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Fortive Corp (FTV)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered adjusted EPS of $0.85, in line with consensus, while revenue of $1.474B declined 3% year-over-year; adjusted operating margin expanded 20 bps to 25.3% on strength in Intelligent Operating Solutions (IOS) despite Precision Technologies (PT) weakness .
  • Management lowered FY 2025 adjusted EPS guidance to $3.80–$4.00 (from $4.00–$4.12 in Feb) to reflect moderating PT demand and net tariff impacts; Q2 adjusted EPS guided to $0.85–$0.90 with tariff headwinds phasing in .
  • Tariffs are a key theme: Fortive estimates a $190–$220M gross impact in 2025, with price, sourcing/logistics optimization, and localized manufacturing expected to fully offset by Q4 2025 and be neutral in 2026; exposure to imports from China has been reduced ~70% since 2018 .
  • Spin timing pulled forward: separation of PT (Ralliant) targeted by end of Q2 2025 (was early Q3), with Investor Day on June 10 and pro rata dividend and repurchase programs announced as capital deployment catalysts .

What Went Well and What Went Wrong

What Went Well

  • IOS core revenue grew ~2% with 150 bps margin expansion; software and recurring revenue mix accretive, supported by Fluke durability and FAL wins (e.g., ServiceChannel enterprise customer) .
  • Adjusted operating margin expanded 20 bps to 25.3% driven by IOS performance and productivity actions; adjusted EPS up 2% YoY to $0.85 .
  • Cash generation remained strong: adjusted free cash flow of $222M; TTM reported operating cash flow up 5% YoY; share repurchases of ~2.5M shares in Q1 .
    • Quote: “Rigorous operational execution contributed to continued margin expansion and strong free cash flow generation in the quarter.” — CEO James Lico .

What Went Wrong

  • PT core revenue declined 8.4% (below expectations) on lower Test & Measurement orders amid geopolitical/macro uncertainty; PT margin contracted 260 bps on lower volume/mix/FX .
  • Total revenue fell 3.3% YoY to $1.474B with core down 1.7% (FX headwind, fewer days, Q4 pull-forward at Fluke) .
  • AHS margins contracted ~70 bps due to transactional FX and fewer days despite 2.5% core growth; investments weighed near-term margins though expected to ramp through the year .
    • Analyst concern: “One of the bigger declines…in Test and Measurement… preordering or pausing?” — Scott Davis; Management: customers delayed R&D investments across geographies, recovery likely pushed into 2026 .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$1.5346 $1.6203 $1.4742
GAAP Diluted EPS ($)$0.63 $0.60 $0.50
Adjusted Diluted EPS ($)$0.97 $1.17 $0.85
Operating Margin (%)19.3% n/a15.8%
Adjusted Operating Margin (%)26.8% n/a25.3%

Segment breakdown (Q1 2025):

SegmentSales ($USD Millions)Operating Margin (%)
Intelligent Operating Solutions$671.4 25.9%
Precision Technologies$500.6 17.4%
Advanced Healthcare Solutions$302.2 8.7%
Total$1,474.2 15.8%

KPIs and cash:

MetricQ3 2024Q4 2024Q1 2025
Operating Cash Flow ($MM)$459.0 $502.0 $241.7
Free Cash Flow ($MM)$431.2 $465.0 $222.0 (adjusted)
Core Revenue Growth (%)1.1% 2% (Q4 core growth) -1.7%
Share Repurchases (# shares)n/an/a~2.5M

Estimate comparison (S&P Global consensus vs actual):

MetricConsensusActualOutcome
Q1 2025 Adjusted EPS ($)0.851*0.85 In line
Q1 2025 Revenue ($MM)1,492.8*1,474.2 Miss
Q1 2025 EBITDA ($MM)398.1*368.5*Miss

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$4.00–$4.12 $3.80–$4.00 Lowered
GAAP EPSFY 2025$2.38–$2.50 $2.23–$2.43 Lowered
Adjusted EPSQ2 2025n/a$0.85–$0.90 New
GAAP EPSQ2 2025n/a$0.44–$0.49 New
PT Core RevenueFY 2025~Flat Down low single digits Lowered
New Fortive Core Growth (IOS+AHS)FY 2025Low-single-plus to mid-single Maintained Maintained
Separation Timing (PT/Ralliant)2025Early Q3 2025 End of Q2 2025 Accelerated
Tax ExpenseFY 2025n/aLower tax expense tailwind embedded Added tailwind

