Veralto Corp Q1 FY2025 earnings call

· Recognized 17,000 associates globally for their commitment. · Delivered 7.8% core sales growth, 50 basis points of adjusted operating margin expansion, and double-digit adjusted EPS growth. · PQI: 8.3% core sales growth, with marking and coding having 4 consecutive quarters of year-over-year growth in consumables and equipment; water quality: 4% core sales growth, with strong growth in North America water treatment solutions and double-digit growth in Europe analytics. · Completed CEO Kaizen Week to drive continuous improvement. · Acquired AQUAFIDES, expanding UV treatment portfolio. · Trojan's U.S. factory in Grand Rapids opened to mitigate tariff impact.

The PQI segment saw sales grow 8.3% year-over-year to $538 million in the first quarter. Core sales growth was led by volume growth of 6.7% and price increases contributing 1.6%. Recurring revenue grew high single digits, and equipment growth was mid-single digits. Adjusted operating profit was $153 million, with an adjusted operating profit margin of 28.4%, an increase of 40 basis points year-over-year. The Water Quality segment delivered $794 million of sales, up 6% year-over-year. Volume growth was driven by strong demand for water treatment solutions in industrial end markets and UV treatment systems in municipal end markets. Recurring sales grew high single digits, and equipment growth was mid-single digits. Adjusted operating profit increased 7.5% year-over-year to $200 million, with an adjusted operating profit margin of 25.2%, up 40 basis points versus the prior year.

· Reaffirmed 2025 full year adjusted EPS guidance of $3.60 per share to $3.70 per share. · Core sales growth target remains mid-single digits. · Adjusted operating profit margin target is flat to up 50 basis points. · Second quarter core sales growth expected in the low to mid-single-digit range, with adjusted EPS guidance of $0.84 to $0.88 per share.

· Tariff impacts and related uncertainties. · Macro-economic environment uncertainties affecting business operations.

Q: Congrats on the start of the year. I hate to do it, but I have to ask on tariffs because that's just so much of our incomings and you guys seem pretty confident in your ability to mitigate, but perhaps maybe provide a little bit more color on the sequencing.

A: Thanks for the question, Scott. Yes, I think we feel very confident here. Our gross exposure to tariffs is about 3.5% of our sales. And bear in mind that in terms of running Varalto and using VES, we are constantly looking for opportunities to optimize the business, be that operational footprint, pricing, supply chain and strategic sourcing kinds of opportunities. And so in fact, we always have this going on. We've accelerated some of the actions purely around derisking what we see today. But I would reiterate, as I said in the comments, we're well positioned here. So pricing actions have been and will continue to be undertaken. We additionally derisk our Trojan manufacturing facility based in Canada by pulling forward some redundant manufacturing capability into their new manufacturing facility and distribution center in Grand Rapids, Michigan. And we continually work to align our supply chain and our sourcing strategies relative to derisking our tariff situation. So bear in mind, too, that we are effectively an asset-light manufacturing operation. Most of our business here is subassemblies and kitting, circuit boards, plastic enclosures, optics and so on. So there's no additional capital needed to create redundant lines or, in fact, move manufacturing lines. And we do that regularly in the normal course of business. On average, we can move a line within a 6-month time frame. Some take longer, but we feel like we're really well positioned here.

Q: Congrats on the start of the year. I hate to do it, but I have to ask on tariffs because that's just so much of our incomings and you guys seem pretty confident in your ability to mitigate, but perhaps maybe provide a little bit more color on the sequencing.

A: Thanks for the question, Scott. Yes, I think we feel very confident here. Our gross exposure to tariffs is about 3.5% of our sales. And bear in mind that in terms of running Varalto and using VES, we are constantly looking for opportunities to optimize the business, be that operational footprint, pricing, supply chain and strategic sourcing kinds of opportunities. And so in fact, we always have this going on. We've accelerated some of the actions purely around derisking what we see today. But I would reiterate, as I said in the comments, we're well positioned here. So pricing actions have been and will continue to be undertaken. We additionally derisk our Trojan manufacturing facility based in Canada by pulling forward some redundant manufacturing capability into their new manufacturing facility and distribution center in Grand Rapids, Michigan. And we continually work to align our supply chain and our sourcing strategies relative to derisking our tariff situation. So bear in mind, too, that we are effectively an asset-light manufacturing operation. Most of our business here is subassemblies and kitting, circuit boards, plastic enclosures, optics and so on. So there's no additional capital needed to create redundant lines or, in fact, move manufacturing lines. And we do that regularly in the normal course of business. On average, we can move a line within a 6-month time frame. Some take longer, but we feel like we're really well positioned here.

Q: Congrats on the start of the year. I hate to do it, but I have to ask on tariffs because that's just so much of our incomings and you guys seem pretty confident in your ability to mitigate, but perhaps maybe provide a little bit more color on the sequencing.

A: Thanks for the question, Scott. Yes, I think we feel very confident here. Our gross exposure to tariffs is about 3.5% of our sales. And bear in mind that in terms of running Varalto and using VES, we are constantly looking for opportunities to optimize the business, be that operational footprint, pricing, supply chain and strategic sourcing kinds of opportunities. And so in fact, we always have this going on. We've accelerated some of the actions purely around derisking what we see today. But I would reiterate, as I said in the comments, we're well positioned here. So pricing actions have been and will continue to be undertaken. We additionally derisk our Trojan manufacturing facility based in Canada by pulling forward some redundant manufacturing capability into their new manufacturing facility and distribution center in Grand Rapids, Michigan. And we continually work to align our supply chain and our sourcing strategies relative to derisking our tariff situation. So bear in mind, too, that we are effectively an asset-light manufacturing operation. Most of our business here is subassemblies and kitting, circuit boards, plastic enclosures, optics and so on. So there's no additional capital needed to create redundant lines or, in fact, move manufacturing lines. And we do that regularly in the normal course of business. On average, we can move a line within a 6-month time frame. Some take longer, but we feel like we're really well positioned here.