フォーティブ（FTV）2026年第3四半期決算説明会：EPSガイダンス引き上げ

フォーティブ・コーポレーション（NYSE: FTV）は、2026年度第3四半期にオーガニック成長の加速と調整後利益の2桁増益を発表した。経営陣は通期の調整後EPS見通しを上方修正し、「Fortive Accelerated」戦略がイノベーションの強化、商用実行力の向上、およびリカーリング顧客価値の創出に寄与していると述べた。

要点

• 売上高は11億ドルに達し、公表ベースで前年同期比8%増、コアベースで7.2%増となり、コア成長率は5四半期連続で前四半期比で加速した。
• 調整後EBITDAは前年同期比約10%増の3億4,000万ドルとなった。前年度のコスト抑制効果に伴う比較上の逆風が約50ベーシスポイントあったにもかかわらず、調整後EBITDAマージンは50ベーシスポイント拡大して30.6%となった。
• 調整後EPSは13%超増の0.77ドルとなり、5四半期連続の2桁成長を記録した。
• インテリジェント・オペレーティング・ソリューションズ部門が業績を牽引し、コア成長率は9%、調整後EBITDAマージンは120ベーシスポイント拡大した。アドバンスト・ヘルスケア・ソリューションズ部門のコア成長率は3.1%となった一方、継続的な投資が部門利益の重荷となった。
• フォーティブは、2026通期の調整後EPS見通しを3.10〜3.14ドルに引き上げた。これは中間値で前年比15%をわずかに上回る成長を意味する。
• 同社は第3四半期にさらに3億ドルの自社株買いを実施した。「新生フォーティブ」発足以降の自社株買い累計額は23億ドルに達し、発行済株式総数の13%に相当する。

主要財務データ

フォーティブはGAAPベースの利益およびフリーキャッシュフローにおいて、1,800万ドルのAEPA関税返還金を計上した。この恩恵は調整後利益指標からは除外された。経営陣は、今後数四半期でさらに500万〜1,000万ドルの関税返還金を見込んでいる。

事業・業績の動向

インテリジェント・オペレーティング・ソリューションズ

インテリジェント・オペレーティング・ソリューションズ部門の売上高は公表ベースで10%増加し、コア成長率は9%に加速した。成長は、プロフェッショナル計測機器、施設・資産ライフサイクル・ソリューション、およびガス検知機器の全般にわたり広範に及んだ。

フルーク（Fluke）はすべての地域および製品ポートフォリオで成長を達成した。受注は第2四半期から加速し、BBレシオ（book-to-bill）は1超を維持した。フォーティブはデータセンター、防衛、および若手技術者向けの投資を継続した。経営陣の試算によると、データセンター・エコシステムは現在フォーティブの総売上高の1桁台前半を占めるにとどまっており、この拡大機会の初期段階にあるとしている。

施設・資産ライフサイクル・ソリューション事業は、ServiceChannelの複数拠点向け施設保守・マーケットプレイス用ソフトウェアや、Gordianの計画・調達ソリューションの好調により恩恵を受けた。また、経営陣は顧客によるAI機能を備えたServiceChannelの導入状況にも触れた。

ガス検知機器の成長は、北米、欧州、中東における作業員安全ソリューションおよびHaaS（Hardware as a Service）提供に支えられ、前四半期からさらに加速した。

同部門の調整後EBITDAは13%増の2億7,500万ドルとなった。調整後EBITDAマージンは120ベーシスポイント拡大して36%弱となった。調整後売上総利益率は、一部の多拠点小売顧客向け利益率の低い製品の売上が相対的に高い成長を示したことにより、主に90ベーシスポイント低下した。

アドバンスト・ヘルスケア・ソリューションズ

アドバンスト・ヘルスケア・ソリューションズ部門の売上高は3億4,000万ドルとなり、公表ベースで3.7%増、コアベースで3.1%増となった。成長は、低温滅菌装置、ヘルスケア用消耗品、生体医学テスト、放射線モニタリング、およびProvationのSaaS製品によってもたらされた。

同部門の調整後EBITDAは5%減の8,800万ドルとなった。調整後EBITDAマージンは、成長投資および前年度のコスト抑制効果の反動を反映し、230ベーシスポイント縮小して26%となった。経営陣は、投資の目的について顧客基盤（インストールベース）の拡大、日帰り手術センター（ASC）への網羅性強化、および将来のイノベーション支援のためであると説明した。

経営陣は米国の病院環境について安定から改善傾向にあると説明した。手術・処置件数は堅調を維持し、設備投資も制約は残るものの前年より追い風となった。米国以外の需要については、複数の市場で力強いと評した。

地域別動向と価格戦略

すべての主要地域が成長に貢献した。北米が最も力強い地域であり続け、欧州・中東・アフリカ（EMEA）は成長が加速した。アジア太平洋（APAC）と中南米も拡大したものの、中国については厳しく不均一であると表現された。インドの好調が中国の弱さを補うのに寄与した。

両部門ともに価格および数量の双方が上昇した。電気・電子部品や貨物輸送費のインフレ進行にもかかわらず、価格転嫁効果（プライス・コスト）は大幅なプラスを維持したと経営陣は述べた。アドバンスト・ヘルスケア・ソリューションズ部門については、2026年の残りの期間から2027年にかけて、およそ200ベーシスポイント程度の価格貢献が妥当な目安になると示した。

業績見通し（ガイダンス）

フォーティブは、2026通期の調整後EPS見通しを3.10〜3.14ドルに引き上げた。この見通しは、第3四半期の市場環境が継続することを前提とし、現在の関税率を反映している。

第4四半期について、フォーティブは前年同期より営業日が4日少ないと見込んでいる。経営陣の試算によれば、これにより公表ベースの売上高が1,500万〜2,000万ドル押し下げられ、コア成長率に対して150ベーシスポイントの向かい風となる。部門別の影響試算は、インテリジェント・オペレーティング・ソリューションズで100ベーシスポイント、アドバンスト・ヘルスケア・ソリューションズで300ベーシスポイントである。