Earnings Call Themes & Trends

TopicQ3 2024 (Prev-2)Q4 2024 (Prev-1)Q1 2025 (Current)Trend
Tariffs/MacroLimited discussionPlanning for stabilizing demand; China slowdown embedded $190–$220M gross tariff impact; mitigation to fully offset by Q4 2025; 70% reduction in China import exposure since 2018 Deteriorated; mitigation underway
PT Test & Measurement demandDouble-digit orders growth Second consecutive double-digit orders growth High-teens revenue decline; customers delaying R&D investments; recovery pushed into 2026 Weakened
IOS software/recurringRobust recurring growth Strong bookings and innovation velocity Software growth (ServiceChannel NDR strength); margin expansion +150 bps Improving mix
AHS consumables/softwareStrong YoY growth Continued momentum; record margin year Core +2.5%; margins down on FX/fewer days; expected sequential ramp Stable to improving
Regional trendsn/a specificChina slowing; stable North America North America strongest; Western Europe challenged; China down high single digits Mixed
Supply chain localizationn/aOngoing portfolio resilience In-region-for-region emphasis; manufacturing shifts; IP protection (NATO countries) Accelerating
AI/data center exposuren/aData center compute/communications as 35% of PT exposure Demand for HPC/HBM tied to AI data centers offsetting some weakness Positive secular tailwind
Separation (Ralliant)Announced plan Progress; early Q3 target Filing Form 10; CFO announced; end of Q2 target Accelerated timeline

Management Commentary

  • “We delivered core growth in our Intelligent Operating Solutions and Advanced Healthcare Solutions… Precision Technologies… saw customers… delay investments… while strong demand continued for utility monitoring and defense & space solutions.” — CEO James Lico .
  • “We are deploying countermeasures… strategic pricing… optimize sourcing and logistics… select investments to localize manufacturing… fully offset the estimated tariff exposure by the fourth quarter of 2025.” — CEO James Lico .
  • “Fortive is approximately 40% recurring revenue, which will expand to roughly 50% post separation… accretive software growth going forward.” — CEO James Lico .
  • CFO perspective: “FBS is real… strong portfolio with big moats… near-term catalyst of the spin… drive big impact… accelerate organic growth while maintaining financial discipline.” — CFO Mark Okerstrom .

Q&A Highlights

  • Tariff mitigation cadence and mix: ~$0.06–$0.07 EPS headwind in Q2; ~$0.10 total in 2025; ~2/3 price actions, remainder surcharges/logistics/sourcing; full dollar mitigation by Q4 .
  • PT Test & Measurement decline drivers: broad geographic delays in R&D spend; customers assessing own tariff mitigation; recovery likely into 2026 .
  • AHS margin dynamics: transactional FX and fewer days pressured Q1; sequential margin ramp expected through year; Q4 typically highest margin quarter .
  • Sensors & Safety Systems: robust demand in utilities/defense; shipping delays due to government approvals; backlog increasing; capacity and supply chain resiliency actions underway .
  • Capital allocation: ~2.5M shares repurchased in Q1; new authorizations to repurchase up to 20M shares and special-purpose buybacks funded by Ralliant cash proceeds up to $550M .

Estimates Context

  • Q1 2025: Adjusted EPS $0.85 vs consensus $0.851 (in line*); revenue $1.474B vs $1.493B (miss*); EBITDA $368.5M vs $398.1M (miss*). The primary variance stemmed from PT weakness and FX/fewer days in AHS, partially offset by IOS margin expansion .
  • Q2 2025 consensus EPS $0.593* appears below management’s adjusted EPS guide ($0.85–$0.90), reflecting tariff phasing and mitigation timing; FY 2025 consensus EPS $2.621* (GAAP) dovetails with lowered guidance ($2.23–$2.43 GAAP; $3.80–$4.00 adjusted) . Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Mix resilience: IOS and AHS recurring/software momentum is supporting margin expansion and offsetting PT cyclicality; expect continued accretive mix and operating leverage in New Fortive .
  • PT reset: Test & Measurement demand has paused across regions; management prudently assumes recovery shift into 2026; near-term pricing/countermeasures and defense/utility strength to stabilize PT through 2H25 .
  • Tariff playbook: Price actions and localization initiatives should drive sequential margin recovery with full mitigation by Q4 2025; near-term EPS headwinds create setup for improvement into 2026 .
  • Guidance credibility: FY 2025 adjusted EPS cut reflects tariff and PT moderation; Q2 guide shows confidence in mitigation ramp; watch segment updates in July post spin for clearer standalone trajectories .
  • Spin catalysts: Accelerated separation timeline, special-purpose buybacks funded by Ralliant cash proceeds, and Investor Day narratives are near-term stock drivers; monitor Ralliant CFO and Form 10 details .
  • Cash discipline: Strong OCF/FCF trends and ongoing buybacks underpin capital return; replenished repurchase authorizations add flexibility post spin .
  • Regional lens: North America strength vs Western Europe and China challenges; positioning in high-growth ex-China markets and AI/data center exposure offers secular support .