My name is Lisa, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation First Quarter 2015 earnings results conference call. All lines have been placed on mute to prevent 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star key and the number two. I would now like to turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may now begin your conference.
Thanks, Lisa. Good morning, everyone, and thanks for joining us. On the call 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, a slide presentation supplementing today's call, our first 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 in the Investors section of our website, www.danaher.com, under the heading Financial Information. 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 archived until our next quarterly call. A replay of this call will also be available until April 30, 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 6588001. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials in our first 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 earnings, revenues, and other company-specific financial metrics relate to the first quarter of 2015 and relate only to the continuing operation of Danaher's business, 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 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, good morning, everyone. We were pleased by our solid start to 2015. The team executed well in a changing and challenging macro environment, using the Danaher Business System to drive strong organic revenue growth and expand core margins in the quarter. DBS continues to enhance our competitive position and drive share gains across the portfolio by helping us identify, direct, and execute on high-impact investments in product innovation and sales and marketing. As a result, seven of our nine strategic platforms grew at a mid-single-digit rate or better in the quarter, including test and measurement instruments, water quality, Gilbarco Veeder-Root, diagnostics, life sciences, product ID, and automation. We were also encouraged by the noticeable impact DBS has already made on many of our recent acquisitions, including Nobel Biocare, Devicor, and Aguasin, that further boosted our performance. This is another record first quarter for Danaher.
Adjusted diluted net earnings per share was $0.93, including a negative $0.02 impact from the strengthening U.S. dollar versus our previously communicated guidance in January. Revenues for the quarter grew 4.5% to $4.9 billion, with core revenues up 5%, due in part to extra selling days in the quarter. This growth exceeded our expectations and marks our best quarterly core growth performance since 2011. Acquisitions contributed 6% to revenues, while currency translation negatively impacted revenues by 6.5%. Geographically, the high-growth markets grew mid-single digits, but performance was mixed as strength in China and India was offset by weakness in Russia and Latin America. In China, sales increased nearly 10%, led by our dental, diagnostics, and Gilbarco Veeder-Root platforms. The developed markets also grew at a mid-single-digit rate, with both the U.S. and Europe up mid-single digits.
In Japan, as expected, sales declined double digits due to a difficult prior year comparison in which customers accelerated purchases ahead of the VAT increase on April 1, 2014. Gross margin increased 80 basis points to 53.4%, marking the first time our gross margins have exceeded 53%. Core operating margin expanded 25 basis points or approximately 60 basis points excluding the impact of foreign currency, with three of our five segments improving more than 110 basis points. Our reported operating margin was 15.9%. On the capital allocation front, M&A remains our primary focus. We deployed approximately $500 million on three bolt-on acquisitions in the first quarter, including the acquisition of the Siemens Microbiology business. These acquisitions strengthened our market positions in our dental, diagnostics, and product ID platforms.
In February, we also increased our annual dividend by 35% to $0.54 per share. We expect further increases over time. Our tremendous balance sheet and active acquisition funnel, combined with recent volatility in the global equity markets, uniquely positions us to deploy our substantial M&A capacity. Turning to our five operating segments. Test and Measurement revenues declined 1.5%, with core revenues up 2.5%. Reported operating margin decreased 220 basis points. Core operating margin declined 225 basis points, largely due to lower sales in our higher gross margin Communications platform. Core revenues in our Instruments platform grew mid-single digits for the second consecutive quarter, led by the developed markets and China. Fluke core revenues were up high single digits as its biomedical and thermography product lines each increased double digits.
Strength in thermography was augmented by the launch of the TiX560 and TiX520 series of thermal imaging cameras during the quarter. This expert series combines an articulating lens, on-camera analytics, and the industry's largest responsive LCD touchscreen, allowing mechanical engineers to navigate over, under, and around objects to quickly capture and process the highest quality infrared images. Core revenues increased at a mid-single-digit rate for the second consecutive quarter. Healthy demand for military and government customers in North America was coupled with strength in the semiconductor segment in China. During the quarter, Tektronix introduced the new high performance ATI oscilloscope, the DPO70000SX. 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 noise and distortion so electrical engineers can better understand and solve their most complex problems. Core revenues from our communications platform decreased at a double-digit rate. Double-digit growth in security solutions and high single-digit growth at Fluke Networks was more than offset by a decline in network management solutions. Platform orders grew over 20% in the quarter, which gives us confidence that we'll achieve positive core growth in 2015. We continue to expect the combination of our communications business with NETSCOUT to close in mid-2015. This morning, we announced that NETSCOUT has received clearance from the U.S. Department of Justice with respect to the proposed transaction. Close is subject to approval by NETSCOUT shareholders and other customary closing conditions.
