VLTO · Q3 2025 Earnings

Cautious

Veralto

Reported October 28, 2025

30-second summary

Veralto beat its Q3 EPS guide by 4 cents ($0.99 vs. $0.91–$0.95 high end) and raised FY2025 non-GAAP EPS to $3.82–$3.85 from $3.72–$3.80, the second consecutive quarterly raise. But the FY adjusted operating margin expansion ceiling was trimmed by 25bps (flat to +50bps → flat to +25bps) and Q4 core sales were guided to low-single-digits, a step down from Q3's 5.1% pace. The cushion management built into the Q2 raise is being consumed by tariff pass-through costs at PQI, and the back-end-loaded margin recovery thesis is slipping into 2026.

Headline numbers

EPS

Q3 FY2025

$0.99

Revenue

Q3 FY2025

$1.40B

+6.9% YoY

Gross margin

Q3 FY2025

60.1%

Free cash flow

Q3 FY2025

$0.26B

Operating margin

Q3 FY2025

23.2%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$1.40B	+6.9%	$1.37B	+2.4%
EPS	$0.99	—	$0.93	+6.5%
Gross margin	60.1%	—	59.9%	+20bps
Operating margin	23.2%	—	22.8%	+40bps
Free cash flow	$0.26B	—	$0.32B	-20.1%

Guidance

Veralto raised full-year FY2025 EPS guidance and improved free cash flow conversion, but trimmed operating margin expansion range and guided Q4 to decelerating low-single-digit core sales growth.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Adjusted EPS	Q3 FY2025	$0.91 to $0.95	$0.99	+$0.04 above high end of guide	Beat
Core Sales Growth	Q3 FY2025	mid-single-digits YoY	5.1%	in-line with mid-single-digit range	Beat

New guidance

Metric	Period	Guide	YoY
Adjusted EPS	Q4 FY2025	$0.95 to $0.98	—
Core Sales Growth	Q4 FY2025	low-single-digits YoY	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Adjusted EPS	FY2025	$3.72 to $3.80	$3.82 to $3.85	+$0.02 to +$0.13 at range endpoints	Raised
Adjusted Operating Profit Margin Expansion	FY2025	flat to +50 basis points YoY	flat to +25 basis points YoY	-25 basis points at high end	Lowered
Free Cash Flow Conversion Ratio	FY2025	90% to 100%	approximately 100%	narrowed range, raised to ~100%	Raised

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
Core Sales Growth	5.1%
Non-GAAP Adjusted Operating Profit Margin	23.9%
Operating Cash Flow	$270 million
Free Cash Flow	$258 million

Management tone

Q1 anchor: tariff uncertainty → Q2 anchor: tariff neutralized, raise wrapped in "prudent" → Q3 anchor: tariff offset working, but margin ceiling trimmed and Q4 deceleration guided.

The Q2 brief flagged that management was preserving narrative cushion — raising EPS by 12 cents while maintaining the flat-to-+50bps margin range and keeping the "prudent" hedge. Q3 confirms the cushion was real and is now being consumed. FY EPS goes up another $0.075 at the midpoint, but the margin ceiling drops 25bps and Q4 core growth steps down to low-single-digits. The forward-leaning "meaningfully better Q4 margins" phrasing from Q2 is absent; the new framing pushes durable margin expansion (25–50bps OMM via 30–35% incremental fall-through) into 2026 once tariffs lap in Q2.

The data center narrative tightened materially. In Q2 it was "small but rapidly growing" with no sizing; this quarter management confirmed double-digit growth and articulated multiple touch points (water/power reduction, corrosion/scaling/biological uptime), while still declining to give a revenue percentage. The narrative is being staged for a 2026 reveal rather than rushed to quantification.

Demand language softened from Q2's "successful pricing actions" tone to "customer demand across our key end markets was as expected in the third quarter" — a flat, reactive phrasing that matches the Q4 deceleration guide. Notably absent from this print is the explicit tariff-and-FX guidance commentary that anchored Q2; management is reducing macro forward color, likely because the volatility is making point estimates costly.

