A Closer Look at Danaher’s Leverage and Liquidity
Danaher’s (DHR) interest expenses more than doubled from 1Q15 to 2Q16. This rise in the company’s interest expenses was primarily due to the additional debt it incurred in connection with its acquisition of Pall Corporation in 2015.
However, DHR’s interest expenses fell sharply in 3Q16 due to its allocation of some of its consolidated interest expenses to its discontinued operations (FTV).
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In 4Q16, DHR’s interest expenses came in at $32.3 million, significantly lower than $59.1 million in 4Q15 and $43.7 million in 3Q16. According to the company’s earnings call, its lower 4Q16 interest expenses were primarily the result of significantly lower interest rates on its commercial papers offered in Europe. Moving ahead, DHR expects its interest expenses to be ~$40 million per quarter in 2017.
According to company filings, DHR had ~$9.7 billion in the form of long-term debt on its books at the end of 2016, compared to $12.0 billion at the end of 2015. In June 2016, DHR received net cash distributions of ~$3.0 billion from Fortive in consideration of its industrial (XLI) segment’s assets’ contributions in connection with its spin-off. DHR used most of these separation proceeds to repay its long-term debt in 2016.
At the end of 4Q16, DHR’s leverage (average net debt divided by earnings before interest, tax, depreciation, and amortization) stood at 9.01x, higher than 3M Company’s (MMM) 5.61x and Roche Holding’s (RHHBY) 1.48x.
At the end of 4Q16, DHR had ~$964 million in the form of cash and cash equivalents. The company generally intends to use its available cash and the cash generated from its operations to meet its cash requirements.
Danaher generated ~$3.1 billion in operating cash flow and ~$2.5 billion in free cash flow from its continuing operations in the 12 months that ended on December 31, 2016.
Next, let’s look at Danaher’s 2017 guidance and analysts’ expectations.