Christopher Dankert

Christopher Dankert of Loop Capital Markets LLC asked if the strong Q4 growth in the Engineered Solutions segment was clean or included any pull-forwards, and inquired about the source of softness in international markets.

Answer

President & CEO Neil Schrimsher confirmed there were no significant pull-forwards in the Engineered Solutions segment's Q4 results, characterizing it as strong execution on order conversion. He noted that while the backlog was down slightly sequentially, which is normal, it remains higher than the prior year, and order rates at the start of the new year are encouraging. Schrimsher identified Canada as the primary source of international softness, likely due to the settling of tariff impacts, but mentioned these headwinds lessened as the quarter progressed.

Christopher Dankert inquired about the impact of freight costs on gross margin during the quarter and for the back half of the year, and also asked about customer positioning related to potential changes in the USMCA trade agreement.

Answer

President and CEO Neil Schrimsher stated that freight was not a significant factor in the quarter's results and no major change is expected, a point echoed by CFO David Wells, who cited favorable contracts and freight recovery efforts. Regarding trade, Schrimsher expressed confidence in the company's ability to manage potential tariff impacts, similar to past experiences, and does not foresee a significant disruption.

Christopher Dankert requested updates on organic investments, such as the Pacific Northwest capacity expansion, and asked about the company's role as a system integrator in automation. He also inquired about the market reach of its 'productized solutions' like palletizing and machine tending.

Answer

President and CEO Neil Schrimsher reported that both the Northwest and new fluid power facilities are fully operational and well-positioned for demand. He explained that Applied works collaboratively within the automation ecosystem and sees no friction with other integrators, focusing instead on providing turnkey, productized solutions to accelerate customer adoption. He clarified they think about these solutions in terms of applications (e.g., machine tending, inspection) that span their entire customer base, serving as a key entry point.

Chris Dankert asked for clarification on the implied pricing for fiscal 2026, given that recent price increases were on par with 2022 levels. He also inquired about the components of the projected $30M-$40M SG&A growth for the new year, specifically whether digital and marketing investments are expected to level off.

Answer

Martina McIsaac, President and COO, stated that future pricing is uncertain but MSC Industrial Supply intends to meet inflation. Ryan Mills, Head of IR, clarified that a low single-digit increase in June and another in Q1 implies a 4% range, with further moves as warranted. Erik Gershwind, CEO, explained SG&A growth reflects variable expenses, normal inflation, and investment spending, offset by productivity. While e-commerce investment is leveling, marketing investment is increasing in Q1 due to positive returns, with future levels remaining fluid based on observed growth rates.

Chris Dankert asked if the level of price increases taken, comparable to 2022, implies a 5% or more pricing increase for fiscal 2026, seeking context for future pricing strategies. He also questioned whether the projected $30-$40 million SG&A growth for the new year assumes a leveling off of digital and marketing investments, requesting a breakdown of SG&A growth components.

Answer

Martina McIsaac, President and COO, stated that it's uncertain to predict specific pricing percentages for 2026, but the intention is to meet inflation as it comes, with Q1 actions aiming for price-cost stability. Ryan Mills, Head of IR, clarified that the price increases include a low single-digit range from late June and another in Q1, totaling around 4%, with further moves as warranted. Erik Gershwind, CEO, explained that the $30-$40 million SG&A growth reflects variable expenses, normal inflation, and investments offset by productivity. He noted that while e-commerce investments are leveling, marketing investments are increasing due to positive returns in core customer growth.

Christopher Dankert of Loop Capital Markets asked for details on the actions driving sales force efficiency and requested clarification on the Q4 price-cost spread outlook.

Answer

President & COO Martina McIsaac explained that the primary action has been redesigning sales territories to better align coverage with customer potential, a process completed for all major customer groups. CFO Kristen Actis-Grande clarified that the Q4 price-cost spread is expected to be narrow but favorable, as price increases will be partially offset by rising costs.

Christopher Dankert requested more specific digital KPIs, such as conversion rates or order sizes, to gauge future sales potential. He also asked about the company's potential sales exposure to customers who export their own products, considering the risk of escalating trade wars.

Answer

CEO Erik Gershwind confirmed that MSC tracks metrics like conversion rate and is seeing positive momentum, but considers them leading indicators. Regarding export exposure, he acknowledged it is difficult to size but agreed a trade war would impact U.S. production, though the 'Made in USA' trend could provide some buffer. An executive also clarified that website sales constitute about half of total e-commerce sales.

Christopher Dankert from Loop Capital asked about the strategy for handling potential tariffs as a price increase and requested details on the upcoming enhanced marketing investments.