為替変動とM&Aを合わせた第4四半期の公表ベース売上高へのプラス効果は、約50ベーシスポイントと予想されている。経営陣は同四半期の実効税率について、引き続き10%台前半を見込んでいる。

リスクおよび注視事項

• 利益率の低いServiceChannelの事業活動や新興国におけるヘルスケア消耗品の販売拡大などを含むプロダクトミックスの悪化が、連結調整後売上総利益率を80ベーシスポイント押し下げた。
• 電気・電子部品や貨物輸送費のインフレが加速したものの、価格設定と生産性向上策により、価格転嫁効果（プライス・コスト）は大幅なプラスを維持した。
• 第4四半期の営業日が4日少ないことは、特にアドバンスト・ヘルスケア・ソリューションズ部門において、売上高およびコア成長率に大幅な重荷となる。
• 米国の病院の設備投資予算は改善しつつも抑制された状態が続いており、一方中国の需要は不均一な状態が続いている。
• アドバンスト・ヘルスケア・ソリューションズ部門のマージンは、成長投資および前年度のコスト抑制効果の反動から、引き続き圧迫されている。

アナリスト質疑応答の要点

• AHS部門のマージン見通し：経営陣は、2026年の投資について計画的かつ期間限定の取り組みであると説明した。焦点はインストールベースの拡大、日帰り手術センターの網羅性強化、および成長加速とマージン拡大に向けた複数年の道筋を支えることにある。
• データセンター：フォーティブは、ハイパースケーラー、建設会社、技術顧問向けの専門的な販売体制を拡大し、製品開発を進めている。経営陣はこの機会はまだ初期段階にあり、データセンターが同社売上高に占める割合は現在1桁台前半にとどまっていると述べた。
• リカーリング売上高とイノベーション：リカーリング売上高と非リカーリング売上高の双方が力強く成長し、フルークの好調により非リカーリング売上高の方が高い伸びを示した。経営陣は、イノベーションが価格設定、販売数量、顧客維持率、ロイヤルティに寄与していると述べた。
• 中期的成長：通期のコア成長率が5%超で推移していることから、経営陣はフォーティブが2026年および2027年に向けて議論された3%〜4%の成長フレームワークを上回るペースで進んでいると述べた。この好業績の要因として、堅調なエンド市場とイノベーションおよび商業的取り組みからの貢献の増大の両方を挙げた。
• 資本配分：フォーティブは、リスク調整後リターンに基づき、ボルトオン（補完的）買収と自社株買いの比較検討を継続している。経営陣は、M&A候補案件は合理的な期間内に投下資本利益率が同社の資本コストを上回る必要があり、同時に1株あたりフリーキャッシュフローおよびEPSへの影響も評価されると述べた。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

My name is Daryl, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Third Quarter 2026 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Christina Jones

Thank you, and thank you, everyone, for joining us on today's call. I am joined today by Olumide Soroye, Fortive's President and CEO; and Mark Okerstrom, Fortive's CFO.

During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com. We will also make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q.

These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. Our statements on period-to-period increases or decreases refer to year-over-year comparisons, unless otherwise specified. And our results and outlook discussed today are on a continuing operations basis.

With that, I'll turn the call over to Olumide.

Olumide Soroye

Thank you, Christina, and thank you all for joining our call today. Let me begin on Slide 3. Q3 marked our fifth consecutive quarter of strong execution and sequential core growth acceleration as we advance our Fortive Accelerated strategy.

Four key messages from the quarter. First, our teams delivered strong financial results, including core revenue growth of 7.2%, adjusted EBITDA growth of approximately 10% and adjusted EPS growth of 13%. These results reflect continued organic growth acceleration, driven by healthy customer demand and strong execution, enabled by our Fortive business system. Second, we maintained our disciplined approach to capital allocation. This quarter, we deployed another $300 million towards share repurchases, bringing total capital return through share repurchases since the launch of new Fortive to $2.3 billion, representing 13% of shares outstanding.

Third, our Fortive Accelerated strategy is translating into improving business performance. Across the portfolio, our investment in innovation, commercial our recurring customer value, driving faster profitable growth and reinforcing our confidence in the company's long-term value creation opportunity. Finally, we are raising our full year 2026 adjusted EPS guidance to $3.10 to $3.14, up 15% year-over-year at the midpoint, reflecting our strong year-to-date performance and continued confidence in the trajectory of the business.

Moving to Slide 4. Let me highlight some of the progress we are making in executing the 3 pillars of our Fortive Accelerated strategy. Starting with our first pillar, delivering faster profitable organic growth. We are pleased with the progress we're seeing across innovation, commercial and recurring customer value, all of which are building the foundation for durable, faster organic growth. This quarter, our innovation engine continued to generate new growth opportunities. At Fluke, we expanded our innovation funnel with several new product introductions, including [ IC proton ] and acoustic images, which broaden our reach to early in carrier technicians with intuitive entry-level diagnostic capabilities.

At Industrial Scientific, we launched iNet Insights, a completely reimagined platform that helps customers manage sophisticated gas detection programs and large detector fleets while expanding the capabilities and value of our recurring iNet subscription offering. In Facilities and Asset Lifecycle solutions, we continue to embed AI more deeply into customer workflows. For example, at service channel, our 2 release introduced new capabilities including AI-powered asset recognition and intelligent agents that not only help create and route work orders, but also identify stall walk orders, recommend next best actions and help drive east resolution. On the commercial side, we maintained our focus on faster-growing end markets and regions where we've made deliberately targeted investments to capture growth.

