Second Quarter 2020 Earnings Release July 28, 2020 1
FORWARD LOOKING STATEMENTS & NON-GAAP FINANCIAL MEASURES Statements in this presentation that are not strictly historical, including statements regarding the future impact of the COVID-19 pandemic on our financial condition and our operations on a consolidated basis and by operating company and product group, the Company's ability to execute on cost reduction measures effectively, the Company's anticipated earnings, business and acquisition opportunities, timing and structure of the separation of Vontier, timing of acquisitions, dispositions and other transactions, anticipated revenue growth, anticipated operating margin expansion, anticipated cash flow, economic conditions, future prospects, anticipated impact of geopolitical events, and any other statements identified by their use of words like “anticipate,” “expect,” "believe," “outlook,” “guidance,” or “will” or other words of similar meaning are “forward-looking” statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include, among other things: the duration and impact of the COVID-19 pandemic, deterioration of or instability in the economy, the markets we serve, international trade policies and the financial markets, changes in trade relations with China, contractions or lower growth rates and cyclicality of markets we serve, competition, changes in industry standards and governmental regulations, our ability to successfully identify, consummate, integrate and realize the anticipated value of appropriate acquisitions and successfully complete divestitures and other dispositions, our ability to separate into two independent, publicly traded companies on a timely basis and with the intended benefits, our ability to develop and successfully market new products, software, and services and expand into new markets, the potential for improper conduct by our employees, agents or business partners, contingent liabilities relating to acquisitions and divestitures, impact of the phase out of LIBOR, impact of changes to tax laws, our compliance with applicable laws and regulations and changes in applicable laws and regulations, risks relating to international economic, political, legal, compliance and business factors, risks relating to potential impairment of goodwill and other intangible assets, currency exchange rates, tax audits and changes in our tax rate and income tax liabilities, the impact of our debt obligations on our operations, litigation and other contingent liabilities including intellectual property and environmental, health and safety matters, our ability to adequately protect our intellectual property rights, risks relating to product, service or software defects, product liability and recalls, risks relating to product manufacturing, our relationships with and the performance of our channel partners, commodity costs and surcharges, our ability to adjust purchases and manufacturing capacity to reflect market conditions, reliance on sole sources of supply, security breaches or other disruptions of our information technology systems, adverse effects of restructuring activities, labor matters, and disruptions relating to man-made and natural disasters. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarters ended March 27, 2020 and June 26, 2020. These forward-looking statements speak only as of the date of this presentation and Fortive does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise. This presentation contains references to "adjusted revenue," "adjusted operating profit margin (adjusted margins)," "adjusted net earnings from continuing operations," "adjusted diluted net earnings per share (adjusted EPS)," "core revenue growth (core growth),” “core operating margin expansion (core OMX),” “free cash flow," "adjusted free cash flow," "free cash flow conversion," "adjusted free cash flow conversion," "adjusted gross profit," "adjusted gross profit margin," "adjusted diluted shares outstanding," "adjusted effective tax rate," and "decremental adjusted operating profit margin," which are, in each case, not presented in accordance with generally accepted accounting principles (“GAAP”). Information required by Regulation G with respect to such non-GAAP financial measures are provided herewith. We completed the divestiture of our Automation and Specialty Business ("A&S Business") on October 1, 2018, and accordingly have included the results of the A&S Business as discontinued operations for historical periods. The results presented in this presentation are based on continuing operations. The historical non-GAAP financial measures should not be considered in isolation or as a substitute for the GAAP financial measures but should instead be read in conjunction with the corresponding GAAP financial measures. 2
Q2 SUMMARY Strong Quarter Despite Unprecedented Macro Challenges • Q2 revenue performance better than expected despite COVID-19 impact - Total revenue ~(16)% versus expectation for (20)% - (25)% – Both Professional Instrumentation and Industrials Technologies performed at bit better than expected – Resilience from Software-focused acquisitions made since 2016 Better Q2 revenue tied to lifting of lockdowns; Continued progress of reopenings will be a key factor in H2 – More resilient portfolio also delivered better than expected decremental margins and strong free cash flow • – Delivered strong gross margins of ~52% and 33% decremental adjusted operating profit margins (versus expectation for 35-40%) – FCF of $454M (188% of adjusted net earnings), including ~$165M tailwind from working capital management • Power of the Fortive Business System critical to delivering Q2 performance – Executing the FBS playbook to balance cost management and FCF generation with ongoing investment – Maintained operations at essential facilities around the world and proactively managed supply chains – Focused on maintaining continuity despite shift to virtual environment - New virtual sales and marketing tools and product development processes • Continued progress on de-leveraging and liquidity – Focus remains on bolt-on acquisitions in the near-term 3
Q2 2020 FINANCIAL PERFORMANCE Summary of Key Financial Items Revenue ($M) Adjusted Operating Profit Free Cash Flow ($M) Adjusted Diluted Net Margin (%) Earnings Per Share ($) $1,865 $0.90 $1,571 $454 22.3% 20.2% $0.68 $236 Q2 2019 Q2 2020 Q2 2019 Q2 2020 Q2 2019 Q2 2020 Q2 2019 Q2 2020 • Core growth: (16.8)% • Adjusted Margins (210)bps Y/Y • Adjusted EPS (24.4)% Y/Y • FCF: +93% Y/Y – Price: 0.7% – Core OMX: (220)bps • Earnings decline tempered by • 348% Conversion of GAAP better than expected revenue Net Earnings – Acquisitions: 10bps • Acquisitions: 2.7% performance in Q2 • 188% Conversion of Adjusted • PI Adjusted Margin: 23.1% • FX: (1.6)% Net Earnings • IT Adjusted Margin: 19.6% • Total Growth: (15.7)% 4
Q2 2020 FINANCIAL PERFORMANCE Free Cash Flow Detail Free Cash Flow ($M) - Q2 2020 • Q2 2020: $612 – Free Cash Flow: $454 million (+93% versus Prior Year) $454 2019 $373 – FCF Conversion: 348% of GAAP Net Earnings; 188% of Adjusted Net Earnings 2020 $236 • 2020 YTD: QTD YTD – Free Cash Flow: $612 million (+64% versus Prior Year) Free Cash Flow ($M) - Trailing 12-Months – FCF Conversion: 354% of GAAP Net Earnings; 121% of Adjusted Net Earnings Ended June $1,411 • Trailing 12-Months: 2019 $1,087 2020 – Free Cash Flow: $1.4 billion – FCF Conversion: 253% of GAAP Net Earnings; 119% of Adjusted Net Earnings Trailing 12-Months 5
Segment Detail 6
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