[ad_1]

Fortive Corporation (NYSE:FTV)

Q1 2017 Earnings Conference Call

April 28, 2017 17:30 ET

Executives

Lisa Curran – VP, IR

Jim Lico – President & CEO

Chuck McLaughlin – SVP & CFO

Analysts

Scott Davis – Barclays

Steve Tusa – JP Morgan

Nigel Coe – Morgan Stanley

Jeffrey Sprague – Vertical Research Partners

Dean Dray – RBC Capital Markets

Andrew Kaplowitz – Citi

Patrick Newton – Stifel

Brian Drab – William Blair

Operator

Good day. My name is Camille, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation’s First Quarter 2017 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] In the interest of time, please limit yourself to one question and one follow-up.

I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may now begin your conference.

Lisa Curran

Thank you, Camille. Good afternoon everyone, and thank you for joining us on the call. With us today are Jim Lico, our President and Chief Executive Officer; and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today’s call. Information required by SEC Regulation G relating to these non-GAAP financial measures are available on the Investor section of our website, www.fortive.com, under the heading, financial information. A replay of the webcast will be archived on the Investor section of our website later today under the heading Events and Presentations, and will remain archived until our next quarterly call.

A replay of the conference call will be available shortly after the conclusion of this call until Thursday, May 4, 2017. Once available, the link to this conference call replay will be posted under the Investor section of Fortive’s website under Events and Presentations. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance, all references to period-to-period increases or decreases and financial metrics are year-over-year.

During the call, we will make forward-looking statements within the meaning of the Federal Securities Laws including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2016 filed on February 28, 2017. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements.

With that, I’d like to turn the call over to Jim.

Jim Lico

Thanks, Lisa, and good afternoon, everyone. We are pleased with our performance as we began our first full years at Fortive. We had a strong start to 2017 by delivering mid-teens adjusted earnings growth above the high end of our guidance in mid-single digit core revenue growth.

All six of our strategic platforms grew core sales reflecting strong volume, gains in market share and accelerated performance in high growth markets. Through the successful deployment of the Fortive business system, for the third consecutive quarter we were able to once again deliver above market revenue growth, margin expansion and solid free cash flow. We are committed to create sustainable long-term value for both our customers and shareholders. Our culture of continuous improvement, disciplined capital deployment and secular growth drivers give us confidence in our future and expectation of continued outperformance for 2017.

During the first quarter we held our first annual leadership conference and rallied our team around Fortive’s shared purpose, a special technology for the people who accelerated progress. Our top global leaders gather to review our 2016 performance, benchmark FBS practices and communicate our priorities for 2017 and beyond. We recognized Gilbarco Veeder-Root, Qualitrol and Matco as our top core growth company. Fluke was recognized with our leading innovation award and finally Qualitrol was honored with our CVD Award which is given to the company that demonstrates the greatest achievement across our core value metrics. The conference again demonstrated to me the powers of FBS and culture, the energy around our values and our team’s strong belief in our future.

With that I’d like to turn to the details of the quarter. Adjusted EBITDA net earnings of $209.4 million were up 15.1% over the prior year. Adjusted diluted net earnings per share were $0.60 based on effective tax rate of 26.7% for the quarter. Sales grew 4.1% to $1.5 billion reflecting a core revenue increase of 4.9% as all our platforms posted core growth. Acquisitions contributed 20 basis point of growth during the first quarter, partially offset by 100 basis points of unfavorable currency translation due to the strength of the U.S. dollar. Geographically developed markets grew core revenue low single digits reflecting continued strength in Western Europe and stable demand in North America.

North American growth of low single digits reflected strong performance that Gilbarco Veeder-Root and Matco which was summoned up by Jacobs Vehicle Systems. We continue to outperform in Western Europe hosting high single-digit growth as continued market share gains were realized across both professional instrumentation and industrial technology segments. High growth markets accelerated to low double digit core revenue growth in the quarter with strength across Asia. Double digit growth in China was driven by Tektronix, Qualitrol, and Morgan [ph]. India also grew revenue double digits, primarily reflecting Gilbarco Veeder-Root tender wins and in the Middle East and Africa region Fluke drove high single-digit core revenue growth.

