Fortive(US:FTV)2022-10-26 21:59Financial Data and Key Metrics Changes - Fortive Corporation reported a 12% core revenue growth year-over-year, with adjusted gross and operating margins expanding by 80 and 160 basis points respectively [5][14] - Adjusted earnings per share grew by 20% to $0.79, and free cash flow increased by 22% [5][15] - The company anticipates a foreign exchange headwind of approximately $175 million on revenue and $0.11 on EPS for the year [6] Business Line Data and Key Metrics Changes - Intelligent Operating Solutions (IOS) saw a 14% revenue increase, with broad-based growth across regions [8] - Facilities and Asset Lifecycle segment, including Gordian and Accruent, experienced double-digit revenue growth, driven by strong software demand [9] - Precision Technologies reported a 19% core revenue growth, with double-digit growth across major regions [10] - Advanced Healthcare Solutions (AHS) had a total revenue increase of 3%, but core revenue declined by 1% due to supply chain constraints [11] Market Data and Key Metrics Changes - North America revenue grew low double digits, with mid-teens growth in software [14] - Western Europe revenue increased mid-teens, while Asia revenue rose in the low 20% range, with mid-20% growth in China [14] - The company noted that hardware product backlog is more than double what it was at the beginning of 2021 [6] Company Strategy and Development Direction - Fortive is focused on leveraging its portfolio to create long-term sustainable competitive advantages and drive profitable growth [5][7] - The company is preparing for various macroeconomic scenarios in 2023, including moderating hardware product orders growth [6] - Fortive's strategy emphasizes sustainability, with over 60% of its products and services aligned with the United Nations' sustainable development goals [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform despite potential economic challenges, citing strong demand and backlog [19] - The company expects supply chain normalization but acknowledges that challenges may persist into 2023 [19] - Management anticipates mid-single-digit growth in the healthcare market for 2023, with improvements expected in hospital operations [50][51] Other Important Information - Fortive's balance sheet remains strong, with a $2 billion revolving credit facility extended to 2027 and a new $1 billion delayed draw term loan [17] - The company has nearly doubled its free cash flow over the last three years, demonstrating strong cash compounding power [20] Q&A Session Summary Question: Can you parse out how much of the hardware backlog reflects incremental demand versus supply chain inefficiencies? - Management indicated that a significant portion of the backlog is due to demand, particularly at Tektronix, while Fluke is seeing a reduction in backlog as lead times normalize [26] Question: Can you break out the year-over-year margin decline in Advanced Healthcare Solutions? - The decline was primarily due to a bad debt reserve at Invetech, along with FX and inflation impacts [29][30] Question: Is there an assumption about seasonality orders affecting the backlog? - Management confirmed that while orders are expected to slow in Q4, they do not anticipate negative orders, and backlog will still be managed effectively [34][47] Question: What is the outlook for healthcare growth in 2023? - Management expects mid-single-digit growth in the healthcare market for 2023, with improvements anticipated as supply chain issues ease [50][51] Question: How is the company positioned regarding potential acquisitions? - Management noted that the acquisition environment is becoming more attractive, with opportunities being evaluated across public and private markets [44][54] Question: What is driving the strong growth in the Gordian and Accruent businesses? - The growth is attributed to the successful integration of ServiceChannel and improvements in net dollar retention [68]