Please stand by, we're about to begin. My name is Tracey, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Danaher Corporation's Third Quarter 2017 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.

Thanks, Tracey. Good morning, everyone, and thanks for joining us on the call. With us today are Tom Joyce, 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, the slide presentation supplementing today's call, our third quarter Form 10-Q 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 October 26, 2017. 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 the continuing operations of the company and the third quarter of 2017, 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 we have applications submitted and pending for certain regulatory approvals. 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 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 Tom.

Thanks, Matt, and good morning, everyone. We're pleased with our performance in the third quarter, as we delivered mid-teens adjusted earnings per share growth, strong margin expansion and free cash flow, and improving core revenue growth. Our two most recent larger acquisitions, Pall and Cepheid, continue to perform well and both teams have gotten off to a great start as part of Danaher. With the Danaher Business System as our foundation, the team's commitment to continuous improvement was a key driver of our results. Our performance in the quarter, combined with a healthy balance sheet, is helping us build momentum for the balance of 2017 and into next year. So with that as a backdrop, let's move into the details of the third quarter. Adjusted diluted net earnings per share of $1 exceeded expectations and represents an increase of 15% over last year. Sales increased 9.5% to $4.5 billion and core revenue grew 3%. The impact of currency translation increased revenues by 1 percentage point and acquisitions increased revenues by 5.5%. Geographically, core revenue in high growth markets was up high single-digits, led by double-digit gains in China. The developed markets increased at a low-single-digit rate with solid results in the U.S. and Japan. Gross margin was 56%, an increase of 70 basis points from last year. And our reported operating margin was unchanged at 16.9%. Core operating margin increased by almost 100 basis points with the strong performance led by our Life Sciences and Diagnostics segments. We generated $935 million of free cash flow from continuing operations, resulting in a net income conversion ratio of over 160%. This outstanding free cash flow generation also represents an increase of more than 20% versus last year, and we continue to anticipate double-digit free cash flow growth in 2017. In terms of…

Thanks, Tom. That concludes our formal remarks. Tracey, we are now ready for questions.

Thank you. [Operator Instructions] And we'll go first to Tycho Peterson with J.P. Morgan.

Hey, good morning.

Good morning, Tycho.

Good quarter. I want to start off with bioprocess. I'd say there is fair amount of noise in this channel right now, just from our discussions with investors between one of the pre-announcements we saw this week, and then Roche getting hit a bit today on the biosimilar stuff. So you had double-digit biopharma order growth there, which was great to see. Can you maybe just talk through the various pieces here in your outlook? I guess, Pall was up in North America, but then you commented on the hurricane impact, and then Asia was down, so I'm just wondering on some of that discrepancy as well.

Sure, thanks, Tycho. We continue to be very positive on the bioprocess market overall. And I think the dynamics in the quarter was such that, we obviously saw the related softness on the shipment side that was associated with the hurricane impact. And those impacts were significant. But I think the order growth that we mentioned and you heard us talk about gives us great encouragement that we're going to see a meaningful acceleration in the top-line associated with biopharma in the fourth quarter. So we feel good about the overall dynamics. The hurricane impact was significant. We were shut down for two weeks in Puerto Rico. We were also shut down partially for two weeks in Florida, associated with our Beckman Life Sciences facility. And so, while the recovery has been a challenging one, we expect to get some of that production recovered in the fourth quarter, probably not all of it. Some of it will extend probably into the first quarter. But we're very confident in the positive underlying growth drivers in the bioprocessing market.

And have you seen any of the destocking that one of your peers mentioned this week with their pre-announcement on the customer side?

Tycho, we have seen some of that, absolutely. And we come to understand those dynamics literally on a customer-by-customer basis. And we're working through those individual customer situations. I think we have a sense of where each of them are. And we worked through like I think a good deal of that in the last quarter or two. It wouldn't be unusual, I think to see a little bit of that carry through into - through the fourth quarter, particularly given that some of those customers have facilities in Puerto Rico by the way. And so, that will take a little bit more time to work its way out, but we do think that's certainly a temporary phenomenon.

Okay. And then for the follow-up I want to ask on Dental, it's great to see Nobel bounce back here. As we think about kind of the anniversarying these destocking headwinds, can you maybe just give us a sense as to how you are thinking about that business return to growth and any color you can provide on outlook for traditional versus specialty consumables going…?

