Danaher Corporation (NYSE:DHR) Q3 2025 Earnings Call Transcript

Danaher Corporation (NYSE:DHR) Q3 2025 Earnings Call Transcript October 21, 2025

Danaher Corporation beats earnings expectations. Reported EPS is $1.89, expectations were $1.72.

Operator: My name is David, and I’ll be your conference facilitator this morning. At this time, I’d like to welcome everyone to Danaher Corporation’s Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference.

John Bedford: Good morning, everyone, and thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer; and Matt McGrew, our Executive Vice President and Chief Financial Officer. I’d like to point out that our earnings release, quarterly report on Form 10-Q, the slide presentation supplementing today’s call the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call and a note containing details of historical and anticipated future financial performance 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 and Presentations and will remain archived until our next quarterly call.

A dial-in replay of this call will also be available until November 4, 2025. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Our Form 10-Q and 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 third quarter of 2025 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 have applications submitted and pending for certain regulatory approvals or are available only in certain markets. 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, except as required by law. And with that, I’d like to turn the call over to Rainer.

Rainer Blair: All right. Thank you, John, and good morning, everyone. We appreciate you joining us on the call today. We’re encouraged by our strong third quarter results. Our team’s DBS-driven execution paired with continued momentum in our bioprocessing business and better-than-expected respiratory revenue at Cepheid enabled us to exceed our revenue, earnings and cash flow expectations. Across our end markets, underlying conditions in the third quarter were generally consistent with what we saw in the first half of the year. In pharma, global production of monoclonal antibodies, where the majority of our exposure lies, remained robust. We continue to see a modest recovery in pharma R&D spending, though it remains below historical levels.

In academic and government, demand was stable sequentially but remained soft amid ongoing uncertainty around research funding despite some encouraging headlines late in the quarter. Clinical diagnostics and applied markets held up well. Now we remain intensely focused on what we can control to continue delivering for our customers, associates and shareholders. Our team is leveraging the Danaher Business System to mitigate ongoing geopolitical and policy-related pressures and drive meaningful productivity gains across our businesses. At the same time, we’re continuing to invest in innovation to strengthen our long-term competitive position, including accelerating digital and artificial intelligence initiatives. We’re accustomed to tackling challenges head on and turning them into opportunities, and we expect that mindset and momentum to continue as we move forward into 2026 and beyond.

So with that, let’s take a closer look at our third quarter 2025 results. Sales were $6.1 billion in the third quarter, and we delivered 3% core revenue growth. Geographically, core revenues in developed markets were up mid-single digits with North America up mid-single digits and Western Europe approximately flat. Core revenues in high-growth markets were up low single digits as solid performance outside of China was offset by a mid-single-digit decline in China. Growth in our Biotechnology and Life Sciences businesses in China was more than offset by declines in Diagnostics due to volume-based procurement and reimbursement policy changes implemented in the last 12 months. Our gross profit margin for the third quarter was 58.2%, and our adjusted operating profit margin of 27.9% was up 40 basis points year-over-year as the favorable impact of higher volume leverage and disciplined cost management more than offset the impact of productivity investments.

Adjusted diluted net earnings per common share of $1.89 were up approximately 10% year-over-year. We generated $1.4 billion of free cash flow in the quarter and $3.5 billion in the first 3 quarters of the year, resulting in a year-to-date free cash flow to net income conversion ratio of 146%. Now during the quarter, we deployed approximately $2 billion of capital towards the repurchase of 10 million shares of Danaher common stock. Additionally, our Board of Directors approved a new share repurchase program authorizing the purchase of up to 35 million additional shares of Danaher common stock. Our substantial investments in innovation over the last several years led to the launch of several leading-edge products and technologies this quarter.

Each one of these new solutions is designed to enhance our competitive positioning while enabling customers to improve quality and yield, lower costs and accelerate the delivery of life-changing therapies and diagnostics. So let me highlight a few examples and the tangible value they’re creating for our customers. In biotechnology, Cytiva launched the ÄKTA readyflux TFF system 500, a fully automated benchtop tangential flow filtration system. Developed to meet growing demand for efficient low-volume processing, the readyflux TFF system 500 minimizes product loss, improves yields and enables effective process development with limited material. Importantly, the readyflux platform is now scalable from process development to commercial production, enabling customers to quickly and smoothly transition across different stages of drug development.

