Fortive Corp (FTV)·Q4 2024 Earnings Summary

Executive Summary

• Q4 delivered solid execution: revenue $1.62B (+2.3% YoY), adjusted EPS $1.17 (+19% YoY), record Q4 free cash flow $465M, and adjusted operating margin 28.7% (+100 bps YoY) .
• Management guided Q1 2025 revenue $1.48–$1.51B and adjusted EPS $0.83–$0.86; FY 2025 revenue $6.23–$6.35B and adjusted EPS $4.00–$4.12, with core growth 1.5–3.5% and adjusted FCF ≈$1.5B excluding ~$185M separation cash costs .
• Precision Technologies (PT) showed sequential improvement in core growth with second consecutive quarter of double‑digit orders growth; iOS and AHS combined grew 4% with margin expansion .
• Key 2025 stock catalysts: accelerating PT recovery (bookings strength), sustained high-quality recurring growth in IOS/AHS, and clearer separation milestones (Ralliant board named; close targeted early Q3’25) .

What Went Well and What Went Wrong

• What Went Well

  • Margin and cash excellence: adjusted operating margin 28.7% (+100 bps YoY) and record Q4 FCF $465M (+12.7% YoY) on strong execution and FBS discipline .
  • Durable growth engines: iOS and AHS combined +4% revenue with >33% adjusted margins; 12th consecutive quarter of mid‑single digit core growth for the combined group (management remark) .
  • Orders momentum in PT: second straight quarter of double‑digit orders growth, supporting gradual 2025 recovery; CEO: “adjusted EPS of $1.17, reflecting a $0.05 beat at the midpoint … record Q4 free cash flow” .

• What Went Wrong

  • PT margin pressure: PT operating margin fell 220 bps YoY in Q4 on lower core volumes and mix; PT Q4 op margin 20.0% vs. 25.1% last year .
  • China headwinds and “days” effect: management expects China down mid‑single digits in 2025 (Q1 down high‑single/low‑double), and ~2 fewer billing days is a ~200 bps Q1 AHS growth drag .
  • FX and tax headwinds to FY25 EPS: ~$90M FX revenue headwind and $0.20–$0.25 EPS headwind from higher tax rate and FX embedded in guidance .

Financial Results

Q4 performance vs prior periods

Segment breakdown – sales and operating margins (Q4)

Additional KPIs

• Price realization: ~3% in Q4; gross margin expanded 10 bps in the quarter (management) .
• Core revenue growth: Q4 core +1.8% (company-reported); full-year core +1.3% .
• Net leverage: ~1.6x at year-end 2024 (management) .

Guidance Changes

Note: Management reiterated PT separation timing target early Q3’25; Ralliant board designees named (Chair Ganesh Moorthy; directors Alan Spoon, Kate Mitchell) .

Earnings Call Themes & Trends

Management Commentary

• “Adjusted earnings per share of $1.17, reflecting a $0.05 beat at the midpoint… and record Q4 free cash flow of $465 million” — James Lico, CEO .
• “iOS and AHS combined… 4% revenues with adjusted operating margins up 140 bps to over 33%… 12 consecutive quarters of consistent mid‑single‑digit core growth” — CEO .
• “PT… second consecutive quarter of sequential core growth improvement enhanced by double‑digit growth in utility and aerospace & defense markets” — CEO .
• “We utilized our record second half free cash flow to repurchase approximately 10 million shares… We exited 2024 with net leverage of approximately 1.6x” — CEO .
• “We expect core revenues up 1.5% to 3.5%… adjusted diluted EPS $4.00 to $4.12… adjusted free cash flow ≈$1.5B” — CFO .

Q&A Highlights

• PT cadence and orders conversion: Expect down mid‑single in Q1, better Q2, growth in 2H; improvements driven by comps, modest market recovery, capacity adds, and Tek innovation; some sensing blanket orders shorter-dated .
• Tariffs: China 10% tariff countermeasures already enacted and embedded in guide; no impact from Canada/Mexico; China macro prudently planned down mid‑single digits for 2025 .
• “Days” impact: ~2 fewer days worth ~$8M in Q1; ~200 bps headwind to AHS consumables; also affects services (Gordian, Fluke/Tek services) .
• Tax/FX: Underlying tax rate ~14% (ex discrete); FY25 EPS headwind $0.20–$0.25 from higher tax and FX; Q1 revenue FX headwind ~$30M .
• Stranded/public company costs: ~$50–$60M stranded costs; plan to offset about half pre‑spin and normalize 12–18 months post‑spin; separation cash costs ~$185M .

Estimates Context

• We attempted to pull S&P Global consensus for revenue and EPS, but access was unavailable at this time due to a data request limit. As a result, we cannot present verified consensus comparisons for beats/misses.
• Company commentary indicated adjusted EPS performance above internal midpoint expectations (“$0.05 beat at the midpoint”), but this is versus company guidance, not verified Street consensus .

Key Takeaways for Investors

• Execution remains strong: record Q4 FCF, 100 bps YoY adjusted margin expansion, and balanced FY25 guide despite FX/tax headwinds .
• PT recovery thesis building: two quarters of double‑digit orders growth and sequential core improvement set up 2H’25 growth; watch Tek demand in high‑speed compute/defense and Sensing capacity ramps .
• iOS/AHS as ballast: continued mid‑single digit core growth, high recurring revenues and expanding margins support resilience through macro and “days” noise .
• 2025 bridge: core +1.5–3.5%, adjusted OP +2–5%, adjusted EPS $4.00–$4.12 with ~$1.5B adjusted FCF; offsetting $0.20–$0.25 EPS headwind from tax/FX with lower share count and slightly lower interest expense .
• Spin milestones: Ralliant board designated; targeted close early Q3’25 — clarity and execution progress can be catalysts for multiple re‑rating .
• Near‑term watch‑items: Q1 “days” effect and FX; China softness; PT margin trajectory as mix and volume evolve; AHS consumables cadence post Q1 .
• Capital allocation: continued buybacks funded by robust FCF; regular $0.08 dividend provides incremental return while executing separation .

Citations:

• Q4 2024 8‑K/press release, tables and reconciliations
• Q4 2024 earnings call transcript
• Q3 2024 8‑K
• Q2 2024 8‑K
• Board and dividend press releases