Fortive Corp
NYSE:FTV
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
67.01
86.29
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Fortive Corp
You don't have any saved screeners yet
My name is Brandon and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to the Fortive Corporation's Third Quarter 2018 Earnings Results Conference Call. [Operator Instructions]
I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may begin your conference.
Thank you, Brandon. Good afternoon, everyone, and thank you for joining us on the call. With me 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 Investors section of our website, www.fortive.com, under the heading Financial Information.
A replay of the webcast will be archived on the Investors section of our website later today under the heading Events & 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 Friday, November 09, 2018. Instructions for accessing this replay are included in our third quarter 2018 earnings press release.
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 expect 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 these 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, 2017. These forward-looking statements speak only as of the date they are made and we do not assume any obligation to update any forward-looking statements.
Jim?
Thanks, Lisa, and good afternoon everyone. Today, we reported strong high teens adjusted earnings growth for the third quarter reflecting the underlying strength of our core portfolio, the power of the Fortive business system and the increasing momentum of our M&A flywheel. Given our strong free cash flow generation and a healthy balance sheet, we are in an advantaged position to continue driving organic growth while pursuing acquisitions to accelerate the achievement of our strategy.
During the third quarter, we closed the $775 million acquisition of Gordian and the $2 billion acquisition of Accruent. Through the application of FPS, we were also able to close the divestiture of the automation and specialty businesses to Altra, well ahead of schedule on October 1. In total, we have now announced $8.2 billion of transactions in 2018, $5.5 billion of which have already been closed.
We have done so while maintaining our commitment to a strong balance sheet based on our consistent free cash flow performance as well as the successful execution of our mandatory convertible preferred stock offering in the second quarter. Taken together, these transactions significantly advance our portfolio enhancement efforts aimed at increasing growth and reducing cyclicality across the portfolio. The Gordian and Accruent acquisitions provide entry into attractive markets characterized by strong long-term growth trends and limited cyclicality. They also represent the continued execution of our digital strategy to address a range of critical software-enabled workflows for our customers through the acquisition of quality software assets with high margins and significant recurring revenue.
During the quarter, we also continue to make progress toward the closing of the previously announced acquisition of Advanced Sterilization Products. Based on close collaboration with our partners at Johnson & Johnson and our continued application of FPS, we successfully completed the requisite European Works Council consultations and cleared key regulatory hurdles paving the way for the formal acceptance of our binding offer on September 20. We continue to expect to close the transaction in early 2019.
The third quarter represented the opportunity to demonstrate all that is special about the Fortive team as we responded to Hurricane Florence and other recent natural disasters around the world and showed our commitment to our local communities through our annual day of caring. Over the past two weeks, our employees participated in hundreds of events including working with food banks, improving children shelters, and building houses for the low income and homeless. Coming together to support our communities as never been more important for the long-term success of our company and the communities in which we work.
With that I'd like to turn to the details of the quarter. Adjusted net earnings of $321.1 million were up 18.2% over the prior year. Adjusted diluted net earnings per share were $0.86 based on an adjusted effective tax rate a 17.2% for the quarter. Sales grew 9.2% to 1.8 billion reflecting a core revenue increase of 3.2% driven by strong growth across industrial technologies as well as Fluke, Industrial Scientific, and Gems.
Acquisitions including Gordian and Accruent contributed 720 basis points of top-line growth. Geographically, high growth markets core revenue grew mid-single digits with continued strength in Asia and Latin America. This growth was led by Gilbarco Veeder Root, Sensing Technologies and Automation. Despite certain parts of the China market that are becoming more challenging, we performed well generating high-single digit growth for the quarter. Developed markets core revenue grew low-single digits reflecting continued strength in North America. Core revenue growth in North America was mid-single digits and was driven by strong performance of Fluke, Matco, Industrial Scientific, and Jacobs Vehicle Systems.
Western Europe declined low-single digits as high-single digit growth at Tektronix was offset by continued weakness at Qualitrol and JVS. In the third quarter, we posted a gross margin of 50.2% reflecting 40 basis points of expansion over the prior year based on the strong contribution from our recent acquisitions which was partially offset by anticipated impact of tariffs and inflationary pressures. The third quarter represented our fourth consecutive quarter of gross margins at or above 50%.
Pricing contributed 60 basis points with four of our six platforms delivering positive price during the quarter. Operating profit margin was 17.5% with core operating margin decreasing 25 basis points as strong PPV in productivity were more than offset by costs associated with loss production days at Gilbarco Veeder Root due to the Hurricane Florence as well as unfavorable mix dynamics within the portfolio.
During the third quarter, we generated $351.8 million of free cash flow representing a 23% year over year increase and a free cash flow conversion ratio of 143%. For the full year, we are on track to deliver a free cash flow conversion ratio of greater than 110%. Turning to our segments, professional instrumentation posted sales growth of 13.6% including core revenue growth of 1.4%. Acquisitions contributed 1,320 basis points while unfavorable currency reduced growth by 100 basis points. Reported operating margin of 20.1% reflected 270 basis points of dilutive operating margin associated with acquisitions and transaction expenses. Core margins were flat due to the impact of tariffs at Fluke and Tektronix, inflationary pressures, and customer-related delays at EMC.