Gross margins was 48.5% reflecting a 140 basis points expansion over the prior year with five out of our six platforms expanding gross margin. Along with the restructuring initiatives undertaken in 2016, our gross margin expansion has enabled us to continue to invest in new product development and sales and marketing. Operating profit margin was 19.2% with core operating margin expansion of 160 basis point driven by volume and margin fall-through. We were able to deliver continued margin expansion through targeted application about BS tools across our businesses and supply chain to drive increased productivity. During the first quarter we generated approximately $121 million of free cash flow and delivered a conversion ratio of 61% which is consistent with our — with expectancy seasonality. For the full year we continue to believe that our free cash flow ratio will be greater than 100%.

Turning to our segments, professional instrumentation posted sales growth of 2.7%, comprised of 4.6% percent core revenue growth offset by a 120 basis points currency headwind and 70 basis points due primarily to the separation from Danaher. Professional instrumentation delivered 22.1% operating margins with 160 basis points expansion of core operating margin reflecting favorable volume and the amortization, partially offset by 40 basis points of diluted operating margin associated with acquisitions. Advanced instrumentation and solutions core revenue increased mid-single digits during the quarter with similar performance in both field solutions and product realization.

Field solutions core revenue was up mid-single digits in the quarter with both Fluke and Qualitrol posting strong core revenue growth. Fluke mid-single digit core growth results were led by high single-digit growth at Fluke Industrial which is the largest Fluke product line consisting of our handheld instrumentation. Regionally performance was strongest in Western Europe with high single-digit core revenue growth driven by market share gains in the improving macro environment. While small today, the Fluke Solutions grew double digits as eMaint continues to deliver strong growth while eMaint and Fluke condition monitoring to top honors and the plant engineering 2016 product of the year awards in the maintenance software and maintenance tools and equipment categories respectively.

The Fluke team continues to introduce the Fluke Connect digital platform and we will be unveiling our new brand and go-to-market strategies throughout May during a series of customer events across the U.S. You will see much of this at our Investor Day in May where we will talk more broadly about our digital strategy and the industrial Internet of Things. While our digital presence is important in Fluke, I’d like to highlight ongoing innovation focused on building out the contractors tool [ph]. In our networks product line, Fluke released the DFX8000 [ph] cable analyzer which is the industry’s first category eight field tester. The DFX8000 [ph] significantly reduces the cost of copper certification for datacom infrastructure contractors and data center network engineers. The Fluke networks team set up in a room and incorporated FBS tools including speed design revenue and lean software development into their innovation process to significantly reduce time to market.

Qualitrol delivered mid-single digit growth and posted strong growth in China for project wins across several of its product lines. Qualitrol solutions for electric grid assets have embraced data centric solutions leveraging its broad portfolio of sensors. As the need for grid reliability evolves, Qualitrol’s incorporating data analytics and smart sub-enterprise condition monitoring software to expand their value proposition to customers.

Moving to product realization, the platform core revenues were up high single digits for the quarter led by low double-digit growth at Tektronix. We are encouraged by Tektronix’s continued performance in high growth market. Tektronix has driven strong performance in the high growth markets for the application of FBS growth tools, same as utilized transformative marketing processes to identify micro segment to present strong share gain opportunities focusing on these targeted areas, the team has used the FBS growth tool set, to develop personnel base campaign expect successfully generate lead and improve win rates.

Tektronix saw its third consecutive quarter of double digit growth in its Keathly’s product line. Keathly’s growth has been driven primarily by 3D sensing and consumer electronics, where product is integrated into the production line to test LED, laser diode and flat panel display. This is another example of how our businesses provide a central technology to accelerate customer innovation and bring next generation products to market. On the new products front Tektronix introduced the industry’s first 32 gigabit per second protocol where bit error rate test and analysis system. The new BSX series bird scope delivers unique visibility into the underlying root cause of physical layer issues by capturing the exact location and timing of bit errors. The primary applications of the BSX series target the fast growing datacenter market.

Our sensing technology’s platform saw mid single-digit core revenue growth in the quarter. The team continued to execute on the NAVSEA [ph] project and recently secured the second order associated with this important project for the U.S. Navy. Anderson, Gems and Setra all benefited from General improvements in their key verticals including food and beverage, HVFD [ph] and industrial.

Moving to our industrial technology segment, revenue grew 5.4% core revenue growth was 5.1% for the quarter with acquisitions contributing an additional 110 basis points of growth offset by unfavorable currency of 80 basis points. Both reported and core operating profit margin increased 180 basis points from Q1 2016 driven by Gilbarco Veeder-Root volume more than 250 basis points of margin expansion of Kollmorgen and improved productivity across the platforms. Our transportation technology’s platform posted mid-single-digit growth in the quarter with Gilbarco Veeder-Root delivering high single-digit core revenue growth.

