Q4 2019 Earnings Call
Ladies and gentlemen, today's conference call is scheduled to begin momentarily into that time all lines remain on musical.
Thank you for your patience.
[music].
[laughter] My name is Angela and I'll be your conference facilitator. This afternoon at this time I will like to welcome everyone to the 40 Corporation's fourth quarter 2019 earnings results Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question answer session.
<unk>.
I think question during the time simply press Star then the number one key on your telephone keypad. If you like to withdraw your question press. The pound key thing can you comment I like to turn the call over to Mr. Gryphon Whitney Vice President of Investor Relations. Please go ahead Sir.
Thank you Angela good afternoon, everyone.
Thank you for joining us on the call.
With us today, or Jim Lico, our President and Chief Executive Officer, and truck Mcglaughlin, Our senior Vice President and Chief Financial Officer.
We present certain non-GAAP financial measures on todays call information required by FCC regulation G relating to these non-GAAP financial measures.
Our available on the Investor section of our website Www Dot Fortive dotcom under the heading financial information.
We completed the divestiture of the automation and specialty business on October 1st 2018, and Accordingly have included the results of the N.S. business as discontinued operations for current and historical.
Periods.
The results presented on this call are based on continuing operations.
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 our year over year on a continuing operations 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 expect or anticipate will form 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.
Rents that we make today.
Information regarding these factors that may cause actual results to differ materially from these forward looking statements is available in or as you see filings, including our annual report on form 10-K for the year ended December 31st 2018, and subsequent quarterly reports on form 10-Q.
These forward.
We're looking statements speak only as of the data. They are made and we do not assume any obligation to update any forward looking statements.
With that I'd like to turn the call over to Jim.
Thanks, Chris Gryphon, and good afternoon, everyone.
Our results for the fourth quarter provided a strong finish to 2018 as we delivered a 13.1%.
Adjusted earnings growth was strong adjusted operating margin performance, an excellent free cash flow for the full year, we generated adjusted earnings per share of $3.48 on a continuing operations basis, representing a 13.7% increase year over year, the 2% core revenue growth and 30 basis points of core operating margin.
<unk>.
We delivered these results in the face of slow demand dynamics across our short cycle businesses throughout the second half of the year at the same time, we achieved significant progress with respect to the continued transformation of our portfolio.
Using nearly 4 billion dollars' worth of high quality strategic acquisitions that accelerate our strategy around software.
For enabled workflow solution.
As a key part of our portfolio transformation, we continue to make good progress with the integration of advanced sterilization products.
Close on China before the end of the fourth quarter successfully integrating the largest though the day two countries and accomplishing a key milestones as we bring ASP is global operations.
Under our full control we remain keenly focused on closing the remaining day two countries and ensuring that the necessary infrastructure is in place to enable us to exit the majority of the T. assays as planned by the end of the second quarter.
At the same time, we're pleased with a significant progress that we've made toward the completion of the separation.
The volunteer in December we announced key members of volunteers senior management team, including Mark Morelli, as President and Chief Executive Officer, Dave Nomura as Chief Financial Officer.
And we're continuing to work toward an IPO split to affect the separation.
Well, we have put ourselves in a position to be ready for the first step in the form.
We have an IPO of up to 20% of on tier by the end of first quarter. We will continue to assess market conditions and maintain a variety of options for the eventual completion of the transaction, which is on track for the second half of this year as previously communicated.
Given that I've been challenge for the cold for the last week truck will provide the details of the corner.
Thanks, Jim and good afternoon, everyone.
For Q4, adjusted net earnings were 368 million up 13% over the prior year and adjusted diluted net earnings per share were one dollar and three cents sales grew 13.9% 2 billion based on strong contribution from.
Positions and a slight increase in core revenue, which came large being largely as expected core revenue growth was highlighted by mid single digit or better growth that gilbarco veeder root Gordian industrial scientific and Matco, which was largely offset by declines across the short short cycle businesses within professional.
<unk>.
Unfavorable foreign currency exchange rates reduced <unk> reduce growth.
<unk> by 110 basis points.
Geographically.
Core core revenue in developed markets grew low single digits, reflecting the continued soft macro conditions in both North America in Western Europe.
Core revenue growth in North America was up low single digits, while western Europe declined mid single digits.
Hi growth market.
Hi, good growth markets core revenue decreased mid single digits due to slower performance it fluke Tektronix and JV are.
China posted a high single digit decline.
As a.
Strong growth at cultural and sensing technologies was more than offset by the headwinds associated with the winding down of the double wall tank upgrade cycle of GBR.
And the walk away impact detect fraud.
Adjusted profit margins was 23.3% representing a year over year increase of 60 basis.
Points core operating margin increased to 150 basis points growth driven by solid execution and strong operating margin expansion across the breadth of our portfolio more than half of our operating companies each generated greater than 100 basis points of operating margin expansion during the quarter.
During the fourth.
Corridor, we generated 452 million a free cash flow, representing an increase of 17% year over year. This strong performance resulted in free cash flow conversion ratio of 123% of adjusted net income for the quarter.
Turning to our segment professional instrumentation.
