Angel Castillo Malpica

Angel Castillo inquired about the evolution of quote-to-order conversion rates in Q4 2025 and early 2026, and asked for the size of data centers in the backlog/orders, along with comments on the manufacturing sector's performance.

Answer

Chair, President and CEO Ward Nye stated that the Precise IQ system is enhancing sales team responsiveness and win rates, with further improvements expected. Data center tonnage, while currently a few million tons annually, is growing at multi-double-digit rates. Senior Vice President and Chief Financial Officer Michael J. Pietropola added that data centers, distribution centers, and manufacturing/power generation each represent about 3% of shipments, with data centers growing ~60% and manufacturing's decline rate in Q4 2025 being the lowest for the year, with hopes for an inflection in 2026.

Angel Castillo asked about the potential pricing uplift on the acquired Quikrete assets and sought clarity on the disconnect between numerous data center announcements and slowing construction spend data.

Answer

CEO C. Howard Nye indicated a pricing opportunity exists in the new markets as part of their 'value journey.' Regarding data centers, he attributed the lag on new projects to permitting and utility readiness, describing it as a 'nice, long, steady climb over multiple years' rather than an immediate surge, which suits Martin Marietta's business model.

Angel Castillo Malpica of Morgan Stanley asked for more detail on the progression of pricing into Q2, given that some increases were pushed to April. He also inquired about the potential for customer pushback on mid-year price increases.

Answer

Chair and CEO Ward Nye highlighted strong Q1 pricing, noting that organic pricing was up 7.4%, higher than the reported 6.8%, indicating room to raise prices on recently acquired assets. He stated that the company's guidance does not assume any mid-year price increases, but he expects to see them in a number of markets. Nye concluded that he anticipates full-year pricing to be at the higher end of the guided range and will provide a formal update at mid-year.

Angel Castillo Malpica sought to reconcile the modest 1% organic volume growth outlook with stronger end-market projections, and asked if the shift to April pricing signals an end to mid-year price increases.

Answer

CEO Ward Nye and CFO Jim Nickolas confirmed the end-market growth figures were inclusive of acquisitions and reiterated that the overall guidance is intentionally measured. Regarding pricing, Nye clarified that the 2025 guidance does not assume mid-year increases, but he believes some will occur, similar to last year, particularly in newly acquired businesses. The potential for mid-year hikes will depend on market dynamics, including the timing of cement price increases next year.

Angel Castillo Malpica asked for more detail on the cost side of the price-cost equation and the outlook for inflation heading into 2025.

Answer

CFO James Nickolas stated that underlying cost inflation was approximately 5% in the quarter, in line with expectations. For 2025, he anticipates continued mid-single-digit cost inflation, which is expected to be well below the mid-to-high single-digit pricing growth, ensuring the price-cost spread should continue to trend favorably.

Angel Castillo asked about the size and growth rate of the power generation backlog, competitive capacity investments, and Cummins' capital allocation strategy for 2026, particularly regarding potential buybacks given strong credit metrics and reduced Accelera investments.

Answer

Chair and CEO Jennifer Rumsey stated that Cummins does not quantify backlog but confirmed record Q3 and Q4 demand intake for power generation, with multi-year strength. CFO Mark Smith discussed restoring credit metrics, maintaining financial flexibility, and the minimum goal of returning 50% of operating cash flow to shareholders, indicating flexibility for increased capital deployment.

Angel Castillo inquired about the size and growth rate of Cummins' power generation backlog, particularly for data centers, and how competitive capacity investments from others might influence Cummins' own investment decisions. He also asked about the company's capital allocation strategy for 2026, considering Accelera charges, R&D expenses, and a bottoming truck market, specifically regarding potential share buybacks.

Answer

Jennifer Rumsey, Chair and CEO, confirmed record demand intake in Q3 and Q4 for power generation, with multi-year strength and ongoing discussions with data center customers, though she did not quantify the backlog. She emphasized a disciplined approach to capacity investments, confident in continued strong demand for diesel backup power. Mark Smith, CFO, stated that Cummins has strong financial flexibility, with current year investments funded by cash flow. He reiterated the minimum goal of returning 50% of operating cash flow to shareholders and the flexibility to deploy more capital to shareholders if opportunities align.

Angel Castillo asked for an update on Cummins' capacity expansion plans, specifically regarding large diesel engines for data centers and the potential for expanding natural gas engine lines to pursue prime power opportunities. Castillo also sought quantification of the Section 232 tariff headwind in Q3 and Q4 2025 and the potential financial impact of a rebate on U.S.-manufactured engines in 2026.

Answer

Jennifer Rumsey, Chair and Chief Executive Officer, confirmed that the doubling of large engine capacity is nearing completion, primarily supporting backup power for data centers. Rumsey noted that data center revenue is expected to increase by 30-35% in 2025 and that the company is actively evaluating further capacity investments and exploring natural gas engines for prime power. Mark Smith, Chief Financial Officer, stated that the company lacks sufficient detail to quantify the Section 232 tariff headwind or the impact of potential rebates, emphasizing Cummins' strong U.S. manufacturing footprint.

Angel Castillo inquired about Cummins' capacity expansion plans for large diesel engines and the potential for expanding natural gas engine lines for prime power in data centers. He also asked to quantify the Section 232 tariff headwind in Q3 and Q4 and the financial impact of potential rebates in 2026.

Answer

CEO Jennifer Rumsey confirmed the near completion of large engine capacity doubling, noting strong data center revenue growth, and stated the company is evaluating further capacity expansion and natural gas engine options for prime power. CFO Mark Smith indicated that more details are needed to quantify the Section 232 tariff impact and potential rebates, emphasizing Cummins' strong U.S. manufacturing position and the need for policy stability.

Angel Castillo of Morgan Stanley inquired about the growth trajectory of Cummins' data center business, referencing a prior forecast of reaching $2 billion in sales by 2026.

Answer

Chair and CEO Jennifer Rumsey confirmed that Cummins remains well-positioned in the growing data center market, benefiting from its Sentum series products and distribution network. Both Rumsey and CFO Mark Smith affirmed that the company's enthusiasm for demand has not changed and that the $2 billion sales target for 2026 remains a reasonable expectation.

Angel Castillo of Morgan Stanley asked for an update on the data center business, referencing a prior forecast of reaching $2 billion in sales by 2026. He sought to understand the current growth trajectory and market share position.

