Q1 2026 Veralto Corp Earnings Call

April 29, 2026

Speaker #2: Today's call is simultaneously being webcast. A replay of the webcast will be available on the Investors section of our website later today under the heading 'Events and Presentations.'

Speaker #2: A replay of this call will be available until May 29th. Yesterday, we issued our first quarter 2026 news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures.

Speaker #2: We hope you had the opportunity to review them last night. These materials are available in the Investors section of our website, www.veralto.com, under the heading 'Quarterly Earnings.'

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: With that, I'll turn the call over to Jennifer, who will share a few brief comments before we open the floor to Q&A.

Speaker #3: Thanks, Ryan. We are off to a strong start in 2026, reflecting the effectiveness of the Veralto Enterprise System, the essential role of our products and services in customers' operations, and the resilience of our end markets.

Operator: Good morning, everyone. My name is Beau, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's Q1 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then 1 on your telephone. If you would like to withdraw your question, please press star 2. I would now like to turn the call over to Mr. Ryan Taylor, Vice President, Investor Relations. Please go ahead, sir.

Operator: Good morning, everyone. My name is Beau, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's Q1 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then one on your telephone. If you would like to withdraw your question, please press star two. I would now like to turn the call over to Mr. Ryan Taylor, Vice President, Investor Relations. Please go ahead, sir.

Speaker #3: In the first quarter, we delivered approximately 7% total sales growth and 13% adjusted earnings per share growth while continuing to invest in commercial execution, productivity, and innovation.

Speaker #3: Looking ahead, we expect core sales growth to accelerate as the year progresses. Reflecting this momentum and our strong first quarter, we raised our full-year adjusted earnings per share guidance to a range of $4.20 to $4.28 per share.

Ryan Taylor: Good morning, everyone, and 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 Investors section of our website later today under the heading Events and Presentations. A replay of this call will be available until 29 May. Yesterday, we issued our Q1 2026 news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. We hope you had the opportunity to review them last night. These materials are available in the Investor section of our website, www.Veralto.com, under the heading Quarterly Earnings. Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides.

Ryan Taylor: Good morning, everyone, and thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and, 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 Investors section of our website later today under the heading Events and Presentations. A replay of this call will be available until 29 May. Yesterday, we issued our Q1 2026 news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. We hope you had the opportunity to review them last night. These materials are available in the Investor section of our website, www.Veralto.com, under the heading Quarterly Earnings. Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides.

Speaker #3: Thus far this year, we have invested approximately $1 billion across two strategic acquisitions: In-Situ in our Water Quality segment, and GlobalVision in our PQI segment.

Speaker #3: And also made opportunistic share repurchases. I'm excited to welcome our new associates from these outstanding organizations to Veralto. Additionally, we initiated a new cost optimization program designed to streamline our business and enhance operating efficiency.

Speaker #3: These actions underscore the strengths of our free cash flow profile and our ability to create shareholder value through multiple disciplined levers. Going forward, our balance sheet remains strong, providing flexibility to pursue additional acquisitions and share repurchases.

Speaker #3: I'm proud of our team for a strong start to the year, and for the actions we've taken to drive growth and continuous improvement as this year progresses and into next year.

Speaker #3: That concludes my opening remarks and at this time, we are happy to take your questions.

Ryan Taylor: 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, who will share a few brief comments before we open the floor to Q&A.

Speaker #1: Thank you, Ms. Honeycutt. Ladies and gentlemen, at this time, if you do have any questions, again, please press star one at this time. You can remove yourself from the queue by pressing star two.

Speaker #1: We'll go first this morning to Dean Dre with RBC Capital Markets.

Speaker #4: Thank you. Good morning, everyone. And I really appreciate that innovation to release your prepared remarks after the close. Makes things a lot easier to digest and go through the slides very thoughtfully.

Speaker #4: So what I'd like to do is start on Water Quality, and can we talk about the upside in core sales? Certainly better than your peers this quarter.

Speaker #4: How much do you attribute this upside to Veralto's higher bias or higher mix in OPEX versus CAPEX? And then just on the CAPEX side, give us an update on Trojan and quote activity.

Jennifer Honeycutt: Thanks, Ryan. We are off to a strong start in 2026, reflecting the effectiveness of the Veralto Enterprise System, the essential role of our products and services in customers' operations, and the resilience of our end markets. In the first quarter, we delivered approximately 7% total sales growth and 13% adjusted earnings per share growth while continuing to invest in commercial execution, productivity, and innovation. Looking ahead, we expect core sales growth to accelerate as the year progresses. Reflecting this momentum and our strong first quarter, we raised our full-year adjusted earnings per share guidance to a range of $4.20 to $4.28 per share. Thus far this year, we have invested approximately $1 billion across two strategic acquisitions, In-Situ in our Water Quality segment and GlobalVision in our PQI segment, and also made opportunistic share repurchases.

Speaker #4: Thank you.

Speaker #3: Good morning, and thanks for the question, Dean. Yeah, we see strong and stable demand across both our muni and industrial markets. To your point, the Veralto products and services really sit within customer operations, where the cost of failure is high for them.

Speaker #3: Right? And using our equipment is part and parcel to ensuring public safety, public health, and so on. So from a municipal standpoint, we see this really as a mid-single-digit grower with incrementally stronger growth in muni wastewater.

Speaker #3: Due to recycled reclaim and reuse secular drivers, so we are seeing great uptake there. And I would say on the industrial side, we see mid to high single-digit growth there with strengths in the common cast of characters around data centers so that would include semiconductor power and mining, and PMI trends have been positive here.

Speaker #3: Right? So we feel really good about our water businesses, both across municipal markets and industrial markets. And that's, again, really on the back of being integral to that customer operating environment.

Jennifer Honeycutt: I'm excited to welcome our new associates from these outstanding organizations to Veralto. Additionally, we initiated a new cost optimization program designed to streamline our business and enhance operating efficiency. These actions underscore the strength of our free cash flow profile and our ability to create shareholder value through multiple disciplined levers. Going forward, our balance sheet remains strong, providing flexibility to pursue additional acquisitions and share repurchases. I'm proud of our team for a strong start to the year and for the actions we've taken to drive growth and continuous improvement as this year progresses and into next year. That concludes my opening remarks, and at this time, we are happy to take your questions.

Speaker #3: Relative to your question around Trojan and UV, activity here in terms of quoting and bidding remains strong. This business has some nice bolt-on acquisitions that we've done here with Aquafidus, but I think it is important to remember there's a little bit longer cycle business.

Speaker #3: Right? So the bookings that we would see now would be shipping largely in Q4 2027. But great order book activity there. On the back of the secular drivers I discussed.

Speaker #4: Great. And just a quick follow-up. With reference to the muni outlook for '26, what are you assuming for the spending growth, and if you can, separate what that CAPEX growth would be versus OPEX, larger equipment projects?

Operator: Thank you, Ms. Hunnicutt. Ladies and gentlemen, at this time, if you do have any questions, again, please press star one at this time, and you can remove yourself from the queue by pressing star two. We'll go first this morning to Dean Dray with RBC Capital Markets.

Speaker #4: That would be great. Thanks.

