Snapshot
Fortive Corp reported $1.52B of revenue in Q2 2025, up -2.2% year over year, with diluted EPS of $0.49 and an operating margin of 14.6%.
- Revenue
- $1.52B
- YoY growth
- +-2.2%
- Diluted EPS
- $0.49
- Operating margin
- 14.6%
What management said
- •Today's call will begin with a brief overview of our consolidated Q2 results which include the results of our Precision Technologies segment.
- •Please note that we will defer any questions related to Precision Technologies to the Ralliant team who will hold their earnings call on August 12th, 2025.
- •Today, we are also initiating guidance for Fortive's continuing operations reflecting our full year outlook and consistent with our new Fortive approach of providing clear and simplified guidance and disclosure.
- •Finally, we remain focused on executing our Fortive PACS-related strategy introduced at our Investor Day seven weeks ago and designed to drive faster profitable growth and strong shareholder value creation over the medium term.
- •Our free cash flow grew 8% and free cash flow conversion on adjusted net income was 105%.
- •From this point on, all figures and comments will refer to Fortive's continuing operations excluding the results of the Precision Technologies segment.
- •MU40 begins in Q3 as a simplified and focused company with a track record of strong, durable financial performance fortified by our 50% recurring revenues as shown on this slide.
- •Our strategy is built around three core levers for profitable organic growth acceleration, innovation acceleration, commercial acceleration and recurring customer value, all powered by our amplified Fortive Business System.
- •Our new disciplined capital allocation approach seeks to enhance this organic result with maximizing medium term equity returns as our North Star.
- •For example, Fluke's 1670 Series multifunction installation tester with TrueTest software, Fluke Connect and wireless connectivity was named Most Valuable Product in Control Engineering's 2025 Product of the Year awards.
- •At Gordian, we're seeing strong adoption of a new cloud-based assessment and capital planning module driving double-digit orders growth in that product category.
- •Moving to commercial acceleration, our Latin America growth strategy continues to run, delivering double-digit Q2 growth in the IOS segment in the region.
What went well
- •Fortive completed the spin-off of Ralliant on June 28th, 2025, ahead of the original timeline, emerging as a simpler, more focused company.
- •The company delivered consolidated Q2 adjusted EPS of $0.90 at the high end of its guidance range, with trailing-twelve-month adjusted free cash flow up 8% on a consolidated basis.
- •On a continuing-operations basis, Q2 adjusted EPS was $0.58, up 4% year-over-year, and trailing-twelve-month free cash flow grew 14% to $939 million.
- •Free cash flow conversion was strong, with trailing-twelve-month conversion on adjusted net income of 107% for continuing operations.
- •Fluke continued its recurring-revenue journey with double-digit ARR growth in the quarter, and Gordian saw double-digit orders growth in its new cloud-based assessment and capital planning module.
- •Latin America delivered double-digit Q2 growth in the Intelligent Operating Solutions segment, and software businesses across IOS and AHS showed strong net dollar retention and renewal rates.
What went wrong
- •Total Q2 revenue declined 0.4% year-over-year (core revenue down 0.7%), finishing roughly $30 million below expectations as growth turned negative in the final weeks of June.
- •Tariff uncertainty led customers to defer spending on certain short-cycle professional instrumentation at Fluke, shifting order mix to longer lead-time products and building backlog instead of revenue.
- •Constrained US government spending and fiscal tightening at state and local governments pressured Gordian's take-rate procurement revenue, with the usual June fiscal year-end spending spike not materializing.
- •Reimbursement policy changes and uncertainty caused hospitals to defer capital equipment purchases, including sterilization machines at ASP and quality assurance devices at Fluke Health, pressuring the Advanced Healthcare Solutions segment.
