Fortive Q2 2023 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
July 26, 2023
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Operator

My name is Rob, and I'll be your conference facilitator this afternoon. At this time. I would like to welcome everyone to the Fortive Corporation's Second Quarter 2023 Earnings Results Conference Call. [Operator Instructions]

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

Elena Rosman
Vice President of Investor Relations at Fortive

Thank you, Rob, and thank you everyone for joining us on today's call. With us today are Jim Lico, our President and Chief Executive Officer; and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer.

We present certain non-GAAP financial measures on today's call. Information required by Regulation G are available on the Investors section of our website at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified.

During the call, we will 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 for the year ended December 31, 2022. These forward-looking statements speak only as of the states that they are made, and we do not assume any obligation to update.

With that, I'd like to turn the call over to Jim Lico.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on Slide 3. Our second-quarter results once again demonstrated the durability of our portfolio and the strength of our execution, allowing us to deliver higher core growth, margins, earnings and free cash flow. Core revenue growth of 5.5% reinforces that our strategy is working, building leading positions across our customers critical connected workflows with performance reinforcing the resilience of our transformed portfolio. We also delivered record margins in the second quarter, standing adjusted gross margins by 250 basis points to 59.5% and adjusted operating margins by 190 basis points to 26%. We're converting more revenue to earnings more earnings to cash with 9% growth in adjusted earnings per share and free cash flow-in the quarter.

Our ability to consistently drive outperformance is directly tied to our culture of continuous improvement and dedication to the Fortive Business System. Our mandate this year to unleash FBS, which is driving record productivity from Kaizen activity across the enterprise and increasing our confidence in our raised outlook for the year that we believe further positions Fortive for accelerated compounding in 2024 and beyond.

Turning to Slide 4. I wanted to provide an update on what we're seeing and what we're expecting over the course of the rest of the year, starting with healthcare. Industry recovery is on-track as labor and productivity challenges continue to moderate. We are seeing traction on our pricing and productivity initiatives, yielding sequential growth and profitability in the second quarter. We expect further improvement in AHS in the second-half with higher core growth in operating margins.

We also continue to drive growth in our software and services businesses with SaaS revenue up mid-teens on strong enterprise growth in bookings. Hardware products have also been running ahead of expectations. This traction on new product launches and leverage to secular drivers are helping to provide more backlog to buffer the normalization of industrial demand. As we sit here today, we now expect to have over $200 million of excess backlog heading into next year, while positioning us for 2024.

Our strategy to create a more durable growth company is working. Our recurring revenue businesses are expected to accelerate first-half to second, led by higher software and consumables growth. Combined with favorable pricing and discrete productivity initiatives, we now expect over 125 basis points of adjusted operating margin expansion for the year. Lastly, our robust free-cash flow and low leverage profile provides further flexibility to accelerate compounding with an attractive funnel of M&A opportunities aligned to our workflow strategy.

Turning to Slide 5. Our success in the quarter demonstrates our ability to leverage our domain expertise and hardware and accelerate software and data analytics across our five customer connected workflows, where we are enabling progress in a number of high-impact fields, all benefiting from customer investments in automation and digitization, the energy transition and the need for productivity solutions to address labor, manufacturing, inflation and regulatory challenges globally. For example, solar energy is one of the fastest-growing renewable energy sources worldwide, from the grid, the hybrid and backup systems, connected reliability solutions are ensuring the maintenance and efficiency of critical infrastructure, enabling the energy transition and IoT expansion.

Environmental health and safety solutions are safeguarding workers and enabling customers ESG reporting and compliance. Our leading facility and asset lifecycle software applications are improving asset performance, optimizing workplaces and accelerating customer productivity efforts. Our innovations in the product realization workflow are solving customers' toughest technical challenges. The speed breakthrough is in a wide range of applications, including helping to increase the proliferation of electrified and connected devices and advance the democratization of high-performance compute and AI-driven data analytics, as well as in the peri operative loop where we're helping healthcare providers deliver exceptional patient care more efficiently, with industry-leading clinical safety and productivity solutions.

In summary, we are seeing strong customer success on new product launches highly aligned to these secular trends, where our innovation funnels remain focused, which. I'll take a moment to discuss further on Slide 6. As we highlighted at our Investor Day in May, our FBS growth tools are accelerating innovation cycles to drive share gains and maximize R&D returns to create and sustain our competitive advantage in a number of exciting new areas. For example, we highlighted new product launches at Fluke to accelerate the distributed energy strategy to penetrate the high-growth EV storage equipment market with new testing tools that ensure technician safety and asset performance.

At Gordian, our unique planning tools RF means data and technical expertise of the California county optimize their infrastructure, resulting in millions of yearly cost-savings and a significant reduction in project completion timeline. Tektronix is providing performance scopes and waveform generators to help customers develop quantum computing to advanced AI applications, including a large aerospace and defense customer win in the quarter. ProVation's latest cloud-based documentation software is saving physicians roughly 16 hours per month in documentation and reporting, which is why ProVation continues to be the provider of choice with accelerated win rates in APEX adoption.

Lastly, Intelex leverage lean portfolio management to expand its foothold in environmental accounting, compliance and reporting, accelerating the launch of its new ESG corporate reporting solution. Fortive is committed to innovation across all aspects of the company, and this quarter we received two notable recognition for our innovative sustainability efforts. In May, USA Today and [Indecipherable] have named Fortive one of America's Climate leaders in 2023. This award recognizes us as a leader in greenhouse gas emissions reductions and singled out Fortive as a top emissions reducer among more than 2,000 companies nationwide. And in June, Fortive was selected as a finalist for the 2023 World Sustainability Award in the profit with a purpose category, which recognizes companies that like revenue generation to sustainability. We're incredibly proud of our culture of innovation and continuous improvement and how that not only shows up in the solutions we deliver for our customers, but also in the positive impact we're making around the world.

I'll now provide more details on each of our three segments, beginning with Intelligent Operating Solutions on Slide 7. IOS grew core revenue by 4%, driven by good growth in most regions. Strong FBS driven execution resulted in 420 basis points of adjusted operating margin expansion, driving operating margins to a record 33%. Looking at our performance drivers by workflow and connected reliability, Fluke core revenues were up slightly, lapping the Shanghai recovery last year with mid-single-digit orders growth in the quarter. Fluke margins expanded by more than 300 basis points year-over-year, driven by productivity initiatives and solid price realization. eMaint saw record quarterly bookings, fueled by the continued success of the new X5 CMMS product launch. EHS revenues grew by high-single-digits, with record iNET growth at IFC and strong SaaS momentum in Intelex. Further, Intelex saw strong bookings for its new ESG corporate reporting solution.