Posted sales growth of 23.1% percent, despite a low single digit decrease in core revenue.
The significant contribution of recent acquisitions continue to drive overall growth within professor <unk> professional instrumentation.
Unfavorable foreign currency exchange rates reduced growth.
By 50 basis points segment level, adjusted operating margins were 25.1%, including a core operating margin increase of 130 basis points, which was offset by 190 basis points of dilutive operating margins associated with acquisitions.
Core operating margin increase was driven by.
Nice supply chain savings and business model execution.
Field solutions core revenue increased slightly including a low single digit increase in developed markets as growth that I see gordian and Qualitrol was partially offset by a decline at fluke and North America high growth markets to decrease.
Like.
Luke improved sequentially in the fourth quarter, but still declined low single digit year over year, primarily as a result of continued softness that book industrial.
In North America, Fluke declined low single digits, but saw some early signs of stabilization in China Fluke declined high single digits.
We as we expected reflecting negative points of sale trends.
Luke Health solutions grew mid single digits led by Landauer, which saw strong orders from the U.S. Army for its radwatch radiation monitoring device.
Flute digital systems grew mid teens led by email which posted another.
Well digit increased in net new customers and greater than 20% increase in annual recurring revenue.
Prove technique continues to perform ahead of expectations and is greatly enhance the broader fluke route liability offering full continues to see excellent momentum from its revolution. They Mary.
Hi, I 900, Sonic Inventure, which generated $20 million worth of revenue in 2019 following its launch.
At the end of April that year.
I see delivered high single digit core growth driven by strong growth across North America, and Western Europe, I see subscription based I know performed well.
While generating high single digit growth and strong new customer bookings the momentum at I know it reflects the growing demand for IC is expanding said a real time why enabled connected workers solutions as more facilities adopt life monitoring capabilities to improve safety performance.
Until ex group.
Double digits in the fourth quarter is strong bookings and share gains helped deliver a record year for customer wins with a 17% increase year over year in total new customers.
I see in Intellects teams also continued to make progress with the indirect integration of the intellect software offering with high net in order to.
The opportunity for future cross selling.
Cultural core revenue grew mid single digit digits, marking the first positive core quarter for both core growth and bookings since 2017 cultural delivered strong growth in North America, China in Latin America, which was partially offset by continued.
[music] challenges in Western Europe, and the Middle East.
Turning to our facilities in asset management business businesses, Gordian prefer performed very well in the quarter delivering greater than 20% core growth. This performance was driven by strong growth across it procurement platform with increased construction.
Volume from large enterprise customers, including the United States Postal service.
40, and also some momentum across estimating and facilities planning, reflecting the initial return on strategic investments that we made his product offering and salesforce.
With the some of these plantings.
One of Fps sales and lead management tools, we help gordian in the quarter with its largest backlog.
In its history.
The current saw sequential growth in the fourth quarter, but registered high single digit decline year over year basis, driven by a tough comparison given the large.
The amount of licensing deals that hit in the fourth quarter of 2018.
Well the pace of SaaS bookings wasn't enough to offset set the licensing revenue decline in the quarter, a credit continues to drive better sales execution and productivity with a higher win rate for larger software deals and improved cross selling across the.
Continues to see see strong performance across.
A number of its key product lines, including.
It's dms threesixty facility and connectivity offerings, all of which generated greater than 20% bookings growth in 2019 and carry strong momentum into 2020.
Quick realization core revenue decreased high single digits as packs Idmc and Invotec.
Was more than offset by continued weakness in tektronix.
M.C. generated low single digit sales growth versus a tough compare from prior year led by defense electronics and commercial aerospace offerings.
As we saw momentum with its commercial satellite customers as well.
Yes, he continued to see broad based bookings momentum, allowing it to maintain strong backlog and excellent revenue visibility for the year ahead.
Tektronix registered double digit it will double digit decreasing.
Core revenue.
As expected in the quarter Tektronix saw continued pressure from many of the same headwinds that emerge earlier in 2019, including slowing at Keathley weak demand in North American Western Europe, and the Wassa business from all way did due to U.S. trade restrictions.
Tektronix straw saw strong performance across.
Yes, it's mid range is telescopes offering which grew mid single digits. The three enforced series Scopes would success. We're successfully introduced last June continue to perform particularly well generating high teens growth and significant share gains in the quarter.
Core revenue for sensing technologies decreased low single digits as.
Hi base growth in China was more than offset by continued weakness in western Europe and platform. It's in North America Gems benefit benefited from improved conditions in the semiconductor end market, which returned to growth in the fourth quarter, removing a key headwind that persisted through much of 2019.
He is speed grew low single digits led by growth in consumables as well as continued strong performance from in service business.
Geographically as piece of strong performance in China in Mexico, We continue to be encouraged by Sps performance in Japan, which saw high single digit growth in second half the year.
After an extended period of weaker performance prior to our ownership at the end of October we close China, and we now have approximately 80% of Asps global revenue under our direct control.
Acquisition of census closed early in the fourth quarter significantly enhanced our connected work flow offerings for central sterilization departments.
