The conference call for Fortive Corporation's First Quarter 2024 Earnings Results has begun with the operator, Dennis, introducing the participants and handing the call over to Elena Rosman, Vice President of Investor Relations. Ms. Rosman reminds listeners of the non-GAAP financial measures being presented and the forward-looking statements that will be made during the call. CEO Jim Lico then begins by highlighting the company's strong start to the year, exceeding expectations in core revenue growth, margin expansion, earnings, and free cash flow in the first quarter.

Fortive's strategy to improve safety and productivity in various sectors has resulted in better than expected performance in all three segments. This is due to their unique competitive advantages and strong execution capabilities. The company's raised outlook for the year includes double digit growth in earnings and free cash flow. Their strategy has also led to faster and more profitable growth, supported by a differentiated business system. Approximately half of Fortive's revenues come from highly differentiated products businesses, with a third of these revenues supporting customer investments in electrification and AI. The remaining 50% of revenue comes from recurring healthcare consumables, which are expected to drive faster and more profitable growth in the future.

The IOS segment of the company has been successful in implementing their strategic playbook, with a focus on reducing portfolio cyclicality and aligning investments with secular drivers. This has led to sustained outperformance and an expanded addressable market. The segment's software businesses have also shown strong growth and resilience, with a significant portion now in recurring revenue models. Fluke, a part of the IOS segment, has shown continued growth despite challenging market conditions, and the company is also seeing success in their facilities and asset life cycle and environmental health and safety platforms.

The strong performance at IOS has served as a model for Fortive's future success in the AHS and PT industries. The company's portfolio is well-positioned in the growing market for electronics and sensors, with Tektronix solving power efficiency challenges in various industries. The recent acquisition of EA will drive further growth in precision technologies, particularly in the energy sector. Qualitrol and Fluke are also benefiting from the transformation of the electrical grid, with Qualitrol providing monitoring equipment and sensors and Fluke supporting infrastructure investments and renewable energy sources.

The company's increased innovation velocity is a result of their world class business system and revamped product development process, leading to the identification of over $1 billion in new revenue opportunities. This has allowed for a reallocation of R&D spend towards new product innovation. The Fortive software system and FBS lean tools have also contributed to improved performance metrics and free cash flow generation. The company is off to a strong start to the year, with steady global demand and high single digit ARR growth in their strategic segments.

The paragraph discusses the performance of Fortive's PT and AHS segments in the first quarter, with PT experiencing declining core growth but a return to positive book-to-bill, and AHS seeing continued growth and profitability. The company remains focused on achieving long-term targets and enhancing shareholder returns through M&A opportunities. The first quarter also saw record margins and strong operating performance.

The company's adjusted earnings per share exceeded guidance, with a strong increase in free cash flow. The Intelligent Operating Solutions segment saw 5% core growth and a 160 basis point expansion in operating margins. The Precision Technologies segment had a 2% decrease in core revenue due to normalizing demand, but overall growth was boosted by an acquisition and offset by divestitures and FX headwinds. The company's innovation pipeline is strong and new product launches are expected in the first half of the year.

The integration plan for EA has been completed and opportunities for growth have been identified. Tektronix and Sensing Technologies saw a decline in sales due to market conditions, but PacSci had double digit growth. Advanced Healthcare Solutions saw a 6% growth, driven by improved market conditions and consumables. ASP is gaining share with their energy-efficient technology and Book Health saw growth in biomedical equipment and software businesses. Censis and Provation had new customer wins and strong bookings.

The company saw a 4% growth in the first quarter, driven by expansion in the core and positive M&A contributions. However, there was a 1 point FX headwind. In North America, there was low single digit core revenue growth, while Western Europe saw mid single digit growth. Asia saw slight growth, with India performing well but China declining. The company expects 2-3% revenue growth in the second quarter and 2-4% growth for the full year. Adjusted operating profit margin is estimated to be 26.7% for the second quarter and 27-27.5% for the full year. Adjusted diluted EPS is expected to be $0.90-$0.93 for the second quarter and $3.77-$3.86 for the full year. The effective tax rate is expected to be around 14-14.5%.

Fortive Corporation's free cash flow is expected to grow by 11% this year, with a free cash flow margin of 22%. The company's strong start to the year and track record of improved performance reflect its successful transformation, execution, and strategy. The company has seen 14 consecutive quarters of positive core growth and 15 consecutive quarters of adjusted operating margin expansion. This has led to a raised outlook for the year and the company is confident in its ability to continue compounding earnings and free cash flow growth in the future. The Precision Tech revenue outlook is also positive, with the company expecting to roughly double its adjusted EPS and free cash flow over the next five years. There have been concerns from other companies in the same industry, but Fortive remains confident in its growth trajectory and saw a strong book-to-bill ratio in the quarter.

The company has seen a book-to-bill ratio of 1 and expects it to continue in the second quarter. They anticipate a decrease in revenue in the second quarter but expect a return to growth in the second half of the year. They have seen some positive signs, such as growth in their Keithley business. The company's revenue guidance has been adjusted due to a stronger-than-expected first quarter, particularly in the health and IOS segments. The company's net income has increased, but adjusted EBIT has slightly decreased.

The company expects the FAL businesses to continue growing at a mid single digit rate for the rest of the year, with strong margin expansion and the ability to absorb FX impacts. Interest expense has decreased due to a euro bond placement, offsetting the impact of FX on operating profit.

