Danaher Corporation (DHR) Q3 2012 Earnings Report, Transcript and Summary

Good morning. My name is Deana, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation Third Quarter 2012 Earnings Results Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Matt McGrew, Vice President of Investor Relations. Mr. McGrew, you may begin your conference.

Good morning, everyone, and thanks for joining us. On the call today are Larry Culp, our President and Chief Executive Officer; and Dan Comas, our Executive Vice President and Chief Financial Officer. I'd like to point out that our earnings release, a slide presentation supplementing today's call and our third quarter Form 10-Q and the reconciling 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 Financial Information and the subheading Quarterly Earnings, and will remain available following the call. The audio portion of this call will be archived on the Investors section of our website later today under the heading Investor Events and will remain available until our next quarterly call. A replay of this call will also be available until Thursday, October 25. The replay number is (888) 203-1112 in the U.S. and (719) 457-0820 internationally and the access code is 9404363. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the earnings release, Form 10-Q and other materials previously referenced for additional factors that impacted year-over-year performance. In these remarks and accompanying presentation, all references to earnings, revenues and other company-specific financial metrics relate only to the continuing operation of Danaher's business unless otherwise noted. We will also make forward-looking statements on today's call, including statements regarding events or developments that we believe or anticipate will or may occur in the future. It's possible that actual results might differ materially from those projected in any forward-looking statements. And additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is set forth in our SEC filings. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update our forward-looking statements whether as a result of new information, future events and developments or otherwise. With that, I'll turn the call over to Larry.

Matt, thanks, and good morning, everyone. Given what was clearly a difficult operating environment during the third quarter, our team did an outstanding job on the execution front with a 100-basis point increase year-over-year in our core operating margin and a 50% year-over-year increase in our free cash flow during the quarter. For the first time in the company's history, our trailing 4 quarters of free cash flow exceeded $3 billion. We grew 1% organically in the quarter with sales in Western Europe declining at a mid-single digits rate and the U.S. modestly negative, both of which were slightly below our expectations. Despite these macro pressures, we successfully protected our organic investments and stayed active on the M&A front, announcing $500 million of new acquisitions. In addition, during the quarter, we purchased approximately 5 million shares of company stock at an average price of approximately $52 per share. We saw the positive impact of DBS on growth in a number of our businesses, including Esko, Leica Biosystems and Hach. Especially in this environment, we are focusing our efforts on capturing market share. In the quarter, DBS helped to accelerate new product introductions across many of our businesses, and coupled with our go-to market initiatives, drove share gains at Videojet, ChemTreat, Tektronix Communications, Radiometer and Kerr to highlight a few specific operating businesses. Geographically, the emerging markets grew at a double-digit rate in the quarter. China was also up low-double digits, though sequentially we did not see any improvement in industrial and user demand. Health care remains a bright spot in China with our Dental and Life Sciences & Diagnostics businesses growing in excess of 20% in the quarter. Turning to the details of the quarter. Today we reported record third quarter diluted net earnings per share of $0.77, a 7%…

Thanks, Larry. That concludes the formal comments. Deana, we are now ready for questions.

[Operator Instructions] First, we'll hear from Shannon O'Callaghan from Nomura.

So Larry, so the U.S. going a little bit negative. I mean, I guess, how much of that surprised you and maybe talk about some of the key drivers and what you think's behind that?

Yes, I think this -- we wouldn't isolate, Shannon, the U.S. I think it was really from a geographic perspective, both a U.S. and a Western European dynamic here. I think we've said for many years that the third quarter is often about September, certainly given the weak summer that we and others saw. That was all the more true here in the third quarter. We saw an uptick in September. We just didn't see a big enough uptick relative to expectations and again, in a real contrast, I think, to the high-growth markets where we saw that low-double digit growth. I think when you look at it from a product perspective, it's interesting because from a -- consumables were pretty much right where we thought they'd be. We thought they'd be around 4% core. They were, and again that's about 40% of our overall revenue. I think where we saw the swing was really in the bigger ticket capital purchases where, I think, we pegged the U.S. and Europe to be up slightly and it ended up in both places being down slightly. And again, as we indicated in our prepared remarks, Shannon, it was principally in Instruments, Fluke and Tek, certainly saw that in Motion where we're serving bigger ticket capital investments. At Trojan, we saw things soften and push out again kind of big ticket muni spending. And in Life Sciences, I think we saw some of the academic and government spending pressures to a degree. So we're really talking about a couple of hundred basis points of a swing there around, if you will, kind of Western market capital spend.

