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Veralto Corp (VLTO)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered steady growth: Sales $1.404B (+6.9% YoY), core sales +5.1%, adjusted operating margin 23.9%, and adjusted EPS $0.99 (+11% YoY) .
  • Results beat S&P Global consensus*: revenue $1.404B vs $1.399B*, adjusted EPS $0.99 vs $0.95*; EBITDA $346M vs $343M* (small beats driven by higher volumes, Water Quality margin outperformance, and lower net interest) .
  • Guidance raised: FY25 adjusted EPS to $3.82–$3.85 (from $3.72–$3.80); FCF conversion raised to ~100%; FY adjusted operating margin now flat to +25 bps (down from flat to +50 bps) .
  • Segment mix healthy: Water Quality sales $856M with 26.3% adjusted margin; PQI sales $548M with 25.4% adjusted margin; recurring revenue 62% of sales, price +2.4% and volume +2.7% in core growth .
  • Potential stock catalysts: raised FY EPS/FCF guidance, continued data center tailwinds in Water, recurring/software momentum (Esko/TraceGains), and tariff-mitigation progress offset by PQI margin investments and Q4 seasonality (3 fewer shipping days ~2.5% headwind) .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth with core sales at +5.1% and adjusted EPS $0.99; CEO emphasized “mid-single digit core sales growth and double-digit earnings per share growth” and ability to navigate trade-policy shifts .
  • Water Quality strength: sales $856M (+7% YoY with core +5.3%), adjusted margin 26.3% (+150 bps YoY) on strong municipal analytics and industrial treatment (including AI/data centers) .
  • Recurring revenue and pricing quality: recurring 62% of revenue; price contributed +2.4% and volume +2.7%; gross margin expanded 50 bps YoY to 60.1% on pricing and procurement/supply chain execution in a tariff environment .

Quotes

  • “We delivered mid-single digit core sales growth and double-digit earnings per share growth… successfully navigate a dynamic macro environment, particularly with respect to changes in global trade policies.” — CEO Jennifer L. Honeycutt .
  • “Adjusted EPS came in $0.04 above the high end of our range… driven by stronger volume growth… higher operating margin in Water Quality, and lower net interest expense.” — CFO Sameer Ralhan .
  • “We are well positioned to capitalize on the rapid growth of infrastructure required to support AI growth.” — CEO on data centers .

What Went Wrong

  • PQI margin pressure: adjusted margin 25.4% impacted by acquisitions, strategic growth investments, and tariff-mitigation costs; management expects improvement as tariff impacts lap and productivity/volume fall-through accrues into 2026 .
  • Slight YoY operating margin dip at the total company: GAAP OP margin 23.2% vs 23.4% and adjusted OP margin 23.9% vs 24.1% in Q3 2024 (mix/investments), even as EPS grew .
  • Near-term Q4 headwinds: three fewer shipping days (~2.5% core sales impact) and typical year-end investment timing; Q4 adjusted EPS guided to $0.95–$0.98 despite a ~3% currency benefit to sales .

Financial Results

Key Metrics (chronological: Q3’24 → Q2’25 → Q3’25)

MetricQ3 2024Q2 2025Q3 2025
Sales ($M)$1,314 $1,371 $1,404
Diluted EPS (GAAP)$0.88 $0.89 $0.95
Adjusted EPS (Non-GAAP)$0.89 $0.93 $0.99
Operating Margin (GAAP)23.4% 22.8% 23.2%
Adj. Operating Margin24.1% 23.7% 23.9%
Gross Profit ($M)$783 $822 $844
Operating Cash Flow ($M)$224 $339 $270
Free Cash Flow ($M)$215 $323 $258

Actual vs S&P Global Consensus and Next Quarter Outlook

MetricQ3 2025 ActualQ3 2025 Consensus*SurpriseQ4 2025 Consensus*
Revenue ($M)1,404 1,398.3*+5.71,405.7*
Adjusted EPS ($)0.99 0.9485*+0.04150.9797*
EBITDA ($M)346 343.4*+2.6349.0*

Values with * are from S&P Global consensus and lack document citations. Values retrieved from S&P Global.

Segment Performance (Q3 2025)

SegmentSales ($M)Core Sales GrowthAdj. Operating Profit ($M)Adj. Operating Margin
Water Quality856 +5.3% 225 26.3%
Product Quality & Innovation (PQI)548 +4.6% 139 25.4%
Total1,404 +5.1% 336 (adj. OP, total) 23.9%

KPIs (Q3 2025)

KPIQ3 2025
Recurring Revenue as % of Sales62%
Price Contribution to Core Sales+2.4%
Volume Contribution to Core Sales+2.7%
Gross Margin60.1% (↑50 bps YoY)
Free Cash Flow ($M)$258
FCF Conversion108% of net income
Cash / Gross Debt / Net Debt~$1.8B / ~$2.7B / just under $0.9B
Net Leverage0.7x

Non-GAAP Adjustments (Q3 2025)