Advanced instrumentation and solutions core revenue increased low-single digits during the quarter, driven by continued outperformance at Fluke and Industrial Scientific. Field Solutions core revenue grew low-single digits reflecting mid-single digit growth in developed markets offset by some slowing and high growth markets which were slightly up in the quarter. Fluke delivered mid-single digit core growth led by double-digit growth at Fluke Digital Systems and Fluke Health Solutions and high-single digit growth in the Fluke Industrial Group and Fluke Calibration.
We are pleased with the progress we made in the quarter to counteract the impact of tariffs through FBS and supply chain strategy and expect to be fully countermeasure by the first quarter of 2019. At Fluke Digital Systems, we recently released the Fluke, the new Fluke 3561 vibration sensor which has generated a very positive response from the market based on the pace of orders thus far driving continued customer expansion including a large order from [indiscernible].
Annual recurring revenue from eMaint grew greater than 20% as growth investments in sales and marketing in the compelling value proposition of Flukes combined hardware and software product offering continued to drive outperformance in market share gains. Industrial Scientific delivered mid-teens revenue growth led by continued double-digit growth for INA [ph]. The ISC team's ongoing implementation of the Fortive business system has continued to highlight opportunities to drive significant revenue growth and margin expansion in the coming quarters.
ISC recently launched the RGX gateway, a ruggedized gateway device that transmits worker location, gas reading, and real-time alerts from connected devices to INA Now platform, simplifying the process of delivering live monitoring data to the cloud for a variety of critical industrial applications. Qualitrol core sales declined high teens reflecting lower sales in China, Europe and the Middle East. This represents a continuation of the market softness that we messaged in prior quarters and which we expect to remain a headwind into 2019.
Product realization platform core revenues declined slightly for the quarter led by a low single digit decline at Tektronix. EMC registered mid-single digit growth despite customer related delays in North America which we expect to reverse in the fourth quarter. The product realization platform registered a book to bill ratio greater than one for the quarter reflecting solid order momentum heading into the fourth quarter.
Turning to Tektronix, excluding the large 3D and sensor order we highlighted previously, core revenue growth was low-single digits. Results were driven by strong growth in Western Europe and China offset by a decline in North America primarily reflecting delays with U.S. defense contractors. Tech industrial and automotive end markets continue to deliver double-digit growth reflecting the strong momentum created by the 5 Series and the recently introduced 6 Series mixed-signal oscilloscope.
We were encouraged by positive order growth in the quarter including a strong double digit increase in orders for the 5 Series and key new customer wins for the 6 Series from Smith and Nephew and a Fortune 100 Internet technology company. Our sensing technologies platform is up slightly in the quarter led by high single digit core revenue growth at Gems, which included a large order from a leading manufacturer of heavy duty buses in the US. Core revenue declined low single digits in North America reflecting headwinds due to Hurricane Florence and difficult comparables related to a large project for the naval sea systems command from the prior year. Double digit core revenue growth in China more than offset the results in North America.
Moving to our industrial technology segment, revenue grew 5.3% including core revenue growth of 4.8%. Acquisitions contributed 200 basis points of growth while unfavorable currency movements reduced growth by 150 basis points. Reported operating margin of 21.1% reflecting a core operating margin decline of 40 basis points driven by increased material costs due to inflationary pressure in tariffs as well as 40 basis points of dilutive operating margin associated with Orpak acquisition. Our transportation technologies platform core revenue grew mid-single digits led by strong double-digit growth and high growth markets.
Gilbarco Veeder Root delivered low single digit core revenue growth driven by mid teens increase in high growth markets. GVR generated low-single digit growth in North America reflecting the negative impact from Hurricane Florence. Continued strong double-digit core growth in China was led by demand at Veeder Root for submersible pumps and automatic tank gauges related to double wall tank upgrades. As anticipated we continue to see a pickup in EMV sales at Gilbarco, particularly with mid-tier counts and single-site owners and expect this trend to accelerate in the fourth quarter reflecting a strong North American order book.
During the third quarter, GVR also made a minority investment at Tritium, a leading manufacturing of fast charging solutions for electric vehicles, providing an early entry into the EV market. GVR had a very successful showing at the recent MAX conference highlighted by a positive reception to the Tritium announcement as well as a number of new product launches such as GVR’s new passport edge tablet based point of sale solution.
Teletrac Navman grew mid-single digits lead by double-digit core growth at Asia Pacific and mid-single digits in Western Europe. In North America, we've continued to experience ELD implementation challenges causing accelerated customer churn. Due to the recurring revenue nature of the business, changes to the North American installed base will continue to have an unfavorable impact on Teletrac Navman’s performance into 2019.
Automation and specialty posted high-single digit core revenue growth for the quarter led by high-single digit increases in both North America and Western Europe. JVS delivered mid- single digit core revenue growth driven by increased class A truck production in the U.S. Results in our automation business were led by [indiscernible] where high-single digit core revenue growth continued to be driven by strong double-digit growth in robotics. The strong performance was also driven by automation’s focus on high growth markets led by double-digit growth in China. We wish our entire A&S team all the best as they join the Altra team in the fourth quarter
Moving to franchise distribution, the platform grew core revenue mid-single digits, Matco returned to mid-single digit growth reflecting mid-teens growth in hard line and high-single digit growth in both tool storage and power tools driven by new product launches and market share gain. Matco recently launched Maximus 3.0, a unique full featured diagnostic scan tool which automatically links to vehicle make, model, and year information and provides diagnostic reporting to a proprietary subscription-based automotive repair database called Maximus Fix. Maximus 3.0 is expected to be a key growth driver in the coming quarters while Maximus Fix provides the diagnostic platform with a meaningful new recurring revenue opportunity.