Sure. Well, clearly, I think as we all know, 2017 has been a challenging year for the dental industry broadly defined, but we're actually encouraged by a number of things that we're seeing. Very encouraged by the performance in our specialty consumables business, Nobel and Ormco represent nearly half of our Dental segment. We saw mid single digit growth in the third quarter and it's possible that some of that specialty business growth in those markets are taking a little share of wallet if you will from traditional consumables. And clearly, we've seen some of the sell-out impacting sell-in, and the resulting inventory destocking. However, I would say we have a sense that there is a stabilization going on there relative to traditional consumables. There is probably - there is certainly still work to do, to realign the inventories on the equipment side, relative to some of the manufacturing distributor alignment, realignments that have gone on. So I think there is a number of things that we're very positive about and a couple of dynamics that we think we'll still need to work through. But I think in summary, if we step back from our relative performance in a challenging market, we feel really good about the execution side of what we've done. The team has done a number of things associated with our operational improvements that I think repositioned us very effectively for reinvesting in innovation and go to market that will help us in 2018.

Okay. Thank you.

Thanks, Tycho.

And we'll go next to Scott Davis with ‎Melius Research.

Hi, good morning, guys.

Well, welcome back.

Thanks. I'm excited to be back. And, Tom, only you could talk about PELORIS 3 and get excited about a tissue product. And maybe offline you can explain to me what a tissue product actually is, but…

Glad to, Scott. But in all seriousness, we're glad to have you back, good morning.

Thanks. And good morning to you guys, but thank you. I'll focus in just - because I don't know how many of us industrial guys are left here, but on the industrial businesses, the - it seem like you're increasingly more excited about what you are seeing at Pall. And I assume you're more cyclical businesses like Pall Industrial, Product ID, Videojet, et cetera are setting up for a reasonably accelerating growth. Is this something your - I mean, we're seeing the macro data, but is that something you're seeing in your order books so it's leading some of your enthusiasm there?

I think there is a bit of tailwind there, Scott, in the industrial markets. But I think if you talk about businesses for example, like Videojet that mentioned, that's really more a story of outstanding execution. And it's a combination in execution between terrific new product execution, investments in go-to-market and a tremendous service footprint that creates a real competitive advantage for a business like Videojet. An area where we have seen a really strong market dynamic would perhaps be coming back to your question about Pall and the industrial side of Pall would be in microelectronics, where we see continued growth in that segment of the business, wonderful underlying dynamics, but certainly in Asia, associated with an accelerating amount of chip production associated with the sensors that are now increasingly going into whether it's the telecommunications arena, certainly the iPhone, increasing number of sensors in cars. All of those things are contributing to a pretty strong market in microelectronics. So that will be an example of something that - where there is a market tailwind. But, I think to a great extent, we're more relying on our underlying execution in our industrial businesses than we really are on the market dynamics themselves.

Okay, fair enough. And maybe you mentioned, I just didn't hear it, but what was the cause of margins going down in Environmental? Was it the Trojan revenue decline or is there some sort of mix issue in the quarter?

We clearly had some investments in a number of businesses around Water Quality, and a little bit of the top line softness in ChemTreat, had a little bit of impact there. ChemTreat is by the way was another one of our businesses that was impacted modestly by the hurricane. In the case of ChemTreat, it was actually impacted in Houston where we have a blending facility that had some disruption. And so, just a little bit of the mix on the top-line I think and some investments that we made in those businesses was the source of that impact. But we feel very good about how Water Quality will perform in the fourth quarter. We'll see some improvements there in the fourth quarter and we'll see some reasonable margin improvement as well.

Perfect. Thanks, guys. I'll pass it on. Best of luck and keep up the good work.

Thanks, Scott.

Thanks, Scott.

And we'll go next to Derik De Bruin with Bank of America.

Hi, good morning.

Good morning, Derik.

Hey, back on bioprocess and I'm going to go over the Diagnostics for the follow-up. But on the bioprocess, can you just put a little bit more color on the orders? Are you looking at more traditional biologic manufacturers, biosimilars, or are you actually still - is it orders from some of the small-molecule people because you do sell there? And I guess, is it just - could you also parse out sort of like demand on single-use systems versus kind of traditional consumables. I'm just trying to give a little bit more color on where the demand is.

Sure. And I don't have a precise breakdown, Derik. Let me start with that caveat around the order rates from small molecule customers versus large molecule customers or even by facility on that basis. But in general, what we've seen over this year has been a reasonably balanced order book across those two segments of the bioprocessing market. Relative to your question about single-use, single-use continues to be a double-digit growth business for us, both in terms of the order book as well as what we saw actually in the top line in the third quarter. So we feel terrific about how that business is continuing to trend for us.

