Fortive Corp Q3 2024 Earnings Call Transcript

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

Question: Julian Mitchell - Barclays Bank - Analyst : Maybe I just wanted to start with a sort of question around near-term dynamics within the IOS segment. So clearly, some slowdown there in the third quarter. It seems like you're expecting that to kind of hold the line with low single-digit growth still in Q4. Maybe just help us understand, in the current quarter, what we should expect for Fluke versus FAL in terms of organic growth rates? And was the softness in IOS something that happened late in Q3, how is that trending at present? Any color around that, please?

Question: Julian Mitchell - Barclays Bank - Analyst : That's helpful. And then just looking at Slide 9 for a second on the sort of 2025 initial thoughts. So sort of looking at it all together, is the view that kind of all three segments should see organic growth next year, should have strong incremental margins again helped by the proactive restructuring occurring in the current quarter? And then sort of below the line, any sort of clarity you could provide as of now on the sort of tax rate? This year is 11%. Kind of what are the ranges of where that tax rate could end up next year? And anything you wanted to flesh out on the operating margin expansion degree. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 4:00PM, FTV.N - Q3 2024 Fortive Corp Earnings Call

Question: Joseph Giordano - TD Cowen - Analyst : Can we start on EA? You tempered expectations there last quarter. Obviously, the headlines across those markets aren't great right now, even if the business itself is well positioned within them. Like what's the risk of like a lack of a recovery in the future? How should we temper like what we think over the foreseeable future for recovery of the top line in that business?

Question: Joseph Giordano - TD Cowen - Analyst : Yes, fair enough. And I think you answered my follow-ups kind of in the slides potentially, but I'll ask them anyway. So Fluke was weaker in the quarter but orders seemed okay. Like I guess most industrial markets are doing way worse than Fluke. So are you seeing any risk of Fluke just lagging those declines? Or do you just feel like that business is order suggests that, that business continues to grow from here? And then similarly on Tek, orders are inflecting positive. You had that chart in the slides of that gap. Like does that if orders stay on this trend, does that flip to revenue positive like what, like mid-next year, 1Q, '25? Like how should we think about that?

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Jeffrey Sprague Vertical Research Partners Just a quick first first on share repurchase. Maybe you kind of presented the broad strokes here. But looks like you could have done more, right, on your cash balances and what you're expecting here through year-end. Are you dealing with stranded cash in this, what, roughly $800 million or so I see on the balance sheet? And just give us a little bit more color on what we should expect going forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 4:00PM, FTV.N - Q3 2024 Fortive Corp Earnings Call

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Yes, absolutely. And then Jim, just thinking about moving towards spin. You made a comment, I think, about sort of standing up the teams. But maybe elaborate on where we're at with naming rest of the management board, that sort of thing? And is it are we still on track for the plan as announced? Or now that it's kind of out there and you've sort of advertised your intentions, there's some additional chatter about other possible outcomes.

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : All right. And then just a quick data point. Chuck, can you tell us what price was in the quarter and what you're expecting for Q4?

Question: Scott Davis - Melius Research - Analyst : I guess we got to disconnect somehow with modern phone systems we don't know how to use. But this may end up being a stupid question, but as your mix sales mix shift in Tek changes more towards the guys like NVIDIA, does that are their needs different? Are they different as a customer for you guys in what they need, how they need it, what they want to pay for it? Just any color on those would be helpful.

Question: Scott Davis - Melius Research - Analyst : I was hoping you'd say tailwind but anyways, helpful. Just to drill down a little bit on this customer delay spending thing. Do you sense that some of this is I mean, there's been macro uncertainty for a while now. So is some of this related to the election and perhaps some uncertainty about policy and tariffs and things like that? And maybe we get a little bit of color on that. We'll have visibility on that in a week or 2. But is there is it more related to that? It just feels like we've had macro uncertainty. You guys have probably commented on that for five of the last six quarters or so.