This system is one of several planned launches, including the new TFF filter cartridges and our next-generation perfusion system. Together with our new Xcellerex X-platform platform bioreactors and differentiated filtration and cell culture media offerings, these solutions provide a powerful upstream package that helps customers improve yields and efficiency in the intensified biologic drug manufacturing process. It also underscores the breadth and the depth of Cytiva’s leading portfolio and our ability to support customers across the bioprocessing workflow from early-stage process development through to commercial manufacturing. In Life Sciences, IDT announced a strategic expansion of its end-to-end translational gene editing portfolio with the launch of high-purity customizable guide RNAs. As scientists move from early research towards clinical applications, the need for greater purity and flexibility in CRISPR tools increases.

These new guide RNAs, key components that direct CRISPR systems to specific genes give researchers more control over sequence design, length and modifications to meet their precise needs. These capabilities are especially valuable for scientists in preclinical testing who require high-quality materials for studies like toxicology ahead of clinical trials. In diagnostics, Beckman Coulter launched the Access and BD-tau assay. This is the industry’s first fully automated research use-only immunoassay for brain-derived tau protein, a promising blood-based biomarker for researching neurodegenerative diseases such as Alzheimer’s. This assay leverages the high-resolution DxI 9000 analyzer to bring automation and scalability to tau protein quantification.

Ultimately, this powerful technology combination can help improve research efficiency, enhance consistency in long-term clinical trials and support accelerated regulatory pathways through stronger real-world evidence. Now let’s take a closer look at our results across the portfolio and give you some color on what we’re seeing in our end markets today. Core revenue in our Biotechnology segment increased 6.5%. Core revenue in Discovery and Medical grew low single digits in the quarter. Growth in medical and lab filtration was partially offset by declines in protein research instrumentation, where academic research customers continue to face funding constraints. Core revenue in bioprocessing grew high single digits with double-digit growth in consumables, partially offset by declines in equipment.

Consumables growth was driven by robust demand for commercialized therapies at our large pharma and CDMO customers. Equipment revenue grew sequentially, but declined in the high teens versus prior year as expected. Now while we’re seeing strong funnels and customers have a healthy pipeline of planned projects, this hasn’t translated into equipment order growth as customers are awaiting additional clarity on the policy environment before finalizing their investment decisions. Based on what we’re seeing today, we expect cautious equipment spending through the remainder of the year. Now that said, with several billions of dollars invested to expand capacity at Cytiva since 2020, including meaningful additions at our facilities in Florida, South Carolina, Utah and Michigan, we believe we are very well positioned to help customers execute in-region, for-region manufacturing strategies.

Now the long-term outlook for the biologics market remains very healthy. The primary growth driver of Cytiva’s bioprocessing business is the increasing global production of biological medicines, particularly monoclonal antibodies. Underlying biologic demand has grown double digits annually over the last 10-plus years, and we expect strong demand growth to continue in 2025 and beyond. This growth has been supported by a steady pace of new FDA drug approvals, building on several consecutive years with record-setting FDA approvals as well as a continued shift in pharmaceutical pipelines towards biologics. In fact, more than 2/3 of the world’s top 100 drugs are projected to be biologics by 2030. At the same time, we’ve seen increased development of biosimilars and expanded indications for existing therapies both of which are expected to drive production volume growth.

The substantial and sustained level of activity we have seen reinforces our conviction in the significant opportunity ahead in this market and supports the long-term core revenue growth trajectory for our leading bioprocessing franchise. Now turning to our Life Sciences segment. Core revenue decreased by 1%. Core revenue in our Life Sciences instrument businesses was up slightly in the quarter. By end market, clinical and applied markets held up well globally. Demand from academic and government customers remained soft but was stable sequentially. And as I mentioned earlier, we continue to see modest recovery in pharma spending with revenue from these customers growing in the quarter. In China, moderate improvements in the funding environment led to increased activity levels, which contributed to revenue growth in the quarter.

Core revenue in our Life Sciences consumables businesses, which include IDT, Aldevron, Abcam and Phenomenex declined in the quarter, primarily due to lower demand for plasmids and mRNA from 2 of our larger customers as well as continued funding pressure across early-stage biotech and academic research. Declines related to these funding pressures were partially offset by growth in next-generation sequencing products at IDT and recombinant proteins at Abcam. Moving to our Diagnostics segment. Core revenue increased 3.5%. Core revenue in our clinical diagnostics businesses was up low single digits with high single-digit growth outside of China. Leica Biosystems delivered over 10% core growth with broad-based strength across core histology, advanced staining and digital pathology.

