Fortive at Bank of America Conference: Strategic Growth Amid Challenges

On Wednesday, 14 May 2025, Fortive Corp (NYSE:FTV) presented at the Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025. The company outlined its strategic initiatives and future outlook, highlighting both growth opportunities and challenges. Fortive emphasized its software capabilities and innovation, while addressing tariff impacts and market conditions affecting its segments.

Key Takeaways

• Fortive reported a Q1 core growth of 2% and a year-over-year margin expansion of 80 basis points.
• Ralliant, soon to be spun off, is focusing on growth in utilities and defense, while facing challenges in the electronics sector.
• Tariff impacts are being mitigated through dual sourcing and supply chain adjustments.
• Fortive is leveraging domestic manufacturing incentives and tax breaks for future benefits.
• A cautiously optimistic outlook was conveyed, with plans for an Investor Day to further discuss strategies.

Financial Results

• Fortive’s software contributed 20% of Q1 revenue, with expectations to reach 25% in the future.
• The company’s Annual Recurring Revenue (ARR) is growing in high single digits.
• Ralliant’s pro forma EBITA margin stands at 22%, despite $45 million in stand-alone costs.
• Tariff impacts are estimated at $0.06 per share for Q2 2024 and $0.10 per share for the full year, with mitigation efforts through price increases and surcharges.

Operational Updates

• Ralliant is increasing capacity to meet utility demand and enhance supply chain resilience.
• Tektronix faced softness in European markets, particularly in government communications.
• Integration of Electro Automatic into Tektronix is underway, with a 30% headcount cost reduction.
• Fortive has shifted 70% of its supply chain since 2018 to reduce tariff impacts.
• Advanced Sterilization Products (ASP) received multiple FDA approvals, boosting innovation momentum.

Future Outlook

• Strong demand is expected in utilities due to infrastructure expansion and defense program replenishments.
• Tektronix aims to improve product vitality with new launches in 2025.
• SaaS conversions are driving growth in hospital software, with continued expansion anticipated.
• Fortive is focused on achieving tariff neutrality in operating income by Q4 and capitalizing on domestic manufacturing incentives.
• The innovation flywheel at ASP is expected to accelerate over the next 2-3 years.

Q&A Highlights

• Utility demand remains robust, with customers struggling to meet needs.
• Construction of new semiconductor fabs in the US supports R&D efforts.
• Cross-selling opportunities for Electro Automatic products within Tektronix are progressing.
• Hospitals’ transition to SaaS solutions is fueling Fortive’s software growth.
• Fortive is evaluating the impact of tax incentives and exploring increased US production for specific product lines.

For further details, readers are encouraged to refer to the full transcript.

Full transcript - Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025:

Andy, Interviewer: Good afternoon. Thanks so much for being here. We saved the best for last. We have the team from Fortive and Fortive is going to be spinning off its precision technology segment as Ralliant by the end of the second quarter. And we have Tammit Newcombe, the CEO elect of Ralliant, the spin off here with us today.

We have Jim Lico, Fortive CEO, and Mark Orkstrom, Fortive So I think I have everybody.

Jim Lico, Fortive CEO, Fortive: You do.

Andy, Interviewer: Yeah. And we’re lucky to have both management teams on stage, and I have a set of prepared questions. Thank you. Well, first of all, thank you so much for making it here. Great to be here.

We really, really, really appreciate it. So maybe so I sort of the questions, you know, rallying questions and fortify.

Jim Lico, Fortive CEO, Fortive: However you wanna do it.

Andy, Interviewer: So yeah. So I’m I’m gonna start with rallying question to Tammy. So sensors and safety makes up, what, 56% of revenue. Can you walk through what you’re seeing in the key end market? Also, utilities, A and D, and broader industrial?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. Thanks. Thanks, Andy. So in sensors and safety systems, there’s a couple ways we think about the business. There’s two really strong growth factors that we’ve seen, multiyear growth factors that we expect to extend for the coming years.

The first being in the utility space where there’s two things going on. There’s an expansion phase going on where there’s more demands for electricity than the utilities are able to keep up with, and there’s a refresh going on because it’s aged infrastructure. And both of those are good good signs for our our business that is sensors on those critical assets, namely transformers and the electric grid. The second growth factor is around our defense technologies business. This is for those that have followed, this would be our PACSCI EMC business.