Census is off to a good start with 10% growth in the quarter and we're excited about the cross selling opportunities with ASP as we provide more comprehensive solutions to our health care facilities.
Moving to industrial technologies revenue grew 1.9%, including core revenue growth of 3.6%.
This was partially offset by unfavorable currency exchange rate of 180 basis points segment level adjusted operating margins, what was 23.8%, including core operating margin increase of 230 basis points.
The strong OMEX in industrial technologies was once again led by GBR, where applications of Fps Pro.
Drove strong margin performance and significantly improved working capital turns as him be ramp throughout the year.
Our transportation technologies platform core revenue grew mid single digits led by low double digit growth in North America.
TBR generated mid single digit core core growth led by high single.
Got it increased in developed markets.
As expected GBR delivered another quarter of strong performance in North America tied to sustain momentum from M.B. related sales as the October liability shift deadline approaches.
TV are registered mid single digit decline across high growth markets as strong performance and.
Latin America was more than offset by by slower quarter in China, and India GBR continues to see IRT. Good early momentum with its inside threesixty remote remote forecourt management solution, which enables customers to monitor and update fuel dispensers remotely. They also recently released.
The new fuel procurement and logistics solution on inside Threesixty called Halo, which will has been well received.
By the market.
GBR recently received a large order for Trinian E V Chargers from a major European oil company, the largest such order ordered to date from legacy GBR cost.
Summer.
This win and the potential for larger opportunities, where a broader easy charging rollout across the customers network highlights the opportunity for GBR to leverage its distribution and service capabilities across its existing customer base of treaty EMS can.
In support of Trillions continued growth.
Hello track Nab Man core revenue decreased mid single digits in the fourth quarter inline with expectations.
Total track now Mantas stock strong continued growth in Asia Pacific, which was more than offset by declines in North America in Western Europe.
The tell attract NAV men team continues to work to stabilize its North America business.
This with overall customer support processes, reducing the customer churn enhancing margin. While there is significant work ahead to tell attract now men team is making progress with root causes of the higher churn laying the ground work for improved performance ahead.
Moving to franchise.
Distribution the platforms core revenue grew low single digit during the fourth quarter driven by the strength that Matco Natcos performance was led by growth across its power tools tool storage and specialty tools category.
Uhhuh continues to benefit from strong product vitality and the success of new.
Act introductions that power tool category in particular was supported by the introduction of the cordless Infinium high performance impact ranch and high speed Ratchet kit.
Matco also introduced its maximum light diagnostic scan tool in December bringing to market the way just extension amercos growing.
Nostix off.
With that I'll hand, it back over to Jim.
Thanks, Chuck to wrap up the fourth quarter represented a strong finish to 2018 with continued momentum from industrial technologies and solid execution for professional instrumentation and a challenging environment.
Our performance in the quarter provided a clear.
Ration of both the power of afford a business system and the increasing resilience of our portfolio, enabling us to deliver 150 basis points of core operating margin expansion in the face of slow short cycle demand that persisted throughout the quarter in 2019, we faced a number of challenges head on from tariff related headwinds to short cycle.
Through the back half of the year. Despite these challenges we delivered strong margin expansion and free cash flow and saw approximately 7% revenue growth across the software businesses. We have acquired since spin. In addition, we've made significant progress toward the integration of ASP. While also moving forward with the separation of volunteer to position Fortive for the future.
Clearly there are signs out there continued industrial slowness and we're cautious about the macroeconomic outlook for the coming quarters.
With respect to guidance, we are initiating our full year 2020, adjusted diluted net EPS guidance at $3.68 to $3.78 representing year over year growth of 6% to 9%.
On a continuing operations basis annual guidance assumes low single digit core revenue growth 50 basis points of core on Max in an effective tax rate of approximately 16%.
We're also initiating our first quarter adjusted diluted net EPS guidance, a 70 cents to 74 cents representing year over.
A year growth of 1% to 7%.
This includes assumptions of low single digit core revenue decline in an effective tax rate of approximately 15%. Our first quarter guidance also anticipates a two cents headwind from the disruption we have seen so far associated with the Corona virus outbreak in China. This.
As a very fluid situation and we are monitoring it very closely obviously first and foremost the safety of our employees throughout China is our top priority.
In closing I want to take a minute to acknowledge the efforts of the broader fortive team across the globe 2019 was a truly transformational year for our team and while it was not with a year without challenges I'm extremely.
Proud of our team performed in responded it's a dedication of our people and their relentless commitment to continuous improvement the dry before its business system and enable us to deliver greater long term value for all of our stakeholders I look forward to next decade ahead with our outstanding team and with that I'd like to turn it over to Greg. Thanks, Jim that concludes our formal comments.
Angela we're now ready for questions.
Ladies and gentlemen, if you would like to answer your question at this time. Please press star one on your telephone keypad.
Limit to one question and one follow up question. Thank you.
And your first question comes from the line Julian Mitchell with Barclays. Please go ahead.
Hi, good afternoon.
Maybe evening.
Good evening, maybe just the first question around slide 10.
Twentytwenty EPS bridge.
Looking at that piece on the left the 16 cents of coal.
I guess I'm trying to understand because I.
