Business Overview and History

Fortive Corporation (FTV) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. The company's strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their respective markets. Fortive's relentless focus on innovation, operational excellence, and strategic portfolio management has enabled it to deliver consistent financial performance and create long-term value for its shareholders.

Fortive Corporation was incorporated in 2015 in connection with the separation of Fortive from Danaher Corporation. The company is headquartered in Everett, Washington and has a workforce of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative professionals in more than 50 countries around the world.

Fortive's businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. In 2016, Fortive separated from Danaher Corporation and became an independent, publicly-traded company, listed on the New York Stock Exchange.

Throughout its history, Fortive has faced various challenges, including navigating global economic conditions, managing supply chain disruptions, and addressing the impact of foreign currency exchange rates on its financial results. Despite these challenges, the company has continuously evolved its portfolio and leveraged the Fortive Business System to accelerate growth and innovation, expand market share and profitability, and develop the leadership skills needed for the future.

Fortive has achieved several record financial metrics, including mid-single-digit core growth, over 600 basis points of adjusted operating margin expansion, and 350 basis points of adjusted gross margin expansion amidst unprecedented inflation. This demonstrates the company's ability to adapt and thrive in challenging market conditions.

Since its inception, Fortive has actively refined its portfolio through a combination of strategic acquisitions and divestitures. In 2018, the company split off its Automation and Specialty platform in a Reverse Morris Trust transaction with Altra Industrial Motion Corp. (AIMC). In 2020, Fortive further streamlined its focus by spinning off its former Industrial Technologies segment into the standalone, publicly-traded company Vontier Corporation (VNT).

Fortive's commitment to the Fortive Business System (FBS), a disciplined operating cadence and continuous improvement mindset, has been a key driver of its success. FBS enables the company to operate its businesses with a focus on relentless execution, powered by a culture of high expectations, inclusion, humility, and transparency. This approach has allowed Fortive to deliver consistent financial performance, even in the face of a dynamic and challenging market environment.

Financial Performance and Ratios

In the fiscal year 2024, Fortive reported total revenue of $6.23 billion, representing a 2.7% increase compared to the prior year. The company's net income for the year stood at $832.9 million, with diluted earnings per share (EPS) of $2.36. Fortive's operating cash flow and free cash flow for the year were $1.53 billion and $1.41 billion, respectively.

The company's financial ratios demonstrate its strong financial position and operational efficiency. As of the end of fiscal 2024, Fortive's gross profit margin was 59.9%, while its operating profit margin stood at 19.4%. The company's return on assets (ROA) and return on equity (ROE) were 4.9% and 8.0%, respectively. Fortive's debt-to-equity ratio was 0.36, indicating a conservative capital structure.

For the most recent quarter (Q4 2024), Fortive reported revenue of $1.62 billion, a 2.3% year-over-year increase. Net income for the quarter was $208.8 million, with operating cash flow of $502 million and free cash flow of $465 million.

Fortive's liquidity position remains strong, with $813.3 million in cash and equivalents as of December 31, 2024. The company also has access to a $2 billion revolving credit facility, with no borrowings outstanding as of the end of 2024. Fortive's current ratio stood at 1.16, while its quick ratio was 0.91, both as of December 31, 2024.

Geographically, approximately 46% of Fortive's 2024 sales were derived from customers outside the United States, with Europe and Asia being the principal markets outside the US.

<strongSegment Performance

Fortive operates in three main business segments: Intelligent Operating Solutions (IOS), Precision Technologies (PT), and Advanced Healthcare Solutions (AHS).

The IOS segment provides advanced instrumentation, software, and services to enable mission-critical workflows. Key brands in this segment include ACCRUENT, FLUKE, GORDIAN, INDUSTRIAL SCIENTIFIC, INTELEX, PRUFTECHNIK, and SERVICECHANNEL. In 2024, the IOS segment generated $2.71 billion in sales, up 3.9% year-over-year, driven by favorable pricing across the segment and increased volume in gas detection products as well as software and service offerings in facility and asset lifecycle applications, including software as a service (SaaS). The segment's operating profit margin expanded by 190 basis points to 26.0%, primarily due to the impact of higher sales volume and pricing, partially offset by higher employee compensation and investment costs.

The PT segment helps solve technical challenges in a wide range of applications, from food and beverage production and manufacturing to next-generation electric vehicles and clean energy. Key brands in this segment include ANDERSON-NEGELE, GEMS, SETRA, HENGSTLER-DYNAPAR, QUALITROL, PACIFIC SCIENTIFIC, KEITHLEY and TEKTRONIX. In 2024, the PT segment reported $2.23 billion in sales, a 0.3% increase from the prior year. The segment's operating profit margin declined by 210 basis points to 22.4%, primarily due to the net impact of acquisition and divestiture-related costs, as well as volume declines in certain product lines.

