Participants

Elena Rosman; Vice President of Investor Relations; Fortive Corp

James Lico; President, Chief Executive Officer, Director; Fortive Corp

Charles McLaughlin; Chief Financial Officer, Senior Vice President; Fortive Corp

Robert Mason; Analyst; Robert W. Baird & Co

Julian Mitchell; Analyst; Barclays Investment Bank

Nigel Coe; Analyst; Wolfe Research

Stephen Tusa; Analyst; JPMorgan Chase & Co

Jeffrey Sprague; Analyst; Vertical Research Partners

Scott Davis; Analyst; Melius Research

Andrew Obin; Analyst; Bank of America

Joseph Giordano; Analyst; TD Cowen

Andy Kaplowitz; Analyst; Citigroup

Christopher Snyder; Analyst; Morgan Stanley

Deane Dray; Analyst; RBC Capital Markets

Jamie Cook; Analyst; Truist

Joseph O'Dea; Analyst; Wells Fargo

Presentation

Operator

My name is Darryl and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Ford of Corporation's 4th quarter 2024 earnings results conference call.
(Operator Instructions)
I would now like to turn the call over to Ms. Elena Rosman, Vice President of Investor Relations. Ms. Rosman, you may begin your conference.

Elena Rosman

Thank you, Daryl, and thank you, everyone, for joining us on today's 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 Regulation G is available on the Investors section of our website at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons, unless otherwise specified.
During the call, we will make forward-looking statements, 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 actual results might differ materially from any forward-looking statements that we make today.
Information regarding the risk factors is available in our SEC filings, including our annual report on Form 10 for the year ended December 31, 2023, and the quarterly report on Form 10-Q for the quarter ended September 27, 2024. With these, forward-looking statements, they speak only as of the date that they are made and we do not assume any obligation to update. With that, I'd like to turn the call over to Jim.

James Lico

Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on slide 3. Fortive delivered better-than-expected performance in the fourth quarter, including higher core growth, earnings and free cash flow. These results capped a strong year for Fortive, including another year of record margins with gross margins of 60% and adjusted operating margins nearing 27% while continuing to fund future growth.
In addition, we compounded adjusted earnings and free cash flow 13%, contributing to our strong multiyear track record of differentiated financial performance. Our accelerated pace of innovation in 2024 helped to sustain top line momentum, given the mixed demand environment and further enhances our outlook for 2025.
Turning to the year ahead. Fortive is poised for improving core sales growth and continued strong operating performance. We've taken a prudent and balanced approach to planning the year, reflecting momentum in our bookings and durable revenue growth in Industrial Operating Solutions (sic) [ Intelligent Operating Solutions ] and Advanced Healthcare and stabilizing trends in Precision Technologies, driving a gradual recovery through the year.
Lastly, we are progressing well on the actions we announced last year to further accelerate our strategy and enhance value creation. Our teams have made meaningful progress toward the separation of the newly named precision technologies company called Ralliant. We now expect the transaction to close early in the third quarter.
We also executed on our plan to prioritize return of capital to shareholders, utilizing our record free cash flow to repurchase shares. In summary, these actions reflect our commitment to unlocking long-term value for all our stakeholders.
Turning to slide 4. 2024 was another year of consistent compounding, including the achievement of several record financial metrics. Since our inception, we have evolved our portfolio and leveraged the Fortive Business System to accelerate growth and innovation, expand market share and profitability, and forge the leadership skills we need for the future.
The exceptional value created for customers and shareholders is reflected in our sustained multiyear performance, including an acceleration to mid-single-digit core growth on average the last five years, over 600 basis points of adjusted operating margin expansion, and 350 basis points of adjusted gross margin expansion amidst unprecedented inflation. Our accretive capital deployment has contributed to higher growth and higher returns.
As a result, we grew free cash flow an average of 18% per year over this time, underpinned by industry-leading net working capital performance. In summary, what is unique and truly differentiated about Fortive is the breadth of results that are compounding over time relative to peers.
The reason for this five year track record of success is our commitment to FBS and the strategic evolution of our portfolio. Turning to slide 5. Our evolution of the Fortive Business System and continuous improvement mindset have driven an acceleration in NPI velocity, helping to sustain our top line momentum.
Within FBS, we have built, over time, a proven innovation tool set to identify unmet customer needs, develop new products and bring them to market faster, which ensures greater returns on our R&D investments. Just several examples of how our increased innovation velocity is contributing to growth across the enterprise. Starting with IOS.
Fluke launched a record 20 major new products in the last two years, extending their leadership position in solar and energy storage tools and contributing 200 basis points to growth in 2024. Facility & Asset Lifecycle revitalized their innovation efforts for the last three years, launching its strongest slate of new products and enhancements while also expanding margins 800 basis points.
Revenues from these new offerings are expected to more than double in 2025 versus last year. ASP launched a record of six new products in 2024 with 510(k) approval, which are expected to contribute over $10 million of revenue in 2025.
Provation added to their leading GI position with their next phase of Apex Insights, a proprietary data analytics tool that boosts provider productivity, contributing to a 67% increase in APAC SaaS sites in 2024. PT is also leveraging FBS innovation tools to advance the world's technologies. Tektronix launched four new products to their best-in-class electronic test and measurement offering, serving their fastest-growing markets.
Sensing Technologies is launching sensors for monitoring the liquid and air cooling systems within data centers, and Qualitrol continues its double-digit pace of growth with new electric grid monitoring and energy storage solutions to support the expansion of global power infrastructure.
We're also leveraging our investments in the FORT to develop advanced software, data analytics and AI capabilities, and we expect to launch new AI-based product sets in 2025 and 2026. Moving to the fourth quarter and full year results on slide 6.
We ended the year with strong operating performance, generating adjusted earnings growth approximately 3 times revenue growth. Core revenue growth of 2% in the quarter reflected an acceleration at IOS, partially offset by the anticipated decline in Precision Technologies.
China headwinds continues to mute the recovery we are seeing in certain markets. Acquisitions, net of divestitures, were offset by unfavorable FX as the dollar strengthened in the quarter. Further highlights of our fourth quarter performance include: 100 basis points of adjusted operating margin expansion; adjusted earnings per share of $1.17, reflecting a $0.05 beat at the midpoint with earnings up 19% year-over-year; and record Q4 free cash flow of $465 million, up 13% year-over-year. For the year, core revenue growth was 1%, reflecting the mixed demand environment and core decline in PT. Adjusted operating profit grew 7%, and margins expanded 100 basis points, representing over 60% incrementals.
We delivered earnings and cash flow above our initial guidance coming into the year, with adjusted EPS of $3.89 up 13% and record free cash flow of $1.4 billion, representing 23% free cash flow margins for the year. Turning to slide 7.
I'll provide more detail on our segment performance for the quarter and the full year starting with IOS and AHS. On a combined basis, fourth quarter revenues grew 4% with adjusted operating margins up 140 basis points to over 33%. This represents 12 consecutive quarters of consistent mid-single-digit core growth on a combined basis, reflecting the durability and resilience of these businesses.
For the full year, combined IOS and AHS delivered 4% core revenue growth and 120 basis points of adjusted operating margin expansion with over 60% incrementals. Moving to the right. Intelligent Operating Solutions expanded operating margins 190 basis points on 4% revenue growth in the fourth quarter, with M&A contributions partially offset by FX headwinds. Stable industrial products demand overall and NPI momentum drove mid-single-digit revenue growth at Fluke. Shipments outpaced our expectations exiting the fourth quarter.
As a result, we expect a slower start to the year in Q1 before returning to more normalized growth the rest of the year. Growth in Facilities & Asset Lifecycle accelerated to high single digit in the fourth quarter, enabled by stronger take rate revenue across our government and multisite retail product offerings.
As you can see on the far right of the page, Advanced Healthcare Solutions grew core revenue 5% in the quarter with FX headwinds of approximately 150 basis points to total growth. Consumables normalized to mid-single-digit growth as expected, and Provation accelerated growth, having lapped the license headwinds earlier in the year. AHS expanded adjusted operating margins by approximately 40 basis points in the quarter and 200 basis points for the year, driven by high-margin consumable growth, partially offset by unfavorable FX.
Turning to Precision Technologies on slide 8. Revenue was approximately flat in the quarter with a core decline of 3%. Acquisitions, net of divestitures, contributed approximately 3 points of growth in the quarter. This represents the second consecutive quarter of sequential core growth improvement enhanced by double-digit growth in utility and aerospace and defense markets. Adjusted operating margins contracted 200 basis points on lower core volumes, partially offset by productivity benefits and accretive M&A.
Core revenues at Tektronix were down low double digit in the quarter as expected. However, orders were up high single digits for the second consecutive quarter. We continue to see investments supporting power, compute and communications for data center expansion and demand for defense applications, driving Tektronix orders growth, while China and EV mobility remain weak.
We had another quarter of double-digit growth at Qualitrol and PacSci as our teams continue to ramp production capacity to keep up with strong demand. Moving to the right side of the page, you can see the Precision Technologies revenue and adjusted operating performance for the past 4 years.
Since 2021, PT has grown core revenue at 4% CAGR with adjusted operating profit growing twice that rate at an 8% CAGR over the period. Core revenues declined 4% in 2024. Improved portfolio positioning and focused innovation efforts have dramatically improved the through-cycle performance.
Leveraging FBS tools, we have expanded our addressable market and added complementary solutions aligned to favorable secular trends, including next-gen power applications for new markets and new sources of energy around the world.
As a result, PT is a much more durable business today with a stable margin and free cash flow profile poised for recovery in 2025.
With that, I'll turn it over to Chuck to discuss our 2025 outlook.

