Good day. My name is Eric, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation third quarter 2015 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the star-two keys. As a reminder, today's conference is being recorded. I will now turn the call over to Mr. Matthew Gugino Vice President of Investor Relations. Mr. Gugino, you may begin your conference.
Thanks, Eric. 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 reconciliations, and other information required by the SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the investor section of our website, www.danaher.com, under the heading Financial Information. The audio portion of this call will be archived on the investor section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until October 29, 2015.
The replay number is 888-203-1112 within the U.S. or 719-457-0820 outside the U.S., and the confirmation code is 357158. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials in our third quarter Form 10-Q describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to specific financial metrics relate to the continuing operations of the company in the third quarter of 2015, and all references to period-to-period increases or decreases in financial metrics are year-over-year. 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. With that, I'd like to turn the call over to Tom.
Thanks, Matt, and good morning. Today, we reported another record third quarter for Danaher. We are pleased with our team's execution, which drove solid core growth, earnings performance, and free cash flow. In a weakening global macro environment, we saw the positive impact of the Danaher Business System across our portfolio. Our consistent pace of new product introductions and go-to-market initiatives led to mid-single-digit growth or better for several of our operating companies, including Hach, Trojan, ChemTreat, Gilbarco, Radiometer, SCIEX, Videojet, and Matco. We're also making steady progress on the separation front. This quarter, we announced many key leadership positions for both NewCo and Danaher and began to identify new growth opportunities for many of our associates. With strong teams in place at both companies, we remain on track to complete the separation in 2016. With that as a backdrop, let's move on to the details of the quarter.
Adjusted diluted net earnings per share were up 6% to $1.05. Reported revenue grew 6.5% to $5 billion, while core revenues increased 3%. Acquisitions increased our revenue by 10.5%, while currency translation was a 7% headwind. Geographically, growth rates were balanced between the developed and the high-growth markets. Within the developed markets, the U.S. remained steady, growing at a low single-digit rate, while Western Europe increased mid-single digits as a result of share gains in a number of our businesses. In the high-growth markets, demand was mixed, with strength in India partially offset by weakness in Brazil, Russia, and the Middle East. In China, growth moderated slightly from first half levels but still grew mid-single digits in the quarter. Third quarter gross margin was 52.5%. It increased 40 basis points or 80 basis points, excluding acquisition-related adjustments from Pall.
Core operating margin declined 10 basis points and reported operating margin was 15.9%. Excluding the impact of foreign currency, core operating margin expanded 50 basis points. Free cash flow for the quarter was $691 million, resulting in a free cash flow to net income conversion ratio of approximately 115%. We expect this solid performance to continue in the fourth quarter. We're also having a record year on the M&A front. In addition to Pall, we closed or announced nine acquisitions for approximately $650 million in the first nine months of 2015, bringing our total spend to over $14 billion. Our funnels at both Danaher and NewCo are strong, and we expect to focus our activity on small and midsize transactions throughout the separation process. In August, we closed the acquisition of Pall ahead of schedule, thanks to diligent work from both our teams.
We're excited to welcome this iconic brand to Danaher, and we're already impressed by the enthusiasm and commitment we're seeing as Pall associates begin to embrace the DBS process. Ultimately, we expect the thoughtful application of DBS tools and principles to result not only in an improved growth trajectory, but in a better experience for our customers. We remain confident in our ability to achieve the $300 million of cost synergies we previously outlined, and have financed the acquisition in an interest rate environment that is very favorable for highly rated companies. Now turning to our five operating segments. Test and measurement revenue declined 2%, while core revenue increased 2.5%. Both reported and core operating margin increased 80 basis points to 22.7%. Our instrument platform core revenue increased low single digits.
At Fluke, core revenue grew low single digits as strength in our biomedical and calibration product lines was offset by weakening industrial demand in China and North America. Tektronix revenue declined low single digits as solid demand in North America and Western Europe, particularly for our high-performance oscilloscopes, was offset by weakness in Latin America and Russia. Tektronix innovations continued to lead the market as we introduced several new products this quarter. Notably, we began shipping our new high-performance oscilloscope, the DPO70000SX, this quarter. The DPO offers the most accurate real-time performance and highest analog bandwidth on the market. It combines patented signal-capturing technology, compact design, and highly scalable architecture to help reduce signal noise and distortion so electrical engineers can better understand and solve their most complex problems. Moving to environmental, revenue increased 1%, with core revenue up 6%.
