Christopher Snyder

Christopher Snyder with Morgan Stanley asked if the positive organic growth in North America industrial indicated an improving cyclical trend, beyond the benefits of incremental price and longer-cycle verticals. He also sought color on in-plant business performance in the U.S. versus international markets, and if policy was driving U.S. activity.

Answer

Chairman and CEO Jennifer Parmentier confirmed that Q1's performance, particularly in key market verticals with increased outlooks, is evidence of cyclical improvement. Executive Vice President and CFO Todd Leombruno added that channel inventory is at a trough, suggesting a potential restocking. Jennifer Parmentier further elaborated that North America is experiencing a gradual in-plant industrial recovery with positive sentiment, while EMEA faces uncertainty and Asia-Pacific is mixed with China delays offset by growth in India and Japan.

Christopher Snyder asked about the drivers behind Rockwell's accelerating demand (cycle momentum, reshoring, market share gains) compared to broader industrial trends, and if the company is rethinking its 23.5% medium-term margin target given strong Q4 performance.

Answer

Blake Moret, Chairman and CEO, attributed demand acceleration to a combination of factors: the healthy U.S. market (Rockwell's home field), higher orders from U.S. capacity expansion, good demand for product businesses, and market share gains due to a strong portfolio for brownfield optimization and software integration. Both Moret and Christian Rothe, SVP and CFO, expressed pride in the margin progress, stating they are "laser-focused" on achieving and surpassing the 23.5% target, with plans underway, but are not ready to set a new target until the current one is met.

Christopher Snyder observed improving demand, evidenced by order rates above $2 billion, and asked if this momentum is due to cycle improvement, reshoring tailwinds, or market share gains, given that competitors are not showing similar acceleration. He also questioned if Rockwell Automation is rethinking its medium-term margin target of 23.5%, considering Q4's 22.5% despite headwinds, ongoing cost-out opportunities, and the Sensia JV uplift, suggesting potential upside.

Answer

Blake Moret, Chairman and CEO of Rockwell Automation, attributed the demand improvement to a combination of factors: the healthy U.S. market (where Rockwell has high share), increased capacity expansion orders, and market share gains due to a strong portfolio for brownfield optimization and software integration. Both Moret and Christian Rothe, SVP and CFO, expressed pride in the margin progress and stated they are laser-focused on achieving the current 23.5% target, with plans to exceed it, but are not ready to set a new target yet.

Chris Snyder from Morgan Stanley asked for clarification on whether the discussed pull-forward was related to revenue or orders and requested color on the methodology used to estimate the 2-3% impact.

Answer

CEO Blake Moret explained that the commentary was based on prudence in a volatile environment, rather than specific customer data. He noted that with a book-to-bill ratio near 1.0, orders and revenue are closely aligned. He confirmed there were no unusual indicators like distributor inventory build-up to substantiate the pull-forward, making it a cautious assumption.

Chris Snyder of Morgan Stanley requested clarification on the commentary about a sales pull-forward, asking if it was primarily revenue or orders and what methodology was used to arrive at the 2-3% estimate.

Answer

CEO Blake Moret explained that with a book-to-bill ratio near one, the impact on orders and revenue is similar. He stressed that the 2-3% figure is an act of prudence in a volatile environment, not a calculation based on specific identified orders. He confirmed that checks on distributor inventories and machine builder behavior show no signs of unusual inventory building, reinforcing that the company is simply being cautious in its outlook.

Christopher Snyder of Morgan Stanley questioned if delayed projects are expected to resume as visibility improves and asked about the muted margin outlook for the second half despite higher volumes and cost savings.

Answer

CEO Blake Moret confirmed that project delays are not cancellations and are expected to proceed, though he did not provide a specific timeline. He noted North America was the strongest region for orders. CFO Christian Rothe explained that while the full-year margin guide was raised to 20%, significant progress was made in Q2, so further expansion will be more modest. He emphasized that the goal for tariffs is cost recovery with zero EPS impact, separate from operational margin execution.

Christopher Snyder of Morgan Stanley asked if the post-election environment contributed to improved Q1 orders and what the margin trajectory for the Software and Control segment would be for the rest of the year.

Answer

CEO Blake Moret acknowledged a general optimism post-election likely contributed to customers moving forward with projects. CFO Christian Rothe stated that the Software and Control segment, which had a strong start, is expected to see continued gradual margin progress throughout the year as sales in the segment are guided to be approximately flat year-over-year.

Christopher Snyder asked about the magnitude of order growth in the Americas, the competitive landscape, and Rockwell's content opportunity in emerging U.S. manufacturing sectors like semiconductors.

Answer

Blake Moret, Chairman and CEO, confirmed sequential order growth in North America in Q4 and expects the region to lead in fiscal 2025, noting modest share gains. He highlighted a robust project funnel split between traditional verticals and new sectors like semiconductors, which represents a substantial future opportunity.

Chris Snyder asked about the content opportunity in data centers, specifically how content changes with the shift from air cooling to liquid cooling, and whether the company's aftermarket technology investments are primarily driving share gain or improving incremental service margins.

Answer

CEO Joakim Weidemanis explained that newer chips require more cooling, increasing the scope and performance requirements for chillers, playing to Johnson Controls' strengths. CFO Marc Vandiepenbeeck added that demand continues for both airside and chiller solutions, with strong momentum in liquid-to-air and developing solutions in liquid-to-liquid. Joakim clarified that aftermarket technology investments are driving both share gain (by offering competitive price points and value-add) and margin improvement (by reducing cost to serve), noting the company is in the early innings of this effort.

Chris Snyder of Morgan Stanley inquired about the historical margin expansion and operating leverage of the service business, given its consistent top-line growth.

Answer

CEO Joakim Weideminis acknowledged that the service business has not generated enough operating leverage, presenting a key opportunity. He outlined a two-pronged approach for improvement: 1) applying lean principles to service operations to improve cost efficiency, and 2) enhancing the portfolio with more differentiated and digitized service products, funded by increased R&D investment.