Charles McLaughlin

Thank you, Jim, and hello, everyone. Turning to slide 9. Let me set the stage for how we're thinking about the year. We continue to be encouraged by stabilizing demand trends overall, which gives us confidence in an acceleration in revenue growth from 2024 to 2025. While we are providing full year guidance for total Fortive, we thought it would be helpful to frame the key drivers of the respective new companies.
Starting with new Fortive on the left, comprising our IOS and AHS segments. We expect revenues of approximately $4.1 billion, supported by demand for our leading safety and productivity technologies and market share gains from new product introductions.
We expect stable underlying industrial demand at Fluke with positive point-of-sale in North America and Western Europe. China is expected to slow, both from a GDP and industrial production perspective, and we have reflected that into our outlook. We expect sustained momentum in our software and recurring revenue businesses, including double-digit ARR growth in FAL and stable consumables growth in Healthcare.
This yields low single-digit-plus to mid-single-digit core growth for New Fortive in 2025. Regarding we expect growth in the second half to outpace the first, primarily due to timing and days impact in Q1. Turning to the PT company.
We anticipate revenues of roughly $2.2 billion in 2025, with core growth up slightly for the year. Our businesses aligned to power infrastructure, compute and communications investments for data center expansion, coupled with aerospace and defense systems, comprised approximately 35% of revenue and are expected to grow double digits again in 2025.
Coupled with stabilizing trends in broader semiconductor and sensor markets, we anticipate a return to core revenue growth in the second half of the year. On slide 10, we provide further details on Q1 and 2025 guidance.
Starting with the full year, we expect core revenues up 1.5% to 3.5%. FX is expected to be an approximate $90 million headwind for the year or roughly 150 basis points of impact to total growth. Adjusted operating profit is expected to increase 2% to 5%, and adjusted diluted EPS guidance is $4 to $4.12, up 3% to 6% for the year.
Our adjusted EPS guidance includes a $0.20 to $0.25 headwind from a higher effective tax rate and FX. This is offset by lower share count and a slightly lower interest expense. Adjusted free cash flow is expected to be approximately $1.5 billion, which excludes the impact of separation-related cash cost of roughly $185 million. The conversion rate on adjusted net income is approximately 100%, excluding these items. For the first quarter, we anticipate core revenues to be roughly flat.
FX is expected to be an approximate $30 million revenue headwind. IOS and AHS will start the year slower due to Fluke's stronger finish in Q4 and less days in Q1, impacting consumables and service utilization. PT is expected to be down mid-single digit, representing our toughest year-over-year comp.
Adjusted operating profit is expected to be roughly flat, and EPS is expected in the range of $0.83 to $0.86, including a $0.05 headwind from unfavorable FX and higher taxes. With that, I'll turn it back over to Jim to conclude.