The performance at Gilbarco Veeder-Root reflected our double-digit growth in Western Europe and our expectations for low double-digit growth in North America. The outperformance in Western Europe was due to large orders in the U.K. and Germany. The strong growth in North America was driven by an increase in outdoor EMV related demand for both dispenser and payment kits. Global dispenser sales were up double-digits reflecting the strength of our product offering around the world. Further demonstrating our market leading technologies stores partner exclusively with Gilbarco Veeder-Root for both point of sale or indoor and dispensers outdoor to deliver EMV capability to their 400 sites.

Telematics realized core growth of low single-digits in the quarter with mid-single-digit growth outside the US. As part of our restructuring actions taken last quarter, telematics realigned the US sales and marketing teams in order to better position the company for long term success. As a result we expect to see improved growth in the second half of the year in the US. Automation and specialty posted low single-digit core revenue growth in the quarter. Automation growth of mid-single digits was offset by a core revenue decline in Jacobs Vehicle Systems which is still challenged by the North American heavy truck market.

Within automation Kollmorgen and Thompson both grew core revenue mid-single-digit reflecting increased demand and generally stable end markets. Thompson’s growth was broad-based across its key verticals with most of the growth driven by medical equipment in all highway vehicles. Kollmorgen’s continued growth reflects increased demand in high growth market and success globally in the robotic medical equipment and semiconductor verticals.

Moving to franchise distribution, the platform posted mid-single digit growth for the quarter with Matco posting core revenue growth of mid-single-digits aided by the Matco Expo which saw a record attendance. The expo provides Matco franchisees with an opportunity to see the latest innovation attend training sessions and place orders to further grow their businesses. This year the team introduced its new line of tool storage equipment, revel which is another key innovation milestone achieved by the Matco team. In addition to strong core revenue growth in tool storage this quarter, Matco also delivered strong double digit growth in diagnostic.

To wrap up we had a strong start to the year as we continued our momentum from the second half of 2016. We are well positioned for acquisitions and growth investments due to our current business strength and market leading positions. The Fortive business system is the driving force behind our success today and tomorrow. We are confident in our organic and inorganic opportunities and expect continued outperform as we are advantaged by multiple secular growth drivers. We look forward to explain our growth playbook and outlook in more detail at our first Investor Day on May 18 in New York. We are raising our full year 2017 adjusted diluted net EPS guidance to $2.68 to $2.78 which includes assumptions for low to mid single-digit core revenue growth.

We continue to anticipate core margin expansion in excess of fifty basis points and are alluring our expected effective tax rate of 28% to a rate of 27% for the year. We are also initiating our second quarter adjusted diluted net EPS guidance of $0.65 to $0.69 which includes assumptions of mid-single-digit core revenue growth and an effective tax rate of 27%.

With that, I’d like to turn it over to Lisa.

Lisa Curran

That concludes our formal comments. Camille, we are now ready for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Scott Davis with Barclays.

Scott Davis

Hi, good evening guys.

Jim Lico

Hi, Scott.

Scott Davis

Good afternoon I guess it is for you. It’s going to be late evening for us I think. But you know professional instrumentation, everything sounded so good I have to ask a question what wasn’t good? What was slow or what kind of fell below your expectations if I may ask it from that angle?

Jim Lico

Yes, I think you’re right we were really pleased with what we saw around the hornet [ph], Scott. I think probably, if we were to say one place, probably North America as a region would have been maybe not as strong as some of the other parts of the world we mentioned in the prepared remarks some of the strength of Western Europe. That was certainly true with Fluke and Attack, our two largest businesses within the segment.

So on balance I would saw North America, we like to see a little bit more of improvement in North America as we see the rest of the year play out.

Scott Davis

Now for your products to sell through distribution, I assume that — I don’t – I can’t remember what percentage that Fluke sells through distribution. But was any part of this snap back, do you see anything related to some increased comments out there and some inventory-restock, some of the distribution level on get a sense if the sell-through is equivalent?

Jim Lico

Yes. So we see about, I think Fluke’s business and channels in the 75% or more range. So they may have pretty good visibility in terms of inventory positions as well number of our other businesses, specifically around Fluke where we get the best clarity data. We do not and really in professional instrumentation, we really did not see inventory build within the channel. So saw through the quarter point of sale, got a little bit better but we didn’t see any subsequent addition of the word beyond that, that would have said our inventory positions or anything more but relatively quiet through the quarter.