And as you're sort of launching new products with -- things like AB SCIEX and some of the things that have come out, I mean, are those kind of initial launches not what they used to be? And what are you hearing from customers in terms of any deferral? I mean, are -- is there interest, but they're saying check me again in 3 to 6 months or sort of what's the nature of the feedback?

Well, I would say with the new products, and particularly in Life Sciences, we really couldn't be better positioned. And I think if you look at SCIEX, for example, we continued to ramp around the new products, particularly the 6500 on the high end, the 4500 in the mid-price point range. Talked about the new confocal at Leica, the SP8. So those conversations are -- they couldn't be going better, Shannon. And I think that's why we're alluding to these shipment start-ups and these ramps around products that we really put out in the market in the first half of the year. Those, by and large, have been good conversations. I think it's more, if you will, the bread-and-butter products and programs where we've seen some of the pressure that we're alluding to, again, primarily in the U.S. and in Europe.

Okay, great.

Innovation, particularly in life science research is the -- it's the name of the game. And fortunately, I think, we're in a good position in that regard. We just got to get a little bit more time behind us to get these products ramped.

We'll take our next question from Steve Tusa from JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Could you just talk about what's going on in Life Sciences? I guess, the little bit weaker performance there and the margin is also a bit of a disappointment. Is there anything specific that we should watch out for that's going to be part of this restructuring over the next few quarters that you would expect improvement on there?

Well, let me break it down in terms of the top line, margins and restructuring. If we start with Life Sciences again, Life Science as a group was down low-single digits, I think a real contrast to the mid-single digit growth we saw in Diagnostics, which continue to be, I think, very strong. Again, I think with AB SCIEX and with Leica, which are the 2 engines there of course, we saw academic and government spending be more muted here in the second half than we were anticipating. And we've seen that in the wake of some of the austerity, some of the sequestration concerns that are out there. As we ramp some of these new products, we'll get some benefit to offset that more modest spending environment. But I really think that's largely what we're talking about here, Steve, in terms of what we're seeing in Life Sciences. It's largely a Western dynamic. I think we help ourselves a good bit as we get these new products out the door. But again, as we flag a fourth quarter growth rate in line with what we've seen here in the third, it's in part due to a view that the spending environment in and around some of these bigger ticket items will be less robust in the short term than it would normally be. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Why does that get better? I mean, isn't there a risk that, that gets actually worse if these guys don't get together and get something done here near term? I mean, isn't that kind of a -- what's kind of the worst case for that related business for next year in case something happens here with the cliff that's coming up?

Well, I -- my view, Steve, and this is maybe one of the few times we get the benefit of being here in Washington, talking to a lot of folks out, say, at the NIH up on the hill. I think regardless of how the election plays out, regardless of which party's in charge, I think there's a view that the U.S., much like China, much like Germany, needs to invest in life science research. It's the right thing to do. It's a source of national competitive advantage. So I don't think we worry so much about the long-term worst case. I think what we're seeing is a -- is more temporary given the strategic long-term interests that these customers, be they government or nongovernment, have in mind. And again, to the earlier question, as we continue to fuel innovation, like the 6500 and the 4500, it's SCIEX, the SP8 at Leica, Navios at Beckman and flow cytometry, I think we'll be well positioned to take share of the spending that is left out there around the world. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: But I guess, as you contingency plan for next year, is this a business that could possibly be down double digits in a worst case scenario?

I don't think that is in our planning scope at this point, Steve, in any way, shape or form. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Okay. And then one last question just on you guys buying back stock. Just maybe what's the -- how did that decision -- how'd you come to that decision, and does that reflect on perhaps a lack of acquisition opportunities out there? I mean, historically, you guys have been pretty good buyers of your stock. It's performed well after you've bought it. I'm just curious as to with such a lack of visibility out there on the macro, why step up and do it now.

Steve, I think it's -- clearly, the bias is to the M&A side. And as Larry alluded to, we've spent about $1.5 billion year-to-date on M&A. The buyback represented about 1/6 of that amount, but we do, as you pointed out, we do periodically go in and buy back some stock. You'll remember we issued about 20 million shares last year, so it's an opportunity to sort of bring some of that stock back in. And in terms of -- hard to read EPS within a couple of cents, but that's not really how we look at the buyback. We look at it on a cash basis. So we issued the stock last year at $52. At that point, our free cash flow was about $2.21 billion. And we were able to buy that stock back at an average price of $52. And right now our free cash flow is $3 billion, up 40%. So it just seemed like a good investment and a good opportunity to take some of that stock back. But clearly the bias is on the M&A side.

