Veralto Reports Q2 2026 Results: Full Earnings Call Transcript

Veralto (NYSE: VLTO ) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

4% and a robust free cash flow of $328 million. 43 per share, representing a 12% to 14% growth year-over-year, and expects core sales growth to accelerate to 5%-6% in the second half. Strategic initiatives include the acquisition of Alpha UV to enhance UV water treatment solutions and ongoing share repurchases totaling over 5 million shares for approximately $480 million. Operational highlights include strong performance in the Water Quality segment, driven by industrial market demand, and the PQI segment's steady demand for digital workflow solutions.

Management expressed confidence in their growth drivers, highlighting strong industrial market demand, successful bolt-on acquisitions, and a balanced approach to capital allocation. Full Transcript Nikki, Operator Hello, my name is Nikki and I will be your conference operator this morning. At this time I would like to welcome everyone to Veralto Corporation's second quarter 2026 conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press Star then the number one on your telephone keypad. If you would like to withdraw your question, please press Star then the number two on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations.

Mr. Taylor, you may begin your conference. Ryan Taylor, Vice President of Investor Relations 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 in the Investor section of our website later today under the heading Events and Presentations. A replay of this call will be available until August 7th.

Yesterday we issued our second 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 also available in the Investor section of our website 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.

And with that, I'll turn the call over to Jennifer. Jennifer Honeycutt, President & CEO Thanks Ryan. I want to start by thanking our 17,000 associates for their efforts in delivering an excellent second quarter. 4% and we generated robust free cash flow of $328 million.

7% and PQI at 2%. As expected, core sales growth in both segments accelerated sequentially from Q1 to Q2. We expect year-over-year core sales growth to continue accelerating in the second half to approximately 5% to 6% based on our Q2 performance and momentum across the portfolio. 43 per share representing 12% to 14% growth year over year.

We continue to advance long-term value creation through strategic bolt-on acquisitions, including last week's acquisition of Alpha UV, an India-based leader in UV water treatment solutions. I'm excited to welcome our new associates from Alpha UV to Veralto and we also continue to opportunistically repurchase our shares. So far this year we have repurchased over 5 million shares for approximately $480 million or just over 2% of the company overall. I'm proud of our team for their outstanding execution through the first half of the year and focus on our critical few: accelerating growth, optimizing cost and executing disciplined capital allocation.

Looking ahead, with a strong balance sheet and robust cash generation, we remain focused on compounding long-term shareholder value through high-quality growth, VBS-driven execution and disciplined capital allocation. That concludes my prepared remarks and at this time we're happy to take your questions. Nikki, Operator Thank you. And at this time, if you wish to ask a question, please press star one on your telephone keypad.

You may remove yourself from the queue by pressing star two. In the interest of time, please limit to one question and one follow-up question. We will take our first question from Dean Dre with RBC Capital Markets. Please go ahead.

Your line is open. Dean Dre, Analyst at RBC Capital Markets Thank you. Good morning everyone. Jennifer Honeycutt, President & CEO Good morning, Dean.

Dean Dre, Analyst at RBC Capital Markets Hey. We continue to really like this highly efficient release of your prepared remarks. And you know, really crazy busy earnings season. It's just such a great innovation.

So thank you for doing that again and hopefully it's a best practice as far as we're concerned. So my first question, can we start with the core revenue guidance that's implied and you referenced it here this morning, the impressive 5% to 6% for the second half? Maybe unpack the drivers and your degree of confidence in this acceleration. Jennifer Honeycutt, President & CEO Yeah, thanks for the question, Dean, and it's great to have you leading off today.

But before answering your question, I just want to say that we are grateful for your decades of thoughtful analysis within both water and industrial markets. I think all the way back to when Danaher acquired Hach and Videojet, where I was working at Hach at the time when we had our investor conference out there. I think you were one of the first analysts that I met. So we wish you all the best in your next chapter.

Dean Dre, Analyst at RBC Capital Markets Thank you, Jennifer. It's been a great run and I appreciate all the support and insight you and the team are providing me over the years. So thank you for those comments. But I still have my questions.

Jennifer Honeycutt, President & CEO Thank you. Yes, yes, we're getting to your question right now. So, you know, obviously we saw some sequential acceleration between Q1 and Q2. We feel really good about the momentum coming out of the first half of the year and the durability of the growth drivers here in the second half.

