Veralto Corporation (NYSE: VLTO) Q4 2025 Earnings Call dated Feb. 04, 2026
Corporate Participants:
Ryan Taylor — Vice President, Investor Relations
Jennifer L. Honeycutt — President and Chief Executive Officer
Sameer Ralhan — Senior Vice President and Chief Financial Officer
Analysts:
Deane Dray — Analyst
Andrew Kaplowitz — Analyst
William Griffin — Analyst
John McNulty — Analyst
Jacob Levinson — Analyst
Ryan Connors — Analyst
Nathan Jones — Analyst
Brad Hewitt — Analyst
Presentation:
operator
Thank you for your teacher new patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help you. Please stand by. Your meeting is about to begin. Hello, my name is Nikki and I will be your conference operator this morning. At this time I would like to welcome everyone to Veralto Corporation’s fourth quarter 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question, please press Star then the number two on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference. Good morning everyone.
Ryan Taylor — Vice President, Investor Relations
Thanks for joining us on the call with me today are Jennifer Honeycutt, our President and Chief Executive Officer and Samir Rohan, our Senior Vice President and Chief Financial Officer. Today’s call is simultaneously being webcast. A replay of the webcast will be available on the Investors section of our website later today under the heading Events and Presentations. A replay of this call will be available until February 18th. Yesterday we issued our fourth quarter and full year 2025 earnings news release, earnings presentation and supplemental materials including information required by the SEC relating to adjusted or non GAAP financial measures.
In addition, we also issued our 2026 first quarter and full year guidance. These materials are available in the Investor section of our website veralta.com under the heading Quarterly Earnings. Reconciliations of all non GAAP Measures are also provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year over year basis. During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings.
Actual results may differ materially from our forward looking statements. These forward looking statements speak only as of the date that they are being made and we do not assume any obligation to update any forward looking statements except as required by law. With that, I’ll turn the call over to Jennifer.
Jennifer L. Honeycutt — President and Chief Executive Officer
Thank you Ryan and thank you all for joining our call today. Our team finished 2025 with a strong fourth quarter, capping off an outstanding year for Veralto. I want to recognize our 17,000 associates worldwide for their rigorous DES driven execution that helped us serve customers, improve operating efficiency and meet our financial commitments in 2025. Our success last year was underpinned by exceptional contributions and tireless efforts by our procurement, supply chain and factory operations teams. During the year, we replicated and regionalized more than a dozen production lines into existing locations to drive flexibility across our footprint and improve our ability to serve customers more efficiently.
These moves, in combination with targeted supply chain and strategic pricing actions, enabled us to successfully navigate last year’s dynamic macro environment while providing strong support to our customers. In 2025 we delivered mid single digit core sales growth, double digit adjusted earnings per share growth and over $1 billion of free cash flow. As we closed out 2025, we established a $750 million share repurchase program and announced an 18% increase in our dividend. And at the outset of 2026 we completed the acquisition of in situ, expanding our world class water analytics portfolio into fast growing environmental, water and hydrology markets.
Going forward, we remain excited about numerous opportunities to create value for shareholders through strategic growth and disciplined capital allocation. Entering 2026, we are confident that the enduring need to safeguard the global supply of clean water and safe food will continue to underpin steady demand for our products and services across our key industrial, municipal and consumer packaged goods end markets. Combined with our durable business model and rigorous deployment of the es, we expect to deliver yet another year of core sales growth and continued margin expansion with mid to high single digit adjusted earnings per share growth.
Now turning to our 2025 full year financial results in detail. Total sales grew 6% year over year to $5.5 billion, an all time high. We delivered 4.7% core sales growth with both segments growing near the company. Average incremental margins were within our long term framework at about 30% despite headwinds from tariffs and growth investments in trace gains, adjusted operating profit margin expanded by 20 basis points year over year and adjusted earnings per share was $3.90 up 10% year over year, marking our second consecutive year of double digit EPS growth and we generated over $1 billion of free cash flow, further strengthening our financial position.
Overall, I’m very pleased with the growth, margin expansion and robust free cash flow we delivered in 2025, looking at core sales growth by geography and end market for the full year. Growth throughout the enterprise was broad based across key verticals and regions as our commercial teams executed well leveraging our VES growth tools and strategic investments in North America and Western Europe which comprise about 70% of our total revenue. Core sales grew 5.3% and 3.8% respectively in 2025 and core sales into high growth markets grew 5.1% year over year. Taking a closer look, in North America, core sales growth exceeded 5% in both segments.
In water quality, we continued to capitalize on broad based demand for our chemical water treatment solutions which delivered mid single digit core sales growth during 2025. From an industrial end market perspective, we saw the highest growth in chemical processing, power generation, mining and data centers. Our growth in these verticals was a function of solid demand, strong commercial execution and strategic new customer win. North American sales of UV water treatment grew just under 10% last year, driven largely in support of our municipal customers water reuse efforts. Both our water treatment and analytics businesses continue to benefit from increased industrial activity in North America.