Moving to facilities and asset lifecycle, we had low-double-digit growth in the second-quarter driven by mid-teens SaaS growth. Gordian had strong growth and operating margin expansion in the quarter as more customers utilize their job order contracting platform to procure and manage their large infrastructure projects. Acron has seen sustained improvements in win rates and good growth in their streamline portfolio, supported by FBS led innovation and pipeline generation efforts.

Service channel had an acceleration in growth and profitability as planned, driven by strong SaaS bookings and resulting take rate as customers leveraged the service channel network to maximize their cost-savings. A large retail customer is already $2 million ahead of their $40 million cost-savings goal in 2023 after taking advantage of the automation capabilities of the platform, powerful testament to the secular drivers underpinning the power of workflow strategy.

Turning now to Slide 8. Precision Technologies has continued its momentum with another strong quarter with 8% core revenue growth and 190 basis points of adjusted operating margin expansion, reflecting volume and price benefits, more than offsetting inflation and FX. Some highlights in the quarter include record second quarter revenue at Tektronix, with orders better than expectations and strong point-of-sale in all major regions. The team delivered mid-teens growth, which was over 20% on a two-year stack basis in the second quarter. Tektronix is executing a robust backlog and power and digital test and measurement solutions and delivering outstanding margin -- operating margin expansion. As orders continue to normalize, we anticipate Tektronix growth will moderate to mid-single-digit levels in the second-half, and we expect we will end the year with elevated backlog levels again heading into 2024.

Sensing Technologies came in better-than-expected, up slightly, driven by strong price realization across all businesses and continued broad strength at Qualitrol. Lastly, Pacific Scientific EMC reported a strong sales quarter with mid-teens growth as it benefits from strong customer demand and Kaizen activity to improve manufacturing capacity and operational execution to deliver on record backlog.

Moving now to Slide 9 in Advanced Healthcare Solutions. Core revenues were up 4% in the second quarter as the industry continues its modest pace of recovery. Consistent with our expectations, adjusted operating profit margins contracted by 60 basis points year-over-year. The benefits of sequential volume, price and productivity drove operating margin higher by 180 basis-points versus the first quarter. China elective procedures remained at normalized levels throughout the quarter, only slightly trailing global rates, allowing for double-digit growth.

Our outlook continues to assume that elective procedures remain close to pre-COVID levels in all major regions. Some highlights for the quarter include ASP Censis at mid to single digit core growth, driven by capital expansion at ASP and double-digit SaaS growth at Censis. ASP saw sequential growth in consumables as planned and US channel transition to direct is on-track, contributing to sequential price benefits, probably margins higher, a trend we will expect will continue through the rest of the year. Supply chain constraints are largely resolved, yielding good growth at Fluke Health Solutions and ProVation had another great quarter with mid-teens core revenue growth, driven by Apex SaaS adoption and new logos.

With that, I'll pass it over to Chuck, who will provide more color on our second quarter financials and our 2023 outlook.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks, Jim, and hello, everyone. I'll begin on Slide 10 with a quick recap of our second quarter revenue performance. We generated year-over-year revenue growth of 4% with core growth of 5.5%. FX was a 90 basis point headwind to growth.

Turning to the geographies, North America revenue grew high-single-digit with growth in all three segments. Western Europe revenue was essentially flat in the quarter following mid-teens growth the prior year. Asia revenue grew mid single-digits, that's over 20% growth in Japan and India, and low single digit growth in China. We saw strength in healthcare in China. As expected, however, growth was muted by COVID reopening tailwinds that benefitted the hardware products revenue in the second quarter of 2022. Looking ahead, we continue to expect China growth to moderate in the second-half as we lap outsized growth in prior years.

Turning to Slide 11, we show operating performance highlights in the second quarter. As Jim mentioned earlier, adjusted gross margins increased 250 basis points to a record 59.5%, driven by volume, FBS initiatives and strong price realizations, which more than offset higher inflation. Adjusted operating profit margins expanded 190 basis points to 26%, another Fortive record, reflecting higher gross margins and productivity initiatives that have started to gain traction in the quarter. Adjusted earnings per share increased 9% to $0.85 despite higher year-over-year interest and tax expense. Free cash flow was $300 million, which reflects approximately a 100% free cash flow conversion, a testament to our working capital efficiency enabled by the Fortive business.

Turning now to the guide on Slide 12, we are raising our previous 2023 guidance to reflect the outperformance in the second quarter. Starting with the third quarter, we expect core growth of 3.5% to 4.5%, with revenues reflecting our normal linear profile and adjusted operating profit margins are estimated to be up over 100 basis-points year-over-year. Adjusted earnings per share are expected to be in the range of $0.82 to $0.85 in Q3 and reflects a 17% estimated effective tax-rate. Our fourth quarter guidance assumes a seasonal uplift in all segments, with core revenue growth of 3.5% to 4.5% year-over-year and strong margin expansion, reflecting the cumulative benefits of our productivity initiatives.

Adjusted EPS is expected to be in the range of $0.94 to $0.97, up 7% to 10%. For the full-year 2023, we have raised our core revenue growth to be in the range of 5% to 6%. Adjusted operating profit is now expected to increase 10% to 11% with margins higher in the range of 25.5% to 26%. We are increasing our adjusted diluted net EPS guidance to $3.36 to $3.42, which includes approximate $0.06 headwind from higher interest and tax expense versus the prior guidance. Free cash flow for the year is now expected to be approximately $1.26 billion. This represents conversion of 105% of adjusted net income and 21% free cash flow margin, as well as over 30% growth on a two-year stack pays.

With that, I'll pass it back to Jim to provide some losing remarks.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Chuck. I'll start to wrap-up on Slide 13. At our Investor Day in May, we highlighted our progress executing our strategy over the last several years, building on our strong foundation and enduring principles that underpin our unique and compelling culture. Talk about the operating rigor and leverage of FBS growth tools to innovate and enhance leading positions across our three segments and five connected workflows contributing to outstanding fundamental financial performance.

