Fortive Corp at Barclays Industrial Select Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Julian Mitchell - Barclays - Analyst : Great. Thanks, Olumide. Maybe we'll just start with a couple of questions on sort of current Fortive and the near term. I think there's some concern maybe is the guide for the year a little bit back-end loaded. It's a very uncertain macro. I feel people say that every year though. But anyway, assume this is uncertain. How would you sort of characterize that guidance? Sort of what are you seeing from customers near term?

Question: Julian Mitchell - Barclays - Analyst : Got it. And you mentioned orders. And that's a question, I guess, of the product hardware businesses at Fluke and also at PT or Ralliant. But I think orders have been a little bit better there. It's taking some time to feed into sales. Just maybe help us understand is the orders improvement, is that reflecting just easy comps or no, it's a genuine customer appetite going up?

Question: Julian Mitchell - Barclays - Analyst : Perfect. And then Olumide, when you look at the sort of end market vertical mix of new Fortive. I think that you take industrial manufacturing, distribution, all that collectively is about one-third of the sales there. A lot of that at Fluke. How are you thinking about the revenue growth of that business this year?

Question: Julian Mitchell - Barclays - Analyst : Got it. And then one question, sort of shorter term, that comes up from investors is around this whole government efficiency push in the US government, a reasonably large vertical for parts of new Fortive. Any thoughts on how that could affect you? Is it positive, negative, too early? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 3:25PM, FTV.N - Fortive Corp at Barclays Industrial Select Conference

Question: Julian Mitchell - Barclays - Analyst : And on FAL more broadly, I think it's maybe a business that's not super well understood by investors. There's a couple of sort of marquee brands that are known from the acquisitions kind of five or so years ago. Maybe remind us like what are the one or two kind of strongest parts of the FAL franchise? Why does it win against competitors? Any sort of impressions around market share?

Question: Julian Mitchell - Barclays - Analyst : And when we think about, as you said, some of the brands have had different growth profiles in recent years. What's the sort of overall FAL through cycle growth entitlement, do you think? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 3:25PM, FTV.N - Fortive Corp at Barclays Industrial Select Conference

Question: Julian Mitchell - Barclays - Analyst : And then sort of operating margins, I think for FAL are a little bit below the, say, Fluke within IOS. And I guess we would say it's unusual that the hardware business has higher margins than the software one. So how do we think about FAL's profitability from here? There's a huge TAM, very good growth runway. So you're kind of taking the time to invest a lot for X years. And then once the installed base is there, maybe move to more of a margin focus after that? Like how should we think about it?

Question: Julian Mitchell - Barclays - Analyst : Perfect. And the Healthcare division had some volatility after the acquisition and then around COVID, but it sort of seems to have settled down. It had good organic growth acceleration for a couple of years. When we think about that business from here, I think sometimes people ask about sterilization versus your big competitor. Are they growing a bit faster? Why is that? How would you think about sort of market share for AHS?

Question: Julian Mitchell - Barclays - Analyst : Got it. And Fortive generally has versus most companies at this conference, higher R&D, higher gross margin, higher cash and operating margins. On the R&D front, how do you make sure that you keep getting a very high return on those investments, particularly as the new Fortive, there are some slightly -- they will have high recurring revenue, but they are different businesses in a sense, Fluke, AHS and FAL.

Question: Julian Mitchell - Barclays - Analyst : And when we think about the operating margin entitlement of new Fortive, AHS, I think, is still a little bit below the medium term margin guide that was set out a couple of years ago. IOS is there already, I think, this year. So how should we think about kind of the total entity of new Fortive? What kind of operating leverage do we see the Healthcare margins get to that target on schedule? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 3:25PM, FTV.N - Fortive Corp at Barclays Industrial Select Conference

Question: Julian Mitchell - Barclays - Analyst : Got it. So overall, new Fortive, when we think about the earnings algorithm, if you like, it's sort of mid-single digit plus organic growth, and then sort of I don't know, 75 bps plus of operating margin expansion annually and then some capital deployment on top. Is that the right way to think about new Fortive after the split?

Question: Julian Mitchell - Barclays - Analyst : And when we look at the portfolio for new -- Fortive in total has had a lot of portfolio change in the last nine years. New Fortive, I suppose, will be more settled, perhaps at least initially. When should investors expect if you start to see more meaningful divestments or acquisitions? How far out is that kind of activity?

Question: Julian Mitchell - Barclays - Analyst : Fantastic. Well, with that, we'll switch to the audience response, survey questions, please. So the first one, do you currently own the stock?

Question: Julian Mitchell - Barclays - Analyst : So 80%, no. Second question is around sort of what's your kind of bias towards it right now. So generally sort of neutral to positive. Third question is around earnings growth expectations for, let's say, new Fortive versus the multi-industry average. So in line with the group. Fourth question is around kind of excess cash usage for new Fortive. So mostly share buybacks. Penultimate question is around valuation. What kind of PE should new Fortive trade at. So sort of a slight discount to the market, which is a bit strange. And then the last question would be sort of why should it trade at a discount to the S&P, I suppose. So core growth and then execution. So great. Well, with that, thanks so much Olumide and Jim.