Veralto raises full year EPS guidance to $3.82–$3.85 while highlighting data center growth and robust free cash flow

Earnings Call Insights: Veralto Corporation (VLTO) Q3 2025

MANAGEMENT VIEW

* Jennifer Honeycutt, President and CEO, highlighted "consistent growth through strong top line performance, disciplined operational execution and rigorous deployment of the Veralto Enterprise System." She noted mid-single-digit core sales growth, double-digit adjusted EPS growth, and over 100% free cash flow conversion for both the third quarter and year-to-date.
* Honeycutt stated, "Given the strength of our third quarter results, we raised our full year adjusted earnings per share guidance to a range of $3.82 to $3.85 per share, and we raised our full year free cash flow conversion guidance to approximately 100%." She identified acquisitions as the primary capital allocation focus and pointed to a strong pipeline in both Water Quality and PQI.
* Sameer Ralhan, Senior VP & CFO, said, "Total sales grew 6.9% on a year-over-year basis to $1.4 billion. Currency was 150 basis points or about a $20 million tailwind year-over-year. Acquisitions net of divestitures contributed 30 basis points of growth, primarily from TraceGains and AQUAFIDES. Core sales grew 5.1%, with both volume and price up year-over-year in both segments."

OUTLOOK

* For Q4, Ralhan indicated, "we are targeting total sales growth in the mid-single digits year-over-year. On a sequential basis, we expect total sales to be roughly in line with the third quarter, even with fewer shipping days. This assumes a year-over-year currency benefit of approximately 3% and core sales growth in the low single digits."
* Full-year 2025 core sales growth is expected to be mid-single digits for the total company, with approximately 5% core sales growth in each segment. Full year adjusted EPS guidance was raised to $3.82 to $3.85 per share.
* Free cash flow conversion guidance was also raised to approximately 100% of GAAP net income.

FINANCIAL RESULTS

* Consolidated Q3 sales reached $1.4 billion, with core sales growth of 5.1% and adjusted EPS of $0.99, $0.04 above the high end of the guidance range.
* Water Quality sales were $856 million, up 7% year-over-year, core sales grew 5.3%, and adjusted operating profit margin was 26.3%.
* PQI segment sales grew 6.9% to $548 million, core sales grew 4.6%, adjusted operating profit margin was 25.4%.
* Free cash flow for Q3 was $258 million, representing 108% conversion of net income. Net leverage stood at 0.7x.
* Recurring revenue comprised 62% of total sales.

Q&A

* Deane Dray, RBC Capital Markets: Asked about tariffs and pricing catch-up, and any impact from the government shutdown. Ralhan responded, "on the pricing front, we feel like we're in a good place to help offset the tariff -- any kind of a headwind." Honeycutt added, "we've really not seen any material impact" from government activity.
* Andrew Kaplowitz, Citi: Inquired about the durability of industrial-focused Water Quality strength and data center growth. Honeycutt responded, "Data centers for us continues to remain a strategic priority. We're seeing strong double-digit growth here from sales to both existing customers and new builds, mostly driven by the big 5 tech companies."
* Andrew Buscaglia, BNP Paribas: Asked about PQI North America trends and pull forward, and Water Quality margin sustainability. Honeycutt stated, "We really don't see any meaningful pull forward. We've had exceptionally strong commercial execution in our PQI businesses in North America, particularly from Videojet."
* John McNulty, BMO: Queried pricing trends in Water and capital deployment. Honeycutt noted strong price execution and balance between price and volume, expecting 100–200 basis points price contribution. Ralhan said, "Our intention is to deploy that capital to create long-term value...we are very actively looking at the number of opportunities, but we're going to stay disciplined."
* Jacob Levinson, Melius Research: Asked about data center content and TraceGains integration. Honeycutt expressed confidence in double-digit growth in data centers and noted TraceGains "growth rate greater than 20%, which has been in line with expectations."

SENTIMENT ANALYSIS

* Analysts focused on tariffs, pricing, data center opportunity, and margin sustainability, generally using a neutral to slightly positive tone. Questions demonstrated interest in growth drivers and margin recovery, with some pressing for clarity on tariffs and regional trends.
* Management maintained a confident tone in prepared remarks and Q&A, frequently referencing strong execution and expressing optimism about growth opportunities. Honeycutt and Ralhan provided detailed responses and reinforced guidance, using language such as "we feel very good" and "we are confident."
* Compared to the previous quarter, both analysts and management appeared similarly constructive, with recurring questions on tariffs and growth drivers but a slight uptick in confidence around data center opportunities and cash flow performance.

QUARTER-OVER-QUARTER COMPARISON

* Full-year adjusted EPS guidance was raised from $3.72–$3.80 to $3.82–$3.85.
* Core sales growth remained mid-single digits, with both quarters reporting broad-based growth across segments and regions. Q3 saw a slightly higher core sales growth (5.1% vs. 4.8%) and continued strength in Water Quality margins.
* PQI margins reflected ongoing tariff-related costs, but management indicated these impacts are being mitigated and should ease going into 2026.
* Cash flow and capital deployment discussions intensified, with management highlighting a strong cash position and an active M&A pipeline.
* Analyst focus remained on tariff mitigation, regional trends (notably China and North America), and data center vertical growth, with increased attention to recurring revenue and product launches.

RISKS AND CONCERNS

* Tariff-related cost pressures and supply chain adjustments, particularly in PQI, remain a key challenge; management is using strategic pricing, supply chain changes, and product line shifts for mitigation.
* Regional uncertainty, especially in China, was noted but described as steady with no meaningful changes in Q3.
* Three fewer shipping days in Q4 projected to impact core sales by more than 2.5% versus prior year.
* Analyst concerns included sustainability of Water Quality margins, the trajectory of PQI margin recovery, and capital deployment timing.

FINAL TAKEAWAY

Veralto’s third quarter highlighted robust core sales growth, record free cash flow conversion, and raised full-year EPS and cash flow guidance. Management emphasized confidence in offsetting tariff impacts, sustaining margin improvement, and capitalizing on secular growth drivers such as data centers. The company’s strong financial position enables continued disciplined investment, particularly in acquisitions, as it targets further market expansion and long-term shareholder value creation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/vlto/earnings/transcripts]

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