Answer

Chair and CEO Jennifer Rumsey confirmed that Cummins remains well-positioned in the growing data center market, benefiting from its Sentum series products and distribution network. She noted that additional capacity will be online by 2026 to meet demand. Both she and CFO Mark Smith reaffirmed that the company's enthusiasm for demand has not changed and the $2 billion sales target for 2026 remains intact.

Angel Castillo Malpica requested insight into the near-term tariff impact for Q2 and sought clarification on the drivers of aftermarket growth in the Power Systems segment.

Answer

CFO Mark Smith noted that the tariff impact was immaterial in Q1 but will build through Q2, with the main concern remaining the broader economic demand. He clarified that the strong Power Systems aftermarket growth is not primarily from data centers but from broad-based demand across mining, oil & gas, marine, and general power generation, including rebuilds and pricing actions.

Angel Castillo Malpica inquired about the drivers of the 5% to 15% power generation growth guidance, specifically the split between price and volume, and sought details on the new $200 million investment. He also asked for Cummins' latest view on the EPA27 regulations and the likelihood of a prebuy.

Answer

Chair and CEO Jennifer Rumsey explained that the power generation growth is driven by a capacity ramp-up for larger engines for data centers, with some strategic pricing also contributing. The $200 million investment aims to double capacity by year-end. Regarding EPA27, Rumsey stated that Cummins expects the regulations to remain, anticipating an economic recovery and prebuy in the second half of the year.

Angel Castillo Malpica of Morgan Stanley inquired about the potential impact of states delaying California's low NOx regulations on the timing of a pre-buy for 2027-compliant engines. He also asked for the 2025 outlook for Power Generation, questioning if the strong growth could persist.

Answer

CEO Jennifer Rumsey noted that while some states have pushed out regulations, Cummins still anticipates a pre-buy likely starting sometime in 2025 ahead of the 2027 nationwide rules. Regarding Power Generation, she stated that demand remains strong and future growth is primarily a function of capacity and supply chain execution. CFO Mark Smith added that the strong Power Gen backlog provides confidence heading into the new year.

Angel Castillo inquired about the price/cost conversation beyond tariffs, focusing on labor and materials, and Timken's strategy for material headwinds. He also asked about industrial automation growth, order books, and Lucian Boldea's longer-term strategic vision for automation within the business, including portfolio strategy and M&A.

Answer

Mike Discenza (CFO) explained that while material inflation is expected, cost savings tactics will make material and logistics costs a positive for 2026. Labor inflation and variable compensation will be headwinds, but overall, a net positive price-cost is expected, contributing to the 30% incremental margin. Lucian Boldea (President and CEO) confirmed automation was a key driver, especially in linear motion, and sees automation and electrification as top macro trends for portfolio alignment. Timken participates broadly in industrial automation across various product lines, and this will be a key topic at Investor Day. Mike reminded that the CGI acquisition, showing strong growth, is now part of the automation segment.

Angel Castillo inquired about the price/cost conversation beyond tariffs, focusing on labor and materials, and the general strategy for material headwinds. He also asked about industrial automation growth, order book trends, and the longer-term strategic role of automation within Timken's business.

Answer

Mike Discenza, CFO, stated that while material inflation is expected, cost savings tactics should make material and logistics costs a positive for 2026. Labor inflation and variable compensation will be headwinds, but overall, the company expects a net positive price-cost impact. Lucian Boldea, President and CEO, confirmed automation was a key growth driver, particularly in Industrial Motion (linear motion), with significant growth in the Americas. He sees automation and electrification as top macro trends for portfolio alignment, noting Timken's broad participation across various automation applications. Mike Discenza added that CGI, a strong growth acquisition, is now part of the automation segment for modeling purposes.

Angel Castillo inquired about the organic growth implications for Q4, specifically if there was a pull forward in Q3, and asked for details on the cadence by end market and any monthly declines in October. He also questioned the incremental impact of tariffs in Q1 2026 and the ability to recapture or offset them.

Answer

CFO Mike Discenza clarified that there was no indication of a pull forward into Q3, and the Q4 caution is due to trade uncertainty, not observed deceleration. Regarding tariffs, Mr. Discenza explained that the significant step-up in China tariffs is not in the current guide. He confirmed the company's commitment to fully offset tariff impacts by exiting the year with higher pricing rates and other mitigation tactics, aiming to recapture margins in 2026, with some benefits expected in H1 2026.

Angel Castillo inquired about the organic growth implications for the fourth quarter, asking if there was a pull forward of demand into the third quarter and for more detail on the cadence of declines by end market, including any monthly trends observed in October. He also asked about the headwind from tariffs, specifically if Q1 2026 would see an incrementally worse impact or if mitigation strategies would kick in to offset costs.

Answer

CFO Mike DiSenza clarified that there was no indication of a demand pull forward into the third quarter, attributing the Q4 caution to trade uncertainty rather than specific order pattern decelerations. On tariffs, Mr. DiSenza noted that a significant step-up in China tariffs is not included in the current guidance. He affirmed the company's commitment to pushing pricing (exiting H2 2025 at a higher rate than the 1.5% full-year average) and implementing supply chain changes, expecting to fully offset the tariff impact by the end of the year and recapture margins in 2026, with incremental pricing benefiting the first half of next year.

Angel Castillo sought to clarify if current order trends could support results above the high end of guidance should an atypical recovery occur. He also asked about potential M&A needs for the robotics portfolio and the company's appetite for deals during the CEO transition.

Answer

EVP and CFO Philip Fracassa responded that exceeding the high end of guidance would require a demand acceleration that is not currently assumed. President & CEO Richard Kyle stated that M&A activity continues, likely focusing on bolt-on acquisitions, and that the company's current portfolio is strong enough to win in robotics without further additions, though it could be supplemented.

Angel Castillo from Morgan Stanley sought to clarify if an atypical market recovery could push results above the high end of guidance. He also asked about the company's M&A appetite to bolster its robotics portfolio and whether the ongoing CEO search would pause acquisition activity.

Answer

EVP and CFO Philip Fracassa responded that exceeding the guidance's high end would require a demand acceleration not currently forecasted. President & CEO Rich Kyle affirmed that M&A activity continues, with a focus on bolt-on deals, and is not paused by the CEO transition. He added that while supplemental technologies are considered, the current portfolio is already well-positioned to win in automation.

Angel Castillo from Morgan Stanley sought to clarify if an atypical second-half recovery could push results above the high end of guidance. He also asked about the company's M&A appetite, particularly for automation, and whether M&A is on hold during the CEO transition.

