We Expect the Vontier Business System to Drive Solid Operating Margin Expansion

Equity Analyst

Krzysztof Smalec

Vontier’s business model is an iteration of the Danaher Business System playbook, which the firm inherited from its former parent companies, Danaher and Fortive. The Vontier Business System focuses on acquiring moatworthy companies, boosting their operating margins through continuous improvement, and reinvesting cash flows in further M&A deals.

The Danaher blueprint has generated impressive results, driving significant operating margin expansion in Vontier’s underlying businesses. For example, the formula has steadily improved Gilbarco Veeder-Root’s operating margins from single digits to over 20% since the business was acquired by Danaher in 2001. Vontier has a strong record of continuous improvement, and we believe that management can continue to boost core operating margins by roughly 25-50 basis points per year.

Over the last few years Vontier has faced top-line headwinds in its environmental and fueling solutions business due to the fraud liability shift (commonly referred to as EMV, for Europay, Mastercard, and Visa). With the EMV sunset now in the rearview mirror, we expect Vontier to return to normalized core revenue growth in the midsingle digits in 2024 and beyond.

Since Fortive was spun off from Danaher in 2016, Vontier’s parent company prioritized growth in its professional instrumentation business, which left the industrial technology business (now Vontier) with less than 5% of Fortive’s M&A capital. Therefore, we believe that the spinoff from Fortive will allow Vontier to redeploy capital into its business and accelerate growth through M&A. We expect the firm to focus on bolstering its presence in high-growth markets, expanding into adjacent end markets, and investing in digital solutions that complement its installed base of equipment. Vontier is led by an experienced management team that is well versed in the Danaher playbook, and we believe that it will continue to drive profitable growth by successfully implementing the Vontier Business System.

Business Strategy & Outlook

We believe that Vontier, spun off from Fortive in 2020, merits a narrow moat rating based on customer switching costs and intangible assets. Vontier is a diversified industrial technology firm focused on transportation and mobility solutions. In both of its business lines, transportation technologies and franchise distribution, Vontier has developed recognizable brands and has built a large installed base of equipment that generates a healthy recurring revenue stream composing roughly 25% of its sales. Many of Vontier’s products perform mission-critical functions, and the firm’s reputation for quality and reliability is a key differentiator. Vontier generates gross margins in the low 40s and operating margins in the low 20s, and we think it is well positioned to outearn its cost of capital over the next decade.

Within transportation technologies, Vontier’s Gilbarco Veeder-Root business offers retail fueling operators a wide range of solutions, including fuel dispensers, payment technologies for retail petroleum stations, and leak detection systems. Gilbarco is one of the two largest players in the retail fueling space (alongside Dover) and has established a recognizable brand as a leading provider of dispensers, payment solutions, and point-of-sale systems. The business has built a large installed base of equipment that includes around 650,000 pay-at-pump devices and 69,000 point-of-sale systems at convenience stores. Gilbarco generates healthy recurring revenue from multiple sources, including enterprise license fees for indoor point-of-sale solutions as well as its Insite360 platform, a software-as-a-service-based offering that provides a suite of solutions to retail petroleum stations, including fuel management, logistics, and environmental compliance. We believe that Vontier’s strategy of tapping into its large installed base by adding complementary software reinforces customer switching costs by offering petroleum stations a comprehensive package of solutions. 

Vontier’s transportation technologies portfolio also includes Teletrac Navman and Global Traffic Technologies. Teletrac Navman is one of the leading players in the telematics space, offering vehicle tracking, fleet management, and fuel consumption management solutions. It has an installed base of roughly 0.5 million vehicles and generates a steady stream of recurring revenue through its SaaS-based telematics platform. GTT is a provider of traffic management systems aimed at minimizing traffic congestion and providing prioritization for emergency vehicles. It has a leading position in 41 of the 50 largest U.S. cities and an installed base of over 90,000 intersections. GTT has a portfolio of patents and decades of experience that allow it to safely manage traffic, and we think the business is well positioned to capitalize on growing demand for smart city technologies.

