Fortive(FTV) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a total revenue growth of 26.7% year-over-year, exceeding the high end of guidance [15] - Adjusted operating margin was 22.2%, with adjusted earnings per share at $0.66, representing a year-over-year increase of 53.5% [15] - Free cash flow generated was $282 million, representing 118% conversion of adjusted net income [15][30] Business Line Data and Key Metrics Changes - The Intelligent Operating Solutions (IOS) segment posted total revenue growth of 31.2%, with mid-20% core growth in North America and low 30% core growth in Western Europe [16] - Precision Technologies segment saw a total revenue increase of 25.1%, with Tektronix increasing by approximately 30% [22] - Advanced Healthcare Solutions (AHS) total revenue increased by 21.8%, including 11% core growth [25] Market Data and Key Metrics Changes - Fluke core revenue increased in the mid-30% range, with strong demand across its businesses [16] - In China, IOS experienced low 20% core growth, while Precision Technologies had mid-teens growth [16][22] - The AHS segment reported high single-digit core growth in North America, Western Europe, and China [25] Company Strategy and Development Direction - The company is focusing on expanding its software capabilities to address critical workflow needs and accelerate digital transformation for customers [10] - The acquisition of ServiceChannel is expected to enhance the company's ability to meet evolving needs of facility owners globally [13] - The company aims to leverage its strong free cash flow and M&A capacity to pursue organic and inorganic growth initiatives [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing recovery in key end markets and the ability to capitalize on post-COVID return to work challenges [11][36] - The company anticipates continued strong performance in the second half of 2021, raising its full-year guidance for adjusted diluted net earnings per share to $2.65 to $2.75 [31] - Management highlighted the importance of sustainability and inclusion efforts, committing to significant greenhouse gas reduction goals [35] Other Important Information - The company completed the separation of its Industrial Technologies segment through the spinoff of Vontier Corporation on October 9, 2020 [4] - The deployment of the Fortive Business System has driven innovation and growth across the portfolio, with significant improvements in R&D efficiency [12] Q&A Session Summary Question: AHS margin guidance for Q4 - Management indicated that margins could reach the mid to high 20s due to expected revenue acceleration from elective surgeries and seasonal revenue increases [41][44] Question: Impact of cost increases on margins - Management confirmed that there were $60 million of snapback costs and an additional $15 million in investments that impacted Q2 margins [47] Question: Channel inventories and demand - Management noted that point of sale improved significantly, and they are monitoring orders on hand to ensure they are not building excess inventory [53][54] Question: Growth in new verticals for Tektronix - Management reported increased sales in automotive and data centers, indicating a positive outlook for growth in these new verticals [56][57] Question: Professional services growth and site access - Management expects double-digit growth in professional services in the second half, with improved site access aiding in closing deals [68] Question: Supply chain constraints - Management acknowledged ongoing supply chain challenges but expressed confidence in their ability to meet demand due to established lean manufacturing capabilities [75] Question: Growth outlook in China - Management remains optimistic about growth in China, particularly for Fluke and Tektronix, expecting mid-teens growth for the full year [82]