Christopher Snyder inquired about changes in the competitive landscape for data centers and asked for views on the installation business and its role in driving aftermarket service contracts.

Answer

CFO Marc Vandiepenbeeck and CEO Joakim Weidemanis asserted JCI's strong competitive position in data centers is due to its deep technological know-how and differentiated products, which new entrants cannot easily replicate. On installation, Weidemanis said it's a key focus of his strategy review to pragmatically determine where it makes sense to drive lifecycle value.

Christopher Snyder asked about the long-term sustainability of the company's mid-single-digit organic growth profile. He also inquired if the margin in the backlog is continually improving and if there is price protection against potential tariffs.

Answer

CFO Marc Vandiepenbeeck stated that long-term growth is supported by the high-growth service business and a focus on fast-growing verticals like data centers. He confirmed that backlog margins continue to improve and that a large portion of the backlog has contractual clauses to pass on tariff-related price increases, though some require negotiation.

Christopher Snyder asked about the margin outlook for North America Building Solutions in fiscal 2025, considering the pressure from a higher mix of Systems revenue in Q4, and what the full-year guidance implies for the segment.

Answer

CFO Marc Vandiepenbeeck acknowledged the Q4 margin pressure from the mix of high-growth, large Systems projects, which carry lower margins than Service. He projected that this headwind will moderate throughout fiscal 2025 as service revenue from these newly installed systems begins to be recognized, supporting an improved margin rate over the year.

Christopher Snyder inquired about the significant acceleration in year-over-year EPS growth from Q3 (8%) to the Q4 midpoint (18%), asking for the driving factors. He also asked about the increasing importance of selling into both the white and gray space within data centers and if this was a key motivation for the Boyd acquisition.

Answer

Olivier Leonetti, Executive Vice President and Chief Financial Officer, attributed the Q4 EPS acceleration primarily to a lower projected tax rate (15% vs. 17.4% prior year) due to discrete tax items, and favorable year-over-year comparables due to prior year strikes and hurricanes. Paulo Ruiz, Chief Executive Officer, elaborated on the Boyd acquisition, highlighting the rapid growth of the liquid cooling market (35% CAGR), the increasing power density in data center racks, and the technical synergies in designing white space solutions. He emphasized Boyd's market leadership, global footprint, engineering expertise, and deep customer intimacy with chip manufacturers and hyperscalers as key motivations, noting the deal's strong financial discipline and rapid growth projections.

Christopher Snyder asked for clarification on the drivers behind Eaton's projected Q4 EPS growth of 18% year-over-year, significantly higher than the 8% in Q3 and 12% for the full year. He questioned if this acceleration was solely due to stronger organic growth in Electrical Americas or other factors. In a follow-up, he inquired about the strategic importance of the Boyd acquisition, specifically if the ability to supply both white and gray space in data centers is becoming more critical and if this was a key motivation for the deal.

Answer

CFO Olivier Leonetti explained that the sharp pickup in Q4 EPS growth is mainly due to a lower projected tax rate (15% vs 17.4% last year) driven by discrete tax items, accounting for half the difference, and favorable comparable benefits from last year's strikes and hurricanes. CEO Paulo Ruiz added that, adjusted for these factors, EPS growth would be around 13%. Paulo Ruiz elaborated on the Boyd acquisition, highlighting the rapid growth of the liquid cooling market (35% CAGR), Boyd's market leadership, global footprint, and deep engineering expertise. He emphasized the technical synergies in designing white space solutions from the chip out and the ability to leverage Boyd's customer intimacy with chip manufacturers and hyperscalers for Eaton's power systems.

Chris Snyder from Morgan Stanley sought confirmation on the Q2 Electrical Americas order growth rate, which he estimated at around 25% year-over-year, and asked about the drivers for the guided second-half growth acceleration.

Answer

CEO Paulo Ruiz confirmed the order growth was in the 25% ballpark and not solely driven by data centers. CFO Olivier Leonetti added that short-cycle markets like C&I and Utility were also strong. Ruiz identified the primary driver for the second-half growth acceleration as new manufacturing capacity coming online.

Christopher Snyder asked about Eaton's Q1 data center performance and the outlook for the remainder of the year, given tough comparisons. He also inquired about the competitive positioning in the U.S. market following recent tariffs, particularly against European and Asian competitors.

Answer

President and COO Paulo Sternadt confirmed that Q1 data center growth was very strong, exceeding the 45% growth from the prior year. He expressed confidence in continued high-level orders and negotiation activity, highlighting the timely acquisition of Fiber Bond. Regarding tariffs, Sternadt emphasized Eaton's significant U.S. manufacturing footprint and 'local for local' strategy, which provides a competitive advantage and resilience against trade impacts, contrasting with competitors who serve the U.S. from Europe.

Christopher Snyder of UBS inquired about the drivers behind the forecasted acceleration in organic growth from Q1 to the remainder of 2025 and asked for the expected cadence of adjusted EPS throughout the year.

Answer

Olivier Leonetti, EVP & CFO, outlined an EPS split of approximately 48% in the first half and 52% in the second half, a more balanced cadence than in prior years. Paulo Sternadt, President & COO, detailed the revenue acceleration, projecting 7% organic growth in H1 and 9% in H2, driven by new capacity in Electrical Americas, a recovery in Electrical Global, and favorable comparisons in the Vehicle segment later in the year.

Christopher Snyder of Morgan Stanley asked for clarification on the mega projects pipeline, noting that with only 16% started, it suggests 84% of orders are still pending. He questioned if these projects are progressing more slowly than anticipated. He also inquired about Eaton's relationships with hyperscalers and how commercial agreements are evolving as capacity constraints are addressed.

