Executive Summary

Q1 2025 was a clean beat: sales $1.33B (+6.9% y/y; core +7.8%) and adjusted EPS $0.95 vs S&P Global consensus ~$0.87*, driven by broad-based volume strength, pricing, and three extra shipping days; adjusted operating margin reached a record 25.0% vs guidance of 24.0–24.5% . Consensus revenue ~$1.28B* vs actual $1.33B .
Guidance: FY25 EPS reaffirmed at $3.60–$3.70 with FCF conversion 90–100%; margin range widened to flat to +50 bps (from +25 to +50 bps) to reflect tariff timing; Q2 EPS guided to $0.84–$0.88 with core growth low-to-mid-single digits .
Management sees gross tariff exposure of ~3.5% of sales but expects pricing, sourcing, and footprint shifts (incl. a new Trojan U.S. facility) to largely offset; pricing actions will be surgical and stick where needed .
Capital and cash were solid (FCF $142M; net leverage 1.1x), supporting continued M&A bias (TraceGains integration on track; signed AQUAFIDES for ~$20M) and a $0.11 dividend declared post-quarter .

Note: Consensus values marked with an asterisk (*) are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well
- Record profitability and broad-based growth: adjusted operating margin hit 25.0% (+50 bps y/y) on stronger-than-expected volume; adjusted EPS +13% y/y to $0.95, above guide .
- Segment strength: Water Quality sales $794M (+6% y/y; core +7.4%; adj. op margin 25.2%) and PQI $538M (+8.3% y/y core; adj. op margin 28.4%), with high single-digit recurring revenue growth across both .
- Execution/tariff agility: Opened Trojan’s Grand Rapids, MI facility four months early; pricing and sourcing roadmaps in place. “We are well positioned here... our gross exposure to tariffs is about 3.5% of our sales” (CEO) .
What Went Wrong
- Tariff-driven uncertainty and margin range widened: full-year adjusted operating margin range expanded to flat to +50 bps (vs +25 to +50 bps prior) to reflect timing between tariff increases and countermeasures .
- Europe/China mixed puts and takes: while Europe growth was robust (double-digit in parts of Water Analytics), China Water Quality faced timing headwinds on UV installs; management does not expect China to grow in 2025 .
- Shipping days complicate run-rate: Q1 had three extra shipping days; even so, normalized core growth was “above 5%,” and consumables saw most of the day-count benefit (~$0.03 EPS) .

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$1,314	$1,345	$1,332
GAAP Diluted EPS ($)	$0.88	$0.91	$0.90
Adjusted Diluted EPS ($)	$0.89	$0.95	$0.95
GAAP Operating Margin (%)	23.4%	22.9%	24.2%
Adjusted Operating Margin (%)	24.1%	23.8%	25.0%
Gross Margin (%)	59.6%	59.6%	60.4%

Versus S&P Global consensus

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue – Actual ($M)	$1,314	$1,345	$1,332
Revenue – Consensus ($M)	$1,306.2*	$1,345.6*	$1,279.9*
Adj. EPS – Actual ($)	$0.89	$0.95	$0.95
Adj. EPS – Consensus ($)	$0.85*	$0.89*	$0.87*

Segment breakdown (Q1 2025) | Segment | Sales ($M) | Core Sales Growth (%) | Adjusted Operating Profit ($M) | Adjusted OP Margin (%) | |---|---|---:|---:|---:| | Water Quality | $794 | 7.4% | $200 | 25.2% | | Product Quality & Innovation (PQI) | $538 | 8.3% | $153 | 28.4% |
KPIs (Q1 2025) | KPI | Q1 2025 | |---|---| | Recurring revenue (% of sales) | 61% | | Price contribution to core growth | 1.3% | | Extra shipping days | 3 days; EPS impact ~ $0.03 | | Gross margin (%) | 60.4% | | Operating cash flow ($M) | $157 | | Free cash flow ($M) | $142 | | Capex ($M) | $15 | | Net debt / Net leverage | ~$1.4B; 1.1x |

Non-GAAP recon drivers (Q1 2025): amortization of intangibles $9M, strategic initiative costs $2M, loss on product line disposition $6M; net of tax effects and discrete items yielded adjusted EPS $0.95 vs GAAP $0.90 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EPS (non-GAAP)	FY 2025	$3.60–$3.70	$3.60–$3.70	Maintained
Adjusted Operating Margin (non-GAAP)	FY 2025	+25 to +50 bps y/y	Flat to +50 bps y/y	Range widened down (more conservative)
Core Sales Growth (non-GAAP)	FY 2025	Low-to-mid single digits	Low-to-mid single digits	Maintained
FCF Conversion (non-GAAP)	FY 2025	90%–100%	90%–100%	Maintained
Adjusted EPS (non-GAAP)	Q2 2025	—	$0.84–$0.88	New (quarter)
Core Sales Growth (non-GAAP)	Q2 2025	—	Low-to-mid single digits	New (quarter)
Corporate Expense	FY 2025	—	~ $100M	New
Tax Rate Assumption	FY 2025	~23%	~23%	Maintained
Currency Impact	FY 2025	~2% sales headwind; ~$0.08 EPS headwind	— (assumptions unchanged)	Assumption
Dividend	Ongoing	—	$0.11 per share declared (May 15, 2025)	Shareholder return detail
Adj. OP Margin (Q1 outcome vs prior guide)	Q1 2025	24.0–24.5% guided	25.0% actual	Beat