To wrap up, during the third quarter, we delivered double-digit adjusted earnings per share growth and strong free cash flow despite some headwinds associated with Hurricane Florence and tariffs. We also made significant progress in our long-term portfolio transformation efforts, positioning Fortive and markets with faster top-line growth, reduced cyclicality, and enhanced opportunities to grow recurring revenue. Throughout the year, we have continued to generate strong core operating results consistent with the Fortive formula driving year to date adjusted earnings growth of 23% and a 29% increase in free cash flow, while also implementing a number of complex capital allocation strategies. With the power of the Fortive business system and the demonstrated momentum of our acquisition flywheel, we'll continue to enhance all aspects of our portfolio and our drive to deliver sustained top quality earnings growth.
Turning to the guide. We are updating our full-year 2018 adjusted diluted net EPS guidance to $2.98 to $3.02 on a continuing operations basis, which excludes the 2018 results of the divested A&S business. The guide assumes approximately 4% core revenue growth, core operating margin expansion of approximately 50 basis points, and effective tax rate of 17.2% and a free cash flow conversion ratio of greater than 110% for the year excluding the impact of the gain from the divestiture of the A&S business. The updated adjusted diluted net EPS guidance also reflects the dilutive impact from the preferred stock offering on an if converted basis. We are also initiating our fourth quarter adjusted diluted net EPS guidance of $0.83 to $0.87 which includes assumptions of 5% to 6% core revenue growth, core operating margin expansion of 75 to 100 basis points and an effective tax rate of 17.5%.
Before moving to questions, we want to provide an early view on 2019 given the extensive portfolio transformation and complex capital transactions which we successfully executed in 2018. We expect closed acquisitions to collectively contribute $0.20 to $0.25 of earnings per share reflecting the addition of high margin high growth software assets. Our enhanced portfolio profile of greater than 30% recurring revenue should generate strong annuity free cash flows with gross margins exceeding 50%.
The fundamentals of our core portfolio remains strong particularly in North America, with the EMV continuing to ramp, while we monitor conditions in China and packets of Europe and the Middle East. Through solid execution and the application of the Fortive business system, we expect to fully offset the unfavorable impact from announced tariffs. Assuming a stable macro environment, our remaining preliminary modelling assumptions include approximately fifty basis points of core operating margin expansion, free cash flow conversion ratio of greater than 115% and an effective tax rate in the high teens.
We anticipate deleveraging quickly after the closing of ASP enabling us to maintain our investment grade rating. And lastly, we plan to offset A&S stranded cost of $0.01 to $0.02 of earnings per share with the savings generated by our 2018 restructuring efforts. In summary, it is our expectation to deliver a another year of double-digit adjusted earnings growth in 2019.
And with that I’d like to turn it over to Lisa.
Thank you, Jim. That concludes our formal comments. Brandon, we are now ready for questions.
[Operator Instructions] And your first question comes from the line of Julian Mitchell from Barclays.
Maybe if you could just start by helping us understand why the core sales growth accelerates quickly in Q4, I think you said 5% to 6% after just doing around 3%. So what are the biggest two or three moving pieces that get you there.
It is Jim, thanks. Well. I think first and foremost we as you know from few months ago, we said we thought that we'd be in the sort of 4% range for the second half -- mid-single digit range in the second half. And really this is just playing out with a slightly different cadence, some of the backlog that we talked about with the hurricane pushed into the fourth quarter, so we built backlog, it flew not only at Gilbarco, we also built backlog at Tech and Fluke. So we're walking into a good backlog situation. We talked about some of the orders at EMC as well that moved into the fourth. So we've got a movement, but it's really no change really to how we sort of see the macro or see the revenue, it's just the slightly different cadence between the third quarter and the fourth quarter.
And then my second question would just be around the earnings sort of base and coupling that $3 base you gave for 2018 with the initial comments on 2019. So just to be clear, is the right way to think about it, you have the $3 base high-single digit core EBIT growth from that $0.20, $0.25 from closed deals, $0.30 for ASP. And so, if you round all of that together, we get up to sort of $3.80 or something for the next year, is that a good sort of template?
Hey Julian, this is Chuck. That's directly corrected, the one thing that obviously isn't closed is ASP but I think that’s consistent with what we've said before, so it depends a little bit on the timing of that, but everything else I agree with.
And your next question comes from Andrew Obin from Bank of America.
So just to let a bit more color on what happened in Tektronix, I know you highlighted key fleet but maybe give a sense of what's happening by geography outside of Q3, we've been getting a lot of questions on Chinese semis, that seems to be okay, but whatever color you can give within Tektronix would be greatly appreciated.
