Vontier Earnings: Baseline Core Sales Grow 10% Excluding EMV Sunset

Following the firm’s third-quarter earnings release, we’ve increased our fair value estimate for narrow-moat-rated Vontier VNT to $38 from $37, mostly due to the time value of money. We see the name as modestly undervalued, with shares currently trading in 4-star territory.

Third-quarter core sales declined by 3% from the same period last year, but baseline core sales increased by 10% when excluding headwinds from the expected decline in EMV-related sales. Mobility technologies core sales were up by 4.1% year over year, fueled by low-double-digit growth in the car wash technologies business and over 20% growth in the alternative energy solutions business. Repair solutions core sales grew by 5% thanks to double-digit growth in power tools and tool storage. Lastly, environmental and fueling solutions core sales declined by 10.3% because of the sunset in EMV-related sales. Vontier’s third-quarter adjusted operating margin compressed by 270 basis points year over year, but the baseline margin improved by 40 basis points excluding the EMV impact.

Management raised the lower end of its full-year guidance range by $0.04 and now anticipates adjusted EPS of $2.83-$2.87. While the expected sunset of EMV-related sales has continued to weigh on sales growth and margins this year, we are encouraged by the solid sales growth and margin improvement in the underlying business. Vontier will still face tough year-over-year comparisons in the fourth quarter, as the prior-year period marked the peak in EMV-related shipments. That said, the company will no longer face this EMV comparison issue heading into 2024, and we expect Vontier to return to positive core sales growth next year.