Andrew Kaplowitz

Andrew Kaplowitz inquired whether APi Group's inspection services still achieved double-digit growth this quarter, following a long streak, and if the 'law of large numbers' is beginning to impact this segment's growth.

Answer

President and CEO Russ Becker confirmed that the inspection business did grow double-digits this quarter. However, he acknowledged that the 'law of large numbers' will make it increasingly challenging to maintain such high growth rates, and as a result, the company will discuss this metric less prevalently going forward.

Andrew Kaplowitz inquired whether inspection revenue continued its double-digit growth streak in the current quarter and if the 'law of large numbers' is beginning to impact this segment, potentially shifting growth to high single digits.

Answer

President and CEO Russ Becker confirmed that inspection revenue did grow double digits this quarter. However, he acknowledged that the 'law of large numbers' will make it increasingly challenging to maintain that pace, and the company will likely transition to discussing high single-digit growth for this segment less prevalently going forward.

Andrew Kaplowitz of Citigroup inquired about the progress of shifting to higher-margin projects in the Specialty segment and the sustainability of double-digit growth in the Safety segment's inspection business.

Answer

President and CEO Russ Becker explained that the Specialty margin in Q2 was impacted by the timing of project starts versus completions, but expects improvement. He affirmed the strength of the Safety business, highlighting the 20th consecutive quarter of double-digit inspection growth, strong service demand, and robust project opportunities in key end markets like data centers, which allows for selective, value-based project pursuits.

Andrew Kaplowitz of Citigroup Inc. asked for an update on APi's backlog, which was previously stated as $3.5 billion, and inquired about growth visibility in the Safety and Specialty segments amid macro uncertainty. He also sought more details on the potential impact of tariffs on the business and guidance.

Answer

President and CEO Russell Becker confirmed the backlog is around $3.5 billion and growing, with momentum expected to continue. He noted Specialty Services is expected to see organic growth in Q2, aided by a strong backlog. Regarding tariffs, Becker explained that APi proactively added protective language to contracts to pass on material cost increases, primarily for steel pipe in the North American safety projects business. He mentioned some material prepurchasing occurred in Q1 but feels the company is well-positioned to manage the situation.

Andrew Kaplowitz inquired about the growth outlook for the projects business within the Safety segment, the potential for margin expansion beyond the 13% target, and whether the backlog and key end market opportunities are still growing.

Answer

President and CEO Russ Becker expressed optimism for project growth, citing a record $2 billion backlog in the Safety business and strong end markets. He confirmed the company will not stop at its 13% margin target and will issue new, higher long-term goals at its next Investor Day. He also stated the backlog is growing and healthier, with robust opportunities in data centers, healthcare, and infrastructure.

Andrew Kaplowitz inquired about the large opportunity pipeline's potential to drive double-digit backlog growth in 2026, especially with nuclear power nearing half of total sales. He also asked for more color on the medical segment's expected mid-single-digit growth in Q1 2026.

Answer

CEO Thomas Logan discussed the complexity of large project timing but expressed confidence in the pipeline's ability to accelerate growth, particularly in the nuclear power vertical. CFO Brian Schopfer noted the medical team's positive outlook for Q1 2026, citing easier comps in the latter half of the year.

Andrew Kaplowitz asked about the large opportunity pipeline's growth to over $400 million, its potential to drive double-digit backlog growth in 2026, and the confidence in this outlook given nuclear power's increasing share of sales. He also inquired about the Q1 medical segment guidance for mid-single-digit growth, specifically regarding expected recovery in Europe and China.

Answer

Thomas Logan, CEO and Chairman, acknowledged the difficulty in correlating large projects directly to backlog due to timing complexities but expressed confidence in the underlying nuclear power dynamics driving accelerating growth. Brian Schopfer, CFO and Medical Group President, noted that the medical team is seeing positive dynamics across all three businesses for Q1, with the back half of 2025 having easier comps than the front half.

Andrew Kaplowitz inquired about the performance of the medical business, noting pressure in RTQA but strong organic revenue growth in Q3, and asked for visibility into the normalization of spending and near-to-medium-term growth expectations.

Answer

Thomas Logan, Founder, Chairman and CEO, affirmed confidence in the medical business, citing robust demand drivers like an aging population and increased cancer incidence. He noted strength in international single-payer RTQA markets, favorable dynamics in nuclear medicine, and strong 7% organic revenue growth in dosimetry services. Brian Schopfer, EVP, CFO, and Medical Group President, cautioned that Q4 medical revenue might be flattish due to a tough prior-year comparable in dosimetry product sales.

Andrew Kaplowitz inquired about the performance of Mirion's medical business, specifically addressing pressures in RTQA, sustained organic revenue growth, and the anticipated timeline for market normalization.

Answer

Thomas Logan, Founder, Chairman and CEO, Mirion, affirmed confidence in the medical business, citing robust demand drivers like an aging population and increased cancer incidence. He noted strong RTQA performance in international single-payer systems, expected equilibration in the U.S. market, favorable dynamics in nuclear medicine, and 7% organic revenue growth in dosimetry services led by digital offerings. Brian Schopfer, EVP, CFO, and Medical Group President, Mirion, cautioned that Q4 medical revenue might be flattish due to challenging prior-year comparisons.

Andrew Kaplowitz of Citigroup questioned whether management would be disappointed if the nuclear backlog isn't higher by year-end, if SMR orders will become meaningful sooner than expected, and about the resilience of the medical and labs businesses amid budget uncertainties.

Answer

CEO Tom Logan stated unequivocally that they would be disappointed if the nuclear backlog is not higher by year-end. On SMRs, he remains cautious, expecting industry consolidation and noting that while activity has accelerated, he is not forecasting a dramatic spike in orders yet. Regarding the medical business, Logan acknowledged market uncertainty but highlighted its resilience due to its focus on efficiency-driving solutions and favorable reimbursement mix, stating they have not yet seen an erosion in growth.

Andrew Kaplowitz of Citigroup questioned the year-end backlog forecast, the geographic composition of the large project pipeline, the sustainability of the high single-digit growth in commercial nuclear, and whether the recent debooking was geopolitically motivated.

Answer

Executive Brian Schopfer stated that while the recent debooking was a headwind, he expects the year-end backlog to be "in the zone of flattish" compared to the prior year, with potential for upside. Executive Thomas Logan detailed that the large project pipeline is over 50% U.S.-based, with the rest in Europe and the Arab Gulf. He affirmed bullishness on sustained nuclear growth, citing the improved financial health of global operators and an acceleration in the SMR timeline driven by hyperscaler demand. Logan confirmed the debooking was purely contractual and not geopolitical.

Andrew Kaplowitz noted that Vertiv's core incremental margins are modeled close to 30% for Q1 2026, at the low end of the long-term range, and asked if higher incrementals are possible given operating leverage, or if supply chain constraints and growth investments necessitate conservatism.

Answer

CFO Craig Chamberlin confirmed that a higher level of investment is factored into the guidance, which keeps incrementals at the lower end of the 30%-35% range. He expects these to increase in the longer term as investments ramp up. CEO Giordano Albertazzi reiterated that the long-term trajectory for incrementals remains unchanged.

Andrew Kaplowitz questioned the core incremental margins modeled at the lower end of Vertiv's long-term range for Q1 2026, asking if higher incrementals were possible given operating leverage from large contracts, or if supply chain conservatism and growth investments were limiting factors.

Answer

CFO Craig Chamberlin confirmed that a higher level of investment and the ramp-up of those investments are indeed putting some pressure on incremental margins, keeping them at the lower end of the 30-35% range. CEO Giordano Albertazzi reiterated that the long-term trajectory for incrementals remains unchanged.

Andrew Kaplowitz sought more color on Vertiv's capacity investments, especially in North America, and asked about the expected CapEx growth in 2026 to ensure sufficient capacity to meet the 30% backlog growth and sustained high revenue growth.

Answer

CEO Giordano Albertazzi stated that Vertiv is expanding capacity, particularly in North America, primarily through expanding existing sites for speed and leveraging experienced teams. He explained that capacity build-out is a continuous process, typically 6 to 12 months ahead of demand, and includes both new footprints and productivity improvements, without providing explicit 2026 CapEx figures.

Andrew Kaplowitz inquired about Vertiv's capacity investments, particularly in North America, the projected 20%+ R&D growth, and CapEx growth for 2026, asking if the company will have sufficient capacity to support its 30% backlog growth and high 20s revenue growth.

Answer

Giordano Albertazzi, CEO of Vertiv, stated that while 2026 CapEx specifics were not being disclosed, capacity expansion involves both new footprints/CapEx and productivity. He noted that expansion is predominantly at existing North American sites for speed and leveraging experienced teams. Vertiv's philosophy is to grow its footprint 6-12 months ahead of demand, and he expressed satisfaction with the current trajectory to sustain future growth.

Andrew Kaplowitz of Citigroup asked if, given recent order momentum and broadening AI spend, Vertiv's long-term growth CAGR for hyperscaler and colocation revenue should be considered higher than previously guided.

Answer

CEO Giordano Albertazzi stated it was premature to formally change long-term market growth expectations. However, he confirmed that market trends are toward the upper end of their 15-17% growth range for hyperscale and colo, and emphasized that Vertiv is gaining market share within that strong environment.

Andrew Kaplowitz of Citigroup Inc. asked if Vertiv's long-term growth targets could be revised higher, given the strong recent order momentum and a broadening of AI-related spending.

Answer

CEO Giordano Albertazzi stated that it would be premature to formally change long-term market growth expectations. However, he did acknowledge that for the hyperscale and colocation market, they are thinking toward the upper end of the previously guided 15-17% growth range and that Vertiv's momentum implies market share gains.

Andrew Kaplowitz of Citigroup asked about the lagging order growth in Europe, its potential to contribute more significantly later in the year, and whether the company can maintain a book-to-bill ratio above 1x.

Answer

CEO Giordano Albertazzi remained cautious on the timing of a European acceleration but noted its pipelines are encouraging. He highlighted that the Americas and Asia continue to be strong growth engines. He also affirmed the company's expectation to achieve a book-to-bill ratio greater than 1 for the full year, in line with its long-term growth model.

Andrew Kaplowitz asked for more details on the weakness in EMEA orders during Q4, the outlook for European orders in 2025, and whether trailing 12-month order growth would remain in the double digits despite more difficult comparisons.

Answer

CEO Giordano Albertazzi acknowledged a material shift in EMEA project timing into 2025 but expressed confidence in the region's pipeline, noting AI adoption there lags North America. He stated that he expects a 'good trailing 12' month order growth rate in 2025 that will fully support the company's financial model, driven by robust and growing customer investment pipelines.

Andrew Kaplowitz of Citigroup Inc. asked about Vertiv's win rates in the liquid cooling market as it expands and whether the company is achieving the previously guided $3 million to $3.5 million content per megawatt on high-density projects.

Answer

CEO Giordano Albertazzi responded that while not providing specific win rate figures, the company is happy with the trajectory, which is consistent with its market share ambitions in liquid cooling. He confirmed that signals point toward the previously indicated additional $0.5 million TAM per megawatt for high-density AI applications, moving from a $2.5-$3.0 million baseline to the $3.0-$3.5 million range.