Scott Davis

Okay. That’s all I needed guys. Thanks guys and good luck.

Jim Lico

Alright, thanks Scott.

Operator

Our next question comes from Steve Tusa with JP Morgan.

Steve Tusa

Hi guys, good afternoon.

Jim Lico

Good evening Steve.

Steve Tusa

So just on the kind of organic trajectory, over the course of the rest of year, obviously good start at around 5% this quarter. You were saying in the second half it’s going to kind of go to low single-digit. Can you maybe talk about obviously you have the EMV thing out there that everybody is aware of but what about the other businesses. Is there anything in there that is going to swing around from the current rate of growth to either better or worse from first half to second half year-over-year?

Chuck McLaughlin

Hi Steve, this is Chuck. The main thing you’re seeing in our guide is that the second half of last year was really strong for us at 3% in the second half. So when you’re looking at moderating what is off to a really good start in the first half, that’s the main thing that’s happening.

Jim Lico

And just as we you know as we sat out I think it’s really true from several months ago is that the barcode what the — in the second half, we still think will get better because we’re going to that summertime, and that — that’s some potential upside probably to where we’re at right now.

Steve Tusa

So it is a potential upside to where you are.

Jim Lico

Yes, we would think that more upside than down side at this point, obviously it is still early in the year, there’s probably some — we’re probably hedging a little bit on what’s going on in places like higher growth markets where we’ve been really strong and that even if that tempered a little bit, we will be in a very good shape in high growth markets in the second half.

Steve Tusa

And what was G&A up in the quarter or down.

Jim Lico

I think it is down sequentially and there’s a little bit of timing there but we’re — just if you’re talking about the corporate overhead or the G&A.

Steve Tusa

Yes, the G&A portion of SG&A.

Jim Lico

It’s flat from last year.

Steve Tusa

Okay, percentage of sales or absolute.

Jim Lico

At both I think. Well, so it’s down a little bit and as a percentage of sales and I think we’re flattish from last year.

Steve Tusa

Okay, that makes sense. One last one, the acquisition pipeline, I know it’s kind of a generic and you can probably interpret — probably entered a very generic way what is — what the pipeline looking like and is there anything that kind of percolating here.

Jim Lico

And I think — I think the tone I had in the first quarter was similar to how I view right now I feel very confident we will get some deal done in the year, we certainly been busy in the half year and all those good words around that. We’ve seen from things transacted at the areas, but I think if we look at the funnel we really believe strongly that the funnel contains a lot of opportunity that would get us that returns we suggest within the realm of how we think about the deal. So we feel publish on the year, and we should have done this for a long time, you never know — you always work on timing, but I feel strongly we’re going — we will get a few things done for sure.

Steve Tusa

Okay, great, thanks a lot guys.

Operator

Our next question comes from Nigel Coe with Morgan Stanley.

Nigel Coe

Hi, good afternoon guys. Obviously a nice quarter from Electronics. I think that we haven’t seen so many quarters of high growth. So I’m just wondering we’ve seen so many in companies, I’m wondering if it’s a function of [indiscernible].

Jim Lico

I would definitely think that some of what we’re seeing is a better market, I wouldn’t any way shape or form suggest that’s not it, I do think we’ve done some nice things around making our own luck, we talked a little bit in our prepared remarks of the good FBS the team is doing — and you really see that in China, our work we’re clearly out growing the market in china, we are doing a really good job, and their high growth market sales were very good, and the has a lot to do with the business, which is semiconductor related but it’s also sharing related within conductor.

So these are few places I highlight that are a little bit better above market opportunity and we still think that the opportunity for North America much of that reside in the new platforms, as we launched the new platform we think that that will give us some opportunity second half in North America, we do — we are on track with that launch. I mentioned in my prepared remarks about some other innovations but we’re on track for new scope launch. We think we are in a good place, and that will have some impact that will happen that will put us in a good position for 2018.

Nigel Coe

Great. Then secondly maybe for Chuck, the free cash we saw a significant build in working capital. I’m assuming obviously the stronger sale that’s natural, but is that because we saw more demand sort of back in the quarter.

Chuck McLaughlin

No, I think actually what you should expect for us going forward this right in the zone to get us to the 105% conversion ratio we’ve been talking about. I would look at the trailing 12 and took out the tailwinds for amortizations, we’re right on 105% there, so I think we pay out our ICP in Q1 and there’s other timing payments, and I think that that’s really what you should expect to see going forward.

Nigel Coe

Okay, and then you mentioned Chuck, the intangible — you saw big drop off in PI. What was that driven by.