We'll take our next question from Deane Dray with Citi Research.

For the expectations on the M&A side, I know we've talked about the interest in rebalancing the portfolio more towards the -- or lowering the Life Sciences, Dental, Med Tech to closer to 40%. IRIS came up. It looked like a nice tuck-in for Beckman, but how are you thinking about the mix versus what you look in the funnel of potential M&A opportunities?

Well, Deane, let me hit maybe on 3 points. First, I think the intent today is just as you described it. I think we would be very keen to put the next $1 billion, $2 billion, $3 billion to work predominantly outside of Life Sciences & Diagnostics and Dental. I think as we look forward, we want to maintain that balance. We think that serves the company and shareholders very well. I think as you look inside the funnels, to your specific question, we're active in a whole host of areas in that regard. So I think we continue to be optimistic. Per Dan's comments a moment ago, we'll be able to deploy capital in that direction in a serious, meaningful way. Third point I'd make is that, certainly, as you can appreciate, IRIS coming on board is a wonderful addition. Urinalysis is one test modality that Beckman is not in today. I think IRIS, through our global distribution channels, will be a significant contributor going forward. Clearly, digital pathology is a core trend of the future in and around one of our most successful businesses, that being Leica Biosystems. And if Leica can come anywhere close to doing in digital pathology with Aperio what they were able to do at Vision Systems in advanced staining, I think we'll be very happy. That said, let's keep in mind that if you step back on just the spend here in 2012, at least the commitment, we're talking about $1.5 billion and I think just over $1 billion is outside of Life Sciences and Dental. So we're very happy with what we've done with X-Rite and Product ID. We've made some important additions to the Communications business at Tek Comms and so forth. So I think the intent is as it was. I think the funnel's in good shape. And if you look at the body of work so far this year, a couple of nice life science additions to be sure, but I think you see that intention very much playing out with the capital decisions we made.

Great. And just as a follow-up and since we're on the topic of the M&A funnel and you and I have spoken about this before, but just like to hear an updated thought process about Danaher's potential interest in specific Software-as-a-Service type of businesses. And clearly, so much of Danaher businesses today already have embedded software whether it's Esko or Tek Communications. But are there opportunities for Danaher to look into specific stand-alone Software-as-a-Service? And what would be the mindset and evaluation expectations for those types of businesses?

Well, Deane, I think the short answer is yes. Because as you rightly point out, whether it's what we've seen at Esko, what we're increasingly doing at Tek Comms, software is not only a critical component of the value we create for our customers, but the business models around how we deliver that value are evolving and whether it's Software-as-a-Service or some of those other Web-based or cloud-based models, I think you are going to see that being of increased importance, and thus, interest to us. I suspect you can see us approach this not only inorganically but organically as well. We're a week away from completing our strategic plan reviews for all the businesses. This was a common theme of opportunity as we look to extend our hardware- or equipment-based value props in just a whole host of places, some of which you actually might be quite surprised to see. In terms of valuations, obviously, the valuation parameters we've talked about in the past, I think, are going to hold here. I don't think in any way we would see different business models really requiring us to depart from, frankly, some old school math in terms of cash-on-cash returns. But as we've seen thus far, as we look forward, we think we'll be able to do that. So I don't think you'll see 10 of the next 10 deals be SaaS-based transactions, but clearly that's the way the world's moving and those sorts of additions to the portfolio will be strategically important and I think value enhancing along the way.

We'll take our next question from Jon Wood from Jefferies. Jon Davis Wood - Jefferies & Company, Inc., Research Division: So Larry, thanks for the update on the Beckman top line experience there. Could you offer us an update on how the margin trajectory looks for that business as well as cash flow? Just where you are from a synergy perspective and how you're tracking relative to the plan you laid out at the December Analyst Day.