In PQI, core sales in North America grew 5.8% year over year in 2025 with mid single digit across both packaging and color and marking and coating. In marking and coding, core sales of consumables and equipment both grew mid single digits year over year with equipment sales growth from both our inkjet and laser product lines. This reflects a combination of steady end market demand, differentiated new product launches and strategic market penetration across an ever increasing number of substrates. In Western Europe, core sales grew 3.8% year over year with water quality up 4% and PQI up 3.6%.
Core sales growth in water quality was led by our water analytics team in Europe and reflects traction from our growth initiatives as well as improvements made to our commercial architecture in 2024. These changes contributed to rigorous lead generation, funnel management and VES catalyzed commercial execution. Notably, water quality’s growth in Western Europe last year was across both municipal and industrial customers and in pqi. Core sales growth in Western Europe was across both marking and coding and packaging and color. Growth in marketing and coating was led by consumables and continuous inkjet printers and in packaging and color.
Our core growth in Europe was highlighted by strategic growth within mid tier consumer packaged goods customers. In high growth markets, core sales increased 5.1% year over year in 2025 led by Latin America, India and the Middle East. In China, full year core sales grew modestly over the prior year led by pqi. Overall, we delivered solid growth across all key regions while continuing to invest in our businesses for future value creation. Since the inception of Veralto, our core sales growth has expanded accelerated approximately 200 basis points and our adjusted operating margins have expanded by an average of 50 basis points per year.
Over this two year period, we have grown adjusted EPS by approximately 11% annually with free cash flow conversion above 100%. This financial performance highlights our durable growth and capital light business model fortified by the Veralto Enterprise system. The acceleration in our core growth rate reflects strong commercial execution and traction from strategic initiatives including targeted geographic growth, enhanced service offerings and new product innovation. From a geographic perspective, we invested in people and resources to capitalize on secular growth drivers in Latin America, India and the Middle East. Secular drivers in these markets, such as a growing middle class, increased scarcity of fresh water, rapid urbanization and expanding industrialization create a strong need for our products and services across both segments.
To test and treat water and ensure packaged foods are safe to consume. We. See the investment in these markets across both the public and private sectors. In 2025, Latin America, India and the Middle east were our three fastest growing regions and as it relates to enhancing our service offerings, we focused on expanding support across our global installed base, increasing the attachment rate of service contracts on new equipment sales and expanding our consulting services to new project design, particularly with respect to water treatment systems for data centers. This focus drove strong service growth across both segments in 2025. As it relates to innovation, our increased investment in R and D combined with a focus on new product opportunities that have the highest growth and most attractive returns have reinvigorated our innovation flywheel.
Combined with our extensive direct to customer business model, these efforts have accelerated our development of fit for purpose solutions to enhance product quality, resolve critical pain points and drive greater efficiency throughout customer operations. Over the past 12 to 18 months, we have begun to see the fruits of our R and D efforts across BORLSO with several new product launches. A few notable new products that contributed to growth in 2025 include a new ammonia analyzer launched in Water Quality that simplifies operations, improves efficiency and reduces maintenance for customers. This product is used at various stages of the water cycle to monitor ammonia levels, maintain water quality and protect the health of aquatic environments.
Additionally, we continue to expand the number of parameters customers can test using our most advanced and easiest to use testing technology, our single use Chem keys, which grew double digits year over year in 2025. In our PQI segment, our new UV laser marking encoding system met strong customer demand in 2025. This new technology is helping customers transition to more sustainable flexible film packaging solutions. And in our packaging and color software offering, we launched a new AI enabled solution to help streamline and error proof packaging print during the design phase. This helps brands accelerate, go to market and reduce costly reprints and product recalls.
Looking at 2026, we believe that the durability of the secular drivers across our key end market will continue to underpin steady demand for our products and services. About 80% of our sales are tied to water, food and essential goods and about 60% of our revenue is recurring. Of our recurring revenue, the majority is comprised of consumables that are critical to the daily operations of our customers where the cost of failure is high. In addition, our large global installed base of instrumentation and equipment drives a reoccurring need for replacement and upgrades each year, further fortifying our sales durability.
Given these attributes and continued focus on our strategic growth initiatives, we guided to another year of steady core sales growth in 2026 and our third consecutive year of adjusted operating margin expansion with adjusted EPS growth in the mid to high single digits. In conjunction with reigniting our innovation engine, we are improving the quality of our portfolio with a focus on accelerating our core sales growth rate and creating long term value. At the outset of 2025, we divested AVT, a slower growth instrumentation product line within PQI. Meanwhile, our acquisition of Trace Gains grew sales by more than 20% in our first full year of ownership.
The combination of ESCO and Trace Gains is helping our CPG customers accelerate time to market for new products and connect digital workflows to drive efficiency in our water quality segment. We acquired aquafeetis in the second quarter of last year. Aquafeetis complements our Trojan UV business by providing low flow UV water treatment solutions through an expanded footprint in Europe. And just a few weeks ago we completed the acquisition of In Situ, expanding our world class water analytics portfolio into fast growing environmental, water and hydrology markets. Based in Colorado, In Situ is a global leader in water measurement and monitoring offering easy to use sensors, sondes and data management solutions.
