VERALTO CORP earnings calls

Water and PQI 2027 outlook

Q (Jeff Sprague · Vertical): Analyst asked for early visibility into 2027 demand for water and PQI businesses. He also asked about CapEx visibility for PQI.

A: Management said Water Quality is balanced between municipal and industrial sales and that 60% of revenue is recurring, making demand durable. They said equipment CapEx tends to be facility upgrades rather than large infrastructure projects, and they see strong secular demand drivers. They added PQI SaaS digital workflow gives good visibility and marking and coding demand is steady.

"I think the way to think about our exposure here is, we have a balanced portfolio in our water business between muni sales and industrial sales." — Jennifer Honeycutt (CEO)

Cost saves and municipal demand

Q (William Grippin · Barclays): Analyst asked whether cost-savings progress implies more margin opportunity in 2027 and asked for drivers of strong municipal demand at Hach and trends into year-end.

A: Management said the Cost Optimization Program remains on plan: roughly half the savings by 2027 and full run rate in 2028, with $10 million-$15 million of savings in 2026. They said Hach muni demand is strong due to a three-year build in commercial discipline, new product launches, and because regulated testing is non-discretionary. They expect continued good execution and product-driven demand into year-end.

"Look, we've had some early successes and a good start out of the gate, so we're going to see $10 million-$15 million worth of savings in 2026." — Sameer Ralhan (CFO)

Portfolio trends and buybacks

Q (Mike Halloran · Baird): Analyst asked if any parts of the portfolio are not tracking positively and for capital deployment plans on buybacks and M&A after active dealmaking.

A: Management said broadly all businesses are trending well, with some timing variability in project-based packaging and color hardware but no cancellations and steady recurring revenue demand. They said buybacks are opportunistic and that after disclosed October activity they are effectively done with $550 million of repurchases out of the $750 million program. The M&A pipeline is active and they plan to remain balanced in capital allocation.

"Look, if you add what we have done in October that we disclosed, we are effectively done with $550 million of share repurchases out of the $750 million program." — Sameer Ralhan (CFO)

Data centers and regional water growth

Q (Adam Farley · Stifel): Analyst asked how much Water Quality exposure is to data centers, when ChemTreat helps in the construction timeline, and regional growth expectations including China.

A: Management said total sales to data centers remain small though growth doubled in Q3 off a small base, and ChemTreat is engaged early to consult on water and treatment design to optimize water and power. They said data center work becomes an annuity as centers operate, and regionally China remains low in municipal spend and represents about 6% of sales while Latin America and other high-growth markets show opportunities but timing can vary.

"We are, by virtue of our ChemTreat business, engaged early in those project builds and get requested to participate in helping to consult on water train and water treatment design, so that customers can optimize both water utilization, power consumption." — Jennifer Honeycutt (CEO)

PQI digital workflow demand

Q (Andy Kaplowitz · Citi): Analyst greeted and then asked about PQI growth drivers and digital workflow traction.

A: Management said they see strong demand and bookings for digital workflow solutions following TraceGains and GlobalVision integrations into the Esko backbone. They said revenue is booked over contract life which gives visibility and they see steady demand in marking and coding and improving trends in color and packaging.

PQI margin drivers and Q4 margins

Q (Andy Kaplowitz · Citi): Analyst asked for more color on PQI re-acceleration and asked Sameer about puts and takes on margin in Q4 versus Q3.

A: Management said digital workflow bookings give visibility and are recognized over contract life; marking and coding is steady, and color measurement recovery and an easy comp help Q4. Sameer said Q4 margins should have a fall-through of 30%-35% and that the Cost Optimization Program adds roughly 40 basis points to OMX for Q4, largely offset by the Cleanwater1 acquisition and some planned investments.

"For our Q4 margins, you should fully expect the fall-through to be 30%-35%, so that is roughly 30 basis points of a margin expansion on a year-over-year basis." — Sameer Ralhan (CFO)

M&A funnel and tech upgrades

Q (Jacob Levinson · Melius): Analyst asked about the size and mix of the M&A funnel and what modernized technology and upgraded facilities mean in practice.

A: Management said the M&A funnel is a healthy mix of large and small deals, technology targets, and geographic expansion opportunities focused on bolt-on strategic fits in treatment, environmental, and digital workflow. They said modernizing tech means upgrading data systems, adding automation such as robotic lines at Hach, and upgrading manufacturing to be AI-friendly and more efficient.

"There are large deals, there's small deals, there's technology deals, there's geographic expansion deals." — Jennifer Honeycutt (CEO)

UV treatment pricing and recent buys

Q (John McNulty · BMO): Analyst asked how much of the double-digit UV growth was price versus volume and about growth and synergies from recent water acquisitions.