Deane Dray: Thank you. Good morning, everyone. I really appreciate that innovation to release your prepared remarks after the close. Makes things a lot easier to digest and go through the slides very thoughtfully. What I'd like to do is start on Water Quality. Can we talk about the upside in core sales, certainly better than your peers this quarter? How much do you attribute this upside to Veralto's higher bias or higher mix in OpEx versus CapEx? Then just on the CapEx side, give us an update on Trojan and quote activity. Thank you.

Speaker #1: Hey, Dean, thanks for that question. With respect to the muni view that we have baked into the guidance, think of pretty steady from the analytics perspective.

Speaker #1: On the CAPEX side, really, it's all driven predominantly for us from a Trojan perspective. As you know, we are not in the majority in the CAPEX cycle.

Speaker #1: We are tied to the OPEX cycle, so it's really pretty steady on both sides, Dean, as you kind of think about this thing. Steady in muni, but it's going into analytics side, Trojan side—really strong, as Jennifer just laid out.

Speaker #4: Great to hear. Thank you.

Speaker #1: Thanks, Dean.

Speaker #2: Thank you. We'll go next now to Jeff Sprog with Vertical Research.

Jennifer Honeycutt: Good morning, thanks for the question, Deane Dray. Yeah, we see strong and stable demand across both our muni and industrial markets. To your point, the Veralto products and services really sit within customer operations where the cost of failure is high for them, right? Using our equipment is part and parcel to ensuring public safety, public health, and so on. From a municipal standpoint, you know, we see this really as a mid-single-digit grower with incrementally stronger growth in muni wastewater due to recycle, reclaim, and reuse secular drivers. We are seeing great uptake there. I would say on the industrial side, you know, we see mid to high single-digit growth there with strength in the common cast of characters around data centers.

Speaker #5: Hey, thanks. Good morning, everyone. Hey Jeff, I was wondering if you could just elaborate a little bit more on the cost program—sort of the catalyst behind it, maybe some things here that you weren't able to do pre-separation, etc.

Speaker #5: Just and maybe a little more color on some of the levers you're looking to pull there.

Speaker #3: Yeah, thanks for the question, Jeff. Our cost optimization program here is just part and parcel to our continuous improvement mindset. We are always looking to drive continuous improvement.

Speaker #3: And this is really a natural evolution to make our cost structure more competitive. In our journey to enhance EPS growth, this will really allow us to leverage certain functional attributes across the enterprise that improve both our efficiency, but also maintain our accountability within our decentralized operating model.

Jennifer Honeycutt: That would include semiconductor, power, and mining. PMI trends have been positive here, right? We feel really good about our Water Quality businesses, both across municipal markets and industrial markets. That's again, really on the back of being integral to that customer operating environment. Relative to your question around Trojan Technologies and UV, you know, activity here in terms of quoting and bidding remains strong. This business has, you know, some nice bolt-on acquisitions that we've done here with AQUAFIDES. I think it is important to remember there's a little bit longer-cycle business, right? The bookings that we would see now would be, you know, shipping largely in Q4 2027. Great order book activity there on the back of the secular drivers I discussed.

Speaker #3: So we will stay true to that decentralized operating model, with the operating companies retaining accountability and quick decision-making and service to their customers. But it's been a three-year journey here.

Speaker #3: Right? The first part of getting the business stood up was to reinvigorate the innovation and R&D engine. Get the right commercial architecture going in our operating companies, which basically provides the operating room to do everything else.

Speaker #3: Secondly, we really focused on accelerating our capital allocation flywheel and have that going now with some strong strategic bolt-ons creating significant long-term value and also with our share repurchase activity.

Speaker #3: So, cost optimization was a natural next step, right? And we're really focused on simplifying our business processes to improve operating efficiency and further strengthen the competitive position.

Deane Dray: Great. Just a quick follow-up. With reference to the muni outlook for 2026, were you assuming for kind of the spending growth? If you can separate, you know, what that CapEx growth would be versus OpEx larger equipment projects, that would be great. Thanks.

Speaker #3: So some of these things you can't fully account for when you're part of a $30 billion enterprise. But from a timing perspective, this is really the right time for us to look at this sort of structural allocation of cost and make sure that we're right-sized for the size business that we are today.

Sameer Ralhan: Hey, Deane. Thanks for the question. With respect to the muni view that we have baked into the guidance, think of pretty steady from the analytics perspective. On the CapEx side, really, it's all driven by predominantly for us from a Trojan perspective. As you know, we are not in the majority in the CapEx cycle. We are tied to the OpEx cycle. It's really pretty steady on both sides, Deane, as you kind of think about this. Like, steady in muni business going into analytics side, Trojan side, really strong as Jennifer just laid out.

Speaker #3: And what we'll be scalable in the future.

Speaker #5: And you didn't mention any benefits in 2026. We should expect just gearing up in '26 for things to flow in '27 and '28?

Speaker #1: Yeah, Jeff. Most of the actions that we have laid out in this pretty detailed plan are oriented towards end of this year. So as in Q4, you're going to see a bunch of the actions.

Deane Dray: Great to hear. Thank you.

Sameer Ralhan: Thanks, Deane.

Speaker #1: So, we haven't baked any benefit from the program in 2026 in the guidance. You should expect roughly 50% of the run-rate savings in '27 and full run-rate in 2028.

Operator: Thank you. We go next now to Jeff Sprague with Vertical Research.

Jeff Sprague: Hey, thanks. Good morning, everyone. Hey, Jennifer, I was wondering if you could just elaborate a little bit more on kind of the cost program, sort of the catalyst behind it?

Speaker #1: That's how we can model the savings.

Speaker #5: Okay, great. I'll leave it there. Thank you.

Speaker #1: Thanks, Jeff.

Speaker #3: Thanks, Jeff.

Jeff Sprague: You know, maybe some things here that you weren't able to do pre-separation, et cetera, just, and maybe a little more color on some of the levers you're looking to pull there.

Speaker #2: We'll go next now to Andy Kaplowitz at Citi.

Speaker #6: Hey, good morning, everyone.

Speaker #3: Good morning, Andy.

Speaker #6: Jennifer, I think in your prepared remarks, you mentioned packaging and color within PQI down high single digits as a non-recurring impact in Q1. Maybe just give a little more color around that.

Jennifer Honeycutt: Yeah. Thanks for the question, Jeff. You know, our cost optimization program here is just part and parcel to our continuous improvement mindset. We are always looking to drive continuous improvement, this is really a natural evolution to make our cost structure more competitive in our journey to enhance EPS growth. This will really allow us to leverage kind of certain functional attributes across the enterprise that improve both our efficiency, but also maintain our accountability within our decentralized operating model. We will stay true to that decentralized operating model with the operating companies retaining accountability and quick decision-making and service to their customers. You know, it's been a 3-year journey here, right?

Speaker #6: What are CPG companies telling you? Are they worried at all about inflation, or is it just really lumpiness? And that's really the explanation, and I do think you're still forecasting good growth for the rest of the year in PQI.

Speaker #3: Yeah, so yeah, it's a little bit tailored to cities here relative to the PQI story. At a high level, we see continued strong demand across our CPG customer base.

