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Why Is Fortive (FTV) Up 8.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Fortive (FTV). Shares have added about 8.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fortive due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fortive Q3 Earnings & Revenues Beat Estimates

Fortive reported third-quarter 2022 adjusted earnings of 79 cents per share, outpacing the Zacks Consensus Estimate by 4%. The figure also increased 19.7% year over year.

Revenues increased 12% year over year to $1.46 billion and beat the Zacks Consensus Estimate by 0.8%. Core revenues also moved up 12% from the year-ago quarter’s levels.

The top line was driven by strong customer demand, especially for recently-launched new products and services, strength in the Fortive business system and efficient cost management amid a challenging macroeconomic environment. At the end of the quarter, the Hardware backlog was more than double compared to the beginning of 2021, added the company.

Top Line in Detail

Fortive operates under the following three organized segments.

Intelligent Operating Solutions: The segment generated revenues of $614 million (contributing 42.1% to total second-quarter revenues), up 14.3% on a year-over-year basis.

Precision Technologies: This segment generated revenues of $524 million (36% of total revenues), up 14.9% from the prior-year quarter’s levels.

Advanced Healthcare Solutions: This segment generated revenues of $319 million (21.9% of total revenues), increasing 3.3% from the prior-year quarter’s levels.

Operating Details

In the quarter under review, the adjusted gross margin came in at 58.1%, which expanded 80 basis points (bps) year over year.

Total operating expenses were $593.5 million, up 9.2% year over year. As a percentage of revenues, selling, general & administrative expenses were 33.7%, contracting 130 bps year over year. Research & development costs, as a percentage of revenues, expanding 20 bps year over year to 6.9%.

Adjusted operating margin was 24.4%, expanding 160 bps on a year-over-year basis.

Segment-wise, the adjusted operating margin from Intelligent Operating Solutions came in at 29.7%, which expanded 260 bps year over year.

Precision Technologies’ adjusted operating margins of 25.9% expanded 280 bps year over year. Advanced Healthcare Solutions’ adjusted operating margins of 20.5% contracted 250 bps.

Balance Sheet & Cash Flow

As of Sep 30, cash and cash equivalents were $705.3 million compared with $682.9 million on Jul 1.

Accounts receivables were $901 million in the reported quarter compared with $940.9 million in the prior quarter.

The company generated an operating cash flow of $329.8 million compared with $294.4 million reported in the previous quarter.

Free cash flow came in at $307 million compared with $276 million in the prior quarter.

Guidance

For fourth-quarter 2022, management expects adjusted net earnings in the range of 82-85 cents per share.

Revenues are projected in the range of $1.482-$1.502 billion. For the quarter, the company expects the adjusted operating margin to be around 25.4%. Free cash flow is expected to be $395 million.

For 2022, Fortive now expects adjusted net earnings in the range of $3.10-$3.13 per share compared with the earlier guided range of $3.07-$3.13 per share.

Revenues are now projected in the range of $5.780-$5.8 billion compared with the earlier guidance of $5.775-$5.825 billion.

For 2022, the company expects the adjusted operating margin to be around 24.1%. Free cash flow is expected to be around $1.17 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Fortive has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Fortive has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Fortive is part of the Zacks Electronics - Testing Equipment industry. Over the past month, Teradyne (TER), a stock from the same industry, has gained 17.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Teradyne reported revenues of $827.07 million in the last reported quarter, representing a year-over-year change of -13%. EPS of $1.15 for the same period compares with $1.59 a year ago.

Teradyne is expected to post earnings of $0.74 per share for the current quarter, representing a year-over-year change of -46%. Over the last 30 days, the Zacks Consensus Estimate has changed +3.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Teradyne. Also, the stock has a VGM Score of B.

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