Thesis intact. Key takeaways:
Fortive released its 1Q18 earnings results last night. Overall organic growth was +2.6%, and with the help of FX and acquisitions, reported sales increased 13.4%. Although core growth showed a slow start to the year, we remain confident that the company can achieve its guidance of mid-single-digit organic growth for the year. One of the reason being timing, as its Transportation Technologies business saw some orders linked to the EMV transition (gas station payment system) pushed to 2Q, causing overall flat organic growth in its Industrial Technologies segment. All six growth platforms had positive pricing, lifting operating margin, but this was partly offset by recent acquisitions. EPS grew 30% y/y. Regarding potential M&A activity, FTV commented on the possibility of adding a new platform of growth (they have 6 currently), but don’t feel the pressure to do so. The deal pipeline remains solid but sellers are currently expecting elevated prices. We remain positive on the stock.
FTV Thesis:
– Market leader:
· Leadership position in most of the markets they serve
· Experienced leadership team
· Above industry margins with strong cash flows
– Quality:
· FCF yield ~5%
· Organic growth target of 3-3.5% (4-5% in last 2 quarters after being under the target in prior quarters)
· M&A strategy to enhance top line growth
· Margins expansion from new products introduction, continued application of the Fortive Business Systems and M&A integration
– Shareholder friendly:
· Management team focused on shareholder wealth creation through top line sustainability and margin expansion
$FTV.US
[tag FTV]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
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Boston, MA 02109
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