VLTO - Earnings call 3 2023 | Veralto Corporation

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Operator

My name is Shelby, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's Third Quarter 2023 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference.

Ryan Taylor

everyone. morning, Good call us Honeycutt, joining Sameer call. With today Financial me our webcast. Thanks President on and Jennifer Officer. Today's Chief and our Vice and simultaneously Chief are being Senior for President the is Executive Ralhan, Officer, will the under section until today available on heading our remain available Events & next A of webcast the website call. our replay be of will quarterly later the Investors Presentations and call this will be November until XXXX. of available XX, replay A

that begin, yesterday financial and to issued materials, www.veralto.com, SEC I'd quarter like in the release, we including or by measures. Quarterly out news point Before are website, available third under heading we the to required non-GAAP any materials adjusted relating our section earnings Investors supplemental our Earnings. These Regulation presentation G information of

non-GAAP all to EBITDA and profit I standalone costs by measures, adjusted highlight as basis, incremental want adjusted presenting are that including periods. relates estimated it for As we operating on standalone a to management

adjusted relate presenting figures and variances share, to provided year-over-year structure. quarter are all slides. adjusted of also Unless interest the including Reconciliations to of XXXX, our non-GAAP references third metrics new otherwise are measures related all appendix and costs diluted financial in all are expense We to webcast standalone the capital basis. incremental per the of noted, earnings and a on

call speak make forward-looking the our not statements, risks statements assume including meaning occur or a that, materially the the required set may These forward-looking except of forward-looking may from and results of forward-looking turn they're law. And the statements future. Jennifer. statements federal as including within will any we'll made, statements that recent in we that those subject developments Actual events forward-looking do make believe today. statements we as any to over I'll obligation the uncertainties, any we to forth to that date filings. laws, During update regarding the by of or number and most differ call, These in only with SEC are or securities anticipate

Jennifer Honeycutt

Thank joining an company. independent appreciate you you, for earnings Ryan, traded and good Veralto's morning, call first everyone. We as publicly us

The quarter from accomplished achievement. just this of from remarkable completed the We we significant successfully over XXXX milestone third marks announcement, separation a for Danaher. XX as in our Veralto months a time truly

During the the framework operating adjusted leverage of sales Through of and basis cash profit hand by net separation, execution while $XXX expanded that our disciplined our over Xx. Sustainability support financial strategic attributes capital approach of months XX Report our delivered first income related free XXXX with X margin flow. We event, issued solid in allocation. X%, customers. third first into event. we that for quarter, third long-term with the cash along growth below At we extraordinary XXX% filed to in and to and strong team of million Veralto, value to core a our hosted position and investor we our year, points on driving quarter converted ended I'm this of that described proud effort our operating the of shareholder create Form-XX, key differentiate their also our

you and that share per I'm free to flow position share dividend announce pleased strong $X.XX a financial cash in of our Given expect profile, with quarterly we XXXX. to QX

start positive energy and there as Veralto. great public a is to off a throughout are We company,

excited create of opportunities is about the for to in value tremendously Our shareholders. team front significant us

face as water technology a most record proven global I'll some with leader a we quarter, Veralto into results solving track of society. a product Before with solutions, those story. the to overview quality our Veralto a the open of and of brief may essential be we for of in who the dive complex new and challenges is

Our and are or approximately Product billion, for Water Quality & annual short. segments; X Innovation, Quality PQI and are sales in organized we reporting $X

about represents sales, brands water positioned value and segment total treatment. water Quality analytics in Water the XX% with and high of Our continuum is leading end at of the

represents is track a as coding their packaging improvement. industries Across POI and leader solutions. XX% leaders and and innovation, are both our technology, of of commercial with Our in about sales, continuous and segments, brands segment key color design as marking excellence respective well long in records

leveraging by and customers solve is technologies expertise team to global innovative help and challenges. over we XXX,XXX than complex more XX,XXX serve Our our strong, customers our scientific

production of our Our in customers our and are are and to services role is is are operations medicines. ensure cost foods environments sales technologies to Approximately, and play an the help consume. and high. tied water of beverages drinking in is authentic and water, medicine failure our pure, typically customer's We where food used integral XX% safe

