Market Overview

Fortive Reports Second Quarter 2018 Results

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Fortive Corporation ("Fortive") (NYSE:FTV) today announced results for
the second quarter 2018.

For the second quarter ended June 29, 2018, net earnings were $295.0
million. For the same period, adjusted net earnings were $321.7 million.
Diluted net earnings per share for the second quarter ended June 29,
2018 were $0.83. For the same period, adjusted diluted net earnings per
share were $0.91.

For the second quarter of 2018, revenues increased 13.9% year-over-year
to $1.9 billion, with core revenue growth of 5.3%.

James A. Lico, President and Chief Executive Officer, stated, "Today we
reported another quarter of double-digit adjusted earnings and sales
growth and strong free cash flow performance. As we look to the second
half of the year, we expect our core growth rate to accelerate versus
the first half driven by improving order trends and as acquisitions of
Orpak, ISC, and Landauer become part of our core revenue."

For the third quarter of 2018, Fortive anticipates diluted net earnings
per share to be in the range of $0.73 to $0.77 and adjusted diluted net
earnings per share to be in the range of $0.83 to $0.87. For the full
year 2018, Fortive expects diluted net earnings per share to be in the
range of $3.02 to $3.10, which includes anticipated transaction costs
related to the Automation & Specialty businesses divestiture and the
Advanced Sterilization Products acquisition of $0.05 per share and $0.11
per share for the third quarter and fourth quarter of 2018,
respectively. For the full year 2018, Fortive expects adjusted diluted
net earnings per share to be in the range of $3.42 to $3.50. The updated
guidance reflects a full-year $0.08 dilutive impact from the mandatory
convertible preferred stock offering which Fortive expects to offset
with operational improvements.

Mr. Lico added, "Since last quarter, we announced two acquisitions
totaling $3.5 billion and significantly advanced our portfolio
enhancement work to accelerate growth and reduce cyclicality. With our
strong free cash flow generation and balance sheet, we are
well-positioned to continue deploying capital towards M&A. The power of
the Fortive Business System coupled with our portfolio transformation
positions us well for the remainder of 2018 and beyond."

Fortive will discuss results and outlook during its quarterly investor
conference call today starting at 5:30 p.m. ET. The call and an
accompanying slide presentation will be webcast on the "Investors"
section of the website, www.fortive.com,
under "Events & Presentations." A replay of the webcast will be
available at the same location shortly after the conclusion of the
presentation and will remain available until the next quarterly earnings
call.

The conference call can be accessed by dialing 844-443-2871 within the
U.S. or by dialing 213-660-0916 outside the U.S. a few minutes before
5:30 p.m. ET and notifying the operator that you are dialing in for
Fortive's earnings conference call (access code 4480728). A replay of
the conference call will be available two hours after the completion of
the call until Friday, August 10, 2018. Once available, you can access
the conference call replay by dialing 800-585-8367 within the U.S. or
404-537-3406 outside the U.S. (access code 4480728) or visit the
"Investors" section of the website under "Events & Presentations."

ABOUT FORTIVE

Fortive is a diversified industrial growth company comprised of
Professional Instrumentation and Industrial Technologies businesses that
are recognized leaders in attractive markets. With 2017 revenues of $6.7
billion, Fortive's well-known brands hold leading positions in field
instrumentation, transportation, sensing, product realization,
automation and specialty, and franchise distribution. Fortive is
headquartered in Everett, Washington and employs a team of more than
26,000 research and development, manufacturing, sales, distribution,
service and administrative employees in more than 50 countries around
the world. With a culture rooted in continuous improvement, the core of
our company's operating model is the Fortive Business System. For more
information please visit: www.fortive.com.

NON-GAAP FINANCIAL MEASURES

In addition to the financial measures prepared in accordance with
generally accepted accounting principles (GAAP), this earnings release
also references "adjusted net earnings," "adjusted diluted net earnings
per share," and "core revenue," which are non-GAAP financial measures.
The reasons why we believe these measures, when used in conjunction with
the GAAP financial measures, provide useful information to investors,
how management uses such non-GAAP financial measures, a reconciliation
of these measures to the most directly comparable GAAP measures and
other information relating to these measures are included in the
supplemental reconciliation schedule attached. The 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 GAAP financial measures. The non-GAAP financial measures used
by Fortive in this release may be different from similarly-titled
non-GAAP measures used by other companies.