Core operating margin expanded 185 basis points, while reported operating margin was up 160 basis points to 22%. Our water quality platform's core revenue increased mid-single digits, with Hach, ChemTreat, and Trojan all growing mid-single digits or better. Across the platform, the Danaher Business System is helping our R&D, sales, and support teams bring new products to market faster, convert leads to new business, and drive customer loyalty. At Hach, this drove broad-based growth across all major product lines and geographies, including China and Latin America. As water becomes an increasingly valuable resource, our customers are more focused than ever on analyzing their local water supplies with the greatest degree of accuracy and simplicity. Hach's new products, including the SL1000 PPA that we introduced last year, enable customers to perform critical tests and analyze data more easily than ever before. ChemTreat also grew across all of its major geographies.
In spite of the challenging environment, revenue in Latin America grew double digits, thanks to the team's outstanding execution and quick adoption of DBS in our recent acquisitions, AQUACEL and LIFEPAK. Trojan also had a solid quarter, driven by healthy demand and increased bidding activity in the North American municipal market. Turning to Gilbarco Veeder-Root, GVR had a strong quarter, delivering high single-digit revenue growth as robust demand in North America was partially offset by a decline in China. In the U.S., double-digit sales and order growth in point-of-sale solutions and dispensers continued as retailers began to implement new and upgraded EMV-compliant systems. We expect EMV regulations to drive demand at GVR for the next several years. Turning to life sciences and diagnostics, sales were up 14.5%, while core revenue grew 3.5%. Operating margin decreased 490 basis points to 10.8%, primarily due to the dilutive effect of recent acquisitions.
Margins were also negatively impacted by continued weakness in emerging market currencies and cost actions taken during the quarter. In addition, we continued to invest in feet on the street and new product initiatives to accelerate future growth. Our diagnostic platform delivered low single-digit core revenue growth. Specifically at Beckman Coulter, core revenue grew low single digits driven by our immunoassay and urinalysis products. During the quarter, we launched the DxH 500, a low-volume hematology analyzer designed for use in physician office labs. The DxH 500 offers fast, powerful data processing software and longer uptime, saving our customers time and money and helping keep their focus on patient care. At Radiometer, healthy demand in both high growth and developed markets contributed to high single-digit revenue growth. This marks Radiometer's 15th consecutive quarter of high single-digit growth or better.
All major product lines grew mid-single digits or better, led by AQT, which was up more than 20%. Leica Biosystems sales increased at a low single-digit rate, as strength in Western Europe was partially offset by a double-digit decline in the Middle East. Demand remained healthy for both advanced staining consumables and our recently acquired Devicor business. This August, we celebrated Leica's 10-year anniversary as part of the Danaher portfolio. Over the past decade, Leica Biosystems has built a leading pathology diagnostics platform through a series of strategic acquisitions and organic growth investments. Leica Biosystems now generates over $800 million in annual sales and has nearly eight times the operating profit it had in 2005. Our life science platform core revenue increased at a mid-single-digit rate. High single-digit growth in the U.S. and double-digit growth in Europe were offset by weakness in the high-growth markets.
SCIEX core sales grew mid-single digits, driven by continued strength in our pharma and clinical end markets. During the quarter, we enhanced our QTRAP and Triple Quad mass spectrometry systems with the addition of the 6500+ series. Offering revolutionary sensitivity, wider sample coverage, and faster switching speeds, the 6500+ helps researchers detect more compounds to better understand disease, protect our water and food supplies, and develop pharmaceutical therapies. Customer reception has been very positive, and sales since launch have exceeded our expectations. Leica Microsystems core revenue increased slightly as growth in the U.S. and Eastern Europe was largely offset by weakness in Western Europe, Latin America, and the Middle East. Orders were stronger, up mid-single digits, with robust demand for our medical and life science products. We recently launched the DVM6 digital microscope for use in quality assurance, research and development, and forensics applications.
With a combination of outstanding optics, intuitive operation, and smart software, the DVM6 enables users to change objectives with one hand and process results with the other, all while automatically keeping samples in focus. In addition, it's offered in three configurations, which help our customers find a solution that best fits their applications, workflows, and budget needs. Moving on to dental. Total revenues increased 23.5%, largely due to our Nobel Biocare acquisition, while core revenue decreased slightly. As a result of this decrease, we saw a 55 basis point lower core operating margin, while reported operating margin also declined 240 basis points to 14.8%. Nobel Biocare is approaching its first anniversary at Danaher and delivered another quarter of solid results. Since acquisition, Nobel has delivered mid-single-digit average daily sales growth and over 150 basis points of operating margin expansion.