Beckman Coulter Diagnostics also had another solid quarter with mid-single-digit growth outside of China. This marks Beckman’s fifth consecutive quarter of mid-single-digit or better core growth outside of China, driven by continued uptake of recent innovations such as the DxI 9000 and strong momentum in commercial execution. In Molecular Diagnostics, Cepheid’s core revenue was up mid-single digits in the quarter. High single-digit growth across Cepheid’s core nonrespiratory test menu was led by approximately 20% growth in sexual health. Respiratory revenue exceeded expectations as customers began purchasing earlier than typical in preparation for the upcoming respiratory season. Cepheid continued to expand its global installed base in the third quarter.

The sustained growth in Cepheid’s installed base is driven in part by health care system and IDN customers adding new instruments at sites further out in their networks and closer to patients in order to provide faster diagnostic and treatment decisions. We believe this ongoing installed base expansion, combined with a leading test menu and workflow advantages provides a long runway ahead for durable long-term growth at Cepheid. Now let’s frame how we’re thinking about the fourth quarter and the full year 2025. For the full year 2025, we’re maintaining our full year adjusted diluted net EPS guidance range of $7.70 to $7.80. In the fourth quarter, we expect core revenue to grow in the low single-digit percent range as we expect market conditions to be largely consistent with what we saw in Q3.

Additionally, we expect the fourth quarter adjusted operating profit margin of approximately 27%, which importantly includes the impact of anticipated productivity investments aimed at further improving our cost structure. Now before we wrap up, I’d like to share our initial thoughts on next year. For the full year 2026, we expect core revenue growth in the 3% to 6% range as we are assuming modest recovery across our end markets. Looking across the portfolio, we’re assuming bioprocessing growth trends remain at levels consistent with 2025, including continued strength in consumables driven by healthy growth in monoclonal antibody demand and our strong positioning across the biologics workflow. In Life Sciences, we’re assuming a modest improvement in end markets, but assume growth will remain below historical levels given the current geopolitical and policy environment.

And in Diagnostics, we’re assuming higher growth in 2026 due to moving past headwinds from policy changes in China and our expectation that we will continue to execute well globally. Additionally, we anticipate respiratory revenue at Cepheid will be approximately $1.7 billion in 2026, consistent with our expectations for 2025. Turning to 2026 earnings. We expect the operating leverage on anticipated core revenue growth and the benefit of our 2025 productivity initiatives to drive more than 100 basis points of adjusted operating profit margin expansion, which would result in high single-digit adjusted earnings per share growth before any benefit from capital allocation. As always, we will provide more color and a formal guide with our Q4 earnings in January.

So to wrap up, we’re encouraged to deliver third quarter results ahead of expectations in what remains a dynamic operating environment. Our team’s commitment to innovating and executing with DBS has driven meaningful improvements in our businesses and enabled us to deliver more breakthrough solutions to our customers. Now looking ahead, we remain focused on the areas we can control to drive results for our stakeholders. We’re taking thoughtful actions to reduce structural costs, supporting earnings growth and margin expansion in 2026, while maintaining the right foundation to continue investing in opportunities that strengthen our long-term competitive advantages. We believe Danaher is well positioned for sustainable long-term value creation.

Our businesses are well positioned in attractive end markets, supported by long-term secular growth drivers and share a common set of relatively durable, high recurring revenue business models. And on top of that, our strong balance sheet and free cash flow generation positions us well to strategically deploy capital going forward. So with that, I’ll turn the call back over to John.

John Bedford: Thank you, Rainer. Operator, that concludes our formal comments. We’re now ready for questions.

Q&A Session

Operator: [Operator Instructions] We’ll take our first question from Michael Ryskin with Bank of America.

Michael Ryskin: Maybe just start where you left off, Rainer, on fiscal year ’26. The 3% to 6% range, I think it’s roughly where people were expecting, but it is a little bit of a wider range. I realize we’re still in October, so still very, very early, a lot of uncertainty. But maybe you could just talk to the high points of what gets you there? And then maybe what the world looks like for a 3% versus a 6%, where do you need to see more improvement relative to this year to get there? I guess sort of like what’s still up in the air to figure out if you come to the 3% or the 6%?

Rainer Blair: Thanks, Mike, and good morning, everyone. Let me just dive right in. But before I get started, let me provide a little bit of context to this. We’ve come off a strong quarter with beats on the top and bottom lines and cash flow. I think it’s important to see the — how Q3 demonstrates the earnings power of our portfolio and the execution of the team even at a relatively modest growth rate. And we’re taking that Q3 beat to really proactively invest in further meaningful cost measures in Q4 to set up 2026, Mike. So that’s an important factor here in how we’re thinking about ’26. Now the market and the policy environment, whilst improving, is still fairly dynamic. And so we could see a range of outcomes in 2026, which we’re ring-fencing between 3% to 6% top line growth and high single-digit earnings growth.

