Earnings call transcript: Fortive’s Q2 2025 EPS misses forecast, stock dips

Fortive Corporation reported its earnings for the second quarter of 2025, revealing an adjusted earnings per share (EPS) of $0.58, slightly below the forecasted $0.59. The revenue for the quarter stood at $1.02 billion, meeting expectations. Despite the minor EPS miss, the company’s stock price showed a pre-market decline of 1.81%, trading at $50.00, reflecting investor concern over the earnings shortfall. According to InvestingPro analysis, Fortive appears slightly undervalued at current levels, with a market capitalization of $17.17 billion.

Key Takeaways

• Fortive’s Q2 adjusted EPS of $0.58 missed the forecast by $0.01.
• Revenue met expectations at $1.02 billion.
• The stock price dropped 1.81% in pre-market trading.
• Free cash flow increased by 14% year-over-year to $180 million.
• The company completed the spin-off of its Precision Technologies segment.

Company Performance

Fortive’s performance in the second quarter of 2025 was marked by a slight decline in revenue, down 0.4% year-over-year, while the adjusted EPS increased by 4% compared to the previous year. The company demonstrated robust free cash flow growth, which increased by 14% to $180 million. This growth underscores Fortive’s operational efficiency and cash generation capability, despite the challenges posed by the global economic environment.

Financial Highlights

• Revenue: $1.02 billion, down 0.4% year-over-year
• Earnings per share: $0.58, up 4% year-over-year
• Free cash flow: $180 million, 14% increase year-over-year
• Gross tariff impact expected: $40-55 million in 2025

Earnings vs. Forecast

Fortive’s adjusted EPS of $0.58 fell short of the forecasted $0.59, resulting in a negative surprise of 1.69%. This minor miss contrasts with the company’s historical trend of meeting or exceeding earnings expectations. The revenue matched the forecast, indicating stable sales performance.

Market Reaction

Following the earnings announcement, Fortive’s stock experienced a pre-market decline of 1.81%, trading at $50.00. This movement reflects investor disappointment with the EPS miss, despite revenue meeting expectations. The stock remains close to its 52-week low of $49.26, suggesting cautious investor sentiment. InvestingPro technical indicators suggest the stock is in oversold territory, while 13 analysts have recently revised their earnings expectations downward for the upcoming period.

Outlook & Guidance

Fortive provided a full-year adjusted EPS guidance range of $2.50 to $2.60, with expectations for third-quarter revenue to remain similar to the second quarter. The company anticipates a significant EPS increase in the fourth quarter, reflecting confidence in its strategic initiatives and market positioning.

Executive Commentary

CEO Illuminae Charoye stated, "We are emerging from the spin as a more durable and resilient company," highlighting the successful completion of the Precision Technologies spin-off. CFO Mark Okerstrom added, "Our sites are very much set on the value creation plan," underscoring the company’s focus on long-term growth and profitability.

Risks and Challenges

• Tariff impacts: Expected gross tariff costs of $40-55 million in 2025.
• Healthcare market pressures: Facing reimbursement challenges.
• Geographic market volatility: Mixed performance in North America, Western Europe, and APAC regions.
• Competition: Maintaining competitive edge in industrial professional instrumentation.

Q&A

During the earnings call, analysts inquired about the tariff impacts on short-cycle products and deferred hospital equipment purchases. The management clarified these issues and discussed the company’s potential mergers and acquisitions strategy, emphasizing a disciplined approach.

Fortive’s Q2 2025 earnings report highlights a stable revenue performance amid a slight EPS miss, with the company poised for future growth through strategic initiatives and operational efficiencies.

Full transcript - Fortive Corp (FTV) Q2 2025:

Brock, Conference Facilitator: My name is Brock, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fordham Corporation’s Second Quarter twenty twenty five Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. I would now like to turn the call over to Ms.

Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Christina Jones, Vice President of Investor Relations, Fortive: Thank you, and thank you everyone for joining us on today’s call. I am joined today by Illuminae Charoye, our President and CEO and Mark Okerstrom, our CFO. Today’s call will begin with a brief overview of our consolidated Q2 results, which include the results of our Precision Technologies segment. The remainder of our remarks will focus on Fortive’s continuing operations following the successful separation of the Precision Technologies business, now Ralliant, which was completed on 06/28/2025. Please note that we will defer any questions related to Precision Technologies to the Ralliant team, who will hold their earnings call on August 12.

During today’s call, we will present certain non GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortis.com. Our statements on period to period increases or decreases refer to year over year comparisons unless otherwise specified. We will also make forward looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward looking statements are subject to a number of risks and actual results might differ materially from any forward looking statements that we make today.

Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10 ks for the year ended 12/31/2024, and quarterly reports on Form 10 Q for the quarters ended 03/28/2025, and 06/27/2025. These forward looking statements speak only as of the date they are made and we do not assume any obligation to update any forward looking statements. With that, I’ll turn the call over to Illuminae.

Illuminae Charoye, President and CEO, Fortive: Thank you, Christina. Let me begin on Slide three with a few key messages. First, this was a pivotal quarter for Forti. We successfully completed the spin off of Rallyant on June 28. And we’ve emerged as a simpler, more focused company, well positioned to deliver durable and accelerated financial performance.

In our final quarter as a consolidated company, we delivered adjusted EPS of $0.90 at the high end of our guidance range with 8% growth in trailing twelve months adjusted free cash flow. For New Fortive on a continuing operations basis, our Q2 earnings and free cash flow results demonstrated resiliency. We delivered adjusted EPS of $0.58 and 14% growth in trailing twelve months free cash flow, despite customer demand pressures in the June stemming from tariff uncertainty, constrained government spending and evolving healthcare policy dynamics as previewed in our June 30, Ralliance Spain completion press release. Today, we are also initiating guidance for Forti’s continuing operations, reflecting our full year outlook and consistent with our new FortiV approach of providing clear and simplified guidance and disclosure. Finally, we remain focused on executing our 40 packs related strategy introduced at our Investor Day seven weeks ago and designed to drive faster profitable growth and strong shareholder value creation over the medium term.

