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    Fortive (FTV)

    Q4 2024 Earnings Summary

    Reported on Feb 25, 2025 (Before Market Open)
    Pre-Earnings Price$79.84Last close (Feb 6, 2025)
    Post-Earnings Price$80.00Open (Feb 7, 2025)
    Price Change
    $0.16(+0.20%)
    • Qualitrol is experiencing multi-year double-digit growth, driven by strong demand in power infrastructure monitoring solutions, and the company is ramping up production capacity to meet this demand.
    • Fortive's software businesses are growing at high single digits, with improved profitability. The company's software revenue grew overall, and Facilities & Asset Lifecycle margins improved by 800 basis points, demonstrating the effectiveness of the Fortive Business System in accelerating software performance.
    • Fortive's net working capital is at 6%, placing it among the elite companies in terms of efficiency. This exceptional working capital management enhances the company's financial flexibility and liquidity.
    • Precision Technologies (PT) margins declined in Q4 instead of improving as expected, due to lower revenues in higher-margin businesses, production capacity issues, and unfavorable mix.
    • Continued weakness in China, with revenues down high single digits in 2024 and expected to decline mid-single digits in 2025, including a Q1 decline of high single digits to low double digits, affecting overall growth prospects.
    • Weak demand in European automation markets, particularly impacting Hengstler in the Sensing segment, due to its higher exposure to European discrete automation which has been the most weak.
    MetricYoY ChangeReason

    Total Revenue

    +2.3% (from $1,583.7M in Q4 2023 to $1,620.3M in Q4 2024)

    Total Revenue rose modestly as a result of overall market growth where a surge in service revenue helped offset the drastic decline in product and software sales relative to the prior high base.

    Sales of Products and Software

    -33.6% (from $1,351.4M in Q4 2023 to $897.8M in Q4 2024)

    The dramatic drop suggests a sharp rebalancing of the revenue mix; previous periods benefited from strong product performance, and the current period reflects either a strategic shift away from these offerings or market contraction in this segment.

    Sales of Services

    200% increase (from $232.3M in Q4 2023 to $722.5M in Q4 2024)

    The more than 200% surge indicates a strategic pivot toward service-based offerings, with robust demand and recurring revenue growth far exceeding the modest services base of the previous period.

    U.S. Revenue

    +5.2% (from $855.4M in Q4 2023 to $899.9M in Q4 2024)

    Improved domestic performance in the U.S. reflects solid market conditions and effective pricing and productivity initiatives compared to the previous period’s performance.

    China Revenue

    -11.3% (from $172.5M in Q4 2023 to $153M in Q4 2024)

    A decline in China revenue points to softer demand or prevailing market headwinds in the region relative to the prior period, signaling continued challenges in that market.

    Operating Income

    Nearly flat (from $310.9M in Q4 2023 to $307.1M in Q4 2024)

    Stable operating income reflects a balancing act; while stronger service and U.S. performance contributed positively, they were offset by rising expenses—most notably the steep increase in D&A—and adverse impacts from the shift in revenue mix.

    Net Income & EPS

    Net Income down 21% (from $265.2M to $208.8M); EPS from $0.76 to $0.61

    A significant decline in net income and EPS is largely driven by increased non-cash expenses (especially D&A) and a disrupted revenue composition, which eroded margins despite steady operating profitability relative to prior periods.

    Depreciation & Amortization (D&A)

    +370% surge (from $115.7M in Q4 2023 to $543.9M in Q4 2024)

    D&A expenses surged dramatically due to a substantial increase in the amortization of new acquisition-related intangible assets (e.g., from recent deals such as the EA acquisition), marking a notable departure from the lower levels seen in previous periods.

    Net Cash

    Shift from +$1,174.7M in Q4 2023 to –$1,075.5M in Q4 2024

    Net cash performance weakened markedly as heavy cash outflows for acquisitions, equipment, and share repurchases in the current period overwhelmed stronger operating cash flows that had previously yielded a positive net cash change.

    MetricPeriodGuidanceActualPerformance
    Revenue Growth
    Q4 2024
    ~3%
    2.3% year-over-year (from 1,583.7In Q4 2023 to 1,620.3In Q4 2024)
    Missed
    Adjusted Operating Profit
    Q4 2024
    Expected to increase by ~6%, ~75 bps margin expansion
    -1.2% year-over-year (from 310.9In Q4 2023 to 307.1In Q4 2024)
    Missed
    Adjusted Diluted EPS
    Q4 2024
    $1.11 to $1.14
    $0.60
    Missed
    Free Cash Flow
    Q4 2024
    $425 million
    $989.4 million, derived from: Net Income 208.8+ Non-Cash 653.6+ SBC 109.2+ WC 138.2– CapEx 120.4
    Beat
    1. China Sales Outlook
      Q: How is China sales performance and outlook?
      A: Management indicated that China is a headwind, expecting revenue to be down mid-single digits in 2025 after being down high single digits in 2024. The first quarter is most impacted due to tough comparisons, with China expected to be down high single digit to low double digits. Weakness is seen across the board, particularly in day-to-day run rate business, while project-based sales show some resilience.

