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Solventum Corp (SOLV)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $2.161B (+3.9% reported; +2.8% organic) and adjusted diluted EPS was $1.69; GAAP EPS was $0.51. Management raised FY25 organic growth to +2.0%-3.0% and adjusted EPS to $5.80–$5.95, with FCF unchanged at $450–$550M .
  • Versus S&P Global consensus, Q2 revenue beat by ~$41M and adjusted EPS beat by ~$0.24, while EBITDA missed by ~$200M; management attributed margin pressure to lower gross margins (3M supply mark-up) and public company stand-up costs (bold = significant) *.
  • Segments: MedSurg organic +3.9% (IP&SS +5.9% aided by order timing; AWC +0.8% muted by a voluntary recall), Dental +0.7%, HIS +3.2%, P&F +3.1%; segment OI expansion was most notable in HIS and P&F .
  • Catalysts: Raised top- and bottom-line guidance; tariff headwind reduced to $60–$80M (from $80–$100M), FX now a ~50 bps tailwind; ERP cutover in Europe executed—management confidence rising into 2H despite Q3 order timing unwind .

What Went Well and What Went Wrong

What Went Well

  • Guidance raise: “We are raising our sales growth and EPS guidance for the year,” reflecting “continued momentum and strong execution” .
  • Segment strength: HIS margin expanded (35.5% vs 33.8% YoY) and P&F margin nearly doubled (19.2% vs 8.0% YoY) on bioprocessing and industrial demand .
  • Strategic progress: ERP cutover in Europe completed and 35% of TSAs exited; “teams came together… delivered the quarter… and for our customers” .

What Went Wrong

  • Gross/operating margin compression: GAAP operating margin fell 180 bps YoY to 9.9% due to lower gross margins (3M supply agreement mark-up) and higher OpEx (stand-up, growth investments) .
  • Cash flow seasonality and separation costs: Operating cash flow fell to $169M and FCF to $59M in Q2, with management maintaining FY FCF guide and citing lumpiness and deferred cash payments .
  • Advanced Wound Care pause: Growth tempered by a voluntary recall (no patient safety concerns); management expects acceleration in 2H as NPWT pipeline rolls out .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$2.074 $2.070 $2.161
GAAP Diluted EPS ($)$0.17 $0.78 $0.51
Adjusted Diluted EPS ($)$1.41 $1.34 $1.69
Gross Margin % (GAAP)54.0% 53.8% 54.4%
Operating Margin % (GAAP)6.6% 7.3% 9.9%
Adjusted Operating Margin %20.4% 19.7% 21.9%
Cash from Operations ($USD Millions)$219 $29 $169
Free Cash Flow ($USD Millions)$92 $(80) $59
Effective Tax Rate (GAAP) %(142.0)% (262.1)% 12.5%
Effective Tax Rate (Non-GAAP) %17.4% 19.9% 18.3%

Q2 vs Consensus (S&P Global)

MetricConsensusActualSurprise
Adjusted EPS ($)$1.454*$1.69*+$0.24 (Beat)*
Revenue ($USD Billions)$2.119*$2.161*+$0.041 (Beat)*
EBITDA ($USD Billions)$0.534*$0.334*−$0.200 (Miss)*

Values retrieved from S&P Global.*

Segment Breakdown (Q2 2025 vs Q2 2024)

SegmentNet Sales Q2 2024 ($M)Net Sales Q2 2025 ($M)Organic Growth %Operating Income Q2 2024 ($M)Operating Income Q2 2025 ($M)Operating Margin Q2 2024 %Operating Margin Q2 2025 %
Advanced Wound Care$460 $467 0.8% ————
Infection Prevention & Surgical Solutions$702 $750 5.9% ————
MedSurg (total)$1,162 $1,218 3.9% $214 $210 18.4% 17.3%
Dental Solutions$331 $338 0.7% $93 $96 28.0% 28.5%
Health Information Systems$328 $339 3.2% $111 $120 33.8% 35.5%
Purification & Filtration$238 $252 3.1% $19 $48 8.0% 19.2%
Total Company$2,081 $2,161 2.8% $244 $214 11.7% 9.9%

KPIs and Operating Drivers

KPIQ1 2025Q2 2025
Currency impact on reported sales (bps)—+110 bps
SKU exit impact (bps)—~60 bps headwind
Pricing impact (%)±1% range ±1% range
Cash & Equivalents ($M)$534 $492
Net Interest + Other Non-Op ($M)$115 $111
Effective Tax Rate (Non-GAAP)19.9% 18.3%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY 2025+1.5% to +2.5% +2.0% to +3.0% (+2.5%–3.5% excl ~50 bps SKU) Raised
Adjusted EPSFY 2025$5.45–$5.65 $5.80–$5.95 Raised
Free Cash FlowFY 2025$450M–$550M $450M–$550M Maintained
FX Impact to SalesFY 2025~Neutral (prior) ~+50 bps tailwind Raised
Effective Tax RateFY 202520%–21% (initial) Comfortable at low end of range Lower within range
Tariff HeadwindFY 2025$80M–$100M (initial) $60M–$80M Lowered
Operating Margin (Adj)FY 2025Plan range 20%–21% Closer to midpoint of 20%–21% Clarified trajectory

