Fortive's Q3 2025: Contradictions Emerge on Tariff Mitigation, Test & Measurement Recovery, Fluke's Growth, and Capital Equipment Demand

Date of Call: October 29, 2025

Financials Results

• Revenue: Just over $1.0B, up roughly 2% year-over-year (reported and core)
• EPS: Adjusted EPS $0.68, up 15% year-over-year
• Gross Margin: Adjusted gross margin down about 60 basis points year-over-year (company-wide; absolute % not provided)
• Operating Margin: Adjusted EBITDA margin ~30%, expanded ~200 basis points year-over-year

Guidance:

• Raising full-year adjusted EPS guidance to $2.63–$2.67 per share.
• Expect overall core growth to moderate in Q4; AHS core growth broadly in line with Q3; modest core growth at IOS.
• Full-year adjusted effective tax rate expected in the mid-teens; Q4 tax rate expected in the single digits due to discrete items.
• Expect a sequential increase in net interest expense in Q4; current/known tariff rates not expected to be material for Q4.

Business Commentary:

* Revenue and Earnings Performance: - Fortive Corporation reported total revenue of just over $1 billion for Q3 2025, up roughly 2% year-over-year on both a reported and a core basis. - The growth was driven by resilient customer demand, particularly in the IOS segment, and modest outperformance in both segments, despite dynamic market conditions.

• Operational Efficiency and Margin Expansion:
• The company's adjusted EBITDA grew 10% year-over-year, with an expansion in adjusted EBITDA margin to approximately 30%.

• This was achieved through operating leverage, deliberate organizational streamlining, and enhanced cost discipline.

• Capital Allocation and Shareholder Returns:

• Fortive deployed approximately $1 billion to share repurchases in Q3 2025, reflecting confidence in their ability to deliver on core value creation plans.

• This strategic move was supported by strong free cash flow and attractive stock valuations.

• Innovation and Product Launch:

• Fortive accelerated its innovation efforts, resulting in several notable product launches, such as AI-powered work order insights and streamlined payment solutions for ServiceChannel.
• This acceleration is part of their strategy to drive faster organic growth and increase recurring revenues.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full-year adjusted EPS guide to $2.63–$2.67, reported adjusted EBITDA +10% YOY and adjusted EPS +15% YOY; deployed $1B to buybacks and described accelerating product launches and commercial initiatives while retaining disciplined capital allocation.

Q&A:

• Question from Nigel Coe (Wolfe Research): Your Q3 margin outperformance was notable — why does Q4 not assume a similar sequential pickup in EBITDA margin, and what about tariff offsets?
  Response: Q3 beat came largely from discrete cost actions and revenue outperformance; some savings will be redeployed in Q4 to fund growth while maintaining overall cost discipline, so margins likely won't fully repeat.

• Question from Nigel Coe (Wolfe Research): How is the federal government shutdown impacting Gordian and October performance?
  Response: Limited impact — exposure is mainly state and local; direct federal exposure is small, so current guidance remains based on minimal shutdown effect.

• Question from Deane Dray (RBC Capital Markets): Explain the $1B buyback decision and where M&A fits in capital allocation going forward?
  Response: Buybacks were driven by attractive valuation, strong cash and spin proceeds; going forward repurchases will be a key option and M&A limited to small, accretive bolt-ons evaluated by relative-return analysis.

• Question from Deane Dray (RBC Capital Markets): Color on Fluke sell-in vs sell-through and channel inventory?
  Response: Fluke returned to growth with strong orders and POS (particularly North America), book-to-bill >1; channel inventory elevated outside North America but improving.

• Question from Scott Davis (Melius Research): Update on Landauer and the radiation test business outlook?
  Response: Landauer remains a strong, highly recurring business with continued growth; management is expanding add-on services and innovation to monetize the large installed customer base.

• Question from Julian Mitchell (Barclays): In AHS, how are equipment demand, consumables and policy/funding headwinds evolving quarter-to-quarter and into next year?
  Response: Software is strong; North American capital equipment showed sequential improvement as deferred orders funded in Sept; consumables improved — headwinds are present but trends are getting better.