Answer

EVP and CFO Philip Fracassa responded that exceeding the high end of guidance would require an acceleration in demand, which is not currently assumed. President & CEO Rich Kyle stated that M&A is not on pause during the CEO search, though any near-term deals would likely be bolt-on acquisitions aligned with the current strategy. He added that Timken does not need new acquisitions to win in automation but could supplement its portfolio.

Angel Castillo from Morgan Stanley sought to clarify if current order trends could support results above the guidance midpoint and what it would take to exceed the high end. He also asked about M&A appetite for the robotics portfolio and if M&A activity is paused during the CEO transition.

Answer

EVP and CFO Philip Fracassa responded that exceeding the high end of guidance would require an acceleration in demand, which is not currently assumed for the second half. President and CEO Richard Kyle confirmed that M&A is not on pause, though any near-term deals would likely be bolt-on acquisitions. He added that while the company has strong robotics capabilities, it could supplement its portfolio through M&A.

Angel Castillo of Morgan Stanley sought to clarify if current order trends could push results above the high end of guidance in an atypical recovery scenario. He also asked about the company's M&A appetite for the automation portfolio and whether M&A is on hold during the CEO transition.

Answer

EVP and CFO Philip Fracassa responded that exceeding the high end of guidance would require an acceleration in demand, which is not currently assumed. President & CEO Richard Kyle confirmed that M&A activity continues, stating that any potential deal during the CEO search would likely be a bolt-on acquisition closely aligned with the current strategy. He added that while Timken has a strong portfolio to win in robotics, it remains open to supplemental technologies.

Angel Castillo Malpica inquired about January order trends and how geopolitical trade uncertainty is influencing decisions about the company's manufacturing footprint, particularly in Mexico.

Answer

CEO Tarak Mehta confirmed that January's performance was in line with their plan. He reiterated the company's 'in region, for region' strategy, stating that investments like the new belts facility in Mexico remain compelling for the long term, and noted that the majority of U.S. revenue is served by its U.S. footprint, which mitigates some risk.

Angel Castillo first asked for an update on January order trends and how they align with the organic growth outlook. He then posed a broader question about how the steadily improving macro backdrop and market tailwinds (like power generation and market share wins) are influencing Kennametal's strategic thinking regarding business repositioning, ongoing self-help initiatives (such as plant closures), and potential areas for increased investment to capitalize on faster-growing markets.

Answer

CEO Sanjay Chowbey stated that Kennametal had a good start to January and remains confident in the provided outlook, though he did not provide specific January order figures. Regarding the broader strategy, Sanjay Chowbey recapped recent actions, including closing two manufacturing plants and divesting one business. He affirmed that the current plans for self-help initiatives still make sense and are progressing well, while the company will continue to monitor market demands and adjust plans as needed to benefit shareholders, customers, and the team.

Angel Castillo inquired about the current order trends in January and how Kennametal's self-help initiatives, such as plant closures and divestitures, are impacting the company's strategic repositioning and investment focus, especially given the improving macro backdrop and growth opportunities like power generation.

Answer

CEO Sanjay Chowbey indicated a good start to January, expressing confidence in the current outlook without providing specific figures. He reiterated that the company has successfully closed two manufacturing plants and divested one business in the past year. He affirmed that the current strategic plans remain relevant, with good progress being made, and that the company will continue to monitor market demands and adjust plans as necessary to benefit shareholders, customers, and the team.

Angel Castillo of Morgan Stanley inquired about the fiscal year 2026 outlook, seeking color on Q1 trends and their influence on the full-year segment forecast. He also questioned if the strategic shift towards cost reduction and portfolio optimization is a reaction to near-term demand weakness or deeper, structural challenges at Kennametal.

Answer

President and CEO Sanjay Chowbey stated that the FY26 outlook is a balanced view informed by market indicators and that the year has started in line with projections. He explained the strategic shift is a response to both a prolonged market slowdown and the need to make sustainable, structural cost improvements, while ensuring the company is prepared for an eventual volume recovery.

Angel Castillo of Morgan Stanley asked for more detail on the fiscal year 2026 outlook, specifically how Q1-to-date trends are informing the full-year segment forecasts. He also inquired about the strategic shift toward cost-cutting and portfolio optimization, questioning whether it stems from near-term market conservatism or deeper, company-specific structural challenges.

Answer

Sanjay Chowbey, President, CEO & Director, stated that the FY2026 outlook is a balanced view based on market indicators and customer discussions, with the start of the year tracking in line with full-year projections. He explained the strategic focus on rightsizing is a response to both the prolonged market slowdown and the need to make sustainable structural improvements, while ensuring the company is prepared for an eventual volume recovery.

Angel Castillo Malpica inquired about the Q4 outlook, specifically quarter-to-date demand trends, and asked for a breakdown of the $80 million tariff mitigation plan and its timeline for full implementation.

Answer

President and CEO Sanjay Chowbey stated that market trends remain steady, with EMEA being the weakest region, and noted the company is confident in fully mitigating the tariff impact through supply chain optimization and surcharges. CFO Pat Watson added that Q4 sequential sales will see a ~$13 million tailwind from FX, normalizing the underlying performance.

Angel Castillo Malpica sought clarification on the late-January order improvement, asking if it was specific to certain end markets or regions. He also inquired about the drivers behind the substantial implied EPS increase for the fourth quarter, questioning whether it was based on cost savings or an assumed market rebound.

Answer

CEO Sanjay Chowbey confirmed the order improvement was broad-based across end markets and regions, including EMEA. CFO Pat Watson clarified that the strong implied Q4 guidance is primarily driven by the realization of savings from the new restructuring program, combined with normal Q4 seasonality which is typically the company's strongest quarter, rather than an assumption of a significant market rebound.

Angel Castillo Malpica asked about near-term demand trends seen in September and October and inquired about the current price-cost dynamics, including tungsten prices and inflation.

Answer

CEO Sanjay Chowbey described the near-term outlook as stable, with ongoing pressure in European Transportation and mining. CFO Pat Watson noted that tungsten prices have been steady, anticipating no significant price-cost impact, and added that general inflation continues to moderate. Sanjay Chowbey confirmed a price increase was implemented to offset inflation.

Angel Castillo requested quantification of the anticipated pricing impact in 2026 for the Access segment and its embedded amount in the current backlog, extending the inquiry to all segments. Castillo also asked for details on the broader cost buckets (tariffs, materials, mix of independents) embedded in the guidance, particularly for the Access segment.