Turning QX. now to

favorable, lower remained a demand inflation goods. Our chains towards as packaged in for and to macro consumer from supply in to continues team delivered Pricing headwinds both dynamic environment quarter a weakness broad and solid but moderate normalize historical flows. we levels face as and sequentially China year-over-year continue

in are historical was with our digit the cadence following X%, delivered to and of billion our maintaining year, growth our investments. In sales R&D this proactively of improving healthy bringing core Core mid-single growth we delivering incremental income. recurring. were stack free $X.XX XXXX, efficiency was the EPS third rate. including net EBITDA the macro we margin is growth Veralto was a Additionally, and while XX% dynamic our cost X-year sales, in cash over growth to environment, XX.X%, flow, X%, quarter QX or structure, System. XX% results growth million per line in XX.X% a was reflects which core and $X.XX cost profit of and Enterprise testament share. Adjusted a standalone generated of with million ability adjusted or navigate sales, This we $XXX performance of to operating Adjusted $XXX of XXX%

In Water in to both and year-over-year, water ChemTreat analytics. In program sales strong we commercial new penetration former execution. our Trojan, modest sales declined across growth of core expertise markets Europe. led with high-teens. X.X% increased our high-growth sales growth water Looking core by win along Water our continue was with core at the systems sales In Western Aria a businesses America strong core the in our saw and industrial municipalities, to grew by where North and Trojan good our end in saw ChemTreat At strong Filtra, growth across China, sales mobile customers in geography. now at Quality North at from water On volumes treatment, growth predominantly treatment Pall basis, by due combined at America, growth regions, steady brand. highlighted declined in X.X% and UV weakness through X% and technical rental

reflect sales packaging with core North For X.X% Western were was and hardware delivered In more and PQI, flat growth as led X.X% analytical color core consumables, water core equipment. growth marking PQI, sales a America high sales and with of flat. coding sales and contributing was In by high-teens, by Water in sharp decline quality sales declined in than core by by broad coding growth. At in modest Eastern offset for Europe, in sales more at decrease in we and than packaging the instruments down PQI highest of were look software France Germany When Europe Latin water, sales In and These marking modest growth sales the India color economy. sales PQI in markets, of weakness Quality than XX% down with was core China. equipment. declines and lower growth China's modest offset high-growth more was America, growth China, into offset year-over-year. design

Despite and for to in growth Sameer Looking review persist. Quality consumer year-over-year drivers anticipate lower long sales financial our this these near-term in for PQI, weakness a confident call detailed Water secular remain both in ability volumes of and ongoing third over ahead, point, packaged global digits the quarter to to we in goods term. At turn mid-single I'll and grow over headwinds, we the China our performance. attractive core the the

Sameer Ralhan

our Thanks, Slide good results on begin Jennifer, morning, and with everyone. I'll X. consolidated

Third sales year-over-year grew a on billion. quarter to basis net $X.XX X%

contributed Our X%. X.X%, core acquisitions overall growth. contributed point sales up to were X.X sales and Currency

quarter to period. the inflationary in to to execute over pricing well X.X% year prior continue Pricing We contributed growth on the sales mitigate third pressures.

points million. You operating Note presented basis the prior was GAAP on due can here to profit growth in down inflation. basis, include quarter. Adjusted basis standalone We that higher of quarters incremental earnings. profit, points on net related SG&A conversion XX benefit adjusted XX.X%, basis this up year-over-year, year-over-year see increased margin costs. of Adjusted year-over-year. XX primarily XX.X%, to profit generated an gross million third year margin representing from free operating both labor Gross XXX% which and was cost cash X% flow, $XXX flat to $XXX our a was investments

chart. next with Moving starting the I'll to Water business cover segment the highlights, Quality.

due for strong China that are profit a investments representing sales X% higher up XX%. more growth core customers, profit of both as for XX.X% about businesses, Core the to period, year-over-year growth $XXX adjusted X% X% delivered lower segment year, contributed a profit of prior across with ChemTreat performance. municipal increased offset on with periods year-over-year to up biggest volume costs. incremental grew a operating the points, sales of the costs. basis. and margin in offsetting the Trojan in in growth Note in positive X-month across stack standalone was of in to increase we presented first the Quality water Pricing the water Water Water operating than sales compared Our up drove core X% impact. in sales, both a modestly X%, treatment which Currency Adjusted allocation note, volume. On an core X includes down operating volume overall X-year Quality impact and lower weakness analytics adjusted period, in industrial here increased labor bringing businesses, year-over-year X% sales the basis months to growth XX year was Water and an by million Through Quality benefit. margins