    2. Precision Tech Segment Growth
      Q: What's the outlook for Precision Tech's organic growth?
      A: Precision Tech's organic sales are expected to be down mid-single digits in Q1, improving to slight growth for the year. This improvement is due to easier comps, modest market improvements in the second half, and increased capacity in high-volume areas. Orders have been strong, with double-digit growth expected in the second half.

    3. Margin Outlook and Price vs Cost
      Q: What's the expectation for margins and price vs cost in 2025?
      A: The company expects about 200 basis points of price improvement, maintaining margins despite flattish growth. Margins expanded by 110 basis points in Q1 2024, and operational performance is offsetting volume declines in Precision Tech. Gross margins expanded by 10 basis points in Q4.

    4. Impact of Tariffs and Government Policies
      Q: How are tariffs and policies affecting the business?
      A: Tariffs on China have been countered and are included in guidance. The 10% China tariffs have been mitigated, and there is no significant impact from tariffs on Canada and Mexico. Management remains cautious due to potential economic impacts of tariffs on China.

    5. Software Business Growth
      Q: What's the growth outlook for software businesses like Gordian and Accruent?
      A: Software revenue grew high single digits in the quarter and the year. Gordian's growth is moderating to low double digits, while Accruent and ServiceChannel are improving. Profitability has significantly improved, with an 800 basis point margin expansion in FAL.

    6. Spin-off Costs and Impact
      Q: What are the expected costs and impacts of the spin-off?
      A: Stranded costs from the spin-off are estimated at $50–60 million, with half to be offset before the spin and the rest within 12–18 months. Separation costs are expected to be $185 million, mainly one-time professional fees. The spin-off is proceeding, and any inbound offers have been evaluated.

    7. High-Growth Markets Excluding China
      Q: How are other high-growth markets performing?
      A: High-growth markets excluding China are growing well, offsetting weakness in China. The company continues to see good growth in these markets, contributing positively to overall performance.

    8. Precision Tech Margins and Orders
      Q: How are Precision Tech margins and orders trending?
      A: Precision Tech margins are being maintained despite lower volumes, thanks to operational performance. Orders have been strong, with double-digit growth for two consecutive quarters. The book-to-bill ratio was approximately 1 for the year.

    9. Utilities and Power Vertical Growth
      Q: What's the outlook for the utilities and power vertical?
      A: The utilities and power vertical, especially through Qualitrol, is experiencing double-digit growth. Capacity is being increased to meet strong and sustained demand in grid monitoring and transformer sensors.

    10. Semiconductor Market Outlook
      Q: What's the expectation for the semiconductor market?
      A: The company sees strength in high-end semiconductor areas like high-speed compute and defense. Weakness continues in discrete consumer products, with improvement expected by the end of the year but no dramatic changes anticipated.

    11. Free Cash Flow Expectations Post-Spin
      Q: What are free cash flow expectations after the spin-off?
      A: Both companies expect strong free cash flow with conversion rates around 95% to 100%. Net working capital efficiency contributes to these expectations, with net working capital at 6% of sales, and around 9% excluding software businesses.

    12. EA Elektro-Automatik Performance
      Q: How is EA Elektro-Automatik performing and impacting guidance?
      A: EA is expected to grow mid-single digits in 2025, with margins returning to pre-acquisition levels. The EV mobility segment remains challenged, particularly in Western Europe and China. Integration with Tektronix is ahead of plan, and sales synergies are positive.

    13. Impact of Fewer Selling Days
      Q: How do fewer selling days affect Q1 results?
      A: There are 2 fewer selling days in Q1, impacting revenue by about $8 million, primarily in consumables and service businesses like ASP and Gordian. This results in a 200 basis point headwind to growth in some segments.

    14. Net Working Capital Efficiency
      Q: How efficient is net working capital management?
      A: Net working capital is at 6% of sales, placing the company among the elite in efficiency. Excluding software businesses, it's around 9%, indicating strong working capital management across divisions.

    15. Precision Tech Margins in Q4
      Q: Why were Precision Tech margins down in Q4 despite higher revenue?
      A: Margins were affected by lower volumes in higher-margin businesses and product mix. Capacity constraints and reduced volumes at Tektronix contributed to a margin decline of 220 basis points in Q4.

    Research analysts covering Fortive.