Fortive Reports Fourth Quarter 2019 Results

EVERETT, Wash.--(BUSINESS WIRE)--Fortive Corporation (“Fortive”) (NYSE: FTV) today announced results for the fourth quarter 2019.


For the fourth quarter ended December 31, 2019, net earnings from continuing operations attributable to common stockholders were $161.6 million. For the same period, adjusted net earnings from continuing operations were $367.8 million. Diluted net earnings per share from continuing operations for the fourth quarter ended December 31, 2019 were $0.48. For the same period, adjusted diluted net earnings per share from continuing operations were $1.03.

For the fourth quarter of 2019, revenues from continuing operations increased 13.9% year-over-year to $2.0 billion, with core revenue growth of 0.4%.

James A. Lico, President and Chief Executive Officer, stated, “Our results for the fourth quarter of 2019 represented a strong conclusion to the year, with 13% earnings growth and strong adjusted operating margin performance. Our free cash flow was particularly notable as we generated over $450M in the quarter, a 17% year-over-year increase and a conversion ratio of more than 120% of adjusted net income. Our ability to generate such strong free cash flow in the face of the continued impact of slow demand dynamics across our short-cycle businesses is a testament to the quality of our portfolio, the dedication of our team, and the power of the Fortive Business System.”

For the first quarter of 2020, Fortive anticipates diluted net earnings per share from continuing operations to be in the range of $0.24 to $0.28. Fortive anticipates adjusted diluted net earnings per share from continuing operations to be in the range of $0.70 to $0.74. For the full year 2020, Fortive expects diluted net earnings per share from continuing operations to be in the range of $2.16 to $2.26. For the full year 2020, Fortive expects adjusted diluted net earnings per share from continuing operations to be in the range of $3.68 to $3.78. The foregoing anticipated results do not give effect to the pending Vontier separation.

Mr. Lico added, “We are moving toward the completion of the separation of Vontier, after announcing key members of the senior management team, launching the brand, and making progress against other significant milestones over the past few months. We look forward to completing the transaction later this year, and positioning both companies to take full advantage of their respective growth opportunities and capital allocation priorities.”

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 Fortive’s 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 5476265). A replay of the conference call will be available two hours after the completion of the call until Thursday, February 20, 2020. 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 5476265) or visit the “Investors” section of the website under “Events & Presentations.”

ABOUT FORTIVE

Fortive is a diversified industrial technology growth company comprised of Professional Instrumentation and Industrial Technologies businesses that are recognized leaders in attractive markets. Fortive’s well-known brands hold leading positions in field solutions, product realization, sensing technologies, transportation technologies, and franchise distribution. Fortive is headquartered in Everett, Washington and employs a team of more than 25,000 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.

DIVESTITURE OF THE A&S BUSINESS

On October 1, 2018, Fortive completed the previously announced split-off of four of our operating companies (the “A&S Business”) and the operating results and related assets and liabilities of the A&S Business are presented as discontinued operations for all periods.

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, including statements regarding Fortive’s anticipated earnings, anticipated timing of transactions, business and acquisition opportunities, impact 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, trade relations with China, the phase out of the London Interbank Offered Rate, 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 separate into two independent, publicly traded companies on a timely basis and with the intended benefits, 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, impact of divestitures, 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, impact of changes to U.S. GAAP, labor matters, and disruptions relating to man-made and natural disasters. 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, 2018 and our Quarterly Reports on Form 10-Q for the quarters ended June 28, 2019 and September 27, 2019. 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 BALANCE SHEETS

($ and shares in millions, except per share amounts)

(unaudited)

 

 

As of December 31

 

2019

 

2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and equivalents

$

1,205.2

 

 

$

1,178.4

 

Accounts receivable less allowance for doubtful accounts of $59.8 million and $54.9 million at December 31, 2019 and December 31, 2018, respectively

1,384.5

 

 

1,195.1

 

Inventories

640.3

 

 

574.5

 

Prepaid expenses and other current assets

455.6

 

 

193.2

 

Current assets, discontinued operations

3.2

 

 

30.0

 

Total current assets

3,688.8

 

 

3,171.2

 

Property, plant and equipment, net

519.5

 

 

576.1

 

Operating lease right-of-use assets

206.8

 

 

 

Other assets

779.6

 

 

548.9

 

Goodwill

8,399.3

 

 

6,133.1

 

Other intangible assets, net

3,845.0

 

 

2,476.3

 

Total assets

$

17,439.0

 

 

$

12,905.6

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

1,500.0

 