I'll just say two key drivers in each segment. I think in Water, our industrial market demand continues to be strong and this is really on the back of the data center demand and the associated ecosystem there, including power, mining, and semiconductor. Secondly, for Water we've got ongoing scarcity clearly exacerbated by climate change, which is propelling water recycling and reuse, giving us good opportunity to sell solutions into that space. For PQI, we continue to see strong demand for digital workflow solutions as CPG brands look to improve product compliance, traceability and time to market.

And we see ongoing steady demand for our marking and coding solutions, clearly supported as well by easier comps in the fourth quarter. So based on where the funnels were at the end of Q2, we feel really good about the momentum and confident in the second half guide for core sales growth. And maybe, Dean, I'll just add one more point. As you look at the second half core growth of 5% to 6%, we expect it to be led by volume with pricing moderating slightly but still be at or slightly above the high end of the range.

So this will be a volume story in the second half of the year. Dean Dre, Analyst at RBC Capital Markets Great to hear all of that. And then just second question on capital allocation. It's been really nice to see the balanced approach here.

I mean you've been opportunistic on some bolt-on acquisitions and the buybacks coming through. Sameer, can you just give us a sense of how you're looking at these opportunities? What does the funnel look like? You've made some pretty obviously accretive deals here.

What's that pipeline look like? And in the meanwhile can you do more buybacks? Sameer Ralhan, Senior Vice President & Chief Financial Officer Thank you. Thanks, Dean, for the question.

Yeah, if you kind of look at the capital allocation from a framework, Dean, there's really no change. Our first bias is of course towards M&A to create long-term value and we will be opportunistic on the buyback side. And if, you know, the valuation stage—there's a disconnect between the free cash flow generation of the company and the public market value—we will be out in the market from a share buyback perspective. But otherwise, from an M&A side the funnels are pretty, pretty good, Dean, on both sides of the house.

So we're in active cultivations and pretty actively looking at things. But as you know, M&A is episodic so we'll stay patient and disciplined. Dean Dre, Analyst at RBC Capital Markets Great. And again thank you for your kind words and I wish you all continued success.

Jennifer Honeycutt, President & CEO Thank you, Dean. Nikki, Operator Thank you. Our next question comes from Scott Davis with Melius Research. Please go ahead.

Scott Davis, Analyst at Melius Research Hey, good morning everybody. Jennifer, Sameer, Ryan. Jennifer Honeycutt, President & CEO Good morning, Scott. Scott Davis, Analyst at Melius Research I guess with Dean leaving I'm going to have to actually learn what the water business is finally.

Just call him if I needed help, so maybe he'll be kind enough to give me his home number and I'll just call him in future quarters. So anyways he will be missed by us as well. He was a great colleague and friend. But anyways guys, getting back to business, you talked a little bit about the opportunity around data center, power gen, semi fabs and the future, mining in there too.

Is there any way you can kind of size that if you combine those or even help us understand anything about really how we can think about the TAM in those businesses or opportunities, or how big of a potential tailwind that may be to your top line in industrial water treatment? Sameer Ralhan, Senior Vice President & Chief Financial Officer Hey Scott, as you look at overall demand and the revenue that we're getting from the data centers and the associated ecosystem, it's still a small number on the high-tech side but overall, from a country perspective, it's becoming pretty interesting as we move forward. But at this level it's still a small number at this point.

So we're not public with that number yet. Jennifer Honeycutt, President & CEO I mean you could think of ChemTreat solutions in there to be strong double-digit growth, right? That team has been firing on all cylinders. It is still a smaller part of our overall business but continues to be a really, really good grower, along with some other sort of industrial reshoring and near-shoring activities.

So we're seeing lift kind of across the board. Scott Davis, Analyst at Melius Research Okay, fair enough. And then you guys in the past quarter kind of talked about this cost-out plan given kind of the recovery you're seeing in some of your markets. Is there—maybe you can update us on what you're planning on doing there and timing and such.

Sameer Ralhan, Senior Vice President & Chief Financial Officer Yes, the program is on track, Scott, so we are well on our way. We started executing some things. In fact, as far as the savings are concerned, in this year we're going to see a very small lift maybe in Q4—that's baked into the guide. It's a very small number.

We're talking $2 million at this point. The biggest benefit we'll see is in '27. But overall there's no change as far as if you're referring to any lift in the business, and is that impacting the cost optimization program? Absolutely not.

