Veralto NYSE: VLTO executives struck an upbeat tone on the company’s first-quarter 2026 earnings call, citing strong start-of-year performance, continued resilience in end markets, and increased full-year earnings guidance. President and CEO Jennifer Honeycutt said the company delivered “approximately 7% total sales growth and 13% adjusted earnings per share growth” in the quarter while continuing to invest in “commercial execution, productivity, and innovation.”
Reflecting the first-quarter results and what management described as improving momentum, Honeycutt said Veralto raised its full-year adjusted EPS outlook to a range of $4.20 to $4.28 per share. She added that core sales growth is expected to “accelerate as the year progresses.”
Guidance raised as management cites Q1 strength and pricing
In the Q&A, CFO Samir Ralhan said the higher EPS guide is “predominantly raised because of the operating stuff,” noting that share repurchases already completed were “already kind of baked in.” He pointed to several drivers behind the increase:
- “The strength of Q1 and the way we’re coming out in terms of the order books out of the quarter into April.”
- Pricing expectations “at the higher end,” which he said added confidence for the full year.
- Improved execution “across the board in both the businesses and across the regions.”
Ralhan characterized demand patterns as “pretty steady,” adding that with nearly four months of the year elapsed, management has “more confidence on that front.”
Water Quality: stable demand, secular tailwinds in municipal wastewater
Honeycutt said Veralto is seeing “strong and stable demand across both our muni and industrial markets,” emphasizing that many of the company’s offerings are embedded in customer operations “where the cost of failure is high.” She described municipal markets as a “mid-single-digit grower,” with “incrementally stronger growth in muni wastewater due to recycle, reclaim, and reuse secular drivers.”
On the industrial side, Honeycutt said the company expects “mid-to-high single-digit growth” and cited strength tied to data center-related activity, including “semiconductor, power and mining.” She also said PMI trends “have been positive.”
Asked about Trojan and UV activity, Honeycutt said quoting and bidding “remains strong,” while also noting the longer-cycle nature of that business. She said bookings now would largely ship in “Q4 2027” and described “great order book activity” supported by the secular drivers discussed.
On the influence of data centers, Honeycutt said Veralto is seeing “strong growth in data centers,” but added that data center revenue remains “a very small portion” of total Water Quality sales.
PQI: steady CPG demand, but packaging & color impacted by non-recurring revenue
Honeycutt described a “tale of two cities” for the Product Quality & Innovation (PQI) segment. At a high level, she said Veralto continues to see “strong demand across our CPG customer base,” with steady quoting and sales activity in coding and marking that has persisted for “several quarters.”
She also pointed to the company’s digital packaging and ingredient solutions—referencing Esko and TraceGains—and said those businesses “continue also to be strong,” a view management expects to continue “with the addition of GlobalVision.” Honeycutt said the acquisition of GlobalVision strengthens the company’s value proposition by “building a comprehensive workflow.”
However, she noted that within packaging and color, first-quarter sales were down “high single digits,” primarily due to “non-recurring revenue,” including sales of color testing and packaging inspection equipment. Honeycutt said the weakness was concentrated in certain industrial end markets such as “automotive, textiles, building materials driven by housing market.” She said management expects “incremental recovery” and added that the company does not see changes in CPG demand that would alter its view that coding and marking should “continue to be strong and in fact accelerate throughout the year.”
On profitability, Honeycutt said PQI margins improved sequentially, though she cautioned that “mix” can drive variability and that “some of the rollover from the tariff actions…is gonna roll off as well.” Still, she said management sees “the same level of opportunity” for PQI margins in the second half of 2026 and into 2027.
Cost optimization program: benefits expected mainly in 2027 and 2028
Honeycutt said Veralto launched a cost optimization program as a “natural evolution” of its continuous improvement efforts, with the goal of making the cost structure “more competitive” and enhancing EPS growth. She said the program is intended to streamline business processes, improve operating efficiency, and still “stay true to” the company’s decentralized operating model.
Ralhan later added that the program is “pretty broad-based across both the businesses” and corporate functions, with “a little bit more bias towards PQI,” though “pretty balanced across the company.”
Honeycutt said most actions in the plan are oriented toward the end of 2026, and the company has not included benefits from the program in 2026 guidance. She said investors should expect “roughly 50% of the run rate savings in 2027 and full run rate in 2028.” Ralhan characterized the program as a potential “step change” in 2027 and 2028, saying it would be additive to Veralto’s stated framework of “mid-single digit core sales growth with 30%-35% fall-through.”
M&A and capital allocation: $1 billion deployed year-to-date, continued acquisition bias
Honeycutt said Veralto has invested “approximately $1 billion across two strategic acquisitions,” In-Situ in the Water Quality segment and GlobalVision in PQI, and also completed “opportunistic share repurchases.” She said the balance sheet remains strong and provides flexibility for “additional acquisitions and share repurchases.”
In response to questions about capital deployment, Honeycutt said the company maintains a “bias for M&A,” calling it the best path for long-term value creation, while reserving the right to repurchase shares when it sees “market dislocations relative to the business performance.” She said any decision to expand authorization levels would be made by the board “in due course.”
Tariffs, inflation, and pricing approach
Ralhan said the company’s actions related to last year’s tariff impacts—including pricing actions—are largely in place, with those impacts expected to “start rolling over” in the second half. He said the company has baked the impact of new Section 232 developments into its guidance, and characterized the incremental effect as “much smaller” than last year because steel and aluminum content is “pretty small” in its products.
Ralhan also said management has baked current expectations for oil-related cost inflation tied to Middle East conflict into guidance, and described “active discussions with the customers on the pricing side.”
On pricing more broadly, Honeycutt said Veralto takes a “disciplined approach,” and in the case of ChemTreat, partners closely with customers to “achieve pricing that is gonna offset the headwinds from rising costs,” which she described as being done “very surgically.” Ralhan told analysts pricing expectations for 2026 should be “100, 200 basis points,” with the company expecting aggregate pricing “at the high end of the range,” and PQI potentially exceeding that.
Regional commentary: China and high-growth markets
Management said China continues to “behave like a more mature market.” Honeycutt said first-quarter China sales were up low single digits overall, with PQI “double digit growth,” while Water Quality was down low single digits, reflecting a municipal funding environment where “money still not flowing from the government.”
Addressing broader “high growth markets,” Ralhan said results were down low single digits, citing China impacts in Water Quality and “timing-driven” factors in Latin America. He also noted a difficult year-over-year comparison in India following a roughly 20% growth quarter last year. In the Middle East, he said sales were down about 10%, while noting the region is a “small portion” of total revenue.
Ralhan also addressed Veralto’s tax rate, saying it has improved from roughly “24.5%-ish” at the time of the spin to “now in the 20s,” attributing the majority of the improvement to planning work by the tax team.
About Veralto NYSE: VLTO
Veralto Corporation provides water analytics, water treatment, marking and coding, and packaging and color services worldwide. It operates through two segments, Water Quality (WQ) and Product Quality & Innovation (PQI). The WQ segment offers precision instrumentation and water treatment technologies to measure, analyze, and treat water in residential, commercial, municipal, industrial, research, and natural resource applications through the Hach, Trojan Technologies, and ChemTreat brands. This segment provides water solutions, including chemical reagents, services, and digital solutions.
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