Moving to our environmental segment, revenues increased 7%, with core revenues up 8.5%. Core operating margin expanded 175 basis points, while reported operating margin was up 60 basis points to 19.5%. Our water quality platform's core revenues grew approximately 10%, with robust growth in our analytical instrumentation, chemical treatment, and ultraviolet treatment businesses. Hach had an outstanding quarter, with growth across most major product lines. Sales in the U.S. and Europe grew double digits as the team's application of DBS growth tools, such as funnel management and transformative marketing, continued to drive share gains. We built on this momentum by launching our breakthrough water quality testing system, the SL1000 Portable Parallel Analyzer, or PPA, in over 40 countries.
Notably, the PPA's ease of use has already started to change the way our customers perform critical water quality tests, making it one of the most important new products in the market. At ChemTreat, we saw robust demand for our chemical treatment solutions and services in both North America and Latin America. ChemTreat's consistently strong performance is a direct result of its targeted investments in feet on the street and development of its best-in-class sales force. The ChemTreat team has done a fantastic job implementing this approach in Latin America with its most recent acquisition, Aguasin, which grew more than 20% in the quarter. Gilbarco Veeder-Root core revenues grew mid-single digits, driven by strength in China and the U.S. In the U.S., upcoming EMV regulation changes drove over 20% growth in point-of-sale solutions and dispensers.
We're pleased that customers have continued to make Gilbarco their supplier of choice when implementing these necessary payment system upgrades. Turning now to life sciences and diagnostics. Revenues grew 2%, with core revenues up 5%. Core operating margin expanded 115 basis points, reported operating margin was 12.7%, which was negatively impacted by one-time non-cash charges related to the recently closed acquisitions of Devicor and the Siemens Microbiology business, which is now known as Beckman Coulter MicroScan. Core revenues in our diagnostics platform grew at a mid-single-digit rate. At Beckman Coulter Diagnostics, core sales were up mid-single digits, led by double-digit growth in our immunoassay and urinalysis product lines. In the U.S., increasing customer utilization and higher win and retention rates helped drive mid-single-digit growth for the third consecutive quarter.
This improvement in win and retention rates is an example of the team's persistent focus on product innovation and enhancing the customer experience over the past three-plus years. Beckman Coulter is a fantastic example of how thoughtful application of DBS growth, lean, and leadership tools can make a good company even better. We hope you'll join us in Brea, California, at our Investor and Analyst event in June to hear more of this terrific story. In January, Beckman closed the previously announced acquisition of MicroScan. MicroScan expands our well-established footprint in hospitals and reference labs with a suite of highly accurate automated instruments and consumables that help identify infection-causing bacteria and determine appropriate antibiotic treatments. Radiometer's core sales increased high single-digits, its 13th consecutive quarter of high single-digit growth or better. Demand was solid across all product lines, led by double-digit growth in blood gas and AQT consumables.
During the quarter, we expanded our AQT testing menu in Europe with the launch of procalcitonin, the procalcitonin assay, or PCT. PCT detect life-threatening sepsis infections on-site in operating rooms and other critical care centers, enabling doctors to provide timely antibiotic treatments and ultimately save more lives. Sales at Leica Biosystems were up high single digits, led by advanced staining, which grew over 20% in the quarter. We posted double-digit growth in the U.S., where the stabilizing reimbursement environment resulted in improved capital spending. We were also encouraged by a strong start at Devicor, an acquisition we closed last December, where a reinvigorated product portfolio and implementation of DBS tools helped to drive approximately 10% growth in the quarter. Core sales in our life science platform increased mid-single digits with solid performance in the U.S. and Europe. Notably, we saw China sales return to growth in the quarter.
SCIEX core sales grew double digits, led by strength in clinical and applied end markets. Strong commercial execution and investments in new products have resulted in meaningful share gains over the past several quarters. Leica Microsystems core sales declined mid-single digits due in part to a difficult comparison in Japan, where we saw record shipments ahead of last year's VAT increase. Despite the sales decline, we're confident in Leica's steady stream of new product innovation, including the DMi8 inverted microscope platform that launched during the quarter. The DMi8 improves customer workflow for industrial applications by enabling users to prepare and change samples more quickly than with traditional microscopes, design, providing one solution for both basic and advanced industrial users. Turning to dental. Our dental revenue increased 30%, with core revenues down slightly, due in part to lower volumes related to inventory destocking within our U.S. distribution channels.