They do electronics and energetic materials and just a lot of replenishment going on around the globe of production programs that have been five, ten, fifteen years in the business. This is a business that we’ve got a really nice backlog on and continues strong. Then the third piece I think of are sensors that are very niche applications, harsh environments, regulated environments, and that business has been slow. We saw some signs of some resilience in q one.

Andy, Interviewer: So look, maybe digging down a bit on utilities, you sort of talked about, you know, Qualitrol is the brand. It’s very strong there. How durable is the strong demand trend there? What are the customers telling you?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. Customers are tell so we have two sets of customers. One is direct into the utilities. The other customer we have is the manufacturer of the transformer. And in both cases, they’re struggling to keep up with demands in that space.

And we have not seen an end to that right

Andy, Interviewer: now.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Demand is really strong. Where we’re spending a lot of time right now is ensuring we’ve got capacity, the supply chain to keep up with that.

Andy, Interviewer: That was my next question. But do you think you’ll be able to hold your own there?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. We just last week was a big week across Fortive. I’ll boast a little bit about Reliant. We had 42 different Kaizen teams. Several of them were in the collateral facility figuring out how do we get more capacity and footprint that we have.

Andy, Interviewer: Excellent. So maybe in test and measurement, 44% of revenue. Can you walk through what you’re seeing in the two largest markets of communications and semiconductors? I think autos is auto electronics the third largest there?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yes. So the largest end market for the test and measurement business is diversified electronics.

Andy, Interviewer: Okay.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: If you cut if you get underneath diversified electronics, the three next biggest pieces inside diversified electronics are automotive Yep. Industrials, and university in research.

Andy, Interviewer: Yep.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: And then, you know, probably next next would be medical consumer computer Okay. In diversified electronics. So that that segment right now is is down due to EV and battery energy storage being soft. Yeah. In the semiconductor space, we continue to see strength in anything tied to the data center, whether so anything any computer chips, memory chips, things that are going into the data center are still quite strong.

Andy, Interviewer: Yep.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: And then our communications business, communications is so semiconductor is the smallest. Yep. The next is communications. And for communications is predominantly mil gov in that space. And the real we saw softness in Europe in q one, very soft.

We still are expecting a decent buying season in q three, which is typical for the test and measurement business.

Andy, Interviewer: And communication softness in Europe was terribly bad. Yeah. And it’s just timing of the contract.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Well, there’s two things two reasons for softness. Yeah. But the surprise to us was the government business being soft. What we weren’t surprised about, we saw going into the year was that our EA business had a really tough headwind because the prior year we’d shipped a bunch of backlog.

Andy, Interviewer: Yep. I gotcha. And then maybe on the semi exposure, we think you’re broadly more R and D the production test, but how should we think about The US semi fabs and fabs coming back to The US? What impact does it have on you?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. Two parts. If you were to go into any of the the build out of semi fabs, you’d certainly find equipment from Tektronix in the production phase. But it’s from a revenue standpoint, it’s a small piece of the revenue footprint for us.

Andy, Interviewer: Yep.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: But the coming back, there’s still it spurs more research and development here in The US. Right. And that’s a very that’s a place where we play really strong.

Andy, Interviewer: So it’s just the build out of Arizona ecosystem. You’re just generally holistically benefit from that.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yes. Absolutely.

Andy, Interviewer: Okay. Gotcha. And what is product vitality stand at tech, the percent of revenue from products introduced in the last five years?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: If I think about the industry, the test and measurement industry, we’ve always said 25 to 30% is really healthy in in that industry. If I look at where tech is today, it’s a it’s light on that today.

Andy, Interviewer: Okay.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: We had if you go back to the supply chain disruption, we converted a lot of our engineers into ensuring revenue, which meant we had to qualify new suppliers in that business. And what that’s led to is we’ve got a really nice lineup of new products coming out here in 2025. And I’m not gonna steal the thunder from Investor Day because that’s gonna be fun for us to talk about Investor Day. But that will start us back on the right path to get back to that vitality that we like. Excellent.