I think the.
Restructuring savings from last year, I give you about 14 cents.
And then if you put in.
Coal growth low single digits would that 50 bips. So amex that gets you about 16 cents I'm just trying to understand.
Where does the restructuring.
Savings or the the coal growth feeding that bridge.
Right.
Julien This is Chuck I think that.
What you're doing that roughly correct I think that it just it really depends on how much.
Growth you, you're putting in there and then maybe.
The one wildcard that were.
We probably got embedded in here a little bit is how long.
Hi stays stays down we've got a negative in Q1 here I'd probably flat in the first half and does that continue into Q3.
I see that 16 cents incorporates both the organic growth and the restructuring savings.
That's correct. Thank thank you and then my second question just.
Maybe help us understand.
The the biggest moving pieces within the PRB coal margin it was down a bunch in Q3.
A lot in Q4, and then night looks like you guided to drop again in Q1.
Maybe just help us understand what swinging around.
In the context of sort of steady ish declines in organic sales.
Yes, Joe It's Jim first you're right about the about about Q4.
Sort of think about the.
Second half and what we saw in pie in second half.
Probably down 20, or so beps for the for the second half.
So number what we saw in Q4 was some really strong pricing. We saw we always get a bigger portion of our supply chain savings near the end of the year.
We certainly saw that so those two plus a little bit better mix was really really what drove the stronger margin expansion in the quarter. As we go into you certainly have some some some headwinds of of.
Things like salaries and things like that that come into the the first quarter that that'll be part of the offset but I think part of it. It's just we will.
We'll see we'll see the big businesses fluke intact be about the same.
Relative to their their contribution, but I think you see the Corona virus hit here and that's principally in that head is it's going to be more in p. I probably than anywhere else.
Great. Thank you.
And your next.
I think has a lot of Nigel Coe with Wolfe Research. Please go ahead Sir.
Thanks, Good afternoon, good evening and I dropped.
Great So hey.
I hope you're a feeling better same.
So I'll just did want to phone cash to the covenants and things here. So there's about.
Remains.
Change of M&A spend during the quarter was that that will in this acquisition. This since acquisition.
And then Capex was a bit lower than we expect that is that kind of better job on capex was that a push outs drugs.
The 19.
I think.
We'll take the second one first the Capex I think that I don't think Thats appreciably lower are different than we normally normally see so maybe which I'd go back and figure out. If we gave you that impression we shouldn't have because I think we're pretty stable one on that piece and on the first first piece you're talking about how much of the.
Are you talking about the deal costs.
Yes it.
Oh census, it was that you know two or three small smaller deals in there as well and what I'm trying to figure out is what.
How big is a sense acquisition.
Which beeping what should be we modeled for 2020 I understand yet know that that's a sense is acquisition.
Okay any detailed thing give us on revenue contribution from 20.
Relative to census.
Yep Yep.
Oh, so yes that businesses.
I think roughly 50 ish million dollars go figure double digit kind of growth.
Probably talking in the.
$10 million range for the year.
That's it mostly a SaaS business, though I think if we think about how that'll Greg will continue to grow and we think we'll probably put some additional investment in it in order to accelerate growth over the years, we work with the team there as we mentioned the prepared remarks the.
Combination of centers, along with what we've guided ASP gives us a really strong offerings in in central sterilization Department. So somewhat some of our effort here to accelerate the growth is going to be some investment in go to market in order to make sure that we can accelerate that growth through the year.
Okay.
We think we welcome him what kind of margin profile the census.
Okay.
You know pretty pretty close lower operating margins than what we would you know at the start but but high gross margin. So you're talking about gross margins in the sixties. They do have a service business. So you know the software obviously isn't that in the high Eightys and Ninetys kind of range, but then there is a service.
Just an installation component to it the brings the margins down we think we can continue to grow that margin profile over time, and obviously the operating margins will start to come up I think I think there in the roughly the twentyth now and and the probably be that in that range. This year.
Okay. Thank you.
And your next question is on a lot of Steve Tusa with.
JP Morgan. Please go ahead.
Hi, guys good afternoon.
As Dave.
I'm just on the SP, what are the organic revenue contributions from that business for 2020.
I think the.
It's going to be low single digit but Doug.
Probably.
Hi, it's it's moving up as things as we get more of the revenue under our own.
Shop, So I think it's going to me.
Pushing and pushing three it it would be my guess.
Okay. So that includes kind of that push forward I was kind of the Ts stay intact.
So we can think about the revenue base and then just go down by 3% or is that kind of the organic growth excluding the impact from whatever happened last year with GSK.
I think.
The way it what I'm talking about is how the end customer growth is going to grow think about that at 3%.
Okay, So what but what is the actual organic revenue contribution to the comp to you can find it any way wide. So just.
Percentage afford a total revenues the they'd be.
You would include as organic from that business, specifically, it's probably going to me.
In north of 25 million.
Okay on the organic just the organic growth now keep in mind, we didnt have Q1 in there last year. So yes, it's a nine month, yes. It's a nine month Nixon is what you're saying, Okay. And then just on on cash flow for the fourth quarter.
Some things moving around.