A: Management said pricing in UV and ChemTreat is generally in line with the market and pricing conversations are selective to cover inflation, while installed base and long-term contracts drive recurring revenue. They said In-Situ has had a solid start and is contributing to Water Quality growth, AQUAFIDES is executing well, and Alfaa UV and Cleanwater1 are early but expected to add more as integration progresses. They noted acquired assets are high single-digit to low double-digit growers.

"Look, the pricing over there is pretty much in line with what you're seeing overall, John." — Sameer Ralhan (CFO)

Cost program details and hardware demand

Q (Robert Davies · Wolfe): Analyst asked what the Cost Optimization Program specifically does and whether the non-recurring 40% of Water Quality shows any slowdown or down-trading.

A: Management said the Cost Optimization Program focuses on simplifying business processes, functional transformations, and investments to improve competitive positioning, and it remains on plan to deliver half the savings by end of 2027 and full run rate in 2028. They said the hardware/instrument installed base is hundreds of thousands of units with an average seven-year life, which drives recurring upgrade demand, and demand looks durable as they simplify workflows to address labor de-skilling.

"Then really looking at investments that we can do to improve the competitive positioning, from the technology perspective or the process improvement perspective." — Sameer Ralhan (CFO)

2027 margins and Cleanwater1 rationale

Q (Andrew Buscaglia · BNP Paribas): Analyst asked whether inflation risks threaten margin acceleration into 2027 and whether Cleanwater1 was done for margin synergies or technology fit.

A: Management said they are seeing inflation in materials tied to oil derivatives, transportation costs, and memory prices, but VES-driven execution and procurement partnerships have helped offset pressures so far. They said they expect fall-through around 30%-35% and cost optimization upside, but headwinds include tariff benefits not recurring and Cleanwater1 dilution; Jennifer added Cleanwater1 was attractive for its leading technologies and 25,000 instrument installed base and should produce commercial synergies with Trojan, with EPS flat to slightly accretive.

"We are seeing the inflation in some of the materials that are tied to, or which are oil derivatives." — Sameer Ralhan (CFO)

PQI high-growth markets and Q4 drivers

Q (Jeff Reive · RBC): Analyst asked what changed to make high-growth markets in PQI grow and whether the Q4 digital workflow acceleration is bookings-driven or pipeline conversion.

A: Management said high-growth market strength is from manufacturing coming online in China, rising industrial output, and secular middle-class consumption trends in India, Southeast Asia, and Latin America benefiting coding, marking, packaging and color. They said Q4 PQI strength is driven by digital workflow bookings and ACV already in hand, steady marking and coding demand, and a recovering color measurement business, so the combination gives confidence in the Q4 guide.

"I think one of the things that we see here with our high-growth market exposure in PQI is, we see good growth in China as manufacturing has come online and industrial output increases there, particularly relative to our coding and marking business." — Jennifer Honeycutt (CEO)

Data center offerings and direct-to-chip

Q (James Grzinic · Jefferies): Analyst asked whether wins in data centers are new site wins that build annuity or recurring OpEx and what products/services are sold for direct-to-chip cooling.

A: Management said they do not disclose vertical revenue, but data center work is largely driven by recurring revenue once centers operate and ChemTreat participates early in design; over a 30-year life there are five to six upgrade opportunities. They said direct-to-chip offerings are fluid chemistry plus tied services and noted a partnership on glycol with Dow as an example.

"The way to think about our play in data centers is very much driven by the recurring revenue side of things." — Jennifer Honeycutt (CEO)

Europe PQI trends

Q (James Cannon · UBS): Analyst asked why Western Europe appears to lag other regions and how that will trend going forward.

A: Management said Western Europe shows low single-digit growth in packaging and color with marking and coding flat, stronger consumables, and modestly lower equipment mainly due to timing of customer spend. They said they expect growth in the fourth quarter as timing normalizes.

"The low single-digit growth in packaging and color in Western Europe, what we see there is marking and coding flat." — Jennifer Honeycutt (CEO)

PQI exit run-rate and water durability

Q (Joe Giordano · TD Cowen): Analyst asked if the PQI Q4 acceleration is a sustainable exit rate into next year and whether constrained utility budgets ultimately roll over to their Water Quality business.

A: Management said they would not draw a straight line into 2027 today and that marking and coding trends and digital workflow demand should carry forward, while color measurement benefits from a comp that will normalize. They said most Water Quality sales are OpEx, the company represents a low relative cost where critical workflows are essential, 60% of revenue is recurring, and thus demand is durable and minimally exposed to federal funding swings.

"But look, we represent a low relative cost of the entire operating environment, where critical workflows are essential." — Jennifer Honeycutt (CEO)