Jon, this is Dan. Maybe I'll add just a few facts and let Larry add a little bit of color. I mean, we continue to track quite well, up 400 or 500 basis points year-on-year. We will do the $120 million of restructuring in the fourth quarter. It will be broad-based, but Beckman and others will clearly be part of that and we expect some additional opportunity from that as well in terms of higher margins going into '13. As you know, in the procurement side in a regulated industry, things can take longer. That was part of our plan. We're making progress there. Again, you'll see some of that benefit. So we clearly will achieve the $250 million of cost savings that we thought we would have in '12 and believe there's another $100 million of costs to come out and margin improvement between '13 and '14. So I think we're pretty well positioned. From a cash flow perspective, it's just -- it's been terrific. We've taken out about $175 million of capital out of the business through the first 9 months of the year. That's on top of a pretty large number in the second half of last year. So the cash flow at Beckman has just been extraordinary.

Jon, I would just add to that, that clearly, as you well know, the foundation of that strong initial financial performance is what we're doing from a quality, from a service perspective first and foremost. We've had a number of the key facilities, Brea, Chaska reinspected without incident. Very encouraged by that. Obviously, we've got the troponin submissions into the FDA. We were out a fair bit over the last 6, 7 weeks for some strategic reviews. We had the board out, in fact. Just the core DBS implementation around service calls and past dues. Service calls, for example, unscheduled calls down 20% from a year ago. Just a lot of good improvements that we see in our metrics there that customers are beginning to see. In the prepared remarks, we flagged the progress we're making on the growth side. Again, we're not going to try to get too far ahead of ourselves but encouraged by what we're seeing, not only in retention, but increasingly the [indiscernible] opportunities we get for new business where we are not the incumbent on the back of some of these improvements. And as we get outside of the U.S. and we get outside of Western Europe, clearly the high-growth markets continue to really contribute to the overall performance that we're seeing. We had, for the first time, all the Diagnostics businesses together out in Brea, looking at some of the strategic synergies, both top and bottom line. That was a great week to have Radiometer and Leica Biosystems in addition to Beckman together. So we're excited about where we are, but I'd say all the more excited about the future in and around Beckman and the Diagnostics group.

We'll hear next from Jeff Sprague with Vertical Research Partners.

Just a couple kind of random things here. Just back on margins, Test & Measurement, the decremental seemed very severe there. Was there something particular going on with mix or restructuring or something in the quarter? Can you just elaborate a little bit more there?

Jeff, the reported -- if you just look at the base numbers, it was almost 100%. But if you strip out acquisitions and FX, it was 60%, still a high BCM on that. It is our highest gross margin business and our highest BCM business. Clearly, we're doing some restructuring. We'll do more restructuring here in the fourth quarter. That's an element of it. We are also sustaining investments across a number of our T&M businesses. So I think as we get through some of the restructuring here in the second half, that BCM degradation will decline and again we're -- I think we're of the view that this is not going to be as pronounced a downturn as we saw a couple of years ago.

So you are expecting the business revenues declining into the fourth quarter again?

Yes, we are. Yes.

And just back to the questions on Beckman. So you're getting a lot of year-over-year margin improvement, but did the margins improve sequentially? Obviously, the segment overall did have organic growth, although you had some weak spots, but the margins were down sequentially in the segment aggregate.

Yes, we were down, I think, 80 or 90 basis points. There was a little bit of -- there was a write-down of an investment that Beckman had made prior to our acquisition that impacted margins a little bit in the quarter. And the biggest impact on margins is the fact that Life Science was down not only at Beckman, but broad based we were down at LSD. So our Diagnostics margins were up year-on-year, but the sequential decline was really driven by Life Science where the core growth was negative.

And just on the restructuring, Dan, do you expect to get dollar-for-dollar payback next year or does it spread into '14? How do we think about that?

The $120 million, we should get about a $90 million payback. And maybe, maybe we don't get all of that in Q1, but by Q2 we think we'll be fully ramped on that. So we'll get the 95% of that here in '13 is our expectation at this point.

Okay. And then just finally, is there a desire to retire that entire 20 million shares that are related to the Beckman deal?

Well, you knew I'll give the same answer as M&A. I mean, we don't have a plan there. We will continue to look at it periodically and opportunistically.

We'll take our next question from Nigel Coe from Morgan Stanley.

Wanted to focus on a couple of the bright spots first. The free cash flow was exceptional and it sounds like from your comments, Dan, that a lot of that was due to Beckman Coulter. So I'm wondering how much of that 130% or so of conversion was driven by -- or has been driven by Beckman Coulter this year.

