Fortive Corp (FTV) 2017 Q1 法說會逐字稿

Good day. My name is Camille, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's First Quarter 2017 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may now begin your conference.

Thank you, Camille. Good afternoon, everyone, and thank you for joining us on the call. With us today are Jim Lico, our President and Chief Executive Officer and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by SEC Regulation G relating to these non-GAAP financial measures are available on Investors section of our website, www.fortive.com, under the heading Financial Information.

A replay of the webcast will be archived on the Investors section of our website later today, under the heading Events and Presentations and will remain archived until our next quarterly call. A replay of the conference call will be available shortly after the conclusion of this call until Thursday, May 4, 2017. Once available, the link to this conference replay will be posted under the Investors section of Fortive website under Events and Presentations.

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 are year-over-year. 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, and actual results might differ materially from any forward-looking statements that we make today.

Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2016, filed on February 28, 2017. 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.

With that, I'd like to turn the call over to Jim.

Thanks, Lisa, and good afternoon everyone. We are pleased with our performance as we began our first full year at Fortive. We had a strong start in 2017 by delivering mid-teens adjusted earnings growth, above the high end of our guidance and mid-single digit core revenue growth. All six of our strategic platforms grew core sales reflecting strong volume, gains in market share, and accelerated performance in high growth markets.

Through the successful deployment of the Fortive business system for the third consecutive quarter, we were able to once again deliver above market revenue growth, margin expansion and solid free cash flow. We are committed to creating sustainable long-term value for both our customers and shareholders. Our culture of continuous improvement, disciplined capital deployment and secular growth drivers give us confidence in our future and expectation of continued outperformance in 2017.

During the first quarter, we held our first annual Leadership Conference and rallied our team around Fortive's shared purpose, essential technology for the people who accelerate progress. Our top global leaders gathered to review our 2016 performance, benchmark FBS best practices, and communicate our priorities for 2017 and beyond. We recognize Gilbarco Veeder Root, Qualitrol and Matco as our top core growth companies.

Fluke was recognized with our leading innovation award. And finally, Qualitrol was honored with our CBD award, which is given to the company that demonstrates the greatest achievement across our core value metrics. The conference again demonstrated to me the power of FBS and culture, the energy around our values, and our team's strong belief in our future.

With that, I'd like to turn to the details of the quarter. Adjusted net earnings of $209.4 million were up 15.1% over the prior year. Adjusted diluted net earnings per share were $0.60 based on an effective tax rate of 26.7% for the quarter. Sales grew 4.1% to $1.5 billion, reflecting a core revenue increase of 4.9% as all our platforms posted core growth. Acquisitions contributed 20 basis points of growth during the first quarter, partially offset by a 100 basis points of unfavorable currency translation due to the strength of the US dollar.

Geographically, developed markets grew core revenue low single digits reflecting continued strength in Western Europe and stable demand in North America. North American growth of low single digits reflected strong performance at Gilbarco Veeder Root and Matco which was somewhat offset by Jacobs Vehicle Systems. We continue to outperform in Western Europe posting high single-digit growth as continued market share gains were realized across both professional instrumentation and industrial technologies segments.

High growth markets accelerated to low double-digit core revenue growth in the quarter with strength across Asia. Double-digit growth in China was driven by Tektronix, Qualitrol and Kollmorgen. India also grew revenue double digits, primarily reflecting Gilbarco Veeder Root tender wins. And in the Middle East and Africa regions Fluke drove high single-digit core revenue growth.

Gross margin was 48.5%, reflecting a 140 basis points of expansion over the prior year, with five out of our six platforms expanding gross margin. Along with the restructuring initiatives undertaken in 2016, our gross margin expansion has enabled us to continue to invest in new product development and sales and marketing. Operating profit margin was 19.2%, with core operating margin expansion of 160 basis points, driven by volume and margin fall-through. We were able to deliver continued margin expansion through targeted application of FBS tools across our businesses and supply chain to drive increased productivity.

During the first quarter, we generated approximately $121 million of free cash flow and delivered a conversion ratio of 61%, which is consistent with expected seasonality. For the full year, we continue to believe that our free cash flow ratio will be greater than 100%.