Chuck McLaughlin

10 years ago we bought Tektronix.

Nigel Coe

Of course you did, thanks.

Chuck McLaughlin

Thanks Nigel.

Operator

Next question comes from Julian Mitchell with Credit Suisse.

Unidentified Analyst

Good afternoon, this is actually [indiscernible] for Julian Mitchell. It looks like we’re already seeing some savings from the Q4 restructuring actions. Is this program ahead of plan and what’s your expectation regarding the cadence of savings over the next three quarters.

Chuck McLaughlin

I don’t know whether it would be a head of plan but it can — we do restructuring we expect returns within the year, and I think that that’s what you’re seeing, and in part, but we also have — we have a good margin fall through and that’s not all from restructuring, but I’d say we’re right on track where we expected to be.

Jim Lico

The nice thing about growth market, is we really saw really strong FBS work been done in places like our business in Gilbarco, they’ve been really working hard to be able to deliver more revenue without a lot more investment, I think it’s just — you see these really strong benefits of what we can do with when we — when we have more volume we don’t add capital, we are doing much more productively and so you see a little bit of revenue go a lot — goes a long way and really those businesses in particular done a really nice job.

Unidentified Analyst

Understood, and pricing and IT was flat this quarter after being in pressure in Q4 some peers have discussed price increases in the retail fueling market recently, so can you just talk about your pricing dynamics — the pricing dynamics in the retail fueling market and how those might have changed in the last couple of months.

Chuck McLaughlin

I think that in Gilbarco we saw some of our bigger deals, as we bundled that it broke down the average price, I think this as we look forward that’s moderated somewhat as we forward we expect to return to our seeing our normal pricing as we go forward in the year.

Unidentified Analyst

Great, thank you very much.

Operator

Our next question from Jeffrey Sprague with Vertical Research Partners.

Jeffrey Sprague

Hello, a couple of quick ones for me. Jim, I was wondering if you were willing to kind of look — a little bit on Fluke connect what we might be hearing in the next month or so in terms of size of Fluke count you might be launching or the breadth of the rollout, and we expect it to have a measurable impact on your organic revenues this year.

Jim Lico

I think that what we are doing in May is we’re really doing a multiple city tour with what the eMaint and Fluke select solutions, will be unveiling new brand, we got some branding that we’re doing there, we got some branding that are going to market and some integration we are doing with those business to make customers solutions look better. So I think that what you will see sort of continued evolution of innovation it’s just kind of continuing at the same pace, more connected devices continuing to come out to just make sure that the upgrade cycle within the portfolio continues. I think what you’ll see in conferences is really that sort of whole cost strategy playing out in a way that really makes sense. We are really pleased with the eMaint work and the team there and everything going on, still small business but accelerating well. Looking at it it’s really a 2018 story with the current revenue model the way it is, it really it takes a little while to ramp up.

And again as I mentioned I would say we’re continuing to see those things happen a little slower than what we — what we anticipated and I mentioned that the first — in the January call and that that’s really — that’s really continued. So from a building while but that is going to take us a little while to ramp that up to a way to really impact the organic growth.

Jeffrey Sprague

Right, and then just on west Europe you called that out actually on couple businesses. You think that was doing in the market or is that kind of a genuine pickup going on there.

Jim Lico

Well, I haven’t watched other sort of talk about Western Europe too, I’ve found that the market there is a little bit better, the breath of strength that we’re having would probably indicate that as well, but work — we’re doing a lot of good things making our own luck, I’d certainly like to work as an example we mentioned the tender wins to Gilbarco, their story is really robotic story, the work that they’ve been doing with several of the large European robotic OEMs has been really fantastic and they’re doing a great job there, so these are just a few examples, we call those guys out in the prepared remarks. Fluke had tactic good quarters too, I think some of that is market but also some of that in the work they are doing, particularly the channel partners to really engage with their marketing efforts to build their portfolio if you will, and I think in balance we’re in a good place. And that is why I said I think by and large — I am saying maybe it is low single digits in Western Europe, I really think for 2017 we are probably more mid-single digits for Western Europe for the year.

Jeffrey Sprague

Okay, thank you.

Operator

Our next question coming from [indiscernible].

Unidentified Analyst

Hi everybody, Jim, you said in response to the M&A question, you said you have to get a few things done something to read into that, like more smaller versus one bigger.