This occurred across many of our higher-margin product lines, and combined with our continued investments in sales and marketing and product development, resulted in a 385 basis point core operating margin decline. Robust demand in high-growth markets and strength in our orthodontic and value implant solutions were more than offset by the previously mentioned inventory destocking. That said, we're encouraged by the improving sell-out data we're seeing in the U.S. market and believe the business will show improving growth trends throughout the course of the year. Nobel Biocare completed its first full quarter with Danaher, and we've made great progress so far. While it's still early, we were encouraged by Nobel's mid-single-digit average daily sales growth for the quarter.
One of Danaher's core values, innovation defines our future, certainly rang true at the biannual International Dental Show in March, where KaVo Kerr Group and Nobel Biocare launched more than 35 new or updated products. The innovations unveiled ran the full spectrum of dental care, from digital imaging to treatment units to consumables. Notably, attendees were able to preview our first integrated chairside CAD/CAM solution, which will allow dentists to design and manufacture custom prosthetics quickly and easily in their offices. In industrial technologies, revenues declined 2.5%, with core revenues up 7%. Our core operating margin expanded 185 basis points, while reported operating margin increased 210 basis points to 24.6%. Automation core revenues increased mid-single digits as continued growth in our industrial automation, North American distribution, and medical end markets was partially offset by weakness in agriculture.
This represents the platform's best quarterly performance since early 2011. Product identification core revenues increased high single digits with robust demand for our marking and coding, color management, and software solutions. Videojet had a solid start to the year, delivering high single-digit growth as our substantial and growing installed base continues to drive broad share gains. The team delivered mid-single digit growth or better in all major geographies, with particular strength in Western Europe, China, and India. During the quarter, Videojet launched its 1620 and 1650 high-resolution microprinters that enable fast, high-quality printing on very small surfaces. This technology is essential in such industries as electronics and personal care, where legibility and clarity are critical to consumer safety and industry regulations. In March, Esko acquired MediaBeacon, a leader in digital asset management software.
MediaBeacon saves our customers time and money by allowing them to store, repurpose, and share their digital media efficiently across projects, departments, and channels. Bringing together these specialized companies equips us better to serve our global network of customers and meet a growing industry demand for more integrated packaging and artwork management tools. To wrap up, we had a very good start to 2015, delivering our highest quarter of core revenue growth since 2011. The team's solid execution using the Danaher Business System continued to drive relative outperformance and enhance our competitive position. We remain cognizant of a strengthening U.S. dollar and a changing macro environment. However, we're confident that our focus on optimizing our portfolio and seizing high-impact growth opportunities will help us build a better, stronger Danaher in 2015 and the years to come.
We're initiating second quarter adjusted diluted net earnings per share guidance of $1.01- $1.05, which assumes core revenue growth of 3%-4%. We are also updating our full year 2015 adjusted diluted net earnings per share guidance to the range of $4.23- $4.33. We expect the strengthening of the U.S. dollar since our fourth quarter earnings release in January to reduce 2015 earnings by approximately $0.07 per share. We continue to expect core revenue growth between 3% and 4% for the full year 2015.
Thanks, Tom. That concludes our formal remarks. Lisa, we're now ready for questions.
Yes, thank you. Once again, if you wish to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up. Again, that is star one if you wish to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for a question. We'll take our first question from Scott Davis with Barclays.
Morning, Scott.
Can I ask a little bit about FX? You know, I think we understand the impact of translation. I think most people do, at least for the group overall. What does FX really mean for you guys as it relates to global competition? Does it change how you think about where you produce and where you ship out of? Does it change or impact the price dynamic at all, or is it really not much of an impact?
Well, Scott, I guess we first start and think about FX from a competitive perspective. It's hard not to think that, you know, the competitive dynamics shift a little bit in certain markets where the U.S. dollar has strengthened against that local currency. That being said, let's take Europe, for example. We continue to perform exceptionally well there. We have during the entire shift of the currency. We've seen solid mid-single-digit growth in that market. We know that market generally across a number of our businesses is probably more of a low-single-digit market on a core growth basis. We're continuing to perform exceptionally well and taking share there.