The speaker, Jim Lico, discusses the revenue growth for Gordian in the first quarter, which was approximately 9%. He also mentions that the impact of M&A, specifically the divestiture and FX, has influenced EA's revenue, which was down about 7%. The speaker also clarifies that the previous revenue guidance for PT was $2.42 billion to $2.465 billion, but has now been adjusted to $2.3 billion due to the divestiture and FX. Lastly, the speaker mentions that M&A is expected to add 3 points to the top line, with 2% being attributed to FX and EA.

The company's $2.3 million revenue guide is the midpoint and there is no change in the expectation of margins for PT. The company has been able to manage margins well due to strength in various areas such as utilities and food and beverage businesses. In terms of M&A, there is a wide variation in valuations and the company will stay disciplined in their approach.

The speaker discusses the benefits of M&A and their disciplined approach to it. They also mention their recent deals and their focus on opportunities with good valuation. They are optimistic about their recent deal with EA and their guide for the rest of the year seems conservative, possibly due to caution about China or global macro factors. The speaker suggests that they may exceed their guide if conditions remain the same.

Jim Lico, the speaker, is pleased with the company's first quarter performance, which beat their guide and showed growth in gross margin and operating margin. He believes the full year will also be similar and mentions potential opportunities in China and other high growth markets. However, there is still uncertainty and the company will continue to work towards improvement.

The company is focusing on energy transition, AI, and product revenue to drive growth. They have seen opportunities in high performance compute, data center expansion, and utility infrastructure. They are also starting to launch AI solutions in their revenue base through Censis, Provation, and Gordian. They have seen early stages of investment in PT and Keithley and expect to see it in tech in the second half of the year.

The speaker discusses the company's plans to participate in the growth of data centers and the electrical grid infrastructure needed to support them. They also mention a weakness in the Tektronix division due to delayed customer R&D, possibly related to military and government investments being pushed back. However, these orders are still in the funnel and the company expects to see them in the second half of the year. The delay is not attributed to the upcoming election.

The speaker believes that the delay in investments made by customers at the beginning of the year may have affected the book-to-bill ratio for Tektronix. However, they remain confident that their customer base, consisting of leading technology companies, will continue to invest in technology and innovation. The book-to-bill ratio for Tektronix was 0.95 in the quarter and the revenue for the year is expected to be down mid single digit, which was already reflected in the outlook. The book-to-bill ratio for the EA business was not mentioned, but the expected revenue for the year was 190-195. Jim may comment on the acquisition overall.

The company's revenue has decreased due to foreign exchange and a delay in larger projects. The first quarter revenue was lower than expected, but the product and technology are still highly regarded by customers. The backlog in the business has been challenging to work through, but the company is making efforts to improve flexibility. The company still expects to deliver strong earnings and has a positive outlook for data center opportunities and the Tektronix funnel.

In the paragraph, Jim Lico discusses the performance of AHS in the quarter and mentions potential upside. He notes that the company has done well in high growth markets and is pleased with the strategic direction. However, there are still some headwinds in the Provation segment, but overall the business is expected to continue growing.

The speaker feels good about the current state and future prospects of Provation. They mention a large license deal that will be converted to SaaD over the next few years, along with positive developments in their plasma strategy and innovation efforts. They reiterate their confidence in reaching their target of 450 for next year, citing strong first quarter results and a track record of growth and margin expansion.

The speaker discusses the company's performance in the first quarter of 2024 and their focus on the upcoming year. They mention that Tek revenues were expected to be down mid-single digits in the first quarter and may continue to decline in the second quarter. However, they expect things to improve in the second half of the year. They also mention that the pricing of PT decreased slightly in the first quarter.

During a recent earnings call, Chuck McLaughlin and Jim Lico of the company discussed the potential risk of negative or flat growth in volumes due to weakness in the market. However, they do not expect this to occur and anticipate a gradual increase in growth throughout the year. They also mentioned that the company's price cost stance is in a good place, allowing for margin expansion even if there is a slight decrease in price. They also discussed the seasonality of their EA business, which historically has been back-end weighted. Finally, they attribute the company's ability to grow through the industrial slowdown to outperforming the market, particularly in the case of Fluke.

The speaker discusses the company's strong global presence and innovation, with four new product launches in the first quarter alone. The eMaint business is also performing well, with a 17% increase in the quarter. The company has been intentional about investing in innovation and commercial efforts, leading to growth in key areas such as solar and electric vehicle products. While it is difficult to determine market share, the company's channel partners are excited about the partnership. The speaker also mentions an increase in consumables in North America in the previous quarter and asks for an update on the first quarter.

In the first quarter, ASP saw an 11% increase in consumables demand, meeting expectations. This growth is expected to moderate throughout the year due to a transition, but margins are also expanding. Regarding Fluke, the business has been resilient and is more tied to the maintenance of existing systems rather than construction. The company is confident in the global opportunities for solar and electrification. The recent numbers for EA have lowered the top line slightly.

In response to a question about the business's margins and revenue, Chuck McLaughlin confirms that the business is still achieving strong margins, which is contributing to margin expansion at PT. He also mentions that the company generally expects incrementals of around 40% and that the top line will increase in the second half of the year, driving volume and contributing to margin expansion. He also discusses the positive impact of the distributor transition on AHS and the strong incrementals in that segment.

During the first quarter, Fortive Corporation saw a 125 basis point increase in healthcare sustainability. This was due to the full benefit of the dealer transition in Q1, which also saw strong margin expansion and growth. The company expects to continue this trend throughout the year and is pleased with their operational execution. They also have a number of opportunities that they are excited about. The company looks forward to follow-up calls and will be available for questions.

This summary was generated with AI and may contain some inaccuracies.