Andrew Kaplowitz asked for clarity on AI's impact on AECOM, specifically whether a new value model shaped by AI would lead to shrinking revenue and if the rate of improvement in EBITDA to employee calculations could substantially increase (e.g., 15%+ productivity gain). He also inquired about the performance of AECOM's private-facing business in the U.S., particularly its positioning in data centers, and if an inflection in private work is anticipated.

Answer

CEO Troy Rudd clarified that clients expect and are willing to pay for more value, viewing AI as an extension of technology investments that enhance AECOM's core attributes of trusted relationships, technical leadership, and domain expertise, citing the Scottish Water win as an example of AI's demonstrated value. President Lara Poloni stated AECOM has one of the largest global data center practices, which grew 50% in FY2025, and expects continued high growth, benefiting directly from digital ecosystem work and indirectly through advisory services and associated water/power studies for major hyperscalers.

Andrew Kaplowitz asked for clarity on AI's impact on AECOM, specifically whether a new value model shaped by AI would lead to shrinking revenue and if the EBITDA to employee improvement rate could substantially increase (e.g., 15% or more productivity in a year). Kaplowitz also inquired about the performance of AECOM's private-facing business in the U.S., particularly in data centers, and if an inflection in this private work is expected.

Answer

CEO Troy Rudd clarified that clients always expect more value, and when AECOM provides it, they are willing to pay for it, viewing AI as an extension of past technology investments. He emphasized that AI enhances AECOM's competitive advantages (trusted relationships, technical leadership, domain expertise) and is well-received by clients, as demonstrated by the Scottish Water win. President Lara Poloni stated that AECOM has one of the largest global data center practices, growing 50% in FY2025, and expects continued high growth from direct work (digital ecosystem, electrical engineering, infrastructure) and indirect work (advisory, due diligence, water/power studies) for major hyperscalers.

Andrew Kaplowitz sought more color on the strong Americas margin performance, questioning if it implies higher second-half investment. He also asked if the strong book-to-burn ratio is sustainable and if there has been any slowdown in bookings.

Answer

CEO Troy Rudd confirmed that investments in business development, technology, and Enterprise Capability Centers will continue in the second half to drive further efficiencies. He expressed confidence in sustaining a book-to-burn ratio above 1.0x, citing an 18-quarter streak, all-time high win rates, and a growing pipeline as evidence of continued momentum.

Andrew Kaplowitz asked for details on the primary drivers of the strong Americas growth in fiscal 2025, questioning the balance between state/local versus private work and between the water and transportation sectors. He also sought assurance on future bookings in light of federal budget uncertainty.

Answer

CEO Troy Rudd responded that growth is expected to be balanced across all of AECOM's key end markets, including transportation, water, environment, and facilities, reflecting a deliberate strategy to align with diverse, long-term infrastructure trends. He also expressed confidence that the company's book-to-bill ratio would remain above 1.0x for the year, citing a robust and expanding pipeline of opportunities.

Andrew Kaplowitz asked if Rockwell Automation's incremental margins could creep up for the year, given the strong Q1 performance and Logix strength, and requested an update on productivity programs like 'Rock on Rock' and dynamic pricing. He also asked about opportunities in semiconductors and how focusing on bigger solutions could help in the discrete market.

Answer

Christian Rothe (CFO, Rockwell Automation) confirmed that Logix strength could influence flow-through profitability but emphasized broad-based growth and strong productivity initiatives, particularly in direct material costs and gross margin expansion. Blake Moret (Chairman and CEO, Rockwell Automation) elaborated on 'Rock on Rock,' stating that learnings from Singapore are being applied to other facilities like Twinsburg to drive efficiencies. Regarding semiconductors, Blake noted a tough Q1 comp but highlighted participation with tooling providers, wafer transport, AI-enabled energy management, cybersecurity, and clean room environmental controls. He also mentioned that new capacity business is split across all business units, contributing to profitability.

Andrew Kaplowitz from Citigroup asked if Logix's continued strength could lead to higher incremental margins for the year, beyond the 40% guidance, and requested an update on productivity programs like "Rock on Rock" and dynamic pricing. He also inquired about opportunities in the semiconductor market and the impact of focusing on larger customer solutions in the discrete market.

Answer

CFO Christian Rothe stated that Logix's profitability could influence flow-through, but emphasized broad-based product strength and ongoing productivity initiatives, including direct material cost control, which contributed to gross margin expansion. Chairman and CEO Blake Moret elaborated on "Rock on Rock," detailing how learnings from facilities like Singapore are being applied globally to improve efficiency. Regarding semiconductors, Blake Moret noted a tough Q1 comp but highlighted Rockwell's participation in tooling, wafer transport, AI-driven energy management, and cybersecurity, particularly in areas focused on AI build-out.

Andrew Kaplowitz inquired about the book-to-bill ratio, assuming it was near one in Q4, and whether this trend is expected to continue without a significant improvement in larger CapEx projects. He also asked if the forecasted 40% incremental margin for fiscal 2026, driven by restructuring savings and normalized incentive comp, represents a sustainable long-term incremental margin for Rockwell.

Answer

Blake Moret, Chairman and CEO of Rockwell Automation, stated that product business orders and shipments are aligned, and this is expected to continue. He noted that while CapEx projects are still being delayed, the guide does not assume a major improvement in the capital environment, which would push results to the higher end of the range. Christian Rothe, SVP and CFO, clarified that while 40% incremental margin is expected for fiscal 2026 due to current momentum, the long-term framework remains at 35%, acknowledging year-to-year variability.

Andrew Kaplowitz asked about the current book-to-bill ratio, if it's expected to remain around one, and confidence in larger CapEx projects moving forward in fiscal 2026, as well as the sustainability of the 40% incremental margin forecast.

Answer

Blake Moret, Chairman and CEO, confirmed that product business orders and shipments are generally aligned, with book-to-bill around one, and this is expected to continue. He noted that larger CapEx projects continue to be delayed, but gradual sequential improvement is expected, with the guide not assuming a significant capital environment improvement. Christian Rothe, SVP and CFO, added that while proud of the 40% incremental conversion for FY26 due to normalized compensation and aggressive productivity, it's not a change to the long-term framework of 35%, but rather reflects better short-term opportunities.

Andrew Kaplowitz from Citigroup questioned the underlying bookings trend given the potential for order pull-ins and asked if strong logic sales indicated a pickup in CapEx. He also inquired about the margin potential for the Intelligent Devices segment.

Answer

CEO Blake Moret stated that while large projects face delays, not cancellations, he expects a higher intake of new capacity orders in FY25 and FY26. He reaffirmed the commitment to the 22-24% margin target for Intelligent Devices, citing direct material cost savings, better pricing, and recovery in configured-to-order business as key drivers. CFO Christian Rothe confirmed a clear pathway exists to achieve this leverage.

Andrew Kaplowitz of Citi questioned whether the underlying bookings trend is still improving despite potential pull-ins, sought more evidence of reshoring activity, and asked about the margin potential for the Intelligent Devices segment.

Answer

CEO Blake Moret confirmed that while large projects face delays, they are not being canceled, and he expects a higher intake of new U.S. capacity orders in FY25 and FY26. He noted the company-wide book-to-bill is around 1.0. For Intelligent Devices, Moret reiterated the commitment to the 22-24% margin corridor, citing direct material cost reduction, strategic pricing, and recovery in the configured-to-order business as key drivers for improvement.

Andrew Kaplowitz from Citigroup asked for more color on Rockwell's long-term margin potential given the success of its cost-out program and inquired if the expectation for improving orders and a book-to-bill near 1.0 remains intact.

Answer

CEO Blake Moret positioned the cost-out program as a long-term foundational effort. CFO Christian Rothe added that while they now expect to exceed the $250 million savings target for the year, he is not yet providing a specific long-term margin target but is excited for potential in FY26 and beyond. Rothe confirmed the full-year book-to-bill target is around 1.0, supported by improving orders from machine builders who are past destocking and adopting new Rockwell products.

Andrew Kaplowitz of Citigroup Inc. sought details on the drivers behind the mid-single-digit sequential order growth, its continuation into January, and whether the $1.85 EPS benefit from cost actions could be surpassed.

Answer

CEO Blake Moret attributed the order strength to underlying market improvement, the end of destocking, and broad-based demand, particularly in e-commerce and hybrid markets, supported by new products. He confirmed January's performance supports the outlook. CFO Christian Rothe clarified that while Q1 cost savings were ahead of schedule, the full-year target of $250 million remains unchanged, emphasizing it's a matter of timing.

Andrew Kaplowitz asked for an update on whether the discrete automation market is nearing a bottom and questioned the order run rate required to achieve the fiscal 2025 guidance.

Answer

Blake Moret, Chairman and CEO, indicated that while some areas like life sciences may be bottoming due to GLP-1 investments, broad greenfield projects in food and beverage remain delayed. He stated that achieving the fiscal 2025 guidance relies on a very gradual sequential improvement in orders after Q1, driven by a slow recovery in end markets.

Andrew Kaplowitz asked about the layering in of the $100 million cost benefits expected in 2026 from actions taken in 2025, and what contingency plans are in place if CSE residential or CSAME continue to underperform. He also sought more detail on the confidence level for flat CSAME guidance, particularly regarding China versus the rest of Asia.

Answer

Patrick Goris (EVP and CFO) outlined the 2026 profit walk, targeting $100 million incremental operating profit, with productivity (including cost actions) contributing close to $400 million, offset by volume mix headwinds, inflation, and investments. He confirmed segments have contingency plans. David Gitlin (Chairman and CEO) stated CSAME is guided flat for 2026, with China expected down high single digits (RLC down ~20%, CA track up low single digits) and the rest of Asia (India, Middle East, Japan) growing high single digits. Japan's Toshiba business grew 8% in 2025, with EBITDA expected in mid-teens for 2026, despite tough residential macros in China.

Andrew Kaplowitz asked about the layering of the $100 million cost benefits from 2025 actions into 2026 and what measures Carrier could take to protect margin improvement if CSE residential or CSAME segments continue to underperform. He also sought more detail on the CSAME segment's flat guidance for 2026, particularly concerning China's RLC revenue decline in Q4 2025 versus the rest of Asia.

Answer

Patrick Goris, EVP and CFO, Carrier Global Corporation, outlined the 2026 profit walk, targeting $100 million in incremental operating profit. He noted a $100 million headwind from volume mix, $100-200 million from price and tariffs, and nearly $400 million in productivity (including cost actions), offset by inflation, merit increases, and investments. He added that segments have contingency plans. David Gitlin, Chairman and CEO, Carrier Global Corporation, explained that CSAME's flat guidance for 2026 anticipates China being down high single digits (RLC down ~20%, CA track up low single digits), while the rest of Asia (India, Middle East, Japan) is expected to grow high single digits. He highlighted Japan's 8% growth last year and expected mid-teens EBITDA for the Toshiba business by year-end, noting actions taken in Q4 2025 to reduce China residential channel inventory.

Andrew Kaplowitz of Citigroup sought more color on the RLC Europe market dynamics, specifically the German heating market's potential bottoming at 600,000 units and strategies to improve segment margins. He also asked for an outlook on CSAME and CST organic growth, noting CSAME's lag and inquiring if China's sluggishness was the primary factor.

