Tickers

1. Composite Trajectory Verdict

The cash flow statement matters most for assessing VLTO given its business model of recurring revenue, limited capital expenditure requirements, and management’s emphasis on cash generation to fund acquisitions, dividends, and share repurchases.

Composite Trajectory: Improving

Annual results show consistent improvement in 2025 versus 2024 and 2023: revenue grew 6.0% to $5,503 million, net earnings rose 12.8% to $940 million, operating cash flow increased 23% to $1,077 million, and the balance sheet strengthened with cash doubling to $2,031 million and equity rising 52% to $3,106 million. Quarterly Q2 2026 results show revenue growth of 7.6% and net earnings growth of 8.5%, though operating margin compressed 140 basis points due to restructuring charges. The annual trends across all three statements are positive, and the quarterly margin pressure is attributed to a disclosed cost optimization program rather than core deterioration.

2. Red Flags

• SG&A as a percentage of sales has risen each year: 30.6% (2023) → 31.7% (2024) → 31.9% (2025) (10-K 2025, MD&A Operating Expenses), and jumped to 34.9% in Q2 2026 (10-Q 2026-07-03, MD&A Operating Expenses).
• Operating margin was flat annually (23.2% in 2025 vs 23.3% in 2024) (10-K 2025, MD&A Operating Profit Performance) and fell 140 bps in Q2 2026 (21.4% vs 22.8%) (10-Q 2026-07-03, MD&A Operating Profit Performance), driven by 200 bps of restructuring charges (10-Q 2026-07-03, MD&A Operating Profit Performance).
• Gross margin improvement in Q2 2026 benefited from “recoveries of tariffs previously collected under IEEPA” (10-Q 2026-07-03, MD&A Cost of Sales and Gross Profit), a non-recurring item.
• A $700 million current portion of long-term debt is due in 2026 (10-K 2025, Note 12 Financing), representing a near-term maturity.
• The company authorized a $750 million share repurchase program in November 2025 but made no repurchases during 2025 (10-K 2025, MD&A Liquidity and Capital Resources).

3. Earnings Assessment (Income Statement)

Earnings Trajectory: Improving

Annual GAAP revenue grew from $5,021 million (2023) to $5,193 million (2024) to $5,503 million (2025) (10-K 2025, Consolidated Statements of Operations). Gross margin expanded from 57.8% to 59.8% to 59.9% over the same period (10-K 2025, Consolidated Statements of Operations). Net earnings increased from $839 million (2023) to $833 million (2024) to $940 million (2025) (10-K 2025, Consolidated Statements of Operations), with diluted EPS rising from $3.40 to $3.34 to $3.76 (10-K 2025, Consolidated Statements of Operations). Q2 2026 revenue grew 7.6% year-over-year to $1,474 million, net earnings rose 8.5% to $241 million, but operating margin declined to 21.4% from 22.8% due to restructuring charges (10-Q 2026-07-03, MD&A Business Performance; MD&A Operating Profit Performance).

4. Cash Generation Assessment (Statement of Cash Flows)

Cash Trajectory: Improving

Annual operating cash flow increased from $963 million (2023) to $875 million (2024) to $1,077 million (2025) (10-K 2025, Consolidated Statements of Cash Flows). Capital expenditures remained low and stable at $54 million (2023), $55 million (2024), and $63 million (2025) (10-K 2025, Consolidated Statements of Cash Flows), yielding free cash flow of $909 million, $820 million, and $1,014 million respectively. Cash and cash equivalents more than doubled from $762 million (2023) to $1,101 million (2024) to $2,031 million (2025) (10-K 2025, Consolidated Balance Sheets). Quarterly cash flow data for 2026 is not provided in the filings.

5. Balance Sheet Assessment

Balance Sheet Trajectory: Improving

Total assets grew from $5,693 million (2023) to $6,406 million (2024) to $7,693 million (2025) (10-K 2025, Note 5 Segment Information; Consolidated Balance Sheets). Total debt increased modestly from $2,599 million (2023) to $2,599 million (2024) to $2,673 million (2025) (10-K 2025, Note 12 Financing), while total equity rose from $2,045 million (2023) to $2,045 million (2024) to $3,106 million (2025) (10-K 2025, Consolidated Balance Sheets), reducing the debt-to-equity ratio from ~1.27x to ~0.86x. The current portion of long-term debt of $700 million appears in 2025 (10-K 2025, Consolidated Balance Sheets), reflecting a 2026 maturity.

6. Data Gaps

• Quarterly cash flow statements for Q1 2026, Q2 2026, Q3 2025, and Q4 2025 are not included in the provided filings.
• Quarterly balance sheets for 2026 periods are not provided.
• Full-year 2026 results are not available.
• 2023 long-term debt balance is not explicitly shown in the 10-K balance sheet (only 2024 and 2025 are presented), though cash flow statements indicate $2,608 million of borrowings in 2023.
• Segment-level cash flows and working capital details for quarterly periods are not disclosed.