Brian Blair

Brian Blair asked about the near-term outlook, specifically if the sequential weakness baked into the Q4 guidance is already being observed or if it's an assumption based on the current market backdrop. He also inquired about the cautious optimism for 2026, asking for insights into the puts and takes and the anticipated incremental margins if a healthier demand environment materializes.

Answer

CFO Mike DiSenza explained that the Q4 outlook incorporates the latest order trends, noting a seasonally declining order book in Q3 but an increase year-over-year. He described the overall patterns as supportive of the Q4 guide, emphasizing caution due to tariffs and trade uncertainty rather than any notable share loss. Regarding 2026, Mr. DiSenza stated the company is moving with urgency to position for earnings growth, expressing cautious optimism based on encouraging order trends across key markets and the belief that the extended year-over-year decline is nearing its end. He anticipates leveraging a recovery in volumes into higher profitability and benefiting from CEO Lucian Boldea's strategic priorities, expecting margins to increase with higher volume.

Brian Blair asked about the sequential weakness baked into the Q4 guidance, inquiring if it's already observed or an assumption, and also sought insights into the puts and takes for 2026, including anticipated incrementals in a healthier demand environment.

Answer

CFO Mike Discenza stated that the Q4 outlook incorporates the latest order trends, which show a seasonally declining order book, but year-over-year orders were up. He noted the guidance reflects caution due to trade uncertainty rather than observed deceleration. For 2026, Mr. Discenza expressed cautious optimism based on encouraging order trends in key markets, expecting to leverage market recovery and strategic priorities for higher profitability and margin expansion.

Brian Blair asked about the traction and details of the Flow business's broadened focus and growth vectors (data center, institutional, municipal), the funnel of opportunities into 2026, and how Hydrostat factors into the municipal strategy. He also inquired about Hydrostat's Q4 contribution, its 2026 baseline (revenue, ROS), cross-selling opportunities, and historical growth from 2024 to 2025.

Answer

CEO John Stauch explained that Flow's growth comes from diversifying across commercial building opportunities (water supply, fire protection, disposal), getting specified with engineers, and improved operational efficiencies. CFO Bob Fishman confirmed Hydrostat's Q4 contribution and suggested using $50 million at 30% ROS as a good baseline for 2026, noting high single-digit historical growth and cross-selling opportunities with existing specifications.

Brian Blair asked for an update on the Flow business's broadened growth vectors, including traction in data center, institutional, and municipal applications, and how this has impacted 2025 progression and the funnel for 2026. He also inquired about the role of the Hydra-Stop acquisition in the municipal strategy and sought confirmation on modeling Hydra-Stop's 2026 revenue at $50 million with 30% ROS, given its $10 million Q4 contribution.

Answer

CEO John Stauch highlighted Flow's significant top-line growth, with Q4 expected to be high single digits, driven by core growth, FX, and Hydra-Stop. He explained that commercial Flow's success comes from diversifying across customer types (e.g., data centers, hospitals, manufacturing) by getting specified for water supply, fire protection, and water disposal. CFO Bob Fishman confirmed that $50 million in revenue at 30% ROS is a good baseline for Hydra-Stop in 2026, noting its historical high single-digit growth and significant cross-selling opportunities due to its unique product offering in water infrastructure.

Brian Blair of Oppenheimer & Co. Inc. requested more detail on the decision to divest the KBI commercial services business, asking if its profitability had deteriorated. He also inquired about the differing business dynamics between U.S. and international markets within the Water Solutions segment.

Answer

EVP and CFO Bob P. Fishman explained that the KBI divestiture was driven by challenging dynamics, including being locked into a fixed-price contract while facing significant labor inflation and inefficient low-density service routes. He noted that the portfolio rationalization in Water Solutions is a global effort, particularly in Europe and China, aimed at exiting lower-margin commodity products to strengthen the core filtration business.