Note: FY25 guidance includes Purification & Filtration; will be updated after transaction close .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Transformation & GuidanceIntroduced FY25 guidance; reiterated 3-phase plan and 2025 Investor Day Raised FY25 organic growth and EPS; momentum building Improving
ERP & SeparationStand-up costs/margin impact in 2024; separation in progress Europe ERP cutover executed; 35% TSA exits; more cutovers ahead Operational progress
Tariffs & FXFY25 guidance initially neutral FX and higher tariff headwinds FX tailwind (~50 bps); tariff headwind reduced to $60–$80M Improving external
MedSurg (IP&SS, AWC)MedSurg led growth in Q4; IP&SS and AWC drivers IP&SS aided by order timing; AWC recall muted growth; NPWT pipeline Mixed near-term; stronger 2H
Dental InnovationCore restoratives & stabilization from new products ClinPro Clear, Filtek EZ Match, Clarity attachments driving demand Building
HIS & AI/autonomous codingStrength in software; RCM solutions Ensemble partnership to scale autonomous coding across 28 systems ($40B NPR) Strategic expansion

Management Commentary

  • “Our solid second quarter… mark five consecutive quarters of positive sales volume growth… we have raised our full year 2025 guidance at the top and bottom line” — Bryan Hanson, CEO .
  • “We moved our European distribution centers… exited a DC in South America… executed our largest ERP cutover to date… exited 35% of TSAs” — Wade McMillan, CFO .
  • “We’re reducing the estimated tariff impact for 2025… to $60M–$80M” — Bryan Hanson/CFO .
  • “HIS… partnership with Ensemble… underscores leadership in AI-driven solutions that transform customer operations” — CEO ; Ensemble press release details deployment and scale .

Q&A Highlights

  • Organic growth cadence: Normalizing underlying growth ~2.5%; expect Q3 lower due to order timing unwind, Q4 higher; pricing ±1%; SKU exits ~60 bps in Q2 (less in Q1) .
  • EPS bridge and raise: Midpoint up ~$0.33, reflecting Q2 beat and 2H momentum; caution given variables (separation, tariffs, FX, tax) .
  • Segment visibility: IP&SS benefited from advanced order timing; AWC recall muted growth; NPWT rollout and Peel-in-Place ramp in 2H .
  • Cash flow: FCF guide maintained; improvements expected in working capital and deferred payments; separation costs stepping down in 2026–2027 .
  • Capital allocation: M&A is enhancement, not requirement, to reach 4%-5% organic growth targets .

Estimates Context

  • Q2 2025 beats/misses vs S&P Global consensus: Adjusted EPS $1.69 vs $1.454 (+$0.24, beat); Revenue $2.161B vs $2.119B (+$41M, beat); EBITDA $0.334B vs $0.534B (−$200M, miss). We expect sell-side to raise FY25 EPS and revenue models, but EBITDA and margin assumptions may be tempered due to gross margin headwinds and stand-up costs *.
  • Forward look: Q3 2025 consensus EPS ~$1.43 and revenue ~$2.051B; Q4 2025 EPS ~$1.49 and revenue ~$1.961B, with FX tailwind and reduced tariffs supporting margin trajectory into 2H (subject to order timing unwind) [GetEstimates]*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Guidance raise and tariff relief are the quarter’s key positive catalysts; FX tailwind adds support to 2H, though Q3 may reflect order timing unwind .
  • Quality of beat: Revenue and adjusted EPS beats driven by volume and mix; EBITDA miss highlights continuing gross margin pressure from 3M mark-ups and stand-up costs—watch cost normalization path (bold: mixed signal) *.
  • Segment momentum: HIS and P&F margins expanding; MedSurg set for 2H trade-off as IP&SS moderates and AWC accelerates with NPWT launches .
  • Execution de-risking: ERP Europe cutover and TSA progress reduce separation risk; expect FCF improvement as separation costs step down in 2026–2027 .
  • 2H setup: Q3 softer on order timing normalization; Q4 stronger; FX/tariffs and tax mix support EPS delivery toward raised range .
  • Strategic AI angle: Ensemble partnership could broaden HIS autonomous coding adoption, aiding mix and margins over time; monitor implementation milestones .
  • Trading lens: Near-term pullback risk around Q3 cadence; medium-term thesis supported by guidance raise, segment margin expansion, and separation progress. A beat-and-raise with clear explanations tends to support multiple stability despite EBITDA variance *.