  • Amortization of acquired intangibles: $9M pretax ($7M after-tax) .
  • Other items: $1M pretax and after-tax for strategic initiatives .
  • Tax effect of adjustments: –$2M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPSFY 2025$3.72–$3.80 $3.82–$3.85 Raised
Adjusted Operating MarginFY 2025Flat to +50 bps Flat to +25 bps Lowered
Core Sales Growth (non-GAAP)FY 2025Mid-single digits Mid-single digits Maintained
Free Cash Flow ConversionFY 202590%–100% ~100% Raised
Adjusted Diluted EPSQ4 2025—$0.95–$0.98 New
Core Sales Growth (non-GAAP)Q4 2025—Low-single digits New
Total Sales GrowthQ4 2025—Mid-single digits; ~3% FX tailwind New
Shipping Days ImpactQ4 2025—3 fewer days (~2.5% core sales headwind) New
DividendQ3 2025—$0.11/share, payable Oct 31, 2025 Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/Data centers demandHighlighted as a secular driver in Water; early traction with data centers and reuse projects (e.g., UV project in Chicago) .Double‑digit growth in data centers; positioned across AI value chain (semis, power); early engagement in pre‑construction consulting .Strengthening
Tariffs & pricingCountermeasures in place; selective pricing; tariffs modeled to neutral net EPS impact for 2025 .Pricing now offsetting tariffs; supply chain/production shifts; confident on mitigation; PQI lapping tariff effects by Q2’26 .Improving
PQI marginsQ2 margin pressure from acquisitions/tariffs/investments; expected improvement in H2 .Adj. margin 25.4% with dilution from investments and tariff costs; improving trajectory into 2026 as lapping/productivity/volume fall-through help .Stabilizing, set to improve
Regional trends (China)Water weak; PQI relatively better; not building recovery into guide .China low-single-digit growth; sequentially stable; mature market dynamics .Stabilized
Recurring revenue & softwareMid/high single-digit recurring growth; Esko software double-digit; TraceGains >20% growth .Recurring high single-digit; Esko mid-market traction; TraceGains >20% growth continues .Positive
M&A pipeline & Emerald fund€20M commitment to Emerald’s Global Water Fund II; disciplined M&A bias .Active pipeline across Water & PQI; strong balance sheet/low leverage supports M&A .Ongoing

Management Commentary

  • Strategic posture: “We delivered mid-single digit core sales growth and double-digit earnings per share growth… particularly with respect to changes in global trade policies.” — CEO .
  • Capital allocation: “Our financial position continues to strengthen… bias towards acquisitions… mosaic of attractive targets across both water quality and PQI.” — CEO .
  • Data center opportunity: “We are well positioned to capitalize on the rapid growth of infrastructure required to support AI growth… with application expertise to reduce water and power consumption.” — CEO .
  • Margin/estimates: “Adjusted EPS came in $0.04 above the high end of our range… stronger volume growth… higher Water margin… lower net interest expense.” — CFO .

Q&A Highlights

  • Tariffs and pricing: Teams have “caught up” on pricing, with additional supply chain/production changes; environment remains volatile but “we’re in a good place” .
  • PQI margin cadence: Lapping tariff impacts around Q2 2026; margin expansion drivers include price vs. cost, productivity, and 30–35% volume fall-through (25–50 bps OM improvement potential) .
  • Data centers: Double-digit growth; multiple touchpoints (corrosion/scale control, uptime, water/power efficiency); opportunity spans AI value chain including semis and power .
  • China and regions: China stable and in line with expectations; strength in North America and high-growth markets (Middle East, India, LatAm) .
  • Q4 setup: ~2.5% core sales headwind from 3 fewer shipping days; both segments expected to expand margins YoY; Q4 adjusted EPS $0.95–$0.98 .

Estimates Context

  • Q3 2025 beats*: Revenue $1.404B vs $1.399B* (+$5.7M); adjusted EPS $0.99 vs $0.9485* (+$0.0415); EBITDA $346M vs $343.4M* (+$2.6M). 13 EPS and 15 revenue estimates contributed to consensus* .
  • Q4 2025 setup*: Consensus EPS ~$0.98* and revenue ~$1.406B*; management’s Q4 EPS guide $0.95–$0.98 suggests in-line to slightly below consensus midpoint, with fewer shipping days and ongoing investments factors to consider .

Values with * are from S&P Global consensus and lack document citations. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality of beat and raise: Modest Q3 beats on revenue/EPS and raised FY EPS/FCF conversion guidance signal resilient execution amid tariffs and macro uncertainty .
  • Water Quality carries momentum: 26.3% adjusted margin and strong analytics/treatment demand (including AI/data centers) underpin near-term profitability and secular growth .
  • PQI in transition but improving: Growth healthy with strong Videojet/UV laser and software contributions; tariff-mitigation and investments weigh near-term margins but set up improvement into 2026 .
  • Recurring and software mix rising: 62% recurring revenue and >20% growth at TraceGains support durability and margin structure through cycles .
  • Balance sheet optionality: Net leverage 0.7x, cash ~$1.8B supports disciplined M&A to augment growth in Water and PQI .
  • Q4 watch items: Three fewer shipping days (~2.5% core sales impact) and typical year-end investments temper EPS; both segments expected to expand margins YoY, with FX a modest sales tailwind .
  • Trading setup: Near-term supported by raised FY guide/FCF conversion; medium-term thesis anchored by Water seculars (reuse, data centers) and increasing software/recurring revenue contribution .