Turning to our segments. Professional instrumentation posted sales growth of 2.7%, comprised of 4.6% core revenue growth, offset by a 120 basis points currency headwind and 70 basis points due primarily to the separation from Danaher. Professional instrumentation delivered 22.1% operating margins, with 160 basis points expansion of core operating margin, reflecting favorable volume and amortization, partially offset by 40 basis points of diluted operating margin associated with acquisitions.

Advanced instrumentation and solutions' core revenue increased mid-single digits during the quarter, with similar performance in both field solutions and product realization. Field solutions' core revenue was up mid-single digits in the quarter with both Fluke and Qualitrol posting strong core revenue growth. Fluke's mid single-digit core growth results were led by high single-digit growth at Fluke Industrial, which is the largest Fluke product line consisting of our handheld instrumentation.

Regionally, performance was strongest in Western Europe with high single-digit core revenue growth driven by market share gains in the improving macro environment. While small today, the Fluke Solutions Group grew double digits as eMaint continues to deliver strong growth. Both eMaint and Fluke Condition Monitoring took top honors in the Plant Engineering 2016 Product of the Year awards in the maintenance software and maintenance tools and equipment categories respectively. The Fluke team continues to introduce the Fluke Connect digital platform and we will be unveiling our new brand and go-to-market strategies throughout May during a series of customer events across the US. You'll see much of this at our Investor Day in May where we will talk more broadly about our digital strategy in the Industrial Internet of Things.

While our digital presence is important in Fluke, I'd like to highlight ongoing innovation focused on building out the [contractors' tool bell]. In our networks product line, Fluke released the DSX-8000 CableAnalyzer, which is the industry's first Category 8 field tester. The DSX-8000 significantly reduces the cost of copper certification for Datacom infrastructure contractors and data center network engineers. The Fluke Network's team set up in a wareroom incorporated FBS tools, including speed design review and lean software development into their innovation process to significantly reduce time to market.

Qualitrol delivered mid single-digit growth and posted strong growth in China from project wins across several of its product lines. Qualitrol Solutions for electric grid assets have embraced data centric solutions, leveraging its broad portfolio of sensors. As the need for grid reliability evolves, Qualitrol is incorporating data analytics in smart sub-enterprise condition monitoring software to expand their value proposition to customers.

Moving to product realization, the platform core revenues were up high-single digits for the quarter, led by low double-digit growth in Tektronix. We are encouraged by Tektronix's continued performance in high-growth markets. Tektronix has driven strong performance in the high-growth markets through the application of FBS growth tools. The team has utilized transformative marketing processes to identify micro segments that present strong share gain opportunities. Focusing on these targeted areas, the team has used the FBS tool -- growth tool set to develop persona-based campaigns that successfully generate leads and improve win rates.

Tektronix saw the third consecutive quarter of double-digit growth in its Keithley product line. Keithley's growth has been driven primarily by 3D sensing and consumer electronics, where our product is integrated into the production line to test LED, laser diode and flat panel display. This is another example of how our business is providing central technology to accelerate customer innovation and bring next generation products to market.

On the new product front, Tektronix introduced the industry's first 32-gigabit per second protocol where bit error rate tester analysis system. The new BSX series BERTScope delivers unique visibility into the underlying root cause of physical layer issues by capturing the exact location and timing of bit errors. The primary applications of the BSX series target the fast-growing data center market.

Our sensing technology platform saw mid-single digit core revenue growth in the quarter. The team continues to execute on the NAVSEA project and recently secured the second order associated with this important project for the US Navy. Anderson, Gems and Setra, all benefited from general improvements in their key verticals, including food and beverage, HVAC and industrial.

Moving to our industrial technology segment, revenue grew 5.4%. Core revenue growth was 5.1% for the quarter with acquisitions contributing an additional 110 basis points of growth offset by unfavorable currency of 80 basis points. Both reported and core operating profit margin increased 180 basis points from Q1 2016, driven by Gilbarco Veeder-Root volume, more than 250 basis points of margin expansion in Kollmorgen, and improved productivity across the platforms.