Answer

CEO Erik Gershwind clarified that the company would follow its established playbook, distinguishing between direct effects on imported goods (like surcharges) and broader inflationary impacts on manufacturer prices, which would trigger general pricing actions. He also outlined marketing objectives focused on top-of-funnel awareness and bottom-of-funnel retention, using a mix of digital, print, and sales outreach.

Christopher Dankert of Loop Capital Markets requested quantification of the incremental digital and marketing spending for fiscal 2025 and asked for an update on the progress of the website enhancements and the timing of the associated marketing launch.

Answer

CFO Kristen Actis-Grande confirmed there is incremental investment in these areas but declined to provide a specific amount. CEO Erik Gershwind reported that the website upgrades are on track to support a broad-based marketing campaign launch in Q2, likely after December, but did not offer further details for competitive reasons.

Christopher Dankert of Loop Capital Markets asked for details on the specific actions being taken to improve sales force efficiency and requested clarification on the expected price-cost spread for the fiscal fourth quarter.

Answer

President & COO Martina McIsaac explained the sales force initiative involves redesigning territories based on customer potential to ensure optimal coverage and is the first step in a broader sales excellence program. CFO Kristen Actis-Grande clarified that the Q4 price-cost spread is expected to be narrow but favorable, as price increases will be partially offset by rising costs.

Chris Dankert asked for quantification of improved customer service levels or subsequent sales growth in regions following supply chain investments, using the Nashville DC as an example. He also inquired about the Motion business's backlog growth, its OEM-centric nature, and expectations for OEM trends and acceleration.

Answer

Executive Vice President and CFO Bert Nappier explained that supply chain investments lead to improved productivity, service levels, and local market growth, citing a Canadian building with double-digit growth post-investment as an example. President and CEO Will Stengel expressed cautious optimism for the Motion business, noting sequentially improving large orders (largely OEM-based) and constructive but cautious customer conversations, indicating a slow recovery through the market's bottom phase.

Christopher Dankert asked about the financial impact of tariffs that have already gone into effect and the associated risk to gross margin. He also questioned how inventory positioning ahead of potential tariffs might affect cash flow in the second quarter.

Answer

CEO William Stengel explained that supplier price discussions are an ordinary course of business and are being actively managed. CFO Herbert Nappier clarified that the impact from tariffs in Q1 was immaterial and is factored into the reaffirmed outlook. Nappier also noted that Q1 cash flow already reflected a use of cash for inventory investment and did not anticipate another large use of cash for inventory in Q2, reaffirming the full-year cash flow guidance.

Asked for quantification of the decline in the automation business and an update on demand trends in Mexico through July and August.

Answer

The global automation business declined in the high-20% range. Mexico has seen some "thawing" as customers have come off a pause, but the recovery is slow and a full rebound is contingent on trade deal stabilization.

Christopher Dankert of Loop Capital Markets LLC asked for a quantification of the drop in automation sales during the quarter and inquired about recent business trends in Mexico through July and August.

Answer

President & CEO Shyam Kambeyanda estimated the global automation sales decline was in the high-twenties percent range. Regarding Mexico, he confirmed there has been "some thawing" as customers have come off their initial pause, but the recovery is slow. He reiterated that a full recovery is likely pending the finalization of trade deals.

Christopher Dankert asked for a quantification of the decline in the automation business during the quarter and inquired about recent demand trends in Mexico through July and August.

Answer

President & CEO Shyam Kambeyanda estimated the global automation business decline was in the high-twenties percent range. Regarding Mexico, he confirmed there has been some "thawing" since Q2, with customers coming off their pause, but the recovery is slow. He expects a more significant rebound once trade deals are finalized, noting the U.S. market is doing okay and automation orders are expected to ship in H2.

Christopher Dankert of Loop Capital Markets asked for clarification on the difference between the 'double-digit' equipment growth mentioned on the call and the lower figure in the 10-Q. He also inquired about automation sales growth and its proportion of total equipment sales.

Answer

CFO Kevin Johnson clarified that the 'double-digit' growth figure referred specifically to heavy and light industrial equipment, while the 10-Q figure is a GAAP number that also includes the slower automation business. CEO Shyam Kambeyanda confirmed automation is about 10% of sales. Management added that while the integrator side of automation was slow, the cobot business saw good growth and the overall automation funnel looks strong.

Christopher Dankert of Loop Capital Markets questioned whether the impact of lost IRA tax credits was included in the fiscal 2026 headwinds and asked about the attractiveness and margin profile of the solar business.