Answer

CEO John Pfeifer stated that pricing plans reflect efforts to mitigate tariff costs through "tariff engineering" and re-engineering, with necessary price increases designed to keep Oshkosh whole on the price-cost equation in 2026. CFO Matt Field added that the Access team's cost reduction initiatives, started in 2024, are progressively yielding results, leading to largely flat costs (excluding tariffs). Field noted that the traditional mix of 55% National Rental Companies (NRC) and 45% Independent Rental Companies (IRC) is expected to normalize in 2026.

Angel Castillo sought to quantify the anticipated pricing in 2026 for each segment and how much is embedded in the backlog. She also asked for details on broader cost buckets in the guidance, particularly for the Access segment, distinguishing between tariffs, materials, and mix of independent rental companies (IRCs).

Answer

President and CEO John Pfeifer stated that pricing plans aim to mitigate tariff costs through engineering and sourcing efforts, ensuring Oshkosh remains whole on the price-cost equation in 2026. EVP and CFO Matt Field noted that the Access team's cost reduction initiatives, started in 2024, are progressively yielding results, leading to largely flat costs aside from tariffs. He also mentioned that the traditional mix of 55% national rental companies (NRCs) and 45% IRCs is expected to normalize in 2026.

Angel Castillo sought clarification on whether the increased cautiousness among Access segment customers is reflected purely in lower ordering or also in cancellations/delivery push-outs, and how behavior differs between national and independent customers. He also asked about the magnitude and timing of 2026 price increases for Access, considering current discounting trends.

Answer

CEO John Pfeifer stated that the 0.6 book-to-bill for Access was normal for a Q3, but the market is softer. He emphasized healthy end-market demand and equipment utilization, attributing customer cautiousness to shifting tariffs and prolonged higher interest rates, leading them to hold back on near-term CapEx. CFO Matt Field indicated it was preliminary to discuss 2026 pricing, noting some seasonality in quarterly discounting.

Angel Castillo sought clarification on whether customer cautiousness in the Access segment was reflected purely in lower orders or also in cancellations/delivery push-outs, and how behavior differed between national and independent rental customers.

Answer

John Pfeifer, President and CEO, explained that the 0.6 book-to-bill was historically normal for Q3, but the market was softer. He emphasized healthy end-market demand and utilization, attributing cautiousness to the dynamic environment (tariffs, interest rates) causing customers to delay CapEx for clarity, rather than cancellations. Matt Field, EVP and CFO, stated it was preliminary to discuss 2026 pricing and noted Q3 discounting reflected seasonality.

Angel Castillo of Morgan Stanley asked for more details on the higher sales discounts in the Access segment and the overall competitive landscape. He also inquired if the recent tax bill has impacted customer equipment demand and requested quantification of the tax benefit on the company's free cash flow guidance.

Answer

CFO Matthew Field noted that discounts of 2-3% were in line with expectations. CEO John Pfeifer described a bifurcated demand environment, with strength in large infrastructure and data center projects but some pausing in private non-residential construction. Field confirmed the increased free cash flow guidance largely reflects tax bill changes related to R&D credits, while Pfeifer noted the bill is supportive long-term rather than a driver of a near-term demand spike.

Angel Castillo Malpica from Morgan Stanley sought a breakdown of the guided Access sales decline into price versus volume components for 2025. He also asked for color on what Oshkosh is hearing from national versus independent rental customers and whether independents are driving the volume decline.

Answer

CFO Matt Field indicated the Access sales decline is primarily volume-driven, especially in the first half, but did not provide a specific price/volume split. CEO John Pfeifer added that national customers benefit from mega projects, while independent customer performance varies by market exposure. He clarified that the customer mix, which favored independents in 2024, is expected to shift back towards nationals in 2025.

Angel Castillo asked for more details on the recent order uptick, including the strength observed in January, the fill rate for Q1 and Q2 order slots, and specific areas of demand such as vocational or EPA prebuy. She also inquired about the unchanged North America truck outlook despite robust orders, asking if it implies market share shifts or better positioning for the top end of the forecast range.

Answer

CEO Preston Feight confirmed that January continued the strong order intake cadence seen in December, with a mix of spread deliveries for fleets and closer-in orders, including significant vocational orders and steady LTL demand. He stated that Q1 orders are mostly full. Regarding the North America outlook, he clarified that PACCAR's unchanged forecast is already higher than some previous industry estimates, reflecting a positive sense of acceleration through 2026.

Angel Castillo asked for more details on the recent order uptick, including the strength observed in January, the fill rate for Q1 and Q2 order slots, and specific areas of demand such as vocational or EPA prebuy. He also questioned the unchanged North America truck outlook despite robust orders.

Answer

CEO Preston Feight confirmed that January continued the strong order intake cadence seen in December, with a mix of spread deliveries for fleets and closer-in orders, including significant vocational and LTL demand. He stated that Q1 orders are mostly full. Regarding the North America outlook, Preston Feight clarified that PACCAR's unchanged forecast is already higher than previous industry estimates, reflecting a positive outlook for sequential acceleration throughout 2026.

Angel Castillo asked for a quantification of the tariff headwind anticipated for Q4 and if the gross profit margin moving from 12.5% to 12% is entirely due to tariff ramp-up. He also inquired if PACCAR's North American outlook for next year assumes any pre-buy related to EPA 27.

Answer

Preston Feight, CEO, attributed the Q4 margin change mostly to tariff ramp-up, with October being the peak. He expects improvement by December/January as Section 232 tariffs reduce costs. Regarding the 2026 North American market outlook (230k-270k range), Mr. Feight explained that the wide range accounts for uncertainty in truckload recovery and the 35 mg NOx standard. If the standard changes, it would reduce pre-buy, pushing the market towards the lower end; if it stays, it pushes towards the higher end.

Angel Castillo sought quantification of the anticipated tariff headwind for Q4, asking if the projected gross profit margin decline from 12.5% to 12% was solely due to tariffs. He also asked if PACCAR's North American outlook for next year assumes any pre-buy related to the EPA’s 35 mg NOx standard.

Answer

CEO R. Preston Feight confirmed that the Q4 margin impact is mostly due to the tariff ramp-up, with October being the peak, and anticipated marked improvement by December/January. Regarding the 2026 North American market outlook (230,000-270,000 trucks), Feight explained the wide range accounts for uncertainty in the truckload sector's recovery and the assumption that the 35 mg NOx standard will remain. He noted that if the standard changes, it would reduce pre-buy activity, pushing the market towards the lower end of the range.

Angel Castillo Malpica asked about the drivers behind the Q3 margin contraction, noting high decremental margins despite a unit beat. He also inquired about profitability trends for the Parts business heading into 2025.