Speaker #3: And it remains steady in terms of our quoting and sales activity relative to coding and marking. And we've seen that for several quarters. Complementing that, really, is our digital packaging and ingredient solutions brought in here.

Speaker #3: With a combination of ESCO and TraceGains, which continues also to be strong. And we would expect that to continue with the addition of Global Vision.

Jennifer Honeycutt: The first part of getting the business set up was to reinvigorate the innovation and R&D engine, get the right commercial architecture going in our operating companies, which basically provide the operating room to do everything else. Secondly, we really focus on accelerating our capital allocation flywheel and have that going now with some strong strategic bolt-ons, creating significant long-term value and also with our share repurchase activity. Cost optimization was a natural next step, right? We're really focused on simplifying our business processes to improve operating efficiency and further strengthen the competitive position. Some of these things, you know, you can't fully account for when you're part of a $30 billion enterprise.

Speaker #3: Global Vision obviously strengthens the value proposition here in terms of building a comprehensive workflow. When you look at Q1 here, relative to packaging and color, as you noted, we do see sales down high single digits here, primarily due to the non-recurring revenue, including sales of color testing and packaging inspection equipment.

Speaker #3: But this was really focused in a few discrete industrial end markets. So automotive, textiles, building materials, driven by housing market, and so on. So that's where we're seeing some of the demand weakest weakness.

Speaker #3: But certainly, going forward, we feel strong about incremental recovery here. And certainly, we don't see any changes relative to CPG demand, which would indicate our confidence in the marking and coding business continuing to be strong.

Jennifer Honeycutt: You know, from a timing perspective, this is really the right time for us to look at this sort of structural allocation of costs and make sure that we're right-sized for the size business that we are today, and what will be scalable in the future.

Speaker #3: And, in fact, accelerate throughout the year.

Speaker #6: Thanks for that, Jennifer. And then maybe the same kind of question on the PQI margins. I mean, obviously, they've been at a high level for the last few years.

Jeff Sprague: You didn't mention any benefits in 2026. We should expect, just gearing up in 2026 for things to flow in 2027 and 2028?

Speaker #6: But they've been a bit lumpy. I know mix matters, which I think you said is going to impact your Q2 PQI margin. But structurally, do you see PQI margin having the same opportunity that you have in sort of Water Quality and consistent with the long-term incremental margin framework you have?

Sameer Ralhan: Yeah, Jeff, most of the actions that we have laid out in this pretty detailed plan are oriented towards end of this year. As in Q4, you're going to see part of the actions. We haven't baked any benefit from the program in 2026 in the guidance. You should expect roughly 50% of the run rate savings in 2027 and full run rate in 2028. That's how you can, you can model the savings.

Speaker #1: Yeah, absolutely, Andy. As you can look at PQI right on a sequential basis, we have very nice improvement in the margins. Mix helped, but at the same time, some of the rollover from the tariff actions that we're going to talk about is going to roll off as well.

Speaker #1: So, overall, if you're going to look at the opportunity in the second half of this year, and moving forward into '27, absolutely, we see the same level of opportunity.

Jeff Sprague: Okay, great. I'll leave it there. Thank you.

Sameer Ralhan: Thanks, Jeff.

Jennifer Honeycutt: Thanks, Jeff.

Operator: We'll go next now to Andy Kaplowitz at Citi.

Speaker #6: Good to hear. Thanks, guys.

Andy Kaplowitz: Hey, good morning, everyone.

Speaker #1: Thanks, Andy.

Jennifer Honeycutt: Good morning, Andy.

Andy Kaplowitz: Jennifer, I think in your prepared remarks, you mentioned packaging and color within PQI are down high single digits as a non-recurring impact in Q1. Maybe just give a little more color around that. You know, what are CPG companies telling you? Are they worried at all about inflation, or is it just really lumpiness, and that's really the explanation, and I do think you're still forecasting good growth for the rest of the year in PQI?

Speaker #2: We'll go next now to John McNulty with BMO Capital Markets.

Speaker #5: Yeah, thanks for taking my question. Maybe just one on the waterfront. In particular, some of your competitors in the chem-treat arena have put through some really chunky price hikes and/or surcharges at 10 to 14 for one, 8 to 14 for the other.

Speaker #5: I guess—can you speak to your thoughts on pricing and if you see a need for it at this point, just given what's going on from a raw material perspective around the Iran conflict?

Jennifer Honeycutt: Yeah, it's a little bit tale of two cities here relative to the PQI story. You know, at a high level, we see continued strong demand across our CPG customer base. It remains steady in terms of our quoting and sales activity relative to coding and marking, and we've seen that for several quarters. Complementing that really is our digital packaging and ingredient solutions brought in here with a combination of Esko and TraceGains, which continues also to be strong, and we would expect that to continue with the addition of GlobalVision. GlobalVision obviously strengthens the value proposition here in terms of building a comprehensive workflow.

Yeah, it's a little bit tale of two cities here relative to the PQI story. You know, at a high level, we see continued strong demand across our CPG customer base. It remains steady in terms of our quoting and sales activity relative to coding and marking, and we've seen that for several quarters. Complementing that really is our digital packaging and ingredient solutions brought in here with a combination of Esko and TraceGains, which continues also to be strong, and we would expect that to continue with the addition of GlobalVision. GlobalVision obviously strengthens the value proposition here in terms of building a comprehensive workflow.

Speaker #3: Yeah, thanks for the question, John. We take a disciplined approach to pricing within sort of all of our operating companies. But I think particularly you're referring here to ChemTreat.

Speaker #3: We, by virtue of our 75% sales direct to customers, we've got a lot of customer intimacy and insight as to how to support their operations through this dynamic macro environment.

Speaker #3: And so we partner with them to achieve pricing that is going to offset the headwinds from rising costs. But we do this sort of very surgically.

Jennifer Honeycutt: You know, when you look at Q1 here relative to packaging and color, as you noted, we do see sales down high single digits here, primarily due to the non-recurring revenue, including sales of color testing and packaging in-inspection equipment. This was really focused in a few discrete industrial end markets, so automotive, textiles, building materials driven by housing market and so on. That's where we're seeing some of the demand weakness, but certainly, you know, going forward, we feel strong about, you know, incremental recovery here. Certainly, we don't see any changes relative to CPG demand, which would indicate, you know, our confidence in the marketing and coding business continuing to be strong and, in fact, accelerate throughout the year.

Speaker #3: We feel that this approach has been disciplined in the way we execute it. It's served us well to achieve that mid- to high-single-digit core sales growth.

Speaker #3: And we've done this since the spin, and we would expect this approach to continue.

Speaker #5: Got it. Okay, thanks. And then maybe just a little bit of color, given the challenging environment with inflation, and at least in some cases, there may be a little bit of demand destruction.

Speaker #5: Are you seeing any interesting assets that maybe weren't available to you in the market now coming to the market? Or is it really just too early for that, given what's been going on?

Speaker #1: Yeah, John, maybe I'll take this one. If you look at it from the assets perspective, the market conditions change. But we're always going to stay true to our market company valuation algorithm, as we're going to look at all the strategic opportunities.