There was a decent bump from accruals and.
Another kind of decent drag from I think from pre pays or something like that.
Is that kind of the unwind if some of this T.S.A. stuff that you talked about earlier in the year on was that just organic performance anything kind of going on there that was kind of a big swing or year over year in the fourth quarter.
No I think.
There were some of those that those things, we're probably related to how JJ guidance the cash that that business.
Yes.
Created in the fourth quarter, but I don't think I I would say that that is what you should expect us to be able to do in the fourth quarter and that there wasn't an.
Unusual bump there.
Okay. So it sounds like anything with kind of pulled out of.
Out of 2020, that's that's kind of a clean base for a for 2020.
Yes, it's normal seasonality for us to be really strong in the fourth quarter.
And as and lighter in Q1.
Okay, great. Thanks for the color I appreciate it.
Your next question is found a lot of Andrew Obin with Bank of America. Please go ahead.
Yes, good evening.
Andrew.
Hey, I know, how you feel I had the last week so.
So.
So.
Last quarter, you gave a view that organic revenue.
Declines will continue into first quarter, and probably second quarter, you're sort of reiterated that I think today.
Do you still see the likely returned to growth happening in third quarter and more importantly, other than Corona buyer as.
What are the won two items that could swing that earlier or later.
Well.
I think as we look at the guide Andrew.
We don't have any dramatic improvement.
With that I would say is accounting on a big economic swing, our comps get a little easier in the second half. So you have a little bit of that.
Yes, we've got we've got some product launches so I would.
Say, if the upside if things were to get better in Europe, I think that would be some upside to us that would be one thing I think we've got North America I think we've seen North America fairly stable. If we start to think about some of the places where we see some points point of sales example, we've seen we've seen some growth lately and point of sale.
Admittedly still kind of low.
Michael digit, but we're seeing growth. So I think the the upside story would be probably China accelerates.
Forget just beyond Corona, but just accelerates to a little bit better in Western Europe comes back to growth maybe sooner I think those are probably two of the embedded things you could go opco by Opco, but I think geography is probably the best way to think about it.
Right and then just a follow up question on price cost.
Could it be more favorable for you in 2020, I imagine tariff impact the slowing and you can fill command decent pricing and how to phase one trade deal sort of figure into your calculation or price cost until 2020, how does that impact you.
So.
It takes second piece to that.
Trade deal that they've just sign wasn't going to impact us either way and so thats.
No impact for us I think that in terms of some of our actions I think you saw.
Our margin expand here at the ended the year, reflecting that maybe some of our price.
Yes, we will carry into next year and I'd like to think.
The first half we've got some good momentum there I think from a cost standpoint, we don't see it does not feel like has severely inflationary environment for us. So I think that our position is going to be pretty strong there.
Thanks, a lot.
Your next question comes from a lot of Josh Pokrzywinski <unk> with Morgan Stanley. Please go ahead.
Hi, good evening.
So I guess just first question on the volunteer IPO I.
I guess, Jim depending on which we had told my head.
Here It seems like you might come out of this whole thing pretty close to net debt free on on the afforded pieces is that a fair way to think about it and in a fair way to think about kind of the acquisition firepower.
As we get through the transaction.
Well certainly.
Well certainly be had a good position.
That's for sure as we highlighted.
You know in the prepared remarks about our plan here still lot of things to do I'll, let Chuck specifically comment about how we're thinking about that structure here, yes, I don't I don't think I think we're going to be improved, especially given it if an IPO would net net some proceeds and accelerate.
Where we get too but were both of these companies are going to have.
M&A firepower here and so I don't think we'd get to net debt zero.
Hi on 40, I think volunteers going it will take some of the debt, but not a disproportionate amount.
That's helpful and then.
Just thinking about this the 16 cents of core improvement in 2020.
Yes, I guess, if if the demand environment.
From up.
Especially in the back half I guess, what's the what's the bias to reinvest some of their.
Structuring versus what it falls bottom line I guess, maybe a different way of asking is yes. If growth is better is it.
16 cents plus what other growth does or should we expect some leakage from from reinvestment. That's currently being held back. Thanks.
Well I think we'd always look for opportunities to.
Are we could accelerate growth, but I think the reason we did the restructuring is so that we could deliver growth and if we see the back half accelerate I think you did we see us deliver our normal VCM fall through around 35%.
And maybe a little bit more but we will will happily deal with that.
At a situation.
When we see is materializing.
Understood. Thanks, guys.
Thanks.
Your next question comes a lot of Andy Kaplowitz with Citi. Please go ahead.
Good afternoon.
Hi, any Jim or Chuck can you talk about how you're thinking about TV.
2020, you, obviously still aviat hand, the related growth, but then you know China slowing in India, I think what's been lumpy lately I've surmise, it's a contributor to 2020, but maybe orders are getting pushed a bit. So you gave us more color on how to think about that business overall, what you're seeing.
Yeah sure anything so I think that try to thing is.
Pretty predictable we had the double wall tank upgrade we've seen tremendous benefit last year from that and we knew inevitably that that was going to sort of you know Wayne and that came in fairly predictable. So I don't think China will be a big source of growth for GBR necessarily in 2020, India will.
