Why Is Fortive (FTV) Down 1.7% Since the Last Earnings Report?
Tilly's (TLYS) closed the most recent trading day at $16.18, moving -0.98% from the previous trading session. ·Zacks
Zacks Equity Research
Updated
It has been about a month since the last earnings report for Fortive Corporation FTV. Shares have lost about 1.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Fortive Beats on Q3 Earnings & Revenues, Guides Up
Fortive 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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.
VGM Scores
At this time, the stock has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth and momentum investors than value investors.
Outlook
While estimates have been moving upward, the magnitude of the revision is net zero. It comes with little surprise shares of the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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