Within Vontier’s franchise distribution business, Matco Tools is a franchise-based distributor of tools and diagnostic solutions to the automotive aftermarket. We believe the unit has dug a narrow moat based primarily on intangible assets, including its strong brand and customer relationships. Matco’s business model is based on franchise-operated vans that cover exclusive routes and sell tools directly from their trucks. Matco representatives regularly visit dealerships and repair shops along their van routes and develop lasting relationships with technicians. Mechanics often purchase their own tools, and our research indicates that over the course of their careers they typically spend well over $5,000 on tools, with some technicians spending as much as $30,000-$40,000. Tool distributors like Matco offer credit programs and set up customized payment plans for students and full-time mechanics. We believe this arrangement drives customer loyalty as mechanics rely on Matco’s financing, and the company ensures that they have all the necessary tools to avoid any work delays.

We expect the rising complexity of vehicles to continue driving demand for Matco’s diagnostic solutions. Matco sells diagnostics scan tools that allow customers to purchase a single piece of hardware and run diagnostics using different sets of software bought through a digital marketplace, either through a single-use fee or a monthly subscription. We see some evidence of customer switching costs as technicians become familiar with Matco’s platform, and we expect the firm’s SaaS-based offerings to help increase the business’ recurring revenue stream and increase customer stickiness in the long run.

Matco faces formidable competition, both from rival tool truck brands like Snap-on and Mac Tools as well as retail and online channels, but we believe that the business is more likely than not to continue outearning its cost of capital over the next 10 years. We expect Matco to be able to ward off competition thanks to its exclusive van route network, frequent interactions with mechanics that drive customer loyalty, and growth in diagnostic solutions that become embedded in a repair shop's operations.

Narrow

Economic Moat

Vontier Corporation

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Vontier Corporation excels in Q4 2022, poised for strategic growth

Vontier Corporation's Q4 2022 performance reflects strong growth, operational efficiency, and strategic focus on driving shareholder value.
While facing challenges in margin performance and cost management, Vontier is well-positioned to capitalize on opportunities in capital allocation and market expansion.
The company's emphasis on ESG initiatives, successful acquisitions, and pricing strategies underpin its commitment to sustainable growth and profitability.
Confidence in 2023 guidance, supported by key factors and growth projections, signals a positive outlook for Vontier's future performance and value creation.

Vontier surpasses Q1 expectations, focuses on debt reduction and growth

Vontier Corporation's Q1 2023 performance exceeded expectations, driven by strong core revenue growth and strategic initiatives. While facing challenges in certain segments, the company's focus on debt reduction and adjusted EPS guidance raise indicate a commitment to financial strength and growth. Opportunities lie in product innovation and increased market presence through recent developments and extra shipments.

Vontier reports resilient Q2 performance, eyes hydrogen for growth

Vontier's Q2 performance showcased resilience with core growth and margin expansion. Despite revenue challenges in some segments, the company is strategically positioned for growth through connected mobility and hydrogen solutions. Analyst interest in margin trends and growth trajectory reflects market confidence in Vontier's strategic direction.

Vontier exceeds Q3 expectations, focuses on growth and sustainability

Vontier Corporation reported robust Q3 results, exceeding expectations with strong revenue growth and improved margins. Despite anticipating a slight decline in core sales, the company remains focused on executing its growth strategies and enhancing profitability. Vontier's emphasis on innovation and sustainability positions it well for future opportunities.

Vontier Corporation excels in Q4 2023, eyes growth through mobility innovation

Vontier's Q4 2023 showcased robust financial performance, strategic advancements, and a positive outlook for 2024. The company's focus on operational excellence, capital allocation, and innovation positions it well to capitalize on industry trends and drive sustainable growth.

Vontier reports solid Q1 results, eyes EV trends for growth

Vontier maintains guidance for the full year, confident in industry fundamentals. Expects sequential earnings growth in Q3 and Q4, with Q4 anticipated to be the strongest. Progressing with Connected Mobility strategy for growth and differentiation.

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Vontier Corp. engages in the provision of critical technical equipment, components, software and services for manufacturing, and repair and servicing in the mobility infrastructure industry worldwide. It supplies solutions, spanning advanced environmental sensors, fueling equipment, field payment hardware, remote management and workflow software, vehicle tracking and fleet management software solutions for traffic light control and vehicle mechanics and technicians equipment. The company was founded in 2019 and is headquartered in Raleigh, NC.

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier to Participate in Upcoming Investor Conferences.