James Lico

Thank you, Chuck. I'll continue on slide 11. We've made considerable progress on the actions we announced last September to accelerate our strategy and enhance value creation. Starting on the left, we utilized our record second half free cash flow to repurchase approximately 10 million shares, representing 80% of our free cash flow, slightly more than we committed to when we announced the separation. We remain committed to deploying free cash flow, incremental share repurchases as we work to execute the spin.
Balance sheet remains in great shape. We exited 2024 with net leverage of approximately 1.6 times, and we continue to expect that each company will sustain investment-grade balance sheets after the spin. Moving to the right, we expect the separation to close early in the third quarter, following the progress our team has made to date, including confidentially filing a draft registration statement with the SEC in December. We are processing initial comments. We expect a Form 10 filing in the spring.
Our efforts to hire top talent are well underway, ensuring we assemble a world-class corporate team to drive future success. Earlier this week, we announced that PT NewCo has an exciting new name, Ralliant Corporation, and we appointed Ganesh Moorthy as the Board Chair. We also announced that Alan Spoon, who is retiring from the Fortive Board, and Kate Mitchell will both join the Ralliant Board.
Together with Tami, these Board designees reflect Fortive's commitment to the new company's success and sustained value creation for all stakeholders. We'll continue to provide additional updates as they become available.
I'll wrap up now on slide 12. Last week, we are excited to announce that Shar Dubey was appointed Fortive's new Board Chair, succeeding Alan Spoon. On behalf of the Board and management team, I want to thank Alan for his leadership and all he's done to shepherd Fortive become a more durable growth company.
As we enter this new chapter, I and the rest of the Board are confident that Shar is the right person to serve as the next Chair. She's been providing valuable contributions to our Board since 2020, and her deep insights into our business, culture and strategy, combined with her extensive operational and leadership expertise fare her well to steward the execution of our long-term strategy with a more focused and resilient portfolio.
This next chapter is a manifestation of the strategy we laid out at our inception, profitably evolve our portfolio to deliver in any environment. That was the case in 2024. Our enhanced portfolio positions, innovative new products, and dedication to the Fortive Business System have allowed us to deliver consistent compounding performance over the last five years.
We are well positioned to continue this track record in 2025 and beyond as we progress through the separation. We could not have reached this milestone in Fortive's journey without our unique culture and the passion of our 18,000 teammates around the world.
Together, we show up with a mindset we can do and be better. I know I speak for the entire Fortive team, including Olumide and Tami when I say I cannot be more excited for the future as both companies are strategically well positioned for enduring success. With that, I'll turn it to Elena.

Elena Rosman

Thanks, Jen. That concludes our formal comments. Daryl, we are now ready for questions.

Question and Answer Session

Operator

(Operator Instructions)
Robert Mason from Robert W. Baird & Co.

Robert Mason

Yes. Happy Friday. Usually not saying that on a Fortive conference call. So just maybe to start, Jim, could you dig into the product side of the business and thinking this is more around, I'll say, IOS and AHS, New Fortive. When you framed out 2025 or made some initial comments back in October, I'm just curious around, has anything changed evolved as you've tightened up the plans? You made a comment around China softer, but just some perspective there around the product side.

James Lico

Yeah, and maybe take a way around Fortive. First of all, on New Fortive, as you mentioned, iOS and AHS. I would say, really, the aspects of the business in software and health care really performing well. We had a little bit stronger end of year at Fluke. And some of that, we'll get into that later.
But I think just continuing to demonstrate in Fluke the resiliency and durability, particularly around product innovation, much of which we highlighted in the prepared remarks. I would say what's changed or maybe what we're going into '25, Rob, a lot of the past is similar.
We've got a little bit of headwind on the days in the consumables businesses and the service parts of our software businesses, which have a little bit of headwind just in the quarter, but really good performance in Q1 across the portfolio and what I'll call New Fortive.
On the but China is a little bit of a headwind for sure. That's most pronounced in the first quarter because what we saw last year in the first quarter, and you probably remember this was, we did see some optimism on the part of China channel partners in anticipation of some of the policy changes that were going to occur, and the impact of the China government last year, and obviously, that didn't happen.
So we got a little bit tougher comp in China in the first quarter. China is going to be down really across the board. So on the PT front, I would say, a lot of the orders were good. We talked about the order growth in a couple of quarters in a row now. We'll see order growth in the second half as well in PT.
And I would say China, but again, there, China weak and we're not getting out of the gate here. Really as we anticipated but we're certainly not seeing any dramatic increases in China as we start the year out.

Robert Mason

Understood. And maybe just as a follow-up specifically and maybe these touches on some of PT because you do have more government exposure there, are you seeing anything post-election around the flow of funds that you're trying to account for in the planning just within your various government exposures?

James Lico

We have not. In fact, I think we've said this in a couple of places. Parts of the portfolio where we have exposure to government, Gordian is a good example, although less -- more state and local, less federal. But our productivity solutions really, I think, are going to resonate and really drive cost reductions. So to some extent, we think an opportunity where we're more -- where maybe there's more fiscal responsibility actually plays to our play in our favor.
On the product side of the businesses, we've actually seen strength. We actually -- we've gotten some nice large orders from some of the primes across the portfolio. So I would say at this point, nothing would indicate that customers are changing their mindset around where they're staying in our business here at least over the past few months.

