Fortive Corporation — Q1 2021 Form 10-Q
Business context and period: The quarter ended April 2, 2021, compared with the three months ended March 27, 2020. Fortive supplies technologies, software, products, and services across Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions. Following the October 2020 Vontier separation, Vontier is reported as a discontinued operation and prior-period segment information was restated.
Key financial metrics
| Metric | Q1 2021 | Comparable 2020 period |
|---|---|---|
| Sales | $1,259.2 million | $1,108.1 million |
| Gross profit / margin | $711.9 million / 56.5% | $612.0 million / 55.2% |
| Operating profit / margin | $197.6 million / 15.7% | $115.4 million / 10.4% |
| Continuing-operations net earnings | $111.7 million | $54.8 million |
| Net earnings attributable to common stockholders | $92.9 million; $0.27 diluted EPS | $24.6 million; $0.07 diluted EPS |
| Operating cash flow, continuing operations | $152.0 million | $121.7 million |
| Cash and equivalents, April 2, 2021 | $1,299.6 million | $1,824.8 million at December 31, 2020 |
| Total debt, carrying value | $2,567.5 million | $4,230.1 million at December 31, 2020 |
Sales increased 13.6% year over year: 9.1% from existing businesses, 1.9% from acquisitions, and 2.6% from currency. Continuing-operations operating cash flow rose about 25%; total operating cash flow, including discontinued operations, was $144.8 million versus $191.0 million. Capital expenditures were $8.4 million, and financing activities used $654.9 million, mainly reflecting debt repayments. Fortive reported $1.126 billion of debt due within the next twelve months, primarily convertible notes due in 2022. No borrowings were outstanding under its $2.0 billion revolving credit facility.
Changes and business performance
- All three segments grew sales: Intelligent Operating Solutions rose 9.5% to $510.9 million; Precision Technologies rose 14.3% to $447.4 million; Advanced Healthcare Solutions rose 20.3% to $300.9 million. Segment operating margins were 21.2%, 21.4%, and 6.3%, respectively; Advanced Healthcare Solutions improved from an operating loss in the prior-year quarter.
- Operating margin expanded 530 basis points. Management attributed the improvement mainly to higher volume and pricing, cost savings, and lower acquisition-related costs and amortization effects, partly offset by unfavorable sales mix.
- Fortive exchanged all retained Vontier shares for about $1.1 billion of debt principal and separately repaid or repurchased additional debt. Cash fell from year-end, while reported debt declined materially.
- Reported earnings included a $57.0 million gain on the Vontier investment and a $104.9 million loss on debt extinguishment. The lower effective tax rate, 5.9% versus 24.2%, was largely associated with the tax-free Vontier share disposition and other tax factors.
Outlook, commentary, and risks
Management forecast year-over-year global demand growth of 20%–23% for Q2 2021 and 10%–13% for full-year 2021. These are demand expectations, not a stated revenue or earnings forecast. Management described broad-based momentum and expected continued recovery, with different rates across businesses and markets. It expected elective surgical procedure volumes to improve during 2021, after remaining below pre-pandemic levels in Q1.
COVID-19 effects, the pace of recovery, and potential renewed restrictions remain uncertain. Fortive also cited port congestion, raw-material and component shortages, anticipated semiconductor supply constraints, and geopolitical and trade uncertainty. It had not experienced material production or distribution constraints as of the filing date, but continued monitoring supply conditions. Management said liquidity should be sufficient for foreseeable needs and expected 2021 capital spending of approximately $75–$85 million. The filing also identifies litigation, regulatory, tax, foreign-exchange, acquisition, and debt-related risks; it reports no material change to previously disclosed risk factors.
Investor verification priorities
- Assess how much reported growth and margin expansion reflects recovery from COVID-affected 2020 comparisons, pricing, acquisitions, and one-time acquisition or amortization effects.
- Review the debt-for-equity exchange, debt-extinguishment charges, remaining convertible-note maturity, and the company’s post-transaction cash and debt position.
- Track whether management’s demand-growth expectations translate into revenue and earnings, particularly as supply constraints and semiconductor availability evolve.
- Monitor elective surgery volumes and their effect on Advanced Healthcare Solutions, including ASP consumables demand.
- Distinguish continuing-operations results from Vontier discontinued-operation results when comparing periods; verify separation-related obligations and contingencies in the full filing.