At Fluke, we continue to build commercial capabilities aligned to our strategic growth priorities, including data centers, defense and early in carrier technicians. During the quarter, we expanded our specialized data center sales capabilities and capacity, secured initial orders for our new early in carrier product bundle and strengthen relationships with educational organizations to engage the next generation of skilled technicians. At Industrial Scientific, we continue to build commercial momentum for our recently acquired Aeroqual Environmental Monitoring business in North America and commence manufacturing these products in our U.S. facilities, improving customer lead times and leveraging our combined footprint and 4 business system capabilities to drive greater operational efficiency.

In health care, ASP and Provation continue to deepen engagement with ambulatory surgical centers through focused commercial resources, targeted partnerships and innovative customer adoption pathways that expand our installed base and improve customer access to our solutions. On our requiring customer value initiatives, we made further progress on deepening customer life cycle engagement and improving revenue durability. In Q3, we again saw solid recurring revenue growth across both segments. As an example, at Fluke, recurring revenue growth was supported by continued momentum in our eMaint software platform. including increasing customer adoption of recently launched AI-enabled capabilities. During the quarter, eMaint secured several significant customer wins and continue to advance customer migrations to our next-generation platform.

We are pleased that our Fortive accelerated growth initiatives are not only building a strong foundation for future sustainable profitable growth but also increasingly translating into our current results, contributing to sequential core growth acceleration in each of the last 5 quarters since the launch of the new Fortive.

Moving to our second pillar. Disciplined capital allocation is an integral component of our Fortive Accelerated strategy. Consistent with our priorities, we deployed another $300 million towards share repurchases in the third quarter. We continue to evaluate high-quality bolt-on opportunities and recent acquisitions are performing well and contributing to growth. Looking forward, our capital allocation priorities remain clear: invest in organic growth, foresee bolt-on M&A where risk-adjusted returns exceed other uses of capital, return capital through share repurchases and maintain a modest growing dividend, all with a focus on maximizing medium- to long-term shareholder value.

Moving to our final pillar, building and maintain investor trust. We are pleased to deliver another quarter of strong performance ahead of expectations as we continue to build our track record of consistent execution. And we remain fully confident in our medium-term financial framework from Investor Day.

With that, I'll turn it over to Mark to walk through our financial results for the third quarter in more detail.

Mark Okerstrom

Thanks, Olumide. I'll begin on Slide 5. In the third quarter, we delivered total revenue of $1.1 billion, up 8% year-over-year on a reported basis and up 7% on a core basis. We saw price and volume growth in both segments with particularly robust performance in our IOS segment. Growth was driven by accelerating demand for professional instrumentation, continued momentum in FAL's mission-critical enterprise software solutions and ongoing strength in gas detection, reflecting the benefits of our growth investments and disciplined operational execution enabled by the Fortive business system.

Regarding the core growth by geography, all major regions contributed to growth this quarter. North America remained our strongest performing region and saw a modest sequential acceleration in Q3. Revenue growth in Europe, Middle East and Africa region accelerated with particular strength in professional instrumentation. APAC and LatAm also performed well. Adjusted gross margin was about 63% in the quarter, down 80 basis points year-over-year. Adjusted gross margin performance was primarily driven by product mix dynamics resulting from outsized growth in certain lower-margin products, partially offset by operating leverage. Price/cost remained solidly positive in the quarter, while inflationary pressures have increased, the team continues to leverage the Fortive Business System, including sourcing and productivity countermeasures to offset inflation across both segments.

Our industry-leading gross margins reflect both the differentiation of our products and the effectiveness of our Fortive Business System in sustaining those margins over time. So growth investments or mix shifts in any given quarter may cause fluctuations. These movements fit within a broader arc of strong gross margin discipline. Q3 adjusted EBITDA was $340 million, up 10% year-over-year. This favorable performance was driven by adjusted gross profit growth, operating leverage and discrete structural cost saves, partially offset by growth investments to support our Fortive Accelerated strategy.

Adjusted EBITDA margin in the quarter expanded by 50 basis points year-over-year to 30.6%. Note that our consolidated adjusted EBITDA margins faced a roughly 50 basis point year-over-year headwind stemming from the annualization of certain discrete cost benefits we saw in Q3 of last year. We continue to be pleased with our ability to drive solid margin expansion and invest further into Fortive accelerated strategic growth initiatives, and we remain fully confident in our ability to deliver 50 to 100 basis points of annual adjusted EBITDA margin expansion as outlined in our medium-term financial framework.

We delivered adjusted earnings per share of $0.77 in Q3, up over 13% year-over-year, marking our fifth consecutive quarter of double-digit adjusted EPS growth. Strong adjusted EPS performance in Q3 was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases, partially offset by higher interest and tax expense. We generated over $280 million of free cash flow in the third quarter with our trailing 12-month free cash flow above $1 billion and conversion on net income well north of 100%. Please note that during the quarter, we recognized an $18 million AEPA tariff refund benefit in GAAP earnings and free cash flow. We expect another $5 million to $10 million of tariff refunds in the coming quarters.

As we did last quarter, we excluded the benefit of AEPA tariff refunds from our adjusted earnings metrics and expect to continue doing so going forward. We do, however, include the benefit in free cash flow as the cash proceeds are real and available for deployment under our disciplined capital allocation framework.

Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for the segment grew 10% on a reported basis with core revenue growth accelerating to 9%, and we are pleased to see broad momentum continue across the segment. Core growth acceleration was driven by robust volume growth in Professional Instrumentation, facility and asset life cycle solutions and gas detection products. At Fluke, we delivered strong broad-based growth led by our industrial and network product portfolios. Orders growth again accelerated from an already strong pace in the second quarter, and book-to-bill remained above 1, reflecting the success of Fluke's strategic repositioning towards higher growth applications as part of our Fortive Accelerated strategy. We delivered growth in all regions, again led by North America and complemented by acceleration in Europe.