Robert Mason

Great thanks so much. Thanks, Rob.

Operator

Julian Mitchell from Barclays Investment Bank.

Julian Mitchell

Hey, good afternoon, Chuck. Maybe just a first question on the Precision Tech organic sales guide. So just there's a bunch of moving pieces but just trying to understand that improvement in year-on-year organic sales from the first quarter to the balance of the year.
Maybe help us understand how much of that is a function just of selling days versus easier comp versus some end market improvement that you've embedded maybe in China or somewhere else. And also, I suppose the orders conversion into sales, you've had six months of decent orders. It sounds like that will persist.
Are we seeing those orders convert into sales already? And it's just the mismatch is just a function of different comps? Or are these somehow kind of longer-dated activities in the order book that will come into revenue later than normal?

James Lico

Yeah, a lot to unpack there, Julian, but let me start with -- I think what you were talking about the cadence, I would certainly say the cadence through the year for PT will be really down mid-single digit in the first quarter, probably a little bit better in the second quarter and then some growth in the second half. I think that gets them to be about up slightly for the year.
Some of that's going to be comps, particularly in China, where we see a lot more of the dramatic tougher comp in the first quarter and in the first half. We've always said that we thought some market improvement would occur in the back half of the year. That's embedded but it's not a dramatic improvement in any way, shape or form.
But we do think some markets would start to come back. And we've actually seen a number of things where customers were actually seeing that. The other aspect is we're getting the really high volume numbers in places where we're seeing dramatic growth principally in Qualitrol and in EMC.
We've got some investments to improve capacity, which will also help us in the second half. So I think the combination of comp in China, some market improvement but nothing dramatic, and the combination of our ability to get more out here is really what changes first half to second half.
And then I think as I think about really what when we look at the business more broadly, it's also the innovation cadence. We mentioned this in the prepared remarks but a number of the innovations, particularly at Tektronix really starts to take hold in the second half. None of it -- but we really don't have a lot of that embedded at this point

Julian Mitchell

That's helpful. And then just my follow-up would be around the tariff potential there, and any way in which you could size perhaps share of purchases or COGS or something like that from some of the countries that may be affected in terms of US tariffs?

James Lico

Yeah, Well, I would say, number one, the Canada and Mexico, even though they were postponed, really doesn't have an impact to us. So in that sense, really no impact. The China tariffs, as you know, we've had a strong playbook since 2018. We've really just pulled out that playbook.
We talked about a number of scenarios that we created several months ago when we started hearing about what the potential could be. We've already enacted those countermeasures and that's embedded in our guide.
So the 10% tariffs in China have been countermeasured and we'll move through what we have. I think to some extent, how we thought about the year from a macro perspective in China does have some of the economic impact of some of the tariffs. I'm not sure we could point to any of those with true specificity.
But I think the way we planned China is going to be down here mid-single digit for the year in China for Fortive, I think, embeds the fact that there's going to be some uncertainty amongst customers and in China. And ultimately, that will impact our revenue. So we've tried to be prudent about that as we look into the year.

Julian Mitchell

Great thank. You.

Operator

Nigel Coe from Wolfe Research,

Nigel Coe

So, a couple of quick ones here. Just the date head within 1Q, we've heard this from some other companies. Is this just the leap year in the prior year quarter or was there something on Chinese New Year? Any more color there? And then just FX has sometimes had an impact on margin conversion, I think, mainly within AHS.
So any sort of peculiar sort of things to kind of flag with this dollar strengthening?

Charles McLaughlin

I think that a couple of things there. You were asking about days. I think there's something -- it's just simple days. I don't think we have -- when you look at the whole year, I don't think there's a big difference there. So they'll come back.
But that's the main thing there. I think when you talk about the Health margins, they get hit with a little bit more FX impact to the margins, and I think that's what you're seeing there.

Elena Rosman

There's a bit of a bigger days impact to Healthcare. You think about how much of that days impact sits with consumables, for example. That's about 200 basis points of headwind in the first quarter, Nigel, to their growth there.

Nigel Coe

Okay. Yeah, 200 basis points, yes. That's what I was thinking as well. And then just a follow-on with the spin. Just wondering if there's any more visibility on public company costs and stranded costs from the spin.

Charles McLaughlin

Yeah, and I think we've sized them roughly around $50 million to $60 million. I think some of that we'll get after between now and spin and offset about half of that, and the other half would probably take maybe 12 to 18 months to work down and work out. But we expect to get it all normalized.

James Lico

And Nigel, on the separation costs, I think we -- in the slide, we showed $185 million. That's mostly on -- that's all onetime costs. That's mostly professional services, taxes, lawyers, the banker fees to do some of that work. So we've outlined that on the slide as well. So as Chuck said, we'll get after the stranded costs.
We're making good progress on building the teams here. So, we feel as I mentioned in the prepared remarks, we feel really good about our ability to get the teams ready for and hence, our ability to speed up the timeline.

Operator

Stephen Tusa from JPMorgan Chase & Co.

Stephen Tusa

Hey guys, how's it going?
Chuck, thanks for all the help over the years and best of luck.

Operator

Thank.

Stephen Tusa

So just on the product businesses, back to the tariff question. Did you guys see any kind of preordering ahead of the change in administration and potential tariffs? And I'm just curious as to how the quarter played out sequentially by month kind of adjusting for seasonality in a way, if you could.