Vontier to Participate in Upcoming Investor Conferences

Vontier Corporation (NYSE:VNT ) Q1 2024 Earnings Conference Call May 2, 2024 8:30 AM ET Company Participants Ryan Edelman - VP, IR Mark Morelli - President and CEO Anshooman Aga - SVP and CFO Conference Call Participants Nigel Coe - Wolfe Research David Ridley-Lane - Bank of America Joseph Donahue - Baird Julian Mitchell - Barclays Operator Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2024 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 2, 2024, and a replay will be made available shortly after.

Vontier Corporation (VNT) Q1 2024 Earnings Call Transcript

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Reports First Quarter 2024 Results and Maintains Full Year Outlook.

Vontier Reports First Quarter 2024 Results and Maintains Full Year Outlook

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Corporation (NYSE: VNT), a leading global provider of critical technologies and solutions to connect, manage and scale the mobility ecosystem, announces the opening of a state-of-the-art engineering office for Invenco by GVR in Bengaluru, India this month. The cutting-edge facility becomes the central hub for Invenco by GVR's core functions, including engineering, IT services and data analytics. This technology center will provide hardware- and software-b.

Invenco by GVR, A Vontier Company, Opens State-Of-The-Art Engineering Center for 250 Employees in Bengaluru, India

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Schedules First Quarter 2024 Earnings Call.

Vontier Schedules First Quarter 2024 Earnings Call

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Vontier's shares have rallied as the company expects growth in 2024, revealing its true organic growth rate and potential. VNT is a leader in the mobility ecosystem, with segments in environmental & fueling solutions, mobility technologies, and repair solutions. Despite a lack of growth in 2023, the company remains very profitable, and its shares still offer potential for further gains.

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RALEIGH, N.C.--(BUSINESS WIRE)--With healthy end markets fueling momentum, our Connected Mobility strategy and comprehensive suite of industry-leading solutions continue to accelerate growth, profitability and free cash flow.

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RALEIGH, N.C.--(BUSINESS WIRE)--VNT Schedules Fourth Quarter 2023 Earnings Call.

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RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Corporation (NYSE: VNT), a leading global provider of critical technologies and solutions to connect, manage, and scale the mobility ecosystem, today announced the appointment of Mike Dwyer as President, Matco Tools effective immediately. Mr. Dwyer succeeds Tim Gilmore, who will retire from the company following an exceptional 36-year career with the organization. Gilmore will serve in an advisory capacity to ensure a smooth and seamless transition. “On b.

Vontier Appoints Mike Dwyer as President of Matco Tools

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Corporation (NYSE: VNT), a leading global provider of critical technologies and solutions to connect, manage, and scale the mobility ecosystem, has been named to Newsweek's list of America's Most Responsible Companies 2024. This prestigious award is presented by Newsweek and Statista Inc., the world-leading statistics portal and industry ranking provider. America's Most Responsible Companies ranking focuses on a holistic view of corporate responsibility t.

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Vontier Corporation (VNT) Q3 2023 Earnings Call Transcript

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Reports Strong Third Quarter Results and Raises 2023 Adjusted EPS Midpoint.

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RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Schedules 3Q'23 Earnings Call.

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Vontier Corporation (NYSE:VNT ) Q2 2023 Earnings Conference Call August 3, 2023 8:00 AM ET Company Participants Ryan Edelman - Vice President, Investor Relations Mark Morelli - President and Chief Executive Officer Anshooman Aga - Chief Financial Officer Conference Call Participants Julian Mitchell - Barclays David Ridley-Lane - Bank of America Nigel Coe - Wolfe Research Operator Good morning, ladies and gentlemen, and welcome to the Vontier Second Quarter 2023 Earnings Call. At this time, all lines are in a listen-only mode.

Vontier Corporation (VNT) Q2 2023 Earnings Call Transcript

RALEIGH, N.C.--(BUSINESS WIRE)--Vontier Corporation (NYSE: VNT), a leading global provider of critical technologies and solutions to connect, manage and scale the mobility ecosystem, will release its second quarter 2023 earnings results on Thursday, August 3, 2023, and will hold a conference call the same day at 8:30 a.m. ET.

Vontier Schedules Second Quarter 2023 Earnings Call

I changed my recommendation on Vontier Corporation from buy to hold as the stock has reached my target price of $30. I still maintain faith in Vontier Corporation's business prospects, including its ability to attract larger customers and expand its market share. Potential upside from today's share price relies heavily on Vontier's ability to inflect earnings upwards in the near-term.

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