Answer

President and CFO Harrie Schippers pointed to higher costs, including some supplier issues and operating expenses, as the primary reason for the margin change. CEO Preston Feight added that current margins are healthy for this point in the cycle. For the Parts business, Feight praised the team's performance, highlighting 5% revenue growth and strong margins despite a smaller overall aftersales market.

Angel Castillo questioned the confidence in second-half deliveries given recent weak orders and asked for color on the drivers behind the guided 4-6% Q3 revenue growth reacceleration in the Parts business, including the assumed gross margin.

Answer

CEO & Director R. Preston Feight cited several factors for confidence in H2, including the eventual balancing of truckload capacity, benefits from new legislation, and clarity on 2027 emissions standards and tariffs. EVP Kevin Baney attributed the strong Parts forecast to the team's execution and normalizing sales growth. CFO & SVP Brice Poplawski noted that more shipping days in Europe in Q3 will also contribute.

Angel Castillo of Morgan Stanley questioned the confidence in second-half deliveries despite recent weak orders and sought more color on the drivers for the guided 4-6% Q3 growth in the parts business, including margin assumptions.

Answer

CEO & Director R. Preston Feight cited several factors for second-half confidence: balancing truckload capacity, benefits from new legislation, and clarity on 2027 emissions standards and tariffs. EVP Kevin Baney attributed the strong parts forecast to the team's performance and normalizing sales growth. CFO & SVP Brice Poplawski noted more shipping days in Europe in Q3 would also help.

Angel Castillo Malpica asked for a breakdown of the Q2 gross margin contraction between volume and tariff impacts, and for regional delivery guidance. He also inquired about levers to mitigate tariff headwinds and how uncertainty is affecting investment strategy.

Answer

CEO Preston Feight attributed the margin pressure mostly to tariffs rather than volume. He noted that North American and European deliveries are expected to be flat, with the main sequential change coming from a pause in the Mexico market. He affirmed that PACCAR's investment appetite remains unchanged, with high confidence in its long-term product plans.

Angel Castillo inquired about the drivers for the full-year R&D expense outlook and the development plan for the Amplify JV. He also asked for more color on the 'green shoots' management is seeing in the truckload (TL) market.

Answer

CEO Preston Feight clarified that R&D spending is expected to increase by about 5% year-over-year. For the Amplify JV, he confirmed a phased approach where building construction will be followed by scaling battery capacity installation based on market demand. Regarding the TL market, he pointed to soft indicators like improving spot rates, capacity rationalization, and low used truck inventories as signs of a potential turn.

Angel Castillo inquired about current pricing trends, noting a 2% impact in Q1 versus a 1% full-year guide, and asked for insights into market dynamics and why the Q1 pricing might not persist. He also requested a deeper dive into regional performance during the quarter and how trends are progressing in November.

Answer

COO Richard Lewis explained that pricing is in a fairly normalized cycle, competitive but more akin to pre-COVID conditions, which is reflected in the full-year guide. CEO Tod E. Carpenter provided a regional summary: Europe is strengthening, the US is solid but cautious, Latin America is uneven, and Asia-Pacific is performing okay, with China showing growth but requiring more data points before calling it an economic recovery.

Angel Castillo from Morgan Stanley requested more detail on the first-half versus second-half cadence for sub-segments like off-road, on-road, and Aerospace & Defense. He also asked for an update on capital allocation, including the M&A pipeline, appetite for buybacks beyond the guidance, and the reason for a decline in the CapEx forecast.

Answer

CFO Brad Pogalz advised using the total company's typical 48/52 first-half/second-half sales split as the best guide for cadence, noting the on-road recovery is modest in dollar terms and A&D comps are lumpy. On capital allocation, he explained the 2-3% share repurchase target is a 'normal' level, balancing returns with M&A flexibility, and the lower CapEx reflects sharper project prioritization. Chairman, CEO & President Tod Carpenter reiterated that the M&A pipeline remains active and is a key strategic priority.

Angel Castillo of Morgan Stanley inquired about the dynamics of Donaldson's gross profit margin, the ability to remain price-cost neutral, and the specific impact of footprint optimization initiatives. He also asked about the reasons for the lowered CapEx outlook and the potential influence of tax policies on future capital investments.

Answer

CFO Brad Pogalz explained that the gross margin decline was primarily due to the 'heavy lifting' phase of plant rationalization projects in the US and UK, but affirmed the company's ability to remain price-cost neutral. CEO Tod Carpenter added that CapEx was deferred to prioritize managing supply chain disruptions and tariff uncertainty, which required holding higher inventory to ensure customer service.

Angel Castillo Malpica inquired about the drivers behind the 47% free cash flow conversion in Q1 and the path to achieving the full-year target of 85-95%. He also requested a more detailed breakdown of the Life Sciences segment, particularly the contribution from Disk Drive and Food & Beverage.

Answer

CFO Brad Pogalz explained that the lower first-quarter cash conversion was expected and driven by strategic working capital investments, primarily in inventory, to improve on-time delivery. He anticipates conversion will normalize and improve as sales build throughout the fiscal year. Regarding Life Sciences, both Pogalz and CEO Tod Carpenter declined to provide specific business breakdowns but noted that Disk Drive's strong growth is a result of market recovery and share gains.

Angel Castillo asked for more detail on the acceleration in quoting activity and project pipeline, including its magnitude, drivers, and whether it extends beyond data centers and semiconductors, given past disappointments in conversion rates.

Answer

Tom Hill, Chairman and CEO, confirmed that project postponements are no longer occurring, with many projects now supporting backlog growth, which he is confident will ship. Ronnie Pruitt, COO, highlighted 7-8% growth in private non-res starts in Vulcan markets, with data centers up 26%, but also noted bookings for LNG, manufacturing, and retail projects, indicating broader strength.

Angel Castillo from Morgan Stanley asked what is driving the improved conversion of bids to bookings and whether project deferrals and delays are still occurring at elevated levels or if that trend is also improving.

Answer

Chair & CEO J. Thomas Hill responded that project deferrals have largely passed and jobs are now starting. Senior VP & CFO Mary Carlisle added that the market seems to have moved past a period of uncertainty, evidenced by trailing three-month contract awards in private non-residential turning positive. The improvement is broad-based, excluding single-family housing.

Angel Castillo from Morgan Stanley asked about the aggregate intensity of future power generation projects and about competitive discipline regarding mid-year price increases.

Answer

CEO James Hill addressed pricing first, stating it's too early to comment on mid-year outcomes but that the conversations are underway as expected. Regarding power generation, he described it as a late 2026/2027 opportunity that will be 'extremely aggregates intensive' and could last for about five years. He expects more gas-fired plants than nuclear initially, located in markets with high data center growth like Texas, Georgia, and Arizona.

