Danaher anticipates a $350 million loss due to tariffs, takes steps to lessen this impact on earnings.
In the face of rising tariffs, particularly on imports from China, companies in the diagnostics industry are reevaluating their production and sourcing strategies. Three key players, Danaher, Abbott, and Johnson & Johnson, are no exception.
Abbott expects its tariff costs to be lower than initially anticipated, estimating around $200 million for 2025. Despite these costs, the company anticipates a sales growth of 6% to 7%. To mitigate the tariff impact, Abbott plans to open a new factory in Georgia in 2028, producing heart devices locally.
Johnson & Johnson, like Abbott, expects lower-than-anticipated tariff costs, also at around $200 million for 2025. The company has revised its forecasts for 2025 due to the rising tariffs, which might involve diversifying suppliers or production locations.
While specific details on Danaher's strategies are not yet available, it is likely that the company is also considering supply chain adjustments and cost management measures similar to its peers. Danaher's CEO has reassured analysts that they do not see China looking to move Western suppliers out of their supply chain, and the company is taking steps to manage the impact of value-based pricing in China.
The diagnostics division of Danaher is currently behind its second-quarter forecast due to lower respiratory volume at Cepheid, with Q2 revenue for respiratory expected to be about $250 million, down from $625 million. However, Danaher's CEO has predicted core revenue growth "in the low single-digit percent range" for the second quarter, albeit with a fall in adjusted operating profit.
The entire diagnostics industry is experiencing increased pressure due to tariffs, which can lead to higher prices for diagnostic devices and other medical equipment. However, companies may explore innovative solutions or partnerships to mitigate the effects of tariffs, such as investing in domestic manufacturing or developing flexible pricing strategies.
J.P. Morgan analysts have praised Danaher's management but questioned the lack of consideration for potential decreased customer demand due to the trade war. Danaher's CFO, Matt McGrew, has stated that the company has levers to pull to be more aggressive in mitigating tariff effects if necessary. Danaher expects to largely offset the impact on operating profits through changes to its manufacturing footprint.
If the trade war escalates, Danaher may step up its response, potentially implementing more significant surcharges, harder cost-cutting measures, and reevaluating its manufacturing footprint. Meanwhile, Danaher's earnings per share have forecasted above the expectations of RBC Capital Markets analysts, and patient volumes continue to be strong in China, according to Danaher's CEO.
Restructuring, particularly in diagnostics, is another factor affecting Danaher's earnings. Over the years, Danaher has been executing to regionalize its manufacturing network of over 100 plants. The company made the tariff impact prediction in its first-quarter financial filing.
In conclusion, these companies are navigating the challenges posed by tariffs by reassessing their operational strategies and exploring ways to manage costs without significantly impacting their growth trajectories. The diagnostics industry as a whole is adapting to these changes, with opportunities for innovation and partnerships emerging to help mitigate the effects of tariffs.
- The medtech industry, particularly the diagnostics sector, is undergoing a review of production and sourcing strategies, driven by rising tariffs, with companies like Danaher, Abbott, and Johnson & Johnson not excluded.
- Abbott is planning for lower tariff costs than initially projected, estimating approximately $200 million for 2025, while anticipating a sales growth of 6% to 7%.
- To buffer the impact of tariffs, Abbott intends to establish a new factory in Georgia in 2028 for local production of heart devices.
- Johnson & Johnson, like Abbott, also expects lower-than-anticipated tariff costs, approximately $200 million for 2025, and is contemplating supplier and production location diversification strategies.
- Danaher likely adapts its supply chain and implements cost management measures similar to its peers, although specific details are yet to be disclosed.
- Danaher's diagnostics division fell short of its second-quarter forecast due to lower respiratory volume at Cepheid, with Q2 revenue for respiratory expected to be around $250 million.
- The CEO of Danaher predicted core revenue growth "in the low single-digit percent range" for the second quarter, with a potential fall in adjusted operating profit.
- Economic analysts have noted the potential for decreased customer demand in the diagnostics industry due to trade wars, a concern that Danaher's CFO, Matt McGrew, acknowledged but expressed confidence in the company's ability to respond.
- Danaher anticipates offsetting the tariff impact on operating profits through changes to its manufacturing footprint.
- If the trade war escalates, companies in the diagnostics industry, such as Danaher, might employ more aggressive measures like surcharges, hard cost-cutting, and reevaluating their manufacturing footprints to cope with the situation.