So for planning purposes, we think it’s prudent to assume modest recovery in our end markets. And let me talk about some of those. In biotechnology, we expect high single-digit core growth in bioprocessing and that’s similar to what we’ve seen in 2025. We expect bioprocessing consumables to remain strong given the monoclonal antibody pipeline, the on-market momentum of those commercialized drugs as well as our leading position. Now we’re assuming for planning purposes that equipment is flat next year, given that the order trajectory through Q3 has continued as it has in the first half. So the planning assumption is that, that remains flat. Now in Life Sciences, we’re not planning for meaningful improvement in our end markets. In Q3, Life Sciences performed as expected and the activity levels were fairly positive, but we just didn’t see that convert to orders that would provide an inflection.

So we’re assuming here that our growth would improve modestly as we work through some of the headwinds in our Life Science consumables business. And as we think about Diagnostics, here, we’re assuming growth accelerates as we move past China policy headwinds, where we’ve taken a conservative view and continue to execute well globally. And then lastly, importantly, we need to think about respiratory for ’26. And here, we believe that it’s going to be similar to 2025 at sort of that endemic rate that we’ve talked about of $1.7 billion. So of course, we’re going to provide more quantitative view to all of this in January when we provide our guide. But hopefully, this gives you a sense of how we’re thinking about 2026 directionally. And maybe Matt can comment here a little bit more on the EPS side of it.

Matt McGrew: Sure. Like Rainer said, we’re kind of expecting 3% to 6% core growth here next year. I would anchor at the low end of that range to begin with, and we’ll kind of see how the year plays out as we go and we kind of provide some updates as we go. But I would anchor at the low end to start. And then from the math on the EPS perspective, I’d assume 35% to 40% fall-through on the volume plus the impact of the cost actions, and that is going to equal 100 basis points — north of 100 basis points of margin expansion like Rainer talked about in the prepared remarks. And so it gives you the high single-digit EPS growth even at the low end of the range. And then maybe just to give you a little bit of color around sort of the cost actions we talked about we’re doing $150 million in the fourth quarter, but we’re going to do $175 million in total here in 2025.

And we do not expect these cost actions to repeat in ’26, these are sort of onetime items. And we do expect the cost actions that $175 million to generate a net $75 million in savings. So all up, all in, you’re talking about a $250 million type savings number in 2026 that gives you, call it, $0.30 of EPS tailwind as we head into the year. So I mean, as I think about 2025 and I think about what we’re doing here in the fourth quarter to set ourselves up, I think we’re going to be in a really good position to deliver high single-digit EPS growth even if we end up at the low end of that range, and we might do better in ’26. And again, as Rainer said in the prepared remarks, all before we have any capital deployment either.

Michael Ryskin: Okay. That’s all really, really helpful. I appreciate the bridge. Maybe a quick follow-up, if I can. Rainer, you touched a little bit on China diagnostics and VBP. A lot of concern on that. So you just talked about as you move past the headwind, but you’re still taking a conservative view. So just expand on what you’re seeing in VBP. I think you’re lapping the comps as you get into the fourth quarter, but there’s concern of another wave down the road, maybe oncology and thyroid was called out by another player in the market. Just sort of how derisked is China diagnostics from a VBP perspective for 2022?

Matt McGrew: Yes, Mike. I mean, I think we sort of have seen — like you said, we are getting to the other side of the wave here that started in Q4 with the first reimbursement in China. So we will anniversary that. I think as we sort of have dealt with what has come VBP, the reimbursements, the various policy sort of changes during the year, I think we’re pretty well dialed in. I mean I would say that for next year, our assumption is that we probably have maybe $75 million to $100 million of headwind here, which on a Danaher level is fairly modest and manageable. And so I think that’s kind of where we were or where we are from a planning perspective. And I think that’s a pretty good place to be given what we know today and have got visibility to some of the things that are coming and certainly have visibility to everything has already been announced.

Operator: We’ll take our next question from Tycho Peterson with Jefferies.

Tycho Peterson: I want to probe on the biotech comments here a little bit. Just maybe talk about some of the puts and takes in the guide for the fourth quarter. And then I guess, what does it take for you to call an equipment recovery here? Can you just maybe talk about the order book, how the funnel is building and the odds that you could actually see an equipment pick up next year on the biotech side?