Our transportation technologies platform posted mid-single digit growth in the quarter with Gilbarco Veeder-Root delivering high-single digit core revenue growth. The performance at Gilbarco Veeder-Root reflected our double-digit growth in Western Europe and our expectations for low double-digit growth in North America. The outperformance in Western Europe was due to large orders in the UK and Germany. The strong growth in North America was driven by an increase in Outdoor EMV-related demand from both dispenser and payment kits. Global dispenser sales were up double digits, reflecting the strength of our product offering around the world.

Further demonstrating our market-leading technologies, Timewise c-stores partnered exclusively with Gilbarco Veeder-Root for both point-of-sale or indoor and dispensers outdoor to deliver EMV capability to their 400 sites. Telematics realized core growth of low-single digits in the quarter with mid-single digit growth outside the US. This is part of our restructuring actions taken last quarter, Telematics realigned the US sales and marketing teams in order to better position the Company for long-term success. As a result, we expect to see improved growth in the second half of the year in the US.

Automation and specialty posted low-single digit core revenue growth in the quarter. Automation growth of mid-single digits was offset by a core revenue decline of Jacobs Vehicle Systems, which is still challenged by the North American heavy truck market. Within Automation, Kollmorgen and Thomson both grew core revenue mid-single digits, reflecting increased demand in generally stable end markets. Thomson's growth was broad based across its key verticals with most of the growth driven by medical equipment in off-highway vehicles. Kollmorgen's continued growth reflects increased demand in high-growth market and success globally in the robotics medical equipment and semiconductor verticals.

Moving to franchise distribution, the platform posted mid-single digit growth for the quarter with Matco posting core revenue growth in mid-single digits, aided by the Matco Expo, which saw record attendance. The Expo provides Matco franchisees with an opportunity to see the latest innovation, attend training sessions and place orders to further grow their businesses. This year, the team introduced its new line of tool storage equipment [Reval] which is another key innovation milestone achieved by the Matco team. In addition to strong core revenue growth in tool storage this quarter, Matco also delivered strong double-digit growth in diagnostic.

To wrap up, we had a strong start to the year as we continued our momentum from the second half of 2016. We are well positioned for acquisitions and growth investments due to our current business strength and market-leading positions. The Fortive business system is the driving force behind our success today and tomorrow. We are confident in our organic and inorganic opportunities and expect to continue to outperform as we are advantaged by multiple secular growth drivers. We look forward to explaining our growth playbook and outlook in more detail at our first Investor Day on May 18 in New York.

We are raising our full year 2017 adjusted diluted net EPS guidance to $2.68 to $2.78, which includes assumptions for low to mid single-digit core revenue growth. We continue to anticipate core margin expansion in excess of 50 basis points and are lowering our expected effective tax rate of 28% to a rate of 27% for the year. We are also initiating our second quarter adjusted diluted net EPS guidance of $0.65 to $0.69, which includes assumptions of mid single digit core revenue growth and an effective tax rate of 27%.

With that I'd like to turn it over to Lisa.

Thank you, Jim. That concludes our formal comments. Camille, we are now ready for questions.

(Operator Instructions) Scott Davis, Barclays.

It's going be late evening for us I think, but in professional instrumentation and everything sounded so good. I have to ask a question what wasn't good, what was slow, or what kind of fell below your expectations, if I may ask it from that angle?

Yes, I think you're right. We were really pleased with what we saw around the horn there, Scott. I think probably if we were to say one place, probably North America as a region would have been maybe not as strong as some of the other parts of the world. We mentioned in the prepared remarks some of the strength in Western Europe. That was certainly true at Fluke and at Tek, our two largest businesses within the segment. So on balance, I would say North America, we'd like to see a little bit more of improvement in North America as we see the rest of the year play out.

For your products as sell-through distribution, I assume that I can't remember what percentage of Fluke sells through distribution, but was any part of the snapback that you've seen you think related to some increased confidence out there and some inventory restock at some of the distribution level and get a sense of if the sell-through was equivalent?

Yes, so we see about -- I think Fluke's business in channels is in the 75% or more range. So they've -- and they have pretty good visibility in terms of inventory positions. Tek does as well number of our other businesses, specifically around Fluke where we get the best clarity of data. And really in professional instrumentation, we really did not see inventory build within the channel. So we saw through the quarter, point of sale get a little bit better, but we didn't see any subsequent addition of orders beyond that that would have set our inventory positions for anything more, but relatively flat through the quarter.