Andy, Interviewer: A key part of the thesis around the Electro Automatic acquisition was the ability to put these products in the Tektronix Salesforce toolbox. So how much progress have you made on that cross selling opportunity?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. I think there’s two places that we have have made progress on EA. And the first is just making it truly a part of Tektronix. So November to December time, we did some restructuring, took about 30% of the the headcount cost out of that, made it a product line for Tektronix. So that as that market starts to come back, we’ll get to see some of that operating leverage.

The other piece about EA is getting it in the hands of our salespeople, and we’re continuing to see funnel build there and probably buffered about 40% or so of the downturn that we saw in EV and battery. We’ve been able to buffer by the expansion back into the r and d labs and new sets of customers that EIA never sold to. So you can go down through the funnel and you can see where they are today, and it maps very closely to where our tech sales team is really strong.

Andy, Interviewer: Gotcha. And then the last one for you for now. Rellin is coming out with 22% pro form a EBITA margin, and that’s including 45,000,000,000 of stand alone cost. Test and measurement segment is low teens margin, sensor and safety is high twenties. How would you frame the margin opportunity for both?

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Yeah. I think if you look at the historical average for t and m, it’s high teens, not low teens. So it’s high teens. And the opportunity for both as we in pest and measurement, we talked about the the market’s a little soft right now in in q one. But as you see that build back, it’s a we get great flow through in that business.

Andy, Interviewer: So it’s just volume leverage.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: And we’ll get the leverage back, and we’ll get back to where we need to be. We made a conscious choice here at the start of the year knowing we had a great lineup of products coming out in the second half that we wanted to be sure to continue that investment with the sales teams and the the r and d that we needed to to deliver in the second half here.

Andy, Interviewer: Excellent. Now Jim and Mark.

Mark Orkstrom, Fortive CFO, Fortive: Well done, Tammy. It was

Andy, Interviewer: very good.

Jim Lico, Fortive CEO, Fortive: So Very compelling.

Andy, Interviewer: So new Fortive had a pretty solid first quarter with 2% core growth, 80 bps of year over year margin expansion. What people may not know is that software is about 20% of new Fortive. How are first quarter revenue trends different than software hardware split?

Jim Lico, Fortive CEO, Fortive: Yeah. So I I would say a couple of things. One, you know, we sort of you know, new Fortive, if you will, came in right where we thought it would come And, you know, we always knew we had a little bit of an impact of days and some other things. As you as you mentioned in the question, software was strong. Yep.

Mid single digit growth. You know? And we really have two big software businesses, our health care software and then our facility and asset life cycle software, those two. Our total software for the new Fortive will be about 25%. So we think about 50% recurring revenue in new Fortive.

About half of that is gonna be software, and about half of that is mostly health care consumables. So that makes up the recurring revenue. We and we had a good quarter. We we certainly saw a number of really strong our health care software was very strong. We continue to, I think, see the benefits of FBS for the business system in accelerating growth and and providing opportunities on the innovation front.

So I think just in general, software comes in mid single digit growth. For all Fortive, ARR was high single digit growth. So so, again, I think bodes well for the year. Some headwinds. You know, I think we we did see some customer uncertainty, some govern particularly on the government side at Gordian as an example.

We did see some places where there’s a little bit, you know, a little bit of a change, but, you know, overall strong strong set of dynamics for the business for the year.

Andy, Interviewer: And you’re the largest player in the facility asset life cycle software space. What are the sort of the ways in which you can leverage that position? Well, I think we’ve been

Jim Lico, Fortive CEO, Fortive: leveraging the position over the last few years. Couple of things we’ve done is moved product lines around in in terms of offerings. We moved some product lines over from a current to Gordian or to Gordian in order to sort of take advantage of the market presence that Gordian had in their particular customers. So we’ve got a we really have a strong position. I think the opportunity here going forward is to continue to elevate our innovation, continue to build on the strong capability we have to start to think about more data offerings as well, given the magnitude of real estate that we see and facilities we see and equipment and assets we see.

The opportunity then to take that data that in analysis that comes from that and convert that into solutions is still an untapped opportunity for sure in the business.

Andy, Interviewer: And what keeps you up at night around advanced health care solutions would seem less tariff risk, less economically sensitive, etcetera?