Its differentiated technologies strengthen our position across the environmental water ecosystem and complements our OTT HydroMet portfolio. Over the past three years, In Situ has averaged roughly 8% core sales growth and in 2025 In Situ delivered approximately $80 million in sales with gross margins around 50% and EBITDA margins in the mid teens. The addition of In Situ expands our presence in fast growing environmental, water and hydrology markets and enhances our ability to help address freshwater challenges related to increasing water scarcity, severe weather events and water contamination. Greater visibility to the quantity and the quality of surface and groundwater enables municipalities, government agencies and industries to mitigate economic risk and ensure public safety.
These customers are increasingly faced with a variety of issues including not enough water, too much water, water in the wrong places and changing water composition which requires different treatment solutions. The combination of in situ and OTT products, along with support from our broader water analytics capabilities, creates a significant opportunity to help customers efficiently monitor and analyze the quantity and quality of their freshwater sources. We now have a premier environmental water analytics portfolio with significant opportunities for to accelerate growth through complementary channels, improve efficiency across our global footprint and deliver greater value for customers and shareholders.
This addition to our portfolio is squarely aligned to our purpose of safeguarding the world’s most vital resources and we are excited to publicly welcome the in situ team to Veralto Going forward. We remain excited about numerous opportunities to create value for shareholders through strategic growth and disciplined capital allocation. Our pipeline of acquisition opportunities remains strong for both water quality and pqi. That concludes my opening remarks and at this time I’ll turn the call over to Sameer to provide details on our fourth quarter results and 2026 guidance.
Sameer Ralhan — Senior Vice President and Chief Financial Officer
Thanks Jennifer and good morning everyone. I’ll begin with our consolidated results for the fourth quarter. Total sales grew 3.8% on a year over year basis to nearly $1.4 billion. Currency was a 250 basis point tailwind year over year and divestitures net of acquisitions reduced sales by 30 basis points, primarily reflecting the ABT divestiture. Core sales grew 1.6%. Our core sales growth was primarily driven by price which increased 2.3% year over year. Volumes were down modestly, a function of 3 fewer shipping days in the fourth quarter of 2025 versus the prior year. This impact was approximately 260 basis points.
Underlying demand remained steady in both the segments. Recurring revenue grew mid single digits year over year and comprised 59% of our total sales. Gross profit increased 3.4% year over year to $828 million. Gross profit margin was 59.3%. Adjusted operating profit increased 7% year over year and adjusted operating profit margin improved by 80 basis points to 24.6%. The increase in Q4 profitability was across both our segments, driven by strong operating execution. Looking at EPS for Q4, adjusted earnings per share grew 9% year over year to $1.04 per share in the fourth quarter. We generated free cash flow of $291 million or 115% conversion of GAAP net income.
I’ll cover the segment results now starting with water quality. Our water quality segment delivered $846 million in total sales, up 4.3% on a year over year basis. Currency was a 240 basis point stale event. The acquisition of Aquafeeds contributed 50 basis points of growth. Store sales grew 1.4% year over year led by price which increased 1.8%. Volumes decreased modestly due to three fewer shipping days. Underlying demand for our water analytics and water treatment solutions remained steady year over year. Adjusted operating profit increased 5.8% year over year to $219 million and adjusted operating profit margin was 25.9% up 40 basis points year over year.
Looking at the full year, our water quality team delivered core sales growth of 4.7% driven largely by volume. Core sales growth was equally driven by recurring revenue and instrumentation. Adjusted operating profit grew 9.4% or $74 million to $858 million. This resulted in 80 basis points of margin improvement. Overall, our water quality team executed well in 2025 and delivered outstanding financial performance, setting all time highs in annual sales and adjusted operating profit. Moving to the next page, Total sales in Our PQI segment grew 3% year over year to $550 million in the fourth quarter. Currency was a 280 basis point tailwind.
Net divestitures reduced sales by 1.6% year over year. This was primarily due to the AVT divestiture, partially offset by a couple of small technology acquisitions. Core sales grew 1.8% with price up 3%. Volume was down 1.2% primarily due to the three fuel shipping days which had an impact of approximately 260 basis points to volumes on a year over year basis. Underlying demand for our PQI products and services remained steady. PQI’s adjusted operating profit was $146 million in the fourth quarter, up $13 million over the prior year period, resulting in adjusted operating Profit margin of 26.5%.
This represents a 160 basis points improvement over the prior year period. For the full year, PQI delivered 4.8% core sales growth and adjusted operating profit margin of 26.5%. The full year margin reflects investments in trace gains to drive continued strong double digit growth as well as investments made to diversify our regional production. Overall, it was a very strong year for PQI team. It delivered all time highs with nearly $2.2 billion in sales and adjusted operating profit of $578 billion. Turning now to our balance sheet and cash flow in Q4 we generated $311 billion of cash from operations.
