Sign in

You're signed outSign in or to get full access.

VC

Veralto Corp (VLTO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered mid‑single‑digit core sales growth (+4.6%), revenue of $1.345B, adjusted operating margin of 23.8%, and adjusted EPS of $0.95, with robust free cash flow of $263M .
  • Adjusted EPS was above the company’s prior Q4 guidance range ($0.86–$0.90), while adjusted operating margin came in modestly below the 24.0% guide from Q3; FX headwinds ($25M sales, ~$0.02 EPS) weighed on results but were offset by lower corporate expenses and tax rate, yielding the EPS beat .
  • Management entered 2025 with a stronger financial position ($1.1B cash, net leverage ~1.2x) and guided low‑to‑mid single‑digit core growth, 25–50 bps margin expansion, and adjusted EPS of $3.60–$3.70 for FY 2025 .
  • Portfolio actions (TraceGains acquisition; AVT divestiture pending; minority investment in electrochemical oxidation technology; subsequent AQUAFIDES agreement) support recurring revenue, margin profile, and European UV offerings, and should be catalysts alongside continued CPG recovery and industrial water strength .

What Went Well and What Went Wrong

What Went Well

  • Broad‑based growth: Core sales +4.6% (volume +3.1%, price +1.5%), recurring revenue up mid‑single digits and 59% of total; gross margin expanded 170 bps YoY to 59.6% .
  • Execution and portfolio shaping: “Our fourth quarter results were highlighted by mid‑single‑digit core sales growth across both segments, robust cash generation and the acquisition of TraceGains,” said CEO Jennifer Honeycutt .
  • Strong cash generation and balance sheet: Q4 FCF of $263M (116% conversion); ended year with $1.1B cash and net leverage ~1.2x, enabling disciplined M&A pipeline .

What Went Wrong

  • FX headwinds: Strengthening USD created 2% translation headwind versus guidance ($25M sales and ~$7M adjusted OP headwind; ~$0.02 EPS) .
  • China softness: Ongoing weak demand in Water Quality (analytics, lower UV installations for chip processing) offset PQI growth; management does not expect China sales to grow in 2025 .
  • Segment margin mix and investments: PQI sequential margin contraction driven by TraceGains dilution (~70 bps), higher equipment mix, and stepped‑up R&D and commercial investments; margin cadence expected to improve through 2025 .

Financial Results

Consolidated Results vs Prior Quarters

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.288 $1.314 $1.345
GAAP Operating Margin (%)23.2% 23.4% 22.9%
Adjusted Operating Margin (%)24.0% 24.1% 23.8%
GAAP Diluted EPS ($)$0.81 $0.88 $0.91
Adjusted Diluted EPS ($)$0.85 $0.89 $0.95
Operating Cash Flow ($USD Millions)$251 $224 $285
Free Cash Flow ($USD Millions)$240 $215 $263

Notes:

  • YoY Q4 revenue growth +4.4%; core sales +4.6% .
  • Adjusted EPS in Q4 exceeded the prior Q4 guidance range ($0.86–$0.90) .

Segment Breakdown (Q4 2024)

SegmentSales ($USD Millions)GAAP Operating Profit ($USD Millions)GAAP Operating Margin (%)Adjusted Operating Margin (%)
Water Quality$811 $204 25.2% 25.5%
Product Quality & Innovation (PQI)$534 $124 23.2% 24.9%
Total$1,345 $308 22.9% 23.8%

Segment Core Sales Growth (Q4 2024 YoY, non‑GAAP)

SegmentCore Sales Growth (%)
Water Quality4.9%
PQI4.1%
Total Company4.6%

KPIs and Operating Drivers (Q4 2024)