Jim Lico, Fortive CEO, Fortive: Yeah. Great segment. We’ll certainly give up. I think when we get to investor day, we’ll we’ll unpack that a little bit, which will be exciting. But I would say this, Andrew, you know, when we, you know, we think about our health care business as industrial health care.

It’s really helping the back of the hospital become safer and more productive. And we think about the long term trends, the secular drivers that have been in that business around the thesis of our our the whole time of getting into the business was really around a couple of things. One is that the developed world with more, you know, people getting older, they require more health care. On the developing world, they want higher better access to high quality health care. Those long term market secular drivers are very much there.

Yep. We feel really good about it. I think it may be the nature of your question. Little bit of noise in the first quarter around days and consumables, but we think the business can be good. Profitability is strong.

And, you know, we said we’ve got a we’ve got a great equipment and consumables business in AFSP. We’ve got several good software companies. We’ve got a good portfolio in which to go forward. What keeps you up at night? Well, we’ve got VA as a customer.

So we’ve got the short term dynamics of what’s gonna happen with Medicare and Medicaid reimbursements. They certainly are some headwinds that we’ll look through or look at to see what happens. But I think the strength of the market positions we have in the business and the ability to sort of take things forward in terms of combining what we do at Census and ASP as an example, Those those are really strong opportunities for the business going forward.

Andy, Interviewer: And maybe you sort of you talked about probation, but, you know, question probation. How much did upgrade to APAX, the SaaS version, contribute to 24 growth or plan 25 growth? Because, I mean, our understanding that there’s like a very multiple Yeah. Sort of all revenue uplift Yeah. In Apex.

Jim Lico, Fortive CEO, Fortive: Well, you know, when we bought the company, we always said the majority of the growth would come from that SaaS migration. Right. Because our installed base is so large. Yep. And hospital customers would really wanna move to SaaS solutions.

I think we always said we weren’t gonna necessarily drive that adoption of SaaS. Hospital would be making that cloud decision on a broader set of their network infrastructure. And as they did, our strong presence in the offering we have SaaS offering we have would be a perfect fit to their next level of technology. And that’s what we’ve seen. So we’ve seen really good growth on the SaaS front.

But it and it really gets back to the original thesis of the deal, which was SaaS conversion would really be a growth driver, and that’s what we’ve been seeing. SaaS SaaS growth has been very strong.

Andy, Interviewer: Can you quantify the contribution to probation?

Jim Lico, Fortive CEO, Fortive: It’s all their growth. Okay. It’s really all their growth. Okay. Yeah.

It’s really I mean, we really think about that. That’s really it was the original thesis and that’s really where we’re we’re getting, you know, the majority of the growth. There’s a little bit of new logo, but we have such a strong market presence that the real opportunity there is around converting current customers.

Andy, Interviewer: Once again, I’m sure you’re gonna say that it’s gonna be at the Analyst Day, but how excited should we be about the start of the innovation flywheel at ASP? You know, the steam biological indicator that launched last year, for example. What could that add to ASP’s growth rate?

Jim Lico, Fortive CEO, Fortive: Well, yeah, I probably will punt it a little bit in part because the team’s gonna be there and I want I want them to share their their successes. As we said, a number of FDA five FDA approval projects consummated in in the back half of the year. And, Andrew, you’ve known us for a long time, so, you know, you know, we knew it was gonna take a little while to get the innovation flywheel started. But our I think the the set of compelling solutions, the presence we have, we’re just in the very early days of thinking through that. I I think it’s it’s at this point, I wouldn’t necessarily say it’s gonna be the biggest growth driver in ASP.

But certainly, if you take a two to three year time frame, that acceleration is gonna continue. Obviously, a lot a lot of these things are in consumables. So the consumable stream is just gonna take it’s a lot like SaaS revenue. It just takes to once you get that flywheel moving though, then the flywheel, you know, just continues to accelerate. And I think that’s really what you’re starting to see at the start of the capability of of ASP.

Question for Mark. So Let me in, coach.

Andy, Interviewer: You’ve you’ve been you’ve been in seat now for a month?

Mark Orkstrom, Fortive CFO, Fortive: Just a little over a month. Yeah.

Andy, Interviewer: Yeah. So what are the maybe one or two opportunities that you’re looking at?