James Lico

Yeah, So I wouldn't say we identified any additional revenue relative to people prebuying, Steve. What we saw in the FORT was pretty good cadence through. Point-of-sale was positive in North America as an example at Fluke, and that cadence was relatively consistent throughout the quarter. That's probably our best benchmark.
But we identified roughly about $10 million of revenue at Fluke that we think came out of the first quarter. But that was really more mostly US distribution and European distribution. People were starting to get close to incentives as the year played out. And so there was a little bit of additional buying to get into incentive plans and things like that.
So, it's really that, that we identified. So, it really wasn't around tariffs as near as we can tell.

Stephen Tusa

Got it. And then just last one on the -- as a follow-up on the Tektronix, the T&M side of PT. Which verticals are you seeing the best order rates in? Which ones are kind of picking up here the most?

James Lico

Yeah, I mean, we've had really strong -- anything tied to defense has been strong for several quarters, I would say. The high end, what I'll call, for lack of a better term, the high end of semiconductor and high-speed compute, hyperscalers, those kinds of quantum computing, all of those have been really good.
So design efforts, investments that are going into those opportunities have been really strong. Broadly, industrial hasn't has been pretty good, too, particularly in North America, where we've seen the weakness, as we mentioned in the prepared remarks, is really Western Europe and in China.
And that really part of that is EV mobility and the other part of that is just broadly China. And most of that is really export control customers that we can no longer do business with.

Operator

Jeffrey Sprague from Vertical Research Partners.

Jeffrey Sprague

A couple of loose ends here. Just on the days, can we just have the number? Like how many days are we talking about here? It sounds like it's 2-ish?

Elena Rosman

Two days. Yes, two days was about $8 million.

Jeffrey Sprague

Yeah, and you think it affects, what, 60% or 70% of your business, is that the right ballpark?

Elena Rosman

It's really -- no. It would be consumables, which are about half of Healthcare. And then the remaining, call it, $3 million or $4 million is in services and places like Gordian, so take rate business

Jeffrey Sprague

Yeah.

James Lico

So think about daily services like we would do in the service organizations for Fluke and Tek as well as the services that we have in software.

Jeffrey Sprague

Okay. Yes, I think it might impact things in distribution but maybe not. If people want it, they'll catch it up. Okay, that's helpful. And then just on China, I think you said down mid-single digit.
I think that was a 2025 estimate. Can you just kind of level set us on how much China -- what China did in 2024 for the year and in the quarter?

James Lico

Yes. So I think for.

Elena Rosman

High single-digit.

James Lico

Yes, down high single-digit for '24, down mid-single digits for '25 with probably Q1 being down high single digit to low double digits in the quarter. And that's more broadly. And what's interesting, Jeff, is our high-growth markets ex China have actually been continuing to grow really well. And so that's -- I think the offset there is going to be -- we continue to see good growth in some of the other high-growth markets.

Jeffrey Sprague

And then just maybe finally for me on sort of the flat AOP for Q1. I take it that's still some margin pressure in PT and then some upward trajectory in the other two segments, but anything you'd say there that kind of get us in the right ballpark?

James Lico

Yeah, I mean, I would say on flattish growth, we're typically going to -- that's kind of the overall Fortive. Margin expansion in last year, so 110 basis points in '24 in Q1. So when you kind of look at where we're at on a two year stack, still good despite kind of that low single-digit growth that we would have had on a comparable basis. But it's exactly right.
New Fortive or IOS and Health will be -- will have good margin expansion. And with being down the way we are in PT, we're doing a nice job of offsetting. When I think about how we've done in PT over the last year, given the fact that our.
Tek being down, our highest gross margin business, it's been really good operational performance to offset a number of those things. And obviously, our margin expansion for the year was good in '24 for Fortive, in part because of IOS and AHS doing a great job but also the countermeasure work that PT did as well.

Jeffrey Sprague

Great thanks a lot.

James Lico

Thank you, Jeff.

Operator

Scott Davis with Melius Research.

Scott Davis

Scotty. Guys.it's good morning out there still, But hey, I don't think you addressed it in prepared remarks but maybe you did but this is for Chuck. The tax rate seemed to be pretty volatile for the size of the company. Is there -- any particular reason why that's been hard to pin down?

Charles McLaughlin

Well, the tax rate came down in Q4 due to discrete items. That's typically where most of those things land, and they could be somewhat unpredictable and we don't forecast them. And so I think that's what you're seeing there. When you take out discrete items, it's actually holding into that 14% range.

Scott Davis

Okay, so I get it. All right. So if you wanted to mark-to-market kind of where we are with Provation and ASP, let's just take those two businesses. What do you guys think the new realistic kind of long-term growth rates are? I mean, we know what you thought they were when you did the deals but it's been a few years now.
So if we just mark-to-market now and you said, okay, over the next five years or even longer, what would you expect to be kind of the entitlement potential growth rates of those two assets now?

James Lico

Yeah, I would say ASP mid-single-digit. That's a combination of additional elective procedures plus some price plus some volume share gain. And then as we mentioned in the prepared remarks, we're really starting to see the innovation flywheel start. So we feel good that as we've talked over the years, Scott, we had six 510(k) approvals here, and it takes a while to get the innovation cycle moving in health care just because of the regulatory environment. But we're really starting to see that.
So we feel really good about that mid-single-digit growth rate going on. It's a little bit impacted how we just talked about the days. That's our biggest days impact is that ASP. But when we look really at the entitled growth rate, it's mid-single digit. Provation, probably high single, low double.
When we look at the SaaS conversion, it will move around a little bit depending on how that conversion goes. But that's a combination of really just the continued work, great work we're doing. We haven't talked about it in a long time in some time but they're doing a great job. I mentioned the dramatic improvement increase in SaaS sites that we had, and that's really the great work we're doing. We've really got a good sales motion going.
And as we also mentioned, we got Apex Insights, which is their AI offering, which is now starting to get some traction as well with customers. So call it high single to low double, and that's really what we thought we would underwrite when we bought the business

Scott Davis

Yes, consistent. Okay, I'll pass that. Thank you guys. Best of luck this year. Good luck, Chuck.

