Snapshot
Fortive Corp reported $1.03B of revenue in Q3 2025, up 2.3% year over year, with diluted EPS of $0.35 and an operating margin of 15.5%.
- Revenue
- $1.03B
- YoY growth
- +2.3%
- Diluted EPS
- $0.35
- Operating margin
- 15.5%
What management said
- •As a reminder, we successfully completed the separation of our Precision Technologies segment, now operating independently as Rallian, on June 28, 2025.
- •Our results and outlook discussed today are on a continuing operations basis unless otherwise specified.
- •First, our teams are executing very well with laser focus on driving profitable organic growth with the power of our Fortive Business System.
- •This drove solid results ahead of our expectations, including core growth of roughly 2%, adjusted EBITDA growth of 10%, and adjusted EPS growth of 15%.
- •Though we aspire for much better as we continue executing our growth strategy, we were pleased to see acceleration in the business.
- •We now expect to deliver between $2.63 and $2.67 per share, reflecting our adjusted EPS overperformance in the third quarter, the impact of incremental Q3 buybacks, and our otherwise unchanged view on Q4.
- •Third, we deployed capital in the quarter in accordance with our new approach anchored in delivering the strongest relative returns for shareholders.
- •During the third quarter, we deployed $1 billion to share repurchases, retiring approximately 21 million shares or 6% of our fully diluted share count.
- •We are focused on delivering benchmark-beating shareholder returns by leveraging FBS to accelerate profitable organic growth, allocating capital intelligently to optimize shareholder returns over the medium to long term, and rebuilding investor trust.
- •This marks a further foray into the high-growth solar operations vertical and increases customer productivity by reducing troubleshooting time and decreasing hazard exposures in the quarter.
- •We also recently stepped up our efforts in South Asia, including India, as our region continues to see exceptional economic growth.
- •We saw significant acceleration in the region across both segments, and we are confident that our enhanced regional presence will drive strong momentum in this high-growth region in the years to come.
What went well
- •Q3 was Fortive's first quarter as a simpler, more focused company following the successful spin-off of the Precision Technologies segment as Rallian on June 28, 2025, with results coming in ahead of expectations.
- •Core revenue grew roughly 2%, adjusted EBITDA grew 10% to $309 million with margin expanding about 200 basis points to 30%, and adjusted EPS grew 15% to $0.68, all reflecting acceleration from Q2 levels.
- •Fortive deployed about $1 billion to share repurchases in the quarter, retiring approximately 21 million shares or about 6% of the fully diluted share count at valuations management found attractive.
- •Fluke returned to growth in the quarter with order growth, strong point-of-sale especially in North America, and a book-to-bill tracking north of one for the year.
- •The company generated $266 million of free cash flow in the quarter, with trailing-twelve-month free cash flow growing to $922 million and conversion comfortably above 100% of adjusted net income.
- •Recurring revenue continued to outpace consolidated growth, with Landauer and healthcare software cited as strong recurring contributors.
What went wrong
- •Adjusted gross margin declined about 60 basis points overall, driven by tariff-related costs only partially offset by pricing and supply chain countermeasures.
- •Europe revenue was down year-over-year and worsened modestly from Q2 on weakening macro conditions, with Western Europe described as the softest market for most of the year.
- •AHS healthcare customers remained cautious amid reimbursement and funding policy changes, deferring U.S. hospital capital expenditures on healthcare equipment.
- •Tighter fiscal policy and constrained funding continued to pressure government demand for Gordian procurement and estimating solutions.
- •Direct tariff costs net of countermeasures created roughly a $0.01 headwind to adjusted EPS in the quarter.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Adjusted EPS (full year) | FY2025 | — | $2.63 to $2.67 | Raised, reflecting Q3 overperformance and incremental Q3 buybacks, with an unchanged view on Q4 |
| Core growth | Q4 2025 | — | Expected to moderate; AHS broadly in line with Q3, very modest core growth at IOS | Moderating |
| Tariffs net of countermeasures | Q4 2025 | — | Not expected to be material | — |
| Tax rate | Through 2026 | — | Mid-teens (roughly 14%) | Some upside risk from Pillar Two proposals if the U.S. is not excluded |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total revenue | Up roughly 2% (reported and core) | Growth at both IOS and AHS with modest outperformance versus expectations in both segments. |
| Adjusted EBITDA | Up 10% to $309 million | Operating leverage, deliberate organizational streamlining, and sharpened corporate cost discipline; margin expanded about 200 basis points to 30%. |
| Adjusted EPS | Up 15% to $0.68 | Growth in adjusted EBITDA, favorable interest expense on lower debt balances, and the positive year-over-year impact of share repurchases. |
| Intelligent Operating Solutions revenue | Up just over 2.5% reported, 2% core | Demand for facility and asset lifecycle software, resilient professional instrumentation demand, and strong growth in gas detection products. |
| IOS adjusted EBITDA | Up 7% to $242 million | Operating leverage and reduced costs from flattening and rationalizing segment-level structures; margin grew to 34.6% from 33.3%. |
| Advanced Healthcare Solutions revenue | Up about 2% (just over 1% core) to $328 million | Reimbursement and funding policy changes deferred U.S. hospital capital expenditures, partially offset by sequential demand improvement and solid software growth. |
| AHS adjusted EBITDA | Up approximately 7% | Operating leverage and flattened organizational structures, partially offset by modest incremental R&D investments. |
| IOS adjusted gross margin | Down just over 90 basis points to 65.7% | Tariff cost pressures partially offset by pricing and supply chain countermeasures. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Fortive Accelerated strategy (innovation, commercial, recurring value) | Outlined at June Investor Day | Now in execution mode with early progress across all three growth levers | rising |
| Capital allocation / share repurchases | — | $1 billion deployed to buybacks in Q3; balanced approach favoring buybacks and smaller bolt-on M&A, with no transformational M&A required | rising |
| Recurring revenue mix | Fluke roughly 5-6% recurring five years ago, near 0% ten years ago | Fluke now about 15% recurring; recurring revenue growing faster than fleet average with no set ceiling | rising |
| Healthcare reimbursement and funding policy headwinds | Flagged last quarter as deferring hospital capital expenditures | Sequential improvement in North America capital demand as deferred orders began getting funded in September and October | steady |
| Regional demand divergence | Western Europe soft most of the year; brief improvement in Q2 | North America strongest; Western Europe softest and not improving; rest of world mixed and stable | steady |
| Margin expansion and cost discipline | — | Strong Q3 margin expansion from cost discipline and one-timers, with some savings to be reinvested for growth in Q4 | rising |
Q&A summary
Why does the Q4 guide not assume much sequential pickup in EBITDA margin, and was Q3 a stars-aligning quarter? (Nigel Coe, Wolfe Research)
Q3 overperformance came partly from revenue but largely from cost discipline visible in both corporate and segment costs, much of it discrete actions taken to free up resources ahead of annual planning. The company plans to redeploy some freed-up resources in Q4 and noted a few one-timers (incentive compensation, increased software development capitalization); it will maintain cost discipline but reinvest some of the benefit.
How is the government shutdown affecting performance into October? (Nigel Coe, Wolfe Research)
Fortive's government exposure is mostly state and local agencies, so the federal shutdown is not a big factor; direct federal exposure is small (some in Fluke and AHS). Management feels good about its guidance based on what it knows today, while noting the difficulty of predicting shutdown duration.
What is the thinking behind the sizable buyback and where does M&A stand in priorities? (Deane Dray, RBC Capital Markets)
The $1 billion buyback reflected strong free cash flow, Rallian dividend proceeds, and an attractive share valuation. Buybacks will be a major part of capital allocation, balanced against smaller bolt-on M&A; the company is not pursuing transformational M&A, and its three-year value-creation plan does not require M&A. It will choose the path offering the best relative returns.
How are AHS equipment versus consumables demand trends evolving given policy and funding headwinds, and what does it mean for next year? (Julian Mitchell, Barclays)
AHS software remains strong. Capital equipment saw encouraging sequential improvement in North America as customers gained more certainty, with deferred deals increasingly funded in September and October; consumables remain solid with the biggest markets growing. Overall demand improved sequentially across most regions.
Why is organic growth expected to moderate in Q4 relative to Q3? (Chris Snyder, Morgan Stanley)
Q4 faces a tougher comp, and there was a snapback in Q3 (about $30 million) of demand that had been pulled forward into Q4 last year, particularly acute in IOS. Underlying IOS and AHS trends are broadly consistent and encouraging, but timing shifts move some volume from Q2 to Q3 and out of Q4.
What does 'growth oxygen' for the 10 operating brands encompass and how will it flow to organic growth? (Joseph O'Dea, Wells Fargo)
Through the strategic planning process, Fortive assembled a funnel of underleveraged organic growth ideas across its brands (product enhancements, commercial capacity in markets like data centers and India, add-on services and software). It will disciplined-fund the highest-confidence, best-return ideas using P&L space created in Q3, treating Q4 as a surge to execute faster into 2026, with some initiatives like commercial capacity adds having short time to impact.