Vontier's profit target is climbing. Its growth forecast is standing still.

Vontier is getting more profit from each dollar of sales. Strong fuel-equipment demand and lower costs helped the industrial technology company beat its third-quarter targets, giving management room to raise its annual earnings forecast.

The growth forecast hardly moved. Vontier still expects about 3% full-year core sales growth, the same midpoint it gave in August. The bigger change is how much of that revenue it expects to keep as operating profit.

Our Vontier company profile tracks the three businesses, earlier targets, cash flow and completed portfolio changes.

A much better margin than Vontier expected

Vontier sells fuel dispensers, convenience-store payment and automation systems, and vehicle-repair tools. Its third-quarter sales of $736.9 million came in just above August's $720 million to $735 million target. Adjusted earnings of $0.92 a share cleared the earlier $0.82 to $0.86 range.

The more striking result was the adjusted operating margin: 24.3%, up three percentage points from a year earlier. Management had forecast an improvement of about 1.1 percentage points. Adjusted operating profit rose 12% to $179.3 million.

The reported figures also showed better operating performance. Operating profit rose 11% to $158.4 million, although net earnings fell to $99 million from $102.8 million as the effective tax rate increased.

Fueling growth is real. The portfolio also helps.

The Environmental & Fueling Solutions business led the improvement. Its core sales rose 13.1%, supported by dispenser systems, environmental equipment and aftermarket products. Profit margin rose to 31.6% from 29.2% as higher volume, a favorable sales mix and savings helped earnings.

Core growth removes acquisitions, certain divestitures, currency effects and other specified items. That distinction matters here: total Vontier sales fell 2.1%, largely because the company sold its Teletrac Navman fleet-management business in June.

Teletrac's exit also improved the margin in Mobility Technologies. That division's margin jumped 7.4 percentage points to 25.9%, with the sale accounting for about 2.5 points. Cost savings, including more efficient research and development spending, provided another driver.

The results were less favorable in Repair Solutions, where margin fell to 19.1% from 20.9%. Sales slipped 0.9%, including lower interest income as stricter credit standards reduced financing originations. Sales at existing stores still rose by a low-single-digit percentage.

The upgrade leans on profitability

Vontier now expects full-year adjusted earnings of $3.60 to $3.64 a share, up from August's $3.45 to $3.55. Its expected annual adjusted margin improvement rose to about 1.8 percentage points from one point.

Expected annual sales of about $3.03 billion remain inside August's $3 billion to $3.05 billion range. The core-growth midpoint is unchanged at about 3%. The revised outlook therefore calls for a more profitable year without requiring a faster underlying sales forecast.

Share repurchases add to earnings per share. Management estimates that buybacks supplied about $0.08 of the year-over-year third-quarter adjusted per-share increase. It spent $80 million on repurchases in the quarter and $280 million through the first nine months, followed by another $40 million in October.

The full-year forecast assumes about $320 million of repurchases. Vontier's initial fourth-quarter targets are roughly $785 million of sales and adjusted earnings of $0.99 to $1.03 a share.

Stronger quarterly cash, with a longer-term test ahead

Third-quarter operating cash flow rose to $142.8 million from $110.5 million. After $20.8 million of capital spending, free cash flow was $122 million, enough to cover the quarter's $80 million of repurchases.

Over nine months, free cash flow was $241.7 million, down from $266.3 million. Vontier also received cash from Teletrac's sale and used cash for debt repayment and the July purchase of fleet-software company EKOS.

The next results will show whether Vontier can keep the better margins as growth moderates: its fourth-quarter core-sales forecast is about 3%, below the third quarter's 5.7%. Stronger fuel-equipment demand gives it an operating tailwind. Repair financing and the contribution from portfolio changes explain why the improvement is uneven.