Andy Kaplowitz: Thanks for that, Jennifer. Maybe the same kind of question on PQI margins. I mean, obviously, they've been at a high level for the last few years, but they've been a bit lumpy. I know mix matters, which, you know, I think you said is going to impact your Q2 PQI margin. Structurally, do you see PQI margin having the same opportunity that you have in sort of Water Quality consistent with the long-term incremental margin framework you have?

Speaker #1: Again, things do open up in these kinds of market conditions, but it's too early to say at this point. But overall, pipelines look pretty active.

Speaker #1: And pretty excited about the opportunities that are here in the near term for us.

Speaker #5: Great. Thanks very much for the caller.

Speaker #1: Thanks, John.

Sameer Ralhan: Yeah, absolutely, Andy. As you can look at PQI, right, on a sequential basis, we have very nice improvement in the margins. Mix health, at the same time, some of the rollover from the tariff actions that we kinda talked about is gonna roll off as well. Overall, if you're gonna look at the opportunity in H2 of this year and moving forward into 2027, absolutely we see same level of opportunity.

Speaker #2: We'll go next now to William Griffin with Barclays.

Speaker #4: Great, thank you for the time. Just wanted to come back to the cost optimization plan that you've laid out here. Just want to make sure we're thinking about that correctly.

Speaker #4: Should we view that as sort of an upside to your long-term margin expansion algorithm, or does this just keep you on track with that algorithm?

Andy Kaplowitz: Good to hear. Thanks, guys.

Sameer Ralhan: Thanks, Andy.

Operator: We'll go next now to John McNulty with BMO Capital Markets.

Speaker #1: Yeah, Will, thanks for the question. The short answer is yes, right? If you look at our value creation algorithm, it's unchanged mid single digit core sales growth with 30 to 35 percent fall through.

John McNulty: Yeah, thanks for taking my question. Maybe just one on the waterfront. In particular, some of your competitors in the ChemTreat arena have put through some really chunky price hikes and/or surcharges, at 10% to 14% for one, 8% to 14% for the other. I guess, can you speak to your thoughts on pricing and if you see a need for it at this point, just given what's going on from a raw material perspective, around the Iran conflict?

Speaker #1: So from a modeling perspective, as you're going to start thinking about '27, '28, it is logical to assume that we will use the 30% to 35% fall-through on the core sales growth.

Speaker #1: And then add the savings from the cost optimization program on top of that. So, think of it as a step change in ’27 and ’28.

Speaker #1: As far as particulars for the exact details for '27, of course, we'll talk when we give that guidance.

Speaker #4: Perfect, appreciate that. And then I wanted to touch on capital allocation here and just how you're thinking about the mix of that going forward. I think you've clearly executed on M&A recently, as well as significantly ramped up the repurchase activity.

Jennifer Honeycutt: Yeah, thanks for the question, John. You know, we take a disciplined approach to pricing within sort of all of our operating kind of big companies, but I think particularly, you know, you're referring here to ChemTreat. By virtue of our 75% sales direct to customers, we've got a lot of, you know, customer intimacy and insight as to how to support their operations through this dynamic macro environment. We partner with them to achieve pricing that is gonna offset the headwinds from rising costs, but we do this sort of very surgically. We feel that this approach has been, you know, disciplined in the way we execute it. It served us well to achieve that mid to high single-digit core sales growth, and we've done this since the spin.

Speaker #4: And I think we've spent a pretty good majority of, or a good chunk of, the $750 million authorization. How do you think about that sort of going forward over the balance of the year, maybe into '27?

Speaker #4: And could we potentially see an increase in the authorization, or maybe what would be a trigger point for that?

Speaker #3: Yeah, thanks for the question, Will. I think it's safe to say that we're going to continue to be disciplined here. We do have a bias for M&A relative to capital allocation.

Speaker #3: And I think you've seen that bias read through here with our $1 billion of capital deployed thus far in the year. The M&A engine is running well.

Speaker #3: And to Sameer's point, we've got active funnels on both sides of the house, and are engaged in several cultivation activities. So our bias will remain M&A.

Jennifer Honeycutt: We would expect this approach to continue.

John McNulty: Got it. Okay, thanks. Then maybe just a little bit of color, you know, given the challenging environment with inflation and, you know, at least in some cases, there may be a little bit of demand destruction, are you seeing any interesting assets that maybe weren't available to you in the market now coming to the market, or is it really just too early for that, given what's been going on?

Speaker #3: We think that's going to create the best long-term value creation over time. But we reserve the right, as you've seen, to utilize that capital when we see market dislocations relative to the business performance.

Speaker #3: And we plan to continue to take advantage of that. As far as whether that would be increased, that's going to be a board decision.

Sameer Ralhan: Yeah. John, maybe I'll take this one. If you look at from the assets perspective, you know, market conditions change, but we always gonna stay true to our, you know, market company valuation algorithm as we're gonna look at all the strategic opportunities. Again, things do open up in these kind of market conditions, but it's too early to say at this point. Overall, pipelines look pretty active and pretty excited about the opportunities that are here in the near term for us.

Speaker #3: And, in due course, we will take that on at whatever time is appropriate.

Speaker #4: Appreciate the caller. Thanks very much.

Speaker #1: Thanks, John.

Speaker #3: Thanks, Will.

Speaker #2: Thank you. We'll go next now to Mike Halloran with Baird.

John McNulty: Great. Thanks very much for the color.

Speaker #5: Good morning, everyone.

Speaker #6: Good morning, Mike. Good morning.

Sameer Ralhan: Thanks, John.

Speaker #5: So, a clarification on the early—how does the cost op program layer between the two segments?

Operator: We'll go next now to Julian Mitchell with Barclays.

Julian Mitchell: Great. Thank you for the time. Just wanted to come back to the cost optimization plan that you've laid out here. Just wanna make sure we're thinking about that correctly. Should we view that as sort of upside to your long-term margin expansion algorithm, or does this sort of just keep you on track with that algorithm?

William Grippin: Great. Thank you for the time. Just wanted to come back to the cost optimization plan that you've laid out here. Just wanna make sure we're thinking about that correctly. Should we view that as sort of upside to your long-term margin expansion algorithm, or does this sort of just keep you on track with that algorithm?

Speaker #1: Yeah. If you look at the cost optimization program, Mike, it's pretty broad-based across both the businesses as well as corporate functions. Overall, I would say there's a little bit more bias towards PQI.

Speaker #1: But it's pretty balanced across the company if you're going to think of it.

Speaker #5: Got it. And then, just from a guidance perspective, maybe help me understand what you're embedding in terms of seasonality and market improvement versus end market stability here.

Sameer Ralhan: Yeah. Will, thanks for the question. The short answer is yes, right? If you look at our value creation algorithm, it's unchanged, mid-single digit core sales growth with 30% to 35% fall through. From a modeling perspective, as we kind of start thinking about 2027, 2028, it is logical to assume that we will use the 30% to 35% fall through on the core sales growth and then add the savings from the cost optimization program on top of that. Think of it as a step change in 2027 and 2028. As far as particular, for the exact details for 2027, of course, we'll talk when we give that guidance.

Speaker #5: Is there any expectation for an acceleration in end markets as we sit here today, or is it relatively normal seasonality as it plays out?

Speaker #5: And if you are assuming any acceleration, are there any areas that we should be thinking about specifically?