Question: Andrew Kaplowitz Inc. - Citigroup Inc. - Analyst : Just thinking a little bit more about Fortive by geography. You gave us orders this time by region. You just talked to Scott about North America. But mid-teens growth in Europe, maybe that seemed pretty strong and then Asia up slightly. I think your Q3 orders were against easier comps. But any more color on the regions? And then China continues to look tough for several of your peers at least in terms of revenue. It was down high single digits for you. So what are you seeing in? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 4:00PM, FTV.N - Q3 2024 Fortive Corp Earnings Call

Question: Andrew Kaplowitz Inc. - Citigroup Inc. - Analyst : That's helpful, Jim. And then obviously, going back to AHS for a second, it's been a difficult few years for you up until the last year or so. But given '24's strength and your own self-help in the segment, could you see an extended runway here of higher growth in that mid- to high single-digit range? I know your long-term guide's mid-single digits. But maybe a little bit more accelerated growth and better margin performance out of that. What's the runway in AHS like?

Question: Andrew Obin - Bank of America - Analyst : Just to hop on Jeff's question. Can you hear me?

Question: Andrew Obin - Bank of America - Analyst : Okay, excellent. Just to follow up on Jeff's question, you had 2.9% price this quarter. Seems to be quite a bit better than peer pricing of 1% to 2% that we're hearing from other industrial companies. Can you just talk about just overall pricing environment? I know you talked about fourth quarter, but anything structural? Have you sort of rethought your pricing strategy? And how much of this momentum in terms of outperformance is sustainable into '25?

Question: Andrew Obin - Bank of America - Analyst : Okay. And just a little bit more color on high single-digit core order growth in Tektronix. Is this all green shoots in semiconductors? Just would love to get more color as to what are the other areas that have turned positive.

Question: Jamie Cook - Truist Securities, Inc - Analyst : I guess two questions. I guess what sort of struck me about the quarter was the strength, I guess, in the PT margins, given that organic growth continues to sort of disappoint there. So is there anything that's going on there structurally, the price? Just trying to understand. I don't think we've ever had a margin that high except for maybe a fourth quarter. And then I guess just my second question on the framing to 2025, understanding the spin is going to happen at the end of 2025. And so maybe the question isn't as relevant, but I still think it speaks to the quality of the assets within the portfolio in SBS. Can you frame your how you think about the historical like sort of 4 0 EPS number that you guys put out there for 2025 and the different levers that you could pull to get to an EPS number close to that?

Question: Deane Dray - RBC Capital Markets - Analyst : This came up a couple of different times but just frame for us what the plan is on this proactive restructuring, and this is above your normal level. And what sense of payback or timing and across which segments?

Question: Deane Dray - RBC Capital Markets - Analyst : Okay. And then this is more of a nuanced question, but when you talked about the some of the slowing decision-making and policy uncertainty and so forth, you cited calibration customers that might be deferred. And maybe just I don't understand that business well enough. But that, to me, sounds like they have regulatory obligations. You can't defer it that long or maybe there's a warranty issue. But when you say some calibration customers are deferring, what exactly are you referring to?

Question: Chris Snyder - Morgan Stanley - Analyst : I think you said previously that in addition to PT orders being up double digits year-on-year, you're seeing sequential improvement in the absolute order rates from Q2 to Q3. I guess my question is, is that primarily or entirely just driven by the military and government orders that got pushed out of Q2 and seems like came through here in Q3? Or are you seeing broader sequential improvement across some of the other green sheets that you mentioned? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 4:00PM, FTV.N - Q3 2024 Fortive Corp Earnings Call

Question: Chris Snyder - Morgan Stanley - Analyst : And then I guess just following up on PT. I certainly understand in the back half year, organic growth is below order rates because you're comping backlog burn as we see on this Slide 6. But as we look into 2025, should revenue at PT grow in line with orders? Just because it seems like 2024 is roughly a 1.0 book-to-bill year so you don't have that kind of backlog burn comps as we go into next year. So any thoughts on that would be helpful.

Question: Joseph O'Dea - Wells Fargo Securities - Analyst : Wanted to I think you commented that some shipments had pushed from Q3, maybe to Q4 or further in Qualitrol. I think that's been an area of some strength. And so I'm not sure if that's kind of projects and just delays or kind of what customers might be deciding to do there. So any color there?

Question: Joseph O'Dea - Wells Fargo Securities - Analyst : And just kind of, is that more supply chain-related and maybe not reaching the potential that you thought you had for shipments there or just any additional thoughts on it?

Question: Joseph O'Dea - Wells Fargo Securities - Analyst : Okay, understood. And then just Provation and that driving the 20% SaaS growth at AHS, are you seeing kind of acceleration there? And just anything when it comes to innovation or end market activity that's supporting that acceleration?