Jim Lico

Well, I think getting my words right, you dig them right, I am just saying. I think that is a funnel comment John, I think we definitely see the breadth of the funnel pretty good. And I do think that as we laid out those small, medium and large, how we think about it was large over $500 million in cash capital deployed, medium being under $500 to kind of $100, and then I think under $100 being small. We see a number of things within all those categories. So we feel good that we’ll get something done and hopefully we’ll be able to talk about more and proper names rather than things, and I think as we get later in the year that will certainly be true.

Unidentified Analyst

Thanks for that, can we talk about Tektronix for a second. So I think you said high single digit growth, which is obviously much better right. The question I’m wondering I’m assuming that China was much more rapidly growing than that, as you’re rolling out this sort of software back down — Bone for U.S customers kind of holding back such that when these new product launches are pending, because obviously customers must know their stuff is coming, they’re going to actually see Tektronix kind of on the collectivism in China holds pick up its growth pace meaningfully in the second half or in the coming quarters. Is that possible?

Jim Lico

Yes, a couple of things, one we actually had a second double digit for the — for the quarter and they were strong and they were — they were good in the developed market as well as hyper market, it was just that Europe was much better. I think what will see through the year, is the new platforms just happen to be less a software platform than really a hardware platform, it is really oriented toward customers from or where we tend to have a little bit, we have more customers in North America than we do elsewhere in the world. So it just tends to be more oriented that way. I really don’t think it will hold back situation as much that’s just an orientation of solutions, and then I think on the high growth market success, it does happen do a little bit with the mix of semiconductor customers to some extent being in those parts of the world, I mentioned that in a previous question and so our success and [indiscernible] portfolio really suggests that we are seeing good strength with several vertical, but that being one of them and it tends to be mores Asia based.

So I wouldn’t read too much into that mix, but I do think that just to come back to original question, I don’t think we’re seeing much hold back, I just think things have been a little bit slower to come back to U.S with the kind of customers we have in the U.S.

Unidentified Analyst

I just want to press you on that little bit, I guess I’m not completely clear, you telegraphed pretty widely these new product launches and so forth, why would customers be buying now — why don’t they just wait for new products coming in the U.S in a few months I guess that’s my point. You suggesting that’s not happening, I’m just curious as to why.

Jim Lico

Yes, I think we have a broad portfolio, I think the one we have been clear with is not where the platform necessarily is within the various price points and segments, so we don’t get to the but embargo date here a little bit, and so from a customer perspective they just know something new from Tektronix; they don’t necessarily know where and so if people have a need right now that they tend to buy a need rather than buy ahead of thing or — so I think I think — that’s why I don’t think we’re necessarily seeing much whole back at this point.

Unidentified Analyst

And then just based overall on company trends and the growth rates you saw I guess in China and US. You expect things and realize what you guide is but all our sequel is there are any sort of reason that things may I don’t know, not play on kind of but a continuing improvement type of trajectory? That makes any sense?

Jim Lico

No…

Unidentified Analyst

Order book or anything like that?

Jim Lico

I think things so far have held in so I think from that standpoint every — kind of think about real time but more than anything I think it’s as if we look at three quarters in a row of kind of growth rates in and around the same number; we kind of have a guide out there that thinks at least second quarter will be at mid-single digit and that’s better. I think the fodder on the second half is really the bark of actuation as we had indicated and also just — there is an unknown; if we just -it is early in the year. I think we’ve been trained early and as we said in the first quarter, it’s always sort of let but the back kind of give us a better sense of where reality will be. A year ago we were — we weren’t sure; the second half ended up being better than we thought.

So I think that’s just what we’re thinking. I think if I were to just maybe just go back to what I said before our high growth markets have been really strong and I guess maybe more cape that might be a little bit more negative would be that things slow down a little bit more there. That would still be performance for us but it would be a little bit little bit less than where we’re at right now.

Unidentified Analyst

Understood. Okay, thanks very much. Appreciate it.

Jim Lico

Thanks.

Operator

Our next question comes from Dean Dray with RBC.

Dean Dray

Thank you. Good afternoon everyone. Jim, I was hoping you could comment on the initiative to place more of your instruments and inline testing. You called out key fully but I know there’s other applications of fluke and how big are the initiative — More manufacturing automation?

Jim Lico

I would call it more – you’re not going to like that. Hopefully we’re not get this, we’re losing feedback here.

Dean Dray

Sounds like same this end.

Jim Lico

It does. Okay, so we’re just getting the feedback. So I’m just going to talk.

Dean Dray

It sounds fine.