Answer

Chairman and CEO Craig Arnold confirmed the math, stating that a large portion of projects are still in the future, with lower-than-historical cancellation rates of around 10%. He suggested that industry constraints (labor, power) might extend the overall cycle rather than slow it down. Regarding hyperscalers, Arnold described relationships as very strong and noted that capacity challenges have led to more transparent, committed commercial agreements as customers work to secure their supply.

Christopher Snyder questioned the reported 5% pricing for Tools & Outdoor in Q3 2025, contrasting it with previous expectations for high single-digit pricing. He also asked for clarification on why the Q4 organic revenue outlook for Tools & Outdoor is expected to improve to flat, despite a more difficult comparison and anticipated volume offsets.

Answer

EVP and CFO Pat Hallinan clarified that U.S. Tools & Outdoor pricing is in the high single-digit to low double-digit range, which translates to a mid-single-digit global view. The 5% pricing in Q3 was as expected. He anticipates Q4 pricing to be in a similar range due to the second price increase and a return to normal promotional cadence. For the full year, enterprise-wide organic sales are projected to be flat to down 1%, with Tools & Outdoor also in that range.

Christopher Snyder questioned the Tools & Outdoor segment's Q3 pricing of 5%, contrasting it with previous expectations for high single-digit pricing in the back half. He also asked why Q4 organic revenue for Tools & Outdoor is projected to improve to flat from Q3's -3%, despite a tougher comparable.

Answer

Pat Hallinan, EVP and CFO, clarified that U.S. Tools & Outdoor pricing is in the high single-digit to low double-digit range, translating to a mid-single-digit global view. He noted the 5% Q3 pricing was expected and Q4 pricing would be in a similar range due to new increases balanced with promotional cadence. He reiterated the full-year enterprise organic sales outlook of flat to down 1%, with T&O also in that range.

Chris Snyder from Morgan Stanley asked about customer buying patterns, specifically if there was channel inventory destocking in Q2 and whether further destocking is anticipated in the second half of the year.

Answer

COO, EVP and President of Tools & Outdoor Christopher J. Nelson responded that channel inventory levels remain healthy and in line with historical norms, with no significant destocking expected. He attributed the Q2 shipment volatility to temporary adjustments in promotional plans by channel partners in response to the dynamic tariff environment, not a fundamental change in inventory strategy.

Christopher Snyder of Morgan Stanley asked about customer inventory levels at major retailers, questioning why the guidance includes a destocking assumption if levels are considered normal. He also asked about the potential timing of any destock, whether it was a Q2 or Q3 risk.

Answer

EVP and CFO Pat Hallinan clarified that while overall customer inventory levels are normal, the volume decline assumption in the guidance is not from a broad-based destock. Instead, it reflects continued softness in the DIY consumer segment and the anticipated impact of higher interest rates on housing. Any inventory adjustments would likely be targeted at specific retailers or product lines with high DIY exposure.

Christopher Snyder followed up on the gross margin commentary, asking for confirmation on whether the 35% target for year-end 2025 is still achievable and what specific macroeconomic conditions are necessary to reach it.

Answer

EVP and CFO Pat Hallinan clarified that the 35% target for year-end 2025 is still the team's working goal, but its achievement is contingent on offsetting headwinds. He identified key factors as the pace of interest rate effects, the correction speed in the automotive market, and the timing of fixed cost reduction benefits. He emphasized confidence in eventually exceeding 35% gross margin, with the precise timing dependent on balancing headwinds against accelerated internal activities.

Christopher M. Snyder sought clarification on the Q4 top-line guidance, specifically the organic, M&A, and FX contributions, and later asked if the improved industrial and power business growth was solely data center-related.

Answer

David Zapico, Chairman and CEO, indicated M&A would contribute mid to high single digits to the Q4 sales guide. Dalip Puri, EVP and CFO, added that no significant foreign exchange impact is expected. Mr. Zapico confirmed that the growth in industrial and power is primarily driven by the power side, specifically backup power systems, microgrids, and RTDS simulation systems for data centers and grid modernization, with the industrial side being solid but not the main growth driver.

Christopher Snyder from Morgan Stanley sought clarification on the Q4 2025 top-line guidance, specifically asking for a breakdown of organic, M&A, and FX contributions, and later inquired if the improved performance in the industrial and power business was solely data center-driven or also reflected broader industrial strength.

Answer

Chairman and CEO David Zapico indicated Q4 sales guidance of approximately 10% includes mid to high single-digit M&A contribution. Executive Vice President and CFO Dalip Puri added that no significant FX impact is expected. Zapico clarified that the improved industrial and power performance is primarily driven by the power side, specifically backup power systems for data center microgrids (IntelliPower) and real-time simulation systems for grid additions (RTDS), with the traditional industrial side being solid but not the main driver of upside.

Chris Snyder of Morgan Stanley sought clarification on the drivers for back-half growth, including M&A and FX, and the underlying organic growth assumption. He also asked about FARO's historical growth and how it compares to AMETEK's Creoform business.

Answer

Chairman and CEO David Zapico confirmed a full-year organic growth assumption of positive low-single-digits, with acquisitions bringing total growth to mid-single-digits. He noted that while FARO had been unfocused, AMETEK plans to apply a successful playbook similar to its Zygote acquisition to drive both top-line growth and margin expansion, noting that Creoform has grown at double-digit rates since its acquisition.

Chris Snyder inquired about the expected moderation of Q4 organic growth relative to Q3, asking if it was due to tougher comps or Q2 revenue disruption, and also about the resilience of North America healthcare spend in the AHS segment despite policy challenges.

Answer

CFO Mark Okerstrom attributed Q4's moderation to tougher comps (including pull-forward from Q2 into Q4 last year, particularly in iOS) and timing-related impacts. President and CEO Olumide Soroye expressed confidence in the AHS segment's path, citing strong customer loyalty, innovation, commercial engagement, and recurring value. He highlighted underlying tailwinds like aging demographics, sophisticated healthcare options, and provider capacity shortages, which support demand for Fortive's productivity and safety solutions over the next 3-5 years, irrespective of short-term policy choppiness.