next to the page. Moving

for solutions whereas operating PQI X% and SG&A from coding $XXX core costs for million, was goods rate and and the of lower end Based are was year the down markets quarter, perspective, profit growth its by includes profit up million decreased weakness of the PQI. sales signs benefit volume packaged Pricing coding our X.X%, the we see historical in packaging a consumer largely year-over-year of in and course, lower product benefit, PQI were down quarter, delivered of has and product mid-single-digit labor adjusted coding year-over-year the Improved for of year-over-year about volume Core a the in offsetting lower related core were growth. expect standalone points third recurring marking China color benefits actions third X% declines to to year-over-year destocking portfolio in up prior stabilization segment positive for incremental China. sales a operating the and costs. to note, sequentially. believe of a consumer segment. From we consumables were of basis. of reflecting to year. Over on confident margin customer said, persist beginning quarter and the that period. the time, impact sales investments contributed flat, on demand was return in XX.X%, markets Our we're and business our we sales sales and XX to in across cost the the will demand X% growth solutions on in X% PQI's sequentially Again, That insights, our X% Currency optimization the were primarily adjusted and core we marking a higher offset marking and basis. through on X.X% was goods acquisitions that X% low run sales a of and basis business. balance versus broader to pricing the packaged some $XXX impact of partially

and of adjusted peso Additionally, impact quarter Argentine unfavorable the PQI's profit had margin. on devaluation an the during operating

margin X.X%, the Excluding currency improved adjusted have PQI adjusted margin profit profit basis PQI's this core were operating first impact, year-over-year. X XX up operating discrete with months Through down the modestly points. year, would of in sales

to now on page. position next the Turning financial our

of million invested cash in During operations, $XX and the we capital expenditures. quarter, from $XXX generated we million

free million quarter, GAAP $XXX result, was net earnings. a flow the cash XXX% conversion As or of in

businesses. our cash This the did in capabilities that have related not quarter any again strong interest cash we QX. costs of demonstrates free flow generation payments to Note

interest payments we'll first the third have of year. forward, the semiannual in Going quarter and

just Day, Investor growth, capital XX, under September $X.X and balance to how million. gives sheet. resulting our investment-grade billion As in X.Xx. In At of quarter discussed summary, during and we was capital our value. Net $XXX This us cash earnings on we financial was framework hand billion, shareholder strengthened grounded framework. we driving create debt position is of compounded deploy leverage and while maintaining debt flexibility long-term in gross have was liquidity. $X.X ample the allocation our in our an policy financial Conceptually, net

is shareholders. initiate to of to we ROIC in and growth cash investments in allocation each drivers such approval also Board a we return organic strategic fourth this drive dividend. with line earnings $X.XX opportunities, of of to capital aligned starting this Our flow bias In that with growth Within and capital through dividend maintain both value acquisitions growth in framework, the per share, drive compounding subject to long-term year, respect businesses quarterly framework, the by Directors to our our with cash to intend quarter secular with flexibility creation. high of

fourth guidance now for Turning our year. quarter and full to the

markets sales basis to profit be the on XX.X%. of to We on points anticipate mid-single end PQI points be ongoing due segment, to quarter, decline digits. China fourth range in digits This on to basis. expect core This basis. flat to In sales the operating last we adjusted assumes low in consumer weakness down the packaged sequential segments. weakness to segment, given growth single comp, we basis, ongoing expect low XX% to sales consolidated expected basis across XXX with expect in core another is our year-over-year QX the in a flat we Water core XX.X% XXX That's about year. In be Quality an to tough better a a margin down goods year-over-year. both For year-over-year

earnings of approximately QX approximately of $X.XX adjusted assumes diluted of per that Our is million. and guidance diluted $X.XX. to shares per tax XXX share XX% the the share adjusted amortization for in range outstanding Note reflects earnings expense, rate excludes

year, adjusted year-over-year EPS at low full effective of an and sales growth guidance we This on assumes shares for and single-digit million. Water full-year the our to PQI. a diluted basis. the of rate is grow Quality per decline at assuming $X.XX to XXX tax low XX% core approximately in range the For expect XXXX mid-single-digit single-digits And $X.XX share, outstanding around

excludes interest Despite the and adjusted expense the macro deliver to that, quarter. With control standalone our to million. call, pre-tax incremental we amortization targets approximately Our includes drive expense Jennifer remain our costs earlier the dynamic and call on teams annual of environment EPS the outlined guidance focused core back that what Jennifer. growth and for on controlling can fourth on I'll turn $XXX

