Water analytics and treatment company Veralto (NYSE:VLTO) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 4.4% year on year to $1.35 billion. Its non-GAAP profit of $0.95 per share was 6.5% above analysts’ consensus estimates.
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Veralto (VLTO) Q4 CY2024 Highlights:
- Revenue: $1.35 billion vs analyst estimates of $1.35 billion (4.4% year-on-year growth, in line)
- Adjusted EPS: $0.95 vs analyst estimates of $0.89 (6.5% beat)
- Adjusted EPS guidance for the upcoming financial year 2025 is $3.65 at the midpoint, missing analyst estimates by 1.6%
- Operating Margin: 22.9%, in line with the same quarter last year
- Market Capitalization: $25.02 billion
Company Overview
Spun off from Danaher in 2023, Veralto (NYSE:VLTO) provides water analytics and treatment solutions.
Air and Water Services
Many air and water services are statutorily mandated or non-discretionary. This means recurring revenues are often earned through contracts, making for more predictable top-line trends. Additionally, there has been an increasing focus on emissions and water conservation over the last decade, driving innovation in the sector and demand for new services. On the other hand, air and water services companies are at the whim of economic cycles. Interest rates, for example, can greatly impact manufacturing or industrial processes that drive incremental demand for these companies’ offerings.
Sales Growth
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Veralto’s sales grew at a sluggish 3.4% compounded annual growth rate over the last three years. This was below our standard for the industrials sector and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Veralto’s annualized revenue growth of 3.3% over the last two years aligns with its three-year trend, suggesting its demand was consistently weak. 
Veralto also breaks out the revenue for its most important segments, Water Quality and Product Quality, which are 60.3% and 39.7% of revenue. Over the last two years, Veralto’s Water Quality revenue (measurement and analysis equipment) averaged 3.7% year-on-year growth while its Product Quality revenue (marking and coding for packages) averaged 5.5% growth.
This quarter, Veralto grew its revenue by 4.4% year on year, and its $1.35 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
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Adjusted Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Veralto has been a well-oiled machine over the last four years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 22.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Veralto’s operating margin rose by 1.1 percentage points over the last four years, showing its efficiency has improved.
In Q4, Veralto generated an operating profit margin of 22.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Veralto’s EPS grew at a decent 8.9% compounded annual growth rate over the last two years, higher than its 3.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand during this time.
In Q4, Veralto reported EPS at $0.95, up from $0.87 in the same quarter last year. This print beat analysts’ estimates by 6.5%. Over the next 12 months, Wall Street expects Veralto’s full-year EPS of $3.54 to grow 4.7%.
Key Takeaways from Veralto’s Q4 Results
It was encouraging to see Veralto beat analysts’ EPS expectations this quarter despite in line revenue. On the other hand, its full-year EPS guidance missed and its EPS guidance for next quarter fell slightly short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 1.6% to $102.65 immediately after reporting.
So do we think Veralto is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.