FORWARD-LOOKING STATEMENTS

Statements in this release that are not strictly historical, statements
regarding Fortive's anticipated earnings, business and acquisition
opportunities, timing of acquisitions and dispositions, anticipated
revenue growth, anticipated operating margin expansion, anticipated cash
flow, economic conditions, future prospects, shareholder value, 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: 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 consummate the pending transaction
with Altra Industrial Motion on a timely basis, 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 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,
disruptions relating to man-made and natural disasters, impact of our
separation from Danaher on our operations or financial results, and
impact of our indemnification obligation to Danaher. 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, 2017 and our Quarterly Report on Form 10-Q for the
quarters ended March 30, 2018 and June 29, 2018. These forward-looking
statements speak only as of the date of this release, 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.

 
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
 
    Three Months Ended     Six Months Ended
June 29, 2018     June 30, 2017 June 29, 2018     June 30, 2017
Sales $ 1,856.0 $ 1,628.8 $ 3,596.7 $ 3,164.0
Cost of sales (917.1 ) (823.7 ) (1,787.0 ) (1,614.9 )
Gross profit 938.9 805.1 1,809.7 1,549.1
Operating costs:
Selling, general and administrative expenses (445.5 ) (356.9 ) (869.2 ) (709.1 )
Research and development expenses (111.0 ) (99.1 ) (219.9 ) (195.3 )
Operating profit 382.4 349.1 720.6 644.7
Non-operating expenses:
Interest expense, net (25.3 ) (22.7 ) (49.9 ) (45.3 )
Other non-operating expenses (1.1 ) (0.8 ) (1.8 ) (1.5 )
Earnings before income taxes 356.0 325.6 668.9 597.9
Income taxes (61.0 ) (85.5 ) (112.7 ) (158.1 )
Net earnings 295.0 240.1 556.2 439.8
Mandatory convertible preferred stock cumulative dividends (0.2 )   (0.2 )  
Net earnings attributable to common stockholders $ 294.8   $ 240.1   $ 556.0   $ 439.8  
Net earnings per common share:
Basic $ 0.84 $ 0.69 $ 1.59 $ 1.27
Diluted $ 0.83 $ 0.68 $ 1.57 $ 1.25
Average common stock and common equivalent shares outstanding:
Basic 349.2 347.2 348.9 347.1
Diluted 355.0 352.2 354.7 351.8

This information is for reference only. A complete copy of
Fortive's Form 10-Q financial statements is available on the
Company's website (www.fortive.com).

 
 
FORTIVE CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
($ in millions)
(unaudited)
 
    Three Months Ended    

Six Months Ended

June 29, 2018

   

June 30, 2017

June 29, 2018

   

June 30, 2017

Sales:
Professional Instrumentation $ 889.0 $ 759.0 $ 1,760.7 $ 1,475.1
Industrial Technologies 967.0   869.8   1,836.0   1,688.9  
Total $ 1,856.0   $ 1,628.8   $ 3,596.7   $ 3,164.0  
 
Operating Profit:
Professional Instrumentation $ 219.4 $ 185.5 $ 425.8 $ 344.0
Industrial Technologies 200.9 181.7 359.2 334.5
Other (a) (37.9 ) (18.1 ) (64.4 ) (33.8 )
Total $ 382.4   $ 349.1   $ 720.6   $ 644.7  
 
Operating Margins:
Professional Instrumentation 24.7 % 24.4 % 24.2 % 23.3 %
Industrial Technologies 20.8 % 20.9 % 19.6 % 19.8 %
Total 20.6 % 21.4 % 20.0 % 20.4 %
(a) Operating profit amounts in the Other category
consist of unallocated corporate costs and other costs not
considered part of our evaluation of reportable segment operating
performance.

This information is for reference only. A complete copy of
Fortive's Form 10-Q financial statements is available on the
Company's website (www.fortive.com).

 

FORTIVE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES

AND OTHER INFORMATION

Adjusted Net Earnings and Adjusted Diluted Net Earnings per Share

We disclose the non-GAAP measures of historical adjusted net earnings
and historical and forecasted adjusted diluted net earnings per share,
which make the following adjustments to GAAP net earnings and GAAP
diluted net earnings per share:

  • Excluding on a pretax basis amortization of acquisition-related
    intangible assets;
  • Excluding on a pretax basis both acquisition and divestiture-related
    costs deemed significant ("Transaction Costs"); and
  • Excluding the tax effect of the adjustments noted above. The tax
    effect of such adjustments was calculated by applying our overall
    estimated effective tax rate to the pretax amount of each adjustment
    (unless the nature of the item and/or the tax jurisdiction in which
    the item has been recorded requires application of a specific tax rate
    or tax treatment, in which case the tax effect of such item is
    estimated by applying such specific tax rate or tax treatment). We
    expect to apply our overall estimated effective tax rate to each
    adjustment going forward, and, as such, we are applying the estimated
    effective tax rate to each adjustment for the forecasted periods to
    facilitate comparisons in future periods; and
  • Excluding adjustments made to the 2017 provisional amount estimated in
    connection with the Tax Cut and Jobs Act (the "TCJA Adjustments").

