Vontier Corporation Common Stock

Good morning, ladies and gentlemen, and welcome to the Venture First Quarter 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If, at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 1st, 2025, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Ventures Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me today are Mark Morelli, our President and Chief Executive Officer, and Anshuman Agha, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the investor relations section of our website at investors.vonteer.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meanings of the federal securities laws including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to slide three, and I'll turn the call over to Mark.

Thanks, Ryan, and good morning, everyone. We had a strong start to the year with first quarter sales, adjusted EPS, and adjusted free cash flow exceeding expectations. Other than expected performance at environmental and fueling solutions and mobility technologies, which grew low double digits, drove core sales above our guidance range. These results demonstrate Vontir's unique competitive advantage within the mobility ecosystem with a purpose-built portfolio of connected hardware and software solutions. Our connected mobility strategy places us at the forefront of our customers' digital transformation journey and offers optionality for their energy needs. Where this is most evident today is within our convenience retail and fueling end market, where we continue to capitalize on strong industry CapEx. Our value proposition is clearly resonating with our customers as demonstrated by the success of recent new product introductions and our leading portfolio of integrated digital solutions. Underlying demand trends in Q1 were strong, slightly ahead of our expectations, and we've seen continued momentum through the month of April. We have yet to see any discernible demand impacts from tariffs or trade policy uncertainty, with little evidence of material pre-buying in our results. Book to bill, in line with our expectations, came in slightly under 1 in the quarter. Based on strong Q1 results and our Q2 outlook, first half results are tracking ahead of the plan we laid out for you in mid-February. We're maintaining our full year guidance, including the current impacts from tariffs, and now reflecting a more cautious demand backdrop in the second half. Our portfolio is resilient with leading positions in attractive end markets. Convenience retail and fueling, which accounts for about two-thirds of our sales, has historically grown above GDP and experienced only low single-digit declines in the last major recession in 2008-2009. We're proactively managing our tariff exposures, and we're confident we'll be able to mitigate the estimated costs. Given the confidence in our business, our board recently approved the replenishment of our $500 million share repurchase authorization, which gives us ample capacity to prosecute buybacks. Let's turn to slide four. Given the volatility around tariff and trade policy announcements, we thought it would be helpful to provide a quick update on the estimated tariff impact based on what we know today. In the four plus years post spin through ongoing risk management, we have significantly strengthened the agility and resiliency of our global supply chain. The primary focus of our de-risking efforts has been geographically diversifying our supply base with a specific emphasis on reducing our exposure to China by a factor of more than three times. We continue to transform and strengthen our supply chain with additional initiatives to further reduce our exposure to China. Recognizing the fluidity of the ongoing tariff and trade situation, we estimate the current cost impact at approximately $50 million before any further mitigations or pricing actions. Note that this represents what we would expect to incur in the balance of the year. As you can see in the table, most of the impact is related to product source from China, which reflects the aggregate cost of three separate tariff categories on both Tier 1 and Tier 2 suppliers. The remaining approximately $10 million ties to our exposure across the rest of the world, primarily represented by a few Southeastern Asian trade partners. This also includes the impact from Section 232 steel and aluminum tariffs. Nearly all of the product sourced from Mexico is compliant with the USMCA exemption and therefore does not represent a headwind. We continue to countermeasure the tariff impacts across our businesses. These actions include further supply chain optimization and diversification, aggressively negotiating cost reductions with suppliers, and passing through price increases. We expect to offset the estimated tariffs and neutralize the impact to our margins. It goes without saying that we are closely monitoring development, and we will update you as the situation continues to evolve. Our primary focus is to control our controllables, executing on our pillar one initiatives to optimize our core, leveraging self-help. One good example of this is our annual CEO Kaizen event, which took place last month. Cross-functional teams from across our businesses came together with a shared purpose of delivering step change improvements to our business. 90% of the projects worked on during the Kaizen We're focused on our FPP 80-20 process, ranging from product line simplification to strategic pricing. As I mentioned previously, our largest end market, convenience retail and fueling, has proven to be resilient in prior downturns. This has been corroborated in our channel checks over the last couple weeks, with larger national and regional operators reiterating confidence in their CapEx plans and expectations for growth. Likewise, our channel partners are not seeing any evidence of process delays or deferrals. As an example of the momentum in the industry, 7-Eleven recently announced plans to double its North American new store openings to 1,300 by 2030, including 500 stores between 2025 and 2027. Most of those stores are expected to leverage 7-Eleven's modern design, which has driven average daily sales 18% higher than their fleet average. Our Macco Expo event in mid-April was successful and performed slightly ahead of last year's record event. The competitive advantage of our business model was on full display. Our market-leading new product vitality allows us to meet the immediate needs of service technicians with a focus on optimizing premium quality with value. At the same time, we're monitoring our repair solution segment closely, particularly given the impact of inflation and declining consumer sentiment. I'm proud of the way our teams executed in an increasingly dynamic environment, demonstrating a strong alignment with the principles of the volunteer business system and a commitment to the three pillars of our value creation framework, optimizing our core, accelerating profitable growth across the portfolio, and sensibly expanding into adjacent markets. In the current macro environment, we are focused on what we can control and doubling down on our pillar one opportunities. With that, let me turn the call over to Anshuman.