We invested $20 million in capital expenditures. Free cash flow was $291 million in the quarter or 115% conversion of GAAP net income at the end of the fourth quarter. Gross debt was $2.7 billion and cash on hand was $2 billion. Net debt was $642 million, resulting in net leverage of 0.5 times. As Jennifer shared early in the first quarter of 2026 we completed the acquisition of TransitU. The deal was funded with cash on hand. The cash outflow in Q1 for this acquisition was $427 million net of cash acquired. Even after this acquisition, we continue to have flexibility in how we deploy capital to that point.
In the fourth quarter, our Board of Directors approved an 18% increase in our quarterly dividend and authorized a $750 million share repurchase program. We have an attractive pipeline of opportunities in both water quality and pqi. We will remain disciplined in our approach as we continue to deploy capital to create long term shareholder value over the long term. Our bias remains to create long term shareholder value through MA. Turning now to our guidance for 2026 beginning with our expectations for the full year, we are targeting core sales growth in the low to mid single digit range on a year over year basis.
Total sales growth including the impact of completed acquisitions NFX is projected in the mid to high single digit range. We are modeling a currency tailwind of 100 to 150 basis points. This assumes that FX rates as of December 31st prevail throughout the year. Acquisition set of divestitures are expected to contribute 150 basis points of growth primarily from the Institute acquisition. Moving to adjusted operating profit margin, we are targeting approximately 25 basis points of year over year improvement in 2026. This assumes 50 basis points of margin expansion in our core business offset by about 25 basis points of dilution from the in situ acquisition.
Our adjusted EPS guidance for the full year 2026 CAPEX is in the range of $4.10 per share to $4.20 per share or mid to high single digit growth over the prior year. We are targeting free cash flow conversion of approximately 100% of GAAP net income. This assumes capex in the range of 1 to 1.5% of sales and a modest working capital investment to support our growth. Looking now at Q1 on a year over year basis, we are targeting core sales growth in the range of flat to up low single digits and total sales growth including the impact of completed acquisitions and FX in the range of mid to high single digits.
Currency translation is expected to be a year over year tailwind of approximately 3.5% and acquisitions net of divestitures are expected to drive about 50 basis points of sales growth. As a reminder, our core sales growth in Q1 2025 was 7.8%, setting up a tough comparison for this year. Our Q1 2026 guidance implies a two year stack of about 4 to 5% core sales growth. We are targeting adjusted operating profit margin of approximately 24.5% and adjusted EPS in the range of $0.97 per share to $1.01 per share. Additional details on the modeling assumptions supporting our full year and Q1 guidance are in the appendix of our earnings presentation.
That concludes my prepared remarks. At this point, I’ll turn the call back over to Jennifer.
Jennifer L. Honeycutt — President and Chief Executive Officer
Thanks, Amir. In summary, we capped off an outstanding 2025 with a strong fourth quarter. Given the essential need for our technology solutions, durable business model and strong secular growth drivers across our end markets, we expect another year of steady core sales growth in 2026 and we will continue to leverage the power of the Verralto enterprise system to drive continuous improvement in support of our customers. Our financial position remains strong and we will continue to evaluate strategic opportunities within our disciplined capital allocation framework. We are proud of the progress we’ve made on our journey As a young public company.
We are excited about the opportunities in front of us as we continue to build ruralto and help customers solve some of the world’s biggest challenges in delivering clean water, safe food and trusted essential goods. That concludes our prepared remarks and at this time we are happy to take your questions.
Questions and Answers:
Jennifer L. Honeycutt
Thank you. If you would like to ask a question, please press Star one on your keypad. To leave the queue at any time, press Star 2. Once again, that is Star N1. To ask a question. We will take our first question from Dean of Dre with RBC Capital Markets.
Please go ahead. Your line is open. Thank you.
Deane Dray
Good morning everyone.
Jennifer L. Honeycutt
Good morning, Dean.
Deane Dray
Hey, since we’re at the start of the year, I think it’s a good place to get synced with the water sector macro. Just what’s your expectations on Muni capex? And just related, any differences in demand trends from your municipal customers versus the. Industrial broadly industrial, commercial power, electrical, semiconductor and so forth. So just start us there if you could, please.
Jennifer L. Honeycutt
Yeah, thanks for the question, Dean. You know what we see in the water quality markets is really steady demand and I would say that we see that both across Muni and industrial markets relative to your CapEx question. You know, we are relatively insulated from fluctuations in CAPEX funding cycles. As you know, 60% of our business is recurring revenue. We fit in the high end of the value chain where we are integral to the operation of the customer’s process. They can choose not to use us, but the cost of failure or the risk of failure to them is going to be high.
So highly sticky business needed to continue to deliver clean water. And so, you know, we feel good about our position there. Relative to the demand between muni and industrial, we see pretty good opportunities on both sides. You know, every year we always see some fluctuations in which industrials are up or down. Currently we’re seeing strong, you know, read through here in the industrial markets that really support data centers. So data centers themselves precursors which would include semiconductor mining and power as well. So strong growth as we had mentioned in our prepared remarks, relative to those industrials.
And then on the side government funding continues to flow. So feel good about demand in both cases. And I think we’re well set up here in 2026.
Deane Dray
That’s really helpful. And then just a quick follow up. It’s come up in a number of calls across the sector regarding DRAM. For. Given across both of your businesses in the level of automation, are you seeing. Any pinches in supply or pricing? And could you size that for us if you could?