Speaker #1: Yeah, overall, as you think about the end market dynamics, Mike, that we built into the guidance—from a CPG perspective—pretty steady, frankly.

Speaker #1: It tends to be less seasonal. Same for the global food and beverage markets. These are pretty non-discretionary demands, so we expect the markets and the demand to be pretty steady over here.

Julian Mitchell: Perfect. Appreciate that. Then, wanted to touch on capital allocation here and just how you're thinking about the mix of that going forward. I think you've clearly executed on M&A recently, as well as significantly ramped up the repurchase activity and I think spent, you know, a pretty good majority of or a good chunk of the $750 million authorization. How do you think about that sort of going forward over the balance of the year, maybe into 2027? Could we potentially see an increase in the authorization or maybe what would be a trigger point for that?

William Grippin: Perfect. Appreciate that. Then, wanted to touch on capital allocation here and just how you're thinking about the mix of that going forward. I think you've clearly executed on M&A recently, as well as significantly ramped up the repurchase activity and I think spent, you know, a pretty good majority of or a good chunk of the $750 million authorization. How do you think about that sort of going forward over the balance of the year, maybe into 2027? Could we potentially see an increase in the authorization or maybe what would be a trigger point for that?

Speaker #1: Similarly, on the water side, I would say is the mini side—as Jennifer said earlier, it's pretty steady, that's what we are seeing given where we operate.

Speaker #1: We operate in the OPEX side of our customers, so the risk of failure is very high. So it would be pretty well-embedded in the high-value part of the workflows.

Speaker #1: So overall, demand is pretty steady. But in the second half, as you know, especially as we get into Q4, the comps get a little easier as well.

Jennifer Honeycutt: Yeah. Thanks for the question, Will. You know, I think it's safe to say that we're gonna continue to be disciplined here. We do have a bias for M&A relative to capital allocation. I think you've seen that bias read through here with our $1 billion of capital deployed thus far in the year. The M&A engine is running well and, you know, to Sameer's point, we've got active funnels on both sides of the house and engaged in several cultivation activities. Our bias will remain M&A. We think that's going to create the best long-term value creation over time. We've reserved the right, as you've seen, to utilize that capital when we see market dislocations relative to the business performance.

Speaker #1: So, that kind of helps as you're going to think about the core growth. So, sequentially, we should see core growth kind of moving up as we go through the year.

Speaker #5: Appreciate it. Thank you.

Speaker #1: Thanks, Mike.

Speaker #2: We'll go next now to Andrew Buscaglia with BNP Paribas.

Speaker #7: Hey, good morning, everyone.

Speaker #6: Good morning, Andrew.

Speaker #7: Just wanted to check on the water quality. Just a number of drivers, including data centers. I'm just wondering if you could parse out how influential that data center contribution was to growth.

Speaker #7: I don't know how you want to do it, but maybe just talk a little more about that, please.

Speaker #3: Yeah, I mean, our Water team had a fantastic quarter, just in terms of execution—driving hard across the enterprise. Relative to sort of which markets are faster growers, we do see strong growth in data centers.

Jennifer Honeycutt: We plan to continue to take advantage of that. You know, as far as whether that would be increased, that's going to be a board decision. In due course, we will take that on at whatever time is appropriate.

Speaker #3: But as a reminder, data center revenue is still overall a very small portion of our total sales in Water Quality. And so we don't spell out sort of market sizes and growth rates separately here, publicly.

Julian Mitchell: Appreciate the color. Thanks very much.

William Grippin: Appreciate the color. Thanks very much.

Jennifer Honeycutt: Thanks, Will.

Operator: Thank you. We'll go next now to Mike Halloran with Baird.

Mike Halloran: Good morning, everyone.

Jennifer Honeycutt: Morning, Mike.

Mike Halloran: A clarification. Morning. A clarification on the early, how does the cost OpEx program layer between the two segments?

Speaker #3: But we will say that we're getting great traction here—a lot of uptake in demand—and that's benefiting essentially all of our water businesses.

Sameer Ralhan: Yeah. If you look at the cost optimization program, Mike, it's pretty broad-based across both the businesses and, as well as corporate functions. Overall, I would say there's a little bit of more bias towards PQI, but it's pretty balanced across the company if you're gonna think of that.

Speaker #5: Yeah, okay. And then, M&A-wise, it certainly sounds like you're still interested in moving forward with capital allocation towards that. I'm wondering—we saw a peer on the treatment side move into the data center space a little bit more aggressively.

Mike Halloran: Got it. Then, just from a guidance perspective, maybe help me understand what you're embedding in terms of seasonality, end market improvement versus end market stability here. Is there any expectation for an acceleration in end markets as we sit here today? Or is it relatively normal seasonality as it plays out? If you are assuming any acceleration, any areas that we should be thinking about specifically?

Speaker #5: Does that market interest you, in terms of maybe increasing in the hierarchy of where your interests lie?

Speaker #3: Yeah, I mean, I think you'll see us stay true to our algorithm of market, company, and valuation. We like businesses that look like us, right?

Sameer Ralhan: Overall, as you kind of think about the end market dynamics, Mike, that we have built into the guidance, from a CPG perspective, pretty steady. Frankly, it tends to be less seasonal. Same for the global food and beverage markets. These are pretty nondiscretionary demands. We expect the demand to be pretty steady over here. Similarly on the Water Quality side, I would say is the muni side, as Jennifer said earlier, it's pretty steady. That what we are seeing, given where we operate, we operate in the OpEx side of our customers. The risk of failure is very high, so it'll be a pretty well embedded in the high value part of the workflows. Overall demand, pretty steady.

Speaker #3: We like razor-razor blade businesses. We like being in the operating cycle of the customer's operations. And we find that this gives us long-term durability.

Speaker #3: And good confidence in sort of the steady state that we've been able to create here. So I wouldn't say we're taking anything off the table here.

Speaker #3: But I do think there are profiles of companies that we like, and we will stay true to those relative to those that create long-term advantage.

Sameer Ralhan: In the H2, as you know, especially as we get into Q4, the comps get a little easier as well, so that kind of helps as you're gonna think about the core growth. Sequentially, we should see core growth kind of moving up as we go through the year.

Speaker #3: And allow us to apply VES to make them better.

Mike Halloran: Appreciate it. Thank you.

Sameer Ralhan: Thanks, Mike.

Speaker #5: All right. Thank you.

Operator: We'll go next now to Andrew Buscaglia with BNP Paribas.

Speaker #2: We'll go next now to Jacob Levenson with Melius Research.

Andrew Buscaglia: Hey, good morning, everyone.

Speaker #8: Good morning, everyone.

Jennifer Honeycutt: Morning, Andrew.

Speaker #6: Good morning, Jake.

Andrew Buscaglia: Just wanted to check on the Water Quality. You listed a number of drivers, including data centers. I'm just wondering if you could parse out how influential that data center contribution was to growth. I don't know how you wanna do it, but maybe just talk a little more about that, please.

Speaker #8: I don't think we've touched on China yet. And I know some of your peers have had some challenges there on the water infrastructure side of things.

Speaker #8: And I know there are different business mixes with your portfolio, but maybe you can just give us some color on how you'd characterize that market today—if there are any puts and takes around specific verticals.