Answer

CEO David Gitlin stated that the German heating market is at historic lows, poised for recovery, with heat pump sales up 15% in Europe and 45% in Germany. He noted efforts to reduce product and installation costs and mentioned that about half of the 3,000 indirect positions being eliminated are in CS Europe to improve margins. CFO Patrick Goris confirmed that CSAME's lag was primarily due to residential weakness in China, where field inventories are also being reduced.

Andrew Kaplowitz sought more color on the RLC Europe business, specifically the German heating market's potential bottoming, the impact of boiler declines, the 2026 outlook, and strategies for margin improvement. He also asked about the organic growth outlook for CSAME and CST, noting CSAME's continued lag.

Answer

CEO David Gitlin stated that the German heating market appears to be at historic lows, poised for recovery, with heat pump sales in Germany up about 45% and subsidy applications doubling. He expects continued strong heat pump growth and a more muted decline in boilers. CFO Patrick Goris added that about half of the 3,000 indirect positions being eliminated are in the CS Europe segment to improve margins. Regarding CSAME, Mr. Goris attributed its weakness to the residential business in China, where field inventories are also being reduced.

Andrew Kaplowitz of Citigroup asked about the dynamics in the Climate Solutions Asia Pacific segment, where the overall growth outlook was maintained despite a lowered forecast for China. He also inquired about market share movements in U.S. Residential and the stickiness of recent pricing actions.

Answer

Chairman & CEO David Gitlin explained that strong growth in Japan, India, and the Middle East is offsetting sustained softness in China's residential market. On U.S. Residential, Gitlin stated that pricing has been firm, with mid-single-digit increases in the first half, and he expressed confidence that Carrier is holding its market share, seeing no evidence of share loss despite softer market volumes.

Andrew Kaplowitz of Citigroup requested an update on the outlook for Viessmann and the broader Climate Solutions Europe (CSE) segment's margin improvement. He also asked about the sustainability of growth in the Americas commercial HVAC business, particularly in data centers.

Answer

CEO David Gitlin reaffirmed a flat outlook for Viessmann for the year, noting strong heat pump mix is offsetting lower boiler volumes. He also confirmed the data center business is on track to double to $1 billion in revenue. CFO Patrick Goris added that Viessmann's margins are expected in the low teens this year, with a goal to reach mid-teens for the entire CSE segment in the next couple of years by addressing legacy business performance.

Andrew Kaplowitz asked for more detail on the 2025 outlook for Viessmann Climate Solutions (VCS), questioning the visibility for flat growth amid market headwinds, and inquired about the expected incremental margins for the HVAC segment and the accounting for potential tariffs.

Answer

CEO David Gitlin expressed confidence in the 'balanced, perhaps conservative' VCS forecast, citing controllable factors like positive mix from heat pump growth, double-digit aftermarket expansion, and $100 million in revenue synergies. CFO Patrick Goris stated that known tariffs from China are already mitigated in the guide and that HVAC margin expansion will be driven by organic growth and productivity, offset by planned business reinvestments.

Andrew Kaplowitz of Citigroup asked about the visibility into the 2025 organic growth profile, given the strong backlog, and whether the 40% core incremental margins seen in Q3 could be sustained. He also inquired about market share dynamics in Americas light commercial and residential HVAC markets.

Answer

David Gitlin, Chairman and CEO, stated that both residential and light commercial HVAC have gained share, with residential gains exceeding 100 basis points, partly due to strong 410A availability. He noted light commercial is performing better than expected and will have an easier compare in 2025. Patrick Goris, CFO, added that while not providing 2025 guidance, they would be 'very disappointed' if organic growth did not deliver double-digit adjusted EPS growth, citing strong backlogs and momentum in key businesses.

Andrew Kaplowitz inquired about the performance of the Test and Measurement segment, specifically regarding the semiconductor business and the broader CapEx businesses, asking if a definitive turn is being observed.

Answer

CEO Chris O'Herlihy noted improvements in bookings and demand for semi and electronics in Q4, suggesting the semi market recovery seems sustainable, and highlighted ITW's strong competitive advantages in semi manufacturing testing equipment. CFO Michael Larsen added that general industrial orders in Test and Measurement, as well as equipment sales in Welding, are improving, indicating positive momentum for 2026. Kaplowitz also asked about margin expansion across segments for 2026, particularly in Construction, and the impact of metals inflation. Michael Larsen explained that all segments are expected to improve operating margins, primarily driven by enterprise initiatives (100 basis points) and positive operating leverage from incremental margins in the mid-to-high forties.

Andrew Kaplowitz with Citigroup inquired about the improved performance in the Test and Measurement segment, particularly the definitive turn in semiconductor demand, and the broader unlock of ITW's CapEx businesses. He also sought clarification on margin expansion across segments for 2026, considering factors like metals inflation and varying growth rates.

Answer

CEO Chris O'Herlihy noted a solid Q4 for Test and Measurement, with improved bookings in general industrial and a sustainable recovery in semi and electronics, where ITW is well-positioned to gain share. CFO Michael Larsen added that general industrial orders and Welding equipment growth suggest more than 'green shoots' and good momentum for 2026. Regarding margins, Michael Larsen stated that all segments are expected to improve operating margins in 2026, primarily driven by Enterprise Initiatives (100 basis points) and positive operating leverage from mid-to-high forties incremental margins. Chris O'Herlihy highlighted Customer-Backed Innovation (CBI) as another driver for increased margins, especially in segments like Automotive OEM.

Andrew Kaplowitz from Citigroup asked about the drivers of the strong sequential growth from Q1 to Q2, the performance of short-cycle versus long-cycle businesses, and the sustainability of ITW's strong performance in China.

Answer

Senior VP & CFO Michael Larsen noted the 6% sequential growth demonstrates positive momentum, with encouraging signs in industrial CapEx areas like Test & Measurement and Welding, while consumer-facing markets remain soft. President & CEO Chris O'Herlihy explained that China's success is sustainable and broad-based, driven by highly differentiated products, strong local innovation, long-term customer partnerships, and an experienced local leadership team.

Andrew Kaplowitz asked about any pickup in sales momentum toward the end of the year or in January and questioned the drivers behind ITW's continued outperformance in China's automotive market.

Answer

CFO Michael Larsen stated it was too early to call a broad recovery despite some positive signs, such as in semi-electronics and a solid December, emphasizing that ITW is positioned to capitalize if demand improves. CEO Christopher O'Herlihy attributed the strong China auto performance to long-term investments, a high-quality local team, and significant CBI-driven growth in the EV market, which led to outperforming local builds by 800 basis points.

Andrew Kaplowitz sought more color on the Test & Measurement segment, asking about positive customer conversations in semiconductor and whether the outlook for 2025 is improving. He also asked about the 'sizable step back' in Construction and if there were any signs of stabilization.

Answer

CEO Chris O'Herlihy confirmed they are seeing a bottoming in the semiconductor market and electronics, based on customer conversations. He also noted that the key Instron business within the segment showed solid growth. Regarding Construction, CFO Michael Larsen stated it is their most interest-rate-sensitive segment and that it's too early to see signs of a pickup, despite falling interest rates being a positive long-term indicator. He highlighted the segment's remarkable 30%+ margin performance despite the challenging volume environment.

Andrew Kaplowitz asked if Dover had visibility to sustain a book-to-bill ratio above one, given recent positive trends and market outlook. He also inquired about potential drivers for higher growth in the Imaging and ID (DII) segment beyond the low single-digit forecast, and the progression of its multi-year margin expansion and structural cost initiatives.

Answer

CEO Richard Tobin stated it's too early to confirm sustained book-to-bill above one, as Q1 is typically a production month, and the company will assess backlog consumption versus new order flow in the next 60 days. For DII, he mentioned ongoing CapEx deployment for modernization and productivity to drive margin, noting its global, consumer goods-exposed nature makes long-term growth rates fluctuate, but it's a highly valuable business due to cash flow dynamics.

Andrew Kaplowitz asked if Dover has visibility to sustain a book-to-bill ratio above one, given recent positive trends and market outlook, despite the company's cautious revenue guidance. He also inquired about the Imaging and ID (DII) business, its growth drivers beyond the low single-digit forecast, and the status of its multi-year margin expansion and structural cost progression.

Answer

CEO Richard Tobin stated that it's too early to predict sustained book-to-bill, as Q1 is typically a production month, and visibility will improve after assessing backlog changes. For DII, he noted ongoing CapEx for modernization and productivity to drive margin, acknowledging its global, consumer goods-exposed nature makes long-term growth rates variable, but highlighted its strong cash flow dynamics.

Andrew Kaplowitz asked if the Pumps & Process Solutions segment could see accelerating growth with easier comparisons ahead and inquired about the growth outlook for cryogenics-related businesses.

Answer

Executive Richard Tobin tempered expectations, suggesting that maintaining the current high levels of growth and margin in Pumps & Process would be a fantastic result, and acceleration is unlikely. For the cryogenics business, he noted that while the flow components are doing well, the project-based side is subject to customer CapEx sentiment, warranting some caution.

Andrew Kaplowitz asked if the book-to-bill ratio is expected to remain at or above 1.0 for most of 2025, particularly given the order inflection in CO2 systems. He also requested more detail on the expected earnings cadence throughout the year.

Answer

Executive Richard Tobin expects the book-to-bill ratio to hover around 1.0 for the year, supported by strong CO2 system bookings and an expected inflection in heat exchanger orders in Q2. Regarding cadence, he described a typical pattern: a slower Q1 with inventory build, followed by a ramp in revenue recognition in Q2 and Q3.

Andrew Kaplowitz questioned if the 40% incremental margin outlook for 2025 signals a structural shift for Dover, and asked for clarification on whether weak bookings in Climate & Sustainability were solely due to heat exchangers.

Answer

CEO Richard Tobin affirmed that portfolio transformation is intentionally driving higher incremental margins, with a goal of reaching a 25% consolidated segment margin. He clarified the Q4 book-to-bill for the segment depends on the timing of large CO2 system orders, which are expected to offset planned weakness in heat exchangers.

Andrew Kaplowitz from Citi asked about the China business, specifically if further restructuring is possible to maintain margins should the market not recover as expected in the second half of 2026, despite current restructuring efforts stabilizing profitability. He also inquired about the health of the boiler market, seeking clarification on whether its solid performance and positive 2026 forecast are primarily driven by the company's high-efficiency products or broader market strength.

Answer

CEO Steve Shafer stated that while current restructuring protects the China business, continuous cost-cutting is not a long-term solution, and further actions will be evaluated based on market conditions and the ongoing strategic assessment, with the ultimate goal being a path to growth and competitiveness. Regarding the boiler business, Mr. Shafer attributed its strong performance and market share gains to both a healthy overall market and the premier Lochinvar brand's superior high-efficiency technology.

Andrew Kaplowitz asked about the potential for cost reduction and accelerating new product-related growth at A. O. Smith, given the sluggish market conditions. He also inquired about residential channel inventories and the risk of destocking amid weaker consumer confidence.

Answer

Stephen Shafer, CEO, highlighted operational excellence and innovation as key priority areas, expressing encouragement about bringing more discipline to A. O. Smith's operating rhythm and leveraging technology investments, though specific value sizing is still in progress. He also mentioned a new CTO focused on increasing the pace and success of commercialization. Regarding inventories, he stated that residential and commercial channel inventories are at normal, target levels, but distributors might be prudent in managing them due to new home construction hesitancy.

