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Solventum Corp (SOLV)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered organic sales growth of 4.3% to $2.07B and adjusted EPS of $1.34, both above Wall Street consensus, while GAAP margins were pressured by 3M supply mark-up and stand-up costs .
  • Management raised FY25 organic sales growth guidance to +1.5%–+2.5% (ex-SKU exits: +2.0%–+3.0%), maintained adjusted EPS at $5.45–$5.65, and kept FCF at $450–$550M; FX headwind eased to neutral, offsetting tariff impacts .
  • CFO quantified H2 tariff headwinds at $80–$100M (~$0.35–$0.45 EPS), driving full-year operating margin to the low end of 20%–21%; Q2 margin expected above 20%, with H2 below 20% due to tariff timing .
  • Revenue outperformance was aided by improved commercial execution and one-time order timing ahead of ERP/distribution moves and SKU exits; normalized organic growth estimated ~2.5% for the quarter .
  • Strategic AI momentum continues in HIS with an autonomous coding partnership with Ensemble (28 health systems, $40B NPR) that strengthens Solventum’s AI roadmap and revenue cycle value proposition .

What Went Well and What Went Wrong

What Went Well

  • Strong organic growth (+4.3%) and adjusted operating margin of 19.7% ahead of expectations; adjusted EPS of $1.34 beat consensus and reflected sales outperformance and favorable margins .
  • Management raised FY25 organic sales growth guidance and indicated FX shifting to neutral from a ~150 bps headwind, helping offset tariff impacts .
  • CEO: “We are off to a strong start… raising our organic revenue guidance and confirming EPS for the year,” and emphasized tariff mitigation actions to protect EPS .

What Went Wrong

  • GAAP margins declined YoY: gross margin to 53.8% and operating margin to 7.3% due to 3M supply agreement mark-up and stand-up/growth investments; adjusted margins also down YoY .
  • Operating cash flow fell to $29M and FCF to $(80)M, reflecting planned payments, separation costs, interest timing, and separation execution phase .
  • Tariffs will pressure H2 gross/operating margins; management guides to the low end of the 20%–21% operating margin range with H2 below 20% .

Financial Results

Quarterly Trend vs Estimates (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$2.082 $2.074 $2.070
GAAP Gross Margin %56.0% 54.0% 53.8%
Adjusted Gross Margin %57.3% 56.2% 55.6%
GAAP Operating Margin %13.2% 6.6% 7.3%
Adjusted Operating Margin %22.8% 20.4% 19.7%
GAAP EPS ($)$0.70 $0.17 $0.78
Adjusted EPS ($)$1.64 $1.41 $1.34
Operating Cash Flow ($USD Millions)$169 $219 $29
Free Cash Flow ($USD Millions)$76 $92 $(80)
Estimates vs Actual (Q1 2025)Consensus*Actual
Revenue ($USD Billions)$2.016*$2.070
Primary EPS ($)$1.221*$1.34
# of EPS Estimates7*—
# of Revenue Estimates7*—

Values with asterisks retrieved from S&P Global.

Year-over-Year Comparison (Q1 2025 vs Q1 2024)

MetricQ1 2024Q1 2025YoY Change
Revenue ($USD Billions)$2.016 $2.070 +2.6%
GAAP EPS ($)$1.37 $0.78 (43.1%)
Adjusted EPS ($)$2.08 $1.34 (35.6%)
GAAP Operating Margin %18.9% 7.3% (1,160) bps
Adjusted Operating Margin %24.0% 19.7% (430) bps
Operating Cash Flow ($USD Millions)$442 $29 (93.4%)
Free Cash Flow ($USD Millions)$340 $(80) (123.5%)

Segment Breakdown (Q1 2025)

SegmentNet Sales ($USD Millions)YoY Organic Growth %Segment Operating Income ($USD Millions)Segment Operating Margin %
Advanced Wound Care$448 2.8% ——
Infection Prevention & Surgical Solutions$710 8.2% ——
MedSurg (total)$1,157 6.0% $206 17.8%
Dental Solutions$328 0.4% $78 23.9%
Health Information Systems$329 3.9% $109 33.1%
Purification & Filtration$242 2.2% $35 14.5%
Corporate & Unallocated$13 NM ——
Total Company$2,070 4.3% $152 7.3%

Non-GAAP Adjustments Impact (Q1 2025 EPS Bridge)

AdjustmentEPS Impact ($)
Amortization of acquisition-related intangibles+0.39
Restructuring costs+0.08
Spin-off and separation-related costs+0.53
Certain litigation-related costs+0.08
Sale of Purification & Filtration-related(0.53)
Reported GAAP Diluted EPS$0.78
Adjusted Diluted EPS$1.34

KPIs and Balance Sheet Snapshot (Q1 2025)