We also continue to invest behind strategic growth priorities, including data centers, defense and early in career technicians, where we see attractive opportunity to extend our market leadership and enhance the durable growth profile of our largest operating brand. Growth in facility and asset life cycle solutions also accelerated in the third quarter, led by sustained outperformance in multisite facility maintenance and marketplace software at service channel as well as planning and procurement solutions at Gordian. We believe this performance reflect the early benefits of our commercial and innovation investments, which are driving deeper customer engagement and increased demand for our AI-enhanced solutions.

Growth in our gas detection business also increased sequentially, driven by growing demand for our worker safety solutions including our Hardware as a Service offerings in North America, Europe and the Middle East, all bolstered by Fortive Accelerated investments and expanded commercial capabilities across the globe. Adjusted gross margin in the segment was just under 65%, roughly flat sequentially and down 90 basis points year-over-year, primarily due to strong growth from some of our lower-margin products serving select multisite retail customers with high strategic value, partially offset by operating leverage.

Q3 adjusted EBITDA in this segment grew 13% to $275 million, driven by adjusted gross profit growth operating leverage and discrete structural cost savings, partially offset by growth investments, including sales and marketing and R&D investments at Fluke and Industrial Scientific. Adjusted EBITDA margin for Q3 expanded by 120 basis points year-over-year to just under 36%, reflecting the strength of our operating performance and continued cost discipline.

Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of $340 million. Revenue grew 3.7% year-over-year and 3.1% on a core basis. Q3 growth was broad-based and benefited from momentum in several areas. Low temperature sterilization capital contributed to growth in the quarter, and we saw solid demand for health care consumables, including in Latin America and APAC. Biomedical testing equipment and radiation monitoring solutions showed strong growth in the quarter and Provation SaaS products continue to deliver accretive growth driven by solid provider demand for our gastrointestinal case documentation solution and strategic initiatives to expand to adjacent specialties and regions.

Adjusted gross margin in the segment was 57.5%, down 90 basis points year-over-year driven primarily by product mix, including strength in emerging market consumables sales, partially offset by operating leverage. Q3 adjusted EBITDA in this segment was modestly ahead of our expectations at $88 million down 5% year-over-year, driven by growth investments and the lapping of certain discrete cost benefits realized in Q3 of last year, partially offset by operating leverage. Adjusted EBITDA margin contracted by 230 basis points year-over-year on these same factors but remained essentially flat sequentially at 26%. The year-over-year headwind from the annualization of prior year discrete cost benefits was roughly 100 basis points. We continue to invest in attractive AHS growth opportunities and remain fully confident that over the medium term, these investments will drive core growth and margin expansion in the segment.

Turning to Slide 8. As noted earlier, we deployed $300 million to share repurchases in the third quarter, reflecting our disciplined capital allocation approach. As a result, we had 302 million diluted shares outstanding at the end of Q3. Since the launch of new Fortive, we've deployed $2.3 billion to share repurchases, meaningfully enhancing our adjusted EPS growth and return on equity. In terms of M&A, we continue to evaluate high-quality accretive bolt-on deals that meet our rigorous strategic and financial criteria and deliver superior returns relative to alternative uses of capital. As new Fortive, we have completed several bolt-on acquisitions, including Aeroqual and UV Smart, and these acquisitions are performing solidly in line with our deal cases and we expect them to contribute to accelerating growth over the years to come.

We were also pleased to raise our quarterly dividend by 17% in Q3, consistent with our desire to maintain a modest and growing dividend. From a balance sheet perspective, we finished the quarter at 2.6x gross debt to adjusted EBITDA, modestly deleveraging from last quarter and solidly within our financial policy of keeping ordinary course leverage within a range around 2.5x gross debt to adjusted EBITDA.

Moving to Slide 9. We are raising our full year 2026 adjusted EPS guidance range to $3.10 to $3.14 per share, representing just over 15% year-over-year growth at the midpoint reflecting strong year-to-date performance and confidence in the trajectory of the business. This outlook assumes a continuation of the market dynamics we experienced in Q3 and reflects current tariff rates.

Let me provide a few additional considerations to assist with modeling. In terms of the full year, based on current foreign exchange rates, we now expect full year reported revenue just north of $4.4 billion and full year core growth just north of 5%. We expect full year adjusted EBITDA margin expansion around the midpoint of the 50 to 100 basis points range outlined in our medium-term financial framework, and we expect full year net interest expense of approximately $145 million.

Regarding Q4, as we mentioned last quarter, Q4 will have 4 fewer selling days versus the prior year's quarter. This will drive about a $15 million to $20 million headwind to reported revenue and a 150 basis point headwind to core growth in the fourth quarter. At the segment level, this translates into a 100 basis point headwind to core growth in IOS and a 300 basis point headwind in AHS. We expect IOS core growth to continue to outperform AHS on a normalized basis. We expect FX and M&A combined to be about a 50 basis point tailwind to reported revenue in Q4, and we continue to expect a Q4 effective tax rate in the low double-digit range.

As a final note, before turning it back to Olumide for closing remarks and Q&A, our year-to-date results show that our Fortive accelerated strategy is working. We remain fully confident in our medium-term financial framework from Investor Day, and our sites remain keenly focused on delivering benchmark beating returns for our shareholders over the medium to long term.

I'll now turn it back over to Olumide.

Olumide Soroye

Thanks, Mark. Let me close with a few observations on the quarter and where we're headed. Q3 was another strong quarter for Fortive. We delivered over 7% core growth, approximately 10% adjusted EBITDA growth, and our fifth consecutive quarter of double-digit adjusted EPS growth. We have seen our Fortive Accelerated strategy translate into stronger operating and financial performance, and our teams remain intensely focused on executing strategic initiatives to further accelerate profitable growth.

