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    Veralto Corp (VLTO)

    Q4 2024 Earnings Summary

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$95.81Last close (Feb 5, 2025)
    Post-Earnings Price$96.01Open (Feb 6, 2025)
    Price Change
    $0.20(+0.21%)
    • VLTO is experiencing continued positive momentum in their key end markets, particularly in industrial water and consumer packaged goods (CPG) markets, which is expected to drive growth in 2025.
    • The company is making deliberate growth investments, including increased spending in R&D, sales, and marketing, which are expected to set them up well for future performance and margin expansion.
    • VLTO is improving their portfolio through strategic acquisitions and investments, such as acquiring TraceGains and investing in novel technologies like electrochemical oxidation for PFAS destruction, demonstrating disciplined capital allocation and focus on long-term value creation.
    • The company's guidance does not reflect any sustained impact from potential tariffs, such as those with China, Mexico, and Canada; therefore, any new tariffs could negatively affect their results beyond what is currently expected.
    • The PQI segment experienced a 350 basis point sequential margin contraction, due to factors including higher equipment sales mix, increased R&D investment, cost optimization actions, and dilution from acquisitions, which may indicate ongoing margin pressure in the segment.
    • The company may face risks from changes in political administration and related regulatory policies, as concerns were raised about the impact of the Trump administration on the water quality and PQI segments.
    MetricYoY ChangeReason

    Total Revenue

    +2.3% (from $1,314M in Q3 2024 to $1,345M in Q4 2024)

    Total revenue increased modestly due to continued sales contributions from both segments—with the Water Quality and Product Quality & Innovation businesses supporting ongoing volume and pricing improvements—building on the Q3 2024 momentum.

    Operating Income

    No change ($308M in both Q3 and Q4 2024)

    Operating income remained flat despite revenue growth because the benefits of higher sales were offset by increased costs in other areas, maintaining margins similar to the previous quarter.

    Net Income

    Increased (from $219M in Q3 2024 to $227M in Q4 2024)

    Net income climbed by $8 million, reflecting improved profitability from higher gross margins and better cost control, even as underlying expenses such as interest costs affected other areas.

    D&A Expenses

    -92% (from $25M in Q3 2024 to $2M in Q4 2024)

    Depreciation and Amortization expenses dropped sharply largely due to a change in accounting treatment or the removal of one‐time amortization charges that were present in Q3 2024, resulting in a $23M reduction.

    Interest Expense

    +103% (from $27M in Q3 2024 to $55M in Q4 2024)

    Interest expense more than doubled as the cost of servicing the new debt increased post-separation, reflecting higher interest accruals on outstanding borrowings compared to Q3 2024.

    Basic EPS

    +4.5% (from $0.88 in Q3 2024 to $0.92 in Q4 2024)

    Basic EPS improved modestly driven by the rise in net income and sustained share count, despite pressure from higher financing costs and other expense changes.

    Net Change in Cash

    Shifted from +$224M in Q3 2024 to –$166M in Q4 2024

    Net cash flow reversed from positive to negative due to a combination of higher cash outflows in financing (with reduced returns to the former parent and increased interest payments) and slightly higher investments, which offset operational inflows seen in Q3 2024.

    North America Revenue

    Held steady at $637M

    North America revenue remained stable as the region continued to deliver consistent performance, reflecting a stable demand in core markets that maintained similar levels to Q3 2024.

    Western Europe Revenue

    +5.6% (from $285M to $299M)

    Western Europe revenue increased as improved core sales and favorable pricing actions, along with growing demand in key product lines, drove a healthy 5.6% gain over Q3 2024.