Okay. Fair enough. I will pass on to the other guys. Thanks, guys and good luck.

Thanks, Scott.

Thanks, Scott.

Steve Tusa, JPMorgan.

So just on the kind of organic trajectory over the course of the rest of the year, obviously good start at around 5% this quarter. You're saying in the second half it's going to kind of go to low single digits. Can you maybe talk about obviously you have the EMV thing out there that everybody is aware of, but what about the other businesses? Is there anything in there that is going to swing around from the current rate of growth to either better or worse from first half to second half year-over-year?

This is Chuck. The main thing you're seeing in our guide is that the second half of last year was really strong for us at 3% in the second half. So you're looking at moderating what is off to a really good start in the first half, that's the main thing that's happening.

Steve, just as we said, I think it's really true from several months ago is that Gilbarco's view of what EMV will be like in the second half, we still think we'll get better visibility of that in the summer time, and that's some potential upside probably to where we're at right now.

So there are some potential upside to where you are.

Yes, we would think that more upside than downside at this point. And obviously it's still early in the year. There's probably some -- we're probably hedging a little bit on what's going on in places like high growth markets where we've been really strong and even if that's tampered a little bit, we still be in a very good shape in high-growth markets in the second half.

And what was G&A, up in the quarter or down?

I think it's down sequentially. There is a little bit of timing there, but we're just -- if you're talking about the corporate overhead or (multiple speakers)?

The G&A portion of SG&A.

It's flat from last year.

Okay. Percentage of sales or absolute?

Both, I think. It's down a little bit as a percentage of sales and I think we're flattish from last year.

Okay. That makes sense. And one last one, the acquisition pipeline, I know it's kind of a generic and you can probably answer that -- you probably answered in a very generic way, what's the pipeline looking like and is there anything that's kind of percolating here?

I think, the tone I had in the first quarter was similar to how I'd be right now. I feel very confident. We'll get some deals done in the year. We certainly been busy and active and all the good words around that. We've seen some things transacted at some pricier areas. But I think as we look at the funnel, we really believe strongly that the funnel contains a lot of opportunity that would give us the returns that we suggested within the realms of how we think about deals. So we feel bullish on the year and haven't done this for a long time, you never know, you never -- always work on timing, but I feel strongly we'll get some -- we will get a few things done in the year for sure.

Nigel Coe, Morgan Stanley.

So obviously a nice quarter from Tektronix. I think this is the first -- we haven't seen too many quarters of high single-digit growth over the last five years. So, I was just wondering we've seen semi and electronic strengths with other companies. So I'm wondering if this is just a function of surge in demand from those sectors or whether there's something intrinsic to Tektronix, maybe some new products or some commercial resources that might have driven that and maybe an update on the new platform launch in the second half of the year.

I would definitely think that some of what we're seeing is better market. So I wouldn't in any way, shape or form suggest you, Nigel, that that's not it. I do think though we've done some nice things around making our own luck. We talked a little bit in our prepared remarks of the good FBS work that the team is doing with growth tools and you really see that in China. We're clearly outgrowing the market in China. We're doing a really good job. They're high growth markets. Sales were very good and that has a lot to do with the Keithley business, which is certainly semiconductor related, but it's also share gain related within semiconductor. So those are probably two places that I'd highlight that are a little bit better than above market opportunity. And we still think that the opportunity for North America much of that resides in the new platform. So as we launch the new platform, we think that that will give us some opportunity in the second half in North America. We are on track with that launch. I mentioned in the prepared remarks about some other innovations, but we're on track with the new Scope launch, we think we're in a good place and that will have some impact in the second half and certainly put us in position for 2018.

Great. And secondly maybe for Chuck, the free cash flow we saw a significant build in working capital. I'm assuming -- obviously with stronger sales that's natural, but is that because we saw more of a demand skew towards the back end of the quarter?

No, I think that's actually this is what you should expect for us going forward. This is right in the zone to get us to the 100% to 105% conversion ratio we've been talking about. When we looked at the trailing 12 and took out the tailwinds for amortization, we're right on 105% there. So, I think we pay out our ICP in Q1 and there are some other timing payments and I think that's really what you should expect to see going forward.