Since 2019, we have doubled our core growth rate and delivered more than 100 basis points of adjusted operating margin expansion per year, driven predominantly by higher gross margins, the driven double-digit earnings -- annual earnings per share growth, working capital as a percent of sales nearly in half, allowing for us to run our businesses more efficiently and contributing to more than double free cash flow generation over the period.

We are now generating 50% more free cash flow per dollar of revenue, which is a testament to our portfolio transformation and the power of FBS building our current and future success and with a $60 billion of served market, we have substantial runway to accelerate growth organically and inorganically.

Wrapping up on Slide 14, the combination of portfolio work we have done, the rigor of the Fortive Business System and the development of leadership capability around the world is driving better-than-expected growth in operating performance in 2023 despite a continued evolving macro-environment. As a result, we've raised our outlook for the year and as we look ahead to 2024 and beyond, we are confident in our ability to accelerate our progress. With a high-quality portfolio of desirable brands, segment strategies favorably aligned to sustainable secular trends, industry-leading margins and free cash flow and best in class execution, Fortive is poised to deliver exceptional earnings and free cash compounding in the years to come.

Our attractive funnel of bolt-on and adjacent M&A opportunities across our three segments by connected workflows drives upside, they can Fortive a more durable high-growth cash flow compounder and a premier company delivering exceptional value to shareholders.

With that, I'll turn it back to Elena.

Elena Rosman
Vice President of Investor Relations at Fortive

Thanks, Jim. That concludes our formal comments. Rob, we are now ready to take questions.

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Operator

[Operator Instructions] Your first question comes from the line of Jeff Sprague from Vertical Research. Your line is open.

Jeff Sprague
Analyst at Vertical Research

Hey, thank you. Good day, everyone.

Jim Lico
President and Chief Executive Officer at Fortive

Hi, Jeff.

Jeff Sprague
Analyst at Vertical Research

Hey, hi. Can we just drill a little deeper into Tek. Just wanted to clarify what you said about orders. So orders decelerated, but were stronger-than-expected and I guess you're talking about backlog being pretty healthy. So you're actually running at a book-to-bill above one in Tek.

Jim Lico
President and Chief Executive Officer at Fortive

Hey Jeff, it's Jim, a couple of things. One, I think it was better-than-expected. We, as we mentioned in the prepared remarks, we've seen some slowing in some places, obviously maybe more moderating for sure, places like China, as an example, but we are seeing some acceleration in investments from places like aerospace and defense customers. So the book-to-bill. I think orders were down about 10% in the second quarter. But to put some context, it's up -- those orders are still up 30% from three years ago. So we're still seeing good demand here and the backlog is actually above our expectations. We've talked about that excess backlog, and that backlog today is above expectations what we thought going into the year. So anyway, I'll stop there and if you have any follow-up.

Jeff Sprague
Analyst at Vertical Research

No, I'll just switch gears to AHS. Then on the channel distribution shift that sounds like, I don't know if you view this as a hump, but maybe kind of the risk of any kind of leakage during the transition would have happened in this quarter. Is that fair? And then you've got kind of a bit clear sailing on how things play out over the balance of the year.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, we're really pleased with the performance of ASP in the quarter. As we said, we had really strong capital placements which bodes well for the rest of the year and obviously into the future given the consumables. Our project, what we call Elevate is on-track and it certainly was a headwind in the second quarter. But nothing that we didn't plan for. So, I think when you look at it, mid-single-digit growth even better than that ex Russia -- exit out of Russia. So, really a strong performance from a growth perspective in the quarter, and we think really as we kind of play out the rest of the year, We're going to see continued performance there, just given the work we've done and given that headwind from Elevate really, there's a little bit in the third and then it really goes away completely in the fourth.

Jeff Sprague
Analyst at Vertical Research

Great, thanks. I'll pass it along.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Your next question comes from the line of Steve Tusa from J.P. Morgan. Your line is open.

Stephen Tusa
Analyst at J.P. Morgan

Hey guys, just wanted to follow-up on the AHS question. It looks like the margin was tweaked lower, just adding up the quarters, I think like maybe 50 basis-points below that 24% you had talked about at the Investor Day. Maybe just a little bit of a more shallow recovery in the second-half, but still ending strong in the fourth quarter. Just curious as we kind of look out to next year on the way to that 30% margin, just wanted to obviously reaffirm that. And do you like step-up to more of a linear move from what you thought this year would be and you kind of capture that next year in the margin or are we just kind of like a little bit of shallower inflection on the way to that 30%? I'm just trying to figure out if '24 is kind of like a more linear year considering '23 is a little bit below expectations.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Yeah. Steve, this is Chuck. I think the change this year in terms on the guide is -- it's [Indecipherable] a little bit lower than we expected in Q2. As far as moving forward, we note the sequential improvements that you talk about here and that's with as COVID comes off under self-help with some of the productivity initiatives and also seeing more price. If you look into next year, well, we're not calling next year, but we expect to still have those tailwinds run COVID and pricing, and I think sequentially it will be above the margin expansion that we normally would expect.

We've talked about mid-single-digit and 75 basis points, it will be elevated from that. But we're not trying to get to 30% next year, but we're going to continue to make progress and have good margin expansion in through next year. And you'll see it as the elective procedures recover, we will expect that to continue to be a tailwind for quite a while.

Stephen Tusa
Analyst at J.P. Morgan

Yeah. I guess my question was more along the lines of like, is next year -- should we view extra is kind of a plot on a linear -- from a linear perspective on the way to that 30%? Or is it -- does what happened this year kind of make that target more back-end loaded into maybe '25, '26, '27 type time period. That was my question, is '24 more of a nice recovery year early on or is it more back-end loaded to that 30%?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

I don't think the back-end loaded much. It's not back-end loaded. I think you're going to see good progress towards that and because I think we're going to see stronger topline.

Stephen Tusa
Analyst at J.P. Morgan

Okay.

Jim Lico
President and Chief Executive Officer at Fortive

I would like to just add.

Stephen Tusa
Analyst at J.P. Morgan

Yeah.

Jim Lico
President and Chief Executive Officer at Fortive

I would just add. I mean, when you look at the trajectory now, we already have -- when you look at ProVation, when we look at Fluke Health, when you look at the Censis part of our sterilization business, those are already plus 30% operating profit businesses. So the growth trajectory of ASP is really what we're talking about. And when you think about it. I mean the fact that we --what we did in the quarter relative to placements can accelerate consumables in '24. It's consumables coming back in the -- I think our launch pad here. I don't want to get too ahead of our skis, but we we took a good step forward in the second-quarter relative to margins for health.