We can look at Japan as another example where those shifts have happened, and certainly there's been some modest shifts in the competitive dynamics there. But again, our business is generally, in spite of a very challenging environment there, overall, we haven't seen really any meaningful shifts in the competitive dynamics, and we're continuing to perform well. We start there and think about competitiveness. You know, relative to the overall operational footprint, you know, we're gonna see currencies move up, and we're gonna see currencies move down.
It takes, it takes quite a while to shift your manufacturing footprint, and the day you think you've got that right is the day a currency might turn against you, and you end up in a very different place than you had hoped. In general, you know, over a long period of time, we've had a balanced footprint that has provided a certain level of a natural hedge for us. Obviously, the shifts here have been far more dramatic and, therefore, the impacts have read through the P&L. You know, we continue to put ourselves in the best position possible from an operational footprint, putting manufacturing operations in the best cost positions that we can with the best logistics and supply chains.
These shifts do not cause any knee-jerk reactions on our part in terms of a repositioning.
Okay, that's helpful. Then just as a follow-up on dental, I guess I don't remember a time where you had, kinda call it flattish core growth, where you saw, you know, it looks like in the slides core margins down 385 basis points. Was Is that just a mix impact of the higher margin stuff being destocked, or is there some other stuff in there, like restructuring or anything else?
It really starts with the volume itself, and that volume being slightly up in one side of the business, slightly down in another side of the business. Generally, it starts with that volume position. The destocking, yes, in fact, was a primary driver relative to the higher margin products being the areas where we very cooperatively and teaming with our distribution channels made very conscious decisions about what we needed to do in the channel from an inventory perspective. I think what's really important to recognize about that situation is that we track sellout very closely with those distribution partners, and we're very encouraged by what we see from a sellout perspective. We're confident in our competitive positions.
We understand that we're performing well, that those distribution partnerships are working very effectively. This has been going on for a period of time now. We think we're getting towards the end of that. Q2 is probably more of a transition quarter, and we're optimistic that we'll see better growth going forward. Back to your question around the margins, it's really that combination of volume and negative mix. One last point there. Because we're confident in our competitive position, because in a number of areas, particularly outside the U.S., the dental platform is performing extremely well, driving anywhere from mid-single digits to in certain markets like China, growing double digits, we continue to invest in that business. Investing in new products.
You heard me talk about the 35 new products across the platform, investing in sales and marketing. While we've got some headwind there in terms of doing the right things relative to the channel, we're confident that those investments are gonna pay off as time goes on.
Okay, great answer. Thanks, guys. I'll pass it on.
Thanks, Scott.
We'll go next to Steve Tusa with J.P. Morgan.
Hey, good morning.
Morning, Steve.
Hey, can we get more into the specs of the TiX thermal imaging camera for a second? Okay.
I love the high hard ones.
On the R&D and SG&A, both up in the quarter, was there, you know, some, a little bit of a discretionary loading, as you saw the organic growth come through there, or is that just kind of normal course?
Steve, I would say that we opportunities that we saw from a product development standpoint as well as from a go-to-market standpoint. We set that course quite a while ago. We had terrific reviews last fall in our strategic plan reviews. I think we got a good sense of where those opportunities were. I think on a discretionary basis, we made the call in a number of places where we knew we were doing well. We knew that as things got choppy, continuing to invest and stay the course would ultimately prove out to our benefit on a long-term basis. I think one of the areas I'd point to specifically to that staying that course would be in Europe.
Where we've seen this lower growth environment and where we've continued to perform above market rates in most of our businesses. That's largely a function of staying the course from an investment standpoint. It's true today also in our high growth markets, where we've seen a few of our markets, I'd cite specifically Latin America, specifically Brazil and Mexico, where we've got some challenges there, we're continuing to stay the course from an investment standpoint. Also making some thoughtful decisions about shifting investment carefully where there's higher growth opportunities. There's some countries right now in Latin America where the teams are doing a terrific job shifting that investment.
Staying the course in China right now as well, staying the course in India from an investment standpoint, both of those countries paying off very well for us across a number of the platforms. Staying the course, making some discretionary choices, even when the temptation is to pull back hard to make sure we take advantage of what's a choppy environment.