We couldn’t be more confident and excited for the road ahead. Touching briefly on Slide four, which covers our final quarter of consolidated results, including the Precision Technologies segment, now Rallying. We delivered Q2 adjusted EPS of $0.90 at the high end of our guidance range and generated approximately $300,000,000 in adjusted free cash flow. On a trailing twelve month basis, our free cash flow grew 8% and free cash flow conversion and adjusted net income was 105%. We deployed approximately $140,000,000 towards share repurchases during the quarter.

From the time of the spin announcement in September 2024 through completion in June 2025, we allocated over 75% of our consolidated free cash flow to share repurchases, consistent with our previously communicated guidance about capital deployment during the period. Finally, we completed the spin off of Rallyant ahead of our original timeline, a testament to the power of 40 business system driven execution and the talent and dedication of our teams around the world. From this point on, all figures and comments will refer to Forti’s continuing operations, excluding the results of the Precision Technologies segment. Let’s move to Slide five. With the completion of the spin, New Fortive begins in Q3 as a simplified and focused company with a track record of strong, durable financial performance fortified by our 50% recurring revenues.

As shown on this slide, we begin this next chapter with an attractive financial profile and track record having delivered 4% compounded annual core revenue growth over the past five years, with solid growth every year since the global pandemic in 2020. Each of our two reporting segments have been key contributors to this performance and are poised for acceleration, powered by our Fortive Accelerated strategy. Before we dive into the details of Q2 results, let me highlight some examples of exciting progress our team made in the quarter in executing our Fortive Accelerated Strategy on Slide six. Our strategy is built around three core levers for profitable organic growth acceleration: innovation acceleration, commercial acceleration and recurring customer value, all powered by our Amplified 40 business system. Our new disciplined capital allocation approach seeks to enhance its organic results with maximizing medium term equity returns as our North Star.

We made meaningful strides in advancing key elements of this strategy in Q2. Starting with innovation acceleration, Fluke continues to execute an exciting market leading innovation funnel. For example, Fluke’s sixteen seventy series multifunction installation tester with TrueTest software Fluke Connect and wireless connectivity was named Most Valuable Product in Control Engineering’s twenty twenty five Product of the Year Awards. At Gordian, we’re seeing strong adoption of our new cloud based assessment and capital planning module, driving double digit orders growth in that product category. Moving to Commercial Acceleration.

Our Latin America growth strategy continues to ramp, delivering double digit Q2 growth in the iOS segment in the region. At Fluke, we saw high single digit growth in our priority high growth applications, including distributed energy and data centers with exciting runway ahead of us. Closing with recurring customer value. Our journey at Fluke to increase recurring revenue continued with double digit ARR growth in the quarter, and we are undertaking AI enabled customer experience improvement across our portfolio, driving better net dollar retention and customer lifetime value. As an example, Provision launched AI assistance and intelligent automation to drive productivity in key healthcare workflows.

All our organic growth acceleration levers are enabled by our Amplify 40 business system, which is at the heart of our culture. In May, nearly 1,000 team members around the world participated in our President’s Kaizen Week, tackling growth opportunities with a continuous improvement mindset. It’s one of my favorite weeks of the year and I was particularly inspired by the pervasive deployment of AI capabilities for impact across our 34 Kaizen teams and our team’s energy around amplifying FPS for profitable growth. Finally, disciplined capital allocation is an integral component of our Fortive Accelerated strategy. At our June Investor Day, we outlined our capital allocation priorities to enhance shareholder returns, invest in organic growth, pursue accretive bolt on M and A, deploy capital to share repurchases and maintain a growing dividend.

Aligned with these priorities, we are activating our bolt on M and A engine and we are applying a rigorous disciplined approach based on relative returns to evaluate deals. We are ready to execute attractive bolt on opportunities with a goal of enhancing shareholder returns. Looking ahead, the future is bright for Forti. We are emerging from the spin as a more durable and resilient company with a clear plan to accelerate shareholder value creation through profitable organic growth, disciplined capital allocation and a deliberate focus on building and maintaining investor trust. We have rock solid confidence in the quality of our new Forti portfolio, purpose built team and a Forti backed research strategy shared at our Investor Day seven weeks ago, notwithstanding fluctuations in specific quarterly metrics.

Our teams are energized, empowered and excited to lead Fortive into this next chapter. I have been spending time with several of our customers and they are thrilled about our new Fortive direction and eager to be part of our innovation acceleration, commercial acceleration and recurring customer value agenda. With that, I’ll turn it over to Mark to walk us through the financial results for Q2, our last quarter before the launch of New Fortive.

Mark Okerstrom, CFO, Fortive: Thanks, Olivier. I’ll begin with slide seven. In the second quarter, we delivered total revenue of just over $1,000,000,000 down 0.4% year over year. On a core basis, revenue declined 0.7%. Q2 revenue growth for the company was negatively impacted late in the quarter by customer demand responses to macro pressures and uncertainty, which Illuminae mentioned earlier and on which I will elaborate in more detail as I go through our segment results.

Across the first ten weeks of the quarter, we saw a continuation of the revenue growth trends we saw in Q1. However, as June progressed, we saw year over year growth turn negative in the last few weeks and we finished the month approximately $30,000,000 below our expectations, driving year over year revenue growth on our $1,000,000,000 quarterly revenue base into decline territory. Although it’s early, July is looking better. Aside from these end of quarter factors, the business performed broadly in line with our expectations. From a geographic perspective, North America was slightly positive, but less so than what we had anticipated largely due to the end of quarter factors.

Western Europe, China and Latin America were down year over year. We delivered adjusted gross profit of $650,000,000 similar to last year. Adjusted gross margins were also roughly flat year over year as FBS driven pricing actions, growth in higher margin recurring revenues and lower costs from supply chain countermeasures were roughly offset by tariff related cost pressures. Adjusted EBITDA was $288,000,000 in line with Q2 of last year with adjusted EBITDA margins holding steady versus the prior year. We delivered adjusted EPS of $0.58 up 4% year over year driven by stable year over year adjusted EBITDA coupled with lower interest expense on lower debt balances and the positive year over year impact of share repurchases.