Operator

Thanks Scott.
Andrew Obin with Bank of America.

Andrew Obin

Just the first question, maybe talk about your digital, your software assets, Gordian, Accruent, ServiceChannel. Where are we in those growth rates? And what do those look like exiting the year and going to '25?

James Lico

Yeah, We had a growth of high single digit for both quarter and the year, Andrew. Our software revenue grew overall. In Q1, it's going to grow high single, and that's with some headwinds on the service front. So we think that high single is good.
We're seeing -- we have those dramatic growth rates at Gordian for a number of years. So the Gordian rate's moderating a little bit down into the double-digit range, low double digit, but we're seeing improvements at Accruent and ServiceChannel. So good growth there. I just mentioned about Provation, good growth there. So Intellect, we're starting to improve the growth rate there.
We had a little bit of a challenge there in '24, but we've done some nice work to continue to improve that. So overall, software in very good shape. We mentioned a number of places where we've got some innovation going on as well in FAL in the prepared remarks. So the team is executing well, innovation flywheel starting to take -- have some real impact, I would think those businesses. And I think as you look at around it, I know you do this a lot, I think those numbers are going to hold up pretty well.
So we feel good about where our software businesses are. And we've also dramatically improved the profitability. We talked about the 800 basis points in the prepared remarks in FAL. We're just -- we've got a lot -- we're really demonstrating how FBS can really accelerate our software business. And I think you'll continue to hear that as we progress through the year.

Andrew Obin

And can we just talk about sort of utilities and power vertical? It seems structurally, things are changing there over the long term. How is the conversation changing with the customers? Do you need to add capacity? Do you have the right exposure? If you could expand on that because that's a big topic.
Thank you.

James Lico

Yeah, it is. And so it really comes in two ways. In a smaller way, it comes from what we do with EA and Tektronix, where we are really playing in a lot of the technologies and R&D investments that are going into the next generation of utilities.
And as the grid gets improved and technologies are going into that, obviously, R&D organizations around the world is designing those components and designing those chipsets. And we're very involved with Tek and EA there.
The bigger number, as you point out, is at Qualitrol, and that's been very strong. That's both on the grid monitoring side but also on the transformer side. We've got a number of new sensors that we're launching with those businesses. We've had double-digit growth in that business for several years. And as I mentioned on a previous question, we're ramping capacity because some of -- we're really up against our own capacity here.
And we look out -- that's a longer cycle business. As we look out the next 12 to 18 months, we continue to see customers making dramatic investments in those markets. So we -- that's going to be a good growth driver, as we've talked, about for what I'll call Ralliant because we have a new name now for PT. And that will be a good growth driver for Ralliant going forward.
Thank you.

Operator

Joseph Giordano from TD Cowen.

Joseph Giordano

Hi Joe. Hey guys, thanks for taking my questions. When I benchmark Tek versus your peer group, do you think you guys have just more structural exposure to things like EV in China than some of your competitors do?

James Lico

Well, I think the comps are tough because you don't have a perfect view. But I would say with EA, we might have a little bit more EVs exposure as a percent of the business, but I think those numbers are relatively in line. And when we comp them against over multiyears, we see pretty similar performance.

Joseph Giordano

Okay. And then just on PT margins in the quarter, like I think they were expected to ramp pretty considerably, and they were down sequentially on higher revenues. Just curious any color on that.

James Lico

In Q4 or Q1?

Joseph Giordano

Q4.

Elena Rosman

The PT margins in Q4, yes, they were down relative to the volume decline revenue, 220 basis points.

James Lico

Well, it's a little bit. Yes, we had a little bit less revenue there and a little bit less revenue in some places where they're in some of our higher profitable businesses. Some of that is that production capacity point I made. Some of it's at Tek. So a little bit of that is a little bit of volume and then a little bit of mix, too.

Joseph Giordano

Good thanks guys.

Operator

Andy Kaplowitz with Citigroup.

Andy Kaplowitz

Good morning everyone. Chuck, thanks for all your help. Chuck and Jim, maybe you can update us on how you're thinking about price versus cost in '25. There's obviously some tariff-related uncertainty, but I would imagine that the material cost inflation has been relatively benign. So what's embedded in your expectations for '25? material cost inflation has been relatively benign. So what's embedded in your expectations for 25?

James Lico

We've got about 200 -- a little over 200 basis points price across the enterprise and that's pretty consistent. Look, maybe 225 basis points. So that's pretty consistent in -- across segments. So in that sense, we'll continue to we always go after more price so that's usually a testament to our teams. We'll see -- that will mean some we'll start to see volume on the IOS front here but we won't have volume in PT most likely.
So given the outlook that we've got around flattish, so for the full year.

Andy Kaplowitz

Helpful. And then in AHS, I think in Q3, you had double-digit consumables growth. It was mid-single digits in Q4. I know you talked about the difference in days in Q4, Q1 that's probably the big reason. But did you see anything in AHS that actually slowed or was it really just a day?
Is there a difference -- a bigger difference in growth between U.S. and, for instance, Europe and China in AHS?

James Lico

Yeah, Health is in a really good place. Q4 had -- didn't have the benefit of the year before comp that Q2 and Q3 did. So we really saw a good underlying performance. A little bit of impact on this IV bag situation, which we'll see in a couple of months in Q1.
But broadly, really good performance in Health, particularly really across the board in all the businesses. I would say Europe was good. So in that sense, China is a little challenged. So I would say if you're anywhere in health where we're watching is in China but more broadly across the world, Japan, Middle East, we're really seeing good performance across our Health businesses. Now our most global business is ASP.
So when we think around the world, it really -- ASP is really the one business that sells everywhere in the world.

Operator

Christopher Snyder from Morgan Stanley.