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
Tariffs and mitigation	No sustained impact embedded in FY25 guide; diversified supply chain; China/Canada exposure discussed	Gross exposure ~3.5% of sales; countermeasures include pricing/surcharges, sourcing, and manufacturing shifts (Trojan U.S. facility)	Heightened focus; mitigation plans accelerated
Pricing vs volume	Price ~1.5–1.8% in 2H24 with solid volume	Price +1.3%; broad-based volume drives core +7.8%	Pricing stable; volume improved
CPG/PQI demand	Gradual recovery; recurring growth led; equipment rebounding	Fourth consecutive quarter of growth in both consumables and equipment; order patterns “normal” in April	Recovery continuing
Regional trends	NA strength; WE steady; China flat-to-down in Water	WE ~11% growth; NA ~8%; China low-single-digit total, with Water decline on UV timing	WE/NA strengthening; China mixed
Product innovation	Videojet 7920 UV laser launched Q4	Continued cadence; PQI equipment up; software growth in packaging & color	Innovation continues
PFAS/Regulatory	Investments in destruction tech; broad analytics menu	Active via Axine minority stake; no PFAS revenue in forecast; EPA stance seen as supportive longer term	Longer-term optionality
R&D/Commercial investment	R&D up 40 bps to ~5% in FY24; expanded sales/marketing	R&D sustained ~5% of sales; CEO Kaizen aligns cost and growth initiatives	Sustained investment

Management Commentary

“We delivered excellent first quarter results... strong core sales growth, solid margin expansion and double-digit adjusted earnings per share growth” (CEO) .
“Adjusted operating profit margin expanded 50 basis points year-over-year to 25% and an all-time high… adjusted EPS grew 13%… exceeding guidance primarily due to better-than-expected sales volumes” (CEO) .
“Our gross exposure to tariffs is about 3.5% of our sales… pricing actions… sourcing… and adding Trojan’s first U.S. factory in Grand Rapids, Michigan” (CEO) .
“Core sales grew 7.8%, led by broad-based volume gains… price contributed 1.3%… recurring revenue comprised 61% of total sales” (CFO) .

Q&A Highlights

Tariff sequencing/mitigation: Management expects to largely offset gross 3.5% exposure via pricing/surcharges, supply chain optimization, and rapid footprint changes (asset-light) with ~6-month line-move capability; new Trojan U.S. factory reduces Canadian tariff exposure .
PQI demand/elasticity: Order patterns remained normal into April; surgical pricing to manage elasticity; recurring revenue and software remain strong .
Q2 cadence and margins: Guidance embeds timing lag between tariffs and countermeasures and higher equipment mix; protecting OP dollars may pressure margin % near term .
PFAS: Positive regulatory backdrop; active in analytics and destruction (Axine), but no PFAS contribution in current forecast .
Working capital/FCF: FY25 FCF conversion 90–100% assumes Capex 1.0–1.5% of sales and slightly higher working capital to navigate supply chain/tariffs .

Estimates Context

Q1 2025: Adjusted EPS $0.95 vs consensus ~$0.87*; revenue $1.33B vs ~$1.28B* (beat on both) .
Q2 2025: Company guides EPS $0.84–$0.88 vs consensus ~$0.88*; implies near/in-line at the high end, with tariff/countermeasure timing a watch item .
FY 2025: Company EPS $3.60–$3.70 vs consensus ~$3.84*; Street may need to calibrate to tariff timing/FX assumptions unless upside emerges from volume or price .
Values retrieved from S&P Global.

Key Takeaways for Investors

Quality beat with record margins: upside driven by volume and mix; normalized for three extra days, core growth still >5% and EPS benefited ~3c; margin discipline intact .
Tariffs are a known overhang but well-mitigated: diversified sourcing/footprint and direct channel support surgical pricing; monitor cadence of mitigation vs announced tariff timing .
PQI recovery remains intact: four consecutive quarters of equipment/consumables growth; software growth within packaging & color; April orders normal—supportive for run-rate .
FY25 setup: EPS range reaffirmed; margin range widened to reflect near-term tariff mix; FX and corporate expense (~$100M) are in the model; execution against countermeasures is the swing factor .
Cash/M&A optionality: low leverage (1.1x) and solid FCF support continued bolt-ons (TraceGains, AQUAFIDES) and dividend; M&A bias remains a core value lever .
Near-term trading implications: positive reaction likely anchored to clean Q1 beat and reaffirmed FY EPS; watch Q2 margin/price realization vs tariff cadence as the next catalyst .

S&P Global estimates disclaimer: All values marked with an asterisk (*) are retrieved from S&P Global and may reflect rounding.

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