We estimate direct tariff costs net of countermeasures created a roughly $02 headwind to EPS in the quarter. This excludes the tariff related quarter end demand pressure referenced earlier. We generated $180,000,000 of free cash flow in the second quarter with our Q2 trailing twelve month free cash flow of $939,000,000 representing a solid 14% year over year increase. Our Q2 trailing month free cash flow conversion on adjusted net income was 107%. Moving to our segment results, starting with Intelligent Operating Solutions on slide eight.

Both revenue and core revenue growth were essentially flat year over year, which was below our expectations. In the back June, year over year growth turned negative driven by two primary factors. First, general tariff uncertainty and questions around the permanence of tariff related pricing and surcharge changes resulted in what we believe was deferred not canceled customer spending on certain categories of professional instrumentation of Fluke. While overall orders grew in the quarter, the mix of orders particularly in the final weeks shifted to longer lead time products resulting in an increase in backlog and a shortfall in revenue. We expect to deliver most of the backlog over the course of the second half of the year.

We are seeing encouraging signs in July that order mix is normalizing, which would suggest that most of the Q2 revenue slip will come back to us in the next several quarters. Secondly, constrained U. S. Government spending and fiscal tightening at state and local governments pressure take rate procurement revenue at Gordian. Gordian usually sees a spike in spending in the last few weeks of Q2 as government entities with the June fiscal year end rush to use their remaining budgets.

Our customer discussions suggest that overall concerns about go forward funding more broadly created a chilling effect on the usual use it or lose it behavior. Absent the above factors impacting Fluke and Gordian, the quarter would have come in broadly in line with our expectations. As always, there were puts and takes, but we’ve been pleased with the growth we’ve seen in Industrial Scientific and the iOS software businesses year to date. Adjusted gross profit came in at $461,000,000 down slightly from prior year. Adjusted gross margins declined to 66.1% from just under 70% a year ago, primarily due to tariff cost pressures, partially offset by pricing countermeasures and growth from our higher margin software businesses.

Despite the slight revenue and gross profit declines in the segment, adjusted EBITDA grew 2% to $236,000,000 as lower operating costs more than offset the modest decline in gross profit. Adjusted EBITDA margins grew to 33.8%, up from 33.3% in the prior year period. Moving to our Advanced Healthcare Solutions segment on slide nine, we delivered total revenue of $320,000,000 which was below our expectations. Revenue was down 1.3% year over year and down 1.9% on a core basis. Towards the end of Q2, we saw reimbursement policy changes and uncertainty impact the Advanced Healthcare Solutions segment.

Specifically, we saw the deferral of U. S.-based hospital capital expenditures on healthcare equipment, including sterilization machines at ASP and quality assurance devices at Flukell with customers citing precautionary deferral of spending while they sort through the impact of reimbursement policy changes. We saw partially offsetting outperformance in other parts of the business with our AHS software businesses outperforming strong execution and benefiting from resilient SaaS based revenue models. Absent the end of quarter pullback in healthcare equipment spending, AHS in total would have grown revenue largely in line with our expectations. Despite revenue being down year over year, adjusted gross profit was up slightly.

Adjusted gross margins were up from just under 58% last year to just over 59%, with favorable pricing contribution aided by a mix shift into higher margin AHS software revenue away from lower margin hardware revenue. Adjusted EBITDA was flat year over year at $86,000,000 as we reinvested very modest gross profit dollar growth into R and D, and marketing initiatives to drive our top line acceleration agenda outlined by Illuminae. Despite these investments and declining revenue, adjusted EBITDA margin expanded modestly from 26.6 to 26.9%. Moving to slide 10 for a brief update on tariffs, which had shifted meaningfully since our Q1 earnings call. Based on current tariff rates in effect or expected to go into effect, we now expect the gross tariff impact for Fortive continuing operations to be approximately 40,000,000 to $55,000,000 in the 2025 and 80,000,000 to $120,000,000 on an annualized basis.

The majority of this impact is related to U. S.-China tariffs. While the global trade environment remains volatile and that volatility is impacting our results on the margin, we are actively leveraging the Fortive business system to adapt and respond. Our countermeasures include pricing actions and surcharges, shifts in our global supply chain and manufacturing footprint and incremental cost and productivity initiatives. Assuming tariff conditions continue along the path of what is known today, we expect gross tariffs to be mitigated fully by the fourth quarter and we expect we will see a modest gross margin and EPS headwind in Q3 as our countermeasures continue to fully phase in.

Should global trade and fiscal policy remain as volatile as it has recently been, we would expect to continue to see near term revenue impacts and challenges with revenue visibility of the type we saw in Q2. Turning to slide 11. We received a $1,150,000,000 dividend from the Rally and Spinoff, which is reflected in the forward of continuing operations balance sheet in our earnings release. In July, we used approximately $725,000,000 of proceeds from the dividend to pay down debt comprised of the entirety of our Japanese yen and euro denominated term debt and a portion of our $20.26 Eurobonds. We plan to use the remaining dividend proceeds for share repurchases.

The balance sheet figures shown here represent forward of continuing operations on a pro form a basis reflecting the debt pay down. From a leverage standpoint, our gross leverage ratio is roughly 2.5 times adjusted EBITDA after these debt repayments in line with our stated target. As previously highlighted on a trailing twelve month basis, we generated roughly $940,000,000 of annual free cash flow. This plus our strong balance sheet and growing adjusted EBITDA gives us ample capacity and flexibility to execute our capital deployment priorities always with a disciplined focus on allocating capital based on best relative risk adjusted returns from a shareholders perspective. Moving to slide 12, we are initiating our full year adjusted EPS guidance for New Fortive at $2.5 to $2.6 per share.

This outlook assumes a continuation of the market dynamics we experienced in Q2. We are not forecasting any material improvement or deterioration. It reflects the expected net impact of tariffs based on currently announced rates. Now let me provide a few additional modeling considerations. From a phasing perspective, we expect Q3 reported revenue to be broadly similar to Q2, including a modest tailwind from FX.