Christopher Snyder

Alright thank you. I wanted to ask on PT orders. Great to see that double-digit positive for the second quarter in a row. Are orders going higher in absolute terms? Because I know the comps are negative. And then with that, anything you could share on how Precision Tech, the book-to-bill is trending in Q4.

Elena Rosman

Yeah, So book-to-bill for PT and certainly for Tek and Sensing on a combined basis is one for the year. It's a little below -- just below 1, 0.96 for the fourth quarter but that's typical for us in the fourth quarter, given the seasonality of the shipments that we have in the fourth quarter.

James Lico

Yeah, I would say dollars, I think, were up Q4 from Q3. And we'll grow orders in the first half in PT. A little bit of pressure in the first quarter because of some of the comp issues I was mentioning around China, but we still see continued growth in orders here in the first half. And to Steve's question around how does some of the timing, I think it was Steve's, around six months or nine months, we'll start to see some of that shipment impact.
We did see some of those orders more back-end loaded. Some of it is because they're semiconductor-related and they're semiconductor investments in the second half. But we also saw some of our sensing companies that typically get blanket orders.
Some of those orders we've got -- normally we would get for a full 12 months, we've only got for a few months. So we see a little bit of that order rate coming into shipments more, a little bit more back-end loaded than typical.
But we feel very comfortable with that sort of seasonality relative to years past.

Christopher Snyder

Thank you for that. We Really appreciate it. And then maybe just following up. I was surprised to see Precision Tech organic growth were lower in Q4, I think, down mid-singles versus Q4 down 3% just because we are seeing that positive order momentum. It doesn't seem like the days impact is all that material for Precision Tech based on some of the prior commentary. So I guess, is the -- is Q1, is that down mid-single reflecting EA Elektro now coming into organic?
And with that, what is the expectation for EA Elektro in '25? Thank you.

James Lico

Yeah, So I would say a couple of things on the first quarter. One is China a little bit more challenged than we anticipated so I would say that's part of that. Second of all, you're right, EA going into core and EA's best quarter last year was the first quarter because of the backlog coming in. So that's part of it as well.
We think the good thing about EA, we certainly -- and we mentioned it in the prepared remarks but just to put a ball around it, much of that EV mobility challenge that we saw principally in Western Europe and in China is EA. So that is certainly -- we think EA will grow mid-single digits this year. And with the power of FBS and some of the things we've done operationally, we're going to get their margin rate back to where they were when we bought the company. So the margin rate is now in really good shape. We're going to put it.
We'll be -- the business will be back into growth mode as we move through the year. The Tektronix sales synergies are ahead of plan, and that's really, really working well, particularly in North America as we find new parts of growth in different markets. And we've started to get some of those orders. So I think those are some of the things that are going well. But again, we've talked about this through '24.
The large order EV business that was a big part of their business back in '22 and '23, we have not seen that come back nor have we planned for it to come back in '25.

Elena Rosman

I'd just add that the EA headwind is about $10 million on a core basis. It's $10 million of the core decline year-over-year for Q1.

Christopher Snyder

Thank you for that. I really.

Operator

Deane Dray from RBC Capital Markets.

Deane Dray

Thank you. Good day everyone. I also want to wish Chuck all the best.

Charles McLaughlin

Thanks, Dean.

Deane Dray

Hey, Chuck, before you ride off into the sunset, I want to put the spotlight on net working capital. And at 6%, that puts Fortive in among the elite. And so I was hoping you could just parse out how that looks New Fortive versus Ralliant? Did I say that right, Ralliant?

Charles McLaughlin

Yes, you did.

Deane Dray

How does that break out? I would imagine the more software part of New Fortive skews that lower, but just directionally, can you help us there?

Charles McLaughlin

Yeah, I think that -- I'm not sure -- I haven't really looked at that detailed in terms of with Ralliant, but we have looked at it excluding the software, which would have it at around 9%. And that's what I would expect Ralliant to be in that zone, which is also really good. But we have a really good working capital.

Deane Dray

So similar question for the two. I was not expecting Ralliant to be that low on the net working capital, which is a positive obviously. But just what does that mean for Ralliant's free cash flow, after both companies, kind of free cash flow cadence on an annual basis based upon that? It's got to be both very comfortably above 100% conversion.

Charles McLaughlin

No. I think not above 100% but pushing -- and I'd say that 95% to 100%. The two things that really drive you over 100% would be whether you have software. Some software companies have maybe working capital or doing M&A and be able to do improvement. But I'd expect to be 95% to 100%.

James Lico

Yeah, we'll certainly get more clarity as we get to Investor Day. But Deane, you point out, the free cash flow both businesses is going to be really strong.

Deane Dray

Great. And just to clarify on your software business collectively, are you at the negative working capital level?

Charles McLaughlin

Collectively, I don't know because not all software companies do that, but some do. I think we're pretty flat.

James Lico

Yeah, We're still working through ServiceChannel is probably the big change there, Deane. They weren't typically that way. And so contractually, we're working through that over time. Accruent is probably the biggest negative working capital software business we have.

Deane Dray

Have. Great, thank you for all that color.

Operator

Jamie Cook from Truist.

Jamie Cook

Hi, Just two quick follow-ups. One, within PT, I think last quarter, you noted some improvement in semi. Can you just talk about what you saw specifically in the fourth quarter and your expectations for 2025? And then my other question, congrats on the spin happening earlier. Just because we get questions on it, I assume the probability of anything happening on PT, an inbound offer, we can just assume that sort of put to bed and not on the table?
Thank you.

Charles McLaughlin

Yeah, I'll take the second one. I think that's probably pretty -- that's a fair assumption that we're going forward with the spin and we've evaluated all inbound offers. And then remind me of the first question that you had?

