Danaher has joined the chorus of companies predicting hundreds of millions of tariff costs in 2025. Yet, the company, which made the forecast in its first-quarter earnings Tuesday, expects to largely offset the impact on operating profits through actions including changes to its manufacturing footprint.
The company, which sells diagnostics through subsidiaries such as Cepheid, predicted the tariff impact in its first-quarter financial filing. Abbott and Johnson & Johnson made similar predictions last week.
Danaher CEO Rainer Blair made a more specific forecast on an accompanying earnings call, telling analysts he expects the impact to be “something like $350 million.” The company is well positioned to “largely offset” the tariffs, the CEO said, by taking a range of actions.
“We've been executing to regionalize our manufacturing network of over 100 plants for several years now, which allows us to rebalance these trade flows over time. Think China for China,” Blair said. “We have a combination of both short-term and long-term countermeasures such as surcharges, supply chain management, again, cost actions, but also relocating manufacturing.”
Danaher forecast earnings per share above the expectations of RBC Capital Markets analysts despite the tariffs. The company based its prediction on the tariffs that were enacted and in effect as of April. Blair said “we don't think that the current state of where we sit today is where things ultimately end up.”
Tariffs on U.S. trade with China and Europe are the main drivers of Danaher’s costs. CFO Matt McGrew told analysts on the call that China and Europe each account for around half of the anticipated tariff impact. If the trade war escalates, for example because paused tariffs on Europe are reenacted, Danaher may step up its response to mitigate the effects.
“We can be much more aggressive if we need to be. We've got all those levers to pull,” McGrew said. “I would say everything is on the table here in that situation, if that's what we get to. I think we'd be looking at more significant surcharges. I think we'd be going after costs even harder, and we'd probably be looking at our manufacturing footprint even harder.”
RBC analysts praised Danaher management in a note to investors for providing earnings visibility at an uncertain time. Yet, the analysts also questioned one decision, saying that “not incorporating a potential step-down in customer demand from a pending trade-war seems irresponsible.”
Q1 results exceed expectations
J.P. Morgan analysts said in a note to investors that Danaher’s quarterly results “exceeded expectations.” Core revenue was flat. Blair predicted core revenue growth “in the low single-digit percent range” in the second quarter but said adjusted operating profit will fall. The CEO said the diagnostics division is behind the second quarter forecast.
“The Q2 sequential trend down has everything to do with lower respiratory volume at Cepheid. We've got an assumption of Q2 revenue for respiratory of about $250 million, down from $625 million,” Blair said. “Unfortunately, that is just part of our seasonality now if you do get a good start to the respiratory season in Q1.”
Restructuring, particularly in diagnostics, is another factor, the CEO said. The company has taken steps to manage the impact of value-based pricing in China, and Blair reassured an analyst who asked if the trade war was driving the Chinese government to retaliate against Western vendors.
“We're seeing a fair amount of stability, other than this volume-based procurement and reimbursement issue for diagnostics. Patient volumes continue to be strong,” Blair said. “We don't see China looking to move Western suppliers out of their supply chain.”