So, as we said, if we've sort of sun-setted this 3D sensing discussion with the end of the third quarter but that had a little bit of obvious impact in it. Really as we said in the prepared remarks, Western Europe was pretty good for Tek, in particular, one of the highlights in Europe for all of Fortive and China remained good in the mid-single digit range, so we -- really the semiconductor side of that was pretty good. So we felt pretty good about the quarter in that realm. Really the -- if you will the decline -- a little of the decline in the quarter was really due to North America that was some little bit of slowness combined with some orders that moved into the fourth. So, we think we’ll improve that, we know we’ll improve that number in the fourth quarter and right now from what we're seeing, the headline -- look away from the headlines, but what we're actually seeing in China from an order’s perspective is the continuation of the business in China with growth at Tektronix. And we're certainly watching all the things that you all watched to see if the headlines become reality, but at this point right now, the order book looks pretty good for the fourth quarter for China for Tektronix.
And I just to follow up you sort of highlight Fluke Digital doing well, it seems to have accelerated recently. You did bring up some new products, but in a big picture, what has changed to accelerate growth in that business?
It’s a great question. First I think, we're starting to see some of the hardware sales that took a little bit longer, we talked about that, the vibe sensor that we launched this quarter really a great product, a three-year life, really ease of use, really gets to a real core modality of challenge for condition monitoring. So, the killer hardware solution comes out with -- as we said, eMaint’s been a good double-digit grower for -- really since we bought the business. So we're getting scale in that regard as well. So it's not -- I think we added 131 customers in the quarter as well, so the addition of new customers plus up selling to current customers and with the hardware come along, it is starting to create just some really nice tailwinds for the business.
And your next question comes from Steven Winoker of UBS
Hey Jim, I know you hit it a couple of times but just in good kind of FDS fashion, could you maybe give us a better sense on the why behind that simple comment you had around backlog getting pushed sequentially to Q4. When you dig into all the little pieces of what is driving this. I know you're saying it's not macro-related, but what are kind of the whys behind some of that to give us confidence like we would worry with some other companies that they may not actually see that push or get another quarter after that.
Clearly, one of the things you saw with cadence at GVR was that it was slightly back-end loaded quarter and then the hurricane kind of came at a time when a lot of our employees had to deal with the issues at home and things like that. And so, we lost a number of production days, which not only pushed revenue into the fourth quarter but also cost us on the cost side as well, so it was a headwind from a cost side as we put in premium freight, some of those things in order to protect the customers we could. But it was really maybe a less linear quarter than we thought, a lot of our small net -- the nice thing about the small network owners was a number of them showed up in the quarter, maybe the downside of that is they showed up later in the quarter. So that really pushes the big chunk of the backlog into the -- that we saw in the fourth quarter.
The other places where we build backlog really were just large orders, some of them were customer situations, everyone has its story, but I think as we went -- as Chuck and I went through all the forecasts, we felt pretty good about -- a lot of it wasn't necessarily past due backlog but rather backlog that was just going to be due. So combination of some orders getting delayed, some customers pushing things out was really the answer. Now we're almost done with the quarter -- the month right now for us and most of those orders have already revenued. So, we feel good about the fact that those are now you know some of the improvements that we’ve had. As we mentioned in the prepared remarks, some of these government orders were really, really just took longer than we thought. And like I said, some of them have already been revenued.
And then, I'd like to just shift gears to Tritium, that investment on, that you announced, I think, October 8 and mentioned just earlier in this call that seems to me like it could be a rather significant move for Gilbarco Veeder Root over time, could you maybe just expand a little bit on that in terms of how that sort of affects your thinking about the footprint and utilizing the footprint over the long term.
We're really excited about it, it’s a prudent way to make an investment here that allows for us to sort of have the technology we need. We've got a great footprint as you know around the world with gas station owners. And we'll really you know as we're starting to talk to large scale network owners, they're wanting to -- they're starting to think about an EV solution that needs to be fast charging obviously because in a gas station it’s not going to be something slow. So this faster charging technology that we've got that’s IP protected is really a great advantage for us and we can globalize that business with a partner like Tritium. So, in the U.S. that's going to be mostly large network owners, in Europe, it's going to be a little bit different, it will be some of the oil and gas folks, it will be some utility. And so we'll have some slightly different partners as well to expand the business. So I think we're really excited about what we can do to help them globalize the business with that technology. We do have a right to purchase the company as well, so if things play out the way hopefully we all think and depending on timing and I think that's what I mean by prudent, we don't know necessarily the timing of electric vehicles and how long it will take for there to be meaningful investment with some of our customers, but we're getting to work as I mentioned at the National Association of Convenience Stores trade show we had a few weeks ago, we launched -- this is where we made the announcement and we had a lot of large scale customers were pretty excited about the offering.
And your next question comes from Scott Davis From Melius Research.
Trying to get my arms around a couple of things, it’s quarters when you have these big spin offs are always a little hard. When I look at kind of the color of the call, I’m trying to get some granularity on if your price was up 60 basis points, are you now caught up to price cost or are you still a little behind?
Hey Scott, this is Chuck. So I think that we're ahead of price cost because the great work they our procurement team does and the pricing, but I think inherent in your question here is what we see is that we should accelerate from here.
Be at least neutral to the rising prices that are coming or costs that are coming?