    High-Growth Markets Revenue

    +4.4% (from $363M to $379M)

    High-Growth Markets saw a modest increase driven by strong growth in Latin America, which offset ongoing weakness in China, resulting in an overall 4.4% gain relative to Q3 2024.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Core Sales Growth

    Q1 2025

    no prior guidance

    low- to mid-single-digit

    no prior guidance

    Currency Translation Impact

    Q1 2025

    no prior guidance

    2% year-over-year headwind

    no prior guidance

    Adjusted Operating Profit Margin

    Q1 2025

    no prior guidance

    24% to 24.5%

    no prior guidance

    Adjusted EPS

    Q1 2025

    no prior guidance

    $0.84 to $0.88

    no prior guidance

    Core Sales Growth

    FY 2025

    no prior guidance

    low- to mid-single-digit

    no prior guidance

    Adjusted Operating Profit Margin

    FY 2025

    no prior guidance

    25–50 bps improvement

    no prior guidance

    Adjusted EPS

    FY 2025

    no prior guidance

    $3.60 to $3.70

    no prior guidance

    Free Cash Flow Conversion

    FY 2025

    no prior guidance

    90%–100% of GAAP net income

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Adjusted Operating Profit Margin
    Q4 2024
    ~24%
    22.9% (308 ÷ 1,345)
    Missed
    Adjusted EPS
    Q4 2024
    $0.86 – $0.90
    $0.92
    Beat
    Adjusted EPS (Basic)
    FY 2024
    $3.44 – $3.48
    $3.37 (0.75+ 0.82+ 0.88+ 0.92)
    Missed
    1. Margin Expansion Outlook
      Q: How do you see margin expansion across your segments?
      A: We expect both segments to contribute similarly to margin expansion, with core growth in the low to mid-single digits and margin expansion of 25 to 50 basis points

    2. Investments Impacting Margins
      Q: Are growth investments impacting margins, and can you size that?
      A: Yes, margins decreased due to intentional investments in growth initiatives like R&D and sales and marketing, and a higher mix of equipment sales. Despite a 70 basis point dilution from recent acquisitions, these actions position us well for 2025

    3. Incremental Margins Higher Than Expected
      Q: Are incremental margins structurally higher now compared to previous guidance?
      A: In 2024, we achieved incremental margins north of 45%, close to 50%, exceeding our long-term view of 30–35%. For 2025, we're confident about delivering 40% incrementals, though over the long term, we still expect 30–35%

    4. End Market Trends
      Q: Has anything changed in end markets since last quarter?
      A: It's largely a continuation of previous trends. We see strength in industrial water businesses, steady growth in analytics, and continued recovery in CPG markets with six consecutive quarters of mid- to high single-digit recurring revenue growth and three consecutive quarters of equipment sales growth. 

    5. CPG Market Recovery
      Q: Can you provide more color on the CPG market recovery path?
      A: Mothballed manufacturing lines are restarting, increasing demand for spare parts and consumables. We've had six quarters of recurring revenue growth and three quarters of equipment sales growth, but haven't yet seen new line expansions or builds, indicating further recovery potential ahead. 

    6. Use of M&A as R&D Proxy
      Q: Are you using M&A as a proxy for R&D, and do you have more such investment candidates?
      A: Yes, we consider various capital allocation strategies to create long-term shareholder value, including minority investments and acquisitions. Our science and technology team actively seeks opportunities like our recent $15 million investment in promising technologies, and we're open to more such investments. 

    7. Portfolio Optimization
      Q: How are you approaching portfolio optimization, and what's the impact on margins?
      A: Every product line must earn its place by meeting or exceeding fleet averages in growth and profit. We may invest further, attenuate, or divest underperforming lines to improve our portfolio towards higher growth rates and increased margins. 

    8. Tariff Exposure and Impact
      Q: How might tariffs affect your business, especially regarding China, Mexico, and Canada?
      A: We haven't included sustained tariff impacts in our guidance. We've diversified our supply chain globally and feel well-positioned to manage potential tariff changes. For example, sales from Canada to the U.S. are less than 5% of our total sales, and we're localizing production to mitigate risks. 

    9. Free Cash Flow Guidance
      Q: Why is free cash flow conversion guidance below the medium-term target?
      A: For 2025, we're guiding free cash flow conversion to 90–100% of net income, slightly below the long-term target. This is due to increased CapEx investments, moving from about 1% to 1–1.5% of revenue, and higher working capital to support the business in a dynamic environment. We expect normalization post-2025. 

    10. China Exposure
      Q: Can you elaborate on your exposure to China and any export imbalances?
      A: We've diversified our supply chain and have significant in-region for region manufacturing in China, reducing export risks. We're well-positioned to handle potential challenges related to China.