE Act and how you're thinking about the potential impact to bioprocessing. So we've already heard that stem pharma and biotech companies are starting to look at their supply chains and working with some of these Chinese CDMOs given some of the headlines we've seen around BIOSECURE.

So can you just walk us through what are you hearing from customer conversations on your end with the Chinese CDMOs, but also with pharma and biotech customers and their willingness to partner there? And then additionally, I guess, how should we think about this from a longer-term implication standpoint? Could this shift growth to other geographies? And if so, could there be some type of timing or air pocket dynamic as you shift manufacturing from China to other geographies?

[Rainer Blair, executive]

Thanks, Rachel. So the BIOSECURE Act, it is, as you can imagine, very difficult to say how this ultimately plays out if we look at potential passage or not, that sort of thing. And of course, there's many details that are not known yet. Having said that, and as you suggested, customers are starting to call this out as a risk factor to their business, and of course, are starting to take measures to derisk their business in terms of the molecules that they've developed and ultimately want to manufacture.

So if manufacturing and clinical trials, should they shift to other locations, of course, our solutions follow the molecule. That's -- it's really important to note that with our global business and our capability, perhaps more so than anybody, we can deliver our solutions anywhere around the globe with full support from a technology and service perspective. So we have that ability to follow those solutions.

In terms of timing, again, this is a business where pharmaceutical companies need to minimize and mitigate risk. So in terms of air pockets, that remains to be seen as pharmaceutical companies perhaps search for other partners for their clinical trials and their manufacturing. And of course, we're going to do great work there and should it be necessary in terms of technology transfers and making sure that any transitions here from one service supplier to the next run as smoothly as possible.

[Rachel Vatnsdal Olson, analyst]

And then just as a follow-up on bioprocessing. You highlighted that equipment is weaker, consumables were kind of where the strength was in 1Q. Can you just walk us through on your assumptions for both of those trends for the rest of the year to get to the full year guide? And then specifically by year-end, you pointed towards high single digits or above growth in bioprocessing on a core basis. What's really assumed from that from a recovery cycle standpoint on consumables versus equipment, and then any geography trends as well?

[Rainer Blair, executive]

Rachel, we actually don't break it down in terms of how we guide for a quarter or a full year between consumables and equipment. We stay at the top level. And as we pointed out, we were happy to see the sequential growth here in the first quarter of 5%. And what I can say is that the recurring revenue represents about 85% of bioprocessing. And of course, that was also the major driver of the improvement in orders that you saw and the book-to-bill in the quarter. And of course, that's where our focus was, is that's where the destocking was taking place here over the prior quarters.

So if you think about our guide here for the full year for bioprocessing, down low single digits, 85% of the business is recurring and roughly 15% is equipment. I think that's the best way to think about that in terms of our guide and how that splits.

[Operator]

Thank you. At this time, I would like to turn the call back over to John Bedford for any additional or closing remarks.

[John Bedford, executive]

Thank you, everyone, for joining us today. We'll be around all day and rest of the week for follow-ups. Have a good day.

[Rainer Blair, executive]

Thanks, everyone.

[Operator]

This does conclude Danaher's First Quarter 2024 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.