Sameer Ralhan
Yeah, Dean, just. Samir, I’ll take that one. No, our exposure actually in dollar terms is very small to the DRAM site. So as we kind of look at it and size it, we don’t expect it to be a material at this point.
Deane Dray
Good to hear. Thank you.
Sameer Ralhan
Thanks, Dean.
operator
Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead. Your line is open.
Andrew Kaplowitz
Good morning everyone. Morning, Andy. So maybe this one is for Samir. Your guidance is 50 base points of margin expansion X in situ, which is. I think right in your incremental margin algorithm. But maybe you could give us some. More color into the puts and takes you’re seeing because I think you’ll be lapping tariff related headwind, I think you said in the past by Q2. But Dean asked a question on inflation. It’s out there in different areas and there are investments that you’re making in situ. Is that kind of front end loaded? Any more color would be helpful.
Sameer Ralhan
Yes, Andy, as you go look at the core business. We are guiding towards 50 basis points of margin expansion. You know, a big chunk of that is actually, you know, pricing is driving it. And as you mentioned, some of the headwinds from the terrible friction that we had in 2025, those things will start rolling off. We’re going to start seeing the impact of that in the second half of 2026 as we kind of look at it and model then that’s really offset by some of the investments that we continue to drive.
You heard from Jennifer a little bit earlier about this investments in making the services that we try to expand that part of the business and also just on the sales side as we continue to increase feet on the, on the ground as you can think about the sales side. So it’s, it’s really the algorithm for the core business. It’s steady as for the long term value creation algorithm. So there’s no changes over there. We feel pretty confident on that side. Institute really great acquisition for, for us as we kind of get through some of the initial costs especially in the first half of the year to integrate and some of the, the cost tied to the realization of the synergies.
Those are the kind of things that are driving the upfront impact. And on a net year basis that’s going to be 25 basis points. So those are some of the puts and takes as you can think about the margin expansion.
Andrew Kaplowitz
Got that? Helpful. And Jennifer, you mentioned data centers are strong. I know in the past you said. It’S still relatively small part of a relative. But you know, we’ve seen a wave of data center orders here over the. Last couple of quarters for a lot of industrial companies. Could we see the data center wave. Be sort of meaningful for you guys. In growth in 26 or is it still too small? Maybe you could elaborate on sort of. Your TAM and sort of what’s going. On there for you guys.
Jennifer L. Honeycutt
Yeah, Andy, we don’t size our markets publicly and I would say that, you know, our, our sales in the data centers are still relatively small. We wouldn’t expect to see a meaningful contribution this year. Although the aggregation of power generation, cooling towers, mining, semiconductor. Right. It does start to add up if you kind of include all of the ancillary vertical markets that go with it. But data centers specifically, again, small base of business growing double digits but not going to be a meaningful contributor to core growth this year.
Andrew Kaplowitz
Helpful guys. Thank you.
Sameer Ralhan
Thanks Andy.
Jennifer L. Honeycutt
Thank you. We will move next with William Griffin with Barclays. Please go ahead. Your line is open.
William Griffin
Thanks good morning and appreciate the time. My first question here just was hoping to drill down into PQI a little bit and perhaps specifically what you’re seeing in that business as it pertains to this kind of high protein boom that we’re seeing. Could that really start to be a volume driver within PQI and just any color there would be helpful.
Jennifer L. Honeycutt
Yeah, thanks for the question. You know, our CPG markets tend to be holding up really well. They’re stable. We’re not seeing any changes in demand patterns. Good linearity across the four quarters and you know, within that we’ve got solid demand across some of our new product innovations. UV laser, we’ve, we’ve seen some good interest there relative to changes in terms of food products and package size and so on. Look, anytime changes get made to what is being produced, it’s generally a nice pickup for us. Right. So the secular drivers around the proliferation of brands, the proliferation of SKUs, changes in package size, even regulatory influences.
Right. Those are all positive drivers for our business there. So we absolutely feel good about changes to packaged foods to support changes in dietary requirements and so on. So I think on the coding and marketing side, that’s a volume game for us. So the more packages, the more coding and marketing equipment and consumables, it gets sold into that space. So as far as protein intensive consumer packaged goods goes, I think we’re well positioned to capitalize on that.
William Griffin
Got it. Appreciate that. And then just one specifically on geographic performance in 4Q, if we’re doing the math right, it looks like Western Europe may have actually been down year on year in terms of core growth. Do you have any color or commentary on the drivers there?
Sameer Ralhan
Yeah, you can look at the Western Europe really well. That’s driven by the impact of the three days. If you start looking on a year over year basis, as if you recall, we saw pretty solid growth in the Q1 across the regions, especially in the Western Europe as well because we had three extra shipping days.
That’s really kind of driving the year over year comp. As you can look at the Western Europe, there’s nothing otherwise on that. So on a full year basis we feel pretty good. If you kind of look at the growth in the Western Europe, really great execution by the team on the water quality and the PQI side.
