Fortive (FTV)

Industrial technology company Fortive (NYSE:FTV) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 3.3% year on year to $1.47 billion. Its non-GAAP profit of $0.85 per share was in line with analysts’ consensus estimates.

Company Overview

Taking its name from the Latin root of "strong", Fortive (NYSE:FTV) manufactures products and develops industrial software for numerous industries.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include 3M (NYSE:MMM), Emerson Electric (NYSE:EMR), Stanley Black & Decker (NYSE:SWK), and Parker-Hannifin (NYSE:PH).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Fortive grew its sales at a tepid 5.7% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Fortive’s recent performance shows its demand has slowed as its annualized revenue growth of 2.3% over the last two years was below its five-year trend.

This quarter, Fortive missed Wall Street’s estimates and reported a rather uninspiring 3.3% year-on-year revenue decline, generating $1.47 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Fortive has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 56.1% gross margin over the last five years. Said differently, roughly $56.05 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Fortive produced a 59.8% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Fortive has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Fortive’s operating margin rose by 5.4 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Fortive generated an operating profit margin of 15.8%, down 4 percentage points year on year. Since Fortive’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Fortive’s EPS grew at a weak 3.1% compounded annual growth rate over the last five years, lower than its 5.7% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Fortive’s earnings can give us a better understanding of its performance. A five-year view shows Fortive has diluted its shareholders, growing its share count by 1.4%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Fortive, its two-year annual EPS growth of 10.6% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Fortive reported EPS at $0.85, up from $0.83 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Fortive’s full-year EPS of $3.91 to grow 4.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Fortive has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 20.5% over the last five years.

Taking a step back, we can see that Fortive’s margin expanded by 2.7 percentage points during that time. This is encouraging because it gives the company more optionality.

Fortive’s free cash flow clocked in at $215 million in Q1, equivalent to a 14.6% margin. This cash profitability was in line with the comparable period last year but below its five-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Fortive historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Fortive’s ROIC increased by 2.1 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Fortive reported $892.1 million of cash and $3.86 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.76 billion of EBITDA over the last 12 months, we view Fortive’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $140.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EPS guidance for next quarter missed significantly and its full-year EPS guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 5.1% to $66.05 immediately following the results.

Updated: July 7, 2025 at 11:19 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Fortive.

Fortive isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue has declined over the last five years. And while its admirable gross margins indicate the mission-critical nature of its offerings, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Fortive’s P/E ratio based on the next 12 months is 13x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $74.95 on the company (compared to the current share price of $53).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.