Angel Castillo Malpica from Morgan Stanley sought to understand the confidence behind the outlook for private non-residential starts bottoming mid-year, asking about customer feedback and quoting activity.

Answer

CEO Tom Hill explained that while non-residential shipments will be down in 2025, he sees 'green shoots' from strong data center activity and a flattening decline in warehouse starts. He also revealed significant pent-up demand, noting that Vulcan has quoted a large volume of non-residential work over the last six months that is currently 'sitting on the sideline' as customers await factors like lower interest rates.

Angel Castillo Malpica asked about the competitive pricing dynamics from private operators and the typical pricing disparity observed in potential acquisition targets compared to Vulcan's portfolio.

Answer

Chairman and CEO James Hill offered a broad view that most aggregates operators, public and private, understand the value of their finite resources and the need to earn a return, which fosters a rational pricing environment. He believes growing demand further supports this discipline. He did not provide specifics on pricing disparities with M&A targets.

Angel Castillo asked about Wabtec's organic growth trajectory, particularly why management isn't concerned despite low single-digit growth this year versus a mid-single-digit algorithm. He sought color on the strong pipeline of opportunities, anticipated order pace in North America freight, and preliminary thoughts on 2026 organic growth expectations given the backlog implies reacceleration.

Answer

President and CEO Rafael Santana highlighted the strong pipeline dynamics, noting the 12-month backlog growth outpaced last year, providing stronger coverage for 2026. He emphasized bullishness in international markets like Kazakhstan, CIS, East Asia, Brazil, Africa, and mining, along with profitable growth in transit. Santana expects combined volumes for new locomotives and modernizations to grow into 2026, supported by backlog. Regarding services, Santana clarified that the variation in Q3 results was tied to modernizations, while core services are expected to grow in the 5-7% range, driven by fleet age, innovation, and share of wallet gains. He noted international expansion and hard-running North American fleets as key drivers.

Angel Castillo inquired about Wabtec's organic growth trajectory, addressing investor concerns regarding low single-digit growth versus the mid-single-digit algorithm. He sought insights into the strong pipeline of opportunities, anticipated order pace in North America freight, and whether the backlog implies a reacceleration towards high single-digit organic growth in 2026, including the shape of growth across businesses. He also asked for a breakdown of core services versus modernization (mods) in H2 2025 and expectations for mods growth in 2026.

Answer

President and CEO Rafael Santana highlighted strong pipeline dynamics, noting that the 12-month backlog growth outpaced last year, providing stronger coverage for 2026. He emphasized bullishness in international markets like Kazakhstan, CIS, East Asia, Brazil, and Africa, driven by new rail lines, fleet renewal, and volume growth. Santana also pointed to strong demand in mining for ultra-class systems and profitable growth in transit. He confirmed expectations for combined new locomotive and mods volumes to keep growing into 2026, supported by backlog, with international outpacing North America. Regarding services, Santana explained that the variation in Q3 results was tied to mods, which will continue to fluctuate based on CapEx allocation. He projected core services growth in the 5-7% range, driven by fleet age, innovation, and market share gains.

Angel Castillo Malpica, on for Vincent Andrews, sought to quantify the margin drivers from Q1, such as mix and timing, and asked about Wabtec's ability to quickly respond to potential reciprocal tariffs.

Answer

CFO John Olin identified four drivers for the strong Q1 margin: mix, timing of expenses, strong productivity, and proactive cost management. He noted that productivity and cost control benefits are expected to persist, which is why guidance was raised. CEO Rafael Santana added that Wabtec is managing a balancing act of variables, including supplier shifts and pricing actions, to deliver on guidance and ensure profitable growth into 2026 and beyond.

Angel Castillo Malpica of Morgan Stanley asked about the potential for upside to the company's margin expansion targets and sought clarity on whether the current North American locomotive demand represents a step-change in replacement activity.

Answer

CEO Rafael Santana highlighted a strong pipeline of opportunities, especially robust international orders, which enhance visibility into 2026 and 2027. He noted that the combination of new locomotives and modernizations in North America is expected to grow at a high-single-digit rate in 2025, driven by customer investments in cost efficiency and reliability rather than a fundamental shift away from modernizations.

Angel Castillo Malpica inquired about preliminary expectations for 2025 based on the growing backlog and sought an update on the progress of the Integration 2.0 savings program.

Answer

CEO Rafael Santana stated it was too early for 2025 guidance but reiterated the long-term outlook for mid-single-digit organic growth and double-digit EPS growth. Regarding Integration 2.0, Santana confirmed the program is on track and slightly ahead of schedule, with savings materializing faster than anticipated, contributing to the Q3 guidance increase.

Angel Castillo inquired about the progress of the Early Order Programs (EOPs), specifically for planters and combines, and sought more detail on the recent increase in quoting activity.

Answer

Josh Beal, Director of Investor Relations, noted that it was still early for planters and combines, with customers showing caution due to market uncertainty. Cory Reed, President of the Ag & Turf Division, added that while customers are waiting, the initial response to the combine program has been positive. CFO Joshua Jepsen mentioned that strong crop yields could drive incremental demand post-harvest.

Angel Castillo Malpica questioned the confidence in the +1% price realization for PPA given incentive needs, and the new flat pricing guide for Construction & Forestry (C&F) amid competitive pressures.

Answer

Executive Josh Beal expressed high confidence in the PPA guide, stating it already accounts for incentives to support the used market. For C&F, he acknowledged increased price pressure led to the guide being lowered to flat. CFO Josh Jepsen added that C&F margins will be most challenged in Q2 but should improve sequentially as pricing comps ease in the second half of the year.

Angel Castillo Malpica questioned the positive pricing guidance for the Construction & Forestry segment in 2025, given the significant underproduction plans and broadening market softness beyond just rental fleets.

Answer

An executive acknowledged the competitive pricing environment but explained that the positive price guidance is achievable due to the segment's mix. The more stable road building business, which constitutes 35-40% of the segment's sales, provides a consistent opportunity for price realization that helps offset pressures in the earthmoving equipment market.

Angel Castillo of Morgan Stanley asked for an outlook on 2026 demand, considering the current weakness as a potential demand push-out, and inquired about the impact of Section 232 tariffs and EPA 2027 regulations on customer pre-buy activity.

