Joseph O'Dea

Joseph O'Dea asked for more details on Fortive's 'Growth Oxygen' initiative for its operating brands, noting the Q3 R&D decrease and inquiring about the scope of resourcing and the expected timing of its impact on organic growth. He also questioned the organic growth composition, specifically the price and volume split, and where Fortive sees the best opportunities for volume improvement.

Answer

Olumide Soroye, Fortive's President and CEO, described 'Growth Oxygen' as a strategic planning process to identify and fund high-potential organic growth ideas, including product enhancements, commercial capacity expansion in attractive markets (e.g., data centers, India), and new services/software offerings. He noted that some Q3 margin expansion would be reinvested in Q4 to accelerate these initiatives for 2026 impact. Regarding organic growth, Mr. Soroye highlighted continued pricing strength and expressed optimism for significant volume upside across businesses, particularly Fluke and the iOS segment, with specific ideas to drive volume growth over the next 1-3 years.

Joseph O'Dea asked for more color on Fortive's 'Growth Oxygen' initiative, including what it encompasses, the timing of its impact on organic growth, and the composition of organic growth between price and volume.

Answer

President and CEO Olumide Soroye described 'Growth Oxygen' as a disciplined process to identify and fund high-confidence, high-return organic growth ideas (product enhancements, commercial capacity, add-on services) across Fortive's 10 brands, using Q3 margin expansion to invest in Q4 for 2026 impact. He noted that while pricing strength is expected to continue, many new growth ideas are volume-driven, and the volume contribution to growth is expected to improve over the next 1-3 years.

Joseph O'Dea of Wells Fargo asked for more detail on the 8% aerospace growth forecast, focusing on margin mix implications between OE and aftermarket, and the expected contribution from Meggitt synergies. He also inquired about the latest sentiment from North American distributor partners.

Answer

Chairman & CEO Jennifer Parmentier reiterated the full-year aerospace growth outlook and expressed confidence in continued margin expansion. EVP & CFO Todd Leombruno added that $50 million in Meggitt synergies are still to be realized and will ramp through the year. Regarding distributors, Parmentier described sentiment as bullish with high quoting activity, though some project decisions are being delayed by tariff and interest rate uncertainty.

Questioned why the 2025 mid-single-digit growth expectation for electrical distribution isn't higher given the easy comparison from 2024. Also asked why the telecom business was still down significantly in Q4 and why its 2025 growth outlook is muted.

Answer

The company acknowledged there could be upside to the electrical distribution forecast if market orders are strong. For telecom, the 2023 comps were very strong. The outlook for 2025 is muted because they are being disciplined and focusing on profitable growth in that segment, where pricing has been weak, rather than just chasing volume.