Andrew Kaplowitz from Citi asked Stephen Shafer, Chief Executive Officer, about the potential for cost reduction and accelerated new product-related growth at A. O. Smith, given his operational experience and the current sluggish market conditions. Kaplowitz also sought more color on residential channel inventories, specifically if there was a risk of destocking given weaker consumer confidence, contrasting it with the HVAC market's inventory issues.

Answer

Stephen Shafer, Chief Executive Officer, highlighted operational excellence and innovation as key priority areas, expressing encouragement about bringing more discipline and leveraging technology, though a specific value sizing is not yet available. He also mentioned a focus on increasing the pace and success of commercialization with a new CTO. Regarding inventories, Shafer stated that residential and commercial channel inventories are currently at normal, target levels, but acknowledged that distributors might be prudent in managing inventories in the latter half of the year due to new home construction hesitancy.

Andrew Kaplowitz from Citigroup asked about the potential for the company to use its under-levered balance sheet more aggressively for capital allocation. He also inquired about the drivers of the raised boiler forecast and the health of commercial customers.

Answer

CEO Stephen Shafer affirmed that putting the balance sheet to work to build new growth platforms is a high focus for him. Regarding boilers, CFO Charles Lauber and Shafer noted the strong performance is driven by high-efficiency product traction, but the raised forecast remains cautious due to potential pre-buy effects from the first half, similar to an experience from a couple of years ago.

Andrew Kaplowitz of Citigroup Inc. asked for more detail on the expected EPS and margin cadence throughout the year, focusing on the timing of tariff impacts versus pricing benefits, and inquired about the operating environment and stimulus impact in China.

Answer

CFO Chuck Lauber stated that while Q1 North America margin was strong at 24.7%, he expects a slight margin headwind in Q2 as tariff costs are incurred before pricing actions take full effect in June. The full-year margin guidance of 24-24.5% remains unchanged. President and COO Stephen Shafer noted the China business started the year as expected and remains cautious. He characterized the government's trade-in program as a market stabilizer rather than a growth driver and stated the competitive dynamics and consumer sentiment challenges are consistent with recent trends.

Andrew Kaplowitz asked if A.O. Smith might become more aggressive with portfolio management, such as M&A, given its strong balance sheet. He also inquired about the confidence in the 3-5% growth guidance for the boiler business, despite a recent mention of a modest slowdown.

Answer

CFO Chuck Lauber responded that portfolio review is an ongoing, disciplined process and a lever available to the company, without committing to a more aggressive stance. CEO Kevin Wheeler expressed confidence in the boiler growth forecast, attributing it to stable quoting activity, the success of specific products like the CREST boiler, and the continued market transition to high-efficiency units, where A.O. Smith is a leader.

Andrew Kaplowitz asked about the risk of further deterioration in North American commercial water heaters and whether a slowdown in boiler quoting activity signaled a broader slowdown in that market.

Answer

CEO Kevin Wheeler expressed confidence in the commercial water heater market, stating they don't see a significant further downturn as quoting remains solid and the market is 80-85% replacement. For boilers, he noted their strong share gains and performance, and while there's some softness in quoting, the business is heading into its key season with a healthy backlog. He also noted Q3 had an easy comp and Q4 should see a more normalized run rate.

Andrew Kaplowitz requested more color on GE Vernova's variable cost productivity, its potential impact on future years, progress on lean initiatives, and how contracts are structured to manage rising commodity costs.

Answer

CEO Scott Strazik explained that commodity costs are largely locked in with suppliers for orders, and long-term service contracts include material escalators. He noted good progress on fulfilling backlog and expressed high expectations for sourcing productivity to contribute more to margin expansion in the future, acknowledging ongoing opportunities for improvement.

Andrew Kaplowitz asked for more color on the teams' progress with variable cost productivity, its potential impact on future margins, lean initiatives, and how contracts are structured to manage rising commodity costs.

Answer

CEO Scott Strazik explained that commodity costs are largely locked in with suppliers when orders are taken, and long-term service contracts include material escalators, providing good protection against inflation. He noted good progress in fulfilling the 50% backlog growth over four years, with gas ramp-up in Q3 2026 and doubling transformers/switchgear by 2028. He expressed high expectations for sourcing productivity to contribute more to margin expansion, acknowledging room for further improvement.

Andrew Kaplowitz asked if GE Vernova still expects a similar rate of equipment backlog growth in Electrification for 2025 as seen in prior years and requested an update on capacity expansion in the segment.

Answer

CEO Scott Strazik confirmed they still expect a similar backlog growth trajectory in Electrification for 2025. He noted that capacity is being expanded by adding shifts and workers, which is within their control, and this should drive continued revenue growth through 2025 and into 2026.

Andrew Kaplowitz of Citi sought more detail on the strategy to accelerate capacity for 'premium slots,' questioning if this represented a more aggressive stance, particularly for the Electrification segment.

Answer

CEO Scott Strazik confirmed the commentary was most applicable to Electrification, where the company sees opportunities to accelerate capacity build-out in North America. He noted this aligns with the upside case discussed in December. CFO Kenneth Parks added that much of this expansion is driven by lean initiatives, not just capital-intensive 'bricks and mortar' projects.

Andrew Kaplowitz asked about onshore wind, questioning if and when the business needs an order inflection to sustain its current high single-digit margin performance on flat revenue.

Answer

CEO Scott Strazik clarified that an order inflection is not needed to sustain current performance, which he views as a floor. He projects flat revenue again in 2025 but with improved profitability due to a better backlog mix. CFO Ken Parks added that the business is resized for profitability at current levels and the existing backlog contains approximately 10 incremental points of margin.

Andrew Kaplowitz questioned the significant improvement in systems gross margin, which reached a high watermark, asking if it was due to ASR mix or improved operating leverage and execution. He also asked if the company expects system gross margin to continue its upward trend. Additionally, he inquired about the potential for backlog growth in 2026, the outlook for new customers, GreenBox, and the booking of ASR backlog.

Answer

CFO Izzy Martins indicated that ASR mix was a mid-to-high single-digit percentage of total revenue in Q4. She expressed strong confidence in continued system margin expansion, expecting a slight uptick in Q1 and further growth with next-gen storage deployments. Regarding backlog, she stated no specific guidance but highlighted sales team expansion, new opportunities, and over $5 billion in mini micro-fulfillment backlog to be unlocked.

Andrew Kaplowitz inquired about the high systems gross margin in Q4, asking if it was due to ASR mix and if it indicates a sustained upward trend. He also asked about the potential for backlog growth in 2026, updates on GreenBox and ASR, and the possibility of booking backlog for ASR.

Answer

Izzy Martins (CFO, Symbotic) confirmed ASR was a mid-to-high single-digit percentage of Q4 revenue and expressed strong bullishness on system margins, expecting an uptick in Q1 and significant expansion with next-gen storage deployment, driven by disciplined cost management. He stated Symbotic does not guide to backlog but expects Q1 backlog to be similar, highlighting the expanded sales team, GAAP-centric backlog, and over $5 billion potential from micro-fulfillment systems.

Andrew Kaplowitz from Citi inquired about the quantifiable benefits of the new next-generation storage technology, including installation speed and the potential for retrofitting existing systems like Walmart's. He also sought clarity on the near-term versus long-term revenue growth trajectory and the progress on acquiring new customers for both Symbotic and GreenBox.

Answer

Founder, Chairman & CEO Richard Cohen stated that retrofits are not expected, as the new, denser structure can run alongside the old one, enabling more capabilities like break pack or ASR systems in the same footprint. He confirmed the growth trajectory would be less steep in the near term but accelerate later. CFO Carol Hibbard added that deployment timelines, historically around 12 months, are expected to decrease. Cohen also noted that inbound discussions with new customers are accelerating for both Symbotic and GreenBox.

Andrew Kaplowitz of Citigroup inquired about Symbotic's ability to scale, asking if the Q2 system starts and completions represent a new, sustainable ramp rate. He also questioned the drivers behind the sequential EBITDA margin decline forecasted for Q3, specifically asking about mix, potential tariff impacts, and the outlook for the second half.

Answer

CFO Carol Hibbard clarified that system starts will remain lumpy and are mutually decided with customers, but the overall trajectory is expected to improve. Regarding Q3 margin guidance, she attributed the sequential decline primarily to a lower expected revenue contribution from the higher-margin ASR business in Q3 compared to Q2. Hibbard also noted that the guidance does not include tariff impacts, which would increase revenue but act as a drag on gross margin percentage due to being a pass-through cost.

Andrew Kaplowitz of Citi Group asked for an update on the progress of in-sourcing deployment functions and the expected run-rate for new system starts.

Answer

CFO Carol Hibbard confirmed that the transition to bring deployment work in-house is progressing well, with former contractors having completed their work ahead of schedule. She noted that while the four new system starts this quarter were lower than the previous quarter's nine, this lumpiness is expected, and the number of starts should increase throughout the year as the company works through its backlog.

Andrew Kaplowitz questioned the previously communicated $50 million headwind for fiscal 2026 and requested an update on import trends for steel conduit and PVC, noting past improvements in steel and slower progress in PVC. He also asked why data centers and industrial mega projects might not have a larger impact on 2026 growth.

Answer

CFO John Deitzer confirmed continued price versus cost headwinds for 2026, with Q1 being most impacted, aligning with the previously mentioned $50 million unmitigated headwind. COO and President of Electrical John Pregenzer reported a slight 2% year-over-year reduction in steel conduit import volume and strong PVC demand, particularly for large diameter conduit in data centers. President and CEO Bill Waltz acknowledged the massive growth in data centers, expecting Atkore to capture its fair share, with global construction services growing at a strong double-digit rate, and noted that global mega projects would significantly influence overall growth in the second half of the year.

Andrew Kaplowitz of Citigroup asked about the demand cadence during the second quarter, the nature of the construction services opportunity in data centers versus other mega projects, and why pricing assumptions were not raised despite new tariffs.

Answer

President and CEO William Waltz confirmed that demand strengthened each month through the quarter. He and CFO John Deitzer clarified that while product sales for data centers have been strong, the services opportunity is more forward-looking, with past activity focused on chip manufacturing and other large projects. Deitzer explained that pricing assumptions were maintained due to puts and takes, including volatility in commodities like copper, which offset some of the tariff benefits.

Andrew Kaplowitz of Citigroup asked for details on the increasing PVC import competition, the reasons for the Q1 decline in metal conduit volume, and clarification on whether the volume outlook is based on seasonal or cyclical improvements. He also requested more color on the company's cost structure review and potential strategic asset actions.

Answer

CEO William Waltz explained that PVC imports, while still a single-digit market share, grew over 20% year-over-year, pressuring prices. He noted the new forecast aggressively assumes prices will fall to pre-COVID levels, which he believes is unsustainable for importers. The metal conduit decline was attributed to a tough year-over-year comparison. Waltz confirmed the volume outlook is based purely on seasonality, not a market recovery. Regarding costs, he highlighted facility consolidations, selling non-core production lines, and a headcount freeze as key actions. CFO John Deitzer added that the company is reviewing all assets to identify cost-saving levers.

Andrew Kaplowitz asked about the visibility for the first half versus second half organic growth in 2026, particularly regarding project order recovery in process markets and backlog. He also sought more color on expectations for the Power markets in 2026, especially nuclear, and Emerson's market share and potential for acceleration.