- •Direct tariff costs net of countermeasures created a roughly $0.02 EPS headwind in the quarter, and Western Europe, China, and Latin America were all down year-over-year.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Adjusted EPS guidance approach (continuing operations) | FY2025 / back half | — | Initiating annual adjusted EPS-only guidance with modeling help; no quarterly or organic growth guidance | New simplified approach |
| Gross tariff impact (continuing operations) | 2H 2025 | — | Approximately $40 million-$55 million | Increased since Q1 call |
| Gross tariff impact (continuing operations) | Annualized | — | Approximately $80 million-$120 million | Increased since Q1 call |
| Annual effective tax rate | FY2025 | — | Approximately 14%-16%, dropping to single digits in Q4 on discrete items | — |
| AHS back-half growth rate | 2H 2025 | — | Expected consistent with Q2 decline given ongoing reimbursement pressure | — |
| Total / IOS core growth | 2H 2025 | — | Broadly consistent with first-half core growth rates, with Q4 rebound on seasonality, tariff countermeasures, and FX | — |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total revenue (continuing operations) | Down 0.4% (core down 0.7%) | End-of-quarter customer demand pullback in late June from tariff uncertainty, constrained government spending, and healthcare reimbursement dynamics. |
| Adjusted EPS (continuing operations) | Up 4% to $0.58 | Stable adjusted EBITDA, lower interest expense on lower debt, and the positive impact of share repurchases. |
| Trailing-12-month free cash flow | Up 14% to $939 million | Operating leverage and cash generation strength supported by the Fortive Business System. |
| Intelligent Operating Solutions revenue | Essentially flat (below expectations) | Late-June order mix shift to longer lead-time products at Fluke and weak state/local government year-end spending at Gordian. |
| IOS adjusted EBITDA | Up 2% to $236 million (margin 33.8% vs 33.3%) | Lower operating costs more than offset a modest gross profit decline driven by tariff cost pressure. |
| Advanced Healthcare Solutions revenue | Down 1.3% (core down 1.9%) | Deferral of US hospital capital expenditures on healthcare equipment amid reimbursement policy uncertainty, partly offset by software outperformance. |
| AHS adjusted EBITDA | Flat at $86 million (margin up to ~26.9% from 26.6%) | Modest gross profit growth from favorable pricing and software mix reinvested into R&D, sales, and marketing. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Ralliant spin-off and launch of New Fortive | Announced September 2024; Investor Day seven weeks prior | Completed June 28th, 2025; now a simpler, more focused company executing the Fortive Accelerated Strategy | rising |
| Tariff impact and uncertainty | Discussed at Q1 call | Higher estimated gross impact; drove late-June demand deferral; countermeasures becoming a slight positive by Q4 | rising |
| Disciplined capital allocation and bolt-on M&A | Outlined at June Investor Day | Activating the bolt-on M&A engine with elevated, rigorous deal scrutiny while continuing share repurchases and a growing dividend | rising |
| Recurring revenue and software growth | — | 50% recurring revenues; double-digit ARR growth at Fluke; strong net dollar retention across software businesses | rising |
| Healthcare reimbursement and capital spending | — | Hospitals deferred capital equipment purchases ahead of the July 4 bill; management expects a shift toward higher-value OR procedures, not single-use | rising |
| Simplified investor guidance and disclosure | — | Moving to annual adjusted EPS-only guidance with modeling help to support a multi-year value creation plan | rising |
Q&A summary
Julian Mitchell (Barclays) asked about the second-half EPS cadence between Q3 and Q4 and why such a big sequential lift is expected in Q4.
Mark Okerstrom said normal seasonality drives a Q2-to-Q3 step-down compounded by continued Q3 tariff impact, while Q4 benefits from full tariff countermeasures turning slightly positive, FX tailwinds, a single-digit Q4 tax rate, lower interest expense, and share repurchase benefits.
Julian Mitchell also asked how the Gordian government pressure and the healthcare weakness would play out from here.
Olumide Soroye explained the three discrete late-quarter items: Gordian's weak state/local year-end spending (projects deferred but pipeline intact), hospital capital equipment deferral ahead of the July 4 bill (already partly recovering in July), and Fluke's short-cycle to long-cycle mix shift that built burnable backlog; guidance is secure across any timing of recovery.
Nigel Coe (Wolfe Research) asked why AHS would not improve in the second half if the June dislocation was temporary.
Soroye cited a tough Q3 2024 comp for AHS and a prudent assumption that hospital deferrals take longer to unwind than Fluke's backlog, so AHS back-half growth is expected to stay around the down-2% range while IOS rebounds faster.
Stephen Tusa (JP Morgan) questioned the rationale for moving to EPS-only guidance and whether the bolt-on M&A approach was changing.
Okerstrom said the simplified annual adjusted EPS guidance responds to investor feedback and supports the multi-year value creation plan; Soroye said capital allocation now dynamically balances buybacks and accretive bolt-ons with elevated scrutiny, drawing on proprietary deals cultivated during the quiet period, holding a high bar but open for business.
Andy Kaplowitz (Citigroup) asked about Fluke's deferred spending and trends in China and Europe.
Soroye said Fluke's fundamentals are unchanged with strong brand, margins, and 15% recurring revenue; North America point-of-sale is expected to stay strong (double-digit POS), Western Europe and most of APAC are flattish, and China appears to have bottomed with improvement expected as tariff frameworks settle.
Deane Dray (RBC) asked about stranded costs and whether New Fortive is appropriately sized post-spin.
Okerstrom said the company is broadly on track with prior guidance, roughly half of stranded costs are already removed with the rest targeted over about 12 months, and the team is pursuing additional cost-discipline opportunities to redirect dollars to their highest and best use.