The AHS segment supplies critical workflow solutions for healthcare providers. Key brands in this segment include ASP, CENSIS, CENSITRAC, EVOTECH, FLUKE BIOMEDICAL, LANDAUER, PROVATION, RAYSAFE, and STERRAD. In 2024, the AHS segment generated $1.29 billion in sales, a 4.7% year-over-year increase. The segment's operating profit margin expanded by 380 basis points to 12.1%, driven by favorable pricing, higher volume, and productivity measures, partially offset by unfavorable foreign currency exchange rates.

Fortive's diversified portfolio and balanced exposure across its business segments have enabled the company to navigate changing market conditions and deliver consistent financial performance.

Separation of Precision Technologies Segment

On September 4, 2024, Fortive announced its intention to separate its Precision Technologies segment into an independent, publicly-traded company, Ralliant Corporation. The Separation is expected to create two distinct and well-positioned entities: a technology solutions company (retaining the Fortive name) focused on resilient, high-quality recurring growth, and a global technology company (Ralliant) specializing in precision instruments and highly engineered products essential for breakthrough innovation.

The Separation is intended to qualify as a tax-free spin-off for Fortive shareholders and is targeted for completion in the third quarter of 2025, subject to the satisfaction of certain conditions, including final approval from Fortive's Board of Directors, regulatory approvals, and the effectiveness of a Form 10 registration statement.

Outlook and Guidance

Fortive delivered better-than-expected performance in 2024, including higher core growth, earnings, and free cash flow. The company achieved several financial records, including record gross margins of 60% and adjusted operating margins nearing 27%. Over the past five years, Fortive has grown adjusted earnings and free cash flow by an average of 13% annually.

For the full year 2024, Fortive delivered core revenue growth of 1%, adjusted operating profit growth of 7% with 100 basis points of margin expansion, adjusted EPS of $3.89 (up 13%), and record free cash flow of $1.4 billion (23% free cash flow margins).

Looking ahead to 2025, Fortive expects core revenue growth of 1.5% to 3.5%, adjusted operating profit increase of 2% to 5%, and adjusted EPS in the range of $4.00 to $4.12, representing a year-over-year increase of 3% to 6%. The company also anticipates adjusted free cash flow of approximately $1.5 billion, excluding $185 million in separation-related costs.

For the first quarter of 2025, Fortive expects core revenue to be roughly flat, with an adjusted operating profit that is also expected to be roughly flat. Adjusted EPS for Q1 2025 is projected to be in the range of $0.83 to $0.86, including a $0.05 headwind from foreign exchange and higher taxes.

The company's guidance reflects its continued focus on operational execution, disciplined cost management, and strategic investments to drive long-term growth. Fortive's diversified portfolio, innovative product pipeline, and commitment to the Fortive Business System position the company well to navigate the evolving market landscape and deliver value to its shareholders.

Risks and Challenges

Fortive operates in a highly competitive and dynamic industry, which exposes the company to various risks and challenges. These include:

1. Macroeconomic and Geopolitical Uncertainties: Fortive's global footprint makes it susceptible to fluctuations in foreign currency exchange rates, trade policies, and geopolitical tensions, which could impact the company's financial performance.

2. Supply Chain Disruptions: Reliance on third-party suppliers for raw materials, components, and services could lead to production interruptions, delays, and cost increases, affecting Fortive's ability to meet customer demand.

3. Technological Advancements and Innovation: The company's success is closely tied to its ability to develop and commercialize innovative products and solutions that address evolving customer needs. Failure to keep pace with technological changes could erode Fortive's competitive advantage.

4. Regulatory Compliance: Fortive's operations are subject to various domestic and international regulations, including those related to healthcare, data privacy, and environmental protection. Non-compliance could result in significant fines, penalties, and reputational damage.

5. Integration and Execution Risks: The successful integration of acquired businesses and the execution of strategic initiatives, such as the separation of the Precision Technologies segment, are critical to Fortive's long-term success.

Fortive's management team has demonstrated its ability to navigate these challenges through its disciplined operational approach, strategic decision-making, and commitment to continuous improvement. The company's diversified portfolio, strong balance sheet, and focus on innovation are expected to be key assets in managing future risks and uncertainties.

Conclusion

Fortive Corporation has established itself as a leading provider of essential technologies for connected workflow solutions across a diverse range of end-markets. The company's strategic focus on innovation, operational excellence, and portfolio optimization has enabled it to deliver consistent financial performance and create long-term value for its shareholders.

Fortive's planned separation of its Precision Technologies segment into the independent, publicly-traded Ralliant Corporation is a transformative move that is expected to unlock the full potential of both entities and further strengthen their respective market positions. The company's robust financial position, guided by the Fortive Business System, positions it well to navigate the evolving market landscape and capitalize on emerging opportunities.

As Fortive continues to execute on its strategic priorities, investors will closely monitor the company's ability to drive organic growth, effectively integrate acquisitions, and successfully complete the Precision Technologies separation. With its diversified portfolio, innovative product pipeline, and experienced management team, Fortive remains well-positioned to fortify its leadership in the essential technologies market and deliver sustainable, long-term returns for its shareholders.

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