Answer

CFO John Deitzer clarified that the relevant IRA tax credits for solar torque tubes are expected to remain largely intact in the near-to-midterm and are not a significant factor in the headwinds. President and CEO Bill Waltz added that the solar market remains attractive and optimistic, driven by strong underlying demand for energy. He stated that margins are good and should benefit from improved factory productivity and throughput going forward.

Christopher Dankert from Loop Capital followed up on the HDPE impairment, asking for confirmation of any direct communication from the administration, and also sought to reconfirm that the solar business remains profitable without IRA support.

Answer

President and CEO William Waltz stated there was no direct word from the administration beyond public announcements, and the impairment was a prudent decision based on new information and persistent funding delays. Regarding solar, Waltz noted the business started pre-IRA and that new steel tariffs also provide a competitive moat. CFO John Deitzer added that while the mechanical tube segment has faced volume challenges, the team is making operational improvements.

Christopher Dankert of Loop Capital Markets questioned the confidence that PVC profitability would bottom at pre-COVID levels and not fall further, given new competition. He also asked about production levels at the Hobart facility and the profit impact of IRA incentives.

Answer

CEO William Waltz argued that while there's no guarantee, pre-COVID pricing levels with today's higher costs make it uneconomical for importers due to freight, creating a logical floor. He expressed confidence in Atkore's low-cost position. Regarding the Hobart facility, Waltz stated that operations are now running well and meeting targets, with the focus shifting to sales to increase volume. He also noted that Atkore is prepared to grow its solar business with or without IRA incentives, viewing them as non-essential to the long-term strategy.

Christopher Dankert from Loop Capital Markets asked about the profitability of the Hobart solar facility in the absence of IRA incentives and requested a breakdown of the forecasted pricing headwind between PVC and steel products.

Answer

CEO Bill Waltz asserted that the Hobart facility was planned before the IRA and can be profitable without the incentives, as most tax credits were passed on to customers. He noted the primary benefit came from tariffs on Chinese imports, which leveled the competitive landscape. CFO John Deitzer clarified that the price vs. cost headwind in the FY25 forecast is 'significantly heavily weighted towards PVC' compared to steel.

Christopher Dankert asked for clarification on High-Touch pricing realization and the rationale for shifting $100 million from share buybacks to CapEx.

Answer

CFO Deidra Meriwether explained that Q2 price realization was impacted by timing and tough comps, but the company has conviction it will achieve its annualized run-rate targets. CEO D.G. Macpherson stated the CapEx increase was for a long-term supply chain network investment opportunity that arose, which will not have a near-term impact.

Christopher Dankert of Loop Capital Markets LLC questioned the High-Touch segment's pricing realization in the quarter and sought details on the reallocation of $100 million from share buybacks to CapEx.

Answer

CFO Deidra Meriwether explained that pricing realization was affected by the partial-quarter timing of the May increase and unfavorable year-over-year comparisons, but the company remains confident in achieving its annualized run-rate targets. CEO D.G. Macpherson added that the increased CapEx is for a long-term supply chain network investment opportunity that arose.

Christopher Dankert noted the gross margin is holding well above historical targets and asked if this implies future EBIT expansion must come from SG&A leverage. He also questioned how Grainger's specific customer mix impacts its performance relative to broad industrial production metrics.

Answer

CFO Dee Merriwether and CEO D.G. Macpherson agreed with the assessment, confirming that holding a stable ~39% gross margin is the current outlook and that SG&A leverage will be the primary driver of future margin expansion. D.G. Macpherson acknowledged the unique customer mix but emphasized that with manufacturing as its largest segment, the business remains very linked to industrial activity and IP.

Christopher Dankert of Loop Capital Markets asked for a sense of scale for the 'Watsco One' national account opportunity. He also requested specific use cases for the company's internal AI tool, 'AskWatsco.'

Answer

CEO Albert Nahmad framed the 'Watsco One' opportunity by highlighting the potential for margin improvement on their parts and supplies business, which is 30% of $7.5 billion in sales. President A.J. Nahmad provided numerous AI use cases, including marketing, software engineering, data analysis, and customer service, noting that 2,100 employees use the tool weekly.

Christopher Dankert sought clarification on the magnitude and timing of price realization for the full year. He also asked about the factory loading at the new Mexico belts plant and whether weakness in the agriculture market was negatively impacting its ramp-up.

Answer

EVP and CFO Philip Fracassa clarified that full-year pricing is expected to be in the 150-200 basis point range, with realization weighted toward the second half. President & CEO Richard Kyle acknowledged that the weak ag market is a factor in the Mexico plant's ramp costs, but described the situation as typical for a new facility launch and noted costs from the closing U.S. plant will soon be eliminated.

