Veralto Corp Q4 FY2025 earnings call

Management Statement and Operational Highlights

• 2025 Performance: Finished 2025 with a strong fourth quarter, total sales grew 6% year-over-year to $5.5 billion, an all-time high. Core sales grew 4.7%, adjusted earnings per share was $3.90, up 10% year-over-year, and over $1 billion of free cash flow was generated.
• Regional and Segment Growth: Growth was broad-based across key verticals and regions. North America and Western Europe, comprising about 70% of total revenue, saw core sales growth of 5.3% and 3.8% respectively. High-growth markets had core sales growth of 5.1% year-over-year.
• Acquisitions: In 2025, acquired AQUAFIDES and In-Situ. Acquisition of In-Situ expands the water analytics portfolio into fast-growing environmental water and hydrology markets.
• Innovation: Continued investment in R&D, with new product launches like a new ammonia analyzer in Water Quality and a new AI-enabled solution in PQI's packaging and color software.

Segment Performance

• Water Quality: Fourth quarter total sales were $846 million, up 4.3% year-over-year. Currency was a 240 basis points tailwind, and the acquisition of AQUAFIDES contributed 50 basis points of growth. Core sales grew 1.4% year-over-year, led by price increase of 1.8%. Volumes decreased modestly due to 3 fewer shipping days. For the full year 2025, core sales growth was 4.7%, driven largely by volume, and adjusted operating profit grew 9.4% to $858 million, resulting in 80 basis points of margin improvement.
• PQI: Fourth quarter total sales were $550 million, up 3% year-over-year. Currency was a 280 basis points tailwind, and net divestitures reduced sales by 1.6% year-over-year. Core sales grew 1.8%, with price up 3% and volume down 1.2% due to 3 fewer shipping days. For the full year 2025, PQI delivered 4.8% core sales growth and an adjusted operating profit margin of 26.5%.

Guidance

• 2026 Outlook: Targets core sales growth in the low to mid-single-digit range. Total sales growth, including acquisitions and FX, projected in the mid to high single-digit range. Adjusted operating profit margin targeting approximately 25 basis points of year-over-year improvement. Adjusted EPS guidance for full year 2026 is $4.10 to $4.20 per share, mid to high single-digit growth over prior year. Q1 2026 targets core sales growth flat to low single digits, total sales growth mid to high single digits, adjusted operating profit margin ~24.5%, and adjusted EPS $0.97 to $1.01 per share.

Risks

• Forward-Looking Statements: Forward-looking statements are subject to risks and uncertainties, including those in SEC filings.
• Geopolitical and Tariffs: Tariffs and geopolitical dynamics can impact operations and margins.
• Acquisition Integration: Challenges in integrating acquisitions like In-Situ, including initial costs and realizing synergies.

Question and Answer

• Q: Since we're at the start of the year, what's your expectations on muni CapEx and differences in demand trends from municipal customers versus industrial? A: Jennifer Honeycutt: We see steady demand in water quality markets across muni and industrial. Relatively insulated from CapEx fluctuations as 60% of business is recurring revenue. Strong growth in industrial markets supporting data centers, and government funding continues for muni.
• Q: Your guidance of 50 basis points of margin expansion ex In-Situ. Any color on puts and takes? A: Sameer Ralhan: 50 basis points margin expansion from core business driven by pricing and tariff headwinds rolling off. Offset by investments in services and sales. In-Situ acquisition has upfront costs but will be accretive net year-over-year.
• Q: Hoping to drill down into PQI and high-protein boom. Could that be a volume driver? A: Jennifer Honeycutt: CPG market is stable with solid demand. New product innovations like UV laser are beneficial. Secular drivers like proliferation of brands and SKUs support volume growth in coding and marking.