Jennifer Honeycutt

we a X Thanks, and as Sameer. In off summary, successfully Danaher start X% executed of a And results points are good we to company. Through free share. XX sales growth, conversion, months yesterday, year, expectation our a adjusted announced spin-off operating delivered operating XXX% we $X.XX solid of and core public from backdrop. dividend this a amid have pay expansion margin to flow cash dynamic quarterly macro our profit per

allocation value value for that framework. Going long-term closing, strategic capital creation focused I forward, want our and improvement driving sustainable commitments, create shareholders. In delivering disciplined we executing reiterate our to are continuous on long-term

expect Over fall-through expect to growth complement We the disciplined XX% with in acquisitions. free flow margin sales core cash strategic with mid-single-digit and we long core XX% intend growth deliver annually. to XXX% conversion term, we the to range, incremental

will markets our are our growth purpose: for and and deliver Resources. And the our our Vital and The solutions the our leading secular value. playbook durability record. consistent to sheet we System with proven drivers of creation the shared the our track growth of strong provide end our inspired business, We World's the long-term technology sustainable historical of positions the by Enterprise powered we brands, build our need differentiates Veralto confident value essential combination that balance to Most look Safeguarding are as of us unified future, and Veralto, by strength shareholder steady

having at biggest time, excited want concludes about Our we're ahead for by bright the customers to talented, call. impact value of solve team challenges and our is drive again environment. That you this world's creation for our the thank remarks. some while And questions. diverse enduring your happy to on joining the prepared shareholders take our future positive helping I to a opportunities

Operator

from we'll first Instructions] question take with [Operator Halloran Mike And our Baird.

Michael Halloran

a good a -- public company. as on public Congrats first quarter

on give this that? right to the why segment context the revenue third by point levels But fourth right then about us healthy on point, you quarter we on start sequential XXXX? be as the give margin And here. would let's and all the great. some adjusting for jumping-off is is Any the the uptick seasonality from this So and side think Maybe line. margin could can quarter you the help jumping-off

Sameer Ralhan

I'll Sameer. is one. that in This Mike. jump Yes, on

kind the driven the we've cost primarily QX. that's improvement, Argentine margin the some impact you devaluation of peso the of sequential been optimization As by doing, in especially also look PQI of at in that and things

have We assumed QX. item in one-off that not a It's in QX.

going you the that So on of in segment. uptick PQI sequential majority a from to QX be see the will QX basis

Michael Halloran

process that then right mean, things to think the run And you relative representative as then next for rate -- more year? is it. but is quarter thought third about the Got the I quarter? fourth

Sameer Ralhan

Yes.

you're from going we things some run a If the QX. more to like look rate costs, QX. basis going to costs, be are of in They're ramping on QX, at standalone

to overall going demand they're But the we view going as from guide, sales, for that guide 'XX. we of We'll to ultimately reflecting. year give as to well. So, are next be close early impact get aim the the start to ] [ margin

Michael Halloran

on the softness about that's China. also on I of think consumable destocking on sense. but things you side. the PQI And then don't anybody, to Makes commented surprise comments some a in side, side certainly the

on thoughts in the fourth think a this picture demand sell-in also One, quarter, forward could a basis? more give out But bit couple look just the So, perspective? us there is that Or on sell-out of you is to more some come? a from as we thought portfolio process plays you a a bit little and balanced are how things. little

Jennifer Honeycutt

Yes. the of seeing resuming believe prepared comments, largely sequential to to destocking rates run Thanks we're question, for at of We lower customer complete this really I is the albeit improving signs is order line attributed this focused with sales. PQI, Mike. in think what overall being the consumable stabilization. volume. and ordering, in Again, sort more is Relative rate on

these packaged about year-over-year think consumer we as in pricing net the goods and relative we folks pretty runs going And environment be said, that on behavior that changes side are consumer to in customer basis, be fewer that still to smaller production the negative we a on variable uncertain and batches. to fourth means still quarter, have well. So expect doing China as said, highly inflationary volumes, a

Michael Halloran

the makes one, business, on where things. And lot a the side Quality exclude It last I there's just weakness that you the broader-based That if part sense. like there's may, of seems China Water if of certainly across you portfolio Maybe stability talk China about be more of the little the here. of that piece? the seems just a excluding to It segment, resilient economic built that's like think here. sensitivity bit certainly how about

Jennifer Honeycutt

mean, attributed volume I our Yes. in was China water business. our to biggest downdraft certainly, in

the I think metals. we agriculture and Certainly, got momentum treatment the here good some as on energy, side. seeing benefiting ChemTreat what relatively good positive that's in from is see growth we see Act. sectors such We've CHIPS Trojan

focused plant regulatory terms are a that. on is investments muni, softer. and they're bit side consistent focused that still they a in compliance, optimization. bit with are upgrades related municipalities their really little to But order off of so and patterns for little the making on holding On Municipalities sure are demand

a side. optimization demand process municipal compliance still So the but solid still in is bit lackluster, little regulatory

Operator

from Instructions] take with our Kaplowitz Citigroup. Andy [Operator next question We'll

Andrew Kaplowitz

in Jennifer, and color little margin over the really several launch. the on currency QX maybe issue know quarter. Congrats just on a more the you trend I mentioned the last in the Sameer, PQI quarters.