Answer

Ram Krishnan (EVP and COO) confirmed strong visibility from backlog phasing into the second half of 2026, clarifying that excluding software renewals, the first half growth is 4% and the second half is 6%, consistent with 2025's sequential ramp. Lal Karsanbhai (President and CEO) expressed excitement for power generation, distribution, and transmission, projecting a 3-5 year run of high single to low double-digit growth, driven by global investments in combined cycle, coal/nuclear, and grid modernization.

Andrew Kaplowitz asked for more detail on the first half versus second half organic growth guide for 2026, specifically if it relies on larger project order recovery or if visibility is already secured through backlog and pipeline. He also sought further color on expectations for the Power market in 2026, particularly regarding nuclear and potential acceleration.

Answer

EVP and COO Ram Krishnan confirmed strong visibility from backlog and momentum, clarifying that the core growth (excluding software dynamics) shows a 4% first half and 6% second half, consistent with 2025 execution. President and CEO Lal Karsanbhai expressed excitement for the Power market, projecting high single to low double-digit growth for 3-5 years, driven by data centers and aging infrastructure, with robust activity in combined cycle, coal, and nuclear projects globally.

Andrew Kaplowitz of Citi inquired about the forward outlook for core Process and Hybrid markets, asking if growth would be driven solely by Power and LNG, and questioned how much of the Test and Measurement improvement was due to market recovery versus internal initiatives.

Answer

President & CEO Lal Karsanbhai confirmed that LNG, power, and life sciences are the primary growth drivers for Process and Hybrid, while bulk chemicals remain weak. He and COO Ram Krishnan attributed the Test and Measurement outperformance to a combination of market recovery and successful self-help initiatives, including a reset commercial focus and new product introductions like the updated LabVIEW.

Andrew Kaplowitz from Citigroup asked for more color on the drivers of strong incremental margins in Q2 and the outlook for the second half. He also requested details on why AspenTech is outperforming initial expectations and is now mildly accretive to EPS.

Answer

CFO Michael Baughman attributed the high first-half leverage to favorable mix from AspenTech, Test & Measurement synergies, cost controls, and prior restructuring benefits. He noted second-half leverage will be lower due to FX shifts and tariff accounting. CEO Surendralal Karsanbhai added that AspenTech's outperformance was due to the timing of a large contract and aggressive execution on cost synergies, particularly in G&A.

Andrew Kaplowitz of Citigroup Inc. asked about the resilience of the project funnel amid geopolitical uncertainty, particularly the growth drivers like LNG and power. He also sought confirmation on the mid-single-digit growth outlook for Process and Hybrid markets and inquired about the growth forecast for China in 2025.

Answer

President and CEO Lal Karsanbhai affirmed that customer commitments to both energy security and decarbonization remain strong, supporting the project funnel. He expressed confidence in the Process and Hybrid outlook, driven by capital projects and MRO. Regarding China, he noted it was down but expected to improve, with strength in the Americas and Middle East providing an offset. COO Ram Krishnan added that a flat year for China is factored into the annual plan.

Andrew Kaplowitz asked about Emerson's book-to-bill outlook for fiscal 2025, the potential for backlog growth, and the specific end markets driving the mid-single-digit growth forecast for the process and hybrid businesses.

Answer

President and CEO Lal Karsanbhai stated that the $7.2 billion backlog is healthy and supportive of the 2025 guide, expecting a book-to-bill of one. He highlighted that project activity continues to move in the right direction, with strength in global LNG, sustainability and decarbonization projects in Europe, and robust life sciences and power generation activity.

Andrew Kaplowitz asked about the potential total Eaton sales per MW with the newly acquired Boyd portfolio, and whether the data center market is expected to grow considerably faster than the previously projected 17% with Eaton outperforming. He also questioned the slowdown in Electrical Americas' organic revenue growth in Q3 versus Q2, inquiring about market factors like residential performance, and the drivers for the implied Q4 revenue ramp.

Answer

Paulo Ruiz, Chief Executive Officer, explained that Eaton's extensive portfolio, bolstered by recent acquisitions like FibreBond, Resilient Power, and Boyd, positions the company strongly for the shift to direct current in AI data centers. He stated that with Boyd, Eaton's high-end sales per MW for AI loads would increase from $2.4 million to nearly $3 million. Olivier Leonetti, Executive Vice President and Chief Financial Officer, attributed the Q3 slowdown in Electrical Americas to slower residential markets in September and small order delays, expressing confidence in a Q4 catch-up with a 17%-18% implied revenue guide due to increased capacity. Ruiz added that the Q3 miss was minor and Q4 benefits from easier year-over-year comparisons.

Andrew Kaplowitz asked about Eaton's total sales per megawatt for AI data centers, considering the evolving market towards 800-volt DC power architecture and recent acquisitions like FiberBond and Boyd. He also questioned if the data center market could grow considerably faster than the previously stated 17% with Eaton outperforming. In a follow-up, he inquired about the slowdown in Electrical Americas' organic revenue growth in Q3 versus Q2, potential drivers like residential market weakness, and how the implied Q4 ramp translates into 2026.

Answer

CEO Paulo Ruiz explained that Eaton's extensive portfolio, including recent acquisitions, positions it strongly for the shift to direct current in data centers. He updated the sales per megawatt range to $1.2-$2.4 million, with the Boyd acquisition adding another $500,000, bringing the high end to nearly $3 million per megawatt for AI loads. CFO Olivier Leonetti attributed the Q3 slowdown in Electrical Americas to a slower residential market in September and small order delays, expressing confidence in a Q4 catch-up with an implied 17%-18% revenue growth due to increased capacity and easier year-over-year comps.

Andrew Kaplowitz of Citigroup Inc. asked if the residential and European machine builder markets had worsened in Q4, prompting the negative 2025 outlook for residential, and also inquired about drivers of strength in China.

Answer

Craig Arnold, Chairman & CEO, confirmed the residential market outlook weakened in Q4 because anticipated interest rate relief for consumers did not materialize. He characterized the machine builder (MOEM) market as bottoming out. The question regarding China was not directly addressed in the response, though earlier commentary highlighted utility strength in the region.

Andrew Kaplowitz of Citigroup asked about the Vehicle segment's ability to deliver strong margins (19.4%) despite declining revenue and how sustainable this performance is. He also inquired if a sizable portion of the announced $75 million in 2025 restructuring savings is targeted at the Electrical Global segment to help close its margin gap with Electrical Americas.

Answer

Chairman and CEO Craig Arnold attributed the Vehicle segment's strong margin performance to improved operational execution and active portfolio management, fixing or exiting less profitable business lines. He expects the team to continue executing well. Regarding restructuring, he confirmed savings are generally targeted at lower-margin businesses, including Electrical Global. However, he emphasized that a return to market growth in Europe is the most critical factor for closing the margin gap.

Andrew Kaplowitz asked about the progress of Fortive's business simplification efforts and whether the impact of these self-help initiatives is expected to increase into 2026. He also sought more color on demand trends across different regions, specifically mentioning Western Europe's downshift and conditions in China and other geographies.

Answer

Olumide Soroye, Fortive's President and CEO, confirmed that the benefits of simplification, including more time for customer engagement and growth, are expected to build momentum into 2026, supported by strategic capital allocation shifts. He characterized North America as the 'star of the show' with strong performance, while Western Europe was the 'softest market' with no dramatic improvement expected. The rest of the world was described as mixed, with general stability in China.

Andrew Kaplowitz asked about the progress of Fortive's business simplification efforts and whether its impact would increase into 2026, and also inquired about demand trends across different geographic regions.

Answer

President and CEO Olumide Soroye confirmed that the simplification benefits, including increased customer focus and P&L space for growth investments, are expected to build momentum into 2026. He also noted a significant shift in capital allocation towards share repurchases. Regarding regional demand, Soroye identified North America as the strongest performer, Western Europe as the softest market with no dramatic improvement expected, and the rest of the world as mixed but generally stable, including China.

Andrew Kaplowitz of Citigroup inquired about the unexpected deferred spending at Fluke, asking why the historically stable business saw a slowdown and whether it signaled broader macro uncertainty. He also asked for an update on business trends in China and Europe.

Answer

CEO Olumide Soroye attributed the Fluke issue to a temporary pause on some large, short-cycle orders due to tariff uncertainty, noting that these orders are now returning and the business fundamentals remain strong. Geographically, he described North American point-of-sale as strong, Europe and APAC as flattish, and expressed a belief that China has bottomed out. He identified Western Europe as the region with the most uncertainty.

Andrew Kaplowitz of Citigroup inquired about the drivers behind the deferred spending at Fluke, given its historical stability, and asked for an update on business conditions in China and Europe.

Answer

CEO Olumide Soroye clarified that the Fluke issue was a temporary order mix shift due to tariff uncertainty, not a broader macro problem. He noted strong point-of-sale in North America, flattish trends in Europe and APAC, and signs that the China market has bottomed out, while Europe remains the most uncertain.

Andrew Kaplowitz asked about the shipping delays in the defense-related Sensors and Systems business and the visibility for improvement. He also inquired about the updated regional sales outlook for North America, Western Europe, and China.

Answer

President and CEO James Lico explained the shipping delays were due to variations in the U.S. government's product validation process, not manufacturing capacity. For the regional outlook, Lico expects North America to remain the strongest market, while Western Europe and China will be challenged. He noted that high-growth markets outside of China are now larger than China and continue to grow well.

Andrew Kaplowitz of Citigroup inquired about the company's expectations for the price versus cost spread in 2025. He also asked if the deceleration in AHS consumables growth in Q4 was solely due to selling days or if other factors, like regional performance differences, were at play.

Answer

President and CEO James Lico stated that Fortive has embedded a price increase of a little over 200 basis points for 2025, which is consistent across segments. On AHS consumables, Lico explained that Q4 faced a tougher year-over-year comparison than Q2 and Q3, but underlying performance remains strong. He noted good performance in Europe and most regions, with China being the main area of challenge for the health business.

Andrew Kaplowitz of Citigroup asked for more color on regional performance, particularly in Europe and Asia, and questioned the long-term growth and margin runway for the Advanced Healthcare Solutions (AHS) segment given its recent strength.

Answer

President and CEO James Lico noted that while some regional order strength was due to easier comps, underlying trends like global Fluke point-of-sale were positive. For AHS, he reaffirmed the long-term mid-single-digit growth target but expressed confidence in continued margin expansion, driven by strong commercial execution and a new wave of product innovation.

Andrew Kaplowitz asked about the cadence of orders and revenue in Q3, any changes in short-cycle businesses, and regional trends, specifically in Europe and China. He also followed up on whether improved orders in Energy and Sustainability Solutions (ESS) indicate a turn higher in 2026, despite lower energy prices, and customer CapEx expectations.

Answer

Vimal Kapur, Chairman and Chief Executive Officer, noted broad-based growth across all regions, including Europe returning to reasonable growth and China being flattish but growing with Aerospace. He expects this order momentum to continue into Q4. For ESS, he highlighted strong demand in LNG and gas, and investments in refining/petrochemical capacity globally, expecting short-cycle demand to recover in 2026 despite current catalyst demand softness.

