Fortive (FTV) Beats on Q2 Earnings & Revenue Estimates
Fortive Corporation FTV delivered second-quarter 2018 earnings of 91 cents per share, surpassing the Zacks Consensus Estimate by two cents. The figure increased 28.2% from the year-ago quarter and 16.7% on a sequential basis. The figure also came ahead of management’s guidance of 86-90 cents.
Revenues surged 6.9% sequentially and 14.1% year over year to $1.86 billion. The figure also fared better than the Zacks Consensus Estimate of $1.83 billion.
Robust product portfolio, strong performance in the end markets and benefits from acquisitions that contributed 700 basis points (bps), drove the year-over-year growth.
Further, strong momentum across all its platforms contributed to core revenues which grew 5.3% from the year-ago quarter.
We note that shares of Fortive have returned 24.2% over a year, outperforming the industry’s rally of 16.3%.
Top Line in Detail
Fortive operates in the following two organized segments.
Professional Instrumentation: The segment generated $889 million revenues (47.9% of total second quarter revenues), increasing 17.1% on a year-over-year basis and 2% sequentially. Core revenues and acquisitions contributed 3.4% and 11.9%, respectively to year-over-year growth. Further, exchange rate contributed 1.8%. All these can be attributed to improved performance of Fluke Digital Systems, Fluke Networks, thermal imaging business, Tektronix and sensing technologies. Additionally, benefits from buyouts of eMaint and Industrial Scientific drove the results further.
Industrial Technologies: This segment generated $967 million revenues (52.1% of revenues), improving 11.2% from the prior-year quarter and 11.3% on a sequential basis. Acquisitions and favorable exchange rate contributed 280 bps and 150 bps, respectively, to year-over-year growth in this segment. Further, core revenues grew 6.9% within this segment. This was driven by robust performance of Gilbarco Veeder-Root and its Transportation Technology platform during the second quarter.
Quarter in Detail
Geographically, Fortive witnessed robust growth in the North America, China and Asia Pacific regions. Well performing Gilbarco Veeder-Root and Jacobs Vehicle Systems (“JVS”) aided the company’s performance in both North America and China. Further, TeletracNavman performed well in the Asia Pacific region.
Further, improving demand for EMV solutions and robust Sensing Technology platform remained positive for Fortive’s position in North America and China, respectively.
Also, the company experienced double digit growth in industrial and automotive end markets which aided the performance of Tektronix.
However, the company witnessed fall in core sales of Qualitrol owing to weak performance in Europe, China and the Middle East in the quarter under review.
The company’s Automation and Specialty division exhibited low-double digit growth in its core revenues. Moreover, the Franchise Distribution platform exhibited low-single digit growth driven by strong growth in diagnostics software subscription and specialty tools sales.
Kollmorgen revenues reflected double-digit growth from the prior-year quarter. This was driven by rising demand for the company’s industrial automation products.
In the second quarter, gross margin came in 50.6%, which expanded 120 bps year over year.
Total operating expenses were $556.5 million, reflecting an increase of 22% year over year. As a percentage of revenues, selling, general & administrative (SG&A) expenses expanded 210 bps year over year, while research & development expenses contracted 20 bps from the prior-year quarter.
Operating margin was 20.6%, which contracted 80 bps on a year-over-year basis. Segment wise, operating margin for Professional Instrumentation came in 24.7%, expanded 30 bps year over year.
Industrial Technologies operating margins came in 20.8%, which contracted 10 bps from the year-ago quarter.
Fortive generated $315 million of free cash flow in the second quarter.
For third-quarter 2018, management anticipates adjusted net earnings in the range of 83-87 cents per share. The Zacks Consensus Estimate for the upcoming quarter is pegged at 91 cents per share.
For 2018, Fortive expects adjusted net earnings to lie within the range of $3.42-$3.50 per share. The Zacks Consensus Estimate for 2018 is pegged at $3.49 per share.
Zacks Rank & Stocks to Consider
Fortive carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Micron Technology MU, Analog Devices A and Stoneridge SRI. While Micron Technology sports a Zacks Rank #1 (Strong Buy), Analog Devices and Stoneridge carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Micron Technology, Analog Devices and Stoneridge is pegged at 8.18%, 12.4% and 8.5%, respectively.
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