Stephen Tusa
Analyst at J.P. Morgan

Yeah, yeah, totally. And then just one last one. Where is the $350 million today. You had $350 million of excess, you say it's going to be $200 million or something at the end-of-the year. Where is the three -- where is that number today at the end of the 2Q?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

So about -- we still have about $330 million of excess at this.

Stephen Tusa
Analyst at J.P. Morgan

All right. I'll round it up to $350 million. Thanks, guys.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Okay.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Steve.

Operator

Your next question comes from the line of Scott Davis from Melius Research. Your line is open.

Scott Davis
Analyst at Melius Research

Good morning out there, Chairman, Chuck, and Elena.

Elena Rosman
Vice President of Investor Relations at Fortive

Good morning.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Good morning.

Scott Davis
Analyst at Melius Research

The iOS margin is up 400 basis points on pretty limited volume is impressive, of course. But what -- is this sustainable. I mean, it sounds like it's sustainable given your guidance and such, but is there any risk that some of that price cost spread that you're capturing right now perhaps goes the other direction on you in the next 12 months or so?

Jim Lico
President and Chief Executive Officer at Fortive

No. I think was a couple of things going on, as you said. I think we had -- really I think it speaks to the power of what we've been trying to do in IOS, as we continue to accelerate, obviously, acquisitions that we made several years ago. SaaS did exceptionally well. Our EH&F. So you're seeing the margin improvements from those businesses. Fluke while a little slower in the quarter, still very strong in the year. And is obviously been a perennial good margin improver. So, I think you probably won't see 400 basis points every quarter. That's probably a little strong, but I think it just speaks to the fact of the work we've been doing over the last few years to really get the entire segment up. And I think the second quarter was a good view of what the potential is in the entire segment.

Scott Davis
Analyst at Melius Research

Okay, that makes sense, Jim. Now, I want to just follow-up on Steve a little bit here on this one. But the comment on the slide, I just lost the slide. But that said pockets of industrial slowing. Can you parse out what part of that might be inventory destock versus kind of real sell-through demand that could be leaking a bit?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I think what we -- a couple of things maybe. In PT, as we think about the entire segment, the book-to-bill is about 1.0 for the year. That's better than we thought. So year-to-date we thought we'd be about 0.9, we're at 1.0. So, I think what we've seen is better orders in the year than we anticipated, obviously on stronger growth on the revenue side. What we have seen in sensing in particular is parts of sensing are doing really well, Qualitrol is executing very well. We think [Indecipherable] going to be good through the year, parts of the rest of sensing, but we are seeing some slowing in industrial businesses particularly in Europe with some automation customers.

We're seeing some slowing in places like HVAC with some OEM customers. Mostly on the OEM side in sensing is what that comment really has to do and also in some of the semiconductor business, parts of the business in sensing. So that's the slowing. And we would anticipate this is kind of nothing different than we originally thought would happen, but that's kind of what we're seeing right now and what we anticipate will continue through the sort of second-half of the year.

Scott Davis
Analyst at Melius Research

Okay, super helpful. Thank you. Best of luck the rest of the year.

Jim Lico
President and Chief Executive Officer at Fortive

All right. Thanks, Scott.

Operator

Your next question comes from the line of Deane Dray from RBC Capital Markets. Your line is open.

Deane Dray
Analyst at RBC Capital Markets

Thank you. Good day, everybody.

Jim Lico
President and Chief Executive Officer at Fortive

Hi, Deane.

Deane Dray
Analyst at RBC Capital Markets

Wanted to circle back on this concept of the excess backlog. I know you just sized it. But just be interested. I know there's the implied earnings visibility that you get from elevated backlog, but can you share with us some of the thoughts about the flexibility within the backlog, like let's say something happens whether it's supply chain or a customer readiness. How much flexibility do you have to immediately just draw down next in-line on the backlog and have that kind of seamlessly flow-through to the P&L? Because we hear excess backlog, we immediately think there is flexibility, but sometimes it may not be as flexible based upon customer timing and so forth, but any color there would be helpful.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, a couple of things, Deane. So as Chuck said, we've got the excess backlogs higher than we anticipated at the start of the year, it's about $330 million. We'll probably get that down in the $200 million range by the end of the year. And it's -- I would call it -- it kind of depends. But if we were to think about half of that excess is at Tektronix, that's relatively flexible and has been -- I wouldn't say within a month it's necessarily flexible because it does have some supply chain aspects to it, but it's in the sort of 90 days kind of timeframe a pretty flexible.

Sensing a little bit less, depends on some of the OEM customers. So in a pretty flexible. So I would say that's kind of where it stands. And that's why we think it is a good insurance policy relative to slowing, and that's what you saw in the second-quarter, right? You saw us get a little bit more backlog out. EMC was a little stronger as well than we anticipated. And so those are places where we think we can use the backlog in a way that sort of prevents any near-term challenges.

And also maybe just to add on to the Scott question because I didn't answer the destocking piece. We're really not seeing a lot of destock [Indecipherable] booking. Very little. Pretty much around our normal numbers, which is pretty small. We see some rescheduling of backlog on the OEM side in sensing. That's why sensing is a little -- a little slower in the second-half than maybe the rest of the portfolio, but we really haven't seen destocking. We haven't asked -- distributors really not asking to cancel orders or anything like that. There has been pretty minimal to the point, that's why we think the backlog remains flexible.

Deane Dray
Analyst at RBC Capital Markets

Alright. On behalf of Scott, thank you for the destocking answer. And then my follow-up, but just any color on the excess of 20% in India and Japan, is that a comp issue? Is there anything specific on the business side you call out?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, it's a little bit of a comp thing on the Japan side. We'll still see I think high-single-digit growth in Japan the remaining part of the year, but certainly a little bit of a comp side Japan. India, no, we've seen good growth in India. We're seeing -- I think we're getting some benefit of some of the reshoring and some of the investments that are going -- the sort of foreign direct investments that have been going into India here over the last 12 months, we benefit from that.

Our big companies like Fluke, and Tek and ASP are seeing the benefits of that, but even more broadly in some of the rest of the portfolio. So we think India is going to be probably 20% the rest of the year. It can -- those are smaller regions and some like Western Europe, so they can move a little bit more on a big chunk of business, but we like the demand dynamics right now in India in particular.

