EVERETT, Wash. - Fortive Corporation (NYSE: NYSE:FTV) announced plans to spin off its Precision Technologies segment into a new independent public company, dubbed NewCo. The tax-free spin-off is expected to be completed in the fourth quarter of 2025, creating two separate entities with distinct investment profiles.
The move comes as part of Fortive's strategy to sharpen its focus on its Intelligent Operating Solutions and Advanced Healthcare Solutions segments, which are expected to generate about 50% recurring revenue. Fortive aims to accelerate growth and earnings through a disciplined capital allocation strategy, emphasizing mergers and acquisitions that bolster recurring revenue.
NewCo will encompass leading brands from Fortive's current Precision Technologies segment, continuing to leverage the Fortive Business System to drive growth and innovation. The new company will aim to capitalize on secular growth trends in digital and electric technologies, with plans to invest in organic growth, return cash to shareholders, and pursue selective mergers and acquisitions.
Leadership changes will accompany the spin-off, with James A. Lico retiring as President and CEO of Fortive. Olumide Soroye, currently President and CEO of Fortive's Intelligent Operation Solutions segment, will step into the role of President and CEO of Fortive. Tami Newcombe, currently President and CEO of Fortive's Precision Technologies and Advanced Healthcare Solutions business segments, will become President and CEO of NewCo.
Fortive has reaffirmed its financial outlook for the third quarter and full year of 2024, anticipating that its share repurchase program will boost EPS growth in 2025. The company plans to use approximately 75% of its available free cash flow for additional share repurchases until the transaction's completion.
Details of the spin-off will be discussed in a conference call on Thursday, September 5th, at 8:00 a.m. ET. Investors can access the call and accompanying presentation on Fortive's website or via teleconference.
Evercore and Morgan Stanley & Co. LLC are serving as financial advisors, with Wachtell, Lipton, Rosen & Katz providing legal counsel for the transaction.
The spin-off is subject to certain conditions, including final approval by Fortive's Board of Directors, satisfactory completion of financing, favorable legal opinions or private letter rulings regarding tax treatment, and other regulatory approvals.
This article is based on a press release statement from Fortive Corporation.
In other recent news, Fortive Corporation reported a 2% year-over-year increase in Q2 revenues, amounting to $1.52 billion, with earnings per share coming in at $0.93, slightly exceeding consensus estimates. The company's performance varied across segments, with Industrial & Scientific Operations sales growing by 3.7%, Advanced Healthcare Solutions sales increasing by 3.4%, and Precision Technologies witnessing a sales decline of 1.5%. Despite mixed results, Fortive remains optimistic about the second half of the year, expecting core growth improvement driven by favorable order rates and strength in its Advanced Healthcare Solutions and software offerings. The company forecasts a total growth of 3% to 4% for the year and an adjusted diluted EPS in the range of $3.80 to $3.86, indicating an 11% to 13% increase year-over-year.
In addition, Fortive's Advanced Sterilization Products (ASP) division, in partnership with PENTAX Medical, announced the FDA clearance of its new ULTRA GI™ Cycle for the STERRAD™ 100NX Sterilizer with ALLClear™ Technology. This innovative sterilization method uses hydrogen peroxide gas plasma to sterilize duodenoscopes, aiming to enhance patient safety in healthcare settings. The recent FDA approval represents a significant development in the reprocessing of duodenoscopes, instruments associated with high contamination rates.
In response to Fortive's Q2 results, both Truist Securities and RBC Capital have adjusted their stock targets for the company. Truist Securities revised its price target for Fortive to $82 from $89, maintaining a Buy rating, while RBC Capital reduced its target to $77 from $83, retaining a Sector Perform rating. These are recent developments in Fortive's business operations and strategies.
InvestingPro Insights
As Fortive Corporation (NYSE: FTV) prepares to spin off its Precision Technologies segment, the company's financial health and market valuation are crucial for investors tracking the transition. Fortive's impressive gross profit margin of 59.67% in the last twelve months as of Q2 2024 highlights its ability to manage costs effectively and maintain profitability. This is a key metric, considering the company's strategy to focus on Intelligent Operating Solutions and Advanced Healthcare Solutions, which demand robust margins to support innovation and growth.
However, investors should note that Fortive is trading at a high Price/Earnings (P/E) ratio of 28.39, suggesting a premium valuation relative to its near-term earnings growth. With a PEG ratio of 2.53 in the same period, this indicates that the company's stock price might be outpacing earnings growth projections. This InvestingPro Tip is particularly relevant as Fortive looks to enhance shareholder value through its spin-off and share repurchase program.
On the debt front, Fortive operates with a moderate level of debt, which could provide financial flexibility for the upcoming strategic initiatives. With a market capitalization of $25.13 billion, Fortive is a significant player in its sector, and its financial decisions will likely have a broad market impact.
For investors seeking more insights, there are an additional 6 InvestingPro Tips available for Fortive on InvestingPro, offering a deeper dive into the company's financials and market performance.
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