I think part of the encouragement in the third quarter order book in the improvement as Tom noted, single-use has been strong throughout the year, including the third quarter just like some of the hurricane issues from a shipment point of view, but the order recover was more broad-based.

Great. Thank you. And on Diagnostics, I know it's probably too early to get a read, but are you seeing any signs at all from hospital labs on what they're purchasing patterns may look like? Order patterns may look like, as they sort of gear up for the PAMA pricing world they're facing next year?

It is too early, certainly. For those on the call it may not be quite as tuned into this reference that Derik made to PAMA. Essentially there is a dynamic going on in the market associated with reimbursement rates associated with test that are done or reimbursed on what's called the clinical lab fee schedule. Derik, it's still early days as you know even that ruling or that those recommendations associated with PAMA are in a comment period now. The industry have raised issues associated with narrow dataset that was used to compared private payer rates with the actual Medicare reimbursement rates. And so, I think, we got a little bit of time here, first of all just to wait to see how does that fee schedule ultimately gets set post the comment period. And then, I think, it's natural to assume that for the small portion of our business that is in - essentially in the outpatient environment and reimbursed through that fee schedule that there would be some pricing pressure. But pricing pressure is a natural dynamic as you know in that market and so we'll just have to wait a bit of time and we can come back to you with a little bit more of an update as things settle out.

Great. Thanks very much.

Thank you.

And we'll go next to Doug Schenkel with Cowen and Company.

Good morning, and thank you for taking my questions.

Good morning, Doug.

I guess, I want to stay on the topic of Diagnostics. You have the highest core growth rate in at least six quarters, I believe. I'm just wondering, if you would talk a little bit more about the key drivers to this improvement and specifically how much of this was from the ongoing Beckman stabilization and growth initiatives. How should we think about sustainability, especially as we are modeling out Q4 2018 and beyond?

Sure. We did have a good quarter without question in Diagnostics. We saw a really good execution certainly led by Radiometer, which delivered high-single-digit growth in the period Leica Biosystems and anatomical pathology, mid-single-digit grower, and we saw improvement in Beckman Diagnostics as well. So we feel good about that, I think we can sustain a growth rate there that certainly probably north of 3%. But Beckman does face the toughest comp that they will face this year against last year's fourth quarter. So we could see a little moderation there against that comp in the fourth quarter. But we do get Cepheid into the core, only for half the quarter, if we got it in for the full fourth quarter, we'd probably be pushing up to - probably in the 4% neighborhood for the full quarter. So we feel good about the progress we are making, Beckman is absolutely still on a journey of improvement across the number of different fronts, but we are really encouraged by the new product innovations that are coming out. We're encouraged by some of the talent infusion that we've made in that business, and certainly a great start at Cepheid and the sustained growth rates in operating margin improvements there have allowed us to continue to reinvest across the platform in R&D, and sales and marketing. Put that together with some new product innovations and we think we are setting ourselves up for some continued improvement in 2018.

Thank you for that. And that's a good segue to my next question on Cepheid. It looks like Cepheid grew 15% year-over-year, and I was looking back at our standalone Cepheid model, and the comp was actually pretty tough, I think they grew 25% year-over-year in the last year quarter. Can you just talk a little bit about what's going on with Cepheid? How much of this is a function of DBS efforts? Essentially, what inning are you in there? And well, why don't I just pause there, because I think that's the crux of the question.

Sure, sure. A terrific quarter without question, at Cepheid. Double-digit core growth, pretty balanced driven across both developed markets and the high growth markets, and most major product lines. Infectious disease, sexual health, both double-digit. Hospital acquired infections is a softer market of course, but we feel good about how we're positioned there. And so I think both geographically and from a product line perspective, we couldn't be more pleased with what's happening at Cepheid. And the investment that continues to on at Cepheid associated with innovation and new products, I think, bodes well for the future. We also continue to invest in their geographic footprint. We're building a team in China right now, it's still early days, but that team is growing nicely, and we expect to see some continued good growth in the high growth markets over time. And then relative to the impact of DBS, I mean, DBS is having an impact at Cepheid, initially around the operating margin improvements, which you saw jump up pretty significantly just in the first six months after we acquired, and we've sustained those and continue to increment those in the six months that follow. And that's really been around a number of initiatives that start with the low-hanging fruit and works then to some of the more challenging things around procurement in the supply chain both direct and indirect costs in a number of different opportunities that we've identified. In addition, DBS is having an impact on continuing to sustain the double-digit growth rate. We've implemented DBS tools associated with new product introductions to become more efficient and more timely in those new product introductions and introduce products with the highest possible quality right at launch. So I think, there's a number of different areas, and if I step back for a second, I'd say one of the most encouraging thing is how readily the tools of the Danaher Business System have been adopted by that team. It's been just terrific to see they have chosen those tools that make the biggest impact on the business, and it put them to work I think in the areas that made the most sense in terms of overall performance. So good to go, we look forward to another good year next year.