Deane Dray
Analyst at RBC Capital Markets

That's great. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Deane.

Operator

Your next question comes from the line of Andrew Obin from Bank of America. Your line is open.

Andrew Obin
Analyst at Bank of America

Hey, how are you guys?

Jim Lico
President and Chief Executive Officer at Fortive

Good. Hi, Andrew.

Andrew Obin
Analyst at Bank of America

I was going to ask NII question, but I was made fun off. So I'm going to ask something else. I'm gonna keep beating down this dead horse with inventories. In the revenue breakout and maybe this is not the best way of looking at this, but I think revenue through distribution was down 13% year-over-year this quarter. So how do you think just inventory levels among your distributors because I think our data shows that actually people continue to build inventory in the channel and I know you've sort of talked about it quite a bit.

Jim Lico
President and Chief Executive Officer at Fortive

I was thinking of demand -- I was thinking of inventory in the channel as a function of demand. And so as demand moderates a little bit around just the big numbers we've had over the last couple of years, there are pockets of inventory where we might see some increased inventory. But as I said on the previous couple of questions, we don't see any of that in a major way. We do get particularly in the US and Europe around Fluke and Tek, we get pretty good, we get pretty good visibility to the inventories. And so I think the places -- we don't -- obviously, those channel numbers that are in the queue and the filing represent also channel inventory relative to what we see in ASP, what we see in Sensing. So with a broader view of channels, in many cases international partners.

So I think what really matters relative to how we think about demand creation, we see moderate -- we are still seeing strong point-of-sale at Tek and so that's really fulfilling the backlog and customers are really hanging around for those orders and they're getting them and so we're still seeing strong POS. At Fluke it's a little bit more mix, but it's still -- it's really more of a moderation than it is anything. We still saw mid-single-digit POS growth at Fluke in the second quarter in the United States. We saw even better growth in China and even Europe was pretty good for POS.

So as those things moderate, there'll be some verticals that probably will get a little bit of channel inventory, but we really have a strong process for understanding that and putting out demand creation vehicles for that. I'd say the other thing is we have a number -- we probably have a -- we have a very good second half for innovation and product launches and so I think that's also an opportunity for us to continue to that really help the demand creation side where we might have some excess inventory.

Andrew Obin
Analyst at Bank of America

No. I appreciate this. And just a question on Fluke and Tek. I remember being in China in 2018 when sort of Chinese capex hit a wall and these businesses were hit. In reverse was all these mega projects in the US, right? How much visibility do you have related to specifically Fluke and Tek to these projects? When would you expect to get orders? And does it structurally change the growth rate for these businesses over the next couple of years? Thanks.

Jim Lico
President and Chief Executive Officer at Fortive

Well. I think on the Tek side we are starting to get visibility. In fact, even in some semiconductor businesses where the businesses obviously slowed a little bit, we have already had conversations with customers along a number of product lines about 2024 investments. And I think what's been good about Tek is that, that part of -- they've taken advantage of some other opportunities in power and then in the aerospace and defense customers to continue to offset some of that. So that's a good story. And will hopefully be a good story in '24, but still too early to tell.

On the Fluke side, it's really going to be less around when those facilities are getting built, as much of that is going to be keeping those facilities up and running. So we're probably a few years out from some of that. When a manufacturing plant gets built, obviously, there's some advantage to what we do through the build cycle, electrical contractors buying more Fluke equipment to build some of these facilities. But the real opportunity is going to be once those facilities are up and running and the maintenance staffs in those facilities are building out on those opportunistic, and we're probably a little off that opportunity. But I think until then, we're seeing good -- the secular drivers that we've got at Fluke and power and solar and some of the sustainable investments that we talked about the prepared remarks remain a good opportunity for us.

Andrew Obin
Analyst at Bank of America

All right. Great answer. Thanks so much.

Jim Lico
President and Chief Executive Officer at Fortive

All right. Thanks, Andrew.

Operator

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is open.

Jim Lico
President and Chief Executive Officer at Fortive

Hey, Josh.

Josh Pokrzywinski
Analyst at Morgan Stanley

Hi, folks. I just wanted to follow up on FAL and some of the, I guess changes going on in the construction markets, maybe a little bit of mixed of aversions, more manufacturing, a little less, some of these commercial or warehouse verticals. Anything that you guys are seeing across customer-base that gives you any kind of a cyclical impulse, whether this business is countercyclical, more pro-cyclical, like, and I guess this is maybe one of the first real construction cycles since you guys have owned some of these assets, like anything that you would just point out cyclically that you guys are noticing? it seems like the business is doing well, but anything would be helpful.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I don't -- we don't have a lot of exposure to commercial buildings really in the sense of traditional South [Phonetic] So, I think maybe we have commercial customers or maybe 5% of sales or something like that. So it's not a big driver. What we are seeing is quite frankly on the positive side, like Gordian is a lot of deferred maintenance and what Gordian solutions and quite frankly what we see in South is taking advantage of deferred maintenance and seeing the opportunity for deferred maintenance, improving project timelines. So that's really been a big growth driver for Fallon. I think it really played out in the quarter and we think it plays out certainly in the second half.

So, I think that leads to some of the infrastructure improvements that not only is going on State and local, but also on the commercial just more broadly. What we're seeing from customers really [Indecipherable] is the fact that people want to understand their capital in this time of return to work and how my real-estate assets working, particularly with things like retail customers. They really want to understand their investments and we really do -- our solutions are really oriented towards understanding that and how to bring facilities costs down. So really in some respects the reassessment that people are doing around their commercial infrastructure to some extent is a growth driver for us and then we sell software that really helps them bring that together and really helps them understand their expense, what they're spending and where they're spending it and how they might take opportunities to save money.

We talked about in the prepared remarks about a customer that is ahead of schedule on the $40 million cost-savings because of our solutions. So, quite frankly I think a number of the sort of noise that's in the commercial real estate market that I think your question is really oriented at in many respects is to some extent a driver for us because of the solutions we have.