KPIValue
Recurring Revenue (% of Sales)59%
Price Contribution to Core Growth+1.5%
Volume Contribution to Core Growth+3.1%
Gross Margin (%)59.6%
Free Cash Flow Conversion (GAAP NI)116%
Cash and Equivalents (Year‑end)$1.101B
Net Leverage~1.2x
R&D as % of Sales (Q4)~5.1% (+70 bps YoY)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Adjusted EPSQ4 2024$0.86–$0.90 $0.95 Raised (beat)
Adjusted Operating MarginQ4 2024~24.0% 23.8% Slightly lowered vs guide
Adjusted EPSFY 2024$3.44–$3.48 (raised in Q3) $3.54 Raised (beat)
Core Sales GrowthFY 2025N/ALow‑to‑mid single digits New
Adjusted Operating Margin ExpansionFY 2025N/A+25–50 bps New
Adjusted EPSFY 2025N/A$3.60–$3.70 New
Free Cash Flow ConversionFY 2025N/A90%–100% New
Core Sales Growth (non‑GAAP)Q1 2025N/ALow‑to‑mid single digits New
Adjusted Operating MarginQ1 2025N/A24.0%–24.5% New
Adjusted EPSQ1 2025N/A$0.84–$0.88 New
DividendQ4 actions / Subsequent PRBoard increased quarterly dividend 22% (Q4) $0.11/share declared for Apr 30, 2025 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
CPG recoveryEncouraging recovery, improved sentiment, strong bookings in packaging & color (Q2 PR) ; broad‑based growth across regions and end markets (Q3 PR) Six consecutive quarters of mid‑to‑high single‑digit recurring revenue; three consecutive quarters of equipment growth; line restarts driving consumables and parts demand Improving demand; equipment growth following recurring recovery
Industrial water demandStrong secular drivers across industrial markets; steady municipal demand (Q2 PR) ; continued strong demand in North America (Q3 PR) Strong North America demand in food & beverage, chemical processing, power; municipal UV for reuse; data centers emerging as water‑intensive end market Strengthening; secular tailwinds intact
Portfolio/M&ATraceGains acquired in Q3 to expand PQI recurring revenue and margins TraceGains integration tracking >20% core growth; AVT divestiture sign‑off; minority investment in electrochemical oxidation; AQUAFIDES agreement post‑quarter Active pipeline; accretive mix to growth/margins
R&D & VES executionVES rigor driving margins and growth; raised FY 2024 EPS guidance (Q2 PR) R&D ~5.1% of sales (+70 bps YoY); cost optimization investments increased; VES tools narrowed and deepened for commercial/factory excellence Elevated investment level; structural margin improvement focus
Regional trendsBroad‑based growth NA/WE; high‑growth markets mixed (Q3 PR) NA and WE ~6% core growth; China stable at low levels with Water softness; do not expect China to grow in 2025 Developed markets solid; China cautious
Tariffs/macroN/ANo sustained tariff impact assumed in 2025 guide; diversified sourcing and manufacturing; localized consumables to de‑risk Trojan Vigilant, mitigated by footprint

Management Commentary

  • “This capped off a strong full‑year performance in which our talented team… delivered core sales growth, margin expansion and adjusted earnings per share above our initial guidance.” – CEO Jennifer Honeycutt .
  • “Core sales grew 4.6%… adjusted earnings per share grew 9% year‑over‑year to $0.95… free cash flow generation was strong at $263 million.” – CEO Jennifer Honeycutt .
  • “Adjusted EPS came in stronger, primarily due to lower corporate expenses and a lower tax rate… FX was a headwind of about $0.02 to adjusted EPS versus guidance.” – CFO Sameer Ralhan .
  • “We ended the year with $1.1 billion of cash on hand and net leverage at 1.2x.” – CEO Jennifer Honeycutt .
  • “We are targeting 25 to 50 basis points of improvement in 2025… total company incremental margins around 40%.” – CFO Sameer Ralhan .

Q&A Highlights

  • Margin expansion drivers: Both segments expected to contribute similarly to 25–50 bps expansion; price/cost positive; R&D near ~5% of sales in 2025 .
  • PQI margin bridge: Sequential contraction due to TraceGains dilution (~70 bps), +$7M cost optimization, higher R&D, and higher equipment mix; expected to normalize through the year .
  • M&A as strategic innovation: Minority investment in electrochemical oxidation for PFAS destruction; pipeline active across both segments, disciplined capital allocation .
  • Tariffs: No sustained impact assumed; diversified global footprint, localized consumables, Trojan exposure to U.S. sales <5% of total; vigilant stance given fluid environment .
  • Free cash flow conversion: 2025 guided at 90–100% due to higher CapEx (1–1.5% of sales) and modeled working capital; expected to revert toward 100% beyond 2025 .

Estimates Context

  • Attempted to retrieve S&P Global/Capital IQ Wall Street consensus for Q4 2024 and prior quarters; data was unavailable due to daily request limits at the time of retrieval. As a result, explicit consensus comparisons beyond company guidance are not provided. Values would have been retrieved from S&P Global if accessible.

Key Takeaways for Investors

  • Q4 quality: Broad‑based core growth, strong cash generation, and adjusted EPS beat despite FX headwinds; continued investment in R&D and commercial capabilities positions the company well for 2025 .
  • Structural drivers intact: Industrial water demand (including reuse and data centers) and CPG recovery support steady growth; recurring revenue at 59% provides resilience .
  • Margin trajectory: Expect 25–50 bps adjusted margin expansion in 2025 with ~40% incrementals; near‑term mix and acquisition dilution manageable as growth investments pay through .
  • Portfolio sharpening: TraceGains integration, AVT divestiture, AQUAFIDES UV expansion, and targeted minority investments enhance recurring revenue and margin mix; M&A pipeline active .
  • Balance sheet optionality: $1.1B cash and ~1.2x net leverage enable continued disciplined capital allocation, dividend growth, and bolt‑ons targeting water and product quality solutions .
  • Watch China and FX: Management assumes no China growth in 2025 and ~2% FX headwind to sales; operational footprint and VES tools mitigate volatility, but pose ongoing monitoring points for estimate revisions .
  • Near‑term setup: Q1 2025 guide implies low‑to‑mid single‑digit core growth, adjusted margin 24.0–24.5%, and EPS $0.84–$0.88; sequential margin cadence should improve as mix normalizes .

Sources: Q4 press release, 8‑K and schedules, and earnings call transcript ; Prior quarter press releases ; Subsequent press releases on AQUAFIDES and dividend .