Fortive Corporation (NYSE: FTV) — 2022 Form 10-K
Business context and reporting period. Fortive provides professional and engineered products, software, and services through Intelligent Operating Solutions (IOS), Precision Technologies (PT), and Advanced Healthcare Solutions (AHS). This filing covers the fiscal year ended December 31, 2022; the supplied filing text does not provide a separate fourth-quarter income statement. Vontier is reported as a discontinued operation for prior periods.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $5.826 billion | $5.255 billion |
| Gross profit / margin | $3.363 billion / 57.7% | $3.007 billion / 57.2% |
| Operating profit / margin | $987.4 million / 16.9% | $812.8 million / 15.5% |
| Net earnings from continuing operations | $755.2 million | $614.2 million |
| Diluted EPS from continuing operations | $2.10 | $1.65 |
| Operating cash flow from continuing operations | $1.303 billion | $992.9 million |
| Capital expenditures | $95.8 million | $50.0 million |
| Interest expense, net | $98.3 million | $103.2 million |
| Effective tax rate | 13.5% | 9.3% |
Revenue grew 10.9%: existing businesses grew 10.1%, acquisitions contributed 3.9%, and foreign exchange reduced growth by 3.1%. Price increases contributed 5.2% to company-wide sales growth and exceeded inflationary increases in purchased materials, according to management. Operating margin rose 140 basis points, with price, volume, productivity, and lower acquisition-related transaction costs helping offset cost inflation, foreign exchange headwinds, and Russia exit costs.
Segment revenue and operating margin: IOS revenue was $2.466 billion and margin 21.1% (2021: $2.169 billion and 18.8%); PT revenue was $2.038 billion and margin 24.1% (2021: $1.849 billion and 22.1%); AHS revenue was $1.321 billion and margin 8.2% (2021: $1.236 billion and 8.2%). AHS existing-business sales rose only 2.1%, while acquisitions contributed 8.4% and currency reduced growth by 3.6%.
Balance sheet, liquidity, and capital allocation
- Cash and equivalents were $709.2 million at year-end, down from $819.3 million. Current assets were $2.477 billion and current liabilities $2.727 billion.
- Total debt principal was approximately $3.259 billion, including $1.0 billion due in December 2023; commercial paper outstanding was $405 million. The company had $2.0 billion available under its revolving credit facility, extended to October 2027, and reported compliance with its covenants.
- Operating cash flow less capital expenditures was approximately $1.207 billion, calculated from the reported figures. Fortive repurchased 7.0 million shares for $442.9 million and paid $99.5 million in common dividends. The quarterly dividend was $0.07 per share.
- Management expected 2023 capital expenditures of approximately $90–$110 million. The company reported $6.964 billion of specified debt, lease, purchase, and other balance-sheet cash requirements, including $2.731 billion due within one year.
Material changes, outlook, and risks
- 2022 revenue and operating profit increased, with growth across all segments; PT had the highest segment operating margin. Foreign exchange was a significant headwind, and AHS margins remained flat.
- Fortive recorded $17.9 million of Russia exit and wind-down costs, including $9.2 million of non-cash charges, after exiting most Russian operations. It sold the Therapy Physics product line for $9.6 million and recorded a $0.5 million pre-tax gain.
- For 2023, management projected total sales growth of approximately 2.0%–4.5% and existing-business growth of 3.0%–5.5%. Outlook assumptions and risks include economic resilience, supply chains and electronic-component availability, inflation, foreign exchange, COVID-19 impacts, geopolitical conflict, end-market conditions, elective surgery rates, and European energy disruption.
- Management cited continuing supply-chain and logistics challenges, inflation, COVID-19 impacts in China, and currency volatility. It planned to use pricing, productivity measures, and selective restructuring to address cost pressures.
- Key risks include economic and end-market weakness; supply constraints and cost inflation; competition and product innovation; cyber and data-security incidents; international, China, and foreign-exchange exposure; acquisition integration and impairment risk; regulatory, environmental, litigation, and tax contingencies; and substantial debt and interest-rate exposure. Goodwill and other intangible assets totaled approximately $12.5 billion. No goodwill impairment was recorded in 2022.
- Fortive stated that ordinary-course legal proceedings were not expected to materially affect its financial position, results, or cash flows; environmental reserves were $6 million. Auditors issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether 2023 guidance is supported by sustained underlying demand, and how much growth is attributable to pricing versus unit volume.
- Progress against the $1.0 billion debt maturity in 2023, commercial-paper refinancing needs, borrowing costs, and the leverage covenant.
- Whether AHS can improve existing-business growth and margins, and whether acquisition-related amortization and costs moderate.
- Whether supply-chain, inflation, currency, and China-related pressures evolve as assumed in management’s outlook.
- Potential sensitivity of the substantial goodwill and intangible-asset balances to weaker forecasts, higher discount rates, or lower valuation multiples.
- Developments in tax audits and separation-related indemnities, environmental matters, and other contingencies; review the detailed notes for exposures not quantified in this summary.