We are modeling second half core revenue growth broadly in the range of the core growth we saw in the first half. We also expect AHS core growth in the second half to be similar to Q2 with a more challenging year over year comparable in Q3. From an adjusted EBITDA perspective, we expect typical seasonality with Q3 adjusted EBITDA lower than Q2 on a dollar basis. As a reminder, with lower debt balances, our interest expense will be lower in the second half. We continue to expect a full year adjusted effective tax rate in the mid teens.

However, we are modeling Q3’s tax rate in the high teens and the Q4 tax rate in the single digits due to discrete tax items in the quarter. Given seasonal revenue and margin patterns and the interest and tax assumptions I just outlined, we expect Q4 adjusted EPS to be meaningfully higher than Q3, which we currently expect to be slightly lower than what we saw in the second quarter on a sense basis. Before I wrap up, I’d like to take a moment to walk through our approach to guidance and disclosure for the remainder of the year. As we have just outlined, we will provide annual adjusted EPS guidance updated quarterly along with commentary on phasing throughout the year and modeling help on other key P and L line items. Our disclosures will remain focused on key metrics at the fortive and segment level with color at a lower level of granularity as appropriate to provide clarity on key drivers of performance.

This approach reflects our ongoing desire for clarity and simplification in our communications with the investor community. As a final note, before turning it back to IllumiDay for closing remarks and Q and A, I wanted to directly and clearly state that recent near term revenue volatility has absolutely no impact on our confidence in the future outlook for our business. And specifically the medium term financial framework we shared at our recent Investor Day remains firmly intact. Q3 marks the beginning of our new chapter and we are moving the pieces into place to drive accelerated growth and shareholder value creation in the coming years. The three pillar value creation plan we outlined at our June is now solidly in the implementation phase and I couldn’t be more excited for the road ahead.

With that, I’ll turn it back to Illuminate.

Illuminae Charoye, President and CEO, Fortive: Thanks, Mark. Let me close our prepared remarks on Slide 13 with a few reflections on what’s ahead for Fortive. First, we have a long track record of strong annual financial performance as presented on this page. Solid revenue growth, expanding EBITDA margins and resilient free cash flow in the last five years. Q2 twenty twenty five was our last quarter before the launch of New Fortive.

While call growth in the quarter was below our expectations, our earnings and free cash flow stood up well in the face of unexpected headwinds. We delivered 4% adjusted EPS growth and 14% trailing twelve months free cash flow growth. This is a testament to our team, the operating leverage and cash generation strength in our business and the Forti business system. We are excited about what that portends as we return to normal and accelerating growth. With Q2 and the spin behind us, we now enter the era of Fortive Accelerator.

Our purpose built new Fortive team is excited about the opportunity ahead of us and we thank you all for your interest in Fortive. I especially want to thank our investors, our 100,000 customers and all our Fortive employees around the world across our 10 iconic operating brands who do a tremendous job every day to deliver near term results and build enduring advantages in our businesses. With that, I’ll turn it to Christina for Q and A.

Christina Jones, Vice President of Investor Relations, Fortive: Thanks, Illuminae. That concludes our prepared remarks. We are now ready for questions.

Brock, Conference Facilitator: Thank you. We will now be conducting a question and answer session. Our first question today comes from Julian Mitchell of Barclays. Please proceed with your question.

Julian Mitchell, Analyst, Barclays: Hi, good afternoon and congrats on getting the first earnings out of the way as RemainCo, new Fortive. Maybe just wanted to start with the sort of second half moving pieces between third and fourth quarter. So it seems like maybe third quarter EPS is in the maybe low mid-50s range in terms of cents, perhaps sort of flattish EBITDA sequentially and then there’s the tax pressure. And then into the fourth quarter, it looks like you need a sort of €0.30 or so increase in EPS sequentially helped by that tax rate dropping in Q4. I just want to make sure that that rough framework made sense in terms of your full year guidance.

And just sort of help us understand on the operating why do you get such a big lift in Q4?

Mark Okerstrom, CFO, Fortive: Yes. Thanks, Julien. I’ll take this one. So there definitely are a few things going on. I’d say directionally you’re thinking about things the right way.

As a reminder, just normal seasonality of this business is for there to be a step down from Q2 to Q3. So you definitely see that in the way we’re sort of shaping the year. Added to that is we do have some negative impact from tariffs still that are going to hit us in the third quarter, which sort of builds upon it. And then as you move into the fourth quarter, again, normal seasonality is the biggest driver. But if you work down through adjusted EBITDA first, you’ve got a couple of other factors.

One is that the tariff countermeasures are fully implemented and they actually become a slight positive at current rates into the fourth quarter. And secondly, you’ve got a tailwind from FX, which again foreign denominated currencies more U. S. Dollars in revenue and the vast majority of our costs are sitting in U. S.

Dollars so that does drop through to adjusted EBITDA. That’s then compounded as you move down to adjusted EPS, because you’ve got the discrete items on tax rate that we mentioned, which pushes tax rate down into the single digit zone. You’ve got lower interest expense on lower debt balances and then you’ve also got the year over year impact of share repurchases that are helping EPS as well.

Julian Mitchell, Analyst, Barclays: That’s helpful. Thank you. And then just my follow-up would be around a couple of the main end markets that led to the shortfall in Q2 and how you’re thinking about those playing out from here. In particular, I suppose the government pressure at FAL, what are you assuming there in terms of how much faster that improves? And then in Healthcare, just unpack a little bit because you had the sort of selling days headwind in Q1 and then it seemed to morph into something more problematic late in Q2.

Sort of what are you seeing right now there in Q3?

Illuminae Charoye, President and CEO, Fortive: Yes. Thanks, Julian. I’ll take that one. So, in many ways, Q2 played out exactly how we expected except for this three discrete items. So I’ll go through the three of them.

So the first one on the FAL and government spending at Guardian. The nature of that is we’re coming up after 2022 and 2023 where we had double digit growth in that business. So we knew we kind of had a comp issue coming in. And then the June, we always say June is a big month, but in particular for that business because it’s a year end for the state and local agencies, They usually have a big spike in spending, which just didn’t happen as much as seen for the last several June, the last several years. But what we do know to be the case is that the projects in the pipeline are still there.