Sure. If you look at our year -- our 9-month performance where our free cash flow to continuing net income, it's about 140%. If I took away the $170 million of capital we've taken out of Beckman, it'd still be 130%. Now even if we own Beck, say, we're 3 years from now, we're not going to get $170 million, but we'd still expect, say, $50 million. But if I take that all, put it on the sidelines, we'd still be 130% conversion. We're seeing broad-based, very good cash flow across our businesses.

Okay. So the message is more to come from Beckman, but perhaps not $170 million?

That's right.

Okay. And Larry, how do we think about China here? Because China was up low-double digits versus fairly flat in 2Q. Do you feel that double digit is sustainable from here?

Well, I think, Nigel, we are more the beneficiaries of easier comps right now than we are any pronounced pickup in China. So we're thrilled to be back, printing double-digit deltas here. I suspect we'll be close to being able to do that in the fourth quarter again. But I think until we get into '13, until they're on the other side of at least their transition and perhaps are pulling a few more policy levers than they pulled this year, I think that's really going to be the dynamic. The comps will make us look better, but we'll be fighting for business virtually everywhere. The export base there, as you know, is soft, in part as a function of their exposure to Europe. We feel that probably most in Instruments, particularly at Tektronix and probably to a degree in Motion. We're very pleased again with both Life Sciences & Diagnostics as well as Dental. Don't really see any reason that, that would in a pronounced way slow and we would expect, given their 5-year targets, for that to be another highlight in '13. But otherwise, I think we're probably, certainly like many others, of a more cautious view in the short term relative to China, certainly in contrast to perhaps where we were in the springtime.

Okay, that's helpful. And then maybe just finally, could you help us think about 4Q in terms of obviously September was a bit softer. How does that flow through into 4Q especially given that we got some tough comps coming up in 4Q? And then on top of that, we normally see a pickup in margins in Life Sciences and one or 2 other businesses. Should we expect to have some of that normal seasonality coming through?

Maybe I'll just, on the Life Science, you -- we're going to have -- they're going to get their fair share of restructuring in the fourth quarter in Life Science Diagnostics. But despite that, you'll see a nice sequential improvement here from Q3 and maybe broadly on...

Yes, I mean from a top line perspective, Nigel, again, I think we're going to see or would expect the fourth quarter to come in pretty much in line with what we've seen here in the third quarter. But that's despite a 300-basis point easier compare. So I think there were a number of places where September showed a little bit of a push at the end, but not enough for us to get excited. At least, I think on balance, that might have been pent up from July, August, some of that perhaps is just typical quarter-end stuff. But I think we've remained concerned about the U.S. and Europe, particularly with respect to capital or bigger ticket discretionary sorts of things and we could see some of that get pushed again.

We'll hear next from Julian Mitchell from Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: The first question just really on pricing. So I guess, you called out that pricing was pretty good in Industrial, Tek and Environmental. I just wondered if the margins in Life Science and Test & Measurement, when you were talking about the sequential move down in Life Science and the heavy year-on-year decrementals in Test & Measurement, was there anything going on, on price? I mean, the volumes have obviously softened as you've gone through the year. Are you starting to see price get a little bit worse in any of the business segments?

I mean, Life Science price, Julian, was slightly negative in Q3. But I think that's pretty comparable to what we saw in the first half. Again, it really was more of the fact that you had your high BCM equipment business and Life Science being down organically really driving the margins. Probably a little bit of element to that in T&M, price probably a little bit more of an impact on margins. We were running probably about 0.5 point of price in the first half of the year and we didn't get any price in Test. It wasn't negative, but we didn't get any price in the third quarter. So that probably hurt us a little bit on the margin side in T&M. Julian Mitchell - Crédit Suisse AG, Research Division: Okay. And then just on the portfolio, I mean you've obviously announced the JV divestment will close early next year. When you look at the rest of the portfolio, I mean, are you sort of broadly happy with that? You feel that you've got out most of the areas now after the last 18 months and it's really just a question of how much M&A you do from here?

I think that's broadly the case, Julian. I think as we look at the portfolio, while we would never say never, we would submit that over 90% of the revenues today are in our desirable growth platforms. So as we think about the next $1 billion, the next $5 billion of activity, it should be acquisitions more so than divestitures and again, hopefully, balanced across the 5 segments.

