Fortive Corporation (“Fortive”) (NYSE:FTV) today announced results for
the first quarter 2017. Prior to July 2, 2016, Fortive operated as part
of Danaher Corporation (“Danaher”) and the historical financial measures
presented in this announcement for periods prior to July 2, 2016 were
derived from Danaher’s accounting records and are presented on a
carved-out basis.
For the first quarter ended March 31, 2017, net earnings were $199.7
million. For the same period, non-GAAP adjusted net earnings were $209.4
million. Diluted net earnings per share for the first quarter ended
March 31, 2017 were $0.57. For the same period, non-GAAP adjusted
diluted net earnings per share were $0.60.
For the first quarter of 2017, GAAP revenues increased 4.1%
year-over-year to $1.5 billion, with core revenue growth of 4.9%.
James A. Lico, President and Chief Executive Officer, stated, “We had a
strong start to 2017 by delivering double-digit earnings growth above
the high end of our guidance and mid-single digit revenue growth amidst
stabilized markets. All six of our strategic platforms grew core sales
reflecting key market share gains and industry leading technology and
service. Through the successful deployment of the Fortive Business
System, we were able to once again deliver above-market revenue growth,
margin expansion and top-quartile earnings performance.”
For the second quarter of 2017, Fortive anticipates diluted net earnings
per share to be in the range of $0.62 to $0.66 and the non-GAAP adjusted
diluted net earnings per share to be in the range of $0.65 to $0.69.
Fortive expects 2017 diluted net earnings per share to be in the range
of $2.57 to $2.67 and non-GAAP adjusted diluted net earnings per share
to be in the range of $2.68 to $2.78.
Mr. Lico added, “We are committed to creating sustainable long-term
value for both our customers and shareholders. Advantaged by our culture
of continuous improvement, focus on disciplined capital deployment, and
multiple secular growth drivers, we are confident in our position and
expect to continue to outperform.”
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 888-428-9470 within the
U.S. or by dialing 719-325-2462 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 6014266). A replay of
the conference call will be available shortly after the conclusion of
the call until Thursday, May 4, 2017. Once available, click here
to access the conference call replay 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 2016 revenues of $6.2
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
24,000 research and development, manufacturing, sales, distribution,
service and administrative employees in more than 40 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, anticipated revenue growth, anticipated operating margin
expansion, anticipated cash flow, economic conditions, future prospects,
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 and the financial markets, 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 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, 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, 2016. 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 AND COMBINED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
|
|
|
|
Three Months Ended
|
|
|
March 31, 2017
|
|
April 1, 2016
|
Sales
|
|
$
|
1,535.2
|
|
|
$
|
1,474.7
|
|
Cost of sales
|
|
(791.2
|
)
|
|
(779.5
|
)
|
Gross profit
|
|
744.0
|
|
|
695.2
|
|
Operating costs:
|
|
|
|
|
Selling, general and administrative expenses
|
|
(352.9
|
)
|
|
(338.5
|
)
|
Research and development expenses
|
|
(96.2
|
)
|
|
(93.7
|
)
|
Operating profit
|
|
294.9
|
|
|
263.0
|
|
Nonoperating expense:
|
|
|
|
|
Interest expense
|
|
(22.6
|
)
|
|
—
|
|
Earnings before income taxes
|
|
272.3
|
|
|
263.0
|
|
Income taxes
|
|
(72.6
|
)
|
|
(81.0
|
)
|
Net earnings
|
|
$
|
199.7
|
|
|
$
|
182.0
|
|
Net earnings per share:
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.57
|
|
|
$
|
0.53
|
|
Average common stock and common equivalent shares outstanding:
|
|
|
|
|
Basic
|
|
347.0
|
|
|
345.2
|
|
Diluted
|
|
351.5
|
|
|
345.2
|
|
|
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
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, respectively:
-
Excluding on a pretax basis amortization of acquisition-related
intangible assets; and
-
Excluding the tax effect of the adjustment noted above as well as for
the Additional Interest Expense (described below); provided, however,
that the tax effect of such adjustments was calculated: (a) with
respect to the historical adjusted net earnings and adjusted diluted
net earnings per share for the three-month period ended March 31, 2017
and the forecasted adjusted diluted net earnings per share, 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); and (b) with respect to the adjusted net earnings for the
three-month period ended April 1, 2016, by applying our statutory tax
rate. We are applying the statutory tax rate for the period ended
April 1, 2016 because such tax rate was applied in our prior adjusted
net earnings disclosed and applied in a manner consistent with Article
11 of Regulation S-X. We are applying the estimated effective tax rate
to each adjustment for the period ended March 31, 2017 and for the
forecasted periods to facilitate comparisons in future periods. The
tax effect of the adjustments to net earnings for the three-month
period ended March 31, 2017 would have been $5.0 million instead of
$3.6 million had we applied the statutory tax rate instead of our
overall estimated effective tax rate.
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. Furthermore, 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.