Jennifer Honeycutt: Yeah. I mean, our water team had a fantastic quarter, just in terms of, you know, execution, driving hard across the enterprise. You know, relative to sort of which markets are, you know, faster growers, we do see strong growth in data centers. As a reminder, data center revenue is still overall a very small portion of our total sales in Water Quality. You know, we don't spell out sort of market sizes, you know, and growth rates separately here publicly, but we will say that, you know, we're getting great traction here, a lot of uptake in demand. You know, that's benefiting essentially all of our water businesses.

Speaker #3: Yeah, China continues to behave like a more mature market. Our China sales here in the first quarter were up low single digits, generally in line with the past couple of quarters. Not really any material change to what we're seeing there.

Speaker #3: PQI did lead that growth with double-digit growth here. Now, we've lapped some comps here, which makes it a little bit easier to post some growth.

Speaker #3: Water quality was down just slightly here, low single digits in China. And that is reflective of the funding environment for municipalities, with money still not flowing from the government to prop up that particular industry.

Speaker #3: So, we continue to have opportunistic sales into industrial segments, still waiting for water funding to break loose here on the mini side in China.

Andrew Buscaglia: Yeah. Okay. You know, M&A-wise, you know, it certainly sounds like you're still interested in moving forward with capital allocation towards that. I'm wondering, you know, we saw up here on the treatment side, move into the data center space a little bit more aggressively. Does that market interest you in terms of increasing, you know, maybe increasing in terms of the hierarchy of where your interests lie?

Speaker #3: But we have strong opportunities that continue within PQI.

Speaker #8: Okay, that's good color. And just a quick follow-up for Sameer: I think that your tax rate has been going down a little bit over the last couple of years.

Speaker #8: And just be helpful to understand how much of that is maybe just related to geographic mix, or whether there's some planning activity you've been able to do over the last few years since the spin.

Jennifer Honeycutt: Yeah, I mean, I think you'll see us stay true to our algorithm of market, company, and valuation. We like businesses that look like us, right? We like razor blade businesses. We like being in the operating cycle of the customer's operations, and we find that this gives us long-term durability. You know, good confidence in sort of, you know, the steady state that we've been able to create here. I wouldn't say, you know, we're taking anything off the table here, but I do think there are profiles of companies that we like and we will stay true to, relative to those that create long-term advantage and allow us to apply VES to make them better.

Speaker #1: Yeah, thanks, Jake, for that. If you look at the tax rate, it's definitely made a pretty nice move from where we started, from 24.5%-ish kind of a percent when we were going to be spun off, now in the 20s.

Speaker #1: I would say, Jake, it's a balance. But I would say a majority is skewed towards sort of the really great work by the tax team, and from a planning perspective, to get us to the right place.

Speaker #8: Okay, appreciate it. Thank you. I'll pass it.

Speaker #1: Thanks, Jake.

Speaker #2: We'll go next now to Brian Lee with Goldman Sachs. And Mr. Lee, your line is open. You might be on mute. Hearing no response, we'll circle back to Brian.

Speaker #2: We'll go next now to Andrew Krill with Deutsche Bank.

Andrew Buscaglia: All right. Thank you.

Speaker #9: Hi. Thanks. Good morning, everyone. This has been you could give us an update on tariffs and there have been a variety of updates with the Supreme Court ruling, the changes in Section 232 rules, and then also general cost inflation from higher oil.

Operator: We'll go next now to Scott Davis with Melius Research.

Scott Davis: Good morning, everyone.

Jacob Levinson: Good morning, everyone.

Jennifer Honeycutt: Morning, Jake.

Scott Davis: I don't think we've touched on China yet. I know some of your peers have had some challenges there on sort of the water infrastructure side of things. I know they're different business mixes with your portfolio, but maybe you can just give us some color on how you'd characterize that market today and if there are any puts and takes around specific verticals.

Jacob Levinson: I don't think we've touched on China yet. I know some of your peers have had some challenges there on sort of the water infrastructure side of things. I know they're different business mixes with your portfolio, but maybe you can just give us some color on how you'd characterize that market today and if there are any puts and takes around specific verticals.

Speaker #9: Could you give us an update, have your viewing the tariff headwinds and cost inflation headwinds this year? And if that's changed at all versus last quarter, thanks.

Speaker #1: Yeah. Thanks, Andrew, for that. If you're going to look at the tariff side, there are three layers, right? The stuff that happened last year, effectively, you've taken the pricing actions, all the line moves have happened, those things should start rolling out.

Jennifer Honeycutt: Yeah. You know, China, you know, continues to behave like a more mature market. Our China sales here in Q1 were up low single digits, generally in line with the past couple of quarters. Not really any material change to what we're seeing there. PQI did lead that growth with double-digit growth here. Now we've lapped some comps here, which make it a little bit easier to post some growth. Water quality was down just slightly here, low single digits in China, and that is reflective of kind of the funding environment for municipalities with, you know, money still not flowing from the government to prop up that particular industry. We continue to have opportunistic sales into industrial segments.

Speaker #1: Impact of those should start rolling over as you're going to get into the second half. So we have pretty well-positioned on that front. As far as the new Section 232 kind of stuff, we've baked the impact of that on in the guidance that we provided.

Speaker #1: But overall impact, as you're going to think about for us, is actually much smaller. This is not like last year, as we're going to slowly start thinking about the steel or aluminum kind of components in our product, as it's pretty small.

Speaker #1: So those are the impact of those is pretty small for us. As far as the Middle East and the current conflict and the impact that we're seeing on the commodities, on the oil side, again, baked into the guidance, at least based on what we see right now.

Speaker #1: But as you can imagine, some really active discussions with the customers on the pricing side. Jennifer touched on the chemtree side earlier. The impact that we're seeing on the chemicals and packaging side, that's kind of baked in.

Jennifer Honeycutt: Still waiting for water funding to break loose here on the muni side in China, but have strong opportunities that continue within PQI.

Speaker #1: But overall, we're pretty well-positioned as we're going to think about the rest of the year. This pricing and there's a lot of productivity stuff as well as part of it.

Scott Davis: Okay. That's good color. Just a quick follow-up for Sameer. I think your tax rate has been going down a little bit over the last couple of years. Just be helpful to understand how much of that is.

Jacob Levinson: Okay. That's good color. Just a quick follow-up for Sameer. I think your tax rate has been going down a little bit over the last couple of years. Just be helpful to understand how much of that is.

Speaker #9: Okay, great. That's very helpful. And on a related note, just with price, this is still fair. We should be thinking about the company realizing about 2% price or so.

Speaker #9: And I think PQI was kind of trending a bit higher than Water Quality. Is that a reasonable approach still?

Scott Davis: Is maybe just related to geographic mix or whether there's some planning activity you've been able to do over the last few years since the spin?

Jacob Levinson: Is maybe just related to geographic mix or whether there's some planning activity you've been able to do over the last few years since the spin?

Speaker #1: Yeah. That's a pretty reasonable approach. As you're going to think of the pricing, 100, 200 basis points. But frankly, with the price increases that we did last year, we're still lapping those up.

