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Solventum Corp (SOLV)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue grew 0.7% to $2.10B (organic +2.7%); adjusted EPS was $1.50, while GAAP EPS printed $7.22 due to a $1.52B gain on sale of the Purification & Filtration (P&F) business .
  • Results beat S&P Global consensus on revenue ($2.10B vs $2.05B*) and EPS ($1.50 vs $1.43*); gross margin was below consensus (54.2% vs 55.2%*) as tariffs pressured margins .
  • FY25 guidance raised: adjusted EPS to $5.98–$6.08 (from $5.88–$6.03) and organic sales to the high end of +2–3%; free cash flow cut to $150–$250M to reflect P&F divestiture cash classification .
  • Announced Transform for the Future: four‑year program targeting ~$500M annual cost savings with ~$500M cumulative pretax costs; debt reduced by $2.7B in Q3, cash rose to $1.64B, improving balance sheet flexibility .
  • Near-term stock catalysts: raised EPS outlook, accelerating Dental and HIS growth, tariff mitigation plus $500M cost program, and capital allocation optionality post deleveraging .

What Went Well and What Went Wrong

  • What Went Well

    • Dental and HIS outperformed: Dental +8.4% reported (+6.5% organic) and HIS +5.9% reported (+5.6% organic), aided by innovation, back‑order recovery (Dental), and RCM software/services (HIS) .
    • Balance sheet transformed: ~$2.7B debt paydown and $1.64B cash post P&F close; net interest outlook reduced, unlocking M&A and potential capital returns .
    • Strategic execution: SKU rationalization (60 bps Q3 impact), ERP/separation milestones, and launch of Transform for the Future to offset tariffs and fund growth. “We are delivering and delivering with speed…” — CEO Bryan Hanson .

  • What Went Wrong

    • Margin pressure: GAAP gross margin 54.2% and adjusted op margin 20.6% declined YoY; tariffs impacted gross margin by ~130 bps sequentially; public company stand‑up/growth investments raised OpEx .
    • Free cash flow softness: Q3 FCF was ($22)M as capex and divestiture/separation items weighed; FY25 FCF guidance cut to $150–$250M due to P&F classification .
    • MedSurg mixed: AWC improved (+2.7% organic), but Infection Prevention & Surgical Solutions was flat as 1H order timing reversed as guided; adjusted MedSurg margin fell YoY .

Financial Results

Headline metrics (chronological: prior year → prior quarter → current)

MetricQ3 2024Q2 2025Q3 2025
Revenue ($B)$2.082 $2.161 $2.096
GAAP Diluted EPS ($)$0.70 $0.51 $7.22
Adjusted Diluted EPS ($)$1.64 $1.69 $1.50
Gross Margin % (GAAP)56.0% 54.4% 54.2%
Gross Margin % (Non‑GAAP)57.3% 56.0% 55.8%
Adjusted Operating Margin %22.8% 21.9% 20.6%
Operating Cash Flow ($M)$169 $169 $75
Free Cash Flow ($M)$76 $59 ($22)

Segment sales and organic growth (Q3 2025 vs Q3 2024)

SegmentQ3 2024 Sales ($M)Q3 2025 Sales ($M)Organic Growth %
Advanced Wound Care468 485 2.7%
Infection Prevention & Surgical Solutions713 722 0.0%
MedSurg (Total)1,182 1,206 1.1%
Dental Solutions313 340 6.5%
Health Information Systems326 345 5.6%
Purification & Filtration180 128 6.4% (organic; divestiture impact in “Other”)
All Other81 77 (5.8%)
Total Company2,082 2,096 2.7%

Key operating and balance sheet KPIs

KPIQ3 2025Prior Period
Non‑GAAP Effective Tax Rate21.8% 18.3% (Q2 2025)
Cash & Equivalents ($M)$1,642 (9/30/25) $492 (6/30/25)
Long‑Term Debt ($M)$5,137 (9/30/25) $7,815 (6/30/25)
Debt Repayment in Q3 ($B)$2.7 —
YTD FCF ex separation & divestiture ($M)$735; 93% conversion —

Actual vs S&P Global consensus (Q3 2025)

MetricConsensusActual
Revenue ($B)$2.051*$2.096
Adjusted EPS ($)$1.43*$1.50
Gross Margin % (GAAP)55.16%*54.2%