Chris Snyder asked for clarification on the Q4 organic growth moderation, questioning if it was due to tougher comps or if Q2 disruptions had inflated Q3 revenue. He also inquired about Fortive's confidence in North America healthcare spending resilience for AHS, given the choppy and unpredictable policy backdrop.

Answer

Mark Okerstrom, Fortive's CFO, explained that Q4 faces a tougher comp, with some revenue pull-forward from Q2 into Q4 last year, particularly impacting the iOS segment, and a Q3 snapback from earlier Q2 disruptions. He noted that overall trends are consistent and encouraging, with optimism for better volume growth in 2026 despite these timing shifts. Olumide Soroye, Fortive's President and CEO, expressed confidence in the AHS segment's path, citing strong customer loyalty, ongoing innovation, commercial engagement, and recurring value. He emphasized that underlying demographic and healthcare trends (aging population, sophisticated interventions, provider shortages) create long-term tailwinds for Fortive's productivity and safety solutions, transcending short-term policy fluctuations.

Christopher Snyder questioned the breakdown of tariff mitigation between pricing and other actions, its cadence, and whether the 2026 goal was for dollar or margin recovery. He also asked for an update on the performance of EA Elektro.

Answer

President and CEO James Lico stated that tariff mitigation will be about two-thirds price-related, with the impact being largest in Q2 before being fully offset on a dollar basis by Q4. He clarified the goal is to neutralize the dollar impact, which will still result in some margin degradation. For EA Elektro, Lico noted it faced headwinds from slowing EV mobility investments in Europe, and its full-year growth outlook is now closer to flat.

Christopher Snyder of Morgan Stanley asked if Precision Technologies' (PT) orders were increasing in absolute dollar terms and inquired about the segment's book-to-bill ratio. He also questioned why Q1 organic growth for PT was guided to be weaker than the Q4 result, given the positive order momentum.

Answer

Executive Elena Rosman reported the PT book-to-bill was 0.96 for Q4, typical for the quarter, and 1.0 for the full year. President and CEO James Lico confirmed order dollars were up from Q3 to Q4 and expects continued order growth in H1. He explained the weaker Q1 outlook is due to a more challenged China comp and the EA Elektro-Automatik business lapping its strongest quarter from the prior year. Elena Rosman added that EA represents a $10 million core decline headwind in Q1.

Christopher Snyder of Morgan Stanley asked if the sequential improvement in Precision Technologies (PT) orders was driven by broader strength beyond delayed government orders and if PT revenue growth should align with order growth in 2025.

Answer

President and CEO James Lico confirmed the PT order improvement was broad-based, citing secular growth at Qualitrol and EMC and absolute dollar growth at Tektronix. He agreed that, on a full-year basis, PT revenue and order growth rates should begin to converge in 2025 as backlog normalization comps fade, though some quarterly volatility could persist.

Chris Snyder asked if Watsco expects a typical inventory ramp from year-end into Q2 or a more muted one, given the current inventory backdrop. He also inquired about the company's thoughts on OEM pricing expectations for 2026 and Watsco's ability to negotiate.

Answer

Albert Nahmad (Chairman and CEO, Watsco Inc) stated the company aims for better inventory management than in the past, seeking quicker deliveries from manufacturers. Paul Johnston (EVP, Watsco Inc) noted that the industry has not experienced normal lead times for the past five to six years due to various changes, making historical patterns unreliable. On OEM pricing, management expressed uncertainty about 2026 actions but emphasized their strong relationship with manufacturers.

Chris Snyder asked if Watsco expects a typical ramp in inventories from year-end into Q2 next year, or if it might be more muted given the current inventory backdrop. He also inquired about Watsco's thoughts on OEMs expecting incremental price increases in 2026 despite affordability challenges, and if Watsco's balance sheet gives them better ability to push back or negotiate.

Answer

Albert Nahmad (Chairman and CEO, Watsco Inc) stated that 'history is not dependable' for inventory ramps and they aim to 'do better' than in the past. Paul Johnston (EVP, Watsco Inc) noted that the last 5-6 years have not been normal due to industry changes, and a return to normal means OEMs supplying within 4-6 weeks. Albert Nahmad (Chairman and CEO, Watsco Inc) added they are seeking cooperation from manufacturers for quicker deliveries. Regarding pricing, Albert Nahmad (Chairman and CEO, Watsco Inc) found it a 'tough question,' stating they are a good customer and like to 'get along.' Paul Johnston (EVP, Watsco Inc) noted that Watsco's product value is 30-40% of a total installation, so a small OEM price increase wouldn't be a 'major transaction halt' for the consumer.

Chris Snyder of Morgan Stanley inquired about R-410A inventory levels at competitor distributors. He also asked if persistently weak volumes, despite better weather, suggested that contractors were holding excess inventory.

Answer

Management stated they have no reliable intelligence on competitor inventory. VP Rick Gomez added that anecdotal evidence from M&A targets suggests a similar phase-out pace. EVP Paul Johnston dismissed the idea of significant contractor inventory, stating that inventory is held at the distribution level and that weather impacts are highly regional, not uniform.

Christopher Snyder asked for an estimate of competitors' remaining 410A inventory and inquired about the current installation rate of 454B systems, questioning if demand elasticity for the new, pricier product has been truly tested yet.

Answer

Executive Rick Gomez provided an anecdotal view that independent distributors would likely exhaust 410A inventory by the end of Q2. Executive Barry S. Logan countered that it was not too early to judge 454B adoption, noting it was 25% of Q1 volume and had ramped to over 60% of sales in the most recent two weeks, with the company satisfied with its market acceptance.