We are maintaining a disciplined approach to capital allocation, returning meaningful capital to shareholders while pursuing attractive bolt-on acquisitions that meet our rigorous strategic and financial criteria. We remain highly confident that our Fortive Accelerated strategy will unlock significant value for our shareholders.

With that, I'll turn it back to Christina to open the call for questions.

Christina Jones

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

Operator

[Operator Instructions] Our first questions come from the line of Julian Mitchell with JPMorgan.

質疑応答

Julian Mitchell

Maybe just a first question, please, around the margin outlook. So I understood there's that 100 bps or so, I think, headwind sort of one-off in the quarter. But absent that sort of margins are still down, maybe a little bit of mix impact. And if we take a step back, margins in AHS have been sort of flattish for a couple of years now. Just wondered if that's investment to drive up the organic sales growth rate from the sort of low single-digit trajectory, it's been at or that's what's needed just to stay with that organic growth where it is because of competitive reasons and innovation requirements and so forth.

Olumide Soroye

Julian, thanks for the question. So maybe just to step back a little bit. We're just really excited about the profitable growth runway ahead for us at AHS. If you look at year-to-date versus last year, the top line core growth is at 4.5%, and we expect acceleration on a full year basis as well.

I think there may be quarterly variations based on timing of orders and selling days, but it all fits in that pack of top line acceleration. And the work we're doing this year is to set up AHS for a great run of multiyear acceleration in growth and margin expansion. And in doing that, we're making some deliberate investment this year in growing our installed base to kind of power that flywheel of the razor-razorblade model. We have an ASP as an example, we're building commercial capacity to gain share in [indiscernible] surgical centers. And we invest in innovation that's going to extend our differentiation and power growth for years to come. Those are deliberate and time-bounded investments that we're making this year.

On a long-term basis, we're really pleased with what we're able to do on a top line growth and margin expansion point of view. But view this year very much as a year of setting the stage for the success of this of this segment. And we believe it's going to play a really key role in our multiyear value creation story. So there's a short-term thing to that happening, but doesn't change the long act of opportunity we have in this segment.

Julian Mitchell

That's great. And then just my second one would be around the IOS segment. Industrial and manufacturing end market within that, I think it was up low double digits for the second quarter running there in terms of year-on-year growth, so very good performance. Maybe sort of help flesh out any specific drivers around that? And what do you think about the sustainability of this very good growth in that industrial and manufacturing part of IOS?

Olumide Soroye

Yes. No. I mean I think the thing that we really like about IOS and the industrial and manufacturing part is the broad-based nature of the success that our teams are having and literally across brands, across product categories, across price and volume. It's just great success.

And in that particular end market, Julian, that you pointed out, it's a whole range of drivers of that success, not a single item. And we like that because to your point about durability and sustainability that really speaks to the fact that we have a lot of ways to win with so many engines firing at the same time for us in that segment and that end market. So that's where I describe it. It's very broad-based, Julian.

Operator

Our next questions come from the line of Scott Davis with Melius Research.

Scott Davis

I appreciate the color here on the call. And I'm going to ask kind of a stupid question probably, but is there anything different you need to do to serve the data center market that -- I mean I understand having a dedicated sales force perhaps. But is there anything different you need to do from a product perspective or product availability perspective or service or anything else otherwise?

Olumide Soroye

Yes, thanks for the question. I mean we're just -- and I want to take that question, in the context of Fluke, which is our biggest operating brand and doing incredibly well with our team actually at a high level. And we're really excited about the data center opportunity.

As you know, we participate in the construction and build that phase as well as in the [indiscernible] ongoing operations and maintenance of these data centers. We already are well positioned with a broad portfolio of market-leading solutions that ranges from power quality monitoring analytics, super calibration, high-voltage diagnostics, electric graft fall detection. So we have a lot of things already, Scott, that really go into that segment, both in the initial construction certification and aftermarket. The exciting work that our team is doing now is really ramping up the pace of innovation to come up with new products that solve problems that are new for these hyperscaler data centers. That didn't exist with conventional data centers.

And we've talked about the certifier [indiscernible] as an example of a product that's really designed for this really high gear by data centers in a way that no one else is doing. And that's pulling through everything else that we do in the data center. So the work that we're doing is really adding more innovation like that and in building, as we talked about in our prepared remarks, our commercial capacity because we just need a bigger sales team, a bigger specialized data center team to go take this exciting offering to the range of customers we now have. So we're on the chase, as you can imagine, intensely, we're excited about the upside ahead of us, and we're still early.

Scott Davis

It makes sense. And then switching gears, I don't know if you answered this question specifically in prepared remarks because I didn't hear it. What are your customers telling you on the health care side as far as their capital spending budgets near, medium, longer term? I mean it feels like the hospital segment has been in kind of a recession forever. Is there any light at the end of the tunnel on kind of a replacement cycle out there that you guys could see perhaps in '27 or so?

Olumide Soroye

Yes. Thanks for that. I've had a chance personally to spend time with our teams with customers around the world in the health care segment. I think the way I'd describe it overall, maybe just to start with the U.S. market, is that the environment is improving with hospitals. They will continue to navigate through a dynamic kind of operation and policy environment, where procedural volumes overall remain healthy. Capital spending trends are more supportive than they were last year, and they continue to improve. They're still somewhat constrained.

We continue to see shift in electric procedures towards ambulatory surgery centers, which again create an opportunity for us because our teams are now getting really good at being a leader in serving these ASCs. So overall, I'd say the environment is stable to improve in the U.S. Outside of the U.S., it's really a -- it's a strong market we're seeing, it's a lot more spending going into health care in different pockets around the world for different reasons. So overall, stable and improvement in the U.S. It's always dynamic, but we like the trend that we're seeing and really good outside the U.S. So overall, we'll take our chances on. I want ability to execute and outperform the market on the market that's stable and improving.

Operator

Our next questions come from the line of Alexander Virgo with Evercore ISI.