Andrew Kaplowitz from Citi asked about the cadence of orders and revenue in Q3, any changes in short-cycle businesses into Q4, and regional trends, specifically mentioning recovery in BA, Europe, and China. He also inquired if improved orders in Energy and Sustainability Solutions (ESS) give more confidence in these businesses turning higher in 2026, despite lower energy prices, and what customers are indicating about 2026 CapEx expectations.

Answer

Chairman and CEO Vimal Kapur noted solid growth across all regions in Q3, including the U.S., reasonable growth in Europe, strong performance in the Middle East and India, and flattish to high single-digit growth in China (including Aero), attributing this to portfolio diversity and growth strategies. He expects this order momentum to continue into Q4. For ESS, he highlighted strong demand and orders in LNG and gas, and investments in localized refining/petrochemical capacity in India, Africa, and the Middle East. He acknowledged a lack of momentum in catalyst demand due to oil prices and overcapacity, but expects recovery in 2026, with strong long-cycle demand evident in orders and short-cycle demand expected to recover.

Andrew Kaplowitz asked about the growth visibility for Honeywell Process Solutions (HPS) and if there are signs of CapEx delays. He also inquired about the drivers of strength in Defense and Space and any potential impact from U.S. defense budget issues.

Answer

CEO Vimal Kapur noted that HPS projects and services are performing as expected, though he sees some push-out in sustainability-related projects, offset by strength in gas processing and LNG. CFO Mike Stepniak stated there is no expected impact from U.S. defense budget timing as most programs are multi-year funded, and highlighted continued strength from international defense demand.

Andrew Kaplowitz asked for more color on the price versus cost dynamic, noting the frequent mention of cost inflation in Q4, and how this balance is expected to play out in 2025. He also inquired about the revenue growth outlook by geography, particularly for China versus high-growth regions like the Middle East and India.

Answer

Incoming CFO Mike Stepniak projected enterprise-level price realization above 2% for 2025. CEO Vimal Kapur added that unlike previous years where price was the main lever, the company now has an equally strong lever in productivity to drive margin expansion. On geography, Mr. Kapur stated that growth is expected in the U.S., India, and the Middle East, with continued pressure in Europe and China, and the 2025 guidance assumes no recovery in those weaker regions.

Andrew Kaplowitz of Citigroup Inc. asked how much the focus on new products and the Accelerator operating system could boost core growth in 2025, even if markets remain muted. He also requested more color on the business landscape by geography, particularly regarding building products in Europe and conditions in China.

Answer

CEO Vimal Kapur confirmed that an increased number of new product launches in late 2024 and early 2025 should act as an enabler for growth in 2025. Geographically, he noted a moderate recovery in European building products and continued strong growth in India and Saudi Arabia. However, he stated that conditions in China have not improved, with Honeywell's automation businesses there remaining flat to slightly down.

Andrew Kaplowitz of Citi asked for more detail on the fiscal 2026 Aerospace and Defense forecast, specifically the growth balance between commercial, defense, OEM, and aftermarket. He also sought to reconcile the slightly lower free cash flow guidance with the projected EPS growth.

Answer

Chairman & CEO Jennifer Parmentier provided a detailed breakdown for the 8% aerospace organic growth forecast, projecting low double-digit growth in commercial OEM and high single-digit growth in commercial MRO. EVP & CFO Todd Leombruno explained that the free cash flow guide reflects higher CapEx for automation, working capital investment to support industrial growth, increased restructuring, and one-time costs related to the Curtis acquisition.

Andrew Kaplowitz of Citi requested more detail on the FY26 Aerospace and Defense forecast, specifically the growth balance between commercial, defense, OEM, and aftermarket. He also asked why guided free cash flow was slightly lower despite EPS growth.

Answer

Chairman and CEO Jennifer Parmentier provided a detailed breakdown for the 8% aerospace growth forecast: low double-digit for commercial OEM, high single-digit for commercial MRO, and mid-single-digit for both defense OEM and MRO. EVP & CFO Todd Leombruno explained the cash flow guidance reflects higher CapEx for automation, increased restructuring, working capital investment to support industrial growth, and one-time costs for the Curtis acquisition.

Andrew Kaplowitz asked for more color on performance in Asia, particularly China, and the sustainability of strong growth in Latin America. He also questioned if the cost containment seen in Corporate G&A was temporary.

Answer

Executive Jennifer Parmentier reported that Asia Pacific's 2% growth was driven by electronics and semicon, with China (5% of sales) up low-single digits on similar trends. Executive Todd Leombruno described Latin America's growth as robust and broad-based. Regarding G&A, Leombruno noted that while some savings are from fluctuating market-based benefits, the team has controlled costs well and he does not foresee a significant amount returning, citing the company's frugal culture.

Andrew Kaplowitz of Citi questioned the source of confidence for the projection that FY26 revenue growth will exceed FY25. He also sought more color on performance improvements in Europe's Critical Infrastructure and the Middle East's Cities & Places markets.

Answer

Chair & CEO Bob Pragada attributed the confidence for FY26 growth to strong, multi-quarter backlog growth in Life Sciences, data centers, and water. He also noted that European transportation spending is rebounding, while Middle East growth is driven by major programs. CFO Venk Nathamuni reiterated that the strong pipeline in these areas supports the outlook.

Andrew Kaplowitz asked about the disparity between strong backlog growth and modest revenue growth, requesting quantification of a legal reserve's impact. He also inquired about customer spending trends, visibility into Q3 growth, regional performance in the U.K. and Middle East, and foreign exchange assumptions.

Answer

Chair and CEO Bob Pragada expressed confidence in the H2 forecast due to strong backlog burn, noting procurement cycles are longer but without major cancellations. He highlighted positive inflection at PA Consulting and strength in the Middle East. CFO Venk Nathamuni stated the legal reserve's impact was absorbed and pointed to SEC filings for details, adding that FX was a Q2 headwind but could be a Q3 tailwind.

Andrew Kaplowitz of Citi asked for more color on the Pipeline segment's outlook, including the potential size of verbally awarded projects and whether the cycle could reach pre-COVID revenue levels. He also inquired about the durability of the growth cycle in the Communications segment, given drivers like fiber-to-the-data-center.

Answer

CEO José R. Mas expressed strong optimism for the Pipeline segment, stating that 2026 revenues should resemble 2024 levels and that the market could eventually return to its peak of $3.5 billion. He emphasized that the company is investing heavily for a large, multi-year cycle. For Communications, Mas noted the strength has been a positive surprise, with no signs of slowing down, and that the company is at the beginning of a cycle driven by middle-mile fiber expansion.

Andrew Kaplowitz requested more color on the Communications segment's performance, asking about the potential impact of federal stimulus like BEAD, the growth drivers like fiber-to-data-center, and the ramp-up of recent market share wins.

Answer

CEO Jose Mas stated that AI and middle-mile fiber currently represent a larger and more immediate opportunity than the BEAD program, which is not expected to materially impact 2025. He described the overall demand environment as fantastic and noted that while increased hiring is incurring some training costs, strong revenue growth is offsetting it. Mas believes MasTec is in the early innings of a long growth cycle driven by AI.

Andrew Kaplowitz of Citigroup asked if MasTec could continue growing backlog across all segments in 2025, particularly in renewables, and whether guidance accounted for award lumpiness. He also requested more detail on the Communications segment's 2025 growth drivers, including the impact of new contracts versus market growth and the role of BEADs funding.

Answer

CEO Jose Mas expressed high confidence, stating he expects backlog in every segment to be higher by year-end 2025. For Communications, he clarified that BEADs funding is a negligible part of the 2025 forecast but will be significant later. The 2025 growth is primarily driven by previously announced contracts with AT&T and Lumen, with newer awards expected to ramp in the second half of the year, setting up for further growth in 2026.

Andrew Kaplowitz of Citigroup inquired about the drivers behind the strong, broad-based margin outperformance and sought validation for the 2025 consensus EBITDA growth forecast, including details on the new Lumen contract.

Answer

CEO Jose Mas explained that the strong margins are the result of prior strategic investments finally translating to financial success. He affirmed that the consensus 2025 EBITDA growth forecast of nearly 15% is achievable, driven by expected double-digit organic revenue growth in the Communications, Power Delivery, and Clean Energy segments. He described the Lumen award as a significant new relationship with a previously small customer, signaling future growth potential.

Andrew Kaplowitz from Citi asked about the current project booking environment, inquiring if customer conversations have stabilized amid tariff uncertainty and what the timeline looks like for returning to backlog growth. He also sought details on the mechanics of the NuScale share conversion, including tax implications and the monetization timeline.

Answer

CEO Jim Breuer acknowledged that trade policy uncertainty is still impacting client sentiment and investment decisions, particularly with key partners like China, Canada, and Mexico. He stated that while there is short-term hesitation, Fluor is well-positioned in key markets like mining, advanced manufacturing, and power for future growth. CFO John Regan explained that the NuScale share conversion will generate a tax gain that can be substantially shielded by existing tax credits, and that a full monetization plan will be unveiled over the next quarter.

Andrew Kaplowitz inquired about second-half risks from project delays like Dow and a lost recompete in Mission Solutions, and sought to understand the source of confidence for maintaining a book-to-bill ratio above 1x.

Answer

CEO James Breuer stated the Dow slowdown is not seen as a broader trend and that engineering and procurement continue. CFO John Regan added that early procurement on existing backlog projects provides stability. Breuer expressed confidence in the awards pipeline, citing specific opportunities in copper, pharmaceuticals, data centers, and a significant Savannah River Site project, noting their strong underlying economics.

Andrew Kaplowitz asked if Fluor can still achieve its 2026 adjusted EBITDA target, sought initial thoughts on 2025 growth prospects, and questioned the reason for the delay in the NuScale strategic investment deal.

Answer

Chairman and CEO David Constable stated that Fluor is likely four quarters behind its 2026 EBITDA target range but emphasized strong future CAGR growth. Chief Financial Officer Joe Brennan added that Urban Solutions will be the primary near-term growth driver. Regarding NuScale, Constable highlighted the immense market demand for nuclear power and confirmed positive engagement with the strategic investor to finalize a commercialization model that captures value for all shareholders, leveraging NuScale's unique NRC approval.

Andrew Kaplowitz requested an update on the legacy Gardner Denver Medical business, the outlook for the PST segment's growth, and the factors behind the Q2 ITS segment margin performance.

Answer

CEO Vicente Reynal reported good momentum in the legacy medical business, contributing to organic growth in life sciences, and expressed confidence in a turning point for the broader PST segment. CFO Vikram Kini explained the ITS margin was impacted as expected by volume deleverage, M&A dilution, and tariff pricing effects, but remained healthy at around 29% with no unusual negative factors.

Andrew Kaplowitz of Citigroup asked about order expectations for the year, given the strong book-to-bill, and whether the company could maintain a book-to-bill at or above 1x for the full year. He also questioned the recent choppiness in segment margins and if acquisition noise was a factor.

Answer

CFO Vik Kini stated that while the company doesn't guide on orders, he was encouraged by the Q1 momentum and expects normal seasonality for book-to-bill. CEO Vicente Reynal addressed margins, noting ITS faced a tough prior-year comparison but still shows a strong two-year stack improvement. He highlighted sequential margin improvement in PST and emphasized that there is still significant runway for margin enhancement in both segments through operational execution and value engineering.

Andrew Kaplowitz requested an update on Marketing Qualified Leads (MQLs) and lead times, and asked if the PST segment's margin pressure was due to integration challenges from heavy M&A activity.

