Fortive Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fortive had better-than-expected Q4 performance with higher core growth, earnings, and free cash flow, capping a strong year with record margins.
• Progressed on separating Precision Technologies into Ralliant, expecting transaction to close early Q3; prioritized share repurchases using record free cash flow.
• 2024 was a year of consistent compounding with record financial metrics, leveraging Fortive Business System for growth and innovation.
• Accelerated innovation in 2024 sustained top-line momentum, with examples like Fluke launching 20 major new products, Facility and Asset Lifecycle expanding margins 800 basis points, etc.

Segment Performance

• iOS and AHS: Combined quarter revenues grew 4%, adjusted operating margins up 140 basis points to over 33%. Full-year combined iOS and AHS delivered 4% core revenue growth and 120 basis points of adjusted operating margin expansion.
• Intelligent Operating Solutions: 4% revenue growth in Q4 with 190 basis points of operating margin expansion, M&A contributions partially offset by FX headwinds.
• Precision Technologies: Revenue flat in Q4 with core decline of 3%, adjusted operating margins contracted 200 basis points; core revenues at Tektronix down low double-digit in Q4, but orders up high single-digit for second consecutive quarter; Qualitrol and PacSci had double-digit growth.

Guidance

• Full-year core revenues expected up 1.5%-3.5%, FX a ~$90M headwind. Adjusted operating profit expected up 2%-5%, adjusted diluted EPS $4.00-$4.12 (up 3%-6%). Adjusted free cash flow ~$1.5B (excluding separation-related cash costs ~$185M).
• Q1 core revenues expected roughly flat, FX ~$30M revenue headwind; iOS and AHS start slower due to Fluke's Q4 finish and fewer days in Q1; PT expected down mid-single digits.

Risks

• Forward-looking statements subject to risks where actual results may differ materially. Risks detailed in SEC filings, including China headwinds, FX impact, and market uncertainties.

Question and Answer

Q: Robert Mason asked about product side evolution, China impact on New Fortive.

A: Jim Lico mentioned New Fortive's software and healthcare performing well, Fluke's resiliency, China weak but no dramatic increases; PT orders good but China weak.

Q: Julian Mitchell asked about Precision Tech organic sales guide.

A: Charles McLaughlin said PT cadence down mid-single digit Q1, better Q2, growth in second half; China comps, market improvement in back half, capacity investments aiding growth.

Q: Nigel Coe asked about days headwind, spin costs.

A: Charles McLaughlin said days impact simple, ~two days, ~$8M; spin costs ~$185M, mostly professional services, offset and work down expected.

Q: Steve Tusa asked about tariffs, Tektronix verticals.

A: Charles McLaughlin said tariffs no impact on Canada/Mexico, China tariffs countermeasured; Tektronix strong in defense, high-end semiconductor, compute, hyperscalers, weak in Western Europe, China, EV mobility.

Q: Jeff Sprague asked about China, days, tax rate.

A: Charles McLaughlin said China down mid-single digit 2025, Q1 down high single-digit to low double-digit; days impact ~$8M, ~two days; tax rate volatile due to discrete items, holding ~14% excluding discrete items.

Q: Scott Davis asked about software assets growth.

A: Charles McLaughlin said software revenue grew high single digits, Gordian rate moderating, purpose, service channel, probation growing well, innovation flywheel impacting businesses.

Q: Andy Kaplowitz asked about price for cost, AHS growth.

A: Charles McLaughlin said ~225 basis points price increase; AHS had double-digit consumables growth Q3, mid-single Q4 due to days, good performance globally except China impact.

Q: Chris Snyder asked about PT orders, organic growth.

A: Charles McLaughlin said PT book to bill ~0.96 in Q4, orders up, Q1 organic down mid-single due to China, EA, Tektronix sales synergies ahead of plan, EA expected mid-single digit growth 2025.

Q: Deane Dray asked about net working capital, free cash flow.

A: Charles McLaughlin said New Fortive software skews net working capital lower, Ralliant expected ~9% net working capital, both free cash flow strong.

Q: Jamie Cook asked about PT semi, spin costs.

A: Charles McLaughlin said semi high speed compute, hyperscalers good, discrete consumer products weaker; spin costs ~$185M, work to be done near term.

Q: Joe O'Dea asked about China, Fluke growth.

A: Charles McLaughlin said Fluke expected low single digit plus growth 2025, North America strong, Western Europe and high growth markets good, China down due to comps.

Q: Scott Graham asked about margin, restructuring savings.

A: Elena Rosman said Q4 gross margins expanded 10 basis points, ~3% price increase; ~$20M restructuring funded, ~$2M benefit in Q1.