I think rather than 60 basis points, what I'm saying is, I'd expected to be greater than that going forward. As tariffs happened to not all but some of our countermeasures are supply chain in nature but some of them are priced, but they haven't even hit yet really. So that’s going to be tailwind. And we think we're in inflation -- we know we're an inflationary environment and we think that we expect to get more price than normal but then historic.
Scott, maybe just one thought. We'll see it accelerate in the fourth quarter as Chuck said. So, a lot of our countermeasures early in the third quarter were an attempt to kind of, what I call short term in nature and as Chuck mentioned, the supply chain and pricing things are really going to carry the water in the fourth quarter and into 2019. And we've been pretty deep into this trying to make sure that we're appropriately covered and we feel pretty good about that. The fact that we expanded gross margins in part because of the business model change in the quarter, I think also reflects that we started to get some traction in some of those efforts relative to how we go into the fourth quarter.
Okay, that's fair enough. And then, just back up a little bit, Gordian and Accruent. How long you think it takes to get the margin structure of businesses like that up to your segment average.
Gordian is pretty close already, so we -- I think by probably you know relatively quickly in both businesses, really, I think we're probably in the range of that by 2019 and into 2020. So maybe the second half of 2019 and into 2020 will be in the zone. And they are great businesses. One of the caveats of that though is as we get into it and we do 100-day strategic plans, I think the question we're going to ask ourselves is can we accelerate the growth rate. So some of that might require additional investment and we've seen that benefit at eMaint, to take it back to the question we had before, we're starting to see some of that accelerated growth at eMaint because we didn't necessarily put all the money to the bottom line early at eMaint, we decided to invest in sales and marketing. So we haven't necessarily done that yet we'll wait to sort of go through the 100-day strategic plan, but we certainly are going to look for opportunities to accelerate the growth rate with the kind of gross margins that are in those businesses and the recurring revenue, we think that would be a prudent thing to do.
And just really quick, I've never asked three questions and I'm going to this time because I’m just trying to figure out. When you have a hurricane impact like you had, say it knocks your point of the top line or something on industrial technologies. Can you measure with any precision what kind of a margin impact that has?
Yeah, I think the margin impact on volume we calculate the fall through of greater than 50%. So, yeah, we’ve got a pretty good idea, but the margin in terms of -- operating margin that we're talking about in PI is also the fact that with the increasing volume at Gilbarco, we're also ramping up and we are less efficient than we would normally be due to really just increase in volume we're seeing. But we’ll expect IT to deliver 50 basis points of OMX I'm in the whole business for the whole year. We’re going to be okay.
Your next question comes from Steven Tusa from JPMorgan.
Can you talk about, you said you're watching China, what exactly specifically are you watching in China for 2019, what kind of makes you most cautious I guess, not that you are cautious, but what worries you the most out of China specifically for your business?
I think what we saw, we said in the prepared remarks that there were some challenging parts and what we meant by that is really the utilities, we saw where we have utilities sales principally at Qualitrol and a small part of Fluke. We clearly saw some investment going down in those parts of the business. Now they don't have the -- we still grew high-single digits, so it didn't have a huge impact. But we're watching for the particular verticals to see if there's trends. We look at our point of sale at Fluke which remains strong, but we want to continue to watch that. That’s one of a good view of just the sort of day to day economy. And of course we're going to continue to watch semiconductor and electronics markets in China because of the impact that has on Tektronix. So those are probably some places that sort of move the needle if you will relative to our business. And obviously the gas station business, the GVR Veeder Root business has been secularly growing because of the investment in double walled tank and that's a trend right now that's going very well for us and so there are certain secular trends within the GVR business that we’ll watch as well.
And just on the tariff stuff, can you give us some color as to how you went about coming to that number, almost all of our companies are kind of coming up with some reasonably sizable numbers and they're simple way to look at it which is amount sourced from China and then applying like anywhere from 10% to 25% on that, maybe give us some color on how you came to the math that you're getting to or you think you can offset it entirely with price on a tariff side and what are you including in that you know which tariffs are you including?
Steve, a couple of things, first of all, price is one lever we’re using, but it's not the entire lever. We're also using -- going after supply chain where we're sourcing and in some cases moving where we're going to be producing our products. But all those things come together to offset the tariffs that we see from all you know 232 and the 301, it was one, two, three, all three of those lists. We actually have -- we've got – our teams work on it and the duty team is -- sizes that very specifically and there's -- it's really pretty prescriptive and we feel like we have a rather exact amount, I mean, we ship more and there will be more duties, but we have a good handle on exactly what it is and therefore, we've been matched up to countermeasures. There's generally a lag. We are seeing a lag of when a new tariff. I’m not saying that we more new tariffs, but new tariff goes in, where it takes us probably better part of the quarter or at least a couple months to get them in. It takes us a quarter to fully offset that in a run rate. And so since we last talked, there's been new list put out and so that's why it's giving us a little bit of -- a little more hit in the back end, but as I say, we've got it handled and offset in 2019.
So what's the total number, year-over-year cost that you have to overcome?
In the range of 50 million to 70 million.
And your next question is from Deane Dray from RBC Capital Markets.
I want to go back to the price question again and if I heard it correctly, you said you had 4 out of 6 businesses had positive price. So who didn't get price and any kind of calibration in terms of the ranges of price you're getting, any pushback from customers and what more you can do there?