I guess on that I'm getting to something in the range of a 25%-30% core incremental for the quarter, which, you know, I usually think of you guys as more like 35%-40%. I mean, should that migrate, you know, higher over the course of a year? Are we in this trade-off now where organic growth is gonna be higher, but maybe we should expect a little bit lower incremental?
Steve, I think there are a couple things going on, some of which Tom alluded to. Where we're confident we're taking share, we wanna sustain those investments. I think the second element is, you know, we're having pretty high fall through on the FX hit. The fall through on FX has been closer to 22%-23%, so we're feeling some impact on that. I think it's a combination. It's, you know, as we went through the quarter and saw the strength, we saw some opportunity to, you know, step up some of the investments. We'll, we'll navigate that carefully, but, you know, if we're in this mode of outperforming our B2B competition
We're probably gonna take a little more latitude on investments.
Okay. Day sales impact on the quarter, that's my final one. Thanks.
I think the five is probably closer to a four when you look at days adjusted, which would, again, would be consistent with what we put up in Q4.
Okay. Thanks a lot.
Thanks, Steve.
I will go next to Steven Winoker with Bernstein.
Thanks. Good morning, all.
Morning, Steve.
Yeah, I have no thermal camera imaging questions. Can't top that. Let's see. Just I think from a high level here, stepping back for a second, this is another quarter of solid core growth. You guys have been putting this up and talking about gaining share quarter after quarter for a long period of time now. I'm just trying to get a sense going forward as of, you know, the business model and the extent to which that and these higher gross margins you think are sustainable or a function more of some of the cyclical markets. Do you think you're in a new norm at this point? How are you looking at that, Tom and Dan?
Well, Steve, I think we do think that the trajectory that we're on is sustainable. You know, clearly we're in some challenging macroeconomic times here, but again, we feel like the investments that we're making in the right places are driving core growth in a number of our businesses and translating into those share gains. Those are also businesses where we do have good gross margins, and we always look at those gross margins and the improvement of those gross margins as indicative of higher value propositions that we're delivering to our customers. Those are sometimes value propositions associated with new product innovations.
Sometimes they're associated with improvements in our technical service and support, our ability to get price across a number of our markets. You know, this is the model of the Danaher that we are working on building quarter after quarter and year after year. That's the way we tend to think about it. I would extend that, by the way, to the way we think about capital allocation, is looking at businesses and opportunities in the market that represent those same characteristics.
Good growth opportunities across global markets, high brand preference to professional end users representing solid gross margins and the ability to build sustainable business models with strong consumable streams that really speak to a level of resilience and ultimately competitive advantage. That's the playbook.
Okay, let me ask the obligatory M&A question following your capital deployment point, which is a little bit different though this time, right? We're hearing commentary from other CEOs on how pricey they view the current environment. How are you thinking about that? How is your outlook changing, if at all?
I don't know that our outlook has changed very much, Steve, over the last couple of quarters. You know, clearly, outstanding businesses with a number of the characteristics that I mentioned just a few minutes ago, are assets that are well valued in the marketplace. You know, those assets, while highly valued, tend to be outstanding businesses with great long-term opportunities for growth. I'm not sure we've seen much change in that, but we continue to be very encouraged by the conversations we're having and the funnels that we have across the businesses. We made some progress here in the first quarter deploying half a billion, and we're optimistic about more to come.
Okay, great. See you in Brea. Thanks.
Thanks, Steve.
Thanks, Steve.
We'll go next to Nigel Coe with Morgan Stanley.
Yeah. Thanks. Good morning.
Morning, Nigel.
Just wanna come back to the dental destock. You know, inventory movements is something we've heard from other companies. It doesn't feel like it was elsewhere, but did you see any, you know, any of that dynamic elsewhere across the portfolio?
Nigel, I can't think of not to suggest there couldn't be a pocket here or there, but, in general, anything material across any of the other segments, I would say no. We're not hearing much of anything in that regard.
Okay. And then just wanna pick up on Steve's point on capital allocation rather than thermal imaging. The, you know, you mentioned in the prepared remarks, the ambition to keep raising dividends. Is that an ambition to raise the dividend payout ratio or, you know, dividend in line with earnings?
Nigel, I think the expectation that we would, in the intermediate term, continue to raise it faster than overall earnings and cash flow growth. But that's not with an expectation of sort of getting to a market yield, but getting to a more meaningful yield.
Okay. Do you have a target payout ratio over time?
Well, I mean, if you think of the market 2.5%, maybe if we were half of that in time, you know, three-five years, that might not be a bad place to be.