Alexander Virgo

I wonder if you could just talk a little bit more about 2 things. And I guess I'm thinking more about IOS than AHS, but I wonder if you could dig into the innovation momentum. Any kind of sense of contribution you can give us in terms of how much is giving you in terms of the organic growth. And then on the recurring revenue side, I just wondered whether you can give us any more color, any more sense or quantitative indications on growth there, that would be very helpful.

Olumide Soroye

Yes. Thanks for the question, Alex. I'll just maybe go in reverse. With respect to recline revenue growth, this is an exciting story for us. We saw really strong growth in both recurring and nonrecurring revenue this quarter. And it's an interesting time because the nonrecurring revenue actually grew faster. And that's driven by just really strong performance at our Fluke business.

The interesting thing is we've always viewed recurring revenue as an indicator of durability. But it's not the only in the kit of durability. And many of our hardware businesses that are nonrecurring, have demonstrated exceptional durability through the strength of the brand and differentiated technology in kind of the recurring replacement cycles. Fluke, as an example, is seeing order growth nonstop every quarter now for several years. And that's as good as a recurring business. So overall, strong growth on both sides, we're just interested that they're now requiring and actually grew faster in this quarter.

From a point of view of innovation, we've talked about our Fortive Accelerated strategy as being anchored in this deep belief that we can grow this portfolio faster organically and profitably. And obviously, innovation is a key element of that. So as commercial and recurring customer value for the customers we already have. The contribution to innovation, you've seen that show up across the brands. The fact that we have Fluke and the IOS segment and every piece of the area segment growing at the pace that we saw here in the quarter, and the AHS segment accelerating from where they were last year to year-to-date 4.5% core growth. All of our brands are driving innovation, and that's showing up in those numbers. The way innovation shows up, it's sometimes in pricing power, sometimes in volume. And it's sometimes just customer retention and loyalty. And we're tracking those in detail, as we always do with our fully business system, and we like the contribution from innovation.

Operator

Our next questions come from the line of Quinn Fredrickson with Baird.

Quinn Fredrickson

Just wanted to ask about the fourth quarter outlook. I think if I got the moving pieces right, you might be applying kind of flattish core sales? I know you have the days impact and the comp is a little tougher. Is that just the main factors? Or are there any other factors to be aware of that drives a little bit of the deceleration in 4Q core growth?

Mark Okerstrom

Sure, Quinn. Happy to take that. Just as a reminder of what we said, we're expecting core growth on a full year basis of just north of 5%. As you called out, there are the days factor, which is the primary sort of normalization in the quarter, it's 150 basis points on a consolidated basis, $50 million to $20 million on a reported basis and we would expect that to hit roughly 100 basis points to IOS and about 300 basis points to AHS. But that's the primary driver. Again, we really like the course and speed of the business right now. We're carrying good momentum here coming out of the third quarter. And the arc of the business is really one of acceleration.

Quinn Fredrickson

All right. Secondarily, just on pricing. In AHS, it looks like it took a step higher sequentially, about 280 basis points versus 90 last quarter. Should we think about that as a sustainable level of price contribution for the next few quarters?

Mark Okerstrom

I think about that range. I think a couple of hundred basis points, give or take, is a good marker. I think what you've seen in both IOS and AHS really goes to what Olumide was talking about, which is the teams have increased the pace of innovation that's enabled them to maintain strong pricing power. And you saw that in HS, you see that in IOS. I would expect sort of that to continue through the balance of the year and through 2027.

Operator

Our next questions come from the line of Brandon Knutson with Morgan Stanley.

Brandon Knutson

You highlighted on the data center front, increasing sales force there is focused on that market. Can you provide some tangible examples of how your investments in sales force new product development, et cetera, are showing up in the business? Like are you working with more hyperscalers? Are you outgrowing the market accelerating versus Q2? Any way to quantify like the ROI you're seeing there? And then roughly, what percent of your revenue is levered to data centers?

Olumide Soroye

Yes. Well, let me start with the last part of your question there. Data center, like I mentioned, is just an incredibly exciting opportunity for us as a company. And we're still very early. And the way you see that is today, we kind of estimate how much of overall Fortive revenues is from data center ecosystem. It's still low single digits that we're talking about. So we're still really early.

And so the investments we're making knowing that it could be a lot bigger of an opportunity for us, includes things like the innovation. So we now have a road map of innovation that came towards solving problems for data centers and capturing opportunities in terms of actually realizing the value from the huge capital investments going into data centers. And we are, to your point, in deep discovery with a lot of the hyperscalers on what is needed. And I mean one of the things I enjoy spending time with our teams at some of these hyperscalers where we're really coming up with things that only Fluke with our deep expertise in professional instrumentation, precision measurement can solve for them. And we're going to be coming with more and more of those new products.

And then from a commercial point of view, it's really -- you need, frankly, just feet on the street to cover the range of a number of hyperscalers. But not just hyperscalers, but it's also the building and construction firms that work with them. It's the technical advisers that work with them on designing and spec-ing out the data centers. It's not just in the U.S., we're doing that globally. So we're adding the capacity and the expertise we need to cover the market well and effectively. So those are the kinds of things that we're doing, become an ROI point of view, we're really happy with what we've seen. And frankly, we're supply constrained, frankly, at this point in terms of the time and the capacity we want to build because the market is certainly there for us.

Brandon Knutson

Great. And then on IOS, you highlighted last quarter, I think that you had the multi-site retailer mix increasing driving headwinds on operating margins or gross margins, same thing this quarter. Is that a dynamic that's getting bigger sequentially in terms of more activity there? Or is it kind of consistent that we should expect going forward?