NobelClinician, our implant workflow management software, has helped drive this success, and during the quarter, we celebrated our 10,000th clinician customer. Within the rest of the dental segment, growth in consumables was offset by a decline in our North American and Middle Eastern equipment businesses. During the quarter, Kerr launched the SonicFill 2 in Europe, building upon the success of the original SonicFill by providing dental practitioners with more options for color matching and filling strength. Since its launch in North America earlier this year, the SonicFill product family has grown double digits. It remains the only single-step sonic-activated handpiece that allows clinicians to easily fill cavities in posterior teeth. Turning to Industrial Technologies. Sales decreased 6.5%, while core revenue was flat. Core operating margin expanded 20 basis points, while reported operating margin increased 10 basis points to 24.4%.
Our automation platform's core revenue declined low single digits, with weakness in North America and China. In North America, we experienced weaker demand from our distribution partners and have seen a contraction in capital spending. Product identification core revenues increased low single digits. We saw particularly strong demand for our marking and coding products, which grew mid-single digits in Europe, and we believe we continue to take share in that region. Videojet grew mid-single digits with growth across all major product lines. Driving innovation in the market is a key focus area for Videojet, and year to date, the team has launched several new products that help increase efficiency, improve quality, and ensure reliability for our customers. During the quarter, Videojet expanded its thermal inkjet offerings with the launch of the m600 oem.
The m600 was designed specifically for packaging machine builders in the pharmaceutical, cosmetics, and food end markets and offers a 60% smaller footprint, reduced heat emissions, and expanded control options for critical coding applications. In summary, we had another good quarter, delivering solid core growth, free cash flow, and earnings performance. In a challenging global macro environment, we've continued to enhance our businesses through organic growth initiatives and strategic acquisitions. As we move forward, we believe the strength of our portfolio, combined with our team's steadfast execution through the Danaher Business System, will help us deliver strong operating results and shareholder value for the remainder of 2015 and beyond. Wrapping up, for the fourth quarter, we anticipate approximately 2% core revenue growth, which will be impacted by four fewer selling days versus last year.
Adjusted diluted net earnings per share from continuing operations are expected to be between $1.25 and $1.29, which implies year-on-year growth of 12%-15%. Thanks, Tom. That concludes our formal remarks. Eric, we're now ready for questions.
Thank you. As a reminder, it is star one to ask a question, and we ask that you limit to one question or one follow-up question. We'll take the first question from Nigel Coe with Morgan Stanley.
Oh, thanks. Good morning, guys.
Nigel. Morning, Nigel.
Just wanted to pick up on some of the guidance, Tom. It seems that September was weaker than the rest of the quarter. Just maybe comment on that and the 2% core growth as we enter full Q shouldn't be a surprise given the selling days pressure. Given the weaker September, is there a risk it could be a bit weaker than 2%?
Thanks, Nigel. Good morning. Overall, we have seen some incremental slowing in the macro. That being said, it's in pockets. There's some pockets regionally where we've seen some of that slowing, clearly, and in some of the more industrially oriented markets. We saw that in September, but I would not say we've seen some form of a step change in demand across the portfolio. In fact, we think generally the portfolio is very well positioned. It clearly differentiates us. Generally, we think when you look at the strength of the portfolio, when you look at the fact that we got the Pall closing done, and we're getting after the opportunities that we have there. We see the year-over-year FX impacts potentially dissipating as we move forward. Clearly some weakening, but my inclination is continue to play offense.
We need to continue to be cognizant of both the headlines and our trend lines, but our bias is to build on our strengths. Despite some slowing here, we think the fourth quarter could largely be consistent on a days adjusted basis anyway, with what we've seen here in the late going in September.
Okay, that's great. Just as a follow-on, we're seeing some of your competitors are stepping up restructuring as we enter 2016. Are we still on plan with the original guidance for restructuring, or do you see the potential for maybe an uptick in full Q?
