FTV Q2 2025 Sees $30M Revenue Shortfall Amid Tariff Deferrals
- Deferred orders and strong backlog recovery: Management highlighted that several orders in short cycle products were deferred due to tariff uncertainty and are now returning, indicating a robust backlog that should convert to revenues in the coming quarters.
- Resilient recurring revenue and strong product fundamentals: The discussion emphasized Fluke’s industry-leading position, with solid recurring revenues and high ARR growth, underscoring the ability to sustain both innovation and margin resilience, especially in North America where performance remains strong.
- Disciplined capital allocation and growth-oriented bolt-on strategy: The leadership underlined a renewed focus on highly disciplined capital allocation combining share repurchases and strategic bolt-on acquisitions, which could drive accelerated EPS growth and long-term value creation.
- Deferred Orders and Revenue Shortfall: Several executives noted that customer deferrals—particularly in short-cycle professional instrumentation orders and healthcare capital equipment—led to a $30 million revenue shortfall in June, which may persist if uncertainty around tariffs continues [Index 3][Index 15].
- Tariff-Related Headwinds Impacting Margins: Persistent tariff uncertainties and associated cost pressures are negatively impacting gross margins, with countermeasures only expected to fully mitigate these effects by Q4, posing a risk to near-term profitability [Index 3][Index 4].
- Geographic and End-Market Weaknesses: Concerns were raised about flat or declining performance in key regions such as Western Europe and China, along with continuing government spending uncertainties in state and local sectors, which could prolong the downturn in revenue growth [Index 9][Index 13].
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2025 | $3.80 to $4.00 | $2.50 to $2.60 | lowered |
Revenue | Q3 2025 | no prior guidance | Broadly similar to Q2 with a modest FX tailwind | no prior guidance |
Adjusted EBITDA | Q3 2025 | no prior guidance | Lower than Q2 on a dollar basis | no prior guidance |
Tax Rate | Q3 2025 | no prior guidance | High teens | no prior guidance |
Tax Rate | Q4 2025 | no prior guidance | Single digits due to discrete tax items | no prior guidance |
Adjusted EPS | Q4 2025 | no prior guidance | Expected to be meaningfully higher than Q3 on a cents basis | no prior guidance |
Interest Expense | 2H FY 2025 | no prior guidance | Expected to be lower given lower debt balances in the second half | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Tariff Impact and Mitigation Strategies | Discussed in Q1 2025 with aggressive pricing actions, supply chain shifts, localization efforts, and in Q4 2024 with established countermeasures and acknowledgment of margin pressures | Q2 2025 continues with detailed tariff cost pressures, aggressive mitigation actions (pricing, supply chain adjustments, productivity initiatives) but also notes a $30 million revenue shortfall and persistent headwinds | Recurring with consistent mixed sentiment; strategies remain aggressive but challenges persist |
Recurring Revenue and High-Margin Software Growth | In Q1 2025, recurring revenue (40% of revenue expected to rise) and strong software segment performance were highlighted; Q4 2024 emphasized double-digit ARR growth and software margin improvements | Q2 2025 emphasized Fluke’s double-digit ARR growth, improved software margins in AHS and iOS, and continued high-margin contributions | Consistent positive driver with expanding software contribution and strong recurring revenue focus |
Deferred Orders, Order Backlog Recovery, and Revenue Shortfalls | Q4 2024 detailed deferred orders at Tektronix and revenue shortfalls in certain regions; Q1 2025 noted order delays in PT and backlog issues with mixed recovery signals | Q2 2025 reported deferred orders in Fluke (shifting order mix), evidence of backlog recovery in healthcare, and a $30 million revenue shortfall due to macro pressures | Recurring theme with mixed sentiment: signs of recovery in some areas coexist with ongoing revenue shortfall risks |
Precision Technologies Performance Challenges | Q4 2024 reported a 3% core revenue decline with margin contraction and order delays; Q1 2025 detailed an 8.4% decline, shipment delays, and significant margin pressures in PT | Q2 2025 does not discuss PT challenges as the segment has been spun off (Ralliant) with deferred questions to the new team | Previously a key concern that is now removed from Fortive’s continuing operations following the spin-off |
Geographic Market Performance | Q1 2025 and Q4 2024 highlighted strong North American performance contrasted with weakening conditions in China (high single-digit declines) and challenges in Western Europe | Q2 2025 shows North America as best-performing with double-digit POS growth; China appears to have bottomed out with potential for improvement while Western Europe remains affected by geopolitical uncertainty | Recurring focus with consistent robust results in North America; slight improved optimism for China, while Europe continues to face headwinds |
Macro Uncertainty and Global Demand Variability | Q4 2024 and Q1 2025 discussed broad macro uncertainty affecting investment timing and demand—citing tariffs, geopolitical risks, and delayed R&D investments | Q2 2025 again highlights macro uncertainty through tariff impacts, government spending constraints, and policy dynamics leading to revenue shortfalls | Consistent concerns across periods impacting demand and investment decisions |
Disciplined Capital Allocation and Bolt-On Acquisition Strategy | Q4 2024 mentioned disciplined capital deployment via share repurchases and accretive M&A contributions; Q1 2025 noted a focus on unlocking value through capital allocation | Q2 2025 provided detailed emphasis on capital allocation priorities, using dividend proceeds for share repurchases and activating a rigorous bolt-on M&A strategy | Emerging as a future growth driver with more explicit strategic articulation in the current period |
Localization of Production for Tariff Mitigation | Q1 2025 discussed accelerating production localization from China as part of broader tariff mitigation efforts | Q2 2025 does not specifically mention localization as a new topic, instead grouping mitigation measures under broader strategies | Previously mentioned but less emphasized in the current period, indicating reduced focus or integration into overall supply chain adjustments |
Legacy Topics: Qualitrol Growth and Working Capital Efficiency | Q4 2024 highlighted Qualitrol’s multi-year double-digit growth driven by grid monitoring innovations and noted strong working capital efficiency metrics contributing to high free cash flow conversion | Neither Q1 2025 nor Q2 2025 mention these topics | These legacy topics have disappeared from current discussions, suggesting a shift in focus away from these areas |
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EPS Guidance
Q: How will Q3/Q4 EPS evolve?
A: Management explained that Q3 will face tariff headwinds and seasonal softness, while Q4 should improve with lower tax rates, reduced interest expense, and share repurchase benefits, supporting the full-year guidance of $2.5–$2.6 EPS. -
Deferred Orders
Q: When will deferred orders recover?
A: They noted that orders, especially in Fluke’s short-cycle products and healthcare equipment, were deferred temporarily due to tariff uncertainty and are now normalizing as customers resume placements. -
Organic Sales
Q: Are Q3 organic sales similar to Q2?
A: Management indicated that overall dollar sales should remain consistent with Q2 levels, though segments like AHS may continue to face modest challenges. -
Bolt-on M&A
Q: What is your approach to bolt-on deals?
A: They are pursuing only highly accretive bolt-ons—across software and hardware—using stringent financial and strategic criteria to ensure every deal strengthens shareholder value. -
Stranded Costs
Q: How are stranded costs being managed post-spin?
A: The team is addressing roughly half of the stranded costs immediately and plans to further reduce the remainder over the next twelve months through ongoing efficiency measures.
Research analysts covering Fortive.