Charles Albert Dillard • AllianceBernstein

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CEO Preston Feight anticipates the vocational market will remain strong in 2025, but expects a pickup in the truckload sector could shift the mix more towards tractors as the year progresses. Regarding margins, he did not explicitly confirm a trough but suggested that 2025 would likely see an inverted pattern compared to 2024, with strength building throughout the year.

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CEO Preston Feight explained that the margin guidance reflects uncertainty surrounding tariff policies, particularly a Section 232 investigation into trucks, which could have a meaningful impact. He noted that while PACCAR builds trucks in the markets they serve, some components are imported. Feight also confirmed that the vocational market remains a solid and stable part of the business.

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CEO Robert Painter stated the pricing action is a straightforward 4% surcharge in North America, which has been accepted by the market. For the Transportation segment, he noted high single-digit growth and a pipeline supporting double-digit bookings growth for the year. He added that insights from the Transporeon platform show weakness in automotive but strength in retail, which helps guide capital allocation.

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Executive Robert Painter stated the tariff offset is a 4% surcharge limited to North America, which has been accepted by the market. For the Transportation segment, he noted it grew high-single-digits and the company maintains its expectation for double-digit bookings growth for the full year, supported by the integration of Transporeon and its valuable market insights, particularly in Europe.

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CEO Robert Painter confirmed the TC1 rollout is progressing well, with Europe as the current focus after North America, and noted strong Q4 ACV bookings. For Field Systems, he clarified the flat guide is impacted by a decline in federal business and subscription model transitions; adjusting for these factors would show underlying growth of over 3%, with the Civil Infrastructure pillar expected to grow.

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Executive Robert Painter said the 2025 outlook assumes a macro environment similar to the present. He detailed that the TC1 rollout will expand more fully into Europe and partially into Asia Pacific next year, with increasing linkages to machine control and owner/public sector offerings to create unique, connected workflows.

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Executive Robert Painter stated the 2025 macro view assumes no meaningful change from the current environment, with North America stronger than Europe. Executive Phil Sawarynski added that the outlook reflects these assumptions. Regarding TC1, Painter detailed the plan to fully roll out in Europe and partially in Asia Pacific next year, while also creating more linkages between TC1 and machine control offerings for civil contractors. He noted the 'owner' segment is already served by a similar suite called Trimble Unity.

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CFO Mark Smith reiterated that the tariff impact would grow through Q2 but declined to provide a specific timeline or import percentage. CEO Jennifer Rumsey addressed the Section 232 investigation into trucks and parts, stating that Cummins is participating in the public comment period to advocate for exemptions and highlight its significant U.S. manufacturing presence.

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CFO Matthew Field confirmed that both the tariff impact and the cost offsets would primarily occur in Q3 and Q4. CEO John Pfeifer added that the fire market is expected to remain healthy for the foreseeable future, driven by aged fleets and demand for new technology, even if it moderates from post-pandemic highs.

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CEO John Pfeifer confirmed a slight shift in annual purchase orders, with more now coming in Q1, which he attributed to customers reacting to normalized lead times. He also noted that ramp-up costs for the Jefferson City plant are included in the guidance. Regarding NGDV, he described a deliberate, progressive ramp-up in coordination with the USPS, with production increasing each month and quarter to reach full rate by year-end.

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EVP and CFO Michael Pack did not provide a specific Q3 price figure but noted a tough comp, reiterating a positive full-year price-cost outlook. CEO John Pfeifer explained the new telehandler facility will incur some start-up costs in early 2025 but will see absorption benefits and reach full production in the second half of the year, driving sales and margin improvement.

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Chief Executive Officer Vassilios Zarkalis explained that adverse weather in Q4 and unusually severe conditions in Q1 2025 affected demand but built up significant backlogs, leading to an expectation that 2025 results will be weighted towards the second half of the year. Chief Financial Officer Lawrence Wilt addressed cash conversion, stating the company will manage its growth investments prudently to ensure cash conversion remains at a 'good solid level' consistent with past performance.

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President & CEO Earl Austin explained that Quanta focuses on the overall rise in power demand from data centers, which is firm regardless of the specific AI application. He positioned the new civil business as a strategic cultural fit that enhances their ability to offer holistic, self-perform solutions for large-scale projects. He also affirmed the company's commitment to investing in the Australian market. CFO Jayshree Desai added that revenue from individual acquisitions is not disclosed but is incorporated into the company's overall 2025 guidance.

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President and CEO Earl "Duke" Austin explained that MSAs, which constitute about 85% of the base business, are becoming more collaborative and longer-term. Regarding Cupertino, he noted they have excellent training programs that Quanta will supplement with its broader recruiting and pre-apprenticeship platforms, creating synergies to attract and direct talent across different trades. He estimated Cupertino's headcount at 4,000-6,000 people.

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Paulo Sternadt, President & COO, explained that the electrical product portfolio remains the same for both training and inference data centers, and a shift to smaller inference centers could actually accelerate builds. He noted that lead times remain elevated compared to historical levels but are competitive, with new capacity coming online in the second half of the year expected to provide relief.

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Executive D. Umpleby reiterated the focus on growing absolute OPACC dollars. Executive Andrew R. Bonfield added that the negative price impact from merchandising programs is a first-half 2025 headwind. As comparisons ease in the second half, the price-cost relationship should normalize.

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CFO Andrew Bonfield noted that merchandising program costs are already impacting the P&L, but an accounting adjustment for the reserve will create a headwind for several more quarters. He pointed out that overall gross margins were flat despite lower volume, demonstrating that offsets from favorable E&T pricing and lower manufacturing costs are already materializing.

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CEO Bob Pragada explained that the business model optimizes for a balance of profitable revenue growth and margin improvement across all end markets to meet the corporate average. He noted that the full-year impact of cost savings from FY24 will contribute to FY25 margin expansion. To reach the high end of the revenue guidance, Pragada stated it would require an acceleration in the execution of the large water and life sciences projects recently added to the backlog.

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