Really have seen more we've actually been.
Most recently, we've seen some good news on on some of our project Rollouts. So the first quarter, maybe a little hit and Miss but I think as we get into the second quarter and in the back half of the or you're going to see India contributor to growth for GBR as well some of the other high growth markets. So as we mentioned the prepared remarks Latin America.
It was was that was a highlight for them as well in the quarter and then maybe the bigger story is is that obviously MB is the big story came in really the way we thought it can't it should come in in the quarter that'll continue to be helpful. In 2020, and I think what we saw which is nice to see was the comments, we made around starting to see some of the benefits with.
Our customers in Europe with tritium so so.
That's a that's a starting point for growth as well so a number of levers that we think can get them.
We'll be additive to their growth rate, but yes, we still will be the big number there throughout this year.
Thanks, gentlemen.
Just asking better control and it was starting to flow last quarter, you talked about the conversion the fast.
I think you mentioned high single digit declines in Q4 and given the tough comp do you guys think this is more than just transitional decline as you call did last quarter or is it more cyclical on what's your outlook for accrual and here in 2020.
Yes.
We've looked over and we sort of get away from the quarters and just look at our ownership of you know we've seen we've seen mid single digit growth at a current since our ownership. So so I think what we've seen here recently is first of all like we said in the prepared remarks, we're seeing good growth at some of the SaaS offerings. We mentioned you know connective.
Which is our health care offering.
Which which which which did really well as an example rpms.
Offering in our and our 360 facility offering which are really parts of our CMS offering and us space management offering. So so we saw some good some good SaaS bookings.
Growth in those businesses.
We do have.
Parts of the legacy business that were down as we mentioned last quarter and were down more than we thought.
I thought they were going to be some of that is larger licensing deals that we had in the fourth quarter of a year ago, which made for a tough comp, but I think as we sit here in 2020, we look forward with the team we certainly see.
Our our path back to that sort of mid single digit and better growth with the SaaS business takes a little while for that to kick in but we were still very up.
So very excited about the business that we think more broadly about already and as well as what we've done with flu digital in m- as that sort of almost half a billion.
There's a facilities in asset management businesses those businesses growing exceptionally good so the market dynamics are good.
Yeah like we said, we got a little to work to do to current we talked about that I think thats consistent with what we said before but when we look in total what we're doing from a from from from an all Fortive perspective, I think we like where we're at and we like the future opportunities.
As well.
Thanks, Ken.
Hi.
Your next question comes from the lot of John Walsh with Credit Suisse. Please go ahead.
Hi, good afternoon.
<unk>.
Maybe just following up to some of those earlier questions around the the.
Alan She can you talk a little bit about how the pipelines look like for each of the businesses as we go forward from a capital allocation standpoint, and the ability to do M&A.
Yeah.
Well I think.
We certainly are are.
You know, we completed census in the fourth quarter.
Orders, we mentioned, we did intellects as well in the second half so couple of very good deals in the second half.
In the summer we had protect mix. So we had good additions and the breath was pretty good as well intellects really be part of our IC safety offering sense as being part of our health care offering.
I think really in the core fluke business. So you know as we look across those funnels John.
Across all of our businesses I think we're in a very good place with all of our funnel. We just reviewed our strategic plan for the next several years with our with our board and highlighted the opportunities for some of our our key platforms and we really see across a number of platforms.
Entities.
For for capital deployment.
Obviously, we are pretty busy right now with some of the things, we've got going and but we continue to be active and we're hopeful that we'll we'll get some things done here in 2020 as well.
Great and then you know as we think about a volunteer I don't think we've had a chance.
Since you've announced the management team there to kind of get your perspective.
Just wanted to get your thoughts on both the appointment of Mark and Dave There.
Yes, we're we're really excited I think mark is.
As a bit is very much a person with.
Who's got considerable continuous improvement experience. He has been a student of DBS and Fps for a long time as applied it in this business says he certainly goes back to back to some United Technology days, where they were implementing a number of lean principles. So.
Well I think you bring brings public company experience he brings business.
Information experience is incredibly results oriented so I think mark is somebody who we were really excited about and Dave number is really coming back right Dave was.
Was that was a group CFO for us before he went to gate and daves.
Great Great financial leader has worked with Chuck and I for decades and.
I think is we're really excited deep knows these businesses he's he's coming in to the organization.
Knowing these businesses having have some financial responsibility for these businesses before he left so so I think the combination of both external experienced both having public company experience, but also there are other belief and continuous improvement I really think.
Thats up already with a great leadership team that we already have in those businesses. We think volunteers futures is very strong with the leaders that we now have in place.
Great. Thank you for the color.
Thanks, Jonathan.
Your next question comes from the line Deane Dray with RBC capital market. Please go ahead.
Thank you good afternoon, everyone.
I mean I really appreciate that you all were brave enough to take a stab at what the Corona virus impact would be and the first quarter. We've seen really one other company to go through that math.
Xylem did it today.
So be interested in hearing a bit more at with any precision. If you can what's the how do you get that two cents is it the plant shutdowns any assumption about the supply chain, maybe when starts there yet.