Okay, great. Just finally, congratulations on the impact of that transaction. I know it's not built into organic growth guidance, but is it baked into your EPS outlook? You know, how do you expect the EPS impact of that transaction to play out?
Nigel, yeah, first of all, very good news. I mean, that really is the long pole in the tent to get to closing.
Few other things we need to get through, you know, much more common today that we get to a close here, early in the summer. It is not factored in. A lot of that will depend ultimately whether we do a spin or a split based to where their stock is trading today. If we did a split, on an annual basis, it would approximately wash. The earnings we would give up there, would reduce our share count and would be roughly an equal offset. Now, that may impact first half, second half, on an annual basis, it would be roughly a full offset.
Core growth accretive by about 50 basis points in the second half of the year, roughly?
Well, as we mentioned, orders are very good in the communications business in the first quarter. In the last couple quarters, orders were up 20%. I don't think it necessarily will be accretive to revenue growth in the back half. It would be accretive and expect that to impact the second half because that business is definitely building.
Okay. Very good. Thanks, guys.
I will go next to Shannon O'Callaghan with UBS.
Morning, guys.
Hi, Shannon.
Hey, could you talk a little bit more about what you're seeing, you know, in the mix between equipment, typically, you know, you talked about the product innovation, sales, and marketing. Clearly, you're gaining some share in some places. Seems like other guys are also struggling just with customers' willingness to spend right now. It seems like you're overcoming that. Can you just maybe give a little sense of what you're hearing from customers as you're having more success, you know, getting them to step up and buy?
Shannon, we're very, very encouraged by what we see in the balance of growth, both in the equipment and the consumable side. Both of those, both sides of the house, posting good growth. That obviously bodes well for continued performance because as we build that install base across a number of the businesses, those annuity streams that accrue to the consumables business obviously are very important to the resiliency of the business model and also to margins. Relative to your question about customers willing to spend in CapEx, I'd say we have a number of examples where, even in challenging markets, our teams are performing quite well and seeing great penetration in terms of the install base.
I'd point to the Videojet business and the performance there, the continued growth of that install base and the consumable stream. Clearly what we've seen on the diagnostic side, a little bit more favorable environment in terms of diagnostic utilization. The macro indicators around the healthcare market are improving marginally quarter-over-quarter, so we're seeing a little bit of loosening in capital spend in the hospital environment. As I mentioned, we saw the first quarter returning to growth in life science in China, which is also encouraging. That's more of an equipment market than a consumables market.
I think there's a number of places we'd point to where we're seeing our teams execute extremely well in gaining share, driving that install base, without, you know, necessarily, strong tailwinds from market perspectives.
Shannon, we were in the quarter equipment, we were up mid-single digit, which was the best quarter we've had in equipment. Probably have to go back to maybe almost 2011.
Interesting. All right. Thanks. Maybe just a follow-up on PID. You know, Videojet clearly still gaining some share. Overall, that market actually just seems like one of the better places to be right now. Is there are there certain verticals that are particularly good there or favorable things you're seeing in the overall market?
I think Videojet has performed pretty well across a number of their verticals. I mean, when you look at the food market, when you look at the beverage market, broadly defined packaging, overall, clearly a very competitive market, but one where the Videojet team, both through a combination of product innovation and a number of improvements using DBS growth tools, have driven an enhanced go-to-market model. They're clearly gaining share, and they have over an extended period of time. If we look back, really through the cycle, VJ has continued to perform above the market growth rates on a consistent basis. Again, a combination of product innovation and go-to-market execution really has contributed there.
Yeah, I think to the vertical end markets, they're, they are good, steady, verticals and VJ's taking advantage of those.
Great. Thanks a lot, guys.
I will go next to Julian Mitchell with Credit Suisse.
Hi, thank you.
Hi, Julian.
Hi. Just wanted to follow up on your comments at the beginning around the changing macro environment, 'cause your tone, you know, across the businesses sounds pretty good. I just wondered if you're seeing that changing macro play into your own orders today, in parts of T&M or industrial tech. Maybe just any color on how, sort of in recent months, you've seen the short cycle industrial demand moving.