Back in December, we laid out the view of the year, I think what's a little bit different this year is that, and in line with that guidance by the way, we've done some things along the way. We haven't simply sat back and taken stock of things here in the fourth quarter. Instead, I think we've been better at having each of our businesses look for opportunities along the way. We've seen some activity going on throughout each of the quarters of the year. As we go through the fourth quarter, we may do a little bit more than we initially anticipated. Those plans are still in the works here. We think overall that plan will be pretty consistent, maybe a little bit higher. Obviously, there'll be some Pall contributions to that activity.
Generally, we think that'll set us up pretty well for 2016.
Okay, Tom, that's great. Thanks a lot.
Thanks, Nigel. Appreciate the questions.
The next question is from Steve Tusa with J.P. Morgan.
Hey, good morning.
Morning, Steve.
Could we get a little more color on Pall and, in particular, what you're seeing in the industrial businesses there, as well as the life sciences? Then, just also, what are the kind of financial moving parts as far as profit contribution in the fourth quarter and then to the extent that you're either investing that away with the restructuring or letting that drop to the bottom line?
Sure. Thanks, Steve. First of all, we're really pleased that we got the Pall closing done as we did. Terrific teamwork, I think, on the part of the Pall team as well as the Danaher team to get that done sooner than anticipated. We're off to a very good start. We have Rainer Blair, who many of you know from our life science business, in the leadership position over the business right now. We've added Danaher teammates to the Pall squad, teams are working well, driving both growth initiatives as well as cost initiatives. Specific to your question, Steve, on industrial and life science. On life science, we've seen continued strength, anchored specifically in the biopharma side of the life science portfolio, consistent with what we've seen historically in the business and consistent with our expectations.
We have seen an incremental level of weakness in the industrial side of the house. Again, probably to be expected given the nature of the exposure to certain end markets in the industrial business. Incremental weakening, but understandably so given those vertical markets. Specific to the financial contributions, we will see some contribution clearly here in the fourth quarter at Pall. Obviously that will in fact be offset to some extent by any of the cost actions that we'll take and the investments that we'll make.
Okay, you're investing that away. What was the core for industrial in the quarter this time?
They were all up. Pall was mid-single digits.
Oh, okay
Life Sciences high single to double, industrial slightly negative.
Okay. One last question. How was September for you guys?
September was up about 2%, Steve. We thought it would be closer to 3%, that kind of cost us a half a point-
Okay
overall in the quarter.
All right. Thanks a lot.
Thanks, Steve.
The next question is from Scott Davis with Barclays.
Hi. Good morning, guys.
Hey, Scott.
Tom, can you give us a little bit more color on dental? When you think about, I can't do the maths because I don't have the data, but if Nobel Biocare was up so well, then the core underlying business must have been down pretty meaningfully, and you're saying consumables were strong, so basically means that dentists have stopped buying equipment. I don't know this business well enough to know whether you get some strange buying patterns there or not, but can you give us a little bit of color on what are your sales guys telling you? Why are dentists not buying right now?
Hey, Scott, one point of clarification. In our core number, we are not including Nobel yet.
Oh, okay.
On an adjusted basis, we would've been up low single digits. I'll still let Tom answer the question of why we were down slightly. Yeah, thanks, Dan. Your question still has merit, Scott.
That makes me feel better.
Let's go a little deeper outside. First of all, on Nobel, just a quickie. We're really happy with what's going on there. Team has done an excellent job. The average daily sales rate's continuing to trend very well. New product introductions coming out on schedule with a strong cadence, great acceptance in the marketplace, good progress across various regions. All in, we're super happy with the start there, and team's doing well. Onto the core of your question. Probably important to think about it in terms of the consumable side of the house versus the equipment side of the house. We saw better performance on the consumables side of the house.
We've made a lot of progress, which we had talked about throughout the course of this year on right-sizing inventories in the channel, driving some sell-out, and our performance there is really pretty good from the standpoint of what we're seeing in the sell-out data. I'd contrast that a little bit to what we've seen on the equipment side, where on the equipment side, it's the inventory right-sizing in the channel has taken us a little bit longer than we had anticipated. That is a bit of a headwind there. Secondly, we did see some slowdown in equipment purchases, particularly in the high growth markets, where it's a little bit more project oriented. The key thing that we look at though, when we look through those numbers, is we look at the sell-out numbers.
The sell-out numbers are, on a year-to-date basis, we're in line with the market, certainly. We think we're holding our own from a share perspective. It's taken us a little bit longer to get where we wanted to on the equipment channel side. Again, a little high growth market headwind.
