President & Chief Executive Officer at Fortive
Thanks, Elena. I'll begin on Slide 3. We had another quarter of outperformance with 12% core revenue growth, 80 and 160 basis points adjusted gross and operating margin expansion, respectively. 20% adjusted earnings per share growth and 22% free cash flow growth, all above the guidance we set coming into the quarter. Our ability to outperform reflects the quality of our portfolio, our team's rigorous execution and the power of the Fortive business system, delivering higher and more profitable growth and free cash flow generation.
Third quarter also demonstrated continued success launching a number of new products and solutions that solve our customers' toughest safety, quality and productivity challenges. We have strong conviction in the secular drivers favoring enduring growth in these markets. As a result, we are confident the work we do to create long-term sustainable competitive advantages for our operating companies and strategic segments will yield best-in-class returns for Fortive for a long time to come.
Turning to Slide 4. We are delivering 2022 at the high end of our initial outlook we set back in February, reflecting continued strong momentum as we've moved through the year. Short-cycle demand has held up well, with hardware product backlog more than double what it was at the beginning of 2021, while our software businesses have continued their double-digit pace of growth. This speaks to the strength of our portfolio and our ability to countermeasure challenges.
Our supply chain measures across the portfolio continue to gain traction, especially at Fluke and Tektronix, although we expect some component constraints to persist into 2023. Our latest outlook now reflects a year-over-year foreign exchange headwind of approximately $175 million on revenue and $0.11 on EPS for the year. Despite these headwinds, we are driving higher growth and operating margins by leveraging FBS tools to accelerate profitable growth and position the company for continued outperformance in 2023.
Moving to the right-hand side of the slide, we are preparing scenarios for a range of potential macroeconomic outcomes in 2023, including moderating hardware product orders growth. Lastly, our strong balance sheet, supported by robust free cash flow growth, presents several levers for earnings growth and continued value creation compounding.
Turning to Slide 5. We just finished our annual strategic plans for each of our operating companies and I'm even more excited about the depth of our strategy to take advantage of the secular tailwinds accelerating progress across our 5 critical customer workflows. Our solutions for managing facilities and assets, environmental health and safety and measurement and connected reliability keep much of the world running safely, productively and sustainably. We are enabling product realization with precision measurement and sensing solutions underpinning many of the most exciting product innovations in the world, from your phone and car to the electric grid and to safer food and pharmaceutical production.
Our health care solutions for the perioperative loop keep clinicians and patients safe, serving over 5,000 customers, including all the top U.S. hospitals as well as hospitals around the world. Each workflow is well positioned to benefit from durable business models that underpin our vision and strategy to build a stronger collection of businesses with industry-leading profitability and free cash flow margins.
They also aligned to our sustainability mission by helping our customers accelerate safety, good health and well-being, advanced industry and customer productivity, utilizing new and more efficient clean energy resources and drive reductions of our customers' greenhouse gas emissions. Today, over 60% of Fortive's products and services enable more sustainable outcomes that are aligned to the United Nations' sustainable development goals. As we continue to accelerate innovation for our customers at scale, demand is proving more resilient even in the face of slowing economic growth, given the recognition of how our workflow solutions drive productivity benefits for our customers.
I will now provide more details on each of our 3 segments, beginning with Intelligent Operating Solutions. IOS continued its strong momentum with revenues up 14% as unfavorable FX was offset by the ServiceChannel acquisition which became core in mid-August. Our region growth was broad-based with low double-digit growth in North America, mid-teens growth in Western Europe and low 20s growth in China. Double-digit core growth in every workflow drove 345 basis points of core operating margin expansion, more than offsetting inflation and incremental FX headwinds.
Some other highlights in the quarter include: At Fluke, demand remains solid with double-digit point-of-sale growth in each major region. Using FBS Voice of the Customer and product development tools, Fluke launched a breakthrough platform serving the renewables market that reduces the time to test solar installations by as much as half. This kit combines multiple Fluke hardware tools with a software platform and has been awarded industry recognition for its safety and time-saving features.
EHS had low double-digit revenue growth as we continue to see the benefits of share gains and efforts to diversify its customer base. Industrial Scientific saw a greater than 20% increase in bookings with strong net and instrument bookings in both Europe and the Middle East. And Intelex had another quarter of mid-teens SaaS revenue growth.
