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Industrial technology company Fortive (NYSE:FTV) missed analysts' expectations in Q2 CY2024, with revenue up 1.7% year on year to $1.55 billion. Next quarter's revenue guidance of $1.55 billion also underwhelmed, coming in 2.3% below analysts' estimates. It made a non-GAAP profit of $0.93 per share, improving from its profit of $0.85 per share in the same quarter last year.
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Fortive (FTV) Q2 CY2024 Highlights:
- Revenue: $1.55 billion vs analyst estimates of $1.57 billion (small miss)
- EPS (non-GAAP): $0.93 vs analyst expectations of $0.92 (in line)
- Revenue Guidance for Q3 CY2024 is $1.55 billion at the midpoint, below analyst estimates of $1.59 billion
- The company dropped its revenue guidance for the full year from $6.39 billion to $6.28 billion at the midpoint, a 1.8% decrease
- EPS (non-GAAP) Guidance for Q3 CY2024 is $0.94 at the midpoint, below analyst estimates of $0.95
- Gross Margin (GAAP): 59.8%, in line with the same quarter last year
- Free Cash Flow of $279.7 million, up 21.5% from the previous quarter
- Market Capitalization: $26.99 billion
Taking its name from the Latin root of "strong", Fortive (NYSE:FTV) manufactures products and develops industrial software for numerous industries.
Professional Tools and EquipmentAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, Fortive's sales were flat. This shows demand was soft and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Fortive's annualized revenue growth of 5.6% over the last two years is above its five-year trend, but we were still disappointed by the results. We also note many other Professional Tools and Equipment businesses have faced declining sales because of cyclical headwinds. While Fortive grew slower than we'd like, it did perform better than its peers.
This quarter, Fortive's revenue grew 1.7% year on year to $1.55 billion, falling short of Wall Street's estimates. The company is guiding for revenue to rise 3.7% year on year to $1.55 billion next quarter, improving from the 2.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 6.4% over the next 12 months, an acceleration from this quarter.
Operating Margin Fortive has been an optimally run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.4%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Fortive's annual operating margin rose by 11 percentage points over the last 5 years, showing its efficiency has meaningfully improved.
In Q2, Fortive generated an operating profit margin of 19.4%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Fortive's EPS grew at a weak 2% compounded annual growth rate over the last five years. On the bright side, this performance was better than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
We can take a deeper look into Fortive's earnings to better understand the drivers of its performance. As we mentioned earlier, Fortive's operating margin was flat this quarter but expanded by 11 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Fortive, its two-year annual EPS growth of 10.4% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Fortive reported EPS at $0.93, up from $0.85 in the same quarter last year. This print beat analysts' estimates by 1%. Over the next 12 months, Wall Street expects Fortive to grow its earnings. Analysts are projecting its EPS of $3.59 in the last year to climb by 11.5% to $4.00.
Key Takeaways from Fortive's Q2 Results We struggled to find many strong positives in these results. Its revenue and EPS were in line with expectations while its full-year revenue guidance was slightly below Wall Street's estimates. Overall, this was a bad quarter for Fortive. The stock remained flat at $76.56 immediately following the results.