• Question from Julian Mitchell (Barclays): What is the outlook for the adjusted tax rate going forward?
  Response: Model mid-teens tax rate through 2026 (full year); Q4 tax rate low/single digits due to discrete items; Pillar 2 proposals could push rates higher if not excluded.

• Question from C. Stephen Tusa (JPMorgan): What are you seeing in FAL/ServiceChannel IT spending and customer treatment of these budgets?
  Response: FAL/ServiceChannel demand is strong — customers view the platform as a way to scale AI value, driving IT spend and pull-through across networks and new AI features.

• Question from C. Stephen Tusa (JPMorgan): What was FAL's organic growth in the quarter?
  Response: FAL grew and contributed positively to the fleet average (management did not provide a precise organic percentage on the call).

• Question from Andrew Kaplowitz (Citigroup): Has the simplification/self-help begun to drive measurable benefits and should we expect increasing impact in 2026?
  Response: Yes — simplification and org flattening freed capacity, yielding margin expansion and room to invest; management expects momentum to build into 2026.

• Question from Andrew Kaplowitz (Citigroup): Can you give regional demand color (North America, Western Europe, China, etc.)?
  Response: North America is the strongest market; Western Europe is the weakest and expected to remain soft; China and other regions are mixed but generally stable.

• Question from Jeff Sprague (Vertical Research): Clarify the Q3 one‑timers and whether OpEx will revert in Q4 as you reinvest.
  Response: Q3 one‑timers were increased software capitalization and incentive compensation adjustments (hit segments and corporate); OpEx should step up in Q4 as some investments resume, though discipline remains.

• Question from Joseph O'Dea (Wells Fargo): What does 'growth oxygen' mean practically for the 10 brands and timing to impact organic growth?
  Response: It means funding high‑confidence, high‑return initiatives from a vetted funnel (product, commercial, add‑on services); some actions (commercial/marketing) have short time‑to‑impact and should help in 2026.

• Question from Joseph O'Dea (Wells Fargo): On price vs volume, will volume weakness persist and where will volume improve first?
  Response: Pricing remains durable and will continue to contribute; volume is expected to improve over the next 1–3 years with most upside at Fluke and in AHS as initiatives roll out.

• Question from Christopher Snyder (Morgan Stanley): Why do you expect organic growth to moderate in Q4 vs Q3 — tougher comps or timing shifts?
  Response: Moderation is driven by tougher comps and timing effects (some pull‑forwards and snapbacks across IOS); underlying trends are broadly consistent and encouraging despite timing noise.

• Question from Christopher Snyder (Morgan Stanley): What gives you confidence AHS can remain resilient amid policy and funding uncertainty?
  Response: Confidence stems from strong recurring software, deep customer loyalty, execution on innovation and structural healthcare tailwinds (aging demographics, provider capacity), making demand durable beyond policy noise.

• Question from Jamie Cook (Truist): Do Fortive Accelerated initiatives drive upside to this year's guide or are they embedded only in the '26–'27 framework?
  Response: The initiatives underpin the '26–'27 financial framework (3–4% organic, 50–100 bps margin expansion); this year's guide reflects current macro dynamics and does not assume material upside from those initiatives.

• Question from Jamie Cook (Truist): What made up the ~$63.6M in 'other' on adjusted operating profit and implication for Q4?
  Response: Predominantly separation‑related stock compensation adjustments and acceleration of certain executive compensation tied to the transition; management said they'd follow up with detailed breakout.

• Question from Christopher Grenga (TD Cowen): Where could recurring revenue end up as a percent of total long-term and what are the levers to sustain above-fleet growth?
  Response: Recurring percent should continue rising with no preset ceiling; biggest lever is converting Fluke offerings to recurring (HaaS, maintenance software) plus expanding services in other businesses.

• Question from Andrew Buscaglia (BNP Paribas): How volume‑dependent are margins into '26 and any update on stranded costs?
  Response: Management points to the Investor Day framework (3–4% revenue, 50–100 bps margin expansion); stranded costs nearly cleared — roughly $25M remain, with about half expected removed over 6–12 months.

Contradiction Point 1

Tariff Mitigation Impact on Margins

It involves changes in financial impacts due to tariff mitigation strategies, which are crucial for forecasting and investor expectations.