Jennifer L. Honeycutt
Yeah. Our recurring revenue business is really what drives that. Right. So 60% of the business being recurring revenue is going to have a pretty big impact. When you’ve got base fluctuations. You only see that in the first quarter or the fourth quarter last year.
William Griffin
Got it. Appreciate it. Thank you very much. Thanks Phil.
operator
Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please go ahead. Your line is open.
John McNulty
Yeah, good morning. Thanks for taking my question. Maybe just digging into the guide a little bit. You know, you’re looking for mid to high single digit EPS growth and yet you know, your Growth overall on the top line is kind of in line with what you’ve seen over the last couple of years when you put up double digit EPS growth. So I guess is there anything that gives you some pause either in the end markets or on the cost side that has you forecasting EPS growth that’s a little bit more modest than what you’ve seen over the last couple of years?
Sameer Ralhan
Yes John, thanks for that question.
Look, as you kind of look at the guide overall, maybe just. John, start from the top of the panel for the core growth perspective. We expect to be low to mid single digit as we kind of came out of the year, which I think it just makes sense for us to be prudent at the still some moving parts of the macro perspective. But underlying demands are pretty good and pretty, pretty solid. So we feel pretty confident on the demand side. But as you can move further down we’ll have the margin expansion of roughly 25 basis points including the impact of the Institute acquisition that really boils down to EPS growth in the mid to high single digits.
You know there’s nothing material John, anything on the cost side. So we’ll have the top line growth, the margin expansion that’s ultimately coming down. It’s really the only other impact I would say on the EPS side is from the Institute perspective is this going to be accretive to the earnings, operating earnings from $0.02 per share but there is a $0.04 dilution from the lack of interest income because of the cash being used. So that’s kind of baked into the EPS as well. So that’s how you do your map. Got it. Fair enough. And then just a question on the data center opportunity and the market, I think recently it became more clear that there is an opportunity for warmer water cooling as opposed to refrigerated water cooling.
John McNulty
Can you help us to think about if that changes the game for Veralto at all in terms of how they target and maybe benefit from the data center growth as we look forward.
Jennifer L. Honeycutt
This is a great question John. You know liquid cooling tends to increase the need for Vuralta solutions because it’s really a smaller volume of water focused on high purity fluids and these need to be monitored along with ensuring sort of continuous chemical control and monitoring. So it doesn’t really matter in terms of what the temperature of that water is. And even though in these cases where you know, it’s a closed loop system, liquid cooling using less water, it’s more valuable, you can think of it as more valuable water. Right. So there’s precision dosing to prevent corrosion and biofouling that supports our chemtreat business.
You’ve got continuous monitoring of ultra low range organics such as toc that benefits our hach business. And then you’ve got high purity disinfection needs there, which benefits our Trojan business. So, you know, we do get this question from time to time and it’s really not a function of the temperature of the water. It’s the fact that water is used at all. And the, the lower the volume of water you use, the higher the need to have precision control over that water to make sure that that process is running well and not creating problems and other kinds of quality risks for the data centers themselves.
So that’s the way to think about it.
John McNulty
Got it. Thanks very much for the color.
Jennifer L. Honeycutt
Thank you. We will move next with Jacob Levinson with Melius Research. Please go ahead. Your line is open.
Jacob Levinson
Hi, good morning, everyone.
Jennifer L. Honeycutt
Good morning, Jake.
Jacob Levinson
You folks have done a couple interesting bolt on deals the last two years and now you’ve got a new buyback authorization and the balance sheet’s in a pretty nice spot here. But maybe you can just speak to your confidence and maybe getting some more deals across the goal line in 26 and any color around. Just the activity levels that are happening behind the scenes here.
Jennifer L. Honeycutt
Yeah, thanks for the question, Jake. We feel good about the level of activity we’ve got right now in our M and A pursuit. We’ve got full funnels both on water quality and PQI and continue to work on a number of different opportunities, opportunities which we do believe are actionable. You know, that said, we’ve got, we’re going to hold true to our discipline here in terms of making sure that we like the market, that we’ve got a top tier asset and that we can get it at the right valuation. You know, we don’t always, you know, there’s a lot about that that we don’t control and timing tends to be a little bit episodic.
But we are excited about what we have in the funnel. Do believe that we will be continuing on our MA journey this year and you know, relative to share buybacks, that just gives us another lever here in terms of the way to return value to shareholders. Should we see a period here where, you know, we’re going to be a little bit lighter at M and A. But I would say even with that program in place, it takes nothing away from our ability to transact on our aspirations here relative to M and A.
Jacob Levinson
Okay, that makes sense. And just another one quickly on in situ, it seems like a pretty interesting asset and I’m just trying to get a sense of what the integration plan might look like. I’d have to imagine it’s maybe a bit subscale and a lot of this private asset assets tend to need some help operationally or maybe just need to be larger. So maybe you can speak to where the low hanging fruit is or the biggest opportunities that you see.
