Vontier Earnings: Encouraging Baseline Performance Excluding EMV Sunset

Narrow-moat-rated Vontier’s VNT second-quarter adjusted EPS of $0.67 came in above management’s previous $0.61-$0.66 guidance range. We’ve made some puts and takes in our model, but we are maintaining our $37 fair value estimate, as nothing in the earnings release alters our long-term view of the firm. We see the name as modestly undervalued, with shares currently trading roughly 20% below our fair value estimate.

Vontier’s second-quarter core revenue decreased by 1.6% year over year. Mobility technologies core sales grew by 4.6%, driven by low-double-digit growth in the car wash technologies business and over 40% growth in the alternative energy solutions business. Repair solutions core sales were up 6%, with positive net franchisee additions and same-store sales growth. Also, environmental and fueling solutions core sales fell by 8.5% as the segment continued to face headwinds from the expected decline in EMV-related sales, but baseline core sales were up 9% excluding the EMV impact.

Adjusted for the EMV sunset, Vontier’s second-quarter baseline core sales grew 8.6% from the prior-year period. The firm’s second-quarter adjusted operating margin fell by 60 basis points year over year, but the baseline margin adjusted for the EMV headwind expanded by 230 basis points thanks to productivity and a positive price-cost spread.

Management slightly raised the bottom end of its guidance and now anticipates adjusted EPS of $2.79-$2.87 (up from $2.77-$2.87). Vontier continues to expect core revenue to be down by low- to midsingle digits, which bakes in a roughly $300 million headwind due to the sunset of EMV-related sales. While the EMV sunset has weighed on results in recent quarters, we are encouraged by the baseline core sales growth and margin expansion, and we expect Vontier to return to positive core sales growth in 2024.