Chris Snyder asked Judy Marks to elaborate on why customer trust has deteriorated over the past 12 months or longer, leading to lower retention rates. He also inquired about the impact of a lower retention rate on service margin expansion, specifically whether winning new business from competitors results in lower incremental margins compared to retaining existing customers.

Answer

Judy Marks, Chair, CEO, and President, Otis Worldwide Corporation, acknowledged that the deterioration in trust is an internal operational execution issue, not primarily price-driven. She cited personnel changes from the uplift program, accuracy in invoicing, and the need for better coverage, noting that Otis is addressing these through a GBS partner and by adding field mechanics. Ms. Marks confirmed that retaining existing customers, especially those converted from new equipment sales, is the most profitable business due to higher contribution margins. While recapturing business from competitors is valuable for long-term growth and modernization pathways, it inherently carries some margin headwinds compared to retaining existing contracts.

Chris Snyder, Executive Director and U.S. Multi-Industry Analyst at Morgan Stanley, asked for clarification on the reasons behind the deterioration of customer trust, which has impacted Otis's retention rates. He also inquired about the financial implications of lower retention, specifically whether winning new business (recapture) results in lower incremental margins compared to retaining existing contracts.

Answer

Judy Marks, Chair, CEO, and President, attributed the decline in customer trust primarily to operational execution issues, including personnel changes, invoicing accuracy, and insufficient mechanic coverage, rather than price. She emphasized that these are controllable factors, with actions underway such as partnering with a GBS provider, adding field professionals, and improving coverage. Judy Marks confirmed that retaining existing customers, especially those converted from new equipment, yields the highest contribution margin. While recapturing business from competitors inherently has lower margins, Otis differentiates through value-added services like Otis1 and modernization pathways, making it a worthwhile long-term investment despite the initial margin headwinds.

Chris Snyder of Morgan Stanley followed up on second-half margins, asking if the service mix was improving given that growth appeared to be driven by modernization, which he believed was dilutive. He also asked why strong new equipment orders were not converting to revenue more quickly.

Answer

CEO Judith Marks clarified that the second-half service growth and margin improvement will be driven more by an acceleration in the higher-margin repair business, not just modernization. On order conversion, she explained that the long lead times in North America (18+ months) mean the company is currently executing on a weaker backlog from 1.5 years ago. The recent strong orders will primarily benefit 2026 revenue.

Chris Snyder of Morgan Stanley followed up on back-half margins, asking if the service mix was improving given that growth seemed driven by modernization, which he thought was dilutive. He also asked why strong orders were not converting to revenue faster.

Answer

Chair, President & CEO Judith Marks clarified that the favorable service mix shift is primarily driven by a significant step-up in higher-margin repair sales, not just modernization. Regarding conversion, she explained that the long lead times in North America (18+ months) mean current revenue reflects older, weaker backlog, while the recent strong orders will drive revenue growth in 2026.

Christopher Snyder of Morgan Stanley inquired about the quarterly cadence of the tariff impact and its expected persistence into 2026. He also asked for commentary on any 'green shoots' or signs of optimism in the European new equipment market.

Answer

Chair, CEO and President Judy Marks indicated that, based on past experience, the tariff impact from the existing backlog could extend into 2026, but new orders will incorporate mitigations. She expressed continued optimism for EMEA, citing strong underlying performance despite a tough quarterly compare, strength in key European sub-regions, and the success of the Gen360 product. She also highlighted the strategic shift in China, where service now constitutes 40% of revenue, reducing dependency on new equipment.

Christopher Snyder asked about the Americas business, questioning if recent order growth was absolute or just due to easy comps, and why Otis's Americas New Equipment revenue is guided down while the market is guided up.

Answer

Executive Cristina Mendez confirmed that Americas New Equipment orders grew in absolute dollars sequentially through 2024. Executive Judith Marks added that the negative 2025 revenue outlook, despite a positive market, is due to the long order-to-revenue conversion cycle in the Americas and a very strong 2024 revenue performance that depleted the backlog, which now needs to be refilled.

Chris Snyder asked for perspective on recent stimulus actions in China and what it means for the construction sector. He also followed up on the sharp improvement in Americas orders, questioning if it was driven by improving demand signals or simply favorable comparisons.

Answer

Chair, CEO and President Judith Marks stated that while Otis is encouraged by China's stimulus announcements, the 2025 outlook does not yet factor in any benefits, as implementation details are pending. On the Americas, she clarified that the Q3 order strength was more than just comps, citing improved customer conviction, positive proposal activity, and a broad-based recovery across all verticals as a true inflection point.

Chris Snyder sought clarification on the softer back-half utility organic growth, specifically whether it was due to Aclara or a less sharp distribution recovery. He also inquired about the implied Q4 pricing exit rate, price realization, market pushback, and elasticity.

Answer

Bill Sperry, EVP and CFO, clarified that Aclara was as expected, and the softer utility growth was due to a '90 days delayed' improvement in the T&D side, which was more steady than a sharp snapback. He confirmed that the full-year guide implies a slightly better Q4 pricing, wrapping around to an approximate 3% for the year. Sperry and Gerben Bakker, Chairman, President, and CEO, noted strong price realization, constructive discussions with partners, and minimal pushback, attributing this to strong demand in utility and data centers, Hubbell's critical product role, and specified positions.

Chris Snyder from Morgan Stanley followed up on the softer back-half utility organic growth, asking if it was due to Aclara softening or distribution not turning as sharply as expected. He also inquired about the implied Q4 pricing, price realization, and any market pushback or elasticity.

Answer

Bill Sperry (EVP and CFO, Hubbell Incorporated) clarified that Aclara was as expected, and the softer utility growth was due to a slight delay in T&D's sharper snapback, now anticipated in Q4. He confirmed that Q4 pricing would be slightly better, contributing to the 3% full-year average. Gerben Bakker (Chairman, President and CEO, Hubbell Incorporated) noted strong price realization, similar to previous years, attributing it to strong demand in utility and data centers, critical product roles, and specified positions, with constructive customer conversations.