Jennifer L. Honeycutt
Yeah, great question. We’re really excited about the in situ acquisition and certainly have plans to realize synergies on both the top line and the bottom line. I would say right out of the gate, we’re most excited about the top line synergies, to be honest. We’ve got a good opportunity to accelerate growth. And as a reminder, in situ’s grown 8% over the last three or so years. We believe we can get that to low double digits here with the combination of the OTT portfolio. The thing that’s so attractive about this is that they are complementary product portfolios.
So in situ is strong in water quality. So that would be the analytics measurements in environmental water and ought is strong in water quantity, which would be level and flow. And together the product portfolio really snaps together like Lego pieces. So, you know, the combined product portfolio is going to give us strength going for complementary channels. Right. And fit you is predominantly a North American company. And so we’ve got the opportunity to leverage OUGHT channels outside the U.S. including Europe, Latin America and Asia. And then certainly to your point, Jake, they’re going to benefit from the VES tools, whether that’s those being deployed on the factory floor for improved operating efficiency or those deployed for our commercial efforts in helping them really grow faster.
We’re going to also look to the cost synergy side of things. We will move in parallel with our top line synergy activity here. And these would fall into things that you typically expect. So, you know, VES on the factory floor improving operating efficiency. We’re going to have opportunities to leverage global supply chain in our procurement teams through purchase price variance and insourcing activities and then just globalizing or optimizing the global resources. So. So a number of things there. The teams will be busy and running at breakneck pace, but I think we’re really excited about the possibilities here.
Jacob Levinson
That’s great color, Jennifer. Thank you. I’ll pass it on.
Jennifer L. Honeycutt
Thank you. We will move next with Ryan Connors with North Coast Research. Please go ahead. Your line is open.
Ryan Connors
Thanks for taking my question. I wanted to talk a little bit about the water segment and it seems like the Growth has been there generally. Obviously you’ve got some great secular themes behind that, but it does seem like the growth has been more price driven and that the volume growth has been a little more tepid. So can you just unpack for us, what’s it going to take in your mind to kind of unlock the volume growth in water given that you do have, you know, such such compelling big picture themes behind it?
Sameer Ralhan
Hey Ryan, this.
Yeah, as you can look at the water side, you absolutely right. You know, we feel, you know, really excited about the opportunity that that’s in front of us. The steady demand drivers, both in the mean industrial side, you know, continue overall if you’re going to unpack between the industrial and the mini side, the mini side actually been doing really well. You notice some of those things on the pricing side, but the underlying volumes have been pretty good as well. Industrial side I would say, you know, it’s when you start looking at things like the data center ecosystem, as Jennifer said earlier, when those kind of industries, be it, you know, semiconductor on the power, all the ancillary systems around the data centers, they’re kind of helping us drive the volume as well as you can look at our filings, you know, you’ll see a little bit of commentary around the chemicals, you know, treatment side which is the chemtree and the UV side.
Those businesses are growing sort of solidly in the mid single, mid single digit class kind of a range. And the mini business is a little slower grower but a steady rock solid as you know, you know that’s the stickiness of that business in the market. So overall it’s going to start look long term, Ryan being a really, really solid place now, 2025, just with a three day dynamic. That move between Q1 and Q4 has makes the numbers look a little bit odd. But otherwise if you look on a full year basis, we’re doing really well.
Got it. Okay. On a full year basis, volume water quality was up more than 3%. Yep. Okay. And then switching gears over to PQI also some great big picture themes there, especially with the combination now of Esco and trace gains. But can you talk about how exactly you monetize that demand? Is it more subscriber licenses and existing accounts? Is it adding new account? Is it higher pricing for existing users? Just curious if you can give us some more color on better understanding how you actually convert that demand into revenue and earnings.
Jennifer L. Honeycutt
Yeah. So our escrow and trace gains businesses together are growing really well in the software space. As you mentioned on the back of Some secular growth drivers relative to digitized workflows across food and beverage and things to that effect. These are SaaS based businesses. Right. So we’ve got recurring revenue in terms of the mechanics behind how revenue is recognized there, I would say one of the things that was so attractive about Trace Gains is that they had a leading position in mid market brands. ETSCO largely has the enterprise brands and so the cross pollination of the two allows the Trace Gain channel to bring Esco into mid market and the Esco channel to bring Trace gains into enterprise accounts.
So there is a fair number of new accounts, new business that we see there and it’s the fastest growing sector is mid market. But we also see product expansion happening. So you know, Web Center Go is kind of the backbone of Esco. We’ve now integrated the Trace Gains AI offering into that backbone through a product called Comply AI that allows for automated AI verification of copied print in packaged goods. And as we mentioned, the prepared remarks helps reduce errors, transcription errors, costly product recalls and so on. So it’s both menu expansion and its new customers.
Ryan Connors
Got it. Thanks for your time.
Sameer Ralhan
Thanks Ryan.
operator
Thank you. We will move next with Nathan Jones with Stifel. Please go ahead. Your line is open.
Nathan Jones
Good morning everyone.
Jennifer L. Honeycutt
Good morning, Nathan.
Nathan Jones
I guess I’ll start with a fairly basic question out of the guidance. Low to mid single digits are pretty wide range. Can you talk about what will get you to the low end of that range? What will get you to the high end of that range? And then the 50 basis points core margin expansion. Would that change if you were at the low end or at the high end but you do 50 basis points on low single digit growth and maybe you get a little bit better than that if you get to mid single digit growth.