Josh Pokrzywinski
Analyst at Morgan Stanley

Got it, makes sense, seems what the numbers say as well. And then maybe just shifting gears, we've seen a few folks thus far this earnings season have maybe a bit more of a reaction from customers from lead times normalizing. So not necessarily a destocking or a change in point-of-sale, but your lead times across some of the hardware businesses improving more materially here in 2Q, and is there sort of a customer impulse reaction to that?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I think where we see a little bit of that is at Tektronix where our lead times have come down, and it does create a little bit of a pause. That was embedded in our guide, that's why we thought orders would be the way they were. So, yeah, to some extent we're seeing that. As lead times moderate and you don't need to order something 18, 20 weeks in advance, you can now order at six to eight weeks in advance. There is some moderation, but that's really what's been embedded in our guidance from the first place is we've made some assumptions around that. And by and large that's come into play the way we thought.

At Fluke, a little bit less so because our lead times have been always pretty good. So, I think to the extent we're seeing any of that, it's really at Tektronix. And as I said, we've embedded that as we give you sort of the book-to-bill dynamics that we give you some of the order growth rate, it's really embedded in those kinds of numbers.

Josh Pokrzywinski
Analyst at Morgan Stanley

Understood. Thanks a lot.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Your next question comes from the line of Julian Mitchell from Barclays. Your line is open.

Julian Mitchell
Analyst at Barclays

Thanks a lot, good morning. Maybe just wanted to circle back to AHS as people seem very focused on that one given the history and so forth. So if I look at the second-half, it looks like you are assuming sort of $30 million, $40 million of profit step up. I think half-on-half in AHS. And maybe sort of $50 million or so step up from the top-line there. And obviously, last year we had a more stable half-on-half performance. So, is the delta on the top-line this year a lot of that say elective procedures elements and then when we look at the profit step up with that, is it sort of just normal leverage plus some of that distribution channel shift and maybe some cost-savings? Any sort of color as to the half-on-half move.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Hey, Julian. This is Chuck. Couple of things going on there. Yeah, I think you've got the numbers roughly right in terms of first-half, second-half step-up, things going on in the second-half, basically normal seasonality takes into account a lot of that, and especially in the fourth-quarter. But also coming out of Q1 in the first-half, China was obviously really low with COVID and elective procedures there that was -- that made Q1 lower, but project elevate, the dealer shift is going to give us more revenue in Q4 as we worked through that and also more profit.

And then we're getting more in as we go through the year. And I think those are three things that really help. And then the self-help that we put in the productivity, things that we announced earlier in the year also helping us. Our incrementals going from first-half to second-half on that step-up to 65%. That's all the things I mentioned and including seeing more consumables in second half. Now let me stop there and see if I covered the bases here.

Julian Mitchell
Analyst at Barclays

That's very clear, Chuck. Thank you. Then maybe switching tack, I do think capital deployment has come up much on the call yet. I think the buyback, did sort of get going again in the second-quarter after a quiet six months or so and clearly on M&A it's been quiet for 18 months given the -- partly given the tough M&A backdrop. But since we get lots of questions around whether there's been any change in view fundamentally about M&A or some of the types of deals, and then also is there more of an effort now to balance M&A with buybacks in terms of cash usage? So, just any sort of thoughts on that given that buyback spend in Q2.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Julian let me take the buyback and then I pitch over to Jim and talk about M&A. We remain opportunistic with our buyback. I think Q1 is our lowest cash flow in the quarter and we didn't do any there. But we'll be opportunistic as we move forward when we think that we're undervalued and see an opportunity. So I think that's going to continue to be the case. I think from a capacity standpoint, what we're doing here doesn't change anything about when you look out three to five years what are actual capacity. So we've got plenty of capacity.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, Julian. I would say we've been very busy this year. As you pointed out, it's been [Indecipherable] since we did ProVation, but I think where we stand today is activity is actually pretty good. And we've seen some things transact in the market lately that wouldn't suggest prices have come down necessarily, but there is some pockets of that. And our bolt-on activity is very busy right now and but we remain disciplined. There is a number of processes that have failed given some sellers lack of desire to sort of get pricing into what we think is the appropriate frame.

So we remain disciplined around the opportunities. But we do think there is a number of things out there that are possible and will continue to work-through them and with the work we do and the diligence we do and we'll look-forward to when those things get done. We don't have a burning time clock of getting something done for the sake of getting something done as you well know. We'll remain disciplined and there are opportunities for us, I think in the back-half of the year to do that.

Julian Mitchell
Analyst at Barclays

Great. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Julian.

Operator

Your next question comes from the line of Andy Kaplowitz from Citi. Your line is open.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Hey, good morning, everyone.

Jim Lico
President and Chief Executive Officer at Fortive

Hey, Andy.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Jim, can you give us more color by region and especially what's going on in China and Europe? Obviously, China has become more of a concern recently and maybe, but I think you already did say China is one of those pockets of industrial weakness and that will continue to decelerate moving forward. But could you give us more details regarding how China and Europe are reflected in your guidance moving forward?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. Sure. We've obviously had a -- we've had a strong North America view and that'll continue in the second-half, probably in that mid-single-digit range quite frankly. And when you look at the two-year stack in North America, very-very good, kind of mid-teens kind of numbers. So we feel good about where we're at in North America. And obviously, as you know, Andy, that's where a majority of our software businesses are. We're getting the benefit of obviously that in our North American growth rate. We're getting the benefit of a lot of the great work that our ASP team is doing as well. So that's kind of North-America.

I think relative to Western Europe, you know, probably roughly flattish. Europe has been so strong for a while now. It will be mid-teens -- a mid-teens on a two-year stack for the second-quarter. So we think it will be more flattish around the second-half of the year, maybe up a little bit. We're seeing some good traction in some places, but we're also seeing some, as I mentioned in sensing where we're seeing some industrial OEMs slow down, and that'll be -- that's reflected in our second-half guide.

Relative to China, as you mentioned. I think we've been consistent from really all six months of the year is that we've had for really-really strong quarters of growth in China. Stands up exceptionally well against many, almost everyone. But we did think that market would take a little bit of a breather in the second-half and we said that back in February and that's really -- we really still believe that. So embedded in our guide is really more kind of low single digit growth in China for the second-half and that's more like high-teens. Excuse me, accelerating kind of low 20s on a two-year stack. So we're really accelerating in China on a two-year stack. So the business is still very are pretty good, it's just off a very large base from the second-half.

