Veralto Corporation 2026 Q3 Earnings Call

You may now begin. Good morning, everyone.

Thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Sameer Ralhan, our Senior Vice President and Chief Financial Officer. Today's call is simultaneously being webcast. A replay of the webcast will be available on the investor section of our website later today under the heading Events and Presentations. A replay of this call will be available until November 9th. Yesterday, we issued our third quarter 2026 earnings news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. These materials are available in the investor section of our website, veralto.com, under the heading Quarterly Earnings. Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis.

During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from our forward-looking statements. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law. With that, I'll turn the call over to Jennifer.

Thanks, Ryan. I want to start by thanking our 17,000 associates for delivering an outstanding third quarter. We continue to build on our track record of meeting or exceeding our financial commitments through rigorous execution in support of our customers. In Q3, total sales grew 7.5% year-over-year, adjusted EPS increased 19.2%, and we generated robust free cash flow of $304 million. We delivered 5.1% core sales growth, led by Water Quality at 6.4%, with PQI at 3.2%. Both segments accelerated core sales growth sequentially from Q2 to Q3. Broadly speaking, demand for our products and services remains healthy across both segments. Relative to the fourth quarter, we expect core sales growth of 5.5% to 6.5% and approximately 5% growth from acquisitions, resulting in total sales growth of approximately 10% to 11%.

There's going to be a delay on the stack.

Go on. Based on our third quarter performance, fourth quarter outlook, and early gains from our Cost Optimization Program, we raised our full-year adjusted EPS guidance to $4.49-$4.52 per share, representing 15%-16% growth over the prior year.

Our 2026 guidance includes benefits from our disciplined capital deployment. Year to date, we've deployed more than $1.65 billion across four strategic bolt-on acquisitions and the repurchase of 2.4% of our outstanding shares. Our most recent acquisition of Cleanwater1 expands our capabilities in water treatment solutions, and I'm excited to welcome the Cleanwater1 associates to Veralto. With our strong balance sheet and robust cash generation, we have ample flexibility to act decisively on attractive new opportunities. This year's performance and disciplined capital deployment reflect the stronger Veralto that we have been architecting since our spinoff in 2023.

As we mark our third anniversary as an independent public company, I'm proud of how much we've accomplished and even more excited about our future. Over the course of the first three years, we have simplified VES and bolstered our execution, accelerated innovation, and strengthened our portfolio through disciplined M&A. These actions have accelerated our core sales growth, driven consistent margin expansion, and double-digit adjusted EPS growth. I'm incredibly proud of what our team has accomplished. With a stronger foundation, talented team, and proven track record, we are excited about the opportunities ahead and confident in our ability to deliver sustainable long-term value for shareholders. That concludes my prepared remarks, and at this time, we will now take your questions.

Yeah. Thanks for the question, Jeff. I think the way to think about our exposure here is, we have a balanced portfolio in our water business between muni sales and industrial sales. In fact, 50% of our sales in Water Quality are into industrial applications. Insofar as your question around municipal spending, as a reminder, 60% of our revenue sits in recurring revenue. Given the razor blade business, we're essential to the customer's operations. But when we do have equipment that gets sold as CapEx, it's part of the normal operational CapEx cycle. That is to say that these tend to be facility upgrades or optimizations as opposed to infrastructure investments, which are more prone to federal funding fluctuations.