Danaher Corp.'s (DHR) lack of comment on its 2010 profit forecast when it boosted its first-quarter guidance earlier this week caused some analysts Wednesday to conclude the diversified industrial company is likely to encounter headwinds later this year.

Danaher's announcement late Monday that its first-quarter profit will be 90 cents a share or above triggered a rally Tuesday in the multi-industry sector in anticipation that other conglomerate companies will report better-than-expected quarterly results. Danaher had said in January it expected to earn 77 cents a share to 82 cents a share for the quarter ending Wednesday and $3.86 to $4.16 a share for 2010.

After Danaher's stock Tuesday rose 4.54% ,or $3.51, to $80.88, investors took a second look at the company's revised guidance, which included no mention of its full-year forecast, and the rally fizzled Wednesday. Danaher's stock closed down 1.16%, or 94 cents, at $79.94 a share. Other companies in the sector also saw their gains trimmed from Tuesday with 3M Co. (MMM) ending down 0.84%, Illinois Tool Works Inc. (ITW) down 0.15% and Emerson Electric Co. (EMR) off 0.93%.

"We shouldn't take [Danaher's] first quarter and multiple it by four," said Nicholas Heymann, an analyst with Sterne Agee & Leach Inc.

A spokesman for Danaher declined to comment.

Danaher's primary business segments include testing and measurement instruments; medical and dental equipment; and industrial technologies, such as bar-code identification equipment and factory process control systems.

Heymann predicted Danaher will have higher costs for research and development and employees as its revenue increases on improving business conditions and customer demand. Moreover, the recently weakening euro against the U.S. dollar will erode Danaher's earnings.

Danaher's 2010 earnings forecast included 7 cents from favorable currency exchange rates. But Heymann now anticipates the strengthening U.S. dollar will shave 2 cents or 3 cents off Danaher's 2010 income.

Analysts say the company's decision last week to merge its hand tools business in a joint venture with Cooper Industries PLC (CBE) also could lower income by the third or fourth quarter. The merger is expected to be completed in the second quarter.

Danaher and Cooper will each own 50% of the new company, which had combined sales of about $1.2 billion in 2009, the companies said March 26. The venture will include several well-known consumer and industrial brands, including Cooper's Crescent wrenches, Wiss tin snips, Lufkin tape measures and Plumb hammers, as well as Danaher's Allen and Armstrong tool lines. Danaher also makes Craftsman-brand tools for Sears Holdings Corp. (SHLD) and Husky-brand wrenches for Home Depot Inc. (HD).

Danaher's contributions to the venture have higher operating margins than Cooper's and make up about 60% of the venture's estimated sales, according to analysts. To account for the disparity, the new company will pay Danaher a one-time dividend of $90 million.

"We view the deal as attractive because the combined companies will have a stronger sales potential and earnings power than each company has on its own," said Jeffrey Germanotta, an analyst for William Blair & Co., in a note to investors Wednesday.

Danaher said it will retain its Matco line of professional mechanics' tools, which are distributed through independent dealers who sell the tools directly to auto repair shops and industrial customers. Matco's main competitor is Wisconsin-based Snap-On Inc. (SNA), which uses a similar distribution model.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
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