Answer

CEO Vicente Reynal confirmed that MQLs remained strong, up low-double digits for Q4 and the full year, though decision-making cycles remain elongated. CFO Vik Kini clarified that PST margin pressure was from volume deleverage, not integration issues, stating that the ILC Dover integration is progressing well and in line with past successful integrations like Seepex.

Andrew Kaplowitz asked about the M&A landscape for 2025 and whether to expect a similarly robust year of bolt-on deals. He also asked if the better order environment in the PST segment provides good visibility for growth in 2025, with a specific update on ILC Dover.

Answer

Chairman and CEO Vicente Reynal confirmed that the M&A outlook for 2025 looks very encouraging and similar to 2024, with a strong funnel of bolt-on acquisitions. CFO Vik Kini addressed PST, stating they expect positive order momentum to translate into growth in Q4. Vicente Reynal added that the ILC Dover integration is going well, with strong performance and investments being made to scale the business.

Andrew Kaplowitz of Citigroup inquired about the strong performance in the Applied Water segment, seeking to understand the growth drivers like commercial buildings and how this was achieved alongside 80/20 initiatives that could potentially slow growth. He also asked about the performance dichotomy between developed and developing markets.

Answer

CEO Matthew Pine credited the Applied Water team's execution of 80/20 for improving focus on key customers and driving strong price realization. He confirmed the company is strategically walking away from some lower-value volume but is seeing growth in developed markets, particularly commercial and industrial. Pine identified China as the main area of weakness, with orders down 18%, and noted that the 80/20 strategy involves intentionally pulling back from less effective regions.

Andrew Kaplowitz of Citigroup asked for color on the current bookings environment, cyclical trends in Applied Water, and Xylem's capital allocation priorities, specifically regarding M&A versus share repurchases and the recent Idrica investment.

Answer

CFO William Grogan highlighted strong Q4 orders and projected a return to growth for the Applied Water segment in 2025, driven by developed markets. CEO Matthew Pine reiterated a disciplined capital deployment strategy prioritizing accretive M&A, referencing the successful Evoqua integration. He explained that taking majority control of Idrica is a strategic move to more deeply integrate its technology and establish it as a standard digital platform across Xylem.

Andrew Kaplowitz from Citi asked about Quanta's confidence in continued backlog growth amid political noise and rising AI-related capital expenditures, and whether a 15%+ EPS CAGR is a reasonable expectation for 2026.

Answer

President & CEO Duke Austin affirmed his confidence, stating the company has historically achieved 20%+ growth and that recent platform acquisitions are setting the stage for future performance in 2026 and beyond. He emphasized that the demand for power is exponential, driven by AI and domestic manufacturing, positioning Quanta at the center of critical infrastructure builds.

Andrew Kaplowitz asked for elaboration on the statement about the 'largest expansion of high-voltage transmission in a generation' and whether to anticipate continued sequential backlog growth amid macro uncertainty.

Answer

President and CEO Duke Austin affirmed the need for a significant transmission build-out, comparing it to the expansion seen in the 1970s. He emphasized that transmission is critical to connect new generation to load centers like data centers, which will drive robust demand and support continued backlog growth.

Andrew Kaplowitz of Citi asked about the visibility of a new wave of large transmission projects for 2025-2026. He also questioned if the company is on track to meet the 'upside case' of 15%+ EPS growth outlined at its Investor Day, which would imply $11-12 of EPS in 2026.

Answer

President and CEO Earl "Duke" Austin confirmed they see a substantial pipeline of large projects and a 'stacking effect' of work building in 2026 and beyond. Regarding the EPS target, he pointed to the ~20% adjusted EPS growth expected in the current year and stated that 15% or more is a possibility for next year. He acknowledged that this growth trajectory puts the $11-12 EPS range for 2026 within reach, pending continued execution.

Andrew Kaplowitz of Citi inquired about the current bookings environment, visibility into second-half orders to support a book-to-bill ratio of 1.0, and the status of delayed Q2 projects. He also asked about the margin dilution from the Mogus acquisition in the FCD segment and the path for FCD margins to recover to levels comparable with the FPD segment.

Answer

President & CEO R. Scott Rowe acknowledged that macro uncertainty and tariffs caused some Q2 project delays but highlighted the continued strength of the aftermarket business. He affirmed the full-year book-to-bill target of 1.0, supported by a growing project funnel. SVP & CFO Amy Schwetz added that a large project was booked in July, increasing confidence for Q3. Regarding FCD margins, Amy Schwetz explained that while the Mogus acquisition had a temporary negative impact due to a low-margin fabricated module business, organic FCD margins improved and synergy realization is on track. R. Scott Rowe expressed confidence that the FCD segment will see improved margins by applying the same successful business system playbook used in FPD.

Andrew Kaplowitz asked for more color on the bookings environment, the visibility for second-half bookings to meet the 1.0 book-to-bill target, and the potential for margin improvement in the FCD segment given the dilution from the Mogus acquisition.

Answer

President & CEO R. Scott Rowe confirmed the 1.0 book-to-bill target for the year, noting that while some large projects were delayed in Q2, the project funnel is up and the aftermarket business remains strong. SVP & CFO Amy Schwetz added that July has already seen a significant project order. Regarding FCD, she explained that organic FCD margins improved, but the segment was impacted by temporary issues at Mogus, including a fabricated module business that is being discontinued. Mr. Rowe affirmed that the same margin improvement playbook used successfully in FPD is being applied to FCD.

Andrew Kaplowitz of Citigroup inquired about the current bookings environment, the visibility for achieving a book-to-bill ratio of 1.0 for the year, and whether delayed projects were moving forward. He also asked about the timeline and strategy for improving FCD segment margins to match FPD levels, particularly considering the dilutive impact of the Mogus acquisition.

Answer

President & CEO R. Scott Rowe acknowledged market uncertainty but highlighted the strength in aftermarket business, which saw its fifth consecutive quarter above $600 million. He confirmed the goal of a 1.0 book-to-bill ratio for the year, supported by a sequentially growing project funnel. SVP & CFO Amy Schwetz added that large project activity was already seen in July. Regarding FCD margins, Schwetz explained the temporary issues with Mogus, including the wind-down of a low-margin fabricated module business and slower project bookings, but noted that integration synergies are on track. Rowe affirmed his confidence in the FCD team and the playbook used successfully in FPD to restore FCD's historical margin profile.

Andrew Kaplowitz inquired about the sustainability of Flowserve's strong bookings, particularly in the aftermarket segment, and the outlook for the second half of the year. He also asked for clarification on the Q2 guidance, which projects EPS similar to or modestly better than Q1, questioning the potential impact of business mix and the timing of tariff effects versus pricing actions.

Answer

President and CEO Robert Rowe confirmed record aftermarket bookings in Q1, driven partly by a large, non-recurring nuclear order, but noted the run-rate remains strong. He expressed caution for the second half due to tariff uncertainty. CFO Amy Schwetz explained that the main tariff impact is expected in the second half, and the Q2 outlook reflects strong Q1 execution momentum balanced by some mix headwinds. Rowe added that Q1's performance set a high bar, making a similar Q2 result a strong outcome.

Andrew Kaplowitz of Citigroup Inc. asked for color on Flowserve's bookings momentum, particularly regarding potential slowing in process industries and the Middle East, and inquired about the drivers behind the Q4 EPS guidance, which implies a lower seasonality than in prior years.

Answer

President and CEO Scott Rowe confirmed the aftermarket business is "incredibly healthy" and that project activity in the Middle East remains robust with no signs of a slowdown. CFO Amy Schwetz explained that the flatter Q4 earnings ramp is intentional, driven by less percentage-of-completion revenue compared to the large Jafurah project in the prior year, resulting in smoother quarterly performance.

Andrew Kaplowitz from Citi asked about the durability of the record-high Americas margins, considering factors like mix, productivity, and complex applied jobs. He also questioned why Trane's light unitary business appears to be outperforming its peers.

Answer

EVP & CFO Chris Kuehn stated that the strong margin performance was broad-based across the P&L, driven by productivity, volume leverage, and accretive services, not just a favorable mix. Chair & CEO Dave Regnery attributed the outperformance in the unitary business to strong execution by their direct sales force, which has expertise across a wide range of verticals, including those with a higher concentration of unitary solutions.

Andrew Kaplowitz asked for more detail on European margins, which were down due to reinvestment, inquiring about the nature of these investments and the expected timeline for margin recovery. He also asked for clarification on the Transport Refrigeration (TK) outlook, its overall impact on the business, and where the company is outperforming the weak market.

Answer

CEO David Regnery explained the EMEA margin dip was due to the timing of investments in new products and channels during the shoulder season and expressed confidence in the full-year performance, pointing to strong mid-teens Commercial HVAC order growth as proof the investments are working. CFO Christopher Kuehn added that recent bolt-on M&A integration costs also impacted reported margins. Regarding Transport, Regnery noted they expect the Americas market to be down about 20% but anticipate outperforming due to continued investment and innovation. He sees 2025 as the trough before a strong rebound in 2026.

Andrew Kaplowitz of Citigroup Inc. asked for more detail on Commercial HVAC vertical performance, specifically if data centers are set to lead growth in 2025 and how education-related bookings are holding up. He also inquired about the durability of strong APAC margins and whether lower incremental margins in the Americas and EMEA were due to transport mix or increased business investments.

Answer

CEO Dave Regnery reiterated that growth is broad-based across verticals, not just data centers, and highlighted that the education vertical remained strong in Q4 even after ESSER funding waned. CFO Chris Kuehn noted that while the team in Asia outperformed, normalization in China will continue into H1 2025. He confirmed the company is driving for 25% or better leverage across all businesses in 2025, balancing strong margin performance with accelerated investments across all regions.

Andrew Kaplowitz of Citi asked for elaboration on strength in commercial verticals beyond data centers, specifically mentioning office, and questioned if the issues in China are structural or cyclical and how the company might respond.

Answer

CEO Dave Regnery confirmed that the office vertical had a strong quarter and is up year-to-date, driven by Class A building upgrades and helping customers get tenants back. He emphasized the broad-based strength across their verticals, with 13 of 14 tracked verticals showing positive order growth. Regarding China, Regnery reiterated that the team performed well on deleverage despite the revenue drop, which was driven by both market conditions and a deliberate tightening of credit policies. He expressed confidence that this is the right long-term decision and the team will work through it.

Andrew Kaplowitz of Citigroup asked about the potential to improve margins in the Americas segment in 2026, similar to recent gains in other regions, and if the competitive environment was a limiting factor.

Answer

CEO Joakim Weideminis stated there is no reason Johnson Controls' margins should be below competitors over time and that the new business system initiatives are designed to close that gap. CFO Marc Vandiepenbeeck added that current Americas margins are temporarily muted by a mix shift toward systems over service and an M&A headwind, suggesting these factors will become tailwinds as they normalize.

Andrew Kaplowitz asked about the potential for service attachment rates over time and what actions are needed to continue improving them, given that service is a key priority.

Answer

CEO Joakim Weidemanis stated he sees 'very interesting opportunities' to move attachment rates 'much higher' over time. He emphasized that the key is to apply LEAN principles and digital tools to the service business itself to leverage the 40,000-person field organization, increasing capacity and improving response times.

