Fortive (FTV) J.P. Morgan 15th Annual U.S. All Stars Conference summary

Strategic portfolio changes and company split

• Announced a split into two entities: Precision Technologies (PT) as NewCo and RemainCo Fortive, aiming to unlock both short- and long-term value by separating recurring revenue and cyclical growth businesses.

• Decision driven by annual strategic review, recognizing PT's cyclicality was muting overall durability; spin expected to clarify investment profiles and enhance value.

• Free cash flow will be dedicated to share buybacks until the spin, providing certainty on capital allocation and balance sheet strength.

• Both entities are expected to outperform past five-year results, with PT compared to AMETEK/Keysight and RemainCo to Roper/Veralto in valuation.

• Leadership transitions are underway, with Tami Newcombe leading PT and Olumide Soroye set to run RemainCo post-spin.

Macro environment and business performance

• Guidance for both the quarter and full year was affirmed, reflecting steady performance despite regional variations.

• North America remains the strongest market, driven by software and recurring revenue; Europe is soft, especially in industrial automation, and China continues to face demand challenges.

• Inventory levels at channel partners are healthy, with demand now the primary driver.

• No significant impact from the upcoming election on customer orders, though general macro uncertainty persists.

Precision Technologies (PT) outlook and segment details

• After double-digit growth in 2022-2023, PT is experiencing low single-digit negative growth in 2024, but orders are turning positive in Q3, especially for Tektronix and sensing businesses.

• Sales recovery for PT is expected to lag orders by about three quarters.

• European industrials and China remain soft, with no visible impact yet from Chinese modernization initiatives.

• PT's growth will be cyclical, with strong years and flat years, but production, aerospace, defense, and utilities are showing double-digit growth.

• Sensing business (~$800M) is driven by specialized applications in utilities, healthcare, and semiconductors, while general-purpose sensing faces more competition and slower growth.