Mark Orkstrom, Fortive CFO, Fortive: Yeah. Well, there’s a few. And I think, first of all, just to just to recap for those who didn’t hear the earnings call around the reasons why I joined Fortive and good to see a few of you from the old Expedia days. You know, really, for for me, there was multiparts to it. Mean, first of all, just from a learning perspective, I’d learned a lot about the Danaher business system and and and seen, you know, a lot of what that could do, and I was super curious about what that looked like from the inside.

So I wanted to I wanted to learn that. At the same time, I saw there a real opportunity here for not only the standalone business, great secular tailwinds buying health care and industrial, occupied by leading brands who have strong market positions and great moats, but I also saw the personal opportunity to step in and drive shareholder value actually from the inside. And, you know, I last year and a half or so, I’ve been working with Advent, Bain, really just around, you know, investments and and doing diligence on deals, coming up with deal pieces, and I saw this to be really compelling. Three areas of value creation that I felt like I could really move the needle on, all of them important, some of them easier to get than others, and on on different time horizons. First of all, it was just the opportunity to drive organic growth.

If you look at these there is so much opportunity because of their market leading positions, because of their pricing power to maybe invest a little bit more in new product development, which may hurt a quarter. But if we can invest $10,000,000 this quarter and get 40,000,000 in the fourth quarter or in q one of the next year. We should totally do that. And I think that’s where LuminDay’s heads at. You know, Jim and I have been talking a lot about this.

I know this is Tammy. You know, you’ve been thinking about that as well. I mean, that is that is goal number one, and we see a lot of opportunity there. That was a lot of what we did, you know, at Expedia, you know, during the huge growth spurt. Second one, I think will be easier.

I don’t know for sure, but it’s really just about earning and keeping trust with all of you and making sure that we are setting reasonable expectations, that we are delivering on what we say. And at the end of the day, we wanna create a huge amount of shareholder value, and you should judge us on what we do. And the best thing we can do is tell you what we’re gonna do and then deliver it. That may mean that in some cases, we’re giving more narrow guidance, little less granular guidance, and we’re gonna work that out between now and investor day. But we wanna do is give you enough to be able to understand where we’re going when we have to change course why.

And at the end day, we want you to look back, know, two, three years from now and say, wow. That was incredible investment. So that’s number two. And then third, extremely important. It’s starting now.

It started actually a while ago at Fortive, and this is all around capital allocation. You know, we really have an opportunity with new Fortive where, you know, it’s spitting off a billion dollars of free cash flow a year. If you look at where Fortive stock is trading right now, you’re like, hey. That looks like a pretty good return area. That may not always be the case, but we also have these incredible businesses that can act as platform businesses into pretty big pond areas of industrial, you know, productivity and safety, software and hardware, and the same thing in health care, where there must be opportunities for us to do great deals.

Great deals that are good stand alone businesses where we feel like we can integrate them and make them more valuable under our control than it would be someone else’s, where we can pay fair prices, and we could integrate them in kind of the fortive way, which is, you know, incredible discipline. And I think there’s gonna be a lot of opportunity there, and we’ll look at those opportunities really on a relative basis of what’s the best use of capital at the moment. And I think that’s just another sort of kicker on on top of the story here.

Andy, Interviewer: Fabulous. And then another question maybe to Mark. Fortive acted quickly to rightsize the corporate overhead after the Altra deal and the volunteer spin. Any view on magnitude and timeline for the stranded costs?

Mark Orkstrom, Fortive CFO, Fortive: Yeah. Do you

Jim Lico, Fortive CEO, Fortive: want me take that? Yeah. Go

Mark Orkstrom, Fortive CFO, Fortive: ahead. Yeah. Well, I think Fortive acted pretty quickly. I mean, the spin is not a surprise for them.

Jim Lico, Fortive CEO, Fortive: Right.

Mark Orkstrom, Fortive CFO, Fortive: So they take a lot of took a lot of actions in in q four of last year. That continued in q one of this year, and and part of the job was almost easy because there’s a lot of Ford Ford of employees that wanted to go to Rally and work on Seventy five percent. Seventy five percent of the roles we created actually were Ford of employees. That makes your job a little bit easier.

Andy, Interviewer: Yep.