If any additional subsequent TCJA Adjustments are made in 2018, such
adjustments will be reflected in the applicable GAAP financial measures
corresponding to the reporting period during which such adjustments are
determined. In the event of such subsequent TCJA Adjustments, we will
also exclude such adjustments in the non-GAAP historical adjusted net
earnings and historical adjusted diluted net earnings per share we
disclose for the corresponding period.

While we have a history of acquisition activity, we do not acquire
businesses on a predictable cycle, and the amount of an acquisition's
purchase price allocated to intangible assets and related amortization
term are unique to each acquisition and can vary significantly from
acquisition to acquisition. We believe however that it is important for
investors to understand that such intangible assets contribute to
revenue generation and that intangible assets related to past
acquisitions will recur in future periods until such intangible assets
have been fully amortized.

The forecasted adjusted diluted net earnings per share does not reflect
certain adjustments that are inherently difficult to predict or estimate
due to their unknown timing, effect and/or significance.

The TCJA Adjustments identified above have been excluded from the GAAP
measures identified above because items of this nature and/or size occur
with inconsistent frequency or occur for reasons that may be unrelated
to our commercial performance during the period and/or because we
believe the corresponding adjustments are useful in assessing our
potential ongoing operating costs or gains in a given period. We will
adjust for, and identify as significant, acquisition and
divestiture-related transaction costs, acquisition related fair value
adjustments to inventory and deferred revenue, and corresponding
restructuring charges primarily related to acquisitions, in each case,
incurred in a given period, if we determine that such costs and
adjustments exceed the range of our typical transaction costs and
adjustments, respectively, in a given period.

Management believes that these non-GAAP financial measures provide
useful information to investors by reflecting additional ways of viewing
aspects of our operations that, when reconciled to the corresponding
GAAP measure, help our investors to understand the long-term
profitability trends of our business, and facilitate comparisons of our
profitability to prior and future periods and to our peers.

These non-GAAP measures should be considered in addition to, and not as
a replacement for or superior to, the comparable GAAP measures, and may
not be comparable to similarly titled measures reported by other
companies.

Core Revenue

We use the term "core revenue" when referring to a corresponding GAAP
revenue measure, excluding (1) the impact from acquired businesses and
(2), the impact of currency translation. References to sales
attributable to acquisitions or acquired businesses refer to GAAP sales
from acquired businesses recorded prior to the first anniversary of the
acquisition less the amount of sales attributable to certain divested
businesses or product lines not considered discontinued operations prior
to the first anniversary of the divestiture. The portion of sales
attributable to the impact of currency translation is calculated as the
difference between (a) the period-to-period change in sales (excluding
sales impact from acquired businesses) and (b) the period-to-period
change in sales (excluding sales impact from acquired businesses) after
applying the current period foreign exchange rates to the prior year
period. This non-GAAP measure should be considered in addition to, and
not as a replacement for or superior to, the comparable GAAP measure,
and may not be comparable to similarly titled measures reported by other
companies.

Management believes that this non-GAAP measure provides useful
information to investors by helping identify underlying growth trends in
our business and facilitating comparisons of our revenue performance
with prior and future periods and to our peers. We exclude the effect of
acquisitions and divestiture related items because the nature, size and
number of such transactions can vary dramatically from period to period
and between us and our peers. We exclude the effect of currency
translation from sales measures because currency translation is not
under management's control and is subject to volatility. We believe that
such exclusions, when presented with the corresponding GAAP measures,
may assist in assessing the business trends and making comparisons of
long-term performance.