Sure. I think when we talk about the macro, it's probably easiest to articulate that, Julian, on a geographic basis. Some of the changes that we've seen have clearly been in Latin America, for one, where we've seen some significant weakening in that market. Clearly, Russia, again, a much smaller position, fortunately for us, but a challenging market there. China, while still a very good market, we're about a little bit of softening there from GDP growth rates of the past. We see those shifts. On the other side, we've seen some geographic markets improve, India being one. Again, teams performing quite well there. I think that's one way to look at it.
Europe is steady, but again, we think we're outperforming in that market. I think those would be a few of the things that we would point to. On the short cycle industrial side, really Dan Daniel's teams, a number of those businesses, automation we talked to a little while ago, really are performing very well. That's really just a function, again, of, I think, a combination of new product innovation in a number of places as well as good day-to-day go-to-market execution.
Julian, I would add, just you asked about very recently. I think similar to some other companies, we did see in some pockets in March, in the U.S., particularly in the U.S., in the equipment, a little bit of softness. You know, it's hard to tell if it's any trend through the first half of April. We've, you know, we're pretty much in line here. If there's any slight shifts here in the last, you know, four-six weeks, I would say the U.S. equipment piece is slightly weaker.
Great. Then just my second question around the sort of relative appeal of valuations for acquisition in the healthcare and sort of non-healthcare sides of the business. Particularly, I guess, with regards to industrial tech, where certainly on organic growth, you seem on a much stronger footing today. How are you seeing valuations in that arena? Is that area somewhat more attractive now because you've got the core really firing again?
Julian, it's overall pretty balanced, as Tom alluded to. You know, nothing's inexpensive right now. There are some good assets out there, both on the healthcare and the industrial side that, you know, we're active around. I wouldn't put up a highlight more to one space versus the other.
Great. Thank you.
We'll go next to Richard Eastman with Robert W. Baird.
Yes, good morning.
Hey, Rick.
Can I just, Tom, could you just double back for a second on the dental business? I'm curious, you know, within North America, with the destocking phenomena that you saw here in the quarter. You know, given consumer income's up and disposable, you know, personal income's up and spending is up, I'm curious, is there anything structural in North America on the dental side of your business that's creating the destock? Maybe you could share with us just what the sell-through stats are that you were watching.
Rick, I would not say there's anything structural about our business or our position relative to the North American market. We would agree that the market is improving marginally based on a couple of the things you mentioned around consumer spending and discretionary income and so on. This is more a cooperative agreement with our distribution partners, where we're working with them to ensure that the channels are right-sized from an inventory perspective. You know, from a sell-through perspective, you know, we see mid-single digit, or moving from low single-digit to lower end of mid-single digit kinds of sell-through, coming out of the channels to the end user.
We know that based on how our products are performing specifically as well as how the categories are improving. That reinforces our belief that we're well positioned and that there's nothing structurally going against us in terms of our position in the market.
Okay. Then just a quick question for Dan as a follow-up. You know, it appears to me when we do some just kind of basic that's pending. Given NetScout's stock price and maybe TekCom's EBIT as it finished the year in 2014, is there a scenario where this plays out that transaction and the buyback, you know, given NetScout's valuation here, that buyback of Danaher shares, that that's actually accretive to EPS? It looks like you could do some math that would show maybe, you know, maybe $0.10 accretion from that transaction.
Rick, if you look backwards, if we would've closed the deal given where the respective stock prices are today, and we did a split. Looking backwards, it would be accretive. Because of the building backlog and order book, you know, if I look over the next 12 months, it would be about a wash.
Huh. Okay.
We've talked, you know, we're gonna be You know, we were down, double-digit Q4, down double-digit Q1. We expect better performance, probably getting to around flat here in the second quarter. Given what we're seeing in the order book and the backlog, we expect you know, growth in the, in the back half here when you factor that in.
As to where you think the implied share gains are happening.
Thanks, Isaac. They're coming in a number of places. Clearly our in our environmental segment, performance at Hach would be one of the places that we would point to that's done an excellent job. Again, a continued focus on investment in that market, both in terms of new product as well as in terms of feet on the street. I think a good example there also of approaching those investments across multiple verticals or end markets. Strength in both the municipal side and interestingly, particularly on the industrial side. I think good performance there. The PID business, particularly Videojet, I think continuing to perform well there.
It's fairly broad-based.
Got it. Okay. Then just maybe a bit more of an open-ended question on capital allocation. Just sort of curious if you could talk to the extent that your deal funnel has evolved since you took over last fall, and any themes you could really highlight to help us appreciate, you know, how you're looking at acquisitions going forward. Just general themes that might help us appreciate what you're doing.
