Fortrea (NASDAQ:FTRE) Reports Bullish Q2, Stock Soars

Clinical research company Fortrea Holdings (NASDAQ:FTRE) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 7.2% year on year to $710.3 million. The company’s full-year revenue guidance of $2.65 billion at the midpoint came in 5.7% above analysts’ estimates. Its non-GAAP profit of $0.19 per share was significantly above analysts’ consensus estimates.

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“As Fortrea marked two years of independence at the end of June, the last remaining demands of the spin-related transition are firmly in the rear-view mirror,” said Fortrea Chief Financial Officer, Jill McConnell.

Company Overview

Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ:FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Fortrea’s demand was weak over the last four years as its sales fell at a 2.9% annual rate. This wasn’t a great result and is a sign of poor business quality.

Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Fortrea’s annualized revenue declines of 3.6% over the last two years align with its four-year trend, suggesting its demand has consistently shrunk.

This quarter, Fortrea reported year-on-year revenue growth of 7.2%, and its $710.3 million of revenue exceeded Wall Street’s estimates by 12%.

Looking ahead, sell-side analysts expect revenue to decline by 9.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Fortrea’s high expenses have contributed to an average operating margin of negative 4.8% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Fortrea’s operating margin decreased by 66.2 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 39.8 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q2, Fortrea generated a negative 46.5% operating margin. The company's consistent lack of profits raise a flag.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Fortrea, its EPS declined by 36.5% annually over the last four years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q2, Fortrea reported adjusted EPS at $0.19, up from negative $0.03 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Fortrea’s full-year EPS of $0.62 to shrink by 3.2%.

Key Takeaways from Fortrea’s Q2 Results

We were impressed by how significantly Fortrea blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited it raised its full-year revenue guidance. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 8.4% to $7.13 immediately after reporting.

Fortrea had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.