Okay, fair enough. Then, I had an interesting meeting with a financial sponsor yesterday who just commented that they thought the IPO option was dissipating pretty fast, and that they wanted to de-risk their portfolio pretty quickly, and this was a fairly large sponsor. This seems to be an environment where Danaher could really provide some liquidity and pick up some decent assets at good prices, but you did comment that you were looking at more small and mid-ish stuff. Is there a scenario where you would stretch the balance sheet and/or even tap equity markets if you felt like it was the right transaction, just given the dynamics out there?
Well, I think your question's framed in the right way, Scott. For the right strategic transaction, for the transaction, for the asset, the business that really strengthens us strategically, that adds a level of competitive advantage, that provides a greater level of growth rate on a long-term basis, we would do the right thing from the standpoint of whether that's going into the markets as we did so effectively to finance the Pall transaction or set up the balance sheet in a way that would allow us to do that. My comment should not mean to suggest that there's a bright line that snapped at a certain point, beyond which we wouldn't go. It's all about the strategic value that can be created.
Fair enough. Good answer. Okay, I'll pass it on. Thanks, guys.
Thank you, Scott.
We'll go next to Steven Winoker with Bernstein.
Thanks. Good morning, guys.
Hi, Steve. Good morning.
Good morning. Hey, just first on the separation timing, I know you've obviously been very busy. You got Pall done early. What are the key hurdles to having that separation happen earlier? Is there a desire to do that earlier anyway? How are you thinking about that at this point?
Steve, two of the bigger drivers are filing with the IRS and getting a favorable ruling on key points, 2, filing the Form 10 with the SEC and getting through that process.
We're working diligently. I think there's a good chance, prior to the investor meeting, we'll have a better sense on whether or not we'll be able to try to pull this thing forward from our end-of-the-year kind of current timeline.
Okay, great. Secondly, just perhaps a minor point, maybe help us understand to what extent in all the major currency headwinds that you've called out, how much of the margin impact is really transactional in terms of maybe mismatched price and cost base? Help us maybe just understand how you were thinking about that in the quarter.
Yes. I mean, try to think through kind of a high-level example of, we've got $5 billion of revenues and 25% of that's in the high-growth markets. Not all of that's in local currency, but most of it, call it $1 billion of it in local currency. That's just kind of a rough number. Through the course of Q3, if you look at the J.P. Morgan index, which they track the top 10 emerging market currencies, those depreciated 10% during the quarter from the beginning of July to the end of September. Call that a weighted average of a 5% decline. You have a 5% decline on $1 billion of revenues. That's $50 million of revenues that we lost that we didn't think we'd lose at the beginning of the quarter.
The dynamic on the margin side is in those high-growth markets, it's primarily sales and service and marketing people. The lower local currency maybe saved us $10 million-$15 million of SG&A expense, but very little cost of goods expense. You lost $50 million of revenues, and you probably lost $15 million-$20 million of lower operating expense from currency. You get a transaction effect of losing $20 million-$30 million of operating profit.
Okay, fantastic. Very helpful. Thanks.
Thanks, Steve.
The next question is from Julian Mitchell with Credit Suisse.
Hi. Thank you. Just a question on some of the other companies in the group, they sort of break out price, raw materials impact on margins year to date, and obviously it's been a decent tailwind, I think, for pretty much every company. Is there any color you could provide in the nine-month period, let's say, not just the quarter, on how much of a benefit price raw material has been?
Julian, it's clearly been a slight benefit. We continue to get about 60, 70 basis points of price, largely in the consumables business. Given our gross margin profile, commodities do not play a big impact on our cost of goods sold. The one area where I would've thought we would've actually gotten more of a benefit than we have is actually on the logistics side. Clearly, fuel prices have come down, but the transport companies have been pretty sticky about reducing prices. Again, I think as demand gets a little weaker here, maybe that helps. It's been a benefit to date, but just given our product makeup, the commodity side doesn't help or hurt us as much as most industrial companies.
Thank you. Just a question on China. Obviously, the last month or two, people are trying to see if there's any evidence of a bottoming out in short-term demand there. Maybe just talk about how you've seen demand in the different verticals in the last three or four months.
