EVERETT — Washington’s newest Fortune 500 company, Fortive is looking to grow — but only if it helps the bottom line in the long term.
“We’re very busy right now” evaluating potential acquisitions, Fortive President and Chief Executive James Lico told investment analysts and news media Tuesday.
However, company leaders won’t buy just for the sake of buying. They will stick to the same disciplined approach to growth they followed at Fortive’s predecessor, Danaher, he said.
Fortive was carved out of Danaher last year. The separation was only completed early last month. Like Danaher, Fortive is more akin to a holding company operating industry-leading businesses across several markets. Its focus is on professional instrumentation, automation, sensing and transportation technologies.
The new company posted $238.9 million in net earnings for the second quarter of the year. The earnings per share — $0.69 — beat expectations by $0.08, according to the Zacks Consensus Estimate survey of financial analysts.
That is a 5.1 percent increase over the same period in 2015. However, earnings were almost flat when adjusted to exclude non-recurring costs: $219.8 million in the second quarter compared to $218.9 for the same period in 2015.
“Overall, it was a balanced quarter,” said Jeff Windau, an analyst with Edward Jones. He rates Fortive stock as a hold, essentially a neutral view on its performance.
Fortive recorded $278 million in free cash flow, money that can be used to bankroll future growth and acquisitions. That is $16 million more than its businesses recorded during the same period in 2015, when they were still entirely part of Danaher.
Windau and others will be closely watching Fortive over the next few quarters to see if it can copy its parent’s success buying money-making businesses.
Analysts will want to see the company’s cash put to good use and in a way that emulates Danaher’s disciplined approach, Windau said. “It doesn’t have to be game-changing.”
Lico assured analysts that Fortive leaders will employ the approach they learned at Danaher, where he and his lieutenants spent years before being tapped to lead the spin off corporation.
Nonetheless, “as busy as we are, I would hope to get something done by the end of the year,” he said.
Fortive is looking at merger and acquisition opportunities around the world, though a significant number are in Europe, he said.
Brexit — the United Kingdom referendum to leave the European Union — could complicate closing deals in Europe, several analysts wrote in research notes to clients ahead of the earnings report.
Voters in the UK backed leaving the EU; however, when it happens and what it means for markets remains unclear.
“For Fortive, it’s something they can manage through,” Windau said.
The Brexit vote could help or hurt potential acquisitions. Regardless, the company’s focus in any deal is on the long-term numbers, rather than short-term conditions, Lico said. “We’re always strategy first, returns first.”
Fortive’s biggest unit, Everett-based Fluke Corp., saw a slight decline in the quarter due to less demand in North America for its measurement and control devices. The downturn was driven in part from the oil and gas industry, and it was partially offset by greater sales in Europe, he said.
The new company’s corporate offices are at Fluke’s campus in Everett.
Fortive had $1.555 billion in sales during the second quarter, slightly down from the same period in 2015. It expects modest revenue growth in the current quarter. It projects $0.56 to $0.60 adjusted net earnings per share for the third quarter, which ends Sep. 30., and $2.37 to $2.45 adjusted earnings per share for 2016.
The company’s share price dropped to $47.50 during trading before the earnings report, which came out after the New York Stock Exchange closed Tuesday.
It took about 25 businesses with it from Danaher. They had revenues of roughly $6.2 billion last year, enough to put Fortive on the Fortune 500 list. It is Washington’s eighth-largest publicly traded company behind Paccar and ahead of Expedia based on market capitalization, according to a Nasdaq listing.