         

Adjusted Net Earnings

 
Three Months Ended Six Months Ended
($ in millions) June 29, 2018     June 30, 2017 June 29, 2018     June 30, 2017
Net Earnings (GAAP) $ 295.0 $ 240.1 $ 556.2 $ 439.8
Pretax amortization of acquisition-related intangible assets in the
three months ($24 million pretax, $20 million after tax) and six
months ($49 million pretax, $40 million after tax) ended June 29,
2018, and in the three months ($13 million pretax, $10 million after
tax) and six months ($27 million pretax, $20 million after tax)
ended June 30, 2017
24.1 13.3 49.1 26.6
Acquisition and divestiture-related transaction costs in the three
months ($11 million pretax, $9 million after tax) and six months
($15 million pretax, $12 million after tax) ended June 29, 2018 *
11.0 14.8
Tax effect of the adjustments reflected above (6.5 ) (3.5 ) (11.6 ) (7.1 )
TCJA Adjustments (1.9 )   (6.1 )  
Adjusted Net Earnings (Non-GAAP) $ 321.7   $ 249.9   $ 602.4   $ 459.3  
* $3.8 million of acquisition and divestiture-related transaction
costs were recorded in the three months ended March 30, 2018.
 
       

Adjusted Diluted Net Earnings Per Share

 
Three Months Ended Six Months Ended
June 29, 2018     June 30, 2017 June 29, 2018     June 30, 2017
Diluted Net Earnings Per Share (GAAP) $ 0.83 $ 0.68 $ 1.57 $ 1.25
Pretax amortization of acquisition-related intangible assets in the
three months ($24 million pretax, $20 million after tax) and six
months ($49 million pretax, $40 million after tax) ended June 29,
2018, and in the three months ($13 million pretax, $10 million after
tax) and six months ($27 million pretax, $20 million after tax)
ended June 30, 2017
0.07 0.04 0.14 0.08
Acquisition and divestiture-related transaction costs in the three
months ($11 million pretax, $9 million after tax) and six months
($15 million pretax, $12 million after tax) ended June 29, 2018 *
0.03 0.04
Tax effect of the adjustments reflected above (0.02 ) (0.01 ) (0.03 ) (0.02 )
TCJA Adjustments (0.01 )   (0.02 )  
Adjusted Diluted Net Earnings Per Share (Non-GAAP)** $ 0.91   $ 0.71   $ 1.70   $ 1.31  
* $3.8 million of acquisition and divestiture-related transaction
costs were recorded in the three months ended March 30, 2018.
** The sum of the components of Adjusted Diluted Net Earnings Per
Share may not equal the total amount due to rounding.
 
       

Core Revenue Growth

 

% Change
Three Months Ended
June 29,
2018 vs.

Comparable 2017
Period

% Change
Six Months Ended
June 29, 2018
vs.

Comparable 2017
Period

Total Revenue Growth (GAAP) 13.9 % 13.7 %
Core (Non-GAAP) 5.3 % 4.0 %
Acquisitions (Non-GAAP) 7.0 % 7.2 %
Impact of currency translation (Non-GAAP) 1.6 % 2.5 %
 
       

Forecasted Adjusted Diluted Net Earnings Per Share

 

Three Months Ending
September 28, 2018

Year Ending
December 31, 2018
Low End     High End Low End   High End
Forecasted Diluted Net Earnings Per Share $ 0.73 $ 0.77 $ 3.02 $ 3.10
Anticipated pretax amortization of acquisition-related intangible
assets in the three months ending September 28, ($24 million pretax,
$20 million after tax) and year ending December 31, 2018 ($98
million pretax, $80 million after tax)
0.06 0.06 0.27 0.27
Tax effect of the anticipated amortization of acquisition-related
intangible assets in the three months ending and year ending
December 31, 2018
(0.01 ) (0.01 ) (0.05 ) (0.05 )
Anticipated pretax acquisition and divestiture-related transaction
costs in the three months ending September 28, 2018 ($23 million
pretax, $19 million after tax) and the year ending December 31, 2018
($90 million pretax, $72 million after tax)
0.06 0.06 0.25 0.25
Tax effect of the anticipated acquisition and divestiture-related
transaction costs in the three months ending September 28, 2018 and
the year ending December 31, 2018
(0.01 ) (0.01 ) (0.05 ) (0.05 )
TCJA Adjustments     (0.02 ) (0.02 )
Forecasted Adjusted Diluted Net Earnings Per Share $ 0.83   $ 0.87   $ 3.42   * $ 3.50   *
* We anticipate additional $51 million of pretax ($41 million after
tax) acquisition and divestiture-related transaction costs in the
three months ending December 31, 2018. The forecasted adjusted
diluted net earnings per share for the year ending December 31, 2018
include an after tax adjustment of $0.11 per share corresponding to
such anticipated additional acquisition and divestiture-related
costs in the three months ending December 31, 2018.
 

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