Thanks, Dean you know, it's obviously as we said, it's an evolving situation and our first.
First priority as the safety and security of our people over there and obviously, a very difficult situation for the country or China. The health crisis that it is so I think first and foremost we're focused on making sure that our teams are fine and we're doing what we can from a business perspective to help in the situation. We have some products as an example, it fluke that are helpful.
To to diagnosing some things relative to some of our temperature measurement products. As an example, so that's first and foremost how we got to the two cents is really I think pretty straightforward, it's really a another week of being down. So thats you know in activity of of not only the factories, but also customers and the fact that I think we ramped.
For the normal I've been I've been pretty we've talked about China, and and how you come out of the new year for a number of times.
I have couple of decades of experience of leading the our efforts over there and usually you come up a little slower coming out of the new year is and we just think thats going to be a.
Little slower so it's really the combination of of of the last week and really not probably coming up as quickly as we typically would out of the new year now I'll tell you deem as you know it's an evolving situation relative to next week February 10th is really the starting point, which we're really looking at three things.
One is how our customers going to come back Howard how its commercial transactions going to start up in occur. The second thing is our factories in our tier one tier two and even tier three supply chain and how quickly they come up we're pretty confident about our own factories, but seeing the supply chain come up and I think the third piece is just the freight lanes, what's going to happen we do we.
Do ship as an example on some commercial flights as an example, so we'll just have to see how that happens in really all that's going to sort of evolve next week in the weeks to calm as we start to see things, where we've got countermeasures and placed on all three of those situations, but but as I have to get into it to see how things play out and how quickly but we felt.
Obligated with what we've known pretty much over the last maybe two or three days, we really felt obligated to beat to be very clear about what we think will happen thus far.
Great color, we're all hoping for the best there.
And then on.
P and census interesting, you're citing the opportunity.
Just from cross selling and that's kind of the whole strategy around bolt ons can you give any kinda examples of what cross selling might be and are the sales forces.
I did any incentives along those lines.
Yeah. So so first says it's a great business and in of itself and so.
So one is the team there is we're going to where accelerates of investments and commercial opportunities to really really take their solution for which we think is is a really great solution for for central sterilization departments.
So that's first and foremost in it and then as we said we've got in some.
Mers Seth.
We probably have a stronger position in some places like IDN as an example, they're very strong so the opportunity for to cross sell within those situations is is it certainly there and we're certainly incentivizing the salesforce on a global basis, we probably have more opportunity to take the ASP customer set and.
Produce census to them, because obviously SP such a global business. So so really both opportunities but.
It to really cross sell but but I do want to make sure. We emphasize that we bought a good business to begin with as I said, you know over 10% growth in the fourth quarter, that's not in our core number yet, but we think very strongly that this is a great combination.
For us to go forward with.
Good to hear thank you.
Thanks, Dean well on your next question is on a lot of Richard Eastman with BARDA. Please go ahead.
Yes, good afternoon.
Jim could you touch a little bit go circling around to fluke industrial I think you kind of spoke to some.
Seasonal growth there in the fourth quarter relative to the third so that would seem encouraging.
How does how does the channel look to you at this point and does that business start to.
Cycle more favorably by mid year or what's your what's your general feeling on fluke industrial.
We saw a little bit.
Better performance in the fourth.
Than we did in the third and and and a little bit better performance than we originally thought and I think that was principally in North America. If we if we think about a point of sale trends. It fluke in the fourth quarter. The U.S. grew a little bit Western Europe, and China, We're still.
We're still down China off a tough comp so.
So we really we've got to come out as I mentioned in a few questions ago krona, probably has that impacted fluke.
Maybe more dramatically just given the daily volume of business that goes on it at fluke.
So we've got to watch that in China.
We think the U.S. continues to sort of stay on track, we don't really see big inventory issues.
And in Western Europe, we still think it's going to probably will be flattish to down here at least in the first half start maybe to get a little bit better.
Based on comp the inventory positions within the channel are pretty good so ill.
No.
We don't expect any dramatic.
You know downturn in the economy from here with these industrial customers and so you would think that most of the inventory corrections are behind us at this point.
Okay, and then let me just given kind of stay on the short turns business here, but with with tech.
You know.
I think most of the TNF companies in the electronic side have the toughest comps with while way.
In the in the first and part of the second quarter.
I mean, not only was business ramping but we obviously saw the restrictions going place in May I think of last year, but is that is that the case with tektronix on the.
Lost business reserve is or functionality from a t. and Im standpoint, the same did it ramp on that same timeframe. So comps are very tough pretty much to the second quarter there.
Yeah, I mean, I think the restriction certainly when we heard about him right at the end of May So theres still five months of of tough compares in the first.
First half this year, there is a little bit in a normal year little bit more in the second half than the first half, but I don't think thats.
Enough to worry about it but it's in the first five months of this year and not beyond that I think that much more dramatic number attack, though really Rick is going to be just seeing that market come back in North America and in Europe, that's really.
The Wally thing is something and it's something for tech, but if we're thinking about what what's really a larger about larger piece that we usually see three or four quarters. It down four to five quarters a downturn.