And then you've just mentioned, Chuck, the intangibles. We saw a big drop off in PI, what was that driven by?

10 years ago, when we bought Tektronix.

Yes, of course you did. Okay, thanks.

Julian Mitchell, Credit Suisse.

This is actually Lee Sandquist on for Julian Mitchell. It looks like we're already seeing some savings from the Q4 restructuring actions. Is this program ahead of plan and what's your expectation regarding the cadence of savings over the next three quarters?

I don't know whether it would be ahead of plan, but anytime we do restructuring, we expect returns within the year and I think that's what you're seeing in part. But we also have a -- we have good margin fall through and that's not all from restructuring, but I'd say, we're right on track where we expect it to be.

I'll just add that, the nice thing about the gross margin is, we really saw really strong FBS work that had been done at places like our automation business in Gilbarco, where they've been really working hard to be able to deliver more revenue without a lot more investments. I think it's just that you see there is really strong benefits of what we can do with -- when we have more volume, we don't add capital, we do it much more productively, and so you see a little bit of revenue go along, it goes a long way. And really, those businesses in particular have done a really nice job.

And pricing in IT was flat this quarter after 50 bps of pressure in Q4, some peers have discussed price increases in the retail fueling market recently. So can you just talk about the pricing dynamics in the retail fueling market, and how those might have changed from the last couple of months?

I think that the -- in Gilbarco, we saw some of our bigger deals. As we bundle that, it drove down the average price. I think as we look forward, it has moderated somewhat. As we look forward, we expect to return to -- attain our normal pricing as we go forward in the year.

Jeffrey Sprague, Vertical Research Partners.

Just a couple of quick ones from me. Jim, I was wondering if you were willing to kind of lift the veil a little bit on Fluke Connect, what we might be hearing in the next month or so, in terms of size or SKU count you might be launching or the breadth of the rollout, and we expect it to have a measurable impact on your organic revenues this year?

Hi, Jeff. I think what we were doing in May is, we're really doing a multiple city tour with what the email and Fluke Connect solutions will all be unveiling our new brand. We've got some branding that we're doing there, we're unveiling some go-to-market, and some integration that we're doing with those businesses to make customer solutions look better. So I think that's what you'll see.

The sort of continued evolution of innovation is, it's just going to continue at the same pace, more connected devices continuing to come out to just make sure that the upgrade cycle within the portfolio continues. I think what you'll see in the Investor Conference is really that sort of [whole claw] strategy playing out in a way that really makes sense. We are really pleased with the email work and the team there and everything going on, it's still small business, but accelerating well. Fluke Connect is really a 2018 story with the recurring revenue model the way it is. It takes a little while to ramp up.

And again, as I mentioned, I would say we are continuing to see those things happen a little slower than what we anticipated. I mentioned that in the first -- in the January call and that's really been -- that's really continued. So funnel is building well, but it's going to take a little while to ramp that up to a way to really impact the organic growth of Fluke.

And then just on the West Europe you called that out actually for a couple of businesses, do you think that was idiosyncratic to something we're doing in the market, or is there kind of a genuine pickup up going on there?

Well, I haven't watched others sort of talk about Western Europe too. I would -- I'm bound to say that the market there is a little bit better. The breadth of the strength that we're having would probably indicate that as well. But we're doing a lot of good things, making our own lock, I certainly like to work as an example. We mentioned the tender wins at Gilbarco.

Kollmorgen really, their story is really a robotic story. The work that they've been doing with several of the large European robotic OEMs has been really fantastic and they're doing a great job there. Thomson, a little bit of the same. So those are just a few examples. We called those guys out in the prepared remarks. Fluke and Tek had good quarters too. I think some of that's market, but also some of that is the work they're doing, particularly with channel partners to really engage with their marketing efforts to build their portfolio, if you will. And I just think in balance we're in a good place. And that's why I said, I think by and large I have been saying, hey, maybe at low single digits in Western Europe I really think for 2017, we're probably more mid-single digits in Western Europe for the year.

John Inch, Deutsche Bank.

Jim, you said -- in response to the M&A question, you said have to get a few things done, plural, not thing. Is there something to read into that, like more smaller versus one bigger?