Mark Orkstrom, Fortive CFO, Fortive: I won’t say there’s not more to come because, you know, I don’t know if it’s number one on my agenda, but it’s the top three is really understand the cost structure of this business and look for opportunities for us to be more lean, to reallocate capital from somewhere in g and a to sales and marketing or product development. And so we’ll be looking at that on a go forward basis.

Andy, Interviewer: Excellent. So maybe we have a couple of conference wide questions that we’re

Jim Lico, Fortive CEO, Fortive: we’re told to ask. Probably tariff related tariffs?

Andy, Interviewer: No. No? Yes. Do do you expect to shift incremental incrementally more of your own production or supply chain to The US? And do you expect your customers to source more from The US?

Jim Lico, Fortive CEO, Fortive: Well, number one, I think in all of our tariff mitigation strategies, fundamentally, there’s a kind of a threefold set of strategies, right? One is dual sourcing amongst a number of places. That’s not necessarily in any one country. It’s just having sources in a couple places. Same and true manufacturing and having that same capability.

You know, we’ve essentially changed our supply chain by by about 70% since 2018. So really doing that capability. And and then the third piece is continuing to look where where there might be new opportunities for locations as an example. So that’s that’s the broad set of strategies. I would say from a customer perspective, think our ability to see what’s going on in the movement over kind of is in a number of places.

But the thing where we’re going to benefit the most is once those facilities are up and running and then they need software to run the facility, then they need fluke equipment, then they need you know, that’s gonna be and, you know, I think we’re still very early days in seeing people actually those facilities be

Andy, Interviewer: up and running. You think it’s actually gonna happen?

Jim Lico, Fortive CEO, Fortive: I think without a without a doubt, there’ll be some some Okay. Some that will happen. Yeah. I think I think it’s whether or not it’s to the extent that, you know, there’s, you know

Andy, Interviewer: Yeah.

Jim Lico, Fortive CEO, Fortive: A wide range of beliefs in that regard.

Andy, Interviewer: Yes.

Jim Lico, Fortive CEO, Fortive: I would probably be more in the it’s probably gonna be some

Andy, Interviewer: Okay. For sure.

Jim Lico, Fortive CEO, Fortive: I mean, we are you know, we’re moving some some of our manufacturing. Some of it.

Andy, Interviewer: Yeah. Okay. Yeah. Like, what would be an area that would lend itself

Jim Lico, Fortive CEO, Fortive: to I would tend to think where we see opportunity where either the we don’t you know, where we have a product that probably has a little bit more low volume Gotcha. And where the demand cycle is a little bit more varied

Andy, Interviewer: Yep.

Jim Lico, Fortive CEO, Fortive: Where being closer to the market is a little bit more helpful. Hey. So I

Mark Orkstrom, Fortive CFO, Fortive: I would just I would just add to that. Sorry, Jim.

Jim Lico, Fortive CEO, Fortive: That’s okay.

Mark Orkstrom, Fortive CFO, Fortive: You off. But, you know, we’re actually seeing a little bit of everything in the portfolio. People wanting to move to The US, people wanting to move outside of The US.

Andy, Interviewer: And, you know,

Mark Orkstrom, Fortive CFO, Fortive: like, Charlie Munger has this great concept of Lollapalooza, which is when you change too many things all at once, you get unintended consequences. And you saw this force happen with these tariffs. And we’ve got, you know, a great company based in Pittsburgh who is supplying products all over the world, and they’re like, we might have to move this to Edmonton. Yeah. You know?

And they’re a big employer in Pittsburgh, and so we see that. I think any place where you’ve got businesses that have access to The US market who are producing syngapus, I think you’re gonna see stuff.

Andy, Interviewer: No. No. We we we had we had a company up here, and they you know, big US manufacturer export to China. And they’re like, we should probably not be making this stuff in The US.

Jim Lico, Fortive CEO, Fortive: Yeah. Yeah. I think one of the

Andy, Interviewer: things you’ve seen Even regardless of what happens, they’re like, we better be safe than sorry. Well, I think the other

Jim Lico, Fortive CEO, Fortive: thing is one of the things we didn’t do is we didn’t move to Mexico. Mhmm. So when you look at the Fort Forta footprint and this includes rallying, we never really had a big move to Mexico. Right. So when those first tariffs on Mexico came out, that was sort of a nonissue for us because we didn’t really worry about it.