Asked for color on end-market 'green shoots' beyond data centers, particularly on the electrical side. Followed up on the timing and realization of previously announced price increases and their expected contribution in the second half of the year.

Answer

Management identified 'green shoots' in the normalization of shipments as channel destocking ends for wiring devices and utility distribution products, as well as a return to growth in the telecom-exposed enclosures business. They confirmed a second price increase was implemented and its impact will grow incrementally in the second half, contributing to an expected three points of price for the full year.

Christopher Snyder asked about the price-cost dynamic, confirming if a $30 million headwind in the first half implies a positive price-cost in the second half to achieve neutrality for the year. He also asked for a list of Hubbell's main competitors in the Utility T&D space.

Answer

EVP & CFO Bill Sperry confirmed the analysis, stating that the company anticipates a surplus in the second half to offset the first-half deficit, which is typical for a LIFO reporter in an inflationary cycle. Sperry then identified the primary competitors in Utility T&D as Eaton's Cooper division, ABB's Thomas & Betts, and the private company Clean Power Systems.

Asked if the PCX-related headwind in the electrical segment would be gone in Q1, requested the size of the Q4 year-end inventory headwind, and questioned if recent strong orders were due to true demand or tariff pre-buying.

Answer

The company expects the PCX headwind to be gone in Q1. They declined to size the Q4 inventory headwind but reiterated that the destocking issue is fading based on the order book. Regarding tariff pre-buys, they stated it's hard to determine but they monitor order patterns closely to prevent customers from building up inventory ahead of price increases.

Christopher Snyder asked about the Q1 outlook, specifically if the headwind from the PCX design change would be resolved. He also requested a sizing of the Q4 inventory variability impact and inquired if recent strong orders represent true demand or tariff-related pre-buys.

Answer

CFO William Sperry confirmed the PCX headwind is expected to be resolved in Q1 but declined to size the Q4 inventory impact, stating the issue is fading. CEO Gerben Bakker addressed the order patterns, explaining that while it's hard to parse motivations, the company actively monitors for unusual activity to prevent customers from stockpiling ahead of potential tariff-driven price increases.

Christopher Snyder from Morgan Stanley & Co. LLC asked if the PCX-related headwind in the Electrical segment would be gone in Q1 and sought to quantify the Q4 headwind from year-end inventory variability. He also questioned if recent strong orders reflected true demand or potential tariff pre-buys.

Answer

CFO Bill Sperry confirmed the PCX headwind is expected to reverse in Q1 but declined to size the Q4 inventory impact, emphasizing that the issue is fading. CEO Gerben Bakker stated that while some tariff pre-buying could occur, the company monitors order patterns closely to prevent a large, artificial bubble from forming ahead of any tariff implementation.

Christopher Snyder from Morgan Stanley questioned how quickly the utility business could return to its mid-single-digit growth target, given the Q4 outlook. He also asked about the future growth expectations for the Aclara business.

Answer

CFO William Sperry stated that the company anticipates a return to organic utility growth at the beginning of 2025 as inventory normalizes. CEO Gerben Bakker clarified that for Aclara in 2025, they expect a decline in meters to be more than offset by growth in AMI and Protection & Control solutions.

Chris Snyder asked about the outlook for Americas margins into next year, considering the Q4 exit rate and potential absorption headwinds extending into mid-year. He also questioned how Carrier balances the need to cover cost inflation with potential demand destruction from price increases, which can lead to prolonged repair mode.

Answer

CFO Patrick Goris expects the CSA margin this year to be around 21% and anticipates it will be up next year, assuming residential business is not significantly down. Regarding pricing, Mr. Goris stated Carrier expects to realize low single-digit price next year to cover input costs, noting potential adjustments if new tariffs arise. CEO David Gitlin added that Carrier closely monitors elasticity curves and is sensitive to not taking actions that would exacerbate the repair versus replace dynamic, confident in achieving modest price increases next year.

Chris Snyder of Morgan Stanley asked about the outlook for Americas margins into 2026, considering a low double-digit to low teens exit rate for Q4 and potential absorption headwinds extending through mid-year. He also inquired about how Carrier balances price increases with ongoing cost inflation and the risk of demand destruction, especially as price increases multiply through the channel.

Answer

CFO Patrick Goris stated that he would not expect CSA margins to be down in 2026, projecting them to be up unless residential volume significantly declines. He noted the expectation of realizing low single-digit price next year to cover input costs, with potential adjustments for tariffs. CEO David Gitlin added that Carrier watches elasticity curves and is sensitive to not taking actions that exacerbate the repair vs. replace dynamic, confident in achieving modest price increases.

Chris Snyder of Morgan Stanley followed up on the softer residential volumes in Q2, asking whether it was driven by weaker end demand or a downstream inventory issue. He also questioned if the back-half volume decline is purely a function of tough comps and sluggish demand, or if the channel will be actively de-stocking.

Answer

Chairman & CEO David Gitlin attributed the Q2 softness to a combination of factors, including a later start to the cooling season and cautious consumer behavior, which led to softer movement and elevated channel inventory. He confirmed that Carrier is consciously planning to pull down inventory in the second half, with sales guidance reflecting the goal of getting inventory levels back in balance by year-end.

Christopher Snyder of Morgan Stanley asked whether the $75 million residential pre-buy from Q4 was worked through in Q1 or is still expected to be a headwind. He also inquired if the strong services business is creating a flywheel effect that helps win new equipment projects.

Answer

CEO David Gitlin explained that assessing the pre-buy impact is imprecise but noted that elevated channel inventory levels are being watched carefully, contributing to a measured second-half outlook. He confirmed a '100%' flywheel effect, stating that building out the services business and life cycle support is a clear competitive advantage that is helping the company win more than its fair share of equipment deals in the Americas.