Julian, we've actually seen China, while slowing incrementally, it's still one of the better markets where we play today. Our growth rates continue to be very good in a number of our businesses, specifically in our diagnostic business. We continue to grow extremely well in China. We've seen some of the slowing that we had talked about around tenders for life science over a period of time. That money has freed up, not perhaps to the same rate that we would've hoped by this point, but certainly we're seeing a better environment for life science spending. Our environmental businesses continue to see terrific opportunities. I think as we look at China, we really continue to look at a number of sectors in that market where our businesses are extremely well-positioned and where the sectors themselves are really quite attractive.
Clearly, the more industrially oriented you are, the more challenging that may be. Our environmental businesses, our life science diagnostic businesses are well-positioned, and we still feel very good about those. I think that's probably a market as an example where we really plan to, and my bias is to continue to play offense. We'll be selective about where those investments go and target them to the higher growth segments. In general, we're still constructive in that market.
Great. Thank you.
Thank you.
The next question is from Ross Muken with Evercore ISI.
Hi, good morning, guys. Maybe a little bit more color on the pharma vertical as a whole would be helpful. I know you talked to Pall in the quarter. Obviously, there's been a number of sort of volatile events in the space on drug pricing, et cetera, and we've obviously seen a bit of a collapse in some biotech prices. Help us understand, I mean, it seems like SCIEX had a pretty good quarter, and obviously the biotech side of Pall did as well. Help us think through the market volatility and whether or not that sort of worries you at all relative to the demand side of things.
Hi, Ross. We continue to be bullish on those markets. Obviously, there's been some volatility certainly in those markets, certainly in terms of the way they've been trading. Of course, our exposure, as you mentioned, is largely in the Pall business as well as across our life science platform and more specifically around SCIEX. Specifically, our pharma exposure in life sciences is about probably 20% or 25% of that business specifically goes into that market. In the case of Pall, specifically, it's about a third of their business is biopharma related. The growth rates there continued to be very strong throughout the course of the quarter. These are critical applications that, to some extent, are a bit insulated from the core volume side of what's going on inside of those facilities.
In other words, whether you're making a large volume or a small volume, you're still going to be running that equipment and consuming some of our products. On the research side, the research investments, while they're shifting around a bit, continue to be relatively good. I think in general, we're staying the course there and we think there's still great opportunity ahead.
Maybe just dovetailing off of Steve's question from earlier. It's been an environment that's been difficult for you from an M&A standpoint last few years, but we're finally getting to a period where there's a little more volatility, valuations have come down in some sub-sectors. Seems like the timing may be fortuitous given when you can complete the spin next year. Maybe remind us around your activity level on tuck-ins during the last kind of market dislocation in 2008, 2009, and talk a little bit about the trade-off of completing the spin in due course versus the desire to sort of continue to add on at least more the tuck-in versus maybe anything larger.
Well, I hope we're not looking at 2008, 2009.
No, obviously
during, obviously, that was a good period for us. In that 2008, 2009 period, we acquired in almost 20 companies, and not surprisingly, those are among our best returns for the company. I don't think we're heading into that, the environment's getting tougher. We talked earlier about the IPO market being tough here, I think that bodes well. I think that bodes quite well for NewCo, given the choppiness in the industrial sector, given a little less competition from private equity. We've talked about roughly $2 billion of capacity the rest of this year and into next year. As we get towards the middle end of next year, that number's gonna jump back up a lot. As Tom suggested, we're not shutting down. We're still working hard looking at activities, looking at possibilities both for Danaher and at NewCo.
Great. Thanks.
Thanks, Ross.
We'll go next to Deane Dray with RBC Capital Markets.
Thank you. Good morning, everyone.
Good day.
I had a couple quick comments or questions on the water quality side of the business. Maybe you can frame for us how you're seeing municipal budgets to date. Everything I'm reading, it looks as though muni budgets are actually one of the growth markets, at least for North America. How are muni budgets favoring projects for Trojan, for example? Then a second question on Pall. It's interesting that Pall, as you expect, you see the logo in the life sciences side, but it could have easily also showed up today in the environmental logos. I would be interested in how you're positioning Pall in go-to-market in water quality.
Thanks, Deane. Specific to municipal budgets and the overall municipal water market as a growth market, it's interesting, right? We could talk about it as a growth market today, everything's relative. We haven't historically thought of the North American muni market as a growth market on a relative basis. Today, it really probably is. To your point, it's growing better than a lot of other markets that are much more challenged. I think the way I would describe it, Deane, is that in contrast to probably the last 3 or 4 years where those budgets were flat or down, largely recovering from a pretty challenging housing market in so many areas around the U.S., today, we'd say those budgets are probably growing modestly.
A lot of muni budgets are probably growing maybe in the 2% or 3% range. That's 2% or 3% better or more than what they were growing probably in the last 3 or 4 years. There are good opportunities there. They continue to contribute well certainly to Hach, Lange, as well as to Trojan. Specific to your question about Trojan, we have seen the bidding activity up this year. We've seen overall revenue converting that bidding activity into revenue up this year as well. Probably one of the better markets where we participate today, and clearly with leading positions, we believe we're gaining share in water quality. In the Pall business, Pall does have a position in municipal water. It's not one of their larger businesses, but we believe there are opportunities there.
We have the teams at Trojan as well as at Pall looking together at where there might be cooperative opportunities. It could be on certain projects or certain opportunities relative to technology, where bringing filtration as well as ultraviolet treatment together may be a great opportunity for a customer. It's early days there. We're really just getting into the 100-day strategic plans across those vertical markets. It is a good position to start with, we'll see what we can do.
Thanks. Just a quick question. What was NewCo's core revenues in the quarter?
Deane, they were a little bit under the 3%. They were actually 2.5% led by both Gilbarco and Matco.
Great. Thank you.
Thanks, Deane.
The next question is from Andrew Obin with Bank of America Merrill Lynch.
Hi, guys. Good morning.
Morning, Andrew.
Just a question on free cash conversion. What are the buckets for improvement in the fourth quarter? Also, if you could give us an initial sense, given that we've closed Pall, how much working capital contribution can we get in 2016?
Andrew, I don't know if we're looking at a very different dynamic in Q4 of this year versus last year. We did see a spike in payables at the end of the third quarter. That sometimes happens when we have a quarter end that's in the following month. We actually closed the quarter in October as opposed to September 29th, September 30th. That should normalize back in the quarter. We tend to have pretty good working capital performance as we get towards the end of the year. That should be another contributor. I don't see a very different frame than what we had last year. We're still working through the Pall numbers. We think there is some meaningful cash flow opportunities there, not only on the working capital side, but also on the managing CapEx a little differently there.
We'll talk about both of those more in time.
Just to follow up on separation timing, did you change your disclosure language on the timing? Because the Q now says in 2016, or is it the same language as before? Just to confirm, sorry.
I don't remember. What I'm continuing to say is our expectation is 2016. We still believe it'll be the end of the year, but that could change, and if there is a change, it would be to the positive, and we'll know more here in a couple of months.
Thank you very much.
Thanks, Andrew.
The next question is from Isaac Ro with Goldman Sachs.
Good morning, guys. Thank you. Just a question on Beckman to start. If I just took a quick look at some of the peers here, like Abbott and Roche, some of them do seem to have core growth rates closer to the high single-digit range. I'm curious sort of, if I look back at my notes, you guys had an analyst meeting earlier this year and gave a lot of disclosure on the things you've done to turn around the franchise. Curious kind of what you need to do from here to kind of pace ahead of your comps there.
Isaac, thanks. We're continuing to make progress at Beckman. We track our customer retention, and we track our win rates very closely on a month-to-month basis. We're confident as we look at the combination of retention and win rates that we're adding to our growth position as we look out into 2016 and 2017. Obviously, some of what we see in retention and adding menu to retained accounts as well as new customer accounts don't necessarily manifest themselves in the quarter in which you've won them. In fact, oftentimes it may take six to 12 months for those to materialize. I think we're confident we're continuing to make progress, strengthening the portfolio through new products, continuing to see good growth in the high-growth markets. It's a journey. We still have work to do.
We're not yet at the growth rates that we would like to see relative to the peer group. You highlight them well. We are making progress, and we're confident in the opportunities.
Got it. Maybe just a question on NewCo. Where are you in the process of sort of leadership selection, and when might we know a little bit more about kind of how you're going to staff up the NewCo? Thank you.
Well, we've publicly named Jim, obviously, as the leader, but his entire L1 team, with one exception, has been named. They're all internal folks, and a fair number of people at the L2 level, the level below that, have also been named. We're off to a good start on that front.
Got it. Thanks so much, guys.
Thanks, Isaac.
This concludes our question and answer session. Mr. McGrew, I'd like to turn the conference back to you for any additional or closing remarks.
Thanks, Eric. Thanks, everyone, for joining us. We're on all day for questions.
This concludes today's call. Thank you for your participation.