Well, I think the breadth of the -- thanks, parsing my -- getting my words right and you did get them right. I did say things. I think it's a funnel comment, John, to be honest with you. I think we definitely see the breadth of the funnel pretty good and I do think that as we laid out the small, medium and large, how we think about it with large being over $500 million of capital deployed, medium being in that under $500 million to kind of $100 million, and then I think under $100 million being small, we see a number of things within all those categories. So we feel good that we'll get some things done. And hopefully, we'll be able to talk about it more in proper names rather than as things. And I think as we get later in the year that will certainly be true.

Can we talk about -- thanks for that. Can we talk about Tektronix for a second? So I think you said high single-digit growth which is obviously much better, right. The question I'm wondering, I'm assuming that China was much more rapidly growing than that. As you're rolling out this sort of software back bone, are US customers kind of holding back, such that when these new product launches are pending, because obviously customers must know this stuff is coming, you're going to actually see Tektronix kind of on a collective assuming China holds, pick up its growth pace meaningfully in the second half or in the coming quarters, is that possible?

Yes, a couple of things. One, we've actually had Tek at double-digit for the quarter. And so, they were strong and they were good in developed markets as well as high-growth markets. It was just that Europe was much better. I think what we'll see at Tek through the year is the new platform just happens to be less a software platform than really a hardware platform. And it really will be oriented towards customers where we tend to have a little bit -- we have more customers in North America than we do elsewhere in the world. So it just tends to be more oriented that way. So I really don't think it's a holdback situation as much as it's just an orientation of solutions.

And then I think on the high-growth market success it does have to do a little bit with the mix of semiconductor customers to some extent being in those parts of the world. I mentioned that on a previous question and so our success at both Keithley and within the core Tek portfolio really suggests that we're seeing good strength with several verticals, but that being one of them and it tends to be more Asia-based. So I wouldn't read too much into that mix, but I do think that just to come back to your original question, I don't think we're seeing much holdback. I just think things have been a little bit slower to come back in the US with the kind of customers we have in the US.

I just want to press you on that a little bit. I guess I'm not completely clear. You've telegraphed pretty widely, right, these new product launches and so forth. Why would customers be buying now if they're going to -- why not just wait for new products coming in the US in a few months, I guess that's my point. You're suggesting that's not happening, so I'm just curious as to why?

Yes, I think we have a broad portfolio. I think one of the things we made clear, it's not where the platform necessarily is within the various price points and segments. So we don't get to the embargo date here for a little bit. And so, from a customer perspective, they just know something is new from Tektronix. They don't necessarily know where. And so if people have a need right now, they tend to buy on need rather than buy ahead kind of thing. So, I think -- that's why I don't think we're necessarily seeing much holdback at this point.

Then just based overall on Company trends and the growth rates you saw I guess again in China and US, you expect things and realize what your guide is, but all else equal, is there any sort of reason that things may, I don't know, not play out on kind of a continuing improvement type of trajectory? That makes any sense, like, I guess, you could say (multiple speakers) April or your order book, or anything like that?

I think things so far have held in. So I think from that standpoint, we were just kind of thinking about real time, but more than anything I think it's -- as we look at three quarters in a row of growth rates in and around the same number, we can't have a guide out there to think, obviously, we said the second quarter will be at mid-single digits, and that's better.

I think the thought around the second half is really the Gilbarco situation as we indicated. And also just there is an unknown, if we just, it is early in the year. I think we've been trained early and as we said in the first quarter. So always sort of, let the facts kind of give us a better sense of where reality will be. A year ago, we weren't sure, the second half ended up being better than we thought. So I think that's how, that's just what we're thinking.

I think if I were to just, maybe just go back to what I said before, our high-growth markets have been really strong and I guess maybe, maybe a more -- a case that might be a little bit more negative would be that -- I think slowdown a little bit more there. That would still be good performance for us, but it would be a little bit less than where we're at right now.

Deane Dray, RBC.

Jim, I was hoping if you could comment on the initiative to place more of your instruments in inline testing. You called out Keithley, but I know there's other applications of Fluke and how big of an initiative this is and this is all tied to more manufacturing automation.