They are essential projects for these committees that have to get done. So we know as a matter of fact that these agencies are working through getting those projects funded. The exact timing of when they flow through our revenues is hard to predict. I would say that for the second half, the guidance we’ve laid out here comprehends any range of outcomes on how that plays through, whether it’s fast or slow. We have enough other things to make sure our guidance here is secure.

So, that is going to trickle through, just the prediction of the timeline is hard to nail down. With respect to healthcare, I mean, would say the overall segment continues to be very strong for us. There was a very specific thing in June for capital equipment purchases by hospitals. So if you think about it, the one big beautiful bill was signed on July 4. So that means that three weeks before that these hospitals were trying to figure out what the final provisions were going to be, how that affects the economics in terms of especially Medicaid and sort of uninsured and what that means for them overall.

So a lot of them really just precautionary deferral of health equipment purchases. These are essential sterilization and safety equipment that they do have to buy. We already seen in July some favorable trends that some of that’s coming back. So again, we know it’s going to come back. We haven’t assumed it’s all going to flow through in Q3 or Q4.

Our guidance is secure, whatever the timeline is on that. And I think the fluke one, just to close it off, Julien, is the easiest one in many ways because POS was very strong, others grew in the quarter. And so you say, well, what happened? It really was, we had a slight shift in mix from short cycle to longer cycle in late June, which meant we build backlog. So again, we know the backlog is going to burn over the next few quarters.

And again, whatever range of outcomes is safe within our guidance. So overall solid quarter and we feel good about what we’ve assumed here.

Julian Mitchell, Analyst, Barclays: Great. Thank you.

Illuminae Charoye, President and CEO, Fortive: Thanks, Jide.

Brock, Conference Facilitator: The next question is from Nigel Coe of Wolfe Research. Please proceed with your question.

Nigel Coe, Analyst, Wolfe Research: Thanks. Good morning. Sorry, good afternoon. Thanks for the details. So I

Julian Mitchell, Analyst, Barclays: think you

Nigel Coe, Analyst, Wolfe Research: said sales in line with 2Q and 3Q and then you clarified to the previous question that sales normally down Q o Q. So just wanted to clarify that point. Is organic sales in 3Q consistent with the modest decline we saw in 2Q? Just want to pin that one up.

Mark Okerstrom, CFO, Fortive: Yes. I mean, would think on a consolidated basis, it’s roughly in line. The one thing to keep in mind is that for AHS specifically, I would expect the back half growth rate to be consistent with what we saw in Q2, again, really largely on the factors that Eliminate mentioned there continues to be pressure on healthcare reimbursement rates and we don’t expect that to subside anytime in the back half of the year.

Nigel Coe, Analyst, Wolfe Research: Okay. So just so again, think I may have just been dumb. So the organic sales growth consistent with 2Q on a total basis or dollar sales?

Mark Okerstrom, CFO, Fortive: Dollar sales.

Nigel Coe, Analyst, Wolfe Research: Dollar sales, okay. Would have been

Mark Okerstrom, CFO, Fortive: Okay.

Nigel Coe, Analyst, Wolfe Research: That implies Yes. So that iOS organic sales growth would improve materially in 3Q, but AHS still in that down 2% type of range. If we’re seeing this temporary dislocation in June from the sterilization equipment, why wouldn’t AHS improve in the second half of the year?

Illuminae Charoye, President and CEO, Fortive: Yes. Let me take that one Nigel. That’s the right question. I think part of it is the Q3 twenty twenty four comp for AHS is quite high. So that’s part of what you see.

And so Q3, especially for AHS would not show the quick pop in corporate improvement that iOS will show. And I think we also again just a precaution, we’ve kind of assumed in our guide here that to Mark’s point, these hospitals and the different the academic hospitals are different and the big ones than the rural hospitals. But we’ve just kind of from a prudent point of view, assume that it take either a bit of time, for it all to unwind unlike for Fluke where we know it’s backlog we built and that’s going to be easier to burn because it’s all in our control. So there’s some of that that you see that the comp effect in Q3 for HS and then just the nature of the specific huddles that we run into in late June and what we’ve assumed for how quickly they resolve.

Nigel Coe, Analyst, Wolfe Research: Thanks, Elumite. So your comps certainly do get tougher. So I see that. And then just a quick one on Ongorean. It seems like you had a little bit of the June year end friction around use it or lose it.

So just to be clear that, that business has recovered in Q3 so far. I’m just wondering, could you maybe just give us some renewal rates around Gordian or the iOS software? That’d be helpful. Thanks.

Illuminae Charoye, President and CEO, Fortive: Yes. So I mean, just on the Gordian piece, so yes, it was a specific situation around this year end for the state and local. We are seeing that kind of ease up a little bit in July, but it’s too early to call a victory on it, but it’s certainly feeling like things are easing up a little bit. I think in terms of overall software renewal rates, I would tell you that all our software businesses had very good NDR in the quarter. So renewal rates are really strong across the board.

What we’re really focused on is instead of just gross dollar retention, really working on the kind of the expansion and the cross sell and upsell and pricing to get our NDR to even higher levels. But from a renewal point of view, all really strong, really, really strong. Like Mark mentioned, we’re talking about the three areas that kind of didn’t go the way we expect, but the fact of it is everything else went really well for us in the quarter, which I think just gives us a lot of confidence as we look at the medium term outlook that we laid out seven weeks ago.

Nigel Coe, Analyst, Wolfe Research: That’s great. Thank you.

Brock, Conference Facilitator: The next question comes from Steven Tusa of JPMorgan. Please proceed with your question.

Steven Tusa, Analyst, JPMorgan: Hey guys. I’d echo Julian’s comments on congratulations for coming out here in your first quarter public.

Mark Okerstrom, CFO, Fortive: Thank you.

Steven Tusa, Analyst, JPMorgan: So just a little bit on the at a higher level, the rationale around I mean, I didn’t quite get the slide maybe, but looks like you guys will not be giving organic growth guidance at a high level. You’ll just be giving kind of like color on that. Is that right?