And then high-growth markets as I mentioned on the India conversation. We still think there is a number of opportunities in the second-half to take advantage of some opportunities. But those are -- those kind of go -- they are a little bit smaller. So they tend to -- the growth rates tend to move around a little bit, but we do feel like we've got some opportunities in some of the high-growth markets in the second-half.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Got it. So you can't make fun of me, I'm going to ask an AI related question, but I'm going to ask it in the context of, you know, precision, you talked about some of the verticals fueled by geopolitics and investment in AI and compute and I think PacSci, you had guided much lower for the quarter than you actually reported. So, I think you talked about AND inflecting. Maybe you can talk about the inflection you saw in PacSci? Was it AI related? what's going on there and does it means for the future.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I think there is probably two places that we seen from a customer investor perspective. I would say, number-one is we're seeing investments in quantum computing, in R&D organizations that are really working towards opportunities for AI. So obviously you got to get the hardware in order to get the benefits of AI. Tektronix is really playing strongly in that regard and we mentioned -- we obviously mentioned that order in the prepared remarks. EMC is really more geopolitical aspect of less AI related, just more in general what they've historically done. They've got a tremendous backlog of the business that really extends.

We don't even include that backlog in our hardware backlog because the numbers are very positive. But we've had some supply-chain capacity challenges. We got more out in the second-quarter than we anticipated as you said and we continue to work through that. But we in the second-half, we probably have some opportunity in the second-half to do better than that, but we'll see where that goes and some of the improvements we've made a really good, but we want to see those more sustainable, particularly with our supply base at EMC. But the demand for EMC right now is at an all-time high.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Appreciate the color.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is open.

Nigel Coe
Analyst at Wolfe Research

Hi guys, good morning. I think we've got -- Hi. I think we've got AI. So let's move to price. So, you're one of the few companies actually seen better price Q-on-Q, I think 50 basis-points better if I'm not mistaken, maybe a bit more than that. So just keep us -- it seems like you're still pushing price especially in AHS. So what is your perspective on how pricing looks in the back half of the year, especially within AHS? This is still more runway in healthcare. And then I'm just also curious as well, how pricing looks across software and services?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, so I would say a couple of things. In the quarter, a little bit better than we anticipated really around sensing. As we said, we over-delivered in sensing and I think that brings the number up already, probably getting the most price, if you will. Relative to healthcare, we'll accelerate a little bit in the second half just because of Elevate and the channel mix change that we have, that will probably more true in the 4th and the 3rd. But we will see that and we're continuing to see price and up-selling, cross-selling, net dollar retention, as an example, has continued to improve and we're getting some opportunities to really push more price. That's some of the story of the margin improvements in 2Q and iOS is really the good work we've done.

The leader in the clubhouse net dollar retention and service channel, I think we're almost 150% now and I think it just gives you an example of us continuing to push the opportunity for really value. I think it's -- and on the software side it's really about value and the value you bring and if we can continue to have those features that we can go cross-sell and upsell, we didn't talk much about it on the question around AI but AI does present us an opportunity over time to create more features and opportunities within our software business to improve net dollar retention. We've seen that at Censis as example with the AI launch that we have with them in the second quarter. So we do think there's plenty of opportunity for net dollar retention to really continue to go up, Nigel. And that's really where we'll see the price component of what we do in our software businesses.

Nigel Coe
Analyst at Wolfe Research

Okay, that's great. And then moving on to Fluke. The flat revenues, it sounds like units down mid-single digits. I think you called out China comp as been quite up there, but are there any other pockets of headwind you call out? Just curious because this is the [Indecipherable]

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I think, you know, we probably if anything, you're always such a strong first quarter there. When we look at the mid-single-digit growth in the first half at Fluke, we really feel good about that number, and yeah I would say the industrial business has got a little bit of slowing there but the calibration business and other components of the business are accelerating. So all-up, I think the mid-single-digit number on the backs of such a good first half last year, really think speaks to the strength at Fluke. The second half will look similarly in terms of about mid-single-digit for the second half and that's really on the backs of even higher-growth last year in the second half. So in many respects kind of an acceleration from a 2-year stack.

So overall, we like the trajectory in the business. You're right, there's a couple of places, pockets of things we'll continue to watch. We continue to watch the PMI and industrial production, but I think the team has been executing well. A number of good technology launches. We had the eMaint business is performing really well. So, we've built some things that are into the portfolio over time as you well know, trying to make Fluke less cyclical, more tied to the secular drivers, and we believe that will continue to play out here in the second quarter. We've got a number of new product launches that can take advantage of those opportunities as well. So if there is some slowing in the marketplace, we think that can -- the number, we've got a number of actions out there that we think can countermeasure some of the potential slowness.

Nigel Coe
Analyst at Wolfe Research

Okay, that's great. Thanks.

Operator

And your next question comes from the line of Joe Giordano from TD Cowen. Your line is open.

Joe Giordano
Analyst at TD, Cowen

Hey, good morning guys. Yeah, I wanted to just on the short-cycle stuff. One, I just want to make sure I understand, Fluke is flattish this quarter, it accelerates in the second half. I want to make sure I understood that. And then on Tek, you mentioned earlier, orders were down 10% or so of 30% from three years ago, like that's obviously very positive. But at the same time, does it like scare you in a way that like, what's the right amount of like the normal level for a business like that because if we're talking about 350-ish of excess backlog on a 200 and half of that is Tek, t's like $75 million of excess revenue delivery versus orders in the second half alone, which is pretty significant. So just want to understand like where these businesses exit the year and what it means for comps into next year from the 4Q starting point.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah, so let me clarify the Fluke comment. What I said of Fluke is, we were mid-single-digit in the first half this year, we'll be Mid-single-digit in the second half. So from that standpoint, no acceleration. The quarters might move a little bit, but just if we think about first half to second half of the same. However, because we grew more in the second half of last year, the two-year stack does accelerate a little bit. So hopefully that clarifies the Fluke comment.

I think relative to Tek, we always knew that there were a number of parts of the business that we're, you know, that we're really fulfilling over time. And as I mentioned, plus lead times going down would ultimately impact the orders, but it's been nice to see, it's been a strength of point-of-sale at Tek, which around the world has continued to be good, and then I think it continues to solidify our belief that the demand is real and that the demand can be played out over time and that's why that we believe that demand, the access backlog, if you will, remains an insurance policy against anything that might occur relative to some slowing that's going on. So I think that -- I'll stop there and hopefully that clarifies the two points.