Matt McGrew: Yes, Tycho, let me just give you — for the fourth quarter, I can give you a little color on the numbers to make sure everybody’s got those, and then Rainer can comment a little bit more on the equipment side and what it would take. So it is for modeling purposes, just so as everybody is on the same page here, biotechnology in the fourth quarter, we are going to be high single digits in bioprocessing, and we are seeing D&M down mid-single digits. And so Discovery and Medical, a lot of that has to do with a prior year comp, remember, they were up low double digits. And frankly, they continue to see softness. Remember, we’ve got the kind of a protein discovery business in there that acts a lot like a Life Science tool business.

And so they’re sort of seeing the same end market pressures as we see in Life Sciences there. And so hence, the reason they’re down mid-single digits. But just to be very clear, bioprocessing in the fourth quarter is high single digits.

Rainer Blair: Tycho, as it relates to the equipment question, I’ve been spending a fair amount of time with pharma customers here. I do that generally, but even more so here in the last several weeks to understand how they’re thinking about reshoring and generally speaking, equipment investments. And first of all, the activity level in the end markets, so the manufacturing volumes continue to increase. So there is a need more generally to continue to invest in equipment, and that’s probably been held up a little bit here due to some of the policy discussions that have been ongoing. And what I’ve noted here in these discussions with some of the senior pharma leaders is that there’s more confidence now in making these investment decisions as some of these most favored nation negotiations are becoming to workable solutions and the tariffs are starting to dial in and remain somewhat consistent.

So generally speaking, what we’re seeing here is more activity, more discussions. While some of those — that planning is still fairly high level, certainly for greenfield investments, what we’re seeing is activity and quotations and so forth around more brownfield investments. We just haven’t seen those turn into orders yet. But having said that, we’re fairly constructive on equipment. But from a planning perspective, we thought it was prudent here to continue with what we’ve seen here up and through the third quarter.

Tycho Peterson: Okay. That’s helpful. And then maybe just flipping over to Diagnostics. I appreciate the China VBP commentary. Maybe just can you talk about what’s baked in for next year for Beckman ex-VBP? Is that mid-single-digit plus? Is anything kicking in from Alzheimer’s? Or is that too early? And then similarly for Cepheid away from respiratory, how do you think about the base business there next year?

Matt McGrew: Yes. I mean I think it’s too early for Alzheimer’s, I think. I mean that’s probably a longer-term play for us. I don’t think we’ve got anything kind of built in or baked in for that. I would expect that for Beckman for next year, I mean, we can kind of get into a little bit more details when we give the formal numbers, if you will, in January, but they’ve been executing very well. They’ve got a good new product launch in the DxI 9000. They’ve been outside of China, that’s been a mid-single-digit growth plus — mid-single-digit growth business. And I would expect that, that would continue as we move into next year. And as far as Cepheid, again, outside of respiratory, our assumptions there will be essentially flat at $1.7 billion.

And then outside of that, that’s been a business that has done sort of high single, low double digits on a pretty consistent basis on nonrespiratory. I think with the installed base continuing to sort of expand and as we start to add more menu on to existing customers, I suspect that those levels are a good place to start as well.

Operator: We’ll take our next question from Scott Davis with Melius Research.

Scott Davis: Things seem to be more stable in the last couple of quarters. It’s nice to see that. But anyways. I was curious just on the mix between kind of respiratory and sexual health and Cepheid because you quoted some pretty strong growth numbers on the sexual health side, but then also kind of guiding to more flattish in 2026 versus ’25 totally for Cepheid. So perhaps a little bit more granularity on that would be helpful.

Matt McGrew: Yes. I mean I think we’re sort of guiding to the respiratory to be flat year-over-year, which would not have sexual health in it. I think kind of we talked a little bit earlier on the question with Tycho that the outside of respiratory, which is where sexual health would reside, that we would expect — we’ve seen that business kind of be low single — or sorry, high single, low double digits and I would expect that, that would continue into next year. So sexual health will be a part of the growth there for sure, has been, and I suspect that it will be for a while as we go forward and expand that menu and drive penetration.

Scott Davis: So to be clear, then Cepheid should grow in ’26 versus ’25. That’s what you’re expecting?

Matt McGrew: I think so.

Scott Davis: Okay. All right. Fair enough. And then the — just a little bit of question, I guess, is on the contract structures that you have. Have they changed over the last few years, just given the tariff and cost inflation dynamics we’ve had supply chain, et cetera, and all kinds of headaches that many companies have had. But have your contract structures adapted in a way and clearly, this is more equipment and consumables, but is it adapted in a way that allows you to adjust pricing a little bit easier for core potential headwinds that could arise?

Rainer Blair: Scott, over the years, we have brought more flexibility into that. Of course, each contract is specific to a given customer’s needs, and we try to be responsive to those. But generally speaking, as you think about bioprocessing, for instance, we have a fair amount of both flexibility and to some degree, leverage there in order to drive differentiated pricing for differentiated solutions.