Yeah. I think part of -- first and foremost, I think as we look at the price metric, as we said 60 bps, in every quarter, we'll have a few businesses that maybe don't hit that number. I think product realization, we didn't hit it, in part, because we've got some contract in the third quarter with some new US military folks that carry price reductions as an example. But, on balance, we're really looking at the full year. And as we look into -- I suspect we’ll be in a good position as we get to the sort of second half price, we’ll find that most of the platforms will have gotten price at that point. So, that's really how we think about it and as Chuck mentioned on the previous question, we're going to see an acceleration of price. Most of the price increases are in, so the gross price is in. So, from that perspective, I think we're going to be -- we're going to be in good shape to continue to offset any price inflation, any cost inflation that we have, whether it be tariffs or anything else, plus gain some of that price as the margin expansion opportunity as well in ’19.
And then just separate topic, with the welcoming of Gordian and Accruent, it just becomes increasingly obvious that your current segmentation doesn't quite fit the new look for Fortive. So what kind of thought have you given to re-segmenting and what might that look like?
Well, I think that we’ve notice similar things as we’re really excited with Gordian and Accruent and our acquisitions to come on board, but our current thinking is that we’ll wait till we get to the other side of the ASP business. And then that sets the timing, that will make sense, probably looking at a platform level, of course, that's what's going to make the most sense and it will be after that. That's what I'd expect.
And your next question comes from Michael Coe from Wolfe.
This is Nigel Coe for Michael Coe. So, you’re making us work pretty hard late at night here. So, maybe a little bit of help on the 5% to 6% for 4Q. I guess, would you expect both segments to be in that range or are we seeing IT about that range with the GVR ramp up and maybe PI is still seeing some of these headwinds. Any color there, in particular on some of the three or four major businesses will be helpful?
I think, well, we should see pretty evenly distributed. So, I suspect around those numbers, so probably in the -- it will be in the range of each other probably. I don't think we'll see an enormous delta between the two to be honest with you, Nigel. And I think you'll see the continuation of businesses, like Fluke to see the continuations, you see some acceleration at Gilbarco, you will see good acceleration at Tektronix as examples. It's kind of hard for us to not move the needle up in the whole business without the big businesses going up. So I think you'll start to see that, some of that will be backlog related and some of that will be just demand that we see.
So that's sort of our assumptions that, regionally, we sort of think the US will continue to be pretty good. As we mentioned, Western Europe, Europe broadly defined, well, we think of EMEA, maybe a little weakening. So parts of western Europe, but also Russia and the Middle East, Russia and the Middle East have been weaker and we would see that continuing and continue to see China and Asia be pretty good. So, I think that's kind of how we think about it regionally and maybe give you a -- but we think the big businesses for the most part, Fluke hanging in there, Midco hanging, Gilbarco and Tek probably being a little bit better.
And then looking at the IT segment ex-automation, I think the number are working, it is about a 20% margin for the new segments. You mentioned China costs, are all the China costs from the automation divestment in that segment and how does that look? And then as you start to weigh those China cost, any qualification on the cost would be helpful?
Yeah. They're not really that big a cost, but you’re right, they’re in the IT segment and we'll get after them in the fourth quarter. We've got some opportunity here with some acquisitions to redeploy these people. So it's not necessarily needing that much restructuring dollars to get them out, though there could be some, but we'll get after that and it is in the IT section.
And then just quickly on ASP and I understand that China not quite for that deal. Is that because the -- it doesn't meet the threshold for China sales?
Yeah, essentially yeah, that’s the easiest way to think about it. I think as we think about all the regulatory hurdles we mentioned in the prepared remarks, that we got through the European Works Council, consultations, which was a good step and we don't really see any issues with China, principally because it's not -- there's really no anti-trust work at all. So, it's really focused on setting up subsidiaries and things like that, which are much simpler -- much hard to do, but much simpler than things like -- waiting for anti-trust approval.
And your next question comes from John Inch from Gordon Haskett.
So the core margin decline in the quarter of 25 basis points. Jim, you had thought -- you and Chuck had thought the margins will be up 30 to 50. Is the Delta the lost production days, the lower volume, is there some way to just sort of parse that out in terms of what accounted for that difference.
Yeah. John, there is two things. One is evenly split between the production and volume we would have got flowing through it, greater than 50% margin and the other, as we mentioned, we are accelerating into our Gilbarco business and we saw some maybe growing pains and increase in the volume there, and we will -- we expect to do better coming in to Q4, but those are the two things that really drive us down from where we thought we would be on our core OMX in Q3.
Does this stuff kind of play out Jim toward the end of the quarter in terms of say September, the weaker volumes and stuff or was this kind of a trend that you noticed that was relatively consistent?
Well, I think there were two things. There's the EMB wave that came in that was maybe towards the end, but there's other things that happened during the quarter that got pushed down, that really are unrelated to that. And some one time customer pushouts that just moved things into October.
Field solutions, I think, it was up to low single versus mid-single last quarter and the compares looked about the same. It does sounded pretty upbeat on Fluke basement commentary. Was it all qualified that drove that lower realized growth rate or was Fluke also a little bit softer?