Sure. I think what we're really trying to do, Isaac, as we look at markets and companies in those markets, platform by platform, is ensure that we are looking for the best opportunities to strengthen our existing platforms strategically. I mentioned when we were together in December that we're much more focused on the existing five segments and not nine strategic platforms as they exist today, and going deeper into those, into those individual segments, strengthening each of them in terms of their competitive positions, as opposed to going wider to the right or to the left.
I think that's probably the primary focus that we have across each of the platforms, is looking for the best opportunities to strengthen our positions in the markets in which we participate today.
Got it.
I think you see, you know, a couple of examples there recently, right? You look at Siemens Microbiology, how that strengthened our position at Beckman. You look at Devicor, how that strengthened our position in the workflow of anatomical pathology. Most recently, MediaBeacon, in our PID platform and the way that strengthened the value proposition of managing digital assets to brand owners. All good examples of strengthening a competitive position in the places we play today.
Got it. Thanks a bunch.
Thanks, Isaac.
We'll go next to Andrew Obin with Bank of America Merrill Lynch.
Hey, guys. Good morning, guys.
Morning, Andrew.
Andrew.
Just a question on environmental. Could you just talk in a little bit more detail, core growth was just really strong. How much of it was end market dynamics, and how much of it was you guys just taking market share or putting new products into the market?
Well, particularly in water quality, where we're up, almost double digit, it's very hard to think the market's growing more than 3%-5%. As Tom alluded to, we were exceptionally strong in Europe, up over double digit. Again, at least for the quarter, that would probably be at least two X what the market grew in the quarter.
Gotcha. As I look at life science and diagnostics, once again, core growth just seems to accelerate. You know, can you talk about the momentum into the second quarter and second half of the year? Particularly it seems, you know, U.S. consumer is improving with lower energy prices, or at least it should improve. You know, why would core growth slow down into the second half, given those fundamentals and given that Beckman Coulter has very nice momentum at this point?
Andrew, I'm not sure we're suggesting much of a slowdown. We were a little bit, you know, over 5%. As we said in December and January, if we're 3%-4% for the year, that segment could, you know, be more in that 4%-5% range.
Gotcha. What I'm saying is it just seems that 5% could be sustainable or better given the consumer trend and given Beckman Coulter finally executing quite well. That's what I-
Sure. Well, we're certainly on a good trajectory there. It is also probably important just to note quickly that there was an impact to days here in the first quarter. We have a high proportion of certainly the diagnostic business that is represented on the consumable side of the house, and the consumable side of the house is where you get a little bit more of the bump on a days basis. There's a little bit of a factor there, Andrew, as well.
Gotcha. Thank you very much.
Thank you.
It appears we have time for one more question. We'll go to our last question from Brandon Couillard with Jefferies.
Thanks. Good morning.
Hey, Brandon.
Brandon.
Tom, with respect to the life science business in China, could you quantify the growth in the period and perhaps peel back the onion in terms of where you saw the strength? Do you feel like your research budgets, particularly around high-end instrumentation, are maybe starting to loosen up a little bit?
Thanks, Brandon. We saw mid-single digit growth in China in life science. Again, the first really good signs of life there in terms of growth in the last few quarters. We're encouraged by that. I think we've reached a point of probably stability there. A lot of what the government has done relative to the scrutiny that they've applied around tenders, we think has sort of now reached a kind of a level set or a steady state in the market. There is a, we believe, a little bit of a lift in spending overall as well.
You know, we're in the last year of the Twelfth Five-Year plan, and usually you get a little bit of a bump from a spending standpoint in that regard. In general, I, you know, as we've said for a long time now, we really believe quite strongly in the structural drivers of that market, that there will be continued investment over time in the Chinese market in life sciences. We've seen a number of examples of where the government maintains a consistent outlook that that's an important segment for investment. As are a number of other segments that, where we're well positioned, like in environmental, like in different segments of healthcare, in diagnostics, as well as in dental.
You know, we think if we were to choose some segments in China where government spending is likely to continue to be a focus, we think we've chosen those that are probably well, best positioned.
Super. Thank you.
Thank you, Brandon.
That concludes today's question- and- answer session. At this time, I'll turn the conference back to Matt Gugino for any closing or additional remarks.
Thanks for joining us, everyone. We're around all day for questions.
That does conclude today's conference call. Thank you for your participation.