Veralto Corp Q4 FY2024 earnings call

• 2024 saw accomplishments like delivering financial commitments, increasing growth investments, and disciplined capital allocation. • 2024 financial results: Total sales grew 3.4% to ~$5.2 billion, core sales grew 3.7%, adjusted operating profit margin expanded 80 points, adjusted earnings per share grew 11% to $3.54, and free cash flow was $820 million. • Fourth quarter 2024: Core sales grew 4.6%, adjusted earnings per share grew 9% to $0.95, free cash flow $263 million. • Segment highlights: Water Quality had 3.7% sales growth, core sales 4.9% growth; PQI had 5.4% sales growth, core sales 4.1% growth. • 2025 guidance: Targets low to mid-single-digit core sales growth, adjusted EPS range $3.60 - $3.70 per share, free cash flow conversion 90% - 100% of GAAP net income, Q1 2025 core sales low to mid-single-digit growth, adjusted EPS $0.84 - $0.88 per share.

In 2024, total sales grew 3.4% year-over-year to just under 5.2 billion. Water Quality segment delivered $811 million of sales, up 3.7% on a year-over-year basis, core sales grew 4.9% year-over-year. PQI segment sales grew 5.4% year-over-year to $534 million in the fourth quarter, core sales grew 4.1%. In Q4 2024, Water Quality had $811 million sales, up 3.7% y-o-y, core sales grew 4.9% with volume 3.3% and pricing 1.6%, adjusted operating profit $207 million, margin 25.5%. PQI had $534 million sales, up 5.4% y-o-y, core sales grew 4.1% with volume 2.9% and price 1.3%, adjusted operating profit $133 million, margin 24.9%.

• Full year 2025: Aims for low to mid-single-digit core sales growth, adjusted EPS between $3.60 and $3.70 per share, free cash flow conversion 90% - 100% of GAAP net income, expects margin expansion of 25 to 50 basis points. • Q1 2025: Anticipates core sales low to mid-single-digit growth across segments, adjusted operating profit margin 24% - 24.5%, adjusted EPS $0.84 - $0.88 per share.

• Forward-looking statements are subject to risks and uncertainties outlined in SEC filings. • Currency translation can affect sales and earnings. • Macroeconomic factors may impact end-markets. • Risks related to portfolio optimization such as potential divestitures or acquisitions.

Q: Break down margin expansion thinking for segments, A: Similar contribution from both segments, core growth in low-single to mid-single range and similar margin expansion.

Q: Progression of DDR and VES initiatives, A: Honed VES toolset, focused on commercial execution, new product development, and factory optimization.

Q: Impact of growth investments on margins, A: TraceGains was dilutive to PQI margins, equipment mix had an impact, and there were investments in R&D and cost optimization.

Q: Investment in Axine, A: Proving technology, with a competent science team canvasing the market for opportunities.

Q: End-markets change since last talk, A: Continuation of trends with strength in Industrial Water, Analytics, and CPG markets.

Q: Cadencing and seasonality in guide, A: Consistent cadence, trends continuing with not much seasonality.

Q: Margin expansion comparison 2024-2025, A: 2024 margin expansion was broad-based, 2025 expected similar with targeted investments.

Q: Incremental margins, A: Expect 40% incremental margins in 2025, with a long-term view of 30% - 35%.

Q: CPG market recovery, A: Six consecutive quarters of recurring revenue growth, three quarters of equipment sales growth.

Q: Portfolio optimization, A: Every product line must earn its place in the portfolio, with changes including investments, attenuation, or divestment.

Q: Impact of Trump Administration on segments, A: Strength in water and PQI businesses as they provide essential public health and safety.

Q: Tariffs impact, A: Guidance does not reflect sustained tariff disruption, with supply chains diversified.

Q: Water side growth drivers, A: Strong growth in food & beverage, power generation, and datacenter cooling.

Q: Free cash flow guidance, A: 2025 guidance is below the medium-term target due to CapEx and working capital, expected to improve in 2026.

Q: Tariffs sourcing and impact, A: Sourcing is diversified, with Trojan in Canada and China supply chains diversified.

Q: PQI margin contraction, A: Factors like TraceGains dilutive, cost optimization, R&D, and equipment mix contributed to the margin contraction.