I think Fluke was a little softer, maybe 100 bps or something like that, but it's the big delta there is Qualitrol. We have been working with the business, try to work in a tough market and they just had a tougher quarter than -- really around the world as we mentioned in the prepared remarks. So, ISC did great, Fluke did great, so it's really and we think that will continue and we're continuing to work on countermeasures at Qualitrol. But as I mentioned in the prepared remarks, we think that's going to – luckily, that's one of our smaller businesses, but it is going to probably continue into 2019 year is what we can tell at this point.
I mean, Jim, how confident are you -- I mean, the big businesses like Fluke, Tektronix, given what's going on in the global economy, you’ve outperformed in China and Europe, it looks like a little bit, but not every company is. I'm just -- you've lived through these sort of periods before. I mean, how do you respond? Like, are you guys doubling down various efforts, are you thinking about other kind of measures for possible global softening, I mean what’s sort of the playbook?
Yeah. Well, unfortunately, I have been through this kind of thing too many times, but I think at the end of the day, what Chuck and I really have done is we will go through the budget cycle with the businesses here in the coming weeks here and we'll really sit down on an individual by individual basis to understand where they think their revenue is going to be and it is really going to be -- certain businesses are going to probably have opportunities. I think right now, it's still a little early. We're trying to manage, trying to understand the headlines versus the reality, as I mentioned in China, I think there's -- we have seen, as I mentioned, some places where demand has moved, but in other places, we haven't really seen anything any change and so we're going to maintain a realistic view while we continue to see how things go and I think this idea that globally I mean I think we're already having listened to a lot of peers talk about this already and certainly others and having talked with several CEOs as well, I think we definitely know that this globally tuned growth is probably not happening now and so it's going to be more important to make our bets correctly and we know how to do that. And while at the same time, making sure we take advantage of opportunities like we mentioned, North America EMV. We think is going to be a tailwind for us next year and so we want to make sure we take advantage of those opportunities.
And your next question comes from Andrew Kaplowitz from Citi.
Currency in this quarter I think has been a fair amount of [indiscernible] transactional cost headwind, how should we think about currency going forward for you guys. Look, just in a few emerging markets that you saw where currency really moved, and was the impact really containing the Q3, could you see any in Q4 and beyond?
Andy, it’s Chuck. We saw little FX movements and it costs us about probably a penny in the quarter, but we don't, if you're asking about hedging, we don't hedge for that. We just think that currencies move and we need to deal with those things and in general, if they move enough, then we have to adjust our cost structure, but we're not seeing huge dollars for us in our businesses right -- in the third quarter at all.
Andy, we do spend a lot of time with our teams on street price within each country. So where we've seen currency movement, we want to make sure that our street prices are impacted, we're taking prices up or dealing with that. So that's a pretty common piece of work that our operating company leaders do on a regular basis.
Can you mention the strong order book, given in North America and obviously there was a hurricane impact in the quarter. I think you said these are good low single digits in North America. What would it have grown it? And then as you look into next year, have you gotten good visibility toward that acceleration that you've been talking about?
Yeah. A few months ago, we said that we thought that, GBR would probably be mid-single digit in the second half and we still view that. It's just going to be probably a little -- slightly higher mid-single digits in the fourth quarter and obviously low single digits in the third. So, the cadence of it changes a little bit, because of the movement of shipments, but I think our view of the world and the business is pretty close to the same. We would like to see the, I think, we'll start to see some of the larger customers come into the order book here in the fourth quarter and we're obviously looking for that, but we feel good about what they've got for a forecast at this point given the order book.
And your next question is from Richard Eastman from Baird.
I want to just return to EMEA for a minute. Again, kind of this low single digit growth rate, we talked a little bit about Qualitrol. I think you said JVS was weak, but is the trend at all kind of disturbing here, as we kind of head into -- again head into ‘19. Do you see some of these businesses and maybe you could give a little bit more color on Western Europe versus Middle East in that low single digit growth rate, but just kind of talk about maybe an inflection point, here in that region.
Yeah. Well, I think, for sure, we don't have a huge business in Russia. So, it doesn't necessarily move the needle for us, but a lot of folks talk about EMEA and they're talking about this kind of the way they run the business, right, which is a leader usually runs all those places and really we think about Western Europe. Fluke point of sale is an example and Western Europe was actually pretty good. So that gives us some sense of optimism that some things are there, but then we've got a pretty decent sized business in Italy, as an example of GVR. That was obviously -- that was hindered. We mentioned the Qualitrol situation as well. I think at this point, it's hard -- it's too early to tell what Europe might look like for ’19, but I think as we think about Western Europe, we've had really three really strong years in Western Europe and I think that the mid-single digit growth that we saw in the last several years is definitely moving to low single digit and we certainly heard the decline in this quarter, so I'm not sure I would call it a decline next year, but we're certainly seeing a slowing broadly defined.
And then just a very quick question on -- you just mentioned Fluke health solutions and kind of in passing, so this is this basically, you said it was plus double digits, that is still primarily Fluke biomedical. How did Landauer perform in the quarter and what are the prospects there?