Operator: Our next question from Douglas Schenkel with Wolfe Research.

Douglas Schenkel: One quick one on recent events. Have you seen any change in activity over the last few weeks or even just — even in the tone of discussions with biotech and pharmaceutical customers since the Pfizer MFN announcement came out. I’m guessing you didn’t reflect anything in guidance based on the way you talked about your framework if things are improving, but I’m curious if you’ve seen any changes.

Rainer Blair: Doug, I think I would say, yes. We — and also correct that we have not reflected that in our guidance here neither for the fourth quarter nor for our initial thoughts on ’26 because we like to see the shift in tone turn into demonstrated order patterns so that we actually see the trend. But having said that, and as I mentioned earlier, I’ve been out in the market a fair amount all over the globe here talking to various pharma executives. And there is more confidence that the policy environment is finding more balance and that some of these overhangs, whether that’s the most favored nations discussions where, like I say, some of those are not always great, but they are workable and remove an overhang for our pharma customers on the one hand.

And on the other hand, we do see the tariff situation stabilizing and becoming plannable. And in that context, we’re starting to see more confidence regarding capital investment decisions and the location of those investments going forward. And so we’re looking for that, of course, to now translate from activity and quotations into stronger order patterns, but we haven’t seen that yet. And as a result of that, we’re not reflecting that yet in any of our guide.

Douglas Schenkel: Okay. Super helpful. And then thank you for the framework for 2026. I have a question on margins. So I think with this morning’s announcement, by the end of this year, you will have invested, I think it’s about $300 million in productivity enhancements in 2025. And unlike a lot of your peers, you don’t onetime those out. So that actually depressed margin this year by over 100 basis points. So as we think about next year and the benefits of those initiatives rolling through, is there an argument that even though you talked about 100 basis points of margin expansion potential next year, if we think about kind of adjusting the base up this year and you guys getting maybe low single digits to even mid-single-digit top line growth that all in all, the error bar is probably skewed to the upside as we think about margins for next year, again, just rolling through the benefits of all the productivity enhancements that you’re putting into place as we speak.

Matt McGrew: Yes. I mean, well, first, I would just kind of anchor on this is — I believe that a 35% to 45% fall-through and the impact of just the 250 I talked about, that’s north of 100 basis points. Just want to — because I think when you go to do your math, it’s not going to be 100. So I think you’re right on that point. As far as is there more than what we have sort of offered up here, this is a net number so that we can continue to invest in the business. We think this is the right balance of investing in the business, making sure that we’re also delivering high single-digit or better EPS growth as we head into 2026, but we do want to leave ourselves some room for that investment. But as the year plays out, we can always kind of — we always tweak and work with that.

So — but I think the frame that you’ve laid out of north of 100 basis points of margin expansion is very fair. And like I said, that $250 million of net savings gets us that $0.30 tailwind. And I feel pretty comfortable about high single-digit EPS even if we’re at the low end of the guide of the range.

Operator: We’ll take our next question from Vijay Kumar with Evercore ISI.

Vijay Kumar: My first one on — if I wanted to touch on the fourth quarter Diagnostics assumptions. I think ex-respiratory and ex China, it looks like the business has done around mid-singles for the past 2 quarters. I think your guide implies for Q4 double digits. So maybe talk about what changes sequentially from 3Q to 4Q and what drives the optimism for Diagnostics ex China, ex respiratory?

Matt McGrew: I think the uptick is VBP lapses. That’s the delta. I don’t think anything changes with the rest of the core business. I think that’s mid-single digits, that base business, if you will. But remember, we took the first hit in respiratory in China with VBP and reimbursement in Q4. So I think it’s the VBP that gets better, not the base business.

Vijay Kumar: Sorry, Matt, I think — am I correct in assuming ex respiratory and ex China, the business was mid-singles in 3Q?

Matt McGrew: Yes.

Vijay Kumar: And that assumption doesn’t change for Q4, mid-singles? Or does it change ex respiratory ex China?

Matt McGrew: Again, I think your ex China is the piece, Vijay. That is going to — that China number is going to get better in the fourth quarter because we are lapsing reimbursement. Happy to kind of follow up with you on some numbers offline.

Vijay Kumar: Understood. And then maybe, Rainer, one for you on capital deployment. A pretty big share repo in 3Q. With the new $35 million authorization, how are you thinking of M&A versus share repurchases, right, when you look at assets available in the deal pipeline?