Christopher Snyder asked about the drivers behind the stronger-than-expected 35% growth in Americas residential HVAC and questioned if there were any concerns about consumer behavior, such as a shift to repair-over-replace or product trade-downs, given rising equipment costs.

Answer

CEO David Gitlin attributed the strong quarterly performance to a combination of stronger underlying demand, market share gains, and a very favorable year-over-year comparison. Regarding consumer behavior, he stated that despite closely monitoring price elasticity, the company has not observed a significant shift toward repairs or any material trade-down activity from homeowners.

Christopher Snyder from Morgan Stanley questioned the strong Q3 order growth, noting it seemed to be a deceleration from the 20-30% pace mentioned earlier in the quarter, and asked if anything softened. He also asked for details on the 'aftermarket 2.0' strategy, its costs, and the opportunity it presents.

Answer

David Gitlin, Chairman and CEO, clarified that the slight deceleration in orders from the initial pace was due to a slowdown in residential 410A orders in September, as expected. Regarding aftermarket 2.0, he described it as a move to a higher level of sophistication, using data from 50,000 connected chillers for prognostics, diagnostics, and value-added services like carbon tracking. He noted the strategy requires modest investment but drives higher-margin growth and is becoming embedded in the company's DNA.

Chris Snyder asked about the Industrial Automation (IA) portfolio realignment, specifically the amount of revenue being moved from Process Solutions into the new IA segment, the scale of the new IA business, and potential for M&A. He also followed up on Building Automation's data center exposure and opportunity.

Answer

Vimal Kapur, Chairman and Chief Executive Officer, explained that the new structure defines three verticals: Buildings, Process, and Industrial. While Buildings and Process have higher scale currently, Industrial will be built upon as a product-oriented business, with M&A optionality considered after completing the strategic review of scanning and mobility/warehouse automation. He noted that data centers are an increasingly important part of Building Automation, with strong positions in fire safety and security systems, and improving presence in building management.

Chris Snyder from Morgan Stanley asked about the Industrial Automation (IA) portfolio realignment, specifically how much revenue is being moved from the Process Solutions bucket into the new IA segment, and his views on the scale of this new IA business and potential for adding assets. He also inquired about Building Automation's data center exposure and opportunity, how Honeywell broke into this vertical, and the overall opportunity.

Answer

Chairman and CEO Vimal Kapur explained that the new three-vertical structure (buildings, process, industrial) is the culmination of simplification efforts. He acknowledged that buildings and process currently have higher scale than industrial, but the goal is to build upon the product-oriented industrial business, focusing on organic growth and potential M&A after completing the strategic review of scanning and mobility/warehouse automation. For Building Automation, he noted that data centers are increasingly contributing to growth, with strong positions in fire safety and security systems, and improving presence in building management. He highlighted partnerships like with LS ELECTRIC to develop joint solutions for electrical and control systems, indicating growing momentum from a low starting position.

Chris Snyder from Morgan Stanley asked if the major portfolio review actions were now complete and questioned the rationale for divesting the warehouse automation business, which seems to fit Honeywell's desired characteristics. He also asked about the drivers behind the turnaround in Building Automation.

Answer

Chairman & CEO Vimal Kapur confirmed the comprehensive portfolio review is complete, with no further major exits expected. He explained the decision on warehouse automation was a strategic choice to focus on end markets with higher, more consistent growth profiles. For Building Automation, he credited the success to three strategies: focusing on high-growth verticals (data centers, hospitals), mining the installed base for services, and accelerating new product introductions fueled by higher R&D.

Chris Snyder of Morgan Stanley asked if all major portfolio actions are now complete and why the warehouse automation business is being reviewed for strategic alternatives. He also inquired about the specific drivers behind the turnaround in the Building Automation segment.

Answer

Chairman & CEO Vimal Kapur confirmed that the comprehensive portfolio review is complete and no further major exits are expected. He explained the warehouse automation review is a strategic choice to focus on end markets with higher and more consistent growth. For Building Automation's success, he credited a focus on high-growth verticals like data centers, better mining of the install base for services, and accelerated new product introductions.

Christopher Snyder questioned why Q2 margin guidance was flat sequentially despite higher volumes and the accretive PPE divestiture. He also asked a strategic question about the importance of adding discrete automation exposure to the future standalone Automation company's portfolio.

Answer

CFO Mike Stepniak stated that Q2 margins feel similar to Q1 with no new structural pressures. CEO Vimal Kapur added that a shift in product mix within ESS would temper margins in Q2 compared to Q1. On strategy, Kapur explained the focus for the Automation company is on high-growth end-verticals like LNG and data centers, rather than a specific focus on discrete versus process automation.

Christopher Snyder asked about the primary motivation for the separation, questioning if it was driven more by unlocking sum-of-the-parts value or by the belief that the businesses would perform better independently. He also pointed out the strong Q4 growth in short-cycle markets and asked why the 2025 guide assumes a deceleration from that exit rate.

Answer

CEO Vimal Kapur explained the primary driver was the diverging strategic paths of Aerospace and Automation, stating that focused, separate companies could drive more growth and value. Incoming CFO Mike Stepniak addressed the guidance, stating that while Q4 was encouraging, the 2025 outlook is prudent and does not assume a sustained recovery in industrial products. He also cited Q1 headwinds from fewer selling days and lumpiness in aerospace.

Christopher Snyder of Morgan Stanley questioned the reason for the slowdown in Aerospace organic growth guidance for Q4, asking if it was due to spillover from the Q3 facility fire or a reflection of market conditions. He also asked whether Honeywell is holding, gaining, or losing market share in its Industrial Automation segment given its prolonged declines.