I would call it more a -- we're not going to like that. Hopefully, we're going to get this -- we're losing this feedback here.

Sounds fine from this end.

oh, it does. Okay, so we're just getting the feedback. So I'm just going to talk.

It sounds fine.

Okay. We really don't have a big initiative on inline testing as you indicated. Keithley tends to be a little bit more oriented towards inline testing, they have a little bit more production test, Tek has a little bit more. But I'm balancing, we don't have a major initiatives in inline testing, it's just that the good innovation work we've done is resulting in some good results for the quarter, and quite frankly, for the year.

You are just not focusing on because we're hearing and seeing more manufacturers put online testing. Is it because your instruments are either more benchtop or handheld?

Well, I think certainly, we've tended to be in the, we've tended to -- Tek is an example, we've tended to stay away from large-scale manufacturing test applications. So that's just -- that's something we've just intentionally done over the -- as Chuck mentioned, the 10 years we were in Tektronix.

In Fluke, we have moved towards some inline sensors and Fluke Connect is really an example of that, where we have semi-fixed sensors that allow for the solution. So in that case, we actually do have some inline sensing, where we think it makes sense relative to the workflow that exists with Fluke. So beyond that, it's really a company-by-company situation, but our mission in Fluke is not really being a broad-based, necessarily sensor player as much as it is to really give the technician and the maintenance person more tools to arm them with their ability to troubleshoot and diagnose problems.

Great, that's helpful. And for Chuck, can you just remind us total balance sheet capacity for M&A at this time?

So what we've been talking about is being able to deploy over $3 billion in the next two-and-a-half years, and I think that's still a good number.

Because I noticed that your Euro-denominated CP right now is at a negative interest rate.

Yes, we did.

How much more of that do you want to do?

We're very happy with that program and to the extent that we expand it and those rates stay there, we are incented to do so.

Good to hear. Thank you.

Andrew Kaplowitz, Citi.

Just want to follow up on core margin for a second. I think last quarter you had a high-single digit growth in that business year-over-year and I think this quarter mid-single digit, but you did talk about the penetration into robotics. I mean we know it's a very strong growth market right now, up very significantly. So, maybe give us a little more color on Kollmorgen, sort of what do you think for the year, and is there any other part of that business that's a little slower because I would think that that business could accelerate versus decelerate?

Well, I think you're exactly right. We've had several good strong quarters at Kollmorgen over the last several quarters. I would think about it this way. We've done a nice job in collaborative robotics in a number of customers as I mentioned on a previous question. We've continued to move around some opportunities in what we would call mobile robotics, which really is in warehousing and really is what we used to call our AGV business, which is really now mobile robotics business as robots become more pervasive in warehouses and things like that. Those are clearly opportunities and we think it will -- it gives us the continued ability to grow the business.

We're working up a little bit easier comp in the first quarter. So we're a little higher this quarter, but we think there is certainly growth there. Of course, that's a business that tends to, you win it, you have a design win and then it plays out over time, so it's a little bit longer-cycle business. So we think we're in a good position here for the next several quarters and we'll see how the continued design win come and also how our customers' volume goes, because obviously we also need our customers to be using some of those products more often in order for the business to grow. So we're very comfortable with the growth rate right now. As I said, this first quarter is a little bit higher than normal, but we think we'll see good growth this year.

And then I want to ask you about JBS, you mentioned it's still modestly declining. I would imagine you do have the easier comparisons in that business as the year goes on and I think the heavy truck market has shown signs of improvement. So can that business turn here as we go throughout the year, what's your expectations for JBS?

We certainly in the first quarter are working up a pretty tough comp. We've got a great business in China there that's continued to perform, but we still see -- as far as we can see right now, we were hearing and listening to what market players are suggesting that things might get better through the year. I think that's probably the case that's going to occur. We haven't necessarily seen all that in the order book. So we'll still see some challenges here over the next few quarters.

Patrick Newton, Stifel.

I guess the first question is just on Tektronix, asking another question, I guess, on your new platform release for the second half. Could you tease us with any performance metrics or features that could make the platform disruptive in the market and are we right to think that this is also a end market expansion where you'll have an opportunity to target more automotive and embedded opportunities?