Christopher Dankert of Loop Capital Markets LLC sought clarification on the magnitude of the pricing benefit in Q2 and for the full year. He also asked if weak demand in the belts and ag markets was negatively impacting the new Mexico plant's loading and margins.

Answer

EVP and CFO Philip Fracassa clarified that full-year pricing would be in the 1.5% to 2.0% range, weighted to the second half. President & CEO Rich Kyle confirmed that while the down ag market contributes to lower volumes for the belt business, the margin impact is also driven by typical ramp-up costs and inefficiencies at the new Mexico facility, which are expected to improve as a U.S. plant closure is completed.

Christopher Dankert of Loop Capital Markets LLC sought clarification on the magnitude and sequential progression of the pricing benefit for the full year. He also asked about the operational status of the new belts plant in Mexico and whether market weakness was exacerbating margin headwinds from the ramp-up.

Answer

EVP and CFO Philip Fracassa confirmed that full-year pricing is expected to be in the 150-200 basis point range, with realization weighted toward the second half. President & CEO Rich Kyle acknowledged that the belts business is down due to weakness in agriculture, but stated the primary ramp-up costs are typical for a new facility launch. The overall manufacturing headwind includes inventory liquidation and ramp costs, partially offset by savings actions.

Christopher Dankert of Loop Capital Markets LLC sought clarification on pricing, asking for the full-year expectation and sequential trend. He also inquired about the new belts plant in Mexico, questioning if weak ag demand was impacting factory loading and if it was the main driver of a noted EBITDA headwind.

Answer

EVP and CFO Philip Fracassa clarified that full-year price realization is expected to be in the 150-200 basis point range and is weighted to the second half. President and CEO Richard Kyle explained the belts business is down due to ag, but the margin headwind is also from ramp-up costs and temporarily running two plants. Fracassa added the headwind also includes inventory changes offset by cost savings.

Christopher Dankert of Loop Capital Markets LLC sought clarification on the magnitude of price realization in Q2 and the outlook for the full year. He also asked about the ramp-up of the Mexico belts plant, inquiring if weak demand was impacting factory loading and margins.

Answer

EVP and CFO Philip Fracassa clarified that full-year pricing is expected to be in the 150-200 basis point range, with realization stepping up in the second half. President & CEO Richard Kyle acknowledged that the belts business is down due to weakness in the agriculture market, which contributes to the ramp-up challenges, along with typical inefficiencies of a new plant. Philip Fracassa added that the manufacturing headwind in the quarter was a mix of inventory liquidation impact, belts plant costs, and offsetting cost savings.

Christopher Dankert asked about the status of the Fort Scott facility closure, its impact on margins, and any flexibility it offers regarding tariffs. He also inquired about the outlook for raw material costs, like steel, and whether higher pricing is expected to persist into 2026.

Answer

CEO Richard Kyle confirmed the Fort Scott facility is not yet fully closed, negatively impacted Q1 Industrial Motion margins, and is on track for full closure in Q3. CFO Philip Fracassa added that belts produced in Mexico are USMCA compliant and not currently hit by the discussed tariffs. Regarding raw materials, Kyle agreed it's fair to assume higher steel prices will persist, noting that while inflation can provide pricing power, the tariff element makes the current environment unique.

Christopher Dankert of Loop Capital Markets requested an update on the success of the customer solution consultant (CSC) program and inquired about potential additional opportunities for role specialization within the sales team.

Answer

President & CSO Jeffery Watts confirmed the CSC program has been extremely successful in driving contract growth, particularly with regional sites, and the company is still looking to expand the team. He and CEO Daniel Florness indicated that no major large-scale shifts in role clarification are planned, though minor refinements may occur as the company discovers new opportunities through its decentralized structure.

Christopher Dankert of Loop Capital Markets LLC asked about constructive commentary from European machine builders and whether this trend supports the potential for organic growth in Nordson's adhesive dispense business in the second half of the year. He also asked if current demand is improving or is similar to the first half.

Answer

President and CEO Sundaram Nagarajan confirmed that positive trends among European machine builders are benefiting Nordson's adhesive businesses, particularly the nonwovens and packaging product lines, which are performing well. He distinguished this from the weakness seen in larger systems businesses like industrial coatings and polymer processing. Mr. Nagarajan characterized the current demand in the adhesive business as similar to the first half, which he noted was already quite strong.

Christopher Dankert asked a conceptual question about whether there were operational lessons from the Atrion acquisition, as it seemed to avoid the destocking seen in the legacy medical business. He also requested an update on the M&A pipeline.

