Fortive(US:FTV)2023-02-01 22:28Financial Data and Key Metrics Changes - Fortive reported a 14% core revenue growth in Q4 2022, with adjusted gross and operating margins expanding by 50 and 110 basis points respectively [4][34] - Adjusted earnings per share grew by 11% to $0.88, while free cash flow increased by 62% to $428 million in the quarter, totaling $1.2 billion for the year [4][35][62] - The company achieved approximately 21% free cash flow margin, underscoring its ability to generate cash flow from a higher base [21][62] Business Line Data and Key Metrics Changes - Intelligent Operating Solutions (IOS) experienced a 13% core revenue growth, with double-digit growth across all regions [37] - Precision Technologies (PT) saw a 20% increase in core revenues, driven by high teens growth in North America and over 20% growth in Western Europe and China [10] - Advanced Healthcare Solutions (AHS) revenues increased by 5%, with mid-single-digit growth in North America but declines in Western Europe and China [11][12] Market Data and Key Metrics Changes - North America revenue grew low double-digits, while Western Europe saw mid-teens growth, driven by hardware products and favorable pricing [33] - Asia revenue increased high-teens, with low 20% growth in China, despite a significant drop in elective procedures impacting AHS [49] - The company reported strong demand in EMEA, with SaaS revenue growth in the region reaching double digits [8] Company Strategy and Development Direction - Fortive's strategy focuses on continuous improvement through the Fortive Business System, which has contributed to record gross margins and free cash flow generation [5][13] - The company is transitioning to a more recurring revenue model, with approximately 40% of sales expected to come from recurring SaaS revenue [51][118] - Fortive plans to leverage its strong backlog and pricing actions to drive growth and margin expansion in 2023 [36][51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain and inflationary challenges but expressed confidence in the company's ability to navigate these issues [5][19] - The outlook for 2023 includes core revenue growth guidance of 3% to 5.5%, with expectations for margin expansion across strategic segments [54][62] - Management highlighted the importance of productivity initiatives and pricing actions to counteract macroeconomic headwinds [51][134] Other Important Information - Fortive achieved approximately 1,000 basis points of gross margin expansion since 2016, translating into higher operating margins [21] - The company is committed to sustainability, having set ambitious goals for greenhouse gas emissions reduction by 2029 [31][47] - Fortive's diverse leadership team and commitment to inclusion and diversity are seen as critical components of its corporate culture [30] Q&A Session Summary Question: Can you discuss the margin expansion for IOS? - Management indicated that margin expansion will be driven by productivity initiatives and normal revenue growth [88] Question: What is the expected pace of backlog conversion? - Management expects to work through about half of the excess backlog in 2023, depending on order rates and supply chain improvements [90][116] Question: How do you see the orders and revenue guidance for Tektronix? - Management noted that orders are expected to slow but emphasized that backlog will help mitigate the impact on revenue [99][100] Question: What is the outlook for discretionary procedures in China? - Management reported that January volumes were around 50% of prior year levels, with expectations for gradual improvement throughout the year [107] Question: What is the company's approach to potential acquisitions? - Management stated that they are open to strategic acquisitions but will maintain an investment-grade rating and be disciplined in their approach [111][134]