Sameer Ralhan: Yeah. Thanks, Jake, for that. If you look at the tax rate is definitely we have made a pretty nice move from where we started from 24.5-ish kind of a percent when we kinda spun off now in the 20s. I would say, Jake, it's a balance, but I would say majority is skewed towards sort of the really great work with the tax team and from a planning perspective to get us to the right place.

Speaker #1: And then we had further price increases as part of this year's cycle. So you should expect this year in aggregate to be at the high end of the range.

Speaker #1: With PQI even exceeding that a little bit.

Speaker #9: Okay. Thanks so much.

Speaker #1: Thank you.

Speaker #2: Thank you. We'll go next now to Brian Lee with Goldman Sachs.

Jennifer Honeycutt: Okay. Appreciate it. Thank you. I'll pass it on.

Okay. Appreciate it. Thank you. I'll pass it on.

Jennifer Honeycutt: Okay. Appreciate it. Thank you. I'll pass it on.

Speaker #10: Hey, guys. Sorry about that. This is Tyler Bissett on for Brian. Thanks for taking our question. Just wanted to go back to the high-growth markets.

Sameer Ralhan: Thanks, Jake.

Operator: We'll go next now to Brian Lee with Goldman Sachs. Mr. Lee, your line is open. You might be on mute. Hearing no response, we'll circle back to Brian. We'll go next now to Andrew Krill with Deutsche Bank.

Speaker #10: You discussed how acquisitions of Global Vision and institutions should help support growth here. But it was actually a little weak for both Water Quality and PQI during the quarter.

Speaker #10: So any reason for the weakness in the quarter? How do you expect growth to trend going forward? And then just, I guess, looking to Q2, are you expecting any material impact from the war in Iran?

Andrew Krill: Hi. Thanks. Good morning, everyone. I was hoping you could give us an update on tariffs. You know, there's been a variety of updates. The Supreme Court ruling, the changes in Section 232 rules, and then also, you know, general cost inflation from higher oil. Could you give us an update, you know, how you're viewing the tariff headwinds and cost inflation headwinds this year and if that's changed at all versus last quarter? Thanks.

Speaker #1: Yeah. Thanks for the question, Tyler. If you just want to make sure I get the question right. High-growth market versus global vision, right? Let's bifurcate those two.

Speaker #1: Global vision does not have any sort of a meaningful impact as we're going to think about the growth on the high-growth market side. High-growth market side, effectively, we grew the low single digits, but rather, sorry, a slight decline this year.

Speaker #1: But water quality, low single digits, really more on the impact that we saw in China. But overall, PQI is in a little bit of a low single-digit decline as well.

Sameer Ralhan: Yeah. Thanks, Andrew, for that. If you're gonna look at on the tariff side, there are three layers, right? The stuff that happened last year, effectively, we've taken the pricing actions. All the line moves have happened. Those things should start rolling over as we kinda get into the H2. We're pretty well-positioned on that front. As far as the new Section 232 kind of stuff, we have baked the impact of that in the guidance that we provided. Overall impact, as you kinda think about for us, is actually much smaller. This is not like last year, as we kinda fully start thinking about the, you know, the steel or aluminum kind of components into our product, it's pretty small.

Speaker #1: So nothing material. The majority of this impact that you're seeing is more sort of timing-driven, especially in Latin America. That's kind of driving that impact.

Speaker #1: But otherwise, we're pretty well placed.

Speaker #9: I would say as well, we've got a pretty big prior year comp in India, right? We had a Q1 in India—it was about 20% last year.

Speaker #9: And we do see some impact here in the Middle East. It's a small portion of our overall revenue, but the sales there were down about 10%.

Sameer Ralhan: The impact of those is pretty small for us. As far as the Middle East and the current conflict and the impact that we're seeing on the commodities, on the oil side, again, baked into the guidance, at least based on what we see right now. As you can imagine, some really active discussions with the customers on the pricing side. Jennifer touched on the ChemTreat side earlier. You know, the impact that we're seeing on the chemicals and packaging side, that's kind of, you know, baked in. Overall, we're pretty well-positioned as we kinda think about the rest of the year. There's pricing, and there's a lot of productivity stuff as well. It's part of it.

Speaker #10: Great. Super helpful. I'll turn it over. Thanks.

Speaker #2: Thank you. We'll go next now to Josh Spector with UBS.

Speaker #11: Yeah. Hi. Good morning. I wanted to ask just about some similar on some of the regional impacts here in PQI. I mean, there's a pretty decent diversion between Europe and North America.

Speaker #11: I don't know if Europe was more impacted by some of the one-timer larger equipment sales or if it was something else and if you could help what that looks like in Q2, if any of that reverses at all.

Andrew Krill: Great. That's very helpful. On a related note, just with prices still fair, we should be thinking about the company realizing, you know, about 2% price or so, and I think PQI was kind of trending a bit higher than Water Quality. Is that a reasonable approach still?

Speaker #1: Yeah, so relative to Western Europe, PQI had a really tough comp in 2025. They were up 10.3% last year. So—and this is on the back of our recurring revenue model, where three extra days matters a lot.

Sameer Ralhan: Yeah. That's a pretty reasonable approach. As you kind of think of the pricing, 100, 200 basis points. Frankly, with the price increases that we did last year, we're still lapping those up, and then we had further price increases as part of this year's cycle. You should expect this year, in aggregate to be at the high end of the range, with PQI even exceeding that a little bit.

Speaker #1: And the first quarter of 2025. So very, very high comps relative to prior year. And I would say here in Q1, our marketing and coding businesses grew core sales low single digits, right?

Speaker #1: And that's on the back of a pretty healthy, sizable comp prior year. We did see an offset here by delays in shipments of certain hardware lines in our Packaging and Color businesses, which we referred to earlier.

Andrew Krill: Okay. Thanks so much.

Sameer Ralhan: Thank you.

Operator: Thank you. We'll go next now to Brian Lee with Goldman Sachs.

Steve Tusa: Hey, guys. Sorry about that. This is Steve Tusa on for Brian Lee. Thanks for taking our question. Just wanted to go back to the high growth markets. You discussed how acquisitions of GlobalVision and In-Situ should help support growth here, but was actually a little weak for both Water Quality and PQI during the quarter. Any reason for the weakness in the quarter? You know, how do you expect growth to trend going forward? Looking to Q2, are you expecting any material impact from the war in Iran?

[Analyst] (Goldman Sachs): Hey, guys. Sorry about that. This is Steve Tusa on for Brian Lee. Thanks for taking our question. Just wanted to go back to the high growth markets. You discussed how acquisitions of GlobalVision and In-Situ should help support growth here, but was actually a little weak for both Water Quality and PQI during the quarter. Any reason for the weakness in the quarter? You know, how do you expect growth to trend going forward? Looking to Q2, are you expecting any material impact from the war in Iran?

Speaker #1: But relative to sort of broad-based global CPG demand, we see it stable. We see it stable in Europe. We see it stable in North America.

Speaker #1: A little bit of a mixed bag in some of the high-growth markets, largely because of a little bit of impact from, obviously, China. India, we've got some timing issues.

Speaker #1: And then, certainly, the impact of Middle East and Africa.