Because of lean and because of FBS Right. We’ve been able to maintain a US footprint Right. Pretty strongly. Right. The reality is the tariff impact that is hitting us from US into China Right.

Is less than is about 1% of our sales.

Andy, Interviewer: Yeah.

Jim Lico, Fortive CEO, Fortive: Yeah. So it’s a really small number.

Andy, Interviewer: Gotcha.

Jim Lico, Fortive CEO, Fortive: It’s when you tack on a 25 to that

Andy, Interviewer: Yeah.

Jim Lico, Fortive CEO, Fortive: That it obviously starts to become a bigger number relative to EBITDA. But from a exposure perspective Right. It’s only 1% of our sales. Gotcha. And does Mexico look any more attractive?

Or For supply, to some extent. We have suppliers in Mexico today. There might be some opportunity. But I think, again, we have we our team has done such a good job since ’28 I guess 2018. Right?

That we’ve done that and we feel really

Andy, Interviewer: good about what they’ll do for me. Yep. And then the tax bill is expected for many to include bonus appreciation, domestic manufacturing incentives. Will any of these be important? Will any of these be important to you?

Will any of this change your behavior? Sure getting tax breaks is important.

Jim Lico, Fortive CEO, Fortive: Well, whenever whenever something comes out that’s legitimate long term decision, we’ll build that into our decision. Okay. We got a

Mark Orkstrom, Fortive CFO, Fortive: great tax team. They’re on it.

Andy, Interviewer: Thank you. So we did cost we’ve actually did talk about China. So maybe let’s talk about orders in the remaining time. We recently got the government import stats. And, you know, first quarter twenty five industrial imports were up 13% year over year.

Those pre buy somewhere in industrial land, but no publicly well, actually, it’s not true. We’ve had a couple at this show at this event sort of say that they have seen it. But most publicly traded company have not seen it. If there was some pre buy at Fortive, where is the most likely place it would have been?

Jim Lico, Fortive CEO, Fortive: Well, I think two things. One is I would on balance say we didn’t see much. Yep. You know, we might see a little bit of price, you know, what I’ll call tariff avoidance, you know, price increase avoidance, a little bit that that’s gonna tend to be in your channel businesses maybe a little bit with the order of magnitude. Somebody is maybe at a higher end purchase price that’s been working on a longer cycle project.

They’re not necessarily gonna go do three years worth of projects in six weeks in order to get the advantage. I would say it’s pretty light. And if it happens, it’s going to happen in our channel businesses like a fluke as an example. But again, would say it’s small impact and to this extent,

Andy, Interviewer: we saw a little bit of it

Jim Lico, Fortive CEO, Fortive: in the first, but I would say at the end of the day, nothing of an order of magnitude.

Andy, Interviewer: Gotcha. And then maybe on Europe, sort of Eurozone manufacturing PMI, I think PMIs have been improving. Industrial production actually turning up year over year for the first time since mid ’twenty three. Are you seeing any green shoots in Europe?

Jim Lico, Fortive CEO, Fortive: I would say it’s still too early to tell. Seen healthcare has been pretty good in Europe across the rest of our businesses and I’ll say Fortive and Rallian, still too early to tell.

Andy, Interviewer: And what are your expectations? There was a lot of excitement about what’s happening in Germany. And then I was attending an industrial event in Europe last week, and people were just sort of more pessimistic about just how long it’s gonna take Yeah. Given that Europe is not known for being very fast. What’s your expectation?

When will if Germany does turn up, right? When do we see that? Are we gonna see it in ’25 or you need to wait until ’26?

Jim Lico, Fortive CEO, Fortive: We don’t have a huge exposure in Germany as well.

Andy, Interviewer: Germany being also the firewall.

Jim Lico, Fortive CEO, Fortive: Yeah. I would say well, and we could talk a little bit about the two businesses independently here a little bit, but my own view of that is that feels like a later 2526 story for a bunch of reasons. We certainly think, you know, defense probably ramps up to some extent. Right? And that’ll have some downstream effects to tier two and tier three suppliers of that industry.

That just feels like a longer time than anything near term.

