Veralto Raises Full-Year Profit Outlook as Core Growth Accelerates
Veralto posted 7.6% sales growth to $1,474 million in the second quarter and raised its full-year adjusted earnings guidance for the second time this year.
Veralto (VLTO) reported second-quarter sales of $1,474 million, up 7.6% from a year earlier, as core sales growth climbed to 4.2%, marking a second straight quarter of sequential acceleration from 1.9% in the first quarter and 1.6% in the fourth quarter of 2024.
The acceleration was broad-based across both of the water-testing and quality-control company's segments, with Water Quality core growth of 5.7% outpacing Product Quality and Innovation's 2.0%. Both segments accelerated sequentially, a signal that reinforces the raised full-year core-growth guidance of 4.0% to 4.5%, up from the 3.0% to 4.5% range set in the first quarter, which itself had been lifted from an initial low-to-mid-single-digit outlook issued with fourth-quarter results.
Profitability told a more mixed story. GAAP operating margin fell to 21.4% from 22.8% a year earlier and declined sequentially from 23.8% in the first quarter, reversing the improvement trend that had run from 23.2% in the third quarter of 2024 through the first quarter of 2025. The compression stemmed from a new $29 million restructuring charge and higher intangible amortization of $17 million, up from $9 million a year ago. Adjusted operating margin moved the opposite direction, rising to 24.6% from 23.7%, underscoring that the GAAP pressure was concentrated in one-time and amortization items rather than underlying operations.
SG&A expenses rose 16.3% to $514 million, outpacing sales growth, a gap partly explained by the restructuring charge; research and development spending grew a more modest 9.0% to $73 million. The $29 million charge was the first quarter's actual P&L impact from the $85 million to $105 million cost-optimization program Veralto introduced in the first quarter, targeting $65 million to $75 million in annual savings by 2028.
Veralto raised full-year adjusted diluted EPS guidance to $4.35 to $4.43, up from $4.20 to $4.28 issued after the first quarter and from an initial $4.10 to $4.20 range set with fourth-quarter results, implying 12% to 14% year-over-year growth. The new range includes a previously undisclosed $0.05-a-share benefit from recoveries of IEEPA tariffs collected in prior periods, a first-time disclosure item embedded in both the margin and EPS guidance.
Full-year adjusted operating margin guidance was narrowed to a gain of 25 to 50 basis points, versus a flat 25-basis-point improvement guided in both the first quarter and initial fourth-quarter outlooks, with the top end of the new range attributed to the tariff refund. Veralto guided third-quarter core sales growth of 4.0% to 5.0% and expects core growth to accelerate to approximately 5% to 6% in the second half, with Product Quality and Innovation growth expected to accelerate meaningfully in that period.
Free cash flow rebounded to $328 million in the quarter from $170 million in the first quarter, which itself had declined from $291 million in the fourth quarter of 2024 and $258 million in the third quarter. Capital expenditures fell to $12 million from $16 million a year earlier, and trailing-twelve-month free cash flow margin stood at 18.4% on $5,696 million in trailing sales.
Financing activity swung to a $558 million inflow in the quarter from a $15 million outflow a year earlier, while investing outflows rose to $206 million from $40 million, reflecting the bolt-on acquisition of Alfaa UV and continued share repurchases that followed $300 million, or 1.3% of shares outstanding, bought back in the first quarter.