Can you discuss the details of margin alignment and the impact of tariffs on EBITDA margins in Q4? - Nigel Coe (Wolfe Research, LLC)

2025Q3: The overperformance in Q3 was due to revenue outperformance and cost discipline. We freed up resources to deploy against initiatives for growth. Some one-timers, like incentive compensation and capitalization, will hit both segments and corporate costs. We will reinvest some of the savings in Q4 for growth, but we maintain discipline, aiming for strong margins. - Mark Okerstrom(CFO)

Is the tariff impact annualized or in-year? How is mitigation progressing? - Jeff Sprague (Vertical Research Partners)

2025Q1: We expect our full year Impact to be approximately $200 million, we plan to offset about 80% of that this year. As far as the offsetting, it is a combination of pricing actions, sourcing optimizations and some strategic manufacturing investments. - Elena Rosman(CIO)

Contradiction Point 2

Test & Measurement Business Recovery

It involves differing expectations for the recovery timeline of the Test & Measurement business, which impacts strategic and operational planning.

Can you detail margin alignment and tariff impacts, considering no Q4 EBITDA margin sequential improvement assumed? - Nigel Coe (Wolfe Research, LLC)

2025Q3: The decline in Test and Measurement is due to more customer hesitancy amidst economic uncertainty. Customers are delaying investments, especially in areas like semiconductors and electronics, which are heavily exposed to tariffs. The recovery expected in 2026 has been delayed, and Fortive's strategy focuses on flexible countermeasures. - Jim Lico(CEO)

Why did the Test and Measurement business decline, and is it due to a timing delay or a demand shortfall? - Scott Davis (Melius Research)

2025Q1: As we look ahead, we are still confident in our ability to drive top-tier performance across the business. Our expectations are that the back half of the year will be stronger than Q1. We expect PT in Q2 to improve from Q1, and we expect to see sequential margin improvement over the course of the year. Margin strength in Q4 remains our expectation. - Jim Lico(CEO)

Contradiction Point 3

Fluke's Growth Expectations

It involves differing expectations for Fluke's growth trajectory, which could impact investor perceptions of Fortive's strategic positioning and financial forecasts.

Can you discuss Fluke's performance and its sell-in vs. sell-through inventory dynamics? - Deane Dray (RBC Capital Markets, Research Division)

2025Q3: Fluke returned to growth this quarter. Order growth has been strong, with POS stable globally. - Olumide Soroye(CEO)

What growth opportunities exist for Fluke in key regions and within the Sensing segment? - Joe O'Dea (Wells Fargo)

2024Q4: Fluke expected to grow low single-digit in '25, similar to '24. - James Lico(CEO)

Contradiction Point 4

Capital Equipment Demand

It involves differing assessments of capital equipment demand trends, which could impact investor perceptions of Fortive's market positioning and competitive strategy.

How are equipment vs. consumables demand trends evolving in AHS? How are policy/funding changes impacting customer demand? - Julian Mitchell (Barclays Bank PLC, Research Division)

2025Q3: Capital equipment and consumables demand are improving, with sequential improvements noted in September. - Olumide Soroye(CEO)

Did you see preordering before potential tariffs and how did point-of-sale volumes trend sequentially? - C. Stephen Tusa (JPMorgan Chase & Co, Research Division)

2024Q4: There was positive point-of-sale in North America, and a little more in consumer incentive buying at year-end. - James Lico(CEO)

Contradiction Point 5

Tariff Impacts and Pricing Actions

It involves differing descriptions of how the company is managing tariff impacts, which could affect investor understanding of Fortive's pricing strategy and operational efficiency.

Can you explain the margin adjustments and tariff impacts given no sequential EBITDA margin increase expected in Q4? - Nigel Coe (Wolfe Research, LLC)

2025Q3: Tariff impacts were managed with pricing actions and supply chain countermeasures. - Mark Okerstrom(CFO)

Did you see any preordering ahead of potential tariffs and how did sequential point-of-sale volumes perform this quarter? - C. Stephen Tusa (JPMorgan Chase & Co, Research Division)

2024Q4: No additional revenue from preorders related to tariffs. - James Lico(CEO)