Rainer Blair: So Vijay, we maintain a strong bias towards M&A, and we continue to be very active on the M&A front. We’re cultivating every day, and we continue to think about M&A in the context of our framework of attractive end market, attractive company with value reserves. And importantly, the valuation framework, the model has to work. And we’re going to stick with that discipline. Now that said, and as we’ve demonstrated here, we’re not opposed to buybacks. At current levels, the relative value of a buyback generates attractive financial returns, and we will continue to evaluate all our capital allocation using the same ROIC lens. So bias to M&A, clearly, but we’re going to maintain the discipline because we want to see the returns.

Operator: We’ll take our next question from Dan Brennan with TD Cowen.

Daniel Brennan: Maybe just going back to bioprocess and the equipment side. I know you talked about in the prepared remarks how Cytiva has built up a lot of capacity. You’re ready for any demand that comes from this onshoring. Can you just kind of zoom out a little bit and give us a flavor how we might think about this? I know there’s been hundreds of billions of announcements, but it’s hard for us to parse what’s really incremental, what’s just shifting from one region to the other and kind of how it might impact you. So if we look out, like what should we be looking for? And could this actually drive some potential real demand benefit for you, whether it be in exiting ’26 into ’27, anything like that?

Rainer Blair: Sure, Dan. I mean the investment announcements that we’ve heard from pharma differ in terms of what they include and exclude depending on which pharma company you’re talking about. And then, of course, many times, the time lines were 5 and 10 years. So those numbers grow pretty quickly, especially if the research and development investments were considered in those investment numbers as well. But if we put that aside for a minute, there’s 2 factors here that drive equipment demand. First, the manufacturing growth that is required to meet the market demand. And we have seen over the last quarters that the equipment investments have been fairly slow. While they’ve improved slightly, they’ve been below historical trends.

While the end market and the production requirements have continued to be strong. So there is a general need around the world to start investing in equipment. That’s sort of one factor. And then you add this trend of regionalization of manufacturing capacity. And of course, we think about that in terms of the reshoring discussions here in the United States, but other regions think about regionalizing their manufacturing network as well. And so that speaks positively to the general environment and the requirement for equipment investments going forward. And what has held that up here is the dynamic of policy changes, certainly in the U.S. but elsewhere in the world as well, as well as how do we need to think about tariffs and most favored nations pricing.

And there, I’ve tried to provide a little bit of color that we see those overhangs starting to dissipate as, one, the tariffs have become more plannable and predictable; and two, the most favored nation pricing, which is a key factor when you’re making these investment decisions as well, is starting to dissipate, as I said, with some workable deals being made. And generally speaking, that’s provided more confidence to the most senior decision-makers here in the pharma industry.

Daniel Brennan: Great. And then maybe just as a follow-up, just on the ’26 guide, I think you discussed a lot about China and bioprocess. But just on the Life Science piece, it sounds like you’re thinking about maybe starting that if Matt talked about 0 — excuse me, 3% as the good starting point for the company. So Life Science is probably, I guess, 0. Could you unpack a little bit? I know you talked about you’re not baking in any improvement just between instruments and genomics, like what would have to happen to get to 0? Do you think that’s going to prove to be kind of a conservative number?

Matt McGrew: Yes. No, I think you’re right, spot on, on that being flat. And again, sort of — that’s where we’ve been now. I think part of the reason that we have the same thing, same dynamic in Q4 that we do in Life Sciences as for all of ’26, it’s been where we’ve been. It’s been fairly flat as we have not seen that inflection in the market like Rainer has talked about. Maybe you want to talk about what might happen to get better?

Rainer Blair: Sure. So I mean, let’s start with the fact that the clinical and applied markets have remained fairly solid, and we don’t expect that to change. And we’ve also seen a modest recovery in pharma research spending. It’s below historical trends, but we’ve started to see a recovery there, and that was reflected in Q3 as well. It’s really academic and government, which you know on a global basis is low single-digit exposure for Danaher overall that is anchoring and holding back some of the growth there and that’s the market. Now if you think about our own business, we’re performing well in these segments. We’re less exposed to the academic and government side. And as it relates to the Life Science consumables businesses, that I talked to earlier, we also think that we’re lapping some of those headwinds.

You recall those 2 large customers that have come off their peak demand pretty significantly, and we’ve been working through that. And we would expect that then also to be reflected in a little bit more supportive and modest growth next year. But for planning assumptions, we think where we sit today, that it’s best to consider flat growth for Life Sciences in the context of that 2026 guide that we gave you. And if they’re upside, there is, but we want to see some of that playing through here in orders before we call that trend.

Operator: We’ll take our next question from Jack Meehan with Nephron Research.