Answer

CEO Vimal Kapur clarified that Q3 Aerospace performance was impacted by two discrete events: a plant fire and Hurricane Helene, but the full-year low-double-digit growth outlook is unchanged, supported by a strong backlog. For Industrial Automation, he stated that performance largely reflects challenging market drivers in key regions like Germany and China. He expressed confidence that the segment will return to growth in 2025 as major headwinds from the Intelligrated rebaselining and prior-year Zebra royalty payments will no longer be factors.

Chris Snyder followed up on margin commentary, noting the sequential improvement from Q2 to Q3 despite tariff phasing. He asked if price conversations or negotiations with customers have become harder over the past year, or if customers are still prioritizing speed of supply and technology innovation.

Answer

Giordano Albertazzi, CEO of Vertiv, stated that Vertiv remains focused on delivering positive price-cost performance. He emphasized that price conversations with professional and savvy customers are never easy, and achievable prices are directly linked to the value delivered through innovation, service level, and quality. He observed no dramatic change in customer behavior, as they consistently remain business-sensitive.

Chris Snyder asked about the sequential margin performance from Q2 to Q3, the impact of tariffs on these swings, and whether customer price negotiations have become more challenging or if customers continue to prioritize speed of supply and technological innovation.

Answer

CEO Giordano Albertazzi emphasized Vertiv's focus on delivering positive price-cost performance. He stated that price conversations are never easy with professional and savvy customers, but the ability to achieve favorable pricing is tied to delivering value through innovation, service levels, and quality. He noted no dramatic change in customer behavior, as they remain business-sensitive.

Chris Snyder from Morgan Stanley asked about the drivers of recent gross margin pressure, questioning if it was solely due to tariffs and inefficiencies or if factors like mix or new technology ramps were also contributing.

Answer

CEO Giordano Albertazzi confirmed the pressure stemmed from tariffs and operational inefficiencies tied to rapid growth, not new technologies. CFO David Fallon added that for the full year, product mix is expected to be slightly positive, not a headwind, supporting the idea that margins will improve as temporary issues are resolved.

Chris Snyder from Morgan Stanley questioned if the recent gross margin pressure was solely due to tariffs and inefficiencies, or if factors like product mix or new technologies like liquid cooling were also headwinds.

Answer

CEO Giordano Albertazzi identified tariffs and operational inefficiencies as the primary drivers. CFO David Fallon added that while mix can vary quarterly, it is not expected to be a negative factor for the full year and may even be slightly positive. They emphasized that new technologies are a positive for the value and margin story.

Christopher Snyder from Morgan Stanley asked for the best metric to track liquid cooling demand, questioning if NVIDIA's Blackwell shipments are a good proxy and what the typical lead time is for Vertiv's solutions.

Answer

CEO Giordano Albertazzi agreed that Blackwell shipments are a good proxy for liquid cooling demand, though not the only one. He estimated that demand for Vertiv's solutions typically precedes the deployment of new chips by approximately three to six months and expressed satisfaction with the product line's growth trajectory.

Chris Snyder asked if there's a risk of continued misalignment between dealer and OEM incentives in 2026, particularly as the refrigerant transition widens the cost delta between repair and replacement. He also inquired about positive offsets that could maintain Q4 residential volume growth despite a harder comparable and ongoing destocking into Q2 next year.

Answer

CEO Alok Maskara clarified that dealer hesitation for replacement was due to 454B canister shortages and training, not misaligned incentives, and these issues are now resolved. He identified positive offsets for Q4 and 2026, including lower interest rates, improving mortgage rates, turning home builder confidence, and pent-up demand from delayed repairs.

Chris Snyder asked if there was a risk of misaligned dealer/OEM incentives continuing into 2026, given the widening cost delta between repair and replace due to the refrigerant transition. He also inquired about any positive offsets that could maintain Q4 volume growth despite a harder comparable period and ongoing destocking.

Answer

CEO Alok Maskara clarified that dealer hesitation in 2025 was primarily due to 454B canister shortages and training, not misaligned incentives, and stated canister supply is now sufficient. He pointed to 'green shoots' like lower interest rates, improving mortgage rates, turning home builder confidence, and pent-up demand from deferred replacements as positive indicators for 2026 growth.

Chris Snyder of Morgan Stanley questioned the residential volume outlook for the second half, noting that the forecast remains stable despite facing much tougher year-over-year comparisons. He also asked about the industry's ability to retain recent price gains.

Answer

CFO Michael Quenzer clarified that HCS volumes are guided to be down ~8% in the second half, a slight acceleration from the 6% decline year-to-date. CEO Alok Maskara added that the destocking is now largely complete and the canister shortage has eased, supporting the outlook. He expressed confidence in retaining pricing, citing the significant investments made by the industry in technology, distribution, and quality that need to be recouped.

Christopher Snyder inquired about the risk of consumer price elasticity on repair-versus-replace decisions as new equipment costs rise, and asked when these higher prices are expected to fully reach the homeowner.

Answer

CEO Alok Maskara assessed the risk of elasticity on replacement as very low, as equipment cost is only one part of the total installed price, making the homeowner impact less significant. He stated the company has not observed any adverse trends in repair-vs-replace decisions. He also confirmed that the first price increase is already making its way to homeowners in Q2 with no change observed in demand patterns.

Christopher Snyder questioned how a $125 million Q4 prebuy translates to a 2% full-year headwind, asking if it implied a prebuy also occurred in Q3, and inquired about the methodology for calculating the prebuy amount.

Answer

CEO Alok Maskara explained the 2% headwind reflects a "double impact": a destocking effect in the first half of 2025 and a difficult year-over-year comparison in Q4 2025. He admitted the calculation is an estimate but directionally correct, driven by better R-410A availability at Lennox compared to competitors, which led to both prebuy activity and temporary share gains.

Chris Snyder from Morgan Stanley inquired about the M&A pipeline for Acuity Intelligent Spaces (AIS) following the QSