Fortive (FTV) Q2 FY26 earnings call: guidance and Q&A

Fortive continues to execute its accelerated strategy across three pillars: faster profitable organic growth, disciplined capital allocation, and building investor trust. Investments in innovation, commercial efforts, and recurring customer value are contributing to accelerated growth, margin expansion, and earnings performance. The company remains confident in its medium-term financial framework and value creation opportunity, with strong performance ahead of expectations for the fourth consecutive quarter.

Innovation velocity is translating into faster growth across the portfolio. Fluke's innovation funnel is expanding with new products aligned to strategic areas like data centers, defense, and early-career technicians, with CertiFiber Max exceeding expectations. In facilities and asset lifecycle solutions, AI-enabled predictive maintenance tools are being expanded. Gordian's Flash AI solution is in production across strategic accounts, cutting construction cost estimate time from days to minutes.

Commercial efforts are focused on faster-growing end markets and regions. Fluke's investments in data center expertise drove incremental demand, and strong momentum continues in India. Gordian is reinforcing its competitive differentiation through contractor engagement. Recurring revenue growth was strong across both segments, with Fluke seeing strong performance in services and software, and ASP consumables and services showing solid growth in every major region.

Fortive remains disciplined in its capital allocation. In Q2, the company deployed approximately $200 million to share repurchases, bringing the total since the spin-off to nearly $2 billion, representing 38 million shares or 11% of diluted shares outstanding. A small bolt-on acquisition of UV Smart was completed, expanding ASP's portfolio. Capital priorities remain organic growth investment, accretive bolt-on M&A, share repurchases, and a modest growing dividend.

Fluke delivered another strong quarter with broad-based strength across product lines and geographies, driven by both price and volume. North America remained the strongest growth driver, with strong point-of-sale data. While Europe was affected by macroeconomic uncertainty^🌐, APAC and Latin America posted solid growth. Fluke's new products, like CertiFiber Max, are specifically targeting data center commissioning and maintenance, creating pull-through for its broader portfolio and leveraging existing strength in this high-velocity end market.

The AHS segment delivered solid revenue growth, driven by strong demand for healthcare consumables, services, and software across Latin America, APAC, and North America. Low-temperature sterilization capital demand improved modestly and contributed to growth, indicating a recovery in hospital capital spending. The segment's software products continue to perform well, particularly in gastrointestinal case documentation solutions.

Consolidated adjusted gross margin was down year-over-year, primarily due to product mix dynamics, specifically outsized growth in certain lower-margin products within Intelligent Operating Solutions (IOS) and Advanced Healthcare Solutions (AHS). In AHS, this was partly due to resumed growth in ASP's capital equipment and strategic investments against larger accounts. Despite this, operating leverage and discrete structural cost savings contributed to adjusted EBITDA margin expansion.

Fortive has been leveraging AI for seven years, starting with an AI center of excellence. This head start has allowed rapid deployment of AI features across its six software brands, delivering measurable returns for customers by saving costs and improving productivity. Examples include AI-enabled predictive maintenance in ServiceChannel and Accruent, and Flash AI in Gordian. The investment level has been manageable due to existing infrastructure and partnerships, contributing to the strong performance of the software businesses.