Okay. Thanks for all that detail. And congrats on a good quarter and all the progress.

Thanks, Doug.

And we'll go next to Steve Beuchaw with Morgan Stanley.

Good morning, Steve.

Thanks and good morning, hey, guys. I'll throw two. They're a little bit more financially oriented, here real quick. One maybe more of a Dan question, one maybe more of a Tom question. Dan, I wonder, now that we have clarity post Veris on some of the cost savings, how you are thinking about those cost savings is contributive to the margin profile for the Diagnostics business next year. Does that drop through? Do we split that between incremental reinvest by - reinvestment on the commercial side. How should we think about the Veris savings as accretive to margins? And then, for Tom…

Okay. Go ahead, Steve.

Sorry. For Tom, on the last call you introduced or perhaps reintroduced some parameters in terms of how you think about what makes an attractive acquisition target. I wonder, if you could just give us a sense for as you - maybe a little bit more active, given where we are relative to the balance sheet and thinking about what the right thing is to do with that capital? How do you think the environment has evolved in terms of the potential returns on capital, and how those might be different between smaller versus larger assets? Thanks so much.

Steve, I'll kick off, yeah. We're tracking pretty well as we go into next year with an expectation of about $40 million of costs coming out of the Beckman P&L, because of what we've done here with Veris. We are taking a portion of it, probably close to half of that number, and investing that in Cepheid. As you know, we're going to - they're going to take over kind of broader molecular effort here, and we think that investment will help them accelerate some of their activities.

Thanks, Dan. Steve, associated with your question on M&A. First in terms of the environment, I'd say we've seen some modest improvement in activity around deal opportunities. So that gives us some encouragement that there's opportunities perhaps breaking free, but we'll see always hard to predict. Relative to our viewpoint on acquisitions, we have always valued the balance between small and mid-size bolt-on acquisitions that are really accretive both strategically and financially to our platforms. Balanced with larger acquisitions that sometimes add a new leg or an adjacency to a platform or occasionally in our history that have added a new platform. As I've said in the past, our focus really is on the five platforms we have today and looking at adjacencies that might materially improve those platforms as they exist. From a priority standpoint, we always prioritize markets first, and we look for attractive global markets with good growth dynamics. And then we look at companies secondarily, and we look for companies with good growth dynamics and margin opportunities. We certainly value the consumables and the aftermarket side of companies. You've seen us build the portfolio now into the 60 - 65% of the portfolio is in consumables, and that obviously is a key source of underlying growth and stability, a lack of cyclicality and inherently good gross margins. And so we remain very consistent, I think, in those views of what markets and companies are attractive. And then finally, we look at valuation. And we've always valued a disciplined approach to returns. We've consistently said that small and mid-size bolt-on acquisitions, we look for those double-digit returns to be in - roughly a three year timeframe. And then if we're talking about a larger acquisition or an adjacency those double-digit returns still remain vitally important, but the timeframe associated with those maybe a bit longer. Historically, we've targeted inside of a five-year timeframe. Occasionally, those get a hair longer than that, when the strategic value and the long-term opportunity really warrants it. So I would say, our views in terms of the characteristics we look for and the approach, we've taken remain very consistent with our history.

Thanks, Tom. Really appreciate the refresher there.

Thanks, Steve.

And we'll take our next question from Steven Winoker with UBS.

Thanks. Good morning all.

Hey, hey, look who is back. Welcome.

Yeah, Scott and I'll take those every time we can.

Hey, Steve. How are you doing?

Good. How are you?

I'm good. Thanks. Thanks for joining.

