Avi Jaroslawicz

Avi Jaroslawicz inquired about EMCOR's margin guidance for 2026, seeking clarification on why it isn't higher given the absence of the UK business, continued large projects, and productivity gains.

Answer

Chairman, President, and CEO Tony Guzzi and SVP and CFO Jason Nalbandian explained that the high end of their 9%-9.4% operating margin guidance implies replicating record 2024 margins. They noted that the midpoint aligns with their rolling 12-24 month average and that a different contract mix, such as water and wastewater work with lower margins due to prime contractor roles and higher subcontract/material components, could impact the overall margin profile.

Avi Jaroslawicz asked if EMCOR expects to continue the trend of revenue growing faster than headcount in 2026, or if productivity gains are slowing. He also sought clarification on the margin guidance for the year, specifically why operating margins might not be flat given the U.K. divestiture, large projects, and productivity improvements.

Answer

Tony Guzzi, Chairman, President, and CEO, and Jason Nalbandian, SVP and CFO, confirmed that they expect the trend of revenue growing 2-3x faster than headcount to continue due to ongoing productivity gains and sharing of best practices. Regarding margin guidance, Mr. Guzzi explained that the 40 basis point range (9%-9.4%) is tight, with the high end representing a replication of record margins. Mr. Nalbandian added that the midpoint aligns with the 12-24 month average, and the lower end accounts for a different mix of work, such as water and wastewater projects, which, while good work, can have a lower margin profile due to EMCOR acting as a prime contractor with more subcontract and material components.

Avi Jaroslawicz asked about EMCOR's organic growth rate expectations and the nature of cost of growth or startup inefficiencies.

Answer

Chairman, President and CEO Tony Guzzi indicated a comfortable organic growth rate of high single-digits to low double-digits, noting that data center business is expected to grow high teens to mid-20s. Senior VP and CFO Jason Nalbandian highlighted sequential RPO growth and a higher percentage of RPOs burning beyond 12 months. Tony Guzzi clarified that startup inefficiencies are common margin investments in new markets, not leading to lost jobs, and that productivity tools, prefabrication, and larger project sizes contribute to revenue growing significantly faster than headcount over a five-year period.

Avi Jaroslawicz inquired about EMCOR's organic growth rate, asking if it is expected to pick up in the near term given backlog growth, or if the current mid-to-upper single-digit rate is more sustainable. He also asked for more color on the cost of growth, specifically what made current startup inefficiencies unique compared to past periods.

Answer

Chairman, President, and CEO Tony Guzzi and Senior VP and CFO Jason Nalbandian indicated that high single digits to low double digits is a comfortable and sustainable organic growth rate, supported by RPO growth and longer-term project burn. Mr. Guzzi explained that while startup inefficiencies are common, they were 'a little more than usual' this quarter due to a larger site and tougher market, representing a margin investment rather than a loss, and that such situations have occurred in the past.

Avi Jaroslawicz of UBS Group asked about the sustainability of the construction segment's high margins, the company's prefabrication capacity and expansion plans, and how EMCOR balances booking new work against potential capacity constraints.

Answer

CFO Jason Nalbandian suggested a rolling 24-month average is a good indicator for sustainable construction margins, putting the range between 12.25% and 13.25%. CEO Tony Guzzi confirmed they are continuously expanding prefabrication capacity, primarily for internal projects. Guzzi also explained that the company manages its project mix strategically and builds supervision capabilities to meet demand, so they do not feel capacity constrained.

Avi Jaroslawicz from UBS Group AG inquired about the sustainability of the high margins in the construction segment, the company's prefabrication capacity and expansion plans, and how EMCOR balances taking on new work against its operational capacity.

Answer

CFO Jason Nalbandian suggested that a rolling 24-month average for construction margins, which is around 12.25% to 13.25%, is a good indicator of sustainability. Chairman, President & CEO Tony Guzzi confirmed they are continuously expanding prefabrication capabilities, with CapEx doubling to support this, primarily for their own projects. Guzzi explained they don't think in terms of being 'capacity constrained' but rather strategically manage their mix and build supervision capabilities to serve target markets over the long term.

Avi Jaroslawicz inquired about the base of communications for the business, specifically regarding a highlighted fiber project for data centers, and expected growth from communications this year. He also asked if the revenue burn phasing for bid work awards in 2026 is expected to be similar to 2025.

Answer

Chris Brown, President and CEO, Centuri, clarified that they are not building a standalone telecoms business; fiber work is mainly complementary to data center scopes. He expects the revenue burn profile for bid work to be very similar to last year, given consistent average contract size and pipeline solidity.

Avi Jaroslawicz asked for clarification on Centuri's involvement in fiber projects for data centers, the extent of its communications business, and expected growth in that area. He also inquired whether the revenue burn phasing for bid work awards this year would be similar to last year.

Answer

Chris Brown, President and CEO, clarified that Centuri is not building a standalone telecoms business; fiber work is mainly complementary to other data center scopes like gas and electrical connections. He expects the revenue burn profile for bid work awards to be very similar to last year, citing consistent average contract size, a solid pipeline, and efforts to eliminate booking seasonality.

Avi Jaroslawicz asked about the expectations for price/cost dynamics in the aftermarket business for 2026, particularly concerning potential headwinds from slowing inflation. He also sought insight into the anticipated shape of medium-duty demand in 2026 and how it compares to heavy-duty trends.