Mark Okerstrom, CFO, Fortive: That’s the intention, Steve. And I think I would think about it as we’re going to try this approach for the back half of the year. We want to get feedback as we go. And really just to reiterate the goals here. Number one is we just really wanted to simplify the way that we communicate with investors.

That’s certainly been a strong point of feedback from the broader investment community for us and we’ve taken that on board. Secondly, though, just to be very clear, our sites are very much set on the value creation plan that we laid out. It’s a multi year value creation plan. And so part of the simplification effort is to make sure that we have the ability from quarter to quarter and across P and L items to make business decisions that are smart business decisions that will support that medium term value creation goal. And that’s what’s led us to again annual adjusted EPS only.

We hopefully modeling help that is maybe more helpful than specific quarterly guidance might have been in the past.

Steven Tusa, Analyst, JPMorgan: Okay. Yes, my feedback would be like one number is probably not enough, but I guess we’ll see how it goes in the next couple of quarters here. And then I think Illuminae, you said you’re going to you emphasized that you’re kind of ready to do bolt ons. I thought there’d be a little bit of a breather on that front. Is there anything that you are changing in that approach relative to what Fortive has done historically?

Was there a bit of a reset on the process or anything like that? Or should we just think about this as a continuation of what’s been happening for the last few years?

Illuminae Charoye, President and CEO, Fortive: Well, so thanks, Steve. So I mean, it is we’ve tried to be really clear about how this is a very different capital allocation play call that we’ve made here. And so the first is the kind of the dynamic balance across share repurchase and kind of accretive M and A that is really focused on bolt ons. So that is very different. The second thing that is different is, we’ve really elevated kind of the financial and strategic scrutiny that we apply to this bolt on deals that we do.

We have a strong track record on them and we’ve elevated that level of scrutiny on those bolt ons. And I will say in terms of kind of the timing, obviously, kind we’ve of quiet now since we announced the spin in September 2024 and even for nine months before that, we’ve been quiet. So I think one thing we’ve continued to do in that quite period, Steve, is we’ve continued to cultivate these proprietary deals with assets that are close areas of strength for us that we advantage natural owners for that we know exactly how to create value for. So now we’re kind of opening the conversation to see which ones of those meet a very high bar on bolt ons that are accretive and our strategic feed and meet our financial criteria. And it’s always as you know how to predict the exact timing of when these things will mature for execution.

But we’re open for business and at the same time, level of kind of discipline and especially attention to making sure that every deal we do is beyond reproach, is really high right now. So we’ll hold a high bar, but we’re also open for business.

Mark Okerstrom, CFO, Fortive: Yes. Makes a

Illuminae Charoye, President and CEO, Fortive: lot of sense.

Mark Okerstrom, CFO, Fortive: Thanks a lot. Thanks.

Brock, Conference Facilitator: The next question is from Jeff Sprague of Vertical Research Partners. Please proceed with your question.

Jeff Sprague, Analyst, Vertical Research Partners: Hey, thanks. Good afternoon, everyone. Yes, I’m still a little confused on a couple of the guidance inputs here myself. So I think we’ve got AHS nailed down. But what are you implying for iOS then dollar sales roughly equivalent in Q3 and then a seasonal pickup in Q4?

Can you just clarify that?

Mark Okerstrom, CFO, Fortive: Yes. I would think about iOS broadly as following the same pattern that we spoke about for Fortive in total. So you will see a pickup in core growth through Q3. And I think about the back half in total as being broadly consistent with what we saw with the first half terms of core growth rates.

Jeff Sprague, Analyst, Vertical Research Partners: And then just trying to triangulate to what you said about EPS and maybe I’ve got something wrong below the line on interest or other. But so it looks like you’re implying down margins on flat sequential revenues in AHS. Is that correct? Or where is the implicit margin pressure in Q3?

Mark Okerstrom, CFO, Fortive: So Q3, I would think about HS is being broadly consistent with say probably down a little bit versus Q3 of last year and just on the trends that we saw tariff impact etcetera. And then iOS I would think about is again just down slightly again on that tariff impact and then you see rebound in the fourth quarter on the factors that we mentioned.

Jeff Sprague, Analyst, Vertical Research Partners: And I’m sorry, just I mean there’s a I guess there’s an upper bound on high teens and there’s a lower bound on single digit tax rate for Q3 and Q4. But maybe you could just tell us what you’re expecting for the annual tax rate, so we don’t get too far out of whack. I’m trying to triangulate between those two.

Mark Okerstrom, CFO, Fortive: Yeah. I mean, I would think about annual tax rate in the call it 14% to 16% zone.

Jeff Sprague, Analyst, Vertical Research Partners: Yeah. Okay, great. I’ll leave it there. Thank you.

Illuminae Charoye, President and CEO, Fortive: Yes. Thanks, Jeff.

Brock, Conference Facilitator: The next question is from Scott Davis of Melius Research. Please proceed with your question.

Scott Davis, Analyst, Melius Research: Hey, guys. And Christina, congrats on getting all the stuff done. So I’m sure it was a lot of work. But in that context, I just wanted to ask, how big of a distraction was it to the organization with the spin and the management change kind of at the similar time? I would imagine that would create some angst amongst folks, but maybe some color around that.

Illuminae Charoye, President and CEO, Fortive: Yes. Well, thanks. I think the it is a lot of work for the team and I’m grateful to just the incredible effort that our teams put into getting the spin executed at the same time getting the quarter delivered and end up by the high end of our adjusted EPS guide. So it was a lot and to your point, the leadership change is a lot too, while obviously I’m not new to the team, but it’s still a change. I would say that in the spirit of our culture, because the thing that makes Forti special, is not any one of us, is the fact that all 10,000 of our teams are deeply rooted in Forti business system and that’s how we do everything we do.