KPIValue
Cash & Equivalents$534M
Long-term Debt$7.813B
Adjusted Effective Tax Rate19.9%
Net Interest Expense (quarter)$115M
Inventory (Total)$866M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY 2025+1.0% to +2.0% +1.5% to +2.5% (ex-SKU exit: +2.0% to +3.0%) Raised
Adjusted EPSFY 2025$5.45 to $5.65 $5.45 to $5.65 Maintained
Free Cash FlowFY 2025$450M to $550M $450M to $550M Maintained
Operating MarginFY 202520%–21% plan (implied) Low end of 20%–21% (H2 below 20%) Lowered within range
FX Impact to SalesFY 2025~150 bps headwind (prior) Neutral Improved
Tariff ImpactFY 2025Not quantified (prior)$80–$100M; $0.35–$0.45 EPS; H2 margin pressure New headwind
SKU Exit ImpactFY 2025~50 bps ~50 bps, ramping through year Maintained

Note: Guidance currently includes Purification & Filtration; update to follow upon closing of divestiture .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24 and Q4’24)Current Period (Q1’25)Trend
AI/Technology in HIS (Autonomous Coding)Focus on HIS growth; limited AI detail in 8-Ks AI-driven autonomous coding emphasized; Ensemble partnership to scale across inpatient claims Strengthening
Supply Chain / ERPSeparation progress; broader transformation noted Major ERP cutover in Q2; order timing buy-ahead ahead of ERP/DC moves; normalization expected in Q3 Active transition
Tariffs / MacroNot highlighted previously Significant H2 headwind quantified; mitigation via exemptions, sourcing, selective pricing Emerging risk
Product Performance (MedSurg Wound Care, IV Site Mgmt)MedSurg modest growth; margin pressure Strong MedSurg growth (+6% organic); adoption of V.A.C Peel and Place; IV site mgmt account conversions Improving
DentalShare gains noted in prior quarter despite market Organic growth +0.4%; resilience via restoratives, aesthetics, Clinpro Clear; market challenged Mixed
FXPrior headwind ~150 bps Now neutral on sales and EPS Improving

Management Commentary

  • CEO Bryan Hanson: “We are off to a strong start for 2025… we are raising our organic revenue guidance and confirming EPS for the year,” while noting tariffs are a headwind and “without them, we would be raising our EPS guidance commensurate with the underlying momentum” .
  • On commercial execution: momentum driven by “dedicating the sales organizations through those growth driver areas,” with traction in V.A.C Peel and Place, sterilization assurance (eBowie-Dick digitization), and dental launches (Clarity Precision Grip Attachments; Clinpro Clear) .
  • CFO Wayde McMillan: Normalized Q1 organic growth closer to ~2.5% after adjusting for order timing; FX now neutral; H2 tariff impact $80–$100M with ~90-day inventory turns leading to immediate Q3–Q4 impact; strong Q2 margin expected above 20% .

Q&A Highlights

  • Underlying organic growth: Management estimates normalized Q1 organic growth ~2.5% after buy-ahead; confidence based on distributor and customer analytics; still above internal expectations .
  • Pricing vs volume: Price mix steady in ±1% range; growth focus is volume-driven .
  • Cadence: Q2 expected strong; order timing likely reverses mostly in Q3; tariffs primarily bottom-line with H2 margin pressure .
  • Tariff assumptions and mitigation: U.S.-China ~125% (half of impact), U.S.–EU 10% (~1/3), minimal China→U.S. imports; mitigation via exemptions, sourcing optimization, selective pricing; do not annualize $80–$100M at this stage .
  • Dental resilience: Despite market softness, restoratives and new products support stability; innovation reboot underway .

Estimates Context

  • Q1 2025 beats: Revenue $2.070B vs $2.016B consensus*; Adjusted EPS $1.34 vs $1.221*; both above expectations. Management performance was “ahead of expectations,” driven by sales outperformance and margins .
  • Prior quarters: Q3’24 actuals exceeded consensus on EPS and revenue; Q4’24 also exceeded consensus .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Strong start: Revenue and adjusted EPS beat consensus with raised FY25 organic growth guidance; FX neutrality provides offset to H2 tariff headwinds .
  • Margin phasing matters: Expect Q2 operating margin >20%; plan for H2 below 20% due to tariff timing—position for potential volatility around Q3–Q4 prints .
  • Normalization ahead: Some Q1 outperformance tied to order timing; watch Q2/Q3 for normalization and execution against ERP/DC transitions .
  • AI/HIS optionality: Autonomous coding expansion (Ensemble partnership) strengthens HIS growth narrative and could underpin medium-term mix/margin improvement .
  • Segment mix: MedSurg showing broad-based traction; Dental resilient via innovation despite market softness; P&F divestiture pending—expect pro forma updates at close .
  • Risk management: Tariff exposure quantified with active mitigation; selective pricing and exemptions are levers—monitor policy evolution and FX .
  • Positioning: Near-term, emphasize earnings quality and H2 margin risk; medium-term, the transformation plan plus AI-enabled HIS and product innovation support sustainable growth .