Jim Lico

Okay. We really don’t have a big initiative. I mean like that is indicated, deeply send a little bit more production cap a little bit more. But I’m down — we don’t have a major initiative event like that and so they’ve got innovation work we’ve done it resulting in the results for the for the quarter and quite frankly for the year.

Dean Dray

You are just not focusing on because we’re hearing and seeing more manufacturers put online testing. Is it because your instruments are you their board bench top or handheld?

Jim Lico

Well I think certainly we tended to attack to the example we’ve tended to stay away from large scale manufacturing cap applications so that that’s something we just intentionally done over the — at Chuck mentioned the ten years we known Tech 9. If fluke we have moved toward from inline sensors and put connect is really an example of that where we have found I pick sensors that allow for the solution so in that case we actually do have in life sensing where we think it makes sense relative to the workflow that exists with Fluke

So beyond that it’s really a company-by-company situation but our mission in Fluke is not really be a broad base necessarily center player as much of this is a really technician in the making is perfect and more cool armed them with their ability to troubleshoot and diagnose problems.

Dean Dray

Great. That’s helpful. And for Chuck, you just remind us that total balance sheet capacity for M&A at this time?

Chuck McLaughlin

Well we’ve been talking about deploying over three billion in the next two and a half years and I think that’s still good number.

Dean Dray

Did I notice that your euro denominated TP right now is at a negative interest rate?

Chuck McLaughlin

Yes, you did.

Dean Dray

How much more of that you want to do?

Chuck McLaughlin

We’re very happy with that program and could extend we expand it and those rates stay there will were intended to do so.

Dean Dray

Good to hear. Thank you.

Chuck McLaughlin

Thanks, Dean

Operator

Our next question comes from Andrew Kaplowitz with Citi.

Andrew Kaplowitz

Good afternoon, guys. Just want to follow up on Kollmorgen for a second I think last quarter you had high synergy growth in that business year-over-year and I think that’s clear last you mid-single digit but you did talk about the penetration in the robotics. I mean we know it’s a very strong growth market right now significantly so maybe if there were more color on Kollmorgen sort of what do you think for the year and is there any other part of that business that’s a little slower because I would think that business could accelerate versus decelerate.

Jim Lico

Well, I think you’re exactly right. We’ve had several good strong quarter at Kollmorgen over the last several quarters. I would think about it this way; we’ve got a nice job — of robotic in a number of customers that I mentioned on previous question. We’ve continued to move our around some opportunities what we call mobile robotics, that’s really been warehousing and really if as what we used to call our AGV which is really mobile robotic business as robots become more pervasive in warehouses and things like that. Those are clearly opportunities and we think it will it gives us the continued ability to grow the business. We’re going up a little bit easier path in the first quarter so we’re a little higher this quarter but we think certainly growth there.

Of course that’s a business that tends to you win it, you have a design win and then it plays out overtime. So I think it’s a little bit longer cycle business. So we think we’re in a good position here for the next several quarters and we’ll see how we continued design win come and also our customers volume goes; because obviously we also need our customers to be using some of those products more often in order for the business to grow. So we’re very comfortable with the growth rate right now. As I said, first quarter is a little bit higher than normal but we think we’ll see good growth this year.

Andrew Kaplowitz

Got it. And then I want to ask you that GBS, you mentioned still modestly declining. I would imagine you do you have easier comparisons and mapping and since the year goes on and I think the heavy truck market has shown signs of improvement. So can that business turn here as we go throughout the year as you go throughout the year what’s your expectations for GBS.

Jim Lico

What we — what we certainly in the first quarter have worked it up pretty tough comp. We’ve got grape business in China there that’s continue to perform but we still see, as far as we can see right now we were hearing and listening to what market players are suggesting and things might get better every year. I can I think that probably the hate that’s going to occur given that the fairly that he order book so we’re still keep some challenges here over the next week or. I Phone five.

Andrew Kaplowitz

Alright guys, appreciate it.

Jim Lico

Thank you.

Operator

Our next question comes from Patrick Newton with Stifel.

Patrick Newton

Yes, good afternoon Jim and Chuck. First question is just on electronic – new platform at least for the second half. Could you tease us with any performance matrix or features that could make the platform disruptive in the market and are we right to think that this is also a market expansion where you’ll have an opportunity to target more automotive and embedded opportunities?

Jim Lico

Well Pat Byrne, President of Technology will kill me if I gave too much more away I’m going to platform until we launched it. So I’ll let Pat do that once the embargo occurs. But I do think it is an opportunity for us to solidify current market positions and also add some applications that we’ve not historically done as well in and I think that that’s what we’re excited about.