Answer

Chair & CEO David Graziosi suggested that OEMs are reducing build rates to avoid entering 2026 oversupplied amid market uncertainty, framing the current slowdown as a demand deferral. He noted Allison is well-positioned against tariffs due to its USMCA sourcing and that its current product portfolio is already prepared to meet future EPA regulations without significant changes.

Angel Castillo Malpica asked about the business implications of potential changes to EPA 2027 and CARB emissions regulations, including any impact on demand or pre-buy activity.

Answer

CEO David Graziosi explained that Allison is well-prepared, as its products require minimal modification to comply with the new engine standards. While acknowledging uncertainty around the final regulations and potential pre-buy activity, he noted continued strong OEM interest in Allison's existing fuel efficiency features, such as FuelSense 2.0, positioning the company well regardless of the outcome.

Angel Castillo Malpica asked about new opportunities for growth and efficiency identified since Fred Bohley took on expanded COO responsibilities, the potential impact of new administration policies, and the scope for self-help margin expansion.

Answer

G. Bohley, COO, CFO & Treasurer, highlighted the India capacity expansion as a key project to drive operational efficiencies and enable best-cost country production. He expressed confidence that Allison is well-positioned for potential policy changes due to its significant North American manufacturing footprint. A primary focus is restoring operational efficiency to pre-pandemic levels.

Angel Castillo Malpica highlighted the wide implied range for Q4 EBITDA and asked for the key assumptions that would drive results toward either the high or low end of the guidance.

Answer

CFO Fred Bohley explained that the primary variable is top-line revenue, which depends heavily on OEM production schedules. The guidance midpoint assumes a return to normal pre-pandemic seasonality, with about 6-7 fewer OEM workdays in Q4. Performance would reach the high end if OEMs work more days than anticipated, while the low end reflects the expected seasonal softness and tough year-over-year comparison.

Angel Castillo of Morgan Stanley inquired about CNH's production levels and the progress on reducing dealer inventory, asking for specifics on the remaining excess inventory and the company's confidence in achieving its year-end targets.

Answer

CEO Gerrit Marx confirmed that of the initial €1 billion in excess inventory, another €200 million was reduced in the quarter, keeping them on track for year-end goals. He explained that elevated stock of smaller tractors in North America is a strategic buffer against tariff uncertainty, while South America is on target. He also noted that strong retail demand in parts of Europe, like Poland and Germany, required backfilling orders from company inventory.

Angel Castillo of Morgan Stanley inquired about the drivers behind recent improvements in the modular segment, including rental rates and the 7% VAPS growth, and questioned why this strength didn't translate to a more optimistic second-half outlook.

Answer

President & COO Timothy Boswell explained the modular strength is driven by a mix shift towards high-performing Flex and complex units, particularly with enterprise accounts where modular units on rent are up 4% YoY. He noted the order book remains positive. EVP & CFO Matthew Jacobsen added that the H2 outlook reflects continued weakness in smaller, interest-rate-sensitive projects, and while potential tailwinds exist, their near-term impact is not assumed to be immediate. CEO Bradley Soultz also noted the seasonality of the business, suggesting any significant demand improvement would likely not materialize until the following spring.

Angel Castillo Malpica asked about the divergence between the company's strong quoting activity and weaker macro indicators like the Architectural Billings Index (ABI). He also requested an update on progress towards the company's accounts receivable and DSO goals.

Answer

President and COO Timothy Boswell explained the divergence is due to large project activity from enterprise accounts driving all of the order book's year-over-year growth, offsetting weakness in local accounts. CFO Matthew Jacobsen noted it is 'early days' for working capital initiatives but highlighted a $30 million reduction in total AR during Q1 as an encouraging start.

Angel Castillo Malpica of Morgan Stanley inquired about WillScot's long-term normalized capital expenditure levels, including the split between maintenance and growth CapEx, and asked for an update on the spot-to-AMR spread for the modular business.

Answer

Chief Financial Officer Matt Jacobsen stated that a good general number for maintenance CapEx is around $200 million. He noted that incremental investments in 2025 for cold storage, clearspan structures, and perimeter solutions are driving the total higher. Jacobsen also confirmed that the modular spot-to-AMR spread was around 11% in Q4, consistent with the prior quarter, and the company expects to continue pushing rates.

Angel Castillo Malpica questioned the contraction in the modular spot-to-average rate spread from 15% to 12%, asking if it implied falling spot rates. He also asked about the expected cadence of demand and margins in 2025.

Answer

President and CFO Timothy Boswell clarified the spread contraction is due to the cycling of old, lower-rate leases, not a decline in spot rates, which he reiterated have been sequentially flat. For 2025, he noted H1 growth would likely be flatter, but the full year should see modest growth and margin expansion driven by multiple internal levers.

Angel Castillo asked about the demand risk from cautious independent rental customers, potential incentives to shift MP production to North America, and whether delayed rent-to-own conversions reflect a structural market shift.

Answer

President & CEO Simon A. Meester stated that the delay in rent-to-own conversions is driven by interest rates and sentiment, not a structural change in ownership preference. He also mentioned that while the company constantly assesses its manufacturing footprint, it is waiting for current market dynamics to stabilize before making significant changes.

Angel Castillo Malpica requested more detail on the expected ES segment margin moderation in Q2, including the size of one-off items. He also asked if the recent backlog growth in the MP segment signals a definitive bottom.

Answer

CFO Jennifer Kong-Picarello reiterated that Q1 ES margins were boosted by non-recurring favorable factory absorption and that one-off expenses will be incurred to support volume growth. CEO Simon Meester noted the MP backlog growth reflects a return to normal patterns and replacement demand in North America, but cautioned that the outlook remains gradual as tariff talk could impact confidence.

Angel Castillo of Morgan Stanley sought clarification on the updated revenue guidance, questioning the implied reduction for legacy businesses, and asked about the interest rate conditions needed to restart deferred local projects.

Answer

CFO Julie Beck clarified that the updated outlook is within the margin of the guidance provided in the September pre-announcement. CEO Simon Meester added that the adjustment was a prudent measure, not a major deviation. Regarding deferred projects, Meester explained the issue is more about timing than a specific rate, with sentiment pointing to a pickup in the second half of 2025, while mega projects continue to provide a tailwind.

Angel Castillo of Morgan Stanley asked if the recent tax reform is causing a noticeable change in customer behavior or project timelines, and requested an update on the secular trend of rental penetration versus equipment ownership in the current market.

Answer

EVP & CFO William Grace noted that while it's hard to prove causation, customer confidence has remained high and even improved slightly, which could be correlated with the advantageous tax policy. Regarding rental penetration, both Grace and President & CEO Matthew Flannery affirmed their belief that the trend continues to improve, driven by the rental industry's increased reliability, broader product offerings, and value-added services like technology and safety solutions, which make renting a more compelling option than owning.

