Vontier Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023, compared with the three months ended April 1, 2022. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
Vontier is an industrial technology company serving mobility and multi-energy markets. Its reportable segments are Mobility Technologies, Repair Solutions, and Environmental & Fueling Solutions. The company realigned its organization in Q1; prior-period segment results were recast. Global Traffic Technologies and Coats (Hennessy) were classified as held for sale.
Financial performance and liquidity
| Metric | Q1 2023 | Prior comparable period |
|---|---|---|
| Sales | $776.4 | $748.1 |
| Gross profit / margin | $353.0 / 45.5% | $335.3 / 44.8% |
| Operating profit / margin | $133.8 / 17.2% | $134.8 / 18.0% |
| Net earnings | $82.8 | $250.2 |
| Diluted EPS | $0.53 | $1.50 |
| Operating cash flow | $81.0 | $41.3 |
- Sales rose 3.8%; core sales, a non-GAAP measure, increased 3.9%. Gross margin improved 70 basis points, while operating margin declined 80 basis points.
- Net earnings were substantially lower because Q1 2022 included a $32.7 gain on the previously held Driivz interest and a $163.0 unrealized gain on equity securities. Neither gain recurred in Q1 2023.
- Interest expense increased to $24.0 from $12.9, primarily reflecting higher rates on variable-rate debt. The effective tax rate was 24.0%, versus 21.2%.
- Cash and equivalents were $208.2 at March 31, 2023. Long-term debt, net, was $2,521.6; short-term borrowings were $8.5. The company had no revolver borrowings and $750.0 of available capacity, and reported compliance with debt covenants.
- Investing activities provided $9.0, compared with $203.4 used in the prior period; Q1 2022 included $184.9 of net acquisition payments. Financing activities used $87.2, including $65.0 of voluntary term-loan repayment and $18.1 of share repurchases. Capital expenditures were $13.7.
- Quarterly dividend paid was $0.025 per share. The company repurchased 0.9 million shares for $18.1 and had $410.8 remaining under its repurchase authorization.
Material changes and segment results
- Mobility Technologies sales grew 18.4% to $245.9, supported by core growth and acquisitions; management cited demand in car-wash technologies and alternative-energy solutions.
- Repair Solutions sales grew 10.3% to $181.4, primarily on demand for hardline and powered tools. Segment operating margin declined 250 basis points, mainly due to the timing of financing-receivable credit-loss allowance adjustments.
- Environmental & Fueling Solutions sales fell 4.4% to $313.8, primarily reflecting the end of the EMV outdoor-payment-system upgrade cycle and currency effects. Segment margin rose 70 basis points, with restructuring savings and price-cost benefits.
- Company-wide SG&A and R&D increased, partly due to recent acquisitions. Corporate and other unallocated costs also rose, including higher intangible amortization and stock-based compensation.
Outlook, risks, and unusual items
- Management expects 2023 overall sales and core sales to decline year over year due to the end of the EMV upgrade cycle. Excluding that impact, it expects core sales growth in the mid-single digits. This outlook is subject to economic, supply-chain, geopolitical, and market uncertainties.
- On April 14, 2023, after quarter-end, Vontier completed the sale of Global Traffic Technologies for $107.0, subject to customary adjustments. It used $50.0 of proceeds to repay 2024 term loans in April. Coats (Hennessy) remained held for sale in the filing.
- Asbestos-related gross liabilities were $103.2, with projected insurance recoveries of $67.6. Management said ordinary-course legal matters were not expected to have a material adverse effect; it also stated that guarantees of approximately $87.2 would not have a material effect if triggered.
- Other stated risks include economic and market conditions, supply-chain and component availability, inflation, variable-rate interest exposure, indebtedness, foreign exchange, product and technology risks, cybersecurity, regulation, litigation, and possible goodwill or intangible-asset impairment. Management said it did not believe the Russia-Ukraine conflict or monitored macroeconomic and geopolitical conditions were material to the business as of the filing date.
Important facts for investors to verify
- Whether the expected post-EMV core-sales trend and mid-single-digit growth excluding that impact remain achievable.
- How segment sales, margins, and financing-receivable credit losses develop, particularly in Environmental & Fueling Solutions and Repair Solutions.
- Debt levels, variable-rate interest costs, covenant headroom, and the use of proceeds from the Global Traffic Technologies sale.
- Completion and financial impact of the Coats (Hennessy) disposal, including any sale-related adjustments or costs.
- Collections and credit quality in financing receivables, alongside the asbestos liability and insurance-recovery estimates.