Moving to facilities and asset lifecycle. Gordian revenues were up double digits once again, with the business continuing to drive accelerated penetration of projects flowing through Gordian's job order contracting platform with an expanded set of customers. Accruent saw strong software demand with its SaaS offerings growing low double digit. Accruent also continued to utilize FBS tools to improve its annual recurring revenue profile but the recent Kaizens focused on driving price and improved customer retention. Finally, ServiceChannel had another exceptional quarter, strong double-digit revenue growth and high teens growth in SaaS As some customers face mounting cost pressures, they are increasingly turning to ServiceChannel to help them outsource their facility maintenance work, reducing their third-party contractor costs. As a result, we are reinvesting a portion of their upside into transitioning customers to our more profitable SaaS managed service offering to continue to drive profitable growth.
Turning now to Slide 7 and Precision Technologies which delivered core growth ahead of expectations in every business. Core revenues were up 19%, with double-digit growth in all our major regions driven by continued investment in the industrial, power and energy, semiconductor and medical end markets. PT also saw 280 basis points of adjusted operating margin expansion with higher shipments and strong price realization more than offsetting inflation and FX headwinds. Some highlights in the quarter include 7 consecutive quarters of double-digit orders growth in Tektronix fueled by a number of new entry and mainstream scope product launches. As a result, trailing 12-month orders are now greater than $1 billion.
Our teams are diligently applying FBS to countermeasure supply chain constraints to deliver on this record level of demand. Sensing Tech benefited from another quarter of volume growth and strong price realization. While supply chain constraints continue to limit output, sensing book-to-bill was greater than 1, with strong demand in Qualitrol, utility and power business. Similarly, Pacific Scientific EMC saw improved material availability and capacity expansion across key production lines, driving double-digit revenue growth in the quarter.
Moving now to Slide 8 and Advanced Healthcare Solutions. Total revenue increased 3% in the third quarter with a core revenue decline of 1% and as continued supply chain constraints limited growth at ASP and Fluke solutions, resulting in lower-than-expected core growth in the quarter. Mid-single-digit growth in Western Europe was more than offset by low single-digit decline in North America and a mid-single-digit decline in China. We saw a sequential improvement in core growth at ASP as their supply chain shortages constrained capital equipment growth started to ease in late September.
Electric procedures improved to the low 90% range, excluding China, while rolling lockdowns kept electric procedure rates around 70% of pre-COVID levels there. AHS core segment margins were down almost 400 basis points stemming from lower volumes and FX headwinds in the quarter as well as the recognition of a bad debt reserve in Invetech. As you can see, the team is diligently deploying pricing and cost controls to offset these headwinds which we expect will deliver margin recovery in the fourth quarter.
Some other highlights for the quarter include: an acceleration in new hospital bookings at Censis and double-digit growth in their Censis SaaS subscription revenues. Formations SaaS offering is also seeing good demand from customers looking to further standardize our provision across their health systems. Lastly, we completed the sale of Fluke Health therapy physics product line which will be adjusted from core growth going forward with annual sales just under $20 million.
Turning to Slide 9. Fortive Business System continues to be a differentiator for us, enabling our business to drive innovation and profitable growth. I'm excited to share that we just completed our annual CEO Kaizen event, accelerating our culture of performance. We brought together our most senior Fortive leaders, including our segment leaders and many of our operating company presidents with a total of 28 teams and over 400 team members, driving significant improvements in growth, margin, free cash flow and breakthrough innovations.
In Fortive, how we do Kaizen is what separate us apart. It's the deep engagement of our leadership and teams as well as the achievement of our high expectations. Some highlights include the teams of Fluke identified gross margin opportunities resulting in margin expansion through freight cost reductions and value engineering opportunities. At ISC, lean conversion Kaizen realized a 20% to 40% improvement in productivity across 4 product lines and they improved the lead time for iNet quotes by 80% and time to market for newly developed software by 75%. Our teams reduced the average test time by more than 25% on a highly constrained production process in Tektronix. And Censis implementing Kaizens yielding a 2x improvement in productivity and reduced time to onboard new software customers. These results are our continued example of how FBS is driving results at Fortive.
With that, I'll pass it over to Chuck, who will provide more color on our third quarter financials and our updated 2022 outlook.