would also just better the year? as investments, recovery inflation. China as inefficiency there a see Or such in around presentation to next you region in But margin You talked, maybe you I labor China growth gets think, that's back? expect holding is

Sameer Ralhan

PQI side, low. volumes the for are overall, Thanks yes, I think general, Andy. Look, the question. in for Yes, overall the

You're going actually overall, impact to side. biggest was the absorption see one. impact on But a some the currency

to impact almost for if remarks. I basis So, XX that up would my that's you, devaluation PQI Argentina peso prepared highlighted that remove, you just points. in essentially, the And frame actually have the by impact why been

sense the impact So how that almost you from was to of XX.X%. XX.X% just gives a going big

we So, course, that biggest did occur is don't one and is also, the we And actions. some impact. And to that optimization that, cost of QX. in of a expect one-off

As we costs costs those don't take out. out, you those know, adjust

in overall in we benefit in going the you're seeing of chunk company to that, in a to you're that's that guidance. improvement driving seeing QX itself. earlier big So why improvement QX laid sequential I start of going That's and the out start sequential said the PQI, that

Andrew Kaplowitz

on of great, have And at We tough to think Sameer. them just America. to what last of happening sort up on you mid-single follow sort the across gets Jennifer, could guess, that's still want holding year. comments That's comps in municipalities North But assume of sort know would I I Hach. grow you cycle. -- get back to, like Seems your back, that to digits accelerate Hach I versus

you sort to need do to of happen? to get that what So see

Jennifer Honeycutt

some think in the Bill I good funding nuances in and a to these Infrastructure America. start supply will demand available growth North for is Europe. mean, here I out. here robust Yes. We're seeing municipal of There with business level our

I forward. Water But global recovery of hold to mid-single-digit matter, sort of Quality and it's we a of think, people steady performance more going for a These essential So environment sort of really around solutions markets. the world. economic are for of the the industrial

bit a is remain macro strong. but choppy now, So, the little drivers we think secular right the underlying

Andrew Kaplowitz

execute need the expect first more versus timeline company? I on how are M&A deal as bigger later? you could. your out potential And you a up Or sooner interest of Got pipeline, you time as of company come about deal? are the a to sort particular Like, of we transition it. question, Do if One thinking bit as ramp maybe you a public before any could M&A? there to areas a public M&A of consummate

Jennifer Honeycutt

Yes. for the question, Thanks Andy.

Quality PQI Water as considered. anticipate that both for We public a of a number currently is require a and we and we've are time will across pipeline strong lengthy do company. M&A, got not Our opportunities ramp being that

the would have its we level remarkable growth at had with We're on heritage it's get and to where our and that we we at approach about we expect the take a pretty market the right with Danaher M&A, Danaher. going similar going to can just said, good and spin back of discipline executed to we've We of margin focus are prior spends, from we to that positioned. That are model the sure that feel learnings to financial where that VES as a like very got be And a from drive operating valuation. companies expansion. have and able profiles make durability disciplined

and as important time, value over will we to as seen obviously, going this creation discipline Danaher for catalyst we an be similar believe, of in part businesses but we've rigor past. the is maintain So these amongst

always M&A we market number is but of is in episodic, So, predict. working and opportunities. to timing the a difficult are

Operator

with [Operator from question next Joe TD our Cowen. Instructions] take Giordano We'll

Michael Anastasiou

historical you is just for might I a assume does kind guidance what as What flush? This quarter, on Joe. the versus patterns? curious, towards telling be for you of the Michael potential customers Yes, fourth was budget around look the

Jennifer Honeycutt

Yes.

see remains the of some use customer we expect pre-pandemic at We have are lower quarter, of it sort rates that think variable of it we're era. industries, based albeit that would probably we what that in segments on do talking our that will here kinds historically in some about. And or seen I fourth of the than budgets. see we markets lose

Sameer Ralhan

well And lot a tied Joe to is of our side, customers we move if to as as (sic) at going the Day, operating forward. so maybe right, we I you're the budgets us to can more Investor add the -- than Michael [ are helps kind capital talked that of ], as rather little bit

Operator

that appears back Ryan I this any closing turn to for no additional it further questions And we have at will program time. or the now over remarks. Taylor

Ryan Taylor

call. additional concludes joining Thank you Thanks, concludes our have available you several days call. next quarter again, much I'll We earnings questions. very us. third our should for be once you Shelby. for This over any thank and follow-ups that the

Operator

That Thank concludes today's your participation. teleconference. you for

now disconnect. may You

Veralto (VLTO) 26 Oct 232023 Q3 Earnings call transcript