James Lico

Oh, this room in a semi, yeah, I gave, I would, yes. Jamie, it's Jim. I would say a couple of things. One is where kind of a little bit getting back to the prepared remarks. The high-speed compute aspects of semiconductor have been good.
NVIDIA is a customer. Some of the large hyperscalers are customers. So I would say that's the good part. I would say that pretty typical to what you're seeing in some other places, the weaker aspects of semi are more sort of discrete consumer products, that kind of stuff. And we don't anticipate a return on that.
We're starting to see some green shoots there but without a doubt, and that some of that's in the order rate. But we're sort of expecting some improvement in that by the end of the year. But we haven't anticipated any big dramatic improvement in the end of the year.

Operator

Joseph O'Dea from Wells Fargo.

Joseph O'Dea

Hi, thanks for taking my questions, hey. A fair amount of focus on China, but just if you could talk a little bit about regional expectations specific to Fluke really, and how you think about the growth opportunity within the guide. If we think about it from North America, Europe, China kind of perspective, what type of growth you think you can do in Fluke?

James Lico

Yeah, I think we think about -- I think we did sort of low single-digit-plus at Fluke at '24. We'd anticipate the same thing being in '25 so pretty similar expectations. Team has done a nice job. As we mentioned, making a lot of their own luck with this acceleration of the innovation cycle.
North America will be the winner in the club house most likely regionally. But we expect some growth in Western Europe, and we expect good growth outside of China in the high-growth markets. We do expect probably China to be down a little bit in the full year, with most of that being in the first half just because of comps, mostly comp challenge. So we don't have a big anticipation of any big improvement in the market. As I mentioned, point-of-sale is a little mixed.
Our sort of day-to-day run rate point-of-sale at Fluke in China is actually down, but our sort of project-based point-of-sale is actually up. So we are still seeing some -- and I think that's really a function of the innovation. We're finding places where that innovation can work. But sort of the day-to-day run rate business still hasn't come back yet. And we'll probably -- we'll continue to stay prudent around that as well.
So Fluke's in a really good position as we start the year off and after a strong finish. Some of the -- maybe a little bit of that weakness in the first quarter is what we mentioned, which is some of the revenue coming out of the first quarter. We saw that in the fourth.

Joseph O'Dea

And then on the Sensing side, just any color on what kind of growth you expect out of Qualitrol? Trying to get a little bit of perspective on whether those capacity constraints, what kind of an impact they have on growth constraints? And then also within Sensing, just anything on Hengstler and demand trends in Europe, whether there's anything encouraging there?

James Lico

Well, I would say, number one, Qualitrol, multi-year double-digit growth, and we would expect that again this year. And that's a little bit of the capacity constraints. It's not just the volume this year, it's the sum total of the continued volume growth that we've got. So we'll have a little bit of capacity increase there to deal with the long-term demand trends that are very strong. Sensing in general, we saw order growth in the second half.
I think double-digit order growth in Sensing in the second half. So we -- but some of the blanket orders that we would normally see at the end of the year to cover the entire year, we did not see. And I would say that's part of that is Hengstler as you point out.
And I think where your question is going is exactly right. Their exposure to European automation is a higher percentage of anywhere else in Sensing, and that's really where their business has been the most weak.
And also, China has been weak. We have some automation customers there as well. And that would principally be in discrete automation, which is probably consistent with a lot of what you've heard from others over the last few weeks.

Joseph O'Dea

Indeed it is, thanks a lot.

Operator

Scott Davis from Melius Research

Scott Davis

Good afternoon. Good morning for you and thank you for taking the question and Chuck, good luck and be happy.

Charles McLaughlin

Thank you.

Scott Davis

A couple of questions around, first of all, on -- my questions are actually all around margins. So in the quarter, was price cost your typical spread, 50, 100 basis points? Is that fair?

Elena Rosman

Price was 3% in the quarter. And we look at gross margins, we expanded gross margins 10 basis points in the quarter. So relative to that sort of spread, it's probably on par with what it's been over the course of the year.

Scott Davis

Okay. And then could you remind us what the restructuring savings will be? What's the plan there and how they layer into earnings as the quarters progress?

Elena Rosman

We funded $20 million of restructuring in the fourth quarter. We assume that, that hold in and get gradually, we see the benefits of that over the course of the year. Not much, maybe a couple of million dollars of benefit, call it, $0.01 in the first quarter guidance.

James Lico

All right, thanks, Scott.

Operator

There are no further questions at this time. I would now like to hand the call back over to Jim Lico for any closing comments.

James Lico

Well, thanks, Daryl, and thanks, everyone. Incredibly thoughtful set of questions. We appreciate all that. Obviously, Elaine and team will be available for any other questions just want to thank everyone. A lot of comments around Chuck.
I just want to make sure everybody knows he's not going anywhere. He's going to continue to support the Fortive team here through the spin. So you may have an opportunity to hear from him a little bit. But he's done -- obviously done a great job for us over the years, and we're excited for what he will do next, but that's not just -- that's not tomorrow. He's still got some work to do near as I can tell.
So anyway, as you can hear, exciting times for us. We couldn't be more excited. Good finish to the year. I think in many respects, we pointed out some of the five year numbers that we're really proud of. When you look at several records set in 2024 around a number of things.
Despite some of the mixed macro environment, we were able to do a number of things on the margin and free cash flow front that I think are just synonymous with FBS and really have an opportunity to really set us up for 2025. But probably the most important thing is how FBS has really driven innovation. And really, when you see that across the board, I think you'll hear more of that as we progress through the year. We're excited about '25. We're excited with the fact that we can bring to you the idea that the spin is going to happen faster.
It really speaks, I think, as well to the power of FBS and the quality of our team. So we'll look forward to the follow-up questions. We'll see many of you out on the road here soon. A lot to do here between now and the spin. We're excited about it, and we look forward to continue to talk about all the exciting things going on in Fortive.
Thanks. Have a great day, and have a great weekend.

Operator

Great. Thank you. This does now conclude today's teleconference. We appreciate your participation. May disconnect your lines at this time. Enjoy the rest of your day.