Just any color you could give us on the width of that range.
Sameer Ralhan
Yeah, Nathan, thanks for that question. As you kind of look at the top line from a core growth perspective, low single digits from the single digit range. Really as you kind of come out of the year, the demand underlying patterns are pretty, pretty good frankly. Q1 out of the gate, the order patterns are looking pretty good as well. So we feel pretty good about the business. But there’s still things on the macro side, you know, you always have to keep an eye on and it’s just the beginning of the year.
So we just wanted to have a guide that’s a little prudent and judicious at this time. Overall, we feel pretty good about the business as it kind of pertains to its impact on the Margin side. You’re absolutely right. You know, given the fall through and the leverage you would expect in the system as we kind of move up, that should help us, you know. But we do have flexibility to modulate on the cost side as well. Right. Depending on whether we are trending on the low side of the high side. So I think it’s good at this point to model in 20 basis points on the core side, but more to come as you kind of give the Q1 guide.
Then I guess my follow up question on supply chain moves and some of the regionalization of footprint, Jennifer, that you talked about in your opening comments, maybe a little bit more color around what’s been done there. I know some of that was kind of tariff avoidance kind of things, so might be okay regardless of tariff, is there incremental profitability that drops through from that, that contributes to margin expansion and that maybe, you know, offset some price that maybe you don’t take or just have you thinking about your ability to keep that improvement in cost. Thanks.
Jennifer L. Honeycutt
Yeah, I mean, principally we initiated, you know, regionalization of our manufacturing lines and sort of regionalize our supply chain to certainly deal with the tariff environment that we were facing last year. As a reminder, these are all no regret moves because we’re effectively a light assembly house. Right. There’s no big capital monuments to replicate or move. And so it’s fairly straightforward to kit up these lines and move them within a six to nine month kind of time frame. Insofar as what kinds of moves happened, our videojet business had a fairly large China manufacturing footprint. We diversified that footprint into the uk, into Europe, you know, we derisked our Trojan business in Canada by adding footprint into an existing or expanding footprint in an existing location here in the US We’ve had some, you know, hach product lines that have been diversified as well.
So you know, all told, there were close to a dozen line moves there to really get us set up for any kind of trade environment that we would be facing going forward that would be more restrictive, you know, given sort of the geopolitical dynamics. You know, the things that we’re working through now here are, you know, to make sure that, you know, we’re not encountering any absorption issues. Right. We got to make sure that those new line moves are, you know, up and running to full capacity and that we’re operating efficiently there. So there’s a little bit more work to do there.
But again, these are no regret moves. And to the extent that, you know, trade relationships continue to change, you know, we just had one, you know, yesterday between the US and India where that became favorable for us. Right. So we’re going to continue to be, you know, flexible and nimble and agile and how we approach, you know, the geopolitical tariff, trade environment. And I think VES does a great job of serving us well here.
Nathan Jones
Thanks for taking the questions.
operator
Thank you. We will take our last question from Brad Hewitt with Wolff Research. Please go ahead. Your line is open.
Brad Hewitt
Hey, good morning. Thanks for squeezing me in here.
Jennifer L. Honeycutt
Hey Brad,
Brad Hewitt
Just curious in terms of what you’re assuming for the price contribution to growth in 2026, both consolidated and by segment and how much of that is carryover versus incremental pricing? Yeah, thanks Brad, for that. If you’re going to look at the pricing that we have modeled into the guidance in 2026, you know, historical range is 100 to 200 basis points. You should expect us to be towards the high end of the range this year. Part of it is carryover, as you said, from the pricing actions that we initiated. But we are implementing price increases on top of that as well, just as part of the regular cadence.
So that will put us closer to 200 range, basis points, range. Okay, great.
Jennifer L. Honeycutt
And then as we think about organic growth phasing throughout the year, is it fair to assume organic growth accelerates each. Quarter through the year and then Q4, given the easy comp, you’re kind of comfortable in the mid single digit zone. Oh absolutely Brad. As you’re going to think about this thing, you know, interesting thing is as you can look at the sequential sort of buildup of the revenue throughout the quarter that is pretty much in line with the historical averages, right? 24% of the total revenue in Q1. That you know, if you look at overall, just because of the three day impact, the comps will be a little bit of headwind in the first half of the year, but they become favorable in the second half from that three day map.
But otherwise underlying demand patterns, there’s no changes.
Brad Hewitt
Great, thank you.
Sameer Ralhan
Thanks Brad.
Ryan Taylor
Thanks Brad. This is Ryan Taylor. We appreciate everybody joining the call today. We appreciate you sticking with us a little bit past the bottom of the hour here as usual. I’ll be around for follow up questions over the next days and weeks. Should you have any, just reach out to me. And thanks again for joining our fourth quarter call.
operator
Thank you. This brings us to the end of Peralto Corporation’s fourth quarter 2025 conference call. We appreciate your time and participation. You may now disconnect. Sa.