Andy, Interviewer: Okay.

Mark Orkstrom, Fortive CFO, Fortive: I would just say, I mean, Germany, we can poo poo it, but in of all European nations, they’re industrious. They’re efficient. They’ve actually been pretty innovative. You think what they’ve done in Berlin, for example. So if I was gonna put money on a country to, like, power Europe ahead, it’s probably not Greece or Italy.

It’s probably Germany.

Andy, Interviewer: Okay.

Mark Orkstrom, Fortive CFO, Fortive: Yeah.

Andy, Interviewer: And then maybe a couple of sort of modeling questions. So well, a, question number one. Did you guys do, and maybe a separate question for Ford and Rally, did you guys mostly do price increases or surcharges for tariffs?

Jim Lico, Fortive CEO, Fortive: About I think we said about two thirds of our total tariff mitigation was price. Yep. But that’s got price and surcharges in in it. Oh, okay. So I would say two thirds price, one third surcharge sound like

Mark Orkstrom, Fortive CFO, Fortive: a good number? Two thirds price and surcharge, one third cost. Yeah. Yeah. And we didn’t get the split between surcharge and price.

Jim Lico, Fortive CEO, Fortive: Right. Yeah. It’s it’s pretty you know, we we try to do price whenever we Right. Right. Well, so that’s the question.

Andy, Interviewer: So, you know, I think we calculated tariffs, so, like, 6 pennies of a drag and ’25. But just as you keep the pricing, does it actually become a bit of a tailwind in late twenty five, twenty six, or just having one more quarter of tariff cost just offsets some of this?

Jim Lico, Fortive CEO, Fortive: Well, I would I would say two things. One, ten cents on the full year, 6¢ in the quarter, second quarter. Yeah. And that’s most of that impact is really the timing. And remember, half the half the quarter is already done.

Yep. And there’s no retro tariff. You’ve Right. Baited last week.

Andy, Interviewer: Paid it. Yep. Yep.

Jim Lico, Fortive CEO, Fortive: So unfortunately. Yeah. So and then you get into the sort of thought process, you know, how do we now we go back and renegotiate it with customers and all that. So I think the six and ten is a good number for now.

Andy, Interviewer: Yeah.

Jim Lico, Fortive CEO, Fortive: Yeah. We’re 48 into this, and quite frankly, I think that, you know, not knowing what if it will change or will, you know, what if in the third quarter as well, days from now, I think the hypothesis we have is to be really good at mitigation, work super fast, be done by the end of the year, have mitigated things so that our launch point in ’26 is strong. And that’s that’s what we said on our earnings call, and I think that’s the right way

Mark Orkstrom, Fortive CFO, Fortive: to think about it. Yeah. I think that’s really good. The only thing I would add from if you’re talking about from a modeling perspective is that what we saw from or what we will see from an operating income perspective in terms of the net cost of these tariffs was really driven by the delay between when the tariffs hit and costs hit from suppliers and we’re able to input pricing. Yep.

By the time we hit q four, we’re gonna be our expectation is we’re gonna be run rate operating income neutral. Yep. So what that means for 2026 is we’re gonna be neutral. We’re not gonna have that hole Right. That we created in q two and part of way q two.

So that that’s a tip.

Andy, Interviewer: And just last question. I have fifteen seconds. Is there any demand destruction baked into your guidance from

Jim Lico, Fortive CEO, Fortive: From the tariffs? Yeah. Yeah. I would say a little bit in the China US to China. Oh, okay.

We, you know, we did think a little bit of, hey. There might be a little bit of demand destruction in China. Yeah. A little bit. And maybe a little bit elsewhere.

But certainly, as we think about are we have certain product lines and certain businesses that can that do have price capability in China and can get price increases. And but in some other places, you know, there might not be, and that might mean they choose another spot.

Andy, Interviewer: And I would imagine some of your products would be exempt from tariffs.

Jim Lico, Fortive CEO, Fortive: We got a little bit of exemption, but it’s not

Andy, Interviewer: a big number. We are right on time. Alright.

Jim Lico, Fortive CEO, Fortive: Great. Thanks. Good to see everyone. Thank you. Yeah.

Tammit Newcombe, CEO elect of Ralliant, Ralliant: Thank you.

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