Fortive (FTV) Down 16.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Fortive (FTV). Shares have lost about 16.4% in that time frame, underperforming the S&P 500.

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

Fortive Beats Q2 Earnings Estimates, Lags Revenues

Fortive Corporation reported second-quarter 2019 earnings of 90 cents per share, surpassing the Zacks Consensus Estimate by a penny. Also, the figure increased 18.4% from the year-ago quarter and 30.4% on a sequential basis.

Revenues also increased 16.4% year over year to $1.86 billion. In addition, core revenues grew 2% from the year-ago quarter. However, the top line missed the Zacks Consensus Estimate by 3.29%.

The company stated that the integration of Advanced Sterilization Products is well on track and should contribute to top-line growth in the near term. Other acquisitions including Industrial Scientific and Landauer aided results in the second quarter.

Top Line in Detail

Fortive operates under the following two organized segments.

Professional Instrumentation: The segment generated revenues of $1.1 billion (60.8% of total first-quarter revenues), which increased 27.5% on a year-over-year basis. The increase was driven by contributions from acquisitions.

Industrial Technologies: This segment generated revenues of $731.4 million (39.2% of total revenues), which improved 2.6% from the prior-year quarter.

Operating Details

In the second quarter, gross margin came in at 48.5%, which contracted 340 basis points (bps) year over year.

Total operating expenses were $654.5 million, reflecting a 29.2% year-over-year increase. As a percentage of revenues, selling, general & administrative (SG&A) expenses increased from the year-ago quarter, while research & development costs decreased.

Operating margin was 13.4%, which contracted 690 bps on a year-over-year basis.

Segment wise, operating margin from Professional Instrumentation came in at 10.8%, which contracted 1,360 bps year over year.

Industrial Technologies operating margins came in at 16.3%, which expanded 200 bps from the year-ago quarter.

Balance Sheet

During the quarter, the company generated free cash flow of $236 million.

Guidance

For third-quarter 2019, management expects adjusted net earnings in the range of 83-88 cents per share. 

For 2019, Fortive expects adjusted net earnings in the range of $3.45-$3.60 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.85% due to these changes.

VGM Scores

Currently, Fortive has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fortive has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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