Q&A highlights

Andy Kapowitz · Citi

Asked about durability of industrial water quality strength into 2026, sizing of data center business, and whether PQI margin guidance lowering was tariff-related or growth investments, with expectations for margin recovery into 2026.

Management confirmed data center business is strategic priority with double-digit growth across AI value chain (chip manufacturing, power generation, mining). Stated smaller portion of business but substantial runway. Confirmed margin guidance lowering was primarily PQI tariff-related pass-through pricing/cost dynamics, with water quality performing well. Expects incremental margins of 30-35% fall-through on PQI moving forward, translating to 25-50 bps OMM expansion, with detailed 2026 guidance in February.

Data center sales showing double-digit growthData centers smaller portion of business but high growth runwayPQI expected incremental margins of 30-35% fall-throughPQI expected margin expansion of 25-50 basis points OMM

Nathan Jones · Stifel

Asked about market share gains from tariff disruption six months post-announcement, and opportunities for non-price mitigation in PQI North America to offset tariff impacts and protect margins into 2026.

Management highlighted three-pronged tariff response: strategic pricing, supply chain/procurement changes, and product line shifts described as 'no regret moves' enabling localization (e.g., warehouse in North America for Trojan business). Confirmed strong volume/price balance on PQI North America driven by new VideoJet CIJ/laser products and secondary packaging tied to Food Safety Act. Stated confidence in ongoing demand stability from newly launched products gaining traction.

Three-pronged tariff strategy: pricing, supply chain, product line shiftsProduct line relocalization as 'no regret moves' creating competitive advantageTrojan business expanding with North America warehousePQI North America showing balance between price and volume gains

Jacob Levinson · Milius Research

Asked about content intensity of data center opportunities relative to other industrial facilities like power plants and chemical plants, and provided update on TraceGains integration progress and contribution to mid-market CPG penetration.

Management avoided direct comparative content intensity disclosure but stated double-digit growth in data centers and related applications. Highlighted multiple touch points within data centers: water/power consumption reduction and uptime maintenance (minimizing corrosion, scaling, biological growth). Confirmed TraceGains performing above expectations at one-year anniversary with 20%+ growth rate, integrating digital backbone with ESCO to create unified workflow platform for CPG market which remains early in digitization with strong regulatory drivers.

Data center sales growing double-digit year-over-yearTraceGains at one-year anniversary with >20% growth rateTraceGains growth accretive to overall profileTraceGains and ESCO integrating digital backbone for unified packaging/product development workflow

Brian Lee · Goldman Sachs

Asked about tariff impact lapping timeline for PQI margins (potentially Q2 2026), pricing's ability to recapture 100-200 bps margin gains, and additional drivers (productivity, mix) needed for margin expansion.

Management confirmed tariff impact lapping beginning Q2 2026, noting instinct was correct. Articulated multi-factor margin expansion approach: pricing (price versus raw material cost PPV expansion), productivity/volumes falling through at 30-35% range translating to 25-50 bps margin expansion, offset by one-off tariff mitigation costs expected to reverse in 2026. Referenced new product acceptance and volume gains as positives, with detailed 2026 guidance in February.

Tariff lapping expected to begin Q2 2026Price versus raw material cost (PPV) expansion as key margin driverVolume productivity fall-through at 30-35% rangeExpected margin expansion of 25-50 basis points from productivity

Dean Dray · RBC Capital Markets

Asked about tariff pricing timing catch-up from prior quarter mismatch, government shutdown impacts on water quality, and China demand trajectory relative to peers.

Management stated pricing teams have 'taken really good action from a strategic perspective' working with customers, with pricing flowing through numbers more in PQI than water quality. Indicated 'pretty good place' on tariff offset through pricing and supply chain/production changes, while acknowledging volatile environment. Stated no material government shutdown impacts observed. Confirmed China performing as expected, with no meaningful sequential changes Q2-Q3, team executing well in mature market.