Yeah. They were mid-single digit in the quarter. Fluke Health had a very good quarter. In fact, we were with the team yesterday for their strategic plan, really excited about how they're bringing the integration together, how they're really thinking more broadly about a broader set of solutions now that they've got all these different customer set. So, they certainly outperformed in the quarter for sure, but we’re ahead of where we wanted to be with Landauer at this point and now the team is really working on some strategies to stay ahead and I think we're very excited about what that team is doing.
And your next question comes from Jeffrey Sprague from Vertical Research.
Two things for me. First, just on EMV. Can you give us a sense of now what you're actually expecting in 2019 as a growth rate of this modestly rebased 2018?
I think, we think right now is probably looking, I mean, it's crystal ball would say probably mid-single digit for next year.
And then secondarily just trying to sort through actually the margins and kind of the deal accounting noise. Just a little confused on the transaction costs, kind of the 90 bps or so that's in PI, that’s only roughly 8 million So, Chuck, is rest of that 56 million that we see in the bridge, is that just in other?
Yes. That's in other because you don't really have ASP in one of those segments appropriately and ANS is not going to be there going forward.
And then other looks like it's then kind of inherently low if we pull that out, is there something else going on there?
No. I don't think so. I didn't think he’d picked that was well, we've got normal corporate cost in that as well.
This 58 million, if I take out, close to 50 million, it seems like a low number, but I’ll follow up.
Yeah. We can follow that, but I think of the total amount there's some of it's in to the businesses, Gordian and Accruent did get in there. So you're missing about 18 million I think relative to the deal cost, social security, but we can follow up on that.
And your next question comes from Scott Graham from BMO Capital.
Just I'm looking at the slide 9, the bridge, the initial thinking on 2019. And the closed acquisitions, when we throw ASP in there, we consider ANS, it looks kind of like largely a push, correct me if I'm wrong, and I'm sure when you transact in the amount that you have and still will with ASP that I guess that's kind of not what you're thinking that you would want sort of net accretion there. So how does the pipeline look right now and could you give us an idea of what your capacity is at this moment and do the acquisitions that have closed and with ASP coming, is that going to slow you down a bit
So we'll tag team this one. I think the funnel looks good right now. I think as we've talked, over the last couple of years, we continue to see opportunities available to us. The Gordian and the Accruent deals bring new parts of the funnel. That's the nice thing about those acquisitions. They come with new market opportunities, new serve market opportunities in which we can look at and they -- because they were PE, they were pretty active on the M&A front, and so they come really with funnels already in hand. And so we've got some opportunities there.
ASP does as well but obviously we will wait to close that deal. So I think first and foremost we like the funnel, we like the situation we’re in, we've been pretty busy over the last 90 days, that's for sure, but we don't necessarily slow the market work down, the cultivation work down and so the opportunities are still there. So, the current market situation is going on, so over the last couple weeks, obviously the consternation and that kind of thing probably shakes the trees on some other things but we haven't seen those yet.
And then Scott to your other questions, I just simply say we have 2 billion, 2.5 billion of room that maintains investment grade in 2019 and then with our strong cash flow, as we said, we keep to de-lever, work to de-lever going forward. In terms of slide 9 I think if you're saying a push, if you mean a push from this year, I think you need to add in what's not in there is -- and we can work with the offline on this is the organic margin expansion or the ASP, you might, you’re probably missing that.
Actually what I meant was on the acquisitions that looks like the closed acquisitions plus ASP minus ANS is roughly a push, is that a fair estimate.
No. It’s complicated and it’s easier to come pass line, but you're missing the retired shares that comes with the ultra-deal, which is understandable and how the mentor convert plays into that. So let's walk you through that, but I think that there is not an exact push track.
The other question is along this same page is, I didn't hear you talk about organic at all, but and I know that at the investor meeting, I think you were kind of being pushed to move up your long term target of GDP, GDP plus, but with things a little bit weaker in Europe and some concerns in China, but then you add in a little faster growth acquisitions, can we still stay at that GDP, GDP plus level for organic for next year.
I think we try to give you early color even before our budget. So I think I’d stay away from any specific numbers at this point till we see how the quarter played out. See how we end, that has some influence in it is well, but we certainly think that that's in the range of options for sure. So I think -- we'll certainly as we get closer to it, provide some deeper level of insight as to that goes. What we tried to do with the 2019 early view is really just to try to give you a little bit of how we're thinking about this, given all the puts and takes that have occurred as you and Chuck were just talking about. We wanted to make sure, you at least had some view of how we're thinking about it and as we get more details, we'll obviously share them with you.
And your next question comes from Joe Giordano from Cowen.
Yeah. This is Tristan in for Joe. Thanks for taking the question. Just a quick quiet here, what's the share count that you’re using for your 4Q guide.
I guess 356 million.
And there are no more questions in queue.
Okay. Well, thanks everybody for the time this evening on the East Coast. We really appreciate all the time and energy you put into really help and really listen to our discussion. We're exceptionally excited, I think, the third quarter to use the word transformational would be an understatement with everything we were able to accomplish in the quarter. We're incredibly pleased with where we sit today and we're even more excited about what we can do with these businesses here in the coming months and in years. So thanks for your time, we'll look forward to seeing many of you in various places here throughout the fall, but thanks for your time and certainly Lisa and the IR team are available for questions and follow up. Thanks everybody. Have a great night.
And this does conclude today's conference call. You may now disconnect.