We'll take our next question from Steven Winoker with Sanford Bernstein. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: I know Beckman gets most of the limelight now from Tektronix, but could we maybe go back to Tek a little bit. I guess this is the fourth quarter of continuing worsening core growth. It was low -- down low single, down mid single, down high single and now down midteens. And maybe just dive into that a little bit and versus your expectations and the updates we've gotten over the year in terms of how you think that, well, past the integration now and how that business unit's kind of playing out from your perspective within the portfolio and whether this is just a cyclical issue.

Well, yes. I think that when we look at Tek, we wouldn't -- I think any business within Danaher has a healthy list of improvement opportunities and Tek is no different, Steve. But if we look at the second half performance here and the outlook Dan just referenced, I think what we've seen is, frankly, that the technology end markets that we serve and some of the key geographies, particularly China, have been soft. We -- I think we're of the view that they would be firming up a bit, that we'd begin to anniversary some of those down comps and that would be helpful. But between what we're seeing in Tek and what we're seeing in China, particularly, that's not the near-term outlook unfortunately. So again, I don't want to suggest to you that we are executing flawlessly there. But I think it's largely a macro call and we want to get to work on the things we can control and ride out the macro as best we can. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Is it living up to your return on capital expectations in terms of how that's -- or is that getting pushed out even further at this point?

I mean, in light of the top line this year, it's getting pushed out. I mean, we're -- I mean, our communication side of the business is way ahead, but the top line on the instruments side has pushed that out. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Right, okay. And -- but strategically, there are no sort of major changes to the direction of that business, right?

No. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay, all right. And then maybe contrast that with some of the strongest performing accelerating growth from Product ID and -- we're seeing it in Product ID, we're seeing it in ChemTreat, we're seeing it in Radiometer where it's something like between 11 and 16 quarters of straight growth. That's been pretty significant. And in acquisitive areas also over time, how are -- what is driving some of that consistently? Is it the product introduction side that you're frequently referencing or how should we think about that?

Well, I think if you were to put those businesses on the table, Radiometer or even Leica Bio, you talked about ChemTreat, you talked about Product ID from BJ to Esko, you'd really break it down, Steve, I think, differently across the businesses with DBS being the common denominator. Better go-to-market execution in terms of what the marketers are setting up for the sales force and the way the sales force is executing in the field. New product innovation is very much an important part of what we're doing in those businesses, without question. But the third bit, which is still important, is what we do from a quality delivering cost perspective. Some folks think that, if you will, kind of shopfloor DBS is relevant, but whether we're going into the factory in Copenhagen at Radiometer or the service network at ChemTreat or even in the software routing labs at Esko, DBS has a lot of positive impact so that the rest of the business can really operate without a tremendous amount of friction. So we can kind of break down each one of those stories, but it's just, I think, day in, day out strong, balanced, continuous improvement in those 3 areas, which is driving the growth that you see. Certainly in Product ID, we get the secular benefit of broad exposure to supply chain, product security and more customized marketing trends, particularly in consumer goods. Clearly, at ChemTreat, we're benefiting from a fair bit of market disruption over time as well. In Diagnostics, particularly in critical care and in oncology, unfortunately, those are both growth sectors where Radiometer and Leica Biosystems, respectively, are exceptionally well positioned. So we get a -- we got to make a little bit of our own luck there, but we also think we face some broader secular trends there and elsewhere that are going to be good over the long haul. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Great. And just a final detail, the euro assumption that you have into the, I think, $0.01 in the fourth quarter from FX, could you just give us that your -- on your assumption?

Yes. I mean, it's just basically the $1.30 versus kind of the mid-$1.20s where it was over the summer.

We'll take our next question from John Inch with Deutsche Bank.

Larry, did the second half of September, because I know that September is a very important month and often these quarters, there are swing factors in the final days of the quarter, did the second half of September or as the quarter played on or the month of September played on demonstrably weakened versus expectations in terms of the CapEx dynamic that you were talking about?

I wouldn't say it was -- there was broad-based weakening that accelerated in the last week or 2, John, but we certainly saw some places where we saw some things push that we thought wouldn't in the last week or 2. But didn't try to tally it up to determine what that meant when the dust settled.

Were there any pockets of the portfolio that actually got a little bit better than expected?

I think the consumables businesses or the consumable parts of a number of the businesses, again whether it's Product ID, even Diagnostics, were solid. I wouldn't say that we saw an uptick. There were some places where we saw POS pick up a bit. But I really wouldn't want to try to get into a lot of detail there, John, because I think it would be potentially misleading. I think we saw, by and large, that September uptick just wasn't enough and the tone out there, again in the U.S. and Europe, particularly, is x housing, x autos where we don't have a lot of exposure, it's just not that buoyant right now.