Answer

CEO Sundaram Nagarajan clarified that Atrion's performance was different due to a new system product launch and an earlier destocking cycle in its components business, which more closely resembles Nordson's fluid components business than its interventional one. Regarding M&A, he confirmed the pipeline remains active and good, but the company will maintain its strategic and financial discipline.

Christopher Dankert of Loop Capital Markets asked if the current pricing environment, supported by tariffs, could lead to a margin recovery for the line pipe product group. He also inquired about the sentiment among U.S. upstream customers given lower oil prices and whether any potential slowdown was already factored into the company's annual guidance.

Answer

CEO Rob Saltiel suggested that strategic line pipe inventory builds from earlier in the year could indeed support healthier margins in future quarters. On the topic of oil prices, he acknowledged the multiyear lows but stressed that MRC Global's customer base is resilient, consisting of larger, well-capitalized players. He highlighted that strength in the natural gas midstream business is offsetting some upstream risk and confirmed that the current annual guidance already contemplates potential headwinds from lower commodity prices.

Christopher Dankert from Loop Capital Markets asked for clarification on whether the 21% gross margin guidance for 2025 includes any impact from tariffs and sought more detail on the new MTEC joint venture, including the market opportunity and its potential margin impact.

Answer

CEO Rob Saltiel clarified that the guidance includes a 'modest' assumption for inflation but does not reflect the full potential impact of tariffs, suggesting there is potential upside to both revenue and margins. Regarding the MTEC JV, Saltiel explained it addresses a key logistical challenge for utilities in the smart meter transition and could unlock 'tens of millions of dollars' in new meter sales for MRC Global, where its current penetration is low. He added that the JV's status as a diverse supplier is an added benefit, and the primary financial upside for MRC is through increased, margin-accretive product sales rather than just the JV's direct profit.

Christopher Dankert from Loop Capital Markets congratulated the company on the ExxonMobil PVF win and asked for help sizing the opportunity, questioning if it was incremental or needle-moving. He also followed up on the company's preferred shares, asking about the status of conversations with the preferred shareholder regarding potential actions.

Answer

CEO Rob Saltiel described the ExxonMobil agreement as a 'really big opportunity,' not merely incremental. He projected that once ExxonMobil's recent acquisitions are fully integrated, MRC's business with them could grow by 75% to 100%. Regarding the preferred shares, Saltiel confirmed an active dialogue exists, as the shareholder holds a board seat. He stressed that any action would be timed to be accretive and minimize dilution for common shareholders, who remain the primary focus.

Christopher Dankert sought confirmation on the Q2 expectation that price increases would offset volume declines and asked if this trend was observed in April. He also requested a clarification on the composition of the automation portfolio, specifically the split between equipment and consumables.

Answer

CEO Steven Hedlund confirmed that based on order intake through April, price and volume were roughly offsetting each other, forming the basis for their Q2 outlook. CFO Gabriel Bruno clarified a key point about the automation business, stating that it does not include consumables; it is comprised strictly of equipment, components, robots, and large integrated systems.

Christopher Dankert sought clarification on the timing of the incremental cost savings, asking if they would roll off by Q4 2025. He also inquired about the specific impact of incentive compensation in the fourth quarter.

Answer

CFO Gabe Bruno confirmed the $40 million to $55 million in savings for 2025 are incremental and will be fully anniversaried by the fourth quarter. He noted the Q4 incentive comp benefit was $7 million, consistent with prior quarters, and explained that incentive targets will reset for the new year, an effect already built into the 2025 margin outlook.

Christopher Dankert asked for the realized restructuring savings in the quarter and sought to understand the drivers behind the high decremental margin in the Metal Cutting segment.

Answer

CFO Pat Watson confirmed $5 million in restructuring savings for the quarter and attributed the high decremental margin in Metal Cutting primarily to a significant reduction in volume. He also noted that temporary costs for trade shows impacted Q1 margins, while CEO Sanjay Chowbey mentioned a tough comparison due to a one-time gain in the prior year.

Christopher Dankert of Loop Capital Markets asked for a comparison between the new Voleatech acquisition and the previously divested Tripwire business, and questioned how much of the strong Smart Infrastructure sales were due to market rebound versus Belden's own solution-selling initiatives.

Answer

CEO Ashish Chand clarified that Voleatech provides a firewall interface directly at the network layer, which is core to their strategy, whereas the divested Tripwire was a compliance software that was two steps removed and had fewer synergies. He attributed the majority of the improvement in Smart Infrastructure sales to Belden's strategic actions, such as combining its smart buildings and broadband businesses and creating a unified solutions sales organization, rather than a general market rebound.