The show goes on in that sense. So from a distraction point of view, for most of our operating companies, which is where we serve our customers, It really wasn’t much of a disruption. Most of the spin activity was on the corporate team. So again, I wouldn’t say it was not changed, but just to calibrate it overall, we still delivered a solid first half despite this kind of late in the quarter call growth pains that $30,000,000 and $1,000,000,000 revenue base in a quarter. I think our teams just did an incredible job of resiliency, staying focused and I’ll tell you just right now the level of excitement about the future and the path we’re on with Fortiva Accelerator is quite a thrill to see.

Scott Davis, Analyst, Melius Research: Well, best of luck guys. I’m going to pass it on. That’s enough for me. Thank you.

Mark Okerstrom, CFO, Fortive: I appreciate it. Thanks. Thank you.

Brock, Conference Facilitator: The next question is from Andy Kaplowitz of Citigroup. Please proceed with your question.

Andy Kaplowitz, Analyst, Citigroup: Hey, good morning everyone.

Mark Okerstrom, CFO, Fortive: Good morning. Good morning.

Andy Kaplowitz, Analyst, Citigroup: So you mentioned the deferred spending at Fluke toward the end of the quarter, but you’d said that the order mix I think is normalizing. I guess the question is why did you see a bit of a gap down now because Fluke’s been as you know pretty stable for a long period of time even I think in the initial tariff related volatility. So how much do you worry if at all that it’s just maybe more macro uncertainty creeping in or it’s just this sort of temporary thing and what are you seeing in the channel?

Illuminae Charoye, President and CEO, Fortive: Yes. No, thanks for that question. I mean, I think we’re just step back for Fluke overall, you’re exactly right. Our level of confidence and excitement in the kind of really differentiated position of that business. You think about industrial professional instrumentation, you’ll be hard pressed to find a business with the brand strength and the gross margins and the resiliency that we’ve shown the fact that 15% of that business is now recurring revenues and continues to grow at double digit ARR for that piece of it.

So nothing changed about Fluke. Focus on innovation and how that adds acceleration to what’s already a great story. So all of that stays the same. And I think again what happened in Q2 was again just very simply for short cycle type of products, customers on a few big orders saying, hey, I want to wait and see what happens with tariffs before I place the order. And in the meantime, I’m going to bond through the inventory I have.

And a lot of those are coming back now. So the broad story that’s the context for your question is right, which is look remains strong. We feel great about the outlook. What we’ve done with the second half guide is really just very prudently and in a balanced way, looked at what we saw in the first half and the fact that kind of the tariffs back and forth is not all settled yet. And while we don’t know exactly how all of that will trickle through the system, including in some of the international markets in Western Europe and China and Latin America where they order things at work in those markets as they try to shift more money to defense and all of that.

We just prudently assume that the second half kind of call growth performance for Fluke and iOS will be the same as what we saw in the first half, knowing that there’s a lot of things that give us kind of a chance to accelerate off that going into next year. So nothing has changed about the fundamentals of Fluke in many ways. We’re more excited about our prospects now in the medium term for that business than we’ve ever been. But we’ve just really tried to be prudent and balanced about the second half guide.

Andy Kaplowitz, Analyst, Citigroup: It’s helpful. Can I ask you a follow-up to that? Like if I look at China and Europe, it feels like at best those geographies are stable and maybe there’s been a little bit of a step down as for instance, you get that transition to defense in Europe you talked about. So what are you seeing there? Are you guys seeing sort of stability?

Is it a little bit weaker in those regions? More color I think would be helpful.

Illuminae Charoye, President and CEO, Fortive: Yes, I know, absolutely. So I mean, let me just give you a few data points. So from a point of sale point of view, say, North America was our best market. And so and as we look at the rest of the year, that to be the case. And I think double digit POS, which is really strong.

And then for Western Europe and most of APAC, the point of sale is generally flat, kind of flattish, which again is consistent with what we expected coming into the year. I think as we look out, we’re not assuming any of that changes dramatically. We think for North America, we continue to be strong. I think in many ways, some of the benefits of the policy changes as it pulls more industrial manufacturing capacity into The U. S.

Will provide a tailwind for North America. So we feel the North America trajectory remains strong. And then for China, we really do feel like it feels like there’s a it’s bottomed out a little bit and it gets better from here on, especially given the framework on tariffs feels to be getting to some point of closure as soon here. We think that would reduce some of the anxiety in the system and help us sort of see the bounce in China over time. And then in many ways, I think Western Europe is the one that’s still to be seen as they kind of try to walk through a number of active wars in the region and a number of important decisions on moving spend into defense and how that affects the overall economy.

So but again, feel good about the work that our team is doing in terms of innovation for those markets and controlling the things that we control. Appreciate all the color. Thanks.

Brock, Conference Facilitator: The next question is from Joe Giordano of TD Cowen. Please proceed with your question.

Christina Jones, Vice President of Investor Relations, Fortive0: Hey guys, thanks for taking my questions. Just curious with all the pressure on hospitals and what reimbursement can mean for margins for like most of the hospitals or a lot of non for profits, a lot with really thin margins. Does this push them towards like more down the line to single use applications where it’s just they’re focused on lowering the amount of dollars they spend at any given time unlike larger scale equipment?

Illuminae Charoye, President and CEO, Fortive: No, we don’t think so. I guess is the short answer. I think if you think about what this all means for healthcare providers, I think it may be mainstay probably would have pressure on reimbursements. They may even have at some level pressure on sort of the kind of the insured customer base, which may affect volumes. And so then you say, well, what are they likely to do about that?

I think the first thing to think about is the profit center for these hospitals are in the operating room. So they’re likely to want to move more activity through the operating room. And as they do that, the fact of the matter is there are a lot of disadvantages to single use still, including effectiveness and also kind of total cost of ownership of those kind of approaches versus the kind of high effective instruments, robotics, endoscopes that are really needed for the highly profitable procedures going through the OR. So we don’t we’ve seen many ways more movement to advanced devices that tend to be connected with more profitable procedures and those devices are not single use and those devices would need very tough on germs and gentle on devices sterilization procedures that map well with where we picked as a position of strength. So I was with one of our big hospital clients just recently and absolutely everything we’re hearing from them is, hey, we need you more than ever because the way this market shifting, we need more through the OR, we need things that can really help handle robotics and endoscopes and these types of instruments that are becoming the higher.

