Veralto Corp Q3 FY2025 earnings call

• Continued consistent growth with mid-single-digit core sales growth, double-digit adjusted earnings per share growth, and over 100% free cash flow conversion for third quarter and year-to-date.
• Raised full year adjusted earnings per share guidance to $3.82 to $3.85 per share and full year free cash flow conversion guidance to approximately 100%.
• Published annual sustainability report, highlighting progress in developing sustainable products and reducing carbon footprint.
• Core sales growth broad-based across geographies and segments, with Water Quality at 5.3% and PQI at 4.6%.
• Adjusted operating profit margin at 23.9%, in line with underlying guidance assumption. Adjusted earnings per share grew 11% year-over-year to $0.99, $0.04 above the high end of guidance range.
• Recurring revenue grew high single digits year-over-year, comprising 62% of total sales.

Water Quality segment: Sales were $856 million, up 7% year-over-year. Core sales grew 5.3% year-over-year. Adjusted operating profit increased 13% over the prior year period to $225 million, and adjusted operating profit margin was 26.3%, up 150 basis points versus the prior year. PQI segment: Sales grew 6.9% year-over-year to $548 million in the third quarter. Core sales grew 4.6%, with price contributing 3.3% growth and volume contributing 1.3%. Adjusted operating profit was $139 million, resulting in adjusted operating profit margin of 25.4%.

• Fourth quarter total sales growth targeted in mid-single digits year-over-year, with total sales roughly in line with third quarter sequentially, assuming year-over-year currency benefit of ~3% and core sales growth in low single digits.
• Full year 2025 core sales growth remains mid-single digits for total company, assuming ~5% core sales growth in each segment, favorable currency rates benefiting full year sales growth by >1%, and impact from acquisitions/divestitures neutral on top line.
• Adjusted operating profit margin expected to expand ~30 basis points in Q4 versus prior year period, and flat to up 25 basis points year-over-year for full year.
• Fourth quarter adjusted EPS guidance $0.95 to $0.98 per share, and full year adjusted EPS guidance raised to $3.82 to $3.85 per share.

• Macroeconomic uncertainties and changes in global trade policies.
• Potential impacts from government shutdowns, though no material impact seen yet.
• Tariff-related impacts affecting PQI segment, including strategic growth investments and tariff mitigation costs.

Q: Can you clarify about tariffs and any ripple effects from the government shutdown on the Water Quality side?

A: Sameer Ralhan stated teams have taken strategic actions on pricing to offset tariff headwinds, and Jennifer Honeycutt mentioned no material impact from government shutdown on Water Quality.

Q: Could you talk about the durability of strength in the industrial-focused Water Quality business into 2026, especially data center-related growth?

A: Jennifer Honeycutt said data centers are a strategic priority with strong double-digit growth, a big opportunity with substantial runway for growth though a smaller portion of the business.

Q: Was the 2025 margin guidance decrease all PQI tariff-related pass-through or incremental investments?

A: Sameer Ralhan said margin guide reflects first 9 months performance and Q4 expectations, with tariff stuff lapping but some math impact and Q4 investments, mostly from PQI side.