Yes, that's fair. Can I ask you, you guys did a tremendous job of preserving profits in the last recession. This time around you're sort of in advance of a lot of companies in terms of restructuring and doing some more restructuring than previously called out. If the U.S. were to tip into, let's say, a mild recession, do you feel as confident that Danaher would be able to have as many cost levers to go after, if you will, to be able to preserve profitability the way you sort of did last time?

Well, I certainly would say that we would have that intent, John. I think that when you think about the downturns as I think Dan was alluding to earlier, we're not in any way anticipating a post-Lehman, a post dot-com sort of downturn. If there's anything out there of that nature, we would expect it to be more muted. The operating challenge, of course, is to make sure that we're balancing what we do on the cost side with the protection of our organic investments, be they short term in terms of go-to-market or longer term around new product development. But that's always the case. I think what we've tried to do not only back in the summertime with the $100 million call out, now the 20% increase to that restructuring effort here this year is just to give ourselves more latitude in that regard as we think about earnings growth and long-term growth investments going into '13.

Just lastly, Larry, given the deal you did in China and the downturn in China, is that shaking out more M&A opportunities for you there for whatever reason, maybe more willing sellers or just evolution of markets? How are you thinking about that?

John, I think that's -- it's an interesting question. I think we're more optimistic today about our China M&A outlook than we've ever been. It's hard for me to pinpoint the root cause because the macro dynamics that you highlight, I think, are very much in play. I also think that our team's doing a better job. So it's really the combination, which I think fuel our optimism.

We have time for one final question, and we'll hear from Jon Groberg with Macquarie Capital.

So I guess just one big picture question, Larry. You said you expected 4Q to be similar to 3Q in terms of core growth, but obviously, as you mentioned, your comps get much easier. So if you think about sequentially, maybe thinking about those big buckets that you talked about, consumables versus instruments, is it the instruments that you expect to maybe be a little bit worse sequentially in the fourth quarter, or just kind of how you're thinking big picture about the sequential dynamics of the business.

Good morning, Jon. You nailed it. If we break down consumables versus equipment, we would look broadly and say we think consumables, again, despite the comps will be in that 4% range. But we would -- we'd expect equipment and primarily, again, around some of the businesses that we flagged to be down slightly.

Okay. And then if I can, just 2 quick clarifications. One, it was kind of hit on, on the Tektronix business and I guess you don't really have much more insight in the next 3 months or so as to what will happen there, but on the Life Sciences side, I was just a little -- it looks like AB SCIEX in 2Q and 3Q was kind of low-single digits. So I just want to clarify kind of what happened there. Was it more the Leica business because I think they're similar sizes, was it more the Leica business that was down worse than expected or did you expect that AB to be -- to grow even better than it did in the quarter?

You're right again, Jon. It's principally the softness at Leica that is bringing down the overall number there. Sciex, as you can appreciate, probably has a little bit of pent-up business here with the timing of the launches come out of ASMS purely with the 6500. But on balance, it is a -- it's a Leica story.

Okay. And then last one just quickly, how are you thinking about the medical device tax in '13 and maybe just either size it, I know it's under manufactured costs, so it's maybe not the full 2%, but I'm just -- and are you going to be able to offset that in any way? Just curious how you're thinking about it today.

I was hoping to avoid any political questions here a few weeks before the election. But I think we're in the process of working through our options and the impact here, Jon, as we, I think, gear up from an operating perspective in the fourth quarter not only from -- with our '13 budgets, but frankly some of the more tactical considerations. Clearly, we need to be mindful as to what others do here but to the extent that we can pass some of this along, we will attempt to do that.

And Jon, I mean, we'll go through all the detail in our budgets here in November. But our kind of top-level look is if the full tax goes in and we're not able to recover any of it and that's not going to be our assumption, but just lay out the math, it'd probably be about a $0.01 a quarter hit. So $10-plus million a quarter hit.

Okay. I know you'd talk about it more when you give guidance, but just people are already going to have '13 estimates, so just wanted to make sure we were clear.

That will conclude our questions-and-answer session. I'd like to turn the call back over to Matt McGrew for closing remarks.

Thanks, Deana. Thanks, everybody, for joining us today. Deana and I will be around all day for follow-ups.

That does conclude today's conference. We thank you for your participation. You may now disconnect.