 

$

455.6

 

Trade accounts payable

765.5

 

 

706.5

 

Current operating lease liabilities

54.9

 

 

 

Accrued expenses and other current liabilities

1,146.8

 

 

999.3

 

Current liabilities, discontinued operations

 

 

30.7

 

Total current liabilities

3,467.2

 

 

2,192.1

 

Operating lease liabilities

159.0

 

 

 

Other long-term liabilities

1,584.2

 

 

1,125.9

 

Long-term debt

4,828.4

 

 

2,974.7

 

Equity:

 

 

 

Preferred stock: $0.01 par value, 15.0 million shares authorized; 5.0% Mandatory convertible preferred stock, series A, 1.4 million shares designated, issued and outstanding at December 31, 2019 and December 31, 2018

 

 

 

Common stock: $0.01 par value, 2.0 billion shares authorized; 336.9 and 335.1 million issued; 336.0 and 334.5 million outstanding at December 31, 2019 and December 31, 2018, respectively

3.4

 

 

3.4

 

Additional paid-in capital

3,311.1

 

 

3,126.0

 

Retained earnings

4,128.8

 

 

3,552.7

 

Accumulated other comprehensive income (loss)

(56.3

)

 

(86.6

)

Total Fortive stockholders’ equity

7,387.0

 

 

6,595.5

 

Noncontrolling interests

13.2

 

 

17.4

 

Total stockholders’ equity

7,400.2

 

 

6,612.9

 

Total liabilities and stockholders’ equity

$

17,439.0

 

 

$

12,905.6

 

This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when available, to more fully understand the contents of this information.

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

($ and shares in millions, except per share amounts)

(unaudited)

 

 

Three Months Ended

 

Year Ended

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Sales

$

2,002.4

 

 

$

1,757.5

 

 

$

7,320.0

 

 

$

6,452.7

 

Cost of sales

(966.5

)

 

(859.2

)

 

(3,639.7

)

 

(3,131.4

)

Gross profit

1,035.9

 

 

898.3

 

 

3,680.3

 

 

3,321.3

 

Operating costs:

 

 

 

 

 

 

 

Selling, general, and administrative expenses

(629.5

)

 

(495.0

)

 

(2,219.5

)

 

(1,728.6

)

Research and development expenses

(111.2

)

 

(108.8

)

 

(456.7

)

 

(414.3

)

Operating profit

295.2

 

 

294.5

 

 

1,004.1

 

 

1,178.4

 

Non-operating expenses, net:

 

 

 

 

 

 

 

Gain (loss) from combination of business

(0.4

)

 

 

 

40.8

 

 

 

Interest expense, net

(47.5

)

 

(26.7

)

 

(164.2

)

 

(97.0

)

Other non-operating expenses, net

(4.6

)

 

(0.4

)

 

(6.2

)

 

(3.0

)

Earnings from continuing operations before income taxes

242.7

 

 

267.4

 

 

874.5

 

 

1,078.4

 

Income taxes

(63.9

)

 

(27.3

)

 

(149.1

)

 

(160.1

)

Net earnings from continuing operations

178.8

 

 

240.1

 

 

725.4

 

 

918.3

 

Earnings from discontinued operations, net of income taxes

14.0

 

 

1,872.2

 

 

13.5

 

 

1,995.5

 

Net earnings

192.8

 

 

2,112.3

 

 

738.9

 

 

2,913.8

 

Mandatory convertible preferred dividends

(17.2

)

 

(17.3

)

 

(69.0

)

 

(34.9

)

Net earnings attributable to common stockholders

$

175.6

 

 

$

2,095.0

 

 

$

669.9

 

 

$

2,878.9

 

 

 

 

 

 

 

 

 

Net earnings per share from continuing operations:

 

 

 

 

 

 

 

Basic

$

0.48

 

 

$

0.67

 

 

$

1.95

 

 

$

2.56

 

Diluted

$

0.48

 

 

$

0.66

 

 

$

1.93

 

 

$

2.52

 

Net earnings per share from discontinued operations:

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

5.60

 

 

$

0.04

 

 

$

5.78

 

Diluted

$

0.04

 

 

$

5.52

 

 

$

0.04

 

 

$

5.69

 

Net earnings per share:

 

 

 

 

 

 

 

Basic

$

0.52

 

 

$

6.26

 

 

$

1.99

 

 

$

8.33

 

Diluted

$

0.52

 

 

$

6.17

 

 

$

1.97

 

 

$

8.21

 

Average common stock and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic

336.4

 

 

334.6

 

 

335.8

 

 

345.5

 

Diluted

340.1

 

 

339.3

 

 

340.0

 

 

350.7

 

This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when available, to more fully understand the contents of this information.

 FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)

 

 

Year Ended December 31

 

2019

 

2018

 

2017

Cash flows from operating activities:

 

 

 

 

 

Net earnings from continuing operations

$

725.4

 

 

$

918.3

 

 

$

884.3

 

Noncash items:

 

 

 

 

 

Depreciation

133.3

 

 

125.7

 

 

93.3

 

Amortization

292.9

 

 

135.1

 

 

65.0

 

Stock-based compensation expense

61.4

 

 

50.8

 

 

44.2

 

Gain from acquisition and combination of business

(40.8

)

 

 

 

(15.3

)

Impairment charges on intangible assets

 

 

1.1

 

 

2.3

 

Gain on sale of property

 

 

 

 

(8.0

)

Change in deferred income taxes

13.9

 

 

7.7

 

 

(61.0

)

Change in accounts receivable, net

(166.9

)

 

(105.9

)

 

(55.4

)

Change in inventories

118.8

 

 

(73.4

)

 

17.5

 

Change in trade accounts payable

53.7

 

 

76.2

 

 

17.7

 

Change in prepaid expenses and other assets

(163.7

)

 

63.3

 

 

(100.5

)

Change in accrued expenses and other liabilities

256.9

 

 

2.4

 

 

136.0

 

Total operating cash provided by continuing operations

1,284.9

 

 

1,201.3

 

 

1,020.1

 

Total operating cash provided by (used in) discontinued operations

(13.5

)

 

143.1

 

 

156.3

 

Net cash provided by operating activities

1,271.4

 

 

1,344.4

 

 

1,176.4

 

Cash flows from investing activities:

 

 

 

 

 

Cash paid for acquisitions, net of cash received

(3,943.9

)

 

(2,815.1

)

 

(1,556.6

)

Payments for additions to property, plant and equipment

(112.5

)

 

(112.3

)

 

(111.1

)

Proceeds from sale of property

 

 

 

 

21.5

 

All other investing activities

1.8

 

 

(42.1

)

 

1.5

 

Total investing cash used in continuing operations

(4,054.6

)

 

(2,969.5

)

 

(1,644.7

)

Total investing cash provided by (used in) discontinued operations

 

 

1,002.9

 

 

(25.0

)

Net cash used in investing activities

(4,054.6

)

 

(1,966.6

)

 

(1,669.7

)

Cash flows from financing activities:

 

 

 

 

 

Net proceeds from (repayments of) commercial paper borrowings

494.8

 

 

(266.1

)

 

556.2

 

Proceeds from borrowings (maturities greater than 90 days), net of $24.3 million of issuance costs in 2019

2,913.2

 

 

1,750.0

 

 

125.9

 

Repayment of borrowings (maturities greater than 90 days)

(455.3

)

 

(1,850.0

)

 

 

Proceeds from issuance of mandatory convertible preferred stock, net of $43.0 million of issuance costs

 

 

1,337.4

 

 

 

Payment of common stock cash dividend to shareholders

(93.8

)

 

(96.6

)

 

(97.2

)

Payment of mandatory convertible preferred stock cash dividend to shareholders

(69.0

)

 

(34.9

)

 

 

All other financing activities

13.0

 

 

39.3

 

 

13.4

 

Total financing cash provided by continuing operations

2,802.9

 

 

879.1

 

 

598.3

 

Total financing cash provided by discontinued operations

 

 

 

 

1.4

 

Net cash provided by financing activities

2,802.9

 

 

879.1

 

 

599.7

 

Effect of exchange rate changes on cash and equivalents

7.1

 

 

(40.6

)

 

52.5

 

Net change in cash and equivalents

26.8

 

 

216.3

 

 

158.9

 

Beginning balance of cash and equivalents

$

1,178.4

 

 

$

962.1

 

 

$

803.2

 

Ending balance of cash and equivalents

$

1,205.2

 

 

$

1,178.4

 

 

$

962.1

 

This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when available, to more fully understand the contents of this information.