Pleasure. Thanks for having me. So listen, just moving back to a couple of topics you already hit on, but I like to go a little further. I remember, when you guys first purchased Beckman. We were really talking about mid-single-digit growth over a long timeframe. So you've seen mid-to-high, and you've seen obviously improvement, right, from flat to low. I'm sure Florida took a little bit of a chunk out. But if you had to kind of point to - has your expectation there changed, shifted? Is there something fundamental? Or it's just all been just a temporary issue that you're kind of working through, and you really believe the growth is there?

Steve, your recollection is a good one. And we do - did and do have a view that Beckman Coulter, the acquisition that we did those years ago, has the potential to become a mid-single-digit growth business, and we would obviously see to drive that beyond that but particularly as we broaden the exposure to certain end markets, like the molecular market, which Beckman obviously did not have exposure to in the past, and where Cepheid now plays such an important role. And it has been a journey, one thing I would maybe remind everybody is that the Beckman Coulter that we acquired was then initially split into two different businesses. And our Diagnostics business became a separate business from our Life Science business. Beckman Coulter Life Science, we often described in those days as an $800 million start-up that we had to kind of take from a flat to declining business and drive to growth. We've done that very successfully Beckman Coulter Life Science has become an innovator in its market and has now driven consistent mid-single-digit growth and great operating margin improvements. And so, we're really pleased with that. On the Dx side, it's been a longer journey. There was a pretty significant inheritance tax that we had to pay, and have continued to have to pay associated with lack of innovation, some quality and regulatory related matters, and frankly, long sales cycles, and frankly, long customer memories. And those have been a challenge for us. We're really pleased with the progress that we've made, taking that flat Dx business, probably actually - probably on its way to declining slightly, and improving it, and improving the operating margins and driving working capital improvements, improving retention rates and win rates. But it's been a long journey and there is still a journey to go. And so, we still believe that the opportunities there are significant and we'll see continuous improvement. But it's been slow going, but we're confident in the improvement potential ahead.

And, Steve, to add to the point, if you put the two Beck together, for example, in the third quarter, they were combined mid single digit growers with a lot of margin expansion.

Okay. That's helpful. Second on Environmental and Applied Solutions, you talked about it a little bit. But I would have thought in the constructive environment that is out there today and given some of the secular tailwinds behind some of the newer parts of that business, that's relatively newer, that you would have seen better than 3% growth core. So again, maybe just talk a little bit about what's going on in terms of the ability to accelerate that even a little. And also, kind of adjacencies as you sort of look at that business and think about kind of adjacent paths that might also supplement forward organic growth after the acquisition's anniversary.

Sure, thanks, Steve. So, important to separate EAS into Product Id and Water Quality, so Product ID remained very solid, mid-single-digit growth in the period, continued outstanding performance from Videojet and good performance from both Esko and X-Rite. I'll come to those relative to your adjacency question in just a minute. But on the Water Quality side, in the third quarter we were little lighter on the core growth side, a low-single-digit growth. Hach showed improvement in - relative to the second quarter and - but we still saw some softness in the environmental business. But again, we firmly believe and we understand that that's more project timing. The muni and industrial side of Hach continues to perform very well. The other dynamic in the quarter, relative to Water Quality was, again, really around project timing at Trojan. Trojan has seen terrific growth - order growth rates this year and good top line performance. In the quarter, we just simply saw some project delays and - but we saw double-digit orders and we think there is actually pretty good potential that Trojan might show double-digit core growth in the fourth quarter. And again, a little bit of a shortfall at ChemTreat related to the Hurricane impact, but ChemTreat has been a very consistent performer. So I think to step back from all that at the Environmental and Applied Solutions segment and we would say we feel very good about the performance there. The underlying order rates are good and we'll see improved performance in the fourth quarter. Relative to your question about adjacencies, I think those two platforms underneath that segment are actually great examples of how we have extended a platform through acquisitions into adjacencies and broadened the number of solutions we bring to customers. If you think about how we broadened Water Quality originally with the extension into treatment at Trojan and into ChemTreat, and ChemTreat how it was accretive to our growth rate, I think great examples. I think Product ID as we extended Videojet back into packaging workflow, all the way back to the brand owner designing that packaging with Esko and X-Rite and Pantone. I mean, those are just textbook examples of how we think about expanding the platform and improving growth rates and the - and our strategic heft if you will. And so, those are good models. We would attempt to continue to extend those models. Again, it's all a question of cultivating the right targets and eventually breaking them free. But we have active pipelines in each one of the businesses that, each one of the platforms to do just that.

Great, very helpful, guys, I look forward to working together going forward. Bye.

Thanks, Steve.

And we'll take our next question from Jeff Sprague with Vertical Research.