Mark Okerstrom

I have expected broadly consistent. It's probably consistent this quarter in terms of impact of what we saw last quarter. As a reminder, this is a product offering that service channel as where they are essentially the outsourced providers for facility maintenance. And one of the types of arrangements we enter into with strategic partners is an arrangement where we end up being the merchant of record on spend. And so optically from a reported basis, it does sort of gross up the P&L to some extent, but it's still a great business, and we're going to continue to push it. But I would think about it as something that is not going to be an increasing factor for us going forward.

Operator

Our next questions come from the line of Nigel Coe with Wolfe Research.

Nigel Coe

I just want to stick on that topic actually. So I think we've covered the product cost mix issues, I think, in both segments. Maybe Mark, can you just talk about the inflation impact because when you got 60% gross margin, it's really tough to maintain the margin with the inflation. So just wondering if that's also a measurable impact. And then just within that, maybe just touch on where we are right now with the memory inflation and how that looks into next year.

Mark Okerstrom

Yes. Happy to take that, Nigel. And I think, first of all, I would say that Fortive by virtue of the incredible brands that we've got, the differentiated product offerings that we have, the power of the Fortive Business System has a long track record of real gross margin discipline, and we expect that to continue going forward.

This quarter, we did see an increased impact from inflation, but price cost was strongly positive and the teams just do an excellent job this quarter being no exception in offsetting inflation with value engineering procurement activities, supply chain activities. And again, this was no exception. And when you layer price on top, again, strongly positive. We did see particular inflation this quarter on electrical, electronic componentry. Freight was up more than we expected. The teams were again more able to more than offset as a testament to what they've been able to achieve with Fortive Business System and really in both segments as you call out, the drivers of gross margin contraction, even though it's quite modest, was driven by mix shift and the service channel offering we mentioned. And then in the health care segment, driven by stronger growth in lower-margin consumables, particularly in Asia and Latin America. So I think you're going to expect to see us continue to be able to drive strong gross margins going forward from quarter-to-quarter, you may see mix impacts or we may make discrete investments but strong gross margins is really part of the Fortive playbook.

Nigel Coe

Great. That's good color. And then Olumide, maybe just double-click on what's going on in the fall portfolio and maybe the AHS software as well. Obviously, a lot of fluidity right now in software models. You've talked about some of the sort of AI infusion kind of initiatives in past quarters. So I'm just wondering, number one, kind of catches up in terms of what's happening with the specific logos. And I think Accruent has been kind of an area of maybe lagging growth. Maybe just bring us up to speed in terms of what's happening there.

Scott Davis

Yes. Thanks, Nigel. So a short answer is we're very pleased with our software businesses across Val and the health care software businesses in the quarter. I think from a far point of view, again, like I mentioned, the IOS segment performance, one of the beautiful things about it is it wasn't just Fluke, but fire and gas detection all contributed to that. So we talked about a 9.1% growth for IOS in the quarter. All 3 components were pretty close to that range. Fluke was slightly ahead of the pack.

So the fact that fact that FAL could deliver at that level was a strong indication. This strong performance in far was led by ServiceChannel and Gordian. We continue to see really strong demand and sort of adoption of the AI-enabled features that we've talked about in the last couple of calls at service channel. And Gordian had another strong quarter led by procurement and planning solutions. Accruent continues on its journey of improvement, and we like the role explained in the portfolio and again, as it makes the FAL Group delivered very strongly.

And on the health care side, the same thing our teams are doing a great job of deploying AI-enabled capabilities. We've talked about the voice documentation at Provation. They're doing a lot with leveraging the distinctive 30-year proprietary database that they have to generate new insights for customers that improve outcomes and we're seeing that continue to power success. So overall, like we said in the last few calls, not all software businesses are the same. The ones we have, have some deeply embedded strengths at a multidimensional, and we're seeing those play out really well in terms of enable us to really turn AI into impact for customers, which is what they need.

Operator

Our next questions come from the line of Scott Graham with Seaport Research Partners.

Scott Graham

I wanted to maybe drill down a little bit into the components issues that was asked previously. Are you buying mostly memory? Or are you also buying a lot of logic?

Olumide Soroye

Yes. I'll take that. Thanks for the question. So if you think about our bill of material across our -- mainly our hardware businesses. So Fluke ASP, kind of the Fluke Health business and onshore scientific. The bill of material has a little bit of logic in it. It has some memory in it. It's not the high bad memory that competes with some of the, kind of, the intensely demanding use cases right now.

So they're really basic logic, some memory and what we're finding -- and again, we've been in this in this sort of arena for a long time now is that our teams are really good at making sure we have multiple sources of components, making sure that when there's something that looks like it's trending towards a choke point in terms of demand supply that may not just kind of from an inflationary point of view, but high copper price would build up inventory in advance in the right places and the right pocket. So we're not sort of in a place where this is a big topic for us in part because bill of material doesn't have some of the more competitive components. They are kind of specific spots where we understand there could be exceptional inflation, and we managed that really well.

So we feel good, like Mark mentioned, price costs were strongly positive in the quarter. Our teams do a really good job on components.

Scott Graham

Just a follow-up would be, you mentioned the 100 basis point headwind in AHS. I was wondering if there was anything in IOS and what both segments look like on a headwind basis for the fourth quarter?

Mark Okerstrom

Yes. Happy to take that, Scott. I think you're probably referring to the EBITDA margin headwind in AHS. It was predominantly in AHS. There was a little bit of a headwind in IOS as well. And as you recall, in Q3 of last year, we talked about some of these discrete items, which were largely related to incentive compensation and some capitalized software development items. But most of the impact was in AHS.

I think as we look forward, again, I would just calling your attention to our prepared remarks, we do continue to expect to be able to deliver EBITDA margin expansion on a full year basis in the 50 to 100 basis point zone. And we talked about being in and around the midpoint of that, so you can back into what that implies for Q4. But we like the momentum the business is carrying. I think as Olumide said, Fortive Accelerated is working. And over the medium term, we expect that to drive a good formula of accelerating core growth and EBITDA margin expansion, will we invest to drive more growth and also deliver to the bottom line.