Strategic pricing actions implemented and flowing through resultsPricing more pronounced in PQI than water qualitySupply chain and production changes underway to offset tariff impactNo material government shutdown impact observed

Answers to last quarter's watch list

PQI adjusted operating margin progression — PQI core sales accelerated to +6.9% from Q2's +4.6%, but management's framing implies the Q4 "meaningfully better" margin payoff has been deferred. The 25bps cut to the FY margin expansion ceiling and the Q&A reframing of 25–50bps OMM expansion as a 2026 outcome (after tariffs lap in Q2 2026) means the Q4 PQI margin step-up is smaller than Q2's language suggested. Status: Resolved negatively

Realized pricing in H2 — Pricing is flowing through, with management confirming it shows up "more in PQI than Water Quality" — the opposite ordering of Q2's expectation. Dray got a directional "pretty good place" rather than a quantified contribution; the company did not disclose a specific pricing contribution percentage this quarter. The mechanism is working but management is no longer eager to put a number on it, which is its own signal. Status: Continue monitoring

FY EPS guide trajectory — FY EPS raised again to $3.82–$3.85 from $3.72–$3.80, a $0.075 midpoint lift. This is the second consecutive raise — the Q2 cushion was real and management has continued to deliver. However, the trim to margin expansion ceiling and the Q4 low-single-digit core sales guide suggest the remaining cushion is thinner heading into Q4. Status: Resolved positively

Data center disclosure — Management quantified data center growth as "double-digit" across the AI value chain (chip manufacturing, power generation, mining, water/power reduction in facilities) but still declined to disclose revenue dollars or as-percent-of-mix. Jacob Levinson directly asked about content intensity vs. power/chemical plants and got a deflection. The narrative is firming but the size remains unmodelable. Status: Continue monitoring

M&A pace — No deal announced this quarter. Management stated the financial position "continued to strengthen" with "ample flexibility to invest in organic and inorganic opportunities" but did not signal urgency. With FY FCF conversion now guided to ~100% and the balance sheet building cash, the question of valuation discipline vs. deployment pressure becomes sharper into 2026. Status: Continue monitoring

What to watch into next quarter

Q4 core sales realization vs. low-single-digit guide — The step-down from 5.1% in Q3 to low-single-digits in Q4 is the biggest forward signal in the print. Watch whether Q4 actual lands above the low-single-digit framing (suggesting conservatism) or at/below it (confirming demand softening). A miss here would invalidate the Q2 "durability" narrative.

PQI margin in Q4 — With FY OMM expansion guide capped at +25bps, Q4 adjusted operating margin needs to land within a narrow band. Watch whether PQI margin compression versus prior year narrows below 100bps; if it stays wider, the 2026 25–50bps OMM expansion roadmap from Q&A loses credibility before February.

2026 framing in the February guide — Management deferred multiple specifics (tariff lapping in Q2 2026, full PPV expansion, productivity fall-through) to the February call. Watch whether the FY2026 EPS framework implies the 30–35% incremental fall-through translates to the promised 25–50bps OMM expansion, or whether further tariff drag forces a softer setup.

Data center sizing — Management has now confirmed double-digit growth for three quarters running without dollar disclosure. Watch the February call for the first explicit revenue or growth-contribution number; continued refusal to size becomes a credibility issue, not a strategic reserve.

M&A activity — With FCF conversion raised to ~100% and no Q3 deal announced, watch whether a transaction closes before year-end or whether 2026 opens with capital return instead. The longer the pipeline sits "active" without a close, the more it suggests valuation discipline is binding.

Sources

Veralto Q3 2025 press release — https://www.sec.gov/Archives/edgar/data/1967680/000196768025000135/vlto-20251028xex991.htm
Veralto Q3 2025 earnings call Q&A
Veralto Q2 2025 brief (Tapebrief, internal)

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