Andrew Kaplowitz asked if the strong APAC order growth signaled a definitive turn in that market. He also requested commentary on the performance and visibility of non-data center applied verticals like healthcare and office.

Answer

CEO George Oliver stated that after proactive adjustments, he believes the company has found the bottom in APAC and is returning to growth, supported by a strong services business. CFO Marc Vandiepenbeeck added that healthcare continues to see strong growth, while core real estate (offices) remains flat, and infrastructure and semiconductor manufacturing show positive trends.

Andrew Kaplowitz asked for more detail on the operating environment for Water Quality growth by region and sought to understand the drivers of margin compression in the PQI segment.

Answer

President and CEO Jennifer Honeycutt explained that Water Quality's resilience stems from secular drivers like water reuse, not government funding fluctuations. SVP and CFO Sameer Ralhan detailed that PQI's margin pressure was equally due to M&A investments, tariff/pricing timing, and supply chain costs, which are expected to abate in the second half of the year.

Dalibor, on behalf of Andrew Kaplowitz, asked about the expected normalization of volume growth after a strong Q1 and requested quantification of savings from CEO Kaizen initiatives.

Answer

SVP and CFO Sameer Ralhan explained that with a 70% direct-to-customer model, they have good visibility and see no signs of inventory build-up. He noted that the full-year low-to-mid-single-digit core growth guidance already reflects a rebalancing of price and volume. He also stated that savings from Kaizen events are embedded in existing budgets and forecasts and are not quantified separately.

Andrew Kaplowitz questioned the Q4 guidance, suggesting it appeared conservative on core growth and operating margin compared to Q3's strong results, and asked for more detail on the strategic rationale and revenue synergies expected from the TraceGains acquisition.

Answer

SVP and CFO Sameer Ralhan explained the Q4 margin guidance reflects a ~30 bps impact from the TraceGains acquisition, ~50 bps from higher corporate costs, and a mix shift towards equipment sales. He noted Q4 growth faces a tougher comp in China. President and CEO Jennifer Honeycutt added that TraceGains integrates with Esko to streamline workflows from source to shelf, addressing key customer pain points in compliance and time-to-market, and is expected to continue its strong growth.

Andrew Kaplowitz of Citigroup Inc. inquired about the drivers of Pentair's Pool segment performance, questioning the balance between unit volume growth and pricing actions. He also sought clarity on the full-year price versus cost outlook, considering the significant reduction in expected tariff impacts.

Answer

President and CEO John L. Stauch explained that while pricing in the Pool segment is strong, volumes are flattish to slightly down due to deferred remodels and a shift towards repairs. He clarified that the company chose not to implement approximately $50 million in planned price increases after the expected tariff impact was reduced, resulting in a net benefit of about $15 million which was factored into the updated guidance.

Andrew Kaplowitz asked how Pentair plans to absorb the $140 million tariff headwind within its margin guidance and questioned the drivers behind the Pool segment's growth forecast, particularly the outlook for new pool construction.

Answer

CFO Bob Fishman explained that margin absorption will be driven primarily by pricing actions designed to offset both the tariffs and the associated volume drop, with a minor benefit from mix. CEO John Stauch stated the Pool forecast anticipates some back-half softening in remodeling or discretionary purchases due to price hikes but noted the industry is at a historical low, limiting significant further downside.

Andrew Kaplowitz asked when Pentair expects industrial CapEx delays in the Flow segment to subside and what the ongoing impact of streamlining will be in 2025. He also inquired about the timing for a potential release of pent-up demand in the Pool break/fix and remodeling market.

Answer

President and CEO John Stauch indicated that the company is not counting on a near-term recovery for delayed industrial projects within the Flow segment. For the Pool segment, he expressed optimism for a meaningful recovery in aftermarket remodels in the second half of 2025 as interest rates and equity markets potentially stabilize. He also acknowledged a minor positive impact from hurricane-related rebuilding.

Andrew Kaplowitz of Citigroup asked about the Pool segment's performance following a recent price increase, channel inventory levels heading into 2025, and the potential impact from recent hurricanes.

Answer

President and CEO John Stauch stated that the Pool market is performing as expected, with balanced inventory and potential for extra demand from hurricane-affected areas like Florida. CFO Bob Fishman added that overall company pricing is tracking as forecasted, with Pool pricing expected to be up 2.5% to 3% for the full year.

Andrew Kaplowitz of Citigroup asked about the key drivers behind the significant margin improvement in the Transportation & Electronics (TEBG) segment and for the company's perspective on the U.S. fiscal environment and recent tax legislation.

Answer

CFO Anurag Maheshwari attributed the strong TEBG margin expansion to a combination of volume growth and broad-based productivity gains that more than offset stranded cost headwinds. CEO William Brown commented that the recent tax bill is favorable for 3M, as it helps maintain the company's effective tax rate in the anticipated 20% range.

Andrew Kaplowitz of Citigroup asked about the margin pressure in the Transportation and Electronics (TEBG) segment during Q1 and sought reassurance that it would still expand for the full year. He also inquired about the resilience of industrial orders despite weakening regional manufacturing surveys.

Answer

CFO Anurag Maheshwari explained that the Q1 margin decline in TEBG was expected due to PFAS stranded costs, higher investments, and an unfavorable mix compared to a strong prior-year quarter. He reaffirmed the expectation for margin expansion in all three business groups for the full year. CEO William Brown added that while they are watching macro indicators, conversations with customers and channel partners remain 'reasonably solid' and channel inventories appear normalized.

Andrew Kaplowitz asked if the uptick in industrial demand seen in Q4 continued into January and whether it signaled a modest recovery. He also requested color on 2025 margin guidance by segment and the drivers of the weak Q4 margin in Transportation & Electronics (T&E).

Answer

CEO William Brown confirmed that industrial order rates were steady and slightly higher in Q4, building some backlog and providing a good floor for 2025. CFO Anurag Maheshwari explained the T&E Q4 margin was impacted as expected by seasonal under-absorption from inventory reduction, growth investments, and FX. For 2025, he expects margin expansion across all segments, though T&E may be slightly lighter due to absorbing a large portion of PFAS stranded costs.

Andrew Kaplowitz of Citigroup asked for more color on the Consumer business, its sequential improvement, and the company's ability to execute pricing strategies in that competitive segment. He also inquired how 3M is focusing its R&D investments on the 'right markets'.

Answer

CEO William Brown noted the Consumer business is improving sequentially, with organic sales down just 0.7% in Q3 after accounting for portfolio actions, and is trending toward positive growth in Q4. He highlighted strong performance in Home Improvement, driven by new products. On R&D, Brown stated that the team is intensely focused on allocating its $1 billion budget to markets where 3M has a right to win and can achieve a strong return on investment.

Asked about the timeline and hurdles to reaching the 20% EBITDA margin target for Engineered Building Solutions, and for details on the reasons for margin compression in Specialized Reliability Solutions (SRS) and the strategies to improve it.

Answer

James Perry confirmed the 20% intermediate-term margin target for EBS remains, though it might not be hit for the full fiscal '26, with minor tariff impacts being a hurdle. For SRS, margin compression was primarily due to soft volume in January/February impacting absorption in the high-fixed-cost business, plus some unfavorable product mix. He stated nothing is fundamentally wrong, and strategies for improvement include the recent consolidation of a high-margin product line facility into their Texas plant.

Andrew Kaplowitz inquired about the Sustainable Technology Solutions (STS) backlog, potential energy transition delays, and the outlook for the Mission Technology Solutions (MTS) segment's organic growth given the new U.S. President's budget for defense and NASA.

Answer

President and CEO Stuart Bradie confirmed confidence in the STS portfolio, noting a global shift from energy transition to energy security in some regions while transition remains a focus in others, like Europe. He stated KBR is well-aligned with new defense budget priorities, including missile defense and space dominance. He also expressed confidence in the NASA business, highlighting its focus on human space flight, which appears to be receiving increased funding.

Andrew Kaplowitz of Citigroup sought more color on the demand drivers and durability for the Sustainable Tech Solutions (STS) segment, particularly in ammonia and energy security. He also asked if high Q4 revenue was due to a year-end spending flush and about any expected impact from DOGE.

Answer

President & CEO Stuart Bradie explained that STS demand is durable and global, with ammonia projects in Angola and Kazakhstan driven by favorable local gas pricing and national priorities. He emphasized that KBR's global footprint allows it to capitalize on diverse country-specific dynamics. EVP & CFO Mark Sopp acknowledged a slight pickup in government tasking in Q4 but stated they have seen no direct adverse impact from DOGE or collection issues so far.

Andrew Kaplowitz asked for more color on KBR's 2025 visibility, particularly for the Sustainable Technology Solutions (STS) segment's growth alignment with its 11-15% target, the status of energy transition project delays, and the sustainability of the Q3 book-to-bill ratio. He also questioned the updated guidance, noting the LinQuest contribution seems offset by other factors like HomeSafe.

Answer

President and CEO Stuart Bradie expressed confidence in achieving the 11-15% STS growth target for 2025, supported by a strong Q4 bookings outlook. He noted energy transition project timing in the U.S. depends on election results but sees overall market growth. EVP and CFO Mark Sopp clarified that while HomeSafe revenue is lower, it had no profit impact on the guide. He explained the guidance increase reflects LinQuest's contribution offset by incremental interest expense and typical Q4 seasonality, calling it a cautious update to cap a strong year.

Andrew Kaplowitz inquired about the momentum in Vontier's Environmental & Fueling Solutions (EFS) segment, questioning the outlook for leveling growth despite recent strength and a sequential margin dip. He also asked why the strong growth from the Invenco business in 2024 might not continue at the same pace in 2025.

Answer

CEO Mark Morelli attributed EFS strength to strong C-store demand and new product introductions, noting Q1 faces a difficult comparison. CFO Anshooman Aga explained the Q4 EFS margin dip was due to temporary geographic and product mix, reaffirming long-term margin potential. Regarding Invenco, Morelli highlighted that major customer rollouts are still in early phases, while Aga noted that the guided high single-digit growth for 2025 is strong following the mid-teens growth achieved in 2024.

Andrew Kaplowitz of Citigroup questioned the company's confidence in reaching its 2026 margin targets without a resumption of strong organic growth. He also asked for the outlook on the challenged Construction, Agriculture, and Energy end markets for 2025.

Answer

CEO Ivo Jurek affirmed confidence in getting "very close" to the 24.5% adjusted EBITDA margin target for 2026, stating that a significant rebound in growth is not necessary, only a cessation of volume declines. He credited strong execution on material cost reductions and future savings from footprint optimization. Regarding Ag and Construction, he expects the market to be "less bad" in 2025 but still down mid-single digits, with a particularly dislocated first half due to high dealer inventories.

Andrew Kaplowitz of Citigroup asked for color on the resilience of the Diversified Industrial market, the outlook for the global auto replacement business, and the impact of start-up costs for the new auto contract.

Answer

CEO Ivo Jurek explained that the Diversified Industrial market has stabilized, particularly in replacement channels, showing its best performance in several quarters. He is constructive on auto replacement for 2025, citing market share gains and strong fundamentals like the aging car fleet. CFO L. Mallard clarified that start-up costs (lift credits) for the new auto business will be a larger headwind in Q4 (70-80 bps) due to accelerated shipments, which positions them well for next year.