Angel Castillo Malpica questioned the potential persistence of margin headwinds and their implications for achieving the full-year guidance range. He also asked about underlying demand trends and how utilization shifted through the first quarter into April.

Answer

Executive Matthew Flannery clarified that all cost factors, including ancillary mix and repositioning, are contemplated within the full-year guidance and are not significant enough to move them outside the guided range. He stated that the year is playing out as expected with a standard growth pattern, giving them confidence in their outlook, but declined to provide specific monthly sequential demand details.

An analyst on for Angel Castillo asked how much of the noted customer optimism is translating into current activity and what factors customers might be waiting on. He also inquired what the 2025 guidance assumes for smaller, local markets that have been more sensitive to interest rates.

Answer

Executive William Grace clarified that the customer optimism index is a forward-looking sentiment measure, not a gauge of current activity, but its positive trend supports the company's guidance. He cited post-election certainty and expected accommodative monetary policy as positive factors. Executive Matthew Flannery added that the outlook for local markets is generally similar to 2024, highlighting the company's ability to flexibly move fleet to geographies with the strongest demand.

Angel Castillo Malpica asked for details on technology investments in 'sourcing' and how differing equipment needs for mega-projects versus local markets impact fleet management. He also inquired about new equipment pricing trends and rental rate discipline from smaller competitors.

Answer

Executive William Grace explained that 'sourcing' investments use predictive analytics to optimize internal fleet management. Executive Matthew Flannery emphasized that the company's strategy relies on the fungibility of assets, avoiding niche equipment to maintain flexibility across end markets. He also noted that industry-wide pricing discipline remains strong, as competitors recognize the need to offset inflation.

Angel Castillo Malpica asked about the performance of dealers' rental businesses, inquiring about trends in customers' rent-versus-buy decisions and the long-term implications for the Construction Industries business.

Answer

Joe Creed, COO and incoming CEO, reported that while dealer rental fleet loading was down slightly as expected in Q1, dealer rental revenue continued to grow. He stated that Caterpillar is well-positioned to serve customers whether they choose to rent or buy and that the company sees rental as a significant long-term opportunity. He noted no massive shift in the rent-versus-buy trend.

Angel Castillo Malpica of Morgan Stanley inquired about the competitive environment, asking for the basis of confidence that pricing won't worsen in H2 2025 and about the potential impact of different political policies on U.S. construction.

Answer

Executive Andrew R. Bonfield noted that merchandising programs are partly controlled and that a lower interest rate environment could lessen their impact. Executive D. Umpleby added that potential deregulation could boost economic growth, which would be a positive for Caterpillar, but it is too early to determine specific outcomes.

Angel Castillo Malpica asked for more detail on feedback from dealers and customers in Construction Industries, particularly regarding order trends and sentiment heading into 2025.

Answer

Chairman and CEO Jim Umpleby attributed the quarterly sales decline to lower rental fleet loading by dealers and a non-recurring large pipeline deal from the prior year. He highlighted that dealer rental revenue continues to grow. For the future, he expressed a positive outlook on government infrastructure projects, citing ARTBA data that only 27% of IIJA funding had been spent as of August 2024.

Angel Castillo Malpica inquired about customer price elasticity and potential order pull-forward ahead of price increases, and also asked for an update on capital allocation priorities, specifically regarding share buybacks and the M&A pipeline.

Answer

CFO Amy Campbell noted it's too early to gauge customer price elasticity related to potential tariffs but highlighted that the non-discretionary, municipally-funded nature of the business supports consistent demand. On capital allocation, she affirmed that the stock remains an attractive investment and buybacks will likely continue, while the company builds its M&A pipeline with a disciplined and strategic approach.

Angel Castillo Malpica of Morgan Stanley asked about the free cash flow conversion rate implied by the long-term guidance, the growth outlook for the Specialty Vehicles segment beyond the backlog normalization period (post-FY2027), and the factors contributing to the wide range of the fiscal 2025 EBITDA guidance.

Answer

CFO Amy Campbell explained that the long-term free cash flow conversion target is approximately 50% of adjusted EBITDA, impacted by the normalization of customer deposits. She clarified that post-2027, the Specialty Vehicles segment is expected to grow at a 'GDP plus' rate with potential for 30-50 bps of annual margin expansion. For the FY25 EBITDA range, she cited a faster RV recovery and higher productivity at the high end, versus supply chain shocks or weaker-than-expected demand at the low end.

Angel Castillo Malpica requested more detail on the forward-looking margin outlook for the Specialty Vehicles segment, particularly for Q4 and early fiscal 2025. He also asked about the competitive dynamics and level of discounting within the Recreational Vehicles industry.

Answer

CFO Amy Campbell projected low single-digit sequential revenue and EBITDA dollar growth for Specialty Vehicles in Q4, with a slight margin increase, and expects to maintain double-digit margins into 2025. She noted that 6-7% price increases are planned for next year to offset inflation. CEO Mark Skonieczny confirmed that REV Group is participating in industry-wide RV discounting, which impacted Q3 results, but noted that the level of discounting has decreased sequentially as dealer inventory health improves.

Angel Castillo Malpica of Morgan Stanley asked for the 2025 operating income expectation for the PTx segment and sought more detail on the rationale behind the goodwill impairment charge. He also questioned the company's confidence in its 75-100% free cash flow conversion target.

Answer

CEO Eric Hansotia emphasized the strategic progress of the PTx integration. CFO Damon Audia added that PTx Trimble margins are expected to improve in 2025 and explained the impairment was a non-cash charge resulting from a discounted cash flow (DCF) analysis that was negatively impacted by the sharp near-term industry downturn. He expressed confidence in the FCF target, noting the 2024 shortfall was due to a Q4 sales miss that left inventory on the balance sheet, which is expected to be worked down in 2025.

Angel Castillo Malpica inquired about the price-cost outlook heading into 2025 and the company's ability to push through price increases. He also sought more color on the automation business, specifically its visibility into the first half of 2025.

Answer

CFO Gabriel Bruno explained that Lincoln Electric's strategic posture is to remain price-cost neutral and that they currently plan to maintain existing price levels. He noted that the 1% price increase in Q3 was from actions taken earlier in the year. Regarding automation, Bruno confirmed that organic sales were down low-double digits due to delayed capital decisions in the automotive sector, with project timelines shifting to 2027-2028, suggesting weakness will persist into 2025.