Operator

Our next questions come from the line of Andy Kaplowitz with Citigroup.

Andrew Kaplowitz

Olumide, you give us an update or you've been talking about Fortive Accelerated today. But I think at your original Investor Day, you talked about getting to a higher growth state from the program versus the 3% to 4% longer-term expected core growth by '28. Is it reasonable to assume that you're a bit ahead of plan on innovation and commercialization? Or is it just more accelerated market growth that you're seeing? And I would assume it's reasonable to say that you'll have a higher contribution from innovation and commercialization in '27.

Olumide Soroye

Yes. Thanks for the question. I think if you go back to Mark's comments in our prepared remarks that we're now for the full year, tracking just north of 5% core growth for the year I think that's kind of a fair indication that we're ahead of what we expected in terms of the 3% to 4%, '26, '27 kind of medium-term financial framework. And I think that is a combination of -- some of the markets we're in, I just have in a really strong year. And the impact of the innovation, commercial requiring customer value actions so that teams are taking continue to ramp, and we're still early in the ramp of those things.

So we really like the setup looking into '27 and '28. I think to your point, we did have the plus-plus sign '28 and beyond on that financial framework across core growth, adjusted EBITDA margins and adjusted EPS growth. And everything we're seeing is increasing our conviction that, that plus-plus is certainly available to us, and we're going to do everything we can to get to it as quickly as we can. And our teams are excited and executing at a high level.

Andrew Kaplowitz

That's helpful. And then maybe just a little more color on regional demand that you're seeing in IOS. I think you mentioned Americas had modest sequential growth. But our beetles accelerated, which is interesting. So I was hoping you could comment a little more on that and then what you're seeing in China.

Olumide Soroye

Yes. Thanks for that. So I mean, all the regions did really well. And again, it's great when you have a session where you're winning on multiple fronts. So North America suddenly continue to be the pacesetter and the fastest grower.

In Europe, we saw the region with a little bit of softness in Q2, POS, like I mentioned on the last earnings call, actually remained strong in even though orders was a little bit slower. And then in Q3, we saw a bounce back. So we saw growth return POS remained constructive in the region. I think the Middle East for us is, again, it's 2% of our revenue, so it's small, but it continued to actually show real strength, again, partly because the things we do are essential and continue to be in demand, and our teams continue to do a really good job on making sure we can deliver in that. Thankfully, a lot of our business is oriented towards the Kingdom of Saudi Arabia. So we're still able to do what we need to do.

On APAC, again, really played a solid role for us. China remains somewhat challenged and choppy but the rest of APAC, especially India, for example, more than compensated for that. So across the regions, we like always seen and the momentum that our businesses are building from building more commercial capacity in some of these markets and tailoring innovation for some of these markets, specifically China for China strategy, for example, continues, and we'll keep doing things like that to localize for this outside of the U.S. markets.

Operator

Our next questions come from the line of Andrew Buscaglia with BNP Paribas.

Andrew Buscaglia

I wanted to dig into capital allocation a little bit. Since you spun off or separated from Ralliant. You repurchased about 13% of your shares, it seems like -- so going forward, I know you still talk about M&A on the table, but at these levels, what return hurdles in your mind make an acquisition more attractive than just continuing to buy back stock the way you've been?

Mark Okerstrom

Yes. Thanks. I'll be happy to take that. As you call out, we have definitely had a bias over the course of the last 5 quarters to repurchasing our own shares. We do view M&A and share repurchase is interchangeable based upon relative returns. We have had a pretty attractive opportunity in our own stock given the course and speed of the business, the free cash flow yield that we've seen compared to our after-tax cost of debt I think looking forward, we have revamped our M&A engine completely. We've augmented the team. We've changed our approach. We are building funnel. We've executed a few small bolt-ons. Obviously, we're seeking to make sure that return on invested capital is ahead of our WACC and a reasonable period, but we're also looking at free cash flow per share and EPS accretion dilution on a comparative basis versus the 2, taking into account the increased risk with M&A.

I think, listen, looking forward, our hope is that M&A can be a bigger piece of the equation. And we like what we see from a funnel perspective. We will remain disciplined. We've got a couple of integrations under our belt that are performing really well, and we'll continue to be dynamic based upon what we see.

Andrew Buscaglia

And maybe staying with the topic of M&A. I wonder, based on kind of some of the comments you guys mentioned today on advanced health care. It seems it's a steady, albeit low growth business and you have some margin opportunity there. But is M&a tool you think you need to use to boost organic growth long term in that segment?

Olumide Soroye

Yes. Well, look, I think from a -- the primary thesis in our Fortive Accelerated strategy is that we have the runway from a profitable organic growth acceleration point of view in both of these segments to create a lot of value for our shareholders.

So our first order of business is the innovation, the commercial acceleration and the recurring customer value work that our teams are doing. Our bolt-on M&A is a sweetener, and we will do it in places where the financial and strategic criteria is compelling, to Mark's point, versus share buybacks. In our AHS segment, we have a lot of runway from organic execution, trying to get stronger propositions for ambulatory surgical centers, trying to refresh innovation of our products, capture the impact of AI in our AHS software businesses, we have a lot to do if we find things that are, no point intended, surgically helpful to accelerate growth in the segment, we'll do that. We talked about UV Smart on our last call. That was a great example of a very targeted bolt-on to ASP that brings in a new modality for disinfecting instruments of very high value and highly important category to customers.

So we'll do things like that. It will be very targeted and surgical. We don't think we need to bank on that to do what we need to do in this segment, but we'll be targeted with it.

Operator

This does now conclude today's question-and-answer session. I would now like to hand the call back over to management for any closing remarks.

Olumide Soroye

Well, thank you, and thank you all for joining us today. We look forward to speaking with you next quarter. Have a great day.

Operator

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.