Pat Byrne, the President of Tektronix would probably kill me if I gave too much more way on the new platform until we launch it. So I'll let Pat do that once the embargo occurs. But I do think it is an opportunity for us to solidify some current market positions and also add some applications that we've not historically done as well and I think that's what we're excited about.

It's worth a try. And I guess, Chuck, one for you is that obviously the tax plan discussed by the Whitehouse earlier this week, I'm curious that if this passed in its current form or something similar to it, does it change the way that Fortive looks at M&A opportunities on a global basis or how you think about the sizing of deals?

I don't think it changes anything about where we would look, what we think they would cost or the value we see. To us it might change that equation, but probably change it for everybody. We'll wait and see if anything comes of the one page that came out, I guess, yesterday. Long way to go. But every scenario I see is accretive to us and so I hope they do get something done.

Great. Thanks for taking my questions. Good luck.

Thanks.

Brian Drab, William Blair.

I just have one question left in my list at the moment. Heading into the separation with Danaher, you said that you thought that the EMV opportunity could add about 100 basis points to growth on a consolidated basis per year. Just wondering if you look at what that's contributing, was that more than 100 basis points in this quarter and what you expect for this year on a full-year basis?

Yes, I think when we suggested that it was certainly with the idea that the deadline would be in 2017. So from that standpoint, with the push-out, we're probably filling that 100 basis points. But in any one quarter, it's kind of hard to nail down exactly what the number was. I would suggest that probably in this quarter, we're probably pretty close to that, maybe a little bit better than that, but probably in and around 100 basis points, I think.

I have looked at it and we go back to maybe where before the ramp started and it's been three years and we're up about 300 basis points over that three-year timeframe. As Jim said, there is just some ebbs and flows in that, but we think we're right on track with that. Second half maybe puts a little pause in that. And the longer timeframe, I think -- we think it's a net positive that maybe flattens off the peak there, but we think the sizing of it as we originally envisioned it, while maybe a little longer timeframe, is still pretty accurate.

Joe Giordano, Cowen & Company.

Thank for taking my questions. On the guide for the full year, so it seems like most of the incremental bump here is in the second half where you're expecting a bit of a deceleration on the organic off some tougher comps. So what specifically kind of was incremental, I guess, on the cost side that's driving that?

First of all, I think that the -- it's pretty evenly split, not balanced in the second half of the year on the take-up, since we just beaten in Q1. It's evenly split between the tax rate coming down to 27% and also then seeing some strengthening and raising our outlook slightly over the whole year, but it's pretty balanced by quarter. And I'd say it's really $0.04 for the year, $0.01 a quarter for volume and $0.01 for tax.

I guess, I'll shift a little bit to auto. I know you guys placed, in a very specific way, with Matco and stuff, but I know that that's an area that people are a bit more concerned about generally speaking. What are you seeing, what your customer saying there? Are they a little bit more nervous about production rates or anything more recently than they were maybe three months, six months ago?

Yes. So I think the way we think about the auto industry is mostly at Matco -- when we just think about pure vehicles, we're really -- obviously Matco plays into the maintenance and dealerships and maintenance shops. And really they don't really care if it's a new car or an old car, it's really about the size of the fleet. To some extent, people are holding on to their cars longer.

That's actually helped Matco. So I think we don't get a lot of visibility to the new car production, whether that's 17 million US car number, 16 million number. We're sort of out of the realm of that. It doesn't really doesn't affect us that much Joe. So, I think we really think about the total vehicle population and the complexity of those vehicles and the changes in those vehicles. As long as there is more complex vehicles that are harder to repair, actually those are good trends for Matco. Relative to the (multiple speakers) it's pretty small.

I really appreciate that. I mean, I know that they don't really care specifically about it, but I was wondering if, maybe you've been hearing -- if you guys were just shop talking around where things might be going, but it's (multiple speakers)?

I wish we had a year to the railroad like that, but we really don't.

That does conclude our question-and-answer session. I'll turn the call back over to our speakers for closing remarks.

Thank you, Camille, and thank you everyone for joining us today. We look forward to seeing you in May at our first Investor Day. And if you have any questions for Josh and myself, look forward to those as well. Thank you.

Once again, that does conclude today's call. We appreciate your participation.