You think about the volume of use of devices in ORs, it’s really shifting towards this higher value, higher effectiveness, higher complexity devices, not single use things that really kind of makes when you think about the total cost and the effectiveness trade off just isn’t as compelling as it might seem.

Christina Jones, Vice President of Investor Relations, Fortive0: Fair enough. As you guys start on bolt on M and A, I’m just curious what the appetite is on the software side, just given where the multiple of the stock is, what you might have to pay for stuff like this, what is the kind of appetite to buy something that might be fast growth, but is early stage and may ultimately grow slower. Just curious where that kind of force ranks between acquiring and fall versus acquiring and like on Fluke or on AHS type stuff?

Illuminae Charoye, President and CEO, Fortive: Yes. Well, I’d say overall, we’ve tried to keep it simple, which is that we have clear strategic and financial criteria. And whether it’s a software asset, consumable, recurring revenue asset, kind of a differentiated, very durable hardware asset, they have to meet the same criteria. So we’ve shown that irrespective of the type of asset, when we apply the new, focus we have on proprietary deal cultivation, this is like we’re not waiting for a bank led process. We’re actually cultivating this over many years, whether it’s software hardware, you can get a great asset and price is very much part of our strategy when we think about the equity nature of this asset.

So you get a great asset, but also at the right price that obviously to your point, is compatible with kind of the multiple way of trading app and gives us a chance to accretive from that perspective. So we feel good that we don’t really need to draw a headline as long as we stick on principle to the criteria that we’ve laid out. Again, if you think about the bolt ons that we did in the 2023, there was a software asset in there and it was the price point fit very well in terms of multiples. We didn’t have to get frothy and we had some data AI assets and we had some hardware assets. So that’s how we’re looking at it.

We’ll hold to our criteria if it fits, it fits. If it doesn’t, we don’t feel compulsion to do any type of deal.

Christina Jones, Vice President of Investor Relations, Fortive0: Thanks guys.

Illuminae Charoye, President and CEO, Fortive: The

Brock, Conference Facilitator: next question is from Deane Dray of RBC Capital Markets. Please proceed with your question.

Christina Jones, Vice President of Investor Relations, Fortive1: Thank you. Good day everyone. I’ll also add my congrats.

Illuminae Charoye, President and CEO, Fortive: Thanks, Deane. Thank you.

Christina Jones, Vice President of Investor Relations, Fortive1: Hey, I missed the first couple of minutes at the opening, so I don’t know if this got addressed. But anything on stranded costs? Is NuFortive already sized appropriately post spin? Anything on kind of repositioning that and what the timing would be in size?

Mark Okerstrom, CFO, Fortive: Yes. Thanks, Deane. I’ll take that. I’d say we’re broadly on track with the guidance that was given previously. We’ve got about I think half of the stranded costs that are out unadjusted and we’re going to work on the rest over the next call it twelve months or so.

I would also say just generally as a team that sort of got this opportunity to drive medium long term value creation here, we are looking at opportunities around the business to just be more efficient to be able to divert dollars to their highest and best use. So I think in addition to stranded costs, I mean, we’re going to be on the lookout for other opportunities to simply describe better performance across the business through cost discipline.

Christina Jones, Vice President of Investor Relations, Fortive1: Great. Then just as a follow-up the cadence of the months June being down, July bounced back stabilized. We’ve heard that elsewhere today in some another industrial. Can you just expand on that? What were the businesses that were down in June?

Was that deferred? And you think that will still the return in July, you still might see some of those deferred projects coming back over the next couple of quarters, but just kind of dig in there, what were the businesses and expectations for the quarter?

Illuminae Charoye, President and CEO, Fortive: Yes. No, thanks. So there are really three specific areas. So the first one was some of our short cycle professional instrumentation product groups at Fluke, where we saw customers on some big orders just say, hey, I’m going to wait to see what happens with tariffs on July 9 and then August 1. And then I think a lot of them are now coming back in and placing those orders.

So we feel good that that results fairly quickly. And that’s a big chunk of it. The second area is on healthcare capital equipment, where again hospitals were holding off on seeing the impact of the big beautiful act and how that affect economics before they procure capital equipment. The funnel remains strong. We didn’t lose a single one of those deals, just to be really clear.

And so it’s really been shifting to the right. The exact timing of when those customers place the order, we’ve tried to be prudent and it feels like it’s getting better in July, but it’s too early to call kind of final victory on that. And then the third one is the state and local government procurement business where think about this as projects in each of our communities where they’re trying to fix it, leaking roof and city hall, they’re trying to replace mechanical equipment in a K-twelve school that has to be replaced. And on the margin in the June year end for a lot of them, they had less money to kind of use it or lose it. And so they deferred some of those, but the projects that have to get done.

So again, they’ll come back to it. So we and everything else at Fortive was right on track with what we expected except for those three. So, we feel good about how that resolves. We’ve tried to be prudent on assumptions about how quickly they all come back, but that’s how we thought about it.

Christina Jones, Vice President of Investor Relations, Fortive1: That’s real helpful. Thank you. Thanks.

Brock, Conference Facilitator: This now concludes our question and answer session. I would like to turn the floor back over to Illumina for closing comments.

Illuminae Charoye, President and CEO, Fortive: Excellent. Well, thank you all for joining us. We appreciate your interest. Our team as you hopefully can sense is incredibly excited about the opportunity ahead. We’ve laid out the plan to have this company in its simpler and more focused farm grow faster.

We got our entire leadership team together to get everyone aligned on that. Just in the last couple of weeks here, the excitement level is really high, for us. We’ve also said our capture allocation is a critical part of our value creation strategy. So the discipline on that is going to be ferocious from our point of view going forward to make sure we’re beyond reproach. And then just making sure that we build and maintain investor trust.

And again, hopefully you seen that in the way we are approaching this communications. We thank you for your interest and we’ll see you around.

Brock, Conference Facilitator: Ladies and gentlemen, thank you for your participation. This concludes today’s teleconference. You may disconnect your lines and have a wonderful day.

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