When when the sort of turns and I think that's kind of our current spot large as.
No well larger purchases get delayed for a little while at the can't be delayed forever and so we think we'll start to see things start to improve as we get further into the year. Okay. And then just last question for me the.
The core growth for 20, the guide their low single digits, if I think about P I and I T. It it.
Seems to to me that P. I would start off fairly negatively because of the short term issues.
Fluke industrial and tuck in.
And then perhaps.
From a core growth standpoint, strengthen in the second half, whereas potentially I T.
Starts off the.
Strong with some GPR backlog and maybe fades a little bit in the fourth quarter by the fourth quarter is there is there much difference between P.I. Eni Ti as they relate to that low single digit corporate core.
Chuck I think I think we have.
Correctly being.
In a negative, especially in the first half running and easier comps, but still being low single digit I don't quite solid same way with I see as it goes through the year I think that they have a little bit of a tough compare here earlier in Q1 versus last year, but I expect them in that.
That.
Low mid single digit growth.
Growth in from a throughout the balance of the year.
I think even though the that the the should liability shift as in October I don't think that we'll see slowdown in this business.
Especially the I'm talking about the M D wave yes.
That will.
Can you won.
Beyond the 2020, so I don't I don't think it slows down the back half the year.
On anything I can see and a couple of things we said before Rick just put that in context like we're talking about MB like we just talked about as I also mentioned, India improves the second half. So so you start to so I think electric vehicles the.
Charging business, probably ramps a little bit more so you got to you got a few things are going to start to accelerate through the year that are non Mb related as well.
Okay, great. Thank you thanks for your time.
Thank you.
Your next question is from a lot of John inch with Gordon Haskett. Please go ahead.
Good evening everyone.
Hey, Jeff Hi, guys.
Just picking up on that I T.
Discussion so if I T is kind of low to mid single digit. This year. The margins are in the first quarter and I think for the year a relatively flat yes. We've got some of these M.B. I'm, assuming those are pretty good profit contribution benefits throughout the year what.
Why is the all amex not a little bit higher Friday based on your guide.
Well, what I think he's coming off of a pretty strong year, but I would think that I T would come through.
With me if you're talking about a business is growing three or 4% 50 basis points is what you would expect.
Good to see an I think that that is that's what you're going to would see win.
With IP going through the through the year.
Okay. So I thought Chuck I thought it was a little bit more flat in your guide in terms of performance the first quarter and 2020, but you're saying, it's actually going to be up about 50 basis points for should be.
I thought you.
Talking about operating margin expansion I'm, I'm, sorry, but it would be.
I think that it'll be up in Q1, not taking into account that Corona virus would would be about I think it's 3% in an accelerated slightly through through the year. Yeah. No I was talking about operating margin expansion.
Okay, Yeah, we're talking about the same.
They did they just had a quarter where they to 200 so.
I think there's there's good momentum there, but then there are lapping some really tough tough compares they had great margin expansion all last year.
Fair.
Just I wanted to switch to bunch oversight you've announced the.
What about the board like our the rails going to be on the board you would presume they would be but there hasn't been an announcement.
What's the timing on that.
Well, we haven't yeah, we don't comment on the board I mean, we've got a lot of degrees of freedom.
You know we've announced.
We've announced Karen as our chair and.
So we've got to share we're building a board. The construct you know we never want to comment on on who's going to join the board or whatever based on as you know commitments and how many boards people around I would say that our board recruiting has been incredibly positive. We've had a number of folks that have been interested and we're we're in the process of of interviewing those.
Folks we.
Because of the structure, we've talked about we're we're in good shape for what we need to do for the IPO and I think we're in very good shape to as we as we move forward with the separation the full separation. If you will later in the year.
And Jim what are the next milestones if anything from a timeline perspective.
Well I think we're putting ourselves in position to be able to do it IPO by the end of Q1, but there's a lot of things going on as we've noted even on this call. So we're going to assess what the best market timing is gone.
It is for us.
But we'll be in position by that point.
Well.
Really pleased with our progress and.
As you mentioned the management team is in place.
We'll see with market conditions look like.
You start thinking about the milestones that would be prepared for that just to be specific John things like our filing and and those kinds of things you'd start to see that here in the meetings and things like that in the coming.
Coming weeks here, yes, that's what I figured thanks very much appreciate it.
Thank you.
Thank you and we have no further questions at this time I would like to turn the call back to Griffin Whitney for closing remarks.
Well, thanks, everybody for taking the time we.
And indulging me in.
My minor.
My minor cold here.
But we are we want to thank everyone for your support in 2019, we clearly a transformational years, we as we talked about a number of things that we feel really good about as we enter into the year, we talked about a number of those things.
This this afternoon.
It's a new decade for us.
In a new decade for Fortive and we're we're incredibly excited about the position we put ourselves in for both forward of in volunteer to make 2020, a strong year. We'll we'll look forward to continue conversations around all that and certainly.
Griffin and team are available for follow up over the next several days. So thanks, everybody for your time today.
They have a have a great day, and we'll look forward to see any here soon on the route.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
[music].