Veralto (VLTO) Q2 FY26 earnings call: guidance and Q&A

Unpack the drivers and degree of confidence in the expected 5-6% core revenue acceleration for the second half of the year.

Management expressed high confidence in the H2 acceleration, citing strong industrial demand (data centers, power, mining, semiconductor) and water recycling/reuse in Water Quality, and digital workflow solutions and marketing/coding in PQI. The growth will be volume-led.

“We feel really good about the momentum coming out of the first half of the year and the durability of the growth drivers here in the second half.”

asked by Deane Dray · answered by Jennifer Honeycutt

Discuss the M&A pipeline and potential for more share buybacks given the balanced approach seen so far.

The capital allocation framework remains unchanged, prioritizing M&A for long-term value creation. Management will be opportunistic with buybacks if there's a valuation disconnect. M&A funnels are robust, but the company remains patient and disciplined.

“Our first basis, of course, towards M&A to create long-term value. And we will be opportunistic on the buyback side.”

asked by Deane Dray · answered by Sameer Ralhan

Size the opportunity around data centers, power generation, and semi-fabs, and understand the TAM or potential tailwind for industrial water treatment.

The revenue from data centers and associated ecosystems is still a small number at the Veralto level, but ChemTreat solutions within this space are seeing strong dual-digit growth. Management did not provide a specific TAM size for competitive reasons.

“As you're going to look at overall, it's demand that the revenue that we're getting from the data centers in the associated ecosystem. It's still a small number from -- on the High Tech side, but overall, it's -- from a ChemTreat perspective, it's becoming pretty interesting as we kind of move forward.”

asked by Scott Davis · answered by Sameer Ralhan

Clarify if the expected volume pickup in the back half will be led by equipment or consumables.

The volume pickup is expected to be a combination of both. Water Quality will be balanced, while PQI will be driven by digital workflow solutions, strong marketing and coding, and improving funnels in color validation and certification instrumentation.

“It's a combination of both, Jeff, on the Water side, it's going to be pretty balanced across both sides.”

asked by Jeffrey Sprague · answered by Sameer Ralhan

Discuss assumptions for back half margin progression, including segment-specific nuances.

Sequential margin improvement is expected, with roughly 25 bps expansion in Q3 and 25-50 bps for the full year. Q4 will see a nice margin uplift, particularly in PQI, due to fixed cost absorption and production line optimization. Water Quality margins are expected to be steady.

“Q4, we're going to see a nice margin uplift especially in the PQI side because that's where we saw some of the impact from the fixed cost absorption side and the line moves of duplicate product -- production lines that we had on the market coating side.”

asked by Michael Halloran · answered by Sameer Ralhan

How are acquisitions like Esko, TraceGains, GlobalVision, In-Situ, and OTT generating better sales and contributing to the outlook?

The integrated digital workflow solutions (Esko, TraceGains, GlobalVision) are delivering significant value to CPG brands, accelerating packaging design changes and ensuring compliance. In-Situ and OTT combine to provide comprehensive environmental monitoring. Commercial synergies from these acquisitions are tracking ahead of expectations.

“we are well ahead on the commercial synergy side numbers wise.”

asked by Nathan Jones · answered by Sameer Ralhan

Provide color on the mix of Water Quality, specifically the size of industrial exposure versus municipal, and the durability of industrial growth.

Approximately 50% of Water Quality revenue comes from industrial applications, primarily in North America, driven by data centers, reshoring, and near-shoring. Municipal markets are holding up well, with 60% recurring revenue, and are expected to grow mid-single digits or better due to non-elective operating budgets and new technologies.

“If you look at our overall Water business, about 50% of our Water revenue comes from industrial applications. So it's really quite significant.”

asked by Andrew Kaplowitz · answered by Jennifer Honeycutt

Does a high-profile recall situation like Cyclospora infections create an uptick in interest and selling opportunities for PQI's solutions?

Yes, absolutely. Such outbreaks highlight the need for PQI's integrated solutions (Esko, TraceGains, GlobalVision) for regulatory compliance, ingredient traceability, and packaging accuracy, as well as coding and marking for distribution traceability. The portfolio provides end-to-end source-to-shelf intelligence to protect public health.

“Our PQI franchise is ideally positioned with Esko, TraceGains and GlobalVision providing integrated workflows to help with regulatory compliance, ingredient traceability and packaging accuracy, while our coding and marketing businesses aid in the date lot code and distribution traceability.”

asked by Ryan Connors · answered by Jennifer Honeycutt

Is AI changing demand for inspection, marketing, and coding within PQI, similar to other adjacent industries?

Yes, AI is increasingly influencing PQI, particularly in digital workflow solutions. Veralto is offering AI applications as a layer on top of existing solutions, with investments in organic development and talent. GlobalVision's deterministic inspection engine, combined with Esko and TraceGains, leverages AI for mistake-proofing and faster time-to-market while meeting regulatory requirements.

“GlobalVision is squarely in that space, right? What global vision brings to the table is a deterministic inspection engine, right? And it's designed to produce the same answer every time because in regulated workflows, brand owners don't can't tolerate any room for error.”

asked by Andrew Buscaglia · answered by Jennifer Honeycutt