Sameer Ralhan: Thanks for the question, Steve Tusa. If you just want to make sure I get the question right. You know, high growth market versus GlobalVision, right? Let's bifurcate those two. GlobalVision does not have any sort of a meaningful impact as we kind of think about the growth on the high growth market side. High growth market side, effectively, you know, we grew, you know, a slight decline this year. Water Quality was down low single digits, really, more on the impact that we saw in China. Overall, PQI is in a, you know, little bit of a low single-digit decline as well. Nothing material.

Speaker #11: Okay. No, that's helpful. And I guess if I kind of flip that the other way, if I look later this year, you have 6 and 9 percent comps in North America in 3Q and 4Q.

Speaker #11: Are those going to be characterized as tough comps to go against, or should we expect you guys to be able to grow on that level later this year?

Speaker #1: Yeah. As you're going to get into the second half, you're going to see the growth despite the comps in fact, I would say from the PQI perspective, the comps are going a little easier.

Speaker #1: As we get into Q4, overall, since the demand given the demand dynamic that Jennifer just talked about from the marketing and coding side from the CPG side, we feel pretty good about the second half of the year.

Sameer Ralhan: Majority of this impact that you're seeing is more sort of timing-driven, especially in Latin America. That's kind of driving that impact, but otherwise, we're pretty well-placed.

Speaker #1: And that's kind of baked into the guidance. So nothing sort of a material deviation that you're going to see.

Jennifer Honeycutt: I would say as well, we've got a pretty, you know, big prior year comp in India, right? We had a Q1 in India. It was about 20% last year. We do see some impact here in Middle East. Small portion of our overall revenue, but the sales there were down about 10%.

Speaker #11: All right. Thank you.

Speaker #1: Thanks.

Speaker #2: And we'll go next now to Joseph Giordano with TD Cowen.

Speaker #12: Hi, good morning. This is Chris on for Joe. The EPS guy moved higher even though the operational framework looks to be, appears to be, largely consistent.

Steve Tusa: Great. Super helpful. I'll turn it over. Thanks.

[Analyst] (Goldman Sachs): Great. Super helpful. I'll turn it over. Thanks.

Operator: Thank you. We'll go next now to Josh Spector with UBS.

Speaker #12: Could you walk us through the specific bridge items that are driving the revision and how much of that is operational versus capital structure below the line?

Josh Spector: Yeah. Hi, good morning. I wanted to ask just about similar on some of the regional impacts here in PQI. I mean, there's a pretty decent diversion between Europe and North America. I don't know if Europe was more impacted by some of the one-timer larger equipment sales or if it was something else, and if you could help, you know, what that looks like in Q2, if any of that reverses at all.

Speaker #12: Thank you.

Speaker #1: Yeah, thanks, Chris, for that question. Overall, if you think about the increase in the EPS guide, it's predominantly raised because of the operating stuff.

Speaker #1: The share buyback that we have done so far is already kind of baked in. Overall, what's kind of driving this thing is really a few things.

Jennifer Honeycutt: Relative to Western Europe, you know, PQI had a really tough comp in 2025. They were up 10.3% last year. This is on the back of, you know, our recurring revenue model, where 3 extra days matters a lot in Q1 of 2025. Very high comps relative to prior year. I would say here in Q1, our marking and coding businesses grew core sales low single digits, right? That's on the back of a pretty healthy, you know, sizable comp prior year. We did see, you know, an offset here by delays in shipments of certain hardware lines in our packaging and color businesses, which we referred to earlier. Relative to sort of broad-based global CPG demand, we see it stable.

Speaker #1: The strength of Q1 and the way we are coming out in terms of the order books for out of the quarter into April. Second one is we're going to talk about the pricing.

Speaker #1: Pricing at the higher end, so that's kind of giving us the confidence as we're going to think about the full year EPS. And third, I would say, is really the execution that we are seeing across the board.

Speaker #1: All the businesses and across the region. So those are kind of really the things that are kind of driving. Otherwise, the demand patterns are pretty steady at this point.

Speaker #1: And given where we are now, with almost four months behind, it gives us more confidence on that front.

Speaker #2: Thank you very much.

Speaker #1: Thanks, Chris.

Speaker #12: Thanks for the questions. This is Ryan. That concludes our question queue for the call. We appreciate everybody's time and engagement this morning, and preparation with the earlier materials.

Speaker #12: As usual, I'll be available for any kind of follow-ups that might be necessary. But thank you so much for joining us. We'll talk to you next time.

Jennifer Honeycutt: We see it stable in Europe, we see it stable in North America. A little bit of a mixed bag in some of the high-growth markets, largely because of, you know, little bit of impact from obviously China, you know, India. You know, we got some timing issues and then certainly the impact of Middle East and Africa.

Speaker #2: Thank you again, ladies and gentlemen. This will conclude today's Veralto Corporation's first quarter 2026 earnings call. Again, thanks so much for joining us, everyone.

Josh Spector: Okay. No, that's helpful. I guess if I kind of flip that the other way, if I look later this year, you have 6% and 9% comps in North America in Q3 and Q4. Are those gonna be characterized as tough comps to go against, or should we expect you guys to be able to grow on that level later this year?

Sameer Ralhan: Yeah, as you're going to get into H2, you're going to see the growth despite the comps. In fact, yeah, I would say from the PQI perspective, the comps go a little easier as we get into Q4. Overall, given the demand dynamic that Jennifer just talked about on the marking and coding side, from the CPG side, we feel pretty good about H2, and that's kind of baked into the guidance. Nothing sort of a material deviation that you're going to see.

Josh Spector: All right. Thank you.

Sameer Ralhan: Thanks.

Ryan Taylor: We'll go next now to Joseph Giordano with TD Cowen.

[Analyst] (TD Cowen): Hi, good morning. This is Chris on for Joe. The EPS guide moved higher, even though you know the operational framework appears to be largely consistent. Could you walk us through the specific bridge items that are driving the revision, and how much of that is operational versus capital structure below the line? Thank you.

Sameer Ralhan: Thanks, Chris, for that question. Overall, as you kind of think about the increase in the EPS guide, it's predominantly raised because of the operating stuff. The share buyback that we have done so far is already kind of baked in. Overall, what's kind of driving this thing is really a few things. You know, the strength of Q1 and the way we're coming out in terms of the order books out of the quarter into April. Second one is we're gonna talk about the pricing at the higher end, that's kind of giving us the confidence as we kind of think about the full year EPS.

Sameer Ralhan: Third, I would say, is really the execution that we are seeing across the board in both the businesses and across the regions. Those are kind of really the things that are kind of driving. Otherwise, the demand patterns are pretty steady at this point. Given where we are now with almost 4 months behind, gives us more confidence on that front.

[Analyst] (TD Cowen): Thank you very much.

Sameer Ralhan: Thanks, Chris.

Ryan Taylor: Thanks for the questions. This is Ryan. That concludes our question queue for the call. We appreciate everybody's time and engagement this morning and preparation with the earlier materials. As usual, I'll be available for any kind of follow-ups that might be necessary. Thank you so much for joining us. We'll talk to you next time.

Operator: Thank you again, ladies and gentlemen. This will conclude today's Veralto Corporation's Q1 2026 earnings call. Thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.

Q1 2026 Veralto Corp Earnings Call

Request DemoDemo

Veralto

Earnings