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Fortive (FTV) Beats on Q3 Earnings & Revenues, Guides Up

Fortive Corporation FTV reported third-quarter 2017 earnings of 77 cents per share, which beat the Zacks Consensus Estimate by four cents. The figure increased almost 15% from the year-ago quarter and was better than management’s guidance of 69-73 cents.

Revenues increased 7.5% year over year to $1.69 billion, slightly better than the Zacks Consensus Estimate of $1.66 billion. Acquisitions contributed 1.8% to this growth, while favorable foreign exchange added 0.9%.

Geographically, core revenues grew double-digits across Asia, which is a high-growth market for Fortive. Mid-teens growth in China was led by business wins at Jacobs Vehicle Systems, Tektronix, Fluke and Kollmorgen.

Fortive reported improved growth in Latin America. Core revenues in developed markets grew low-single digits driven by continued strength in Western Europe and improved performance by Tektronix and automation businesses in North America.

Fortive’s shares have returned 37% year to date, substantially underperforming the 46.4% rally of the industry.



Top-line Details

Professional Instrumentation revenues grew 8.7%, with acquisitions contributing 2.7% and favorable foreign exchange adding 0.7%.

Advanced Instrumentation & Solutions core revenue increased mid-single digits, led by high-single digit growth in high-growth markets.

Field Solutions core revenues were up mid-single digits with both Fluke and Qualitrol posting strong core revenues growth.

Fluke’s growth was driven by robust performance from Fluke Networks and Fluke Digital Systems, which include the key components of the Accelix reliability platform. The company also reported strong double-digit revenue growth at eMaint.

Qualitrol’s growth was attributed to the expansion of condition-based monitoring solutions among Europe and Chinese original equipment manufacturers (OEMs) as well as Middle East utilities.

Fortive stated that the Chinese market continues to benefit from ongoing investment in high voltage transmission, while offset by the Middle East, where a political instability is delaying budget approvals.

Platform core revenues were up mid-single digits driven by Tektronix, which grew high-single digits driven by high-growth markets with double-digit growth in Asia. This performance reflected strong sales growth in the semiconductor market.

Sensing Technologies platform delivered high-single digit core revenues growth driven by double-digit growth in high-growth markets.

Fortive closed the acquisition of Industrial Scientific and Landauer during the quarter. The acquisition of Landauer is anticipated to drive recurring revenues. The company’s subscription-based radiation exposure services are focused in the medical end market.

Industrial Technologies revenues increased 6.5%, with acquisitions contributing 1% and favorable foreign exchange adding 1.1%.

Transportation Technologies platform posted low single-digit core revenues growth, reflecting solid sales growth across the platform. Gilbarco Veeder-Root increased at low single-digits. Global dispenser sales were up mid-single digits, reflecting continued outperformance in Europe and EMV-related sales growth in the United States.

High-growth markets core revenues grew double digits, driven by strong demand for dispensers, submersible pumps and automatic tank hinges. The company closed the previously announced acquisition of Orpak during the third quarter.

Telematics posted core revenues growth of mid single-digits driven by strong SaaS sales growth and increased installed base growth. The company expects telematics to exit the year at high single-digit growth rate.

Automation and specialty core sales grew high single-digits driven by continued double-digit growth in high-growth markets and robotics. Jacobs Vehicle Systems delivered high single-digit core top-line growth.

Kollmorgen posted double-digit core revenue growth, reflecting strong demand across its global industrial automation product line. Moreover, Thompson delivered mid single-digit core revenues growth driven by double-digit growth in high-growth markets and strong North American distributor growth.

Matco core sales were flat as growth in diagnostics was offset by continued softness in tool storage and a challenging hardline tools sales comparison.

Operating Details

Gross margin expanded 50 basis points (bps) to 49.8%.

As a percentage of revenues, selling, general & administrative (SG&A) expenses remained flat at 22.6%. Research & development expenses also remained unchanged at 6.1%.

As a result, adjusted operating margin expanded 50 bps to 21.1%. Segment wise, Professional Instrumentation and Industrial Technologies operating margins expanded 40 bps each.

Cash Flow

During the quarter, cash flow from operating activities was $319 million as compared with $246.0 million in the previous quarter. Free cash flow was $287.0 million

Guidance

For fourth-quarter 2017, management expects earnings in the range of 74-78 cents per share.

For 2017, Fortive now expects earnings in the range of $2.82-$2.86 cents per share, up from previous guidance of $2.72-$2.80.

Zacks Rank & Other Key Picks

Currently, Fortive has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader technology sectors are Texas Instruments Inc TXN, Lam Research Corp. LRCX and Applied Materials Inc. AMAT. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long term earnings growth for Texas Instruments, Lam Research and Applied Materials are currently pegged at 9.6%, 14.9% and 17.1%, respectively.

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