Note: Asterisks (*) denote values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales Growth (reported)FY2025+2.0% to +3.0% High end of +2.0% to +3.0% (ex‑SKU high end of +2.5% to +3.5%) Tightened to high end
Adjusted EPSFY2025$5.88 to $6.03 (post Sep 1 P&F close) $5.98 to $6.08 Raised
Free Cash FlowFY2025$450M to $550M $150M to $250M (reflects P&F divestiture cash classification) Lowered
Net Interest ExpenseFY2025—≈$360M New detail
Total Non‑Operating ExpenseFY2025—≈$400M New detail
Effective Tax RateFY2025Low end of 20–21% Low end of 20–21% Maintained
Tariff HeadwindFY2025$60–$80M (reduced in Q2) $60–$80M (greater headwind in Q4) Maintained
Transform for the FutureMulti‑year—~$500M annual savings; ~$500M cumulative pretax costs New program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Tariffs/macroFY25 tariff headwind cut to $60–$80M; pressure weighted to 2H .Range maintained; Q4 > Q3 impact; margin mitigation ongoing .Headwind persists; mitigation actions scaling.
ERP/separationMajor EU cutover executed; numerous TSAs exited .Europe DCs live; winding down mitigations; programmatic savings continue .Execution solid; reduced operational risk.
Portfolio optimizationAnnounced P&F sale; retain Drinking Water; accretive profile .P&F closed; $2.7B debt repaid; shift toward tuck‑in M&A (<$1B) .From divestiture to offensive M&A.
AI/Tech (HIS)Ensemble partnership; HIS largest autonomous coding vendor .RCM strength; consulting/service milestones; international 360 Encompass rollouts .AI‑driven RCM traction improving.
Product performanceAWC recall pressured Q2; IPSS benefited from timing .AWC acceleration via Prevena/VAC Peel & Place; IPSS digestion of 1H timing .Mix normalizing; AWC momentum.
DentalEmphasis on new launches (Clinpro Clear, Filtek) .Strong growth aided by innovation/back‑orders; sustainability emphasized .Momentum improving; global uptake.
Cost programRestructuring savings underway .Transform for the Future initiated: $500M annual savings target .Cost actions broaden/accelerate.

Management Commentary

  • “We are clearly ramping towards our LRP revenue growth targets faster than expected… Our momentum is anchored in commercial specialization and a revitalized innovation pipeline.” — CEO Bryan Hanson .
  • “Gross margins saw a ~130 bps tariff headwind sequentially, partially offset by strong manufacturing performance; we also realized a partial-quarter 20 bps benefit from the P&F sale.” — CFO Wayde McMillan .
  • “Transform for the Future… will reshape our cost structure… Once fully implemented, the program is expected to generate approximately $500 million in annual cost savings” .
  • “We paid down $2.7 billion of debt… This represents a transformation of our balance sheet just six quarters following our separation from 3M.” — CFO .
  • “We are targeting tuck‑in opportunities generally valued under $1 billion… in established and attractive markets where we already operate.” — CEO .

Q&A Highlights

  • Transform for the Future cadence/use: Spend/phasing to be detailed later; savings will be reinvested in highest‑return areas like R&D and commercial infrastructure .
  • Q4 cadence: Organic growth implies ~mid‑2% for Q4 while digesting remaining IPSS order timing; normalization expected thereafter .
  • Dental sustainability: Growth seen as sustainable on product cadence/commercial specialization; no extraordinary pricing tailwind noted .
  • Tariff range: Held due to dynamic environment; any accounting changes would have limited impact this year .
  • 2026 color: Expect improvement in top/bottom lines, though tariffs may pressure margin expansion; SKU exits to be ~100 bps headwind in 2026 .

Estimates Context

  • Beat on revenue and adjusted EPS vs S&P Global consensus; margin below consensus due to tariff headwinds and higher stand‑up/growth OpEx .
  • Consensus vs actual (Q3 2025): revenue $2.051B* vs $2.096B; EPS $1.43* vs $1.50; gross margin 55.16%* vs 54.2% .
  • Implied estimate revisions: Raised FY25 EPS guide to $5.98–$6.08; sell‑side likely to lift 4Q/annual EPS, while fine‑tuning margin and FCF trajectories given tariff and divestiture cash classification .
    Note: Values retrieved from S&P Global.

Key Takeaways for Investors

  • Underlying demand resilient: Organic growth +2.7% with Dental/HIS outperformance; AWC accelerating; IPSS digestion in line with guide .
  • Quality of beat: Revenue and EPS beat consensus; margin below street on tariffs—watch Q4 tariff step‑up and mitigation progress .
  • Guidance momentum: EPS raised again; organic growth targeted at high end; near‑term FCF optics weaker due to divestiture cash classification, but core conversion remains strong ex items .
  • Structural levers: $500M annualized cost‑out program plus tariff mitigation provide a credible path to LRP margin targets despite external headwinds .
  • Balance sheet optionality: Post‑deleveraging, company is positioned for tuck‑in M&A and potential returns of capital—monitor board updates .
  • 2026 setup: Expect continued sales/margin improvement; key watch items are tariff trajectory, 100 bps SKU exit headwind, and cadence of Transform savings .
  • Trading lens: Near‑term catalysts include execution on Q4 cadence, cost program milestones, and Dental/HIS momentum; medium‑term thesis hinges on margin expansion and disciplined capital deployment .

Citations:

  • Q3 2025 press release/8‑K:
  • Company press release:
  • Q3 2025 call transcript:
  • Q2 2025 materials:
    Note: Asterisks (*) denote values retrieved from S&P Global.