Thank you. Good morning, gentlemen.

Hey, Jeff, good morning.

Good morning. Hey, just a couple of quick follow-ons, one back to water. Tom, your confidence on that Q4 timing, I asked that kind of in the spirit that we are hearing about some delays in other pockets in muni work. I'm wondering if these projects that didn't start in Q3 have already started in Q4, I mean, it sounds like the orders and backlog are there. But I guess just to address the risk of potential further push-out. And then secondly, just as we think about your comments back on Dental or maybe equipment now stepping down, I would assume that's going to create some absorption issues in the plants and maybe some other ripple effects, just what are the ramifications for Dental margins in Q4 when you look that swirl of kind of specialized consumables little better and maybe equipment taking a step down?

Okay. Thanks, Jeff. So relative to water in the fourth quarter, we do feel good about water in the fourth quarter associated with the order rates that we mentioned. Your question specifically about project delays, I mean, to some extent there is - that's always a dynamic that can exist in the muni market, but when we're in as close as we are right now, usually we have a pretty good sense, for example, at Trojan in terms of what's going to ship when relative to construction schedules and those kinds of things. Some of what has gone on in our, what we call, our environmental business, which is more associated with government funding and releasing tenders associated with more natural resources like rivers, lakes and streams and monitoring of deep ocean, that's where I think it can be a little bit more uncertain. So balancing all that, I think we have pretty good line of sight to the fourth quarter. Sure, there can always be one thing or another that gets pushed out. But in general or on balance across ChemTreat, Trojan, Hach and the broader portfolio, again, we feel pretty good about where we are. Relative to your question about Dental equipment, this is an uncertain environment in terms of some of the manufacturer/distributor realignment that I mentioned, and the potential impact on equipment. So, I mean, I think we dialed in our outlook reasonably conservatively and we manage the cost structures in the factor associated with the volumes that we see coming, so…

And, Jeff, maybe to add to that, so the equipment side, we will have a couple of tough quarters here, because of what is likely to be a destock in the equipment side. And that will hurt the equipment margin. I still think we get an offset, because we've gone through this destock period on the traditional consumables and we feel like we're kind of getting towards the end of that. And if anything, consumables are more profitable than equipment. So as Tom said, I think it will probably align, equipments going to get tougher on the margin side, but consumable - traditional consumables will start to see some recovery here in Q4.

Okay, great. Thank you.

Thanks, Jeff.

And we'll go next to Dan Arias with Citi.

Good morning, Dan.

Hey, good morning. Thank you. Maybe just on Diagnostics on the topic of the selling environment, if I think back to the beginning of the last year, it kind of sounded like you weren't really sure whether ACA and everything associated with that were material factors. So I guess, as we push through the year, I'm curious what your thoughts are there. Do you feel like health reform issues are affecting demand, or is it more of the - it is sort of the fringe element that's not really impactful on results?

Dan, it is hard to pin down. There is no doubt that the backing and forthing in Washington associated with ACA creates uncertainty in the minds of our customers and uncertainty is never good as we all know. And it creates a little bit of hesitancy, not in all customers, but in some customers, but it's hard to pin down the materiality of that. I mean, there are a couple of things, there is one in particular that is a little bit easier to pin down and that's med device tax. If ACA is repealed as it's been proposed a number of times, the med device tax typically would - it has been - would go out the window permanently. It's been in suspense so far all this year. That had a really very, very modest impact on us, both when it came into being, then when it went into suspense. So, I mean, but that's a more practical and specific example, but again, the materiality of the uncertainty, very hard to pin.

Okay, helpful. And maybe just to finish off that last point, with Dental forecast, unless I missed it, do the puts and takes there net out at Dental, core growth staying up modestly to finish the year or is that not necessarily something we should count on? Thanks.

I think the planning assumption we had going into the second half of being Dental relatively flat, granted we were up kind of 1% here in the third quarter, is a good planning assumption for the fourth quarter. But as we talked about more broadly, we expect accelerating core growth in the fourth quarter. We talked about Pall, we talked about the inclusion of Cepheid. We expect water to get better. So for us the 3% we posted here in the third quarter, we think we'd be looking more to 3.5% to 4% range from core growth in Q4.

Okay, thanks.

Thanks, Dan.

That does conclude today's question-and-answer session. At this time, I'd like to turn the call back to Matt Gugino for any closing or additional remarks.

Thanks, Tracey. And thanks everyone for joining. We're around all day for questions.