Jack Meehan: I want to focus on the Diagnostics business. The first question, in the quarter, the sales were about $60 million higher than what consensus was looking for. There was about $200 million of upside from respiratory. Everything sounds great in Beckman ex China and Leica. So it just wasn’t obvious to me what might have fallen short at least versus what the Street was thinking. Is there anything that you would call out?

Matt McGrew: No, I would say it was all respiratory kind of, if you will, a little bit earlier than we expected. I think customers were just kind of — again, kind of coming earlier than we thought. I would say it was probably $125 million of pull forward, if you want to call it that, but it was nothing else to call out Diagnostics.

Jack Meehan: Okay. Got it. Actually, I’ll pivot to the biotechnology business just as a follow-up. Can you talk about the dialogue you’re having in terms of reshoring? I know you mentioned kind of like the billions of dollars being talked about in manufacturing here in the U.S. How do you think this is going to play out over the next few years? Just any color around what that can mean for both capital demand and recurring for that business, that would be great.

Rainer Blair: It’s hard to put specific numbers around this, but we would expect that this reshoring in the U.S. particularly, but the regionalization of supply chains is going to result in continued investment in capital equipment. And we think the way that starts is with brownfield investments where customers are taking advantage of existing facilities in order to get those capacities in place more quickly and also demonstrate that they are investing in the respective regions, including the U.S., while in parallel planning sort of those larger greenfield investments that take a little bit more time. That is a different time line, which takes certainly a couple of years in the best of cases and can take a little bit longer.

So once that gets rolling, we might see an extended capital cycle here over a number of years. But we haven’t seen that flow through in orders yet, lots of discussions, some of them more near term, i.e., those brownfield investments, others at a higher level because those are larger investments that just take more time, not only to plan but to execute.

Operator: And we’ll take our last question today from Puneet Souda with Leerink Partners.

Puneet Souda: So my first question is, I appreciate your qualitative comments on the mAbs and biologics growth and bioprocessing being high single digit. But just wondering if you could provide any color on the order growth or book-to-bill in the quarter. I believe it was about 1 last quarter. And we have seen weakness in the AAV segment and some of the innovative modalities. So just wondering what’s your level of confidence on monoclonal antibody growth offsetting some of that to still deliver high single-digit growth? And I have a follow-up on China.

Matt McGrew: Yes. I mean the book-to-bill was pretty similar to what we’ve seen all year around 1. So maybe, Rainer, you want to comment on that?

Rainer Blair: Sure. Well, I mean, we continue to see monoclonal antibodies growth as strong, not only because the commercial volumes on existing indications are growing more quickly, but also because we see new applications of existing on-market drugs being approved. And then we also see biosimilars here that are pretty close to the launch as well. So we do think that, that very, very large part of our business, 75% of our business is in those monoclonal antibodies and the growth that’s associated with that takes care of some of the volatility that we have seen here in some of the AAV business. Some of which has been around for some time, so it’s also lapping. But just to say that it’s really driven by protein and these nucleic acid therapies, while they are interesting and efficacious, they will continue to take time to find it into the first line of standard of care.

And while we’re very well positioned there, what’s driving the growth here is really protein monoclonal antibodies going forward.

Puneet Souda: Okay. That’s helpful. And then just a brief question on localization policy in China that has emerged over the last few weeks. There is a 20% pricing rebate for those manufacturing locally. This is beyond the VBP and the DRG headwinds we have been hearing about. So maybe could you just remind us how much of your production and sales in China are manufactured locally and maybe both reagents and on the instrumentation side. Where do you have defensiveness? And where do you need to expand manufacturing if this was to spread broadly to other government agencies, including academics?

Rainer Blair: So Puneet, that 20% that you heard about benefit for local manufacturers is actually not the newest of news. It’s been out there informally, which is often how it works in China for some time. In fact, I was just in China for a couple of weeks here, taking a close look at what’s happening and of course, talking to customers and government officials and, of course, our teams. And we think that we’re very well positioned here as it relates to localization. By the end of the year, much of our diagnostic businesses, whether that’s equipment or reagents will be localized. And that degree of localization plays well across the portfolio. So while we don’t talk about percentages of localization, we think that we’re very well positioned here and view this actually as advantageous as opposed to a short-term headwind.

Operator: And with that, we’ll turn the call back to John Bedford for any additional or closing remarks.

John Bedford: Thank you, David, and thank you, everybody. We’ll be around all day and the rest of the week for follow-ups. Have a good rest of your Tuesday here.

Operator: This does conclude today’s program. Thank you for your participation, and you may now disconnect.