Patrick Newton

Oh it’s worth a try. And I guess Chuck, one for you is obviously a tax plan discussed by the White House earlier this week. I’m curious that if this tax in its current form or something similar to it that the change the way that Fortive looks at M&A opportunities on a global basis or how you think about signing the bills.

Chuck McLaughlin

I don’t think it changes anything about where we would look, what we think they were cost or we the value we see to it that it might change that equation but probably change it for everybody. We’ll wait and see if anything comes to the one page that came out yesterday. One way to go – but every scenario I see is creative to us and so I hope they do get something done.

Patrick Newton

Great. Thanks for taking my questions. Good luck.

Jim Lico

Thanks.

Operator

Our next question comes from Brian Drab from William Blair.

Brian Drab

Hi. I just have one question to left in my list at the moment. Heading into the separation Oh it’s down to her if she said that you thought that that you have the EMV opportunity could add about a hundred basis points to grow from a consolidated basis but here just wondering if you look at what. What that’s contributing is that more than one hundred in the quarter and what do you expect through this year on a full year basis

Jim Lico

I think yeah I think when we suggested that it was certainly with the idea that the dead line would be in twenty seventeen. So from that standpoint that would have push out we’ll probably fill 100 basis point but in anyone quarter it’s hard to nail down exactly what the number was. I would suggest that probably in this quarter we’re probably pretty close to that, maybe a little bit better than that but probably in around 100 basis points I think.

Chuck McLaughlin

I’ve looked at it and if we go back to maybe where before the ramp started, it’s been three years and we’re up about 300 basis points over that three year timeframe. As Jim said there is just some absent close in that but we think we’re right on-track with that. Second half maybe puts a little pause in that and the longer timeframe — I think — we think it’s a net positive that maybe flattens off the peak there but we think the sizing of it as we originally envisioned it well maybe a little longer timeframe is still pretty accurate.

Brian Drab

Okay, thanks very much.

Operator

Our next question comes from Joe [ph] with Cowen & Company.

Unidentified Analyst

I’m the guy for the full year, so it seems like most of the incremental bump here is in the second half where you’re expecting a bit of a deceleration on the organic options, so what specifically kind of was incremental I guess on the cost side that’s driving that?

Jim Lico

Well, thanks for your question. First of all, I think that the — it’s pretty evenly split, not balanced in the second half of the year on the take up since we did beat me in Q1. It’s evenly split between the tax rate coming down to 27% and also then seeing some strengthening and raising our outlooks slightly over the whole year but it’s pretty balanced by quarter and I’d say it’s really $0.04 for the year, $0.01 a quarter for volume and $0.01 for tax.

Unidentified Analyst

Okay, fair enough. I guess I’ll shift a little bit auto; I know you guys place in a very specific way with macro and stuff but I know that’s an area that people are a bit more concerned about generally speaking. What are you seeing? What are your customer saying there? Are they a little bit more nervous about production rates or anything more recently than they were maybe three/six months ago?

Jim Lico

Yes, so I think the way we think about the auto industry is mostly get Matco — when we just think about peer vehicle, really — obviously, Matco plays into the maintenance and dealerships and maintenance shop and really they don’t really care if it’s a new car or an old car, it’s really about size of the fleet. So to some extent if people are holding out of their cards longer, it actually helps Matco. So I think we don’t get a lot of visibility just to the new car production level, that’s a $17 million U.S. car number, a $16 million number; we’re sort of out of the realm of that, it doesn’t really — it really doesn’t affect us that much Joe. So I think we really think about the total vehicle population and the complexity of those vehicles and the changes in those vehicles and as long as there is more complex vehicles that are harder to repair, I think those are good trends for Matco.

Unidentified Analyst

I totally appreciate that. I mean, I know that they don’t really care specifically about it but just wondering if maybe you have been hearing if these guys were just kind of shop talk around where things might be going but if you’re not…

Jim Lico

I wish we had a real world like that but we really don’t.

Unidentified Analyst

Fair enough, thanks a lot guys.

Operator

That does conclude our question-and-answer session. I’ll turn the call back over to our speakers for closing remarks.

Lisa Curran

Thank you, Camille. And thank you everyone for joining us today. We look forward to seeing you in May at our first Investor Day. And if you have any question, we look forward to those as well. Thank you.

Operator

Ladies and gentlemen, that does conclude today’s call. We appreciate your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

[ad_2]

Source link