Answer

CEO, President, and Chairman Rusty Rush acknowledged a slight headwind from slowing inflation in aftermarket price/cost but deemed it not monumental, expecting a healthier freight market to overcome it. He noted the overall aftermarket was flat or down in 2025 and emphasized customer health as crucial for normalized spending, aiming to maintain the Q4 blended parts and service margin of 37%. For medium-duty demand, Mr. Rush expressed some concerns, noting it hasn't seen the same acceleration as heavy-duty and is tied more to general economic activity. He anticipates it will be fairly flat in 2026, aligning with ACT forecasts, despite increased quoting activity.

Avi Jaroslawicz inquired about the demand outlook for the medium-duty business in 2026, especially following a sharp deceleration in Q4 2025.

Answer

Rusty Rush (CEO, President and Chairman, Rush Enterprises) expressed some concerns about the medium-duty market, noting it hasn't seen the same acceleration as heavy-duty. He expects demand to be fairly flat in 2026, in line with ACT forecasts, but highlighted increased quoting activity and confidence in Rush's sales force and diverse brand representation.

Avi Jaroslawicz asked for details on capacity increases within the Environmental Solutions segment, including the extent of expansion, expected online timing, and the split between Utilities and ESG. He also inquired about the progress on the previously stated $25 million synergy target for Environmental Solutions by the end of 2026 and if that exit rate was still expected.

Answer

Simon Meester (President and CEO) stated capacity is expanding in the Utilities business (Waukesha, Wisconsin), adding 20-30% over two years, with less than half online in 2026, driven by bullish market expectations for grid upgrades. Jennifer Kong (SVP and CFO) confirmed Terex exited its first year of ES integration above the $25 million run-rate synergy target, helping to offset unfavorable mix in 2026 and maintain margin percentage.

Avi Jaroslawicz asked for details on the capacity increases within the Environmental Solutions segment, including the extent of expansion, expected online dates, and the split between the two businesses. He also inquired about the progress on the $25 million synergy target from Environmental Solutions by the end of 2026, asking if that exit rate is still anticipated.

Answer

Simon Meester, President and Chief Executive Officer, explained that capacity is being expanded in the Utilities business (not ESG), specifically at the Waukesha, Wisconsin facility, by 20-30% over the next two years, with slightly less than half coming online in 2026. This investment is justified by the expected 8-15% annual CapEx growth in Utilities through 2030. Jennifer Kong, Senior Vice President and Chief Financial Officer, confirmed that Terex exited its first year of ESG integration *above* the $25 million run-rate synergy target, which helps maintain the Environmental Solutions segment's margin percentage in 2026 despite higher utilities growth and an unfavorable mix.

Avi Jaroslawicz asked if the Q4 order book, which is 60-70% full, is uniform across regions. He also inquired about when customers might start pre-buying related to NOx rules, assuming no changes, and if this would be a first-half or second-half 2026 story.

Answer

Preston Feight, CEO, confirmed that the Q4 order book is pretty uniform across regions, with strong order intake in Europe matching North America's 67% full. He believes customers will consider all inputs (freight, rates, operating environment stability, 35 mg NOx) for their buying decisions. Mr. Feight expects significant interest in Q4 for 2026 buying plans, with reactions needed by Q1 if the 35 mg standard remains in place.

Avi Jaroslawicz asked if the Q4 order book, currently 60-70% full, was uniform across regions. He also inquired about when customers might start pre-buying due to the NOx rules, assuming no changes to the regulations.

Answer

CEO R. Preston Feight confirmed that the Q4 order book fill rate is pretty uniform across regions, including strong order intake in the European market. Regarding pre-buying, Feight noted that customers consider multiple factors, including freight fundamentals, rates, and operating environment stability. He anticipates significant customer interest in 2026 buying plans in Q4, with reactions to the 35 mg NOx standard likely needed by Q1 if it remains in place.

Avi Jaroslawicz from UBS Group inquired about the rationale behind the implied margin decline for the Utility segment in the second half of 2025. He also asked whether awards for data center fiber projects would be reported in fixed or MSA backlog.

Answer

EVP & CFO Ken Dodgen explained that Q2 Utility margins were exceptionally high due to some one-time items, and a sequential decline is expected in Q3 and Q4, with Q4 also subject to normal seasonality. He clarified that data center-related communications work would appear in both fixed project and MSA backlog, as the business is a mix of both contract types.

Avi Jaroslawicz from UBS Group inquired about the timing of tariff-related cost impacts, asking when they would fully flow through the P&L and whether the impact would be contained to 2025 or extend into 2026.

Answer

CFO Jim Nicholas explained that the bulk of the negative EBIT impact, estimated at nearly $120 million, will be felt in the second half of 2025. He noted that since tariffs were not a factor in the first half of 2025, they will create a year-over-year headwind in the first half of 2026. The company is actively working to mitigate these costs through pricing, supplier negotiations, and internal efficiencies.

Asked for an update on the CapEx plan for the rest of the year, including confidence in the current guidance, and for more detail on the intra-quarter utilization trend in Q2.

Answer

Management is confident in their $350M-$400M CapEx guidance and will not exceed it, viewing spending for new and existing stores as separate. They clarified that utilization has been fairly stable since the start of Q2, currently just above 67%, and they expect a normal seasonal lift in Q3, though the Q2 improvement from Q1 was slightly less than hoped.