FORTIVE CORPORATION AND SUBSIDIARIES

SEGMENT INFORMATION

($ in millions)

(unaudited)

 

 

Three Months Ended

 

Year Ended

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Sales:

 

 

 

 

 

 

 

Professional Instrumentation

$

1,231.0

 

 

$

1,000.3

 

 

$

4,427.8

 

 

$

3,655.1

 

Industrial Technologies

771.4

 

 

757.2

 

 

2,892.2

 

 

2,797.6

 

Total

$

2,002.4

 

 

$

1,757.5

 

 

$

7,320.0

 

 

$

6,452.7

 

 

 

 

 

 

 

 

 

Operating Profit:

 

 

 

 

 

 

 

Professional Instrumentation

$

171.0

 

 

$

161.3

 

 

$

547.9

 

 

$

744.6

 

Industrial Technologies

149.7

 

 

155.1

 

 

553.9

 

 

525.6

 

Other (a)

(25.5

)

 

(21.9

)

 

(97.7

)

 

(91.8

)

Total

$

295.2

 

 

$

294.5

 

 

$

1,004.1

 

 

$

1,178.4

 

 

 

 

 

 

 

 

 

Operating Margins:

 

 

 

 

 

 

 

Professional Instrumentation

13.9

%

 

16.1

%

 

12.4

%

 

20.4

%

Industrial Technologies

19.4

%

 

20.5

%

 

19.2

%

 

18.8

%

Total

14.7

%

 

16.8

%

 

13.7

%

 

18.3

%

(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 presented for reference only. Final audited financial statements will include footnotes, which should be referenced when available, to more fully understand the contents of this information.

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

Adjusted Net Earnings from Continuing Operations and Adjusted Diluted Net Earnings per Share from Continuing Operations

We disclose the non-GAAP measures of historical adjusted net earnings from continuing operations and historical and forecasted adjusted diluted net earnings per share from continuing operations, which to the extent applicable, 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 acquisition and other transaction costs deemed significant (“Transaction Costs”);
  • Excluding on a pretax basis the effect of deferred revenue and inventory fair value adjustments related to significant acquisitions;
  • Excluding on a pretax basis the effect of earnings from our equity method investments;
  • Excluding on a pretax basis the non-recurring gain on the disposition of assets;
  • Excluding on a pretax basis the non-cash interest expense associated with our 0.875% convertible senior notes;
  • Excluding on a pretax basis the cost incurred pursuant to discrete restructuring plans that are fundamentally different (in terms of the size, strategic nature, and planning requirements, as well as the inconsistent frequency of such plans), from ongoing productivity improvements (the “Discrete Restructuring Charges”);
  • 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;
  • Excluding discrete tax and other tax-related adjustments resulting from internal reorganizations effectuated in connection with the pending separation of Vontier;
  • Excluding the 2017 provisional amount estimated in connection with the Tax Cut and Jobs Act and subsequent adjustments to the provisional estimates (the “TCJA Adjustments”); and
  • Including the impact of the assumed conversion of our Mandatory Convertible Preferred Stock.

While we have a history of acquisition and divestiture activity, we do not acquire and divest of businesses on a predictable cycle. The amount of an acquisition’s purchase price allocated to intangible assets and related amortization term and the deferred revenue and inventory fair value adjustments are unique to each acquisition and can vary significantly from acquisition to acquisition. In addition, the Transaction Costs are unique to each transaction, are impacted from period to period depending on the number of acquisitions or divestitures evaluated, pending or completed during such period, and the complexity of such transactions. We adjust for, and identify as significant, Transaction Costs, acquisition related fair value adjustments to deferred revenue and inventory, 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. We believe, however, that it is important for investors to understand that such intangible assets contribute to revenue generation and that intangible assets and deferred revenue and inventory fair value adjustments related to past acquisitions will recur in future periods until such intangible assets and deferred revenue and inventory fair value adjustments, as applicable, have been fully amortized.

Furthermore, we adjust for the effect of earnings from our equity method investments over which we do not exercise control over the operations or the resulting earnings. We believe that this adjustment provides our investors with additional insight into our operational performance. However, it should be noted that earnings from our equity method investments will recur in future periods while we maintain such investments.

In June 2018, we issued $1.38 billion in aggregate liquidation preference of shares of our 5.00% Mandatory Convertible Preferred Stock (“MCPS”). Dividends on the MCPS are payable on a cumulative basis at an annual rate of 5.00% on the liquidation preference of $1,000 per share. Unless earlier converted, each share of the MCPS will automatically convert on July 1, 2021 into between, after giving effect to the prior anti-dilution adjustment, 10.9041 and 13.3575 shares of our common stock, subject to further anti-dilution adjustments.


Contacts

Griffin Whitney
Investor Relations
Fortive Corporation
6920 Seaway Boulevard
Everett, WA 98203
Telephone: (425) 446-5000


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