We're fully committed and progressing well. Scott Davis, Analyst at Melius Research Okay, best of luck. I appreciate it. Jennifer Honeycutt, President & CEO Thanks.

Thanks, Scott. Nikki, Operator Thank you. We will move next with Jeff Sprague with Vertical Research. Please go ahead.

Jeff Sprague, Analyst at Vertical Research Partners Hey, thanks. Good morning everyone. Maybe just two quick ones for me. First, on the volume pickup that you expect in the back half, do you see that being led by equipment or consumables?

Can you maybe unpack that a little bit? Jennifer Honeycutt, President & CEO It's a combination of both, Jeff. On the water side it's going to be pretty balanced across both sides. But PQI side is pretty interesting.

If you look at the PQI side really there are three building blocks. The first one is going to be driven by the digital workflow solutions over there. As you know we book and based on the ACVs of the contracts that we're booking we have pretty good solid visibility into the second half recovery in the digital workflow solutions. Marketing and coding continues to be very strong.

So the year over year comp is going to look very good. As you're going to look at the Q4 impact last year and then on the color validation and certification instrumentation side we started seeing the funnels improving and the velocity improving over there as well. So we should start seeing an uplift in the second half of the year. So when you look at both on the PQI side and the water quality side, it's pretty broad based.

It's not tied to one for any product line. Jeff Sprague, Analyst at Vertical Research Partners And then when you look at your price capture, you know, actually is very solid in my opinion for a business that's not metals intensive and I don't think had a lot of sort of tariff related pressure. Is that you know, primarily reflective of price capture in consumables or how are you doing on the equipment side in terms of getting some incremental price? Sameer Ralhan, Senior Vice President & Chief Financial Officer Yes, I mean our philosophy is every product has to earn the right to be in the portfolio.

So we take a balanced approach and it's, you know, we've been surgical about where and how and how much we increase price. Obviously we look to cover, you know, inflationary impact, impact of tariffs, et cetera. But you see balanced price through on both consumables and equipment. It's a little bit higher on consumables given the captive nature of those products.

Jeff Sprague, Analyst at Vertical Research Partners Right, right. Thank you. Sameer Ralhan, Senior Vice President & Chief Financial Officer Thanks, Jeff. Nikki, Operator Thank you.

Our next question comes from Mike Halloran with Baird. Please go ahead. Mike Halloran, Analyst at Baird Morning, everyone. Jennifer Honeycutt, President & CEO Morning, Mike.

Mike Halloran, Analyst at Baird So thanks a couple here. So just can we talk a little bit about back half margin progression, what the assumptions are and then the health of the PQI segment and how that tracks the quarters? Sameer Ralhan, Senior Vice President & Chief Financial Officer Yes, Mike, as you're going to look at the margin side, we will start we'll see a sequential improvement on the margin right in the guidance we kind of laid that out. But we should expect roughly 25 bits of margin expansion in Q3 and for the full year it's going to be 25 to 50.

So Q4 we're going to see a nice margin uplift, especially in the PQI side because that's where we saw some of the impact from the fixed cost absorption side and the line moves and duplicate product line production lines that we had on the market coding side. So think about margin expansion to roughly 25bps in Q3 and for the full year, 25 to 50 basis points. So Q4 will be north of 50. As you can think.

Mike Halloran, Analyst at Baird Any nuance by segment here, Sameer Ralhan, Senior Vice President & Chief Financial Officer Q4 will be largely led by PQI. But on the water side it's going to be steady on what we've seen so far. Mike Halloran, Analyst at Baird Thank you. And then just on the PQI side of things, you know, talk about what you're seeing on the equipment side and that headwind abating on the packaging and color side into the back half of the year and maybe touch on what you're seeing on the workflow solutions that gives you the confidence and acceleration and the frankly secular opportunity you're seeing on that side.

Jennifer Honeycutt, President & CEO Yeah, so we've got a decent ramp in PQI here in the second half. It's really driven by three things. The first is we're seeing strong demand in bookings of our digital workflow solutions with the integration of Esko, TraceGains and now GlobalVision. We also see steady demand in marketing and coding.

That's bolstered by an easier comp in Q4. And we do see recovery in our packaging and color equipment. We exited Q2 with better funnels and stronger service growth. And so we've got good confidence in kind of the second half acceleration of core growth there.