Joe Giordano
Analyst at TD, Cowen

And then just a follow-up on margins, like if I look at your Slide 16, obviously a big ramp in all three segments from 1Q to 4Q, and I just wanted to kind of -- if you can frame up maybe how much of that variance from 1Q to 4Q is like normal seasonal and how much is like a new jumping-off point from the fourth-quarter level into next year.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Okay. I think it's normal seasonal, it's just it's more -- I'm sorry, Joe. This is a this is normal seasonality step-up from Q3 to Q4 when you're time about what's going on there at the fall-through margins. I do think that. But embedded in there is some of the self-help we did in the first half and that will carry over and be a help certainly in the first half of next year, and then the pricing that we've been putting in. So, to some extent it is a better jumping-off point going into next year. But keep in mind those Q4 to Q1 step-down, but when you look year-on-year I think those things are going to be tailwinds with pricing self help and then the Elevate health margins. it gives us a great stepping off into the first half of next year.

Joe Giordano
Analyst at TD, Cowen

Thanks, Chuck.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks, Joe.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Joe.

Operator

And your next question comes from the line of Joe O'Dea from Wells Fargo. Your line is open.

Joseph O'Dea
Analyst at Wells Fargo & Company

Hi, everyone, and thanks for taking the questions. Hi. First, just one related to a comment around channel distribution in AHS and think you talked about how sort of a headwind in the 3rd-quarter headwind goes away in the 4th quarter. I guess, I'm curious about the tailwinds associated with this. And what that looks like, and I don't know any framing around kind of the cost headwinds you've seen so far. But then as you sort of reached that transition point, how long you think it takes to then sort of reach the more elevated margin target opportunity that you have there?

Jim Lico
President and Chief Executive Officer at Fortive

Well, I would say relative to the transition itself, the biggest impact I think we ought to think about the biggest impact is in the second quarter. There is some impact in the 3rd, and that sort of equates itself out of the number by the 4th quarter. So that's kind of the sort of the sequential aspects of the impact of it. We think that benefits, I think we've talked about this, the benefits margins from the perspective of, we think we get better price. And so in that sense it has a margin impact as well. I also think it has a growth impact, and this will probably be more late Q4 into '24 impact and we still need to see it, but with the direct aspects of our terminal sterilization, which is our really strong business for us allows for us to accelerate the sterilization cycles that go on in our equipment, meaning that we can -- now that we're direct, we have much more contact with customers and our application engineers will be more directly working with customers on the sort of efficacy of accelerating sterilization into other products that might be in the sterilization lap and that should have impact on growth over-time.

So, not only in terminal sterilization, but they're also in our biological indicator business. So we feel that there is a real -- there is a growth impetus to this as well. We think there is customer satisfaction impetus in this as well. I think to some extent the reason why our capital numbers were better in the second quarter was because customers are starting to understand that they're going to have a better opportunity to really have to ASP salespeople, ASP application engineers in their hospitals every day helping them out, and so I think it's a margin and growth story. It certainly is going to, and has already started to play out I believe on the capital side, plays out on the consumable side in the second half and certainly into '24.

Joseph O'Dea
Analyst at Wells Fargo & Company

And then, I wanted to ask one. Just on orders, I think you talked about Precision Tek book-to-bill at one better than the 0.9 you're anticipating. I'm not sure about Fluke. But orders up mid-single-digit. I guess if anything, maybe a little bit better-than-expected. And so I don't know if there is sort of anything overarching about it, but what you would sort of most attribute to seeing some of these order trends kind of better-than-anticipated out there?

Jim Lico
President and Chief Executive Officer at Fortive

I think well, here's what. Here's what we're seeing. I mean, I really, as we started the year, we thought there would be some slowing in the year just because of the moderating aspects of some of our businesses and maybe some economic impact in pockets. We really have seen, we really haven't seen much of that in the first-half of the year. But embedded in our guide is still some aspects of thinking that there's going to be some economic impact, obviously PMIs in the world, some of the portfolio is still have some ties to industrial production.

We've been able to mitigate all that because of the strong strategy around secular drivers and the recurring revenue parts of the business that have played out exceptionally well. So we'll continue to -- that was a book-to-bill of 1.0, which included by the way Fluke orders as well on that overall book-to-bill. So I think where we stand today is in a much better position as we said that excess backlog number is more robust than we anticipated as we go into the second-half, and I think that bodes well for the three things we talk about going into the year. If there was some concerns around the macro that we would have the strong backlog, excess backlog as I described, software and recurring revenue and the self-help work that's going AHS. And I think what you saw in the second quarter is all that manifesting well.

Joseph O'Dea
Analyst at Wells Fargo & Company

Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

And our final question comes from the line of Brett Linzey from Mizuho Americas. Your line is open.

Brett Linzey
Analyst at Mizuho

Hi, good morning all. Yes, thanks for taking the question. Lot of ground has been covered, but just wanted to come back to price, clearly advanced here in the industrial cycle and seeing some softness in some of those hardware businesses. How are you thinking about the ability to take more price or hold the ground on price should the macro develop more weekly here, particularly within Sensing?

Jim Lico
President and Chief Executive Officer at Fortive

I think number one, our ability to hold price. We feel very good about it. I think the quality of our franchises is the kind of value in investments we've made in innovation really speak to our ability to hold price, and probably -- we think of it as value-creation and our ability to create more value for customers and get paid-for it, and I think you'll see that across the in a number of the things we're talking about. I think we see that. So we think strongly we could hold price and we feel we can continue to get it, probably not at the rates we got in '21 as an example in '22. But we've always been a good price leader relative to I think a number of companies, and I think we've -- there is no reason why we wouldn't continue to be as we go into '24 and '25.

Brett Linzey
Analyst at Mizuho

Okay great, appreciate the color. I'll leave it there.

Operator

And this concludes our question-and-answer session. I will now turn the call-back over to you Jim for some final closing remarks.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Rob, and thanks everyone for the time today. Hopefully, you get a sense of the excitement in the second quarter and the conversations we had. I think as we look into the second-half, the raise of our guide, really speaks to the confidence that we have out there despite probably some noisy things. Our strategy is playing out the way we anticipated and we're excited about that and we'll look-forward to sharing some of the details with you as we get through the follow-up calls and a number of things that we'll be doing here in the third-quarter. Between now and then, have a great summer. Thanks. Thanks for everyone. We look-forward to your follow-up questions and take care. Thank you.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Elena Rosman
    Vice President of Investor Relations
  • Jim Lico
    President and Chief Executive Officer
  • Chuck McLaughlin
    Senior Vice President and Chief Financial Officer
Analysts

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