In addition, because we were part of Danaher Corporation (“Danaher”) for
the three month period ended April 1, 2016, we are also making the
following adjustments to the corresponding historical GAAP net earnings
as if our separation from Danaher (“the Separation”) had been
effectuated at the beginning of the relevant period:
-
Adding interest expenses on a pretax basis (based on the assumed
borrowing cost of approximately 2.8% per annum) as if the outstanding
indebtedness incurred in connection with the Separation had been
incurred at the beginning of such period (“Additional Interest
Expense”).
Management believes that the Additional Interest Expense, when
considered together with the corresponding carved-out GAAP financial
measures, provide useful information to investors by helping to identify
certain types or levels of additional expenses incurred as a
stand-alone, publicly traded company after the Separation that may not
have been allocated or reflected in the historical carved-out GAAP
financial measures for periods in which we were part of Danaher. We
believe that such adjustments, when presented with the corresponding
carved-out GAAP measures, may assist in assessing the business trends
and making comparisons of long-term performance before and after the
Separation.
Management believes that these non-GAAP financial measures provide
useful information to investors by reflecting additional ways of viewing
aspects of Fortive’s 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. The items described above have been excluded from, or added to,
these measures 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 deem acquisition-related transaction costs incurred in a given period
to be significant (generally relating to our larger acquisitions) if we
determine that such costs exceed the range of our typical
acquisition-related transaction costs in a given period.
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, (2)
the impact from the Separation and (3) 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 impact from the Separation refer to
the impact from sales to or from Danaher made under agreements entered
into, or terminated, in connection with the Separation prior to the
first anniversary of the Separation. 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 or the Separation) and (b) the period-to-period
change in sales (excluding sales impact from acquired businesses or the
Separation) 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. In addition, we exclude the impact of
agreements that were terminated, or entered into, in connection with the
Separation because we believe that excluding such impact may be useful
to investors in assessing our operational performance independent of the
impact on sales to or from Danaher resulting primarily from the
Separation. 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
|
($ in millions)
|
|
March 31, 2017
|
|
April 1, 2016
|
Net Earnings (GAAP)
|
|
$
|
199.7
|
|
|
$
|
182.0
|
|
Pretax amortization of acquisition-related intangible assets in the
three months ended March 31, 2017 ($13 million pretax, $9 million
after tax), and in the three months ended April 1, 2016 ($22 million
pretax, $14 million after tax)
|
|
13.3
|
|
|
22.4
|
|
Pretax additional interest expense in the three months ended April
1, 2016 ($22 million pretax, $14 million after tax) related to the
borrowings incurred in connection with the Separation
|
|
—
|
|
|
(22.5
|
)
|
Tax effect of all adjustments reflected above
|
|
(3.6
|
)
|
|
—
|
|
Adjusted Net Earnings (Non-GAAP)
|
|
$
|
209.4
|
|
|
$
|
181.9
|
|
|
|
Adjusted Diluted Net Earnings Per Share
|
|
|
|
Three Months Ended
March 31, 2017
|
Diluted Net Earnings Per Share (GAAP)
|
|
$
|
0.57
|
|
Pretax amortization of acquisition-related intangible assets ($13
million pretax, $9 million after tax)
|
|
0.04
|
|
Tax effect of the adjustment reflected above
|
|
(0.01
|
)
|
Adjusted Diluted Net Earnings Per Share (Non-GAAP)
|
|
$
|
0.60
|
|
|
|
Core Revenue Growth
|
|
|
|
% Change
Three Months Ended
March 31,
2017 vs.
Comparable
2016 Period
|
Total Revenue Growth (GAAP)
|
|
4.1%
|
Core (Non-GAAP)
|
|
4.9%
|
Acquisitions * (Non-GAAP)
|
|
0.2%
|
Impact of currency translation (Non-GAAP)
|
|
(1.0)%
|
|
|
|
* Includes the impact from both acquisitions and the Separation
|
|
|
Forecasted Adjusted Diluted Net Earnings Per Share
|
|
|
|
Three Months Ending
June 30, 2017
|
|
Year Ending
December 31, 2017
|
|
|
Low End
|
|
High End
|
|
Low End
|
|
High End
|
Forecasted Diluted Net Earnings Per Share
|
|
$
|
0.62
|
|
|
$
|
0.66
|
|
|
$
|
2.57
|
|
|
$
|
2.67
|
|
Pretax amortization of acquisition-related intangible assets in the
three months ending June 30, 2017 ($13 million pretax, $10 million
after-tax) and for the year ending December 31, 2017 ($53 million
pretax, $39 million after-tax)
|
|
0.04
|
|
|
0.04
|
|
|
0.15
|
|
|
0.15
|
|
Tax effect of the adjustment reflected above
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
Forecasted Adjusted Diluted Net Earnings Per Share
|
|
$
|
0.65
|
|
|
$
|
0.69
|
|
|
$
|
2.68
|
|
|
$
|
2.78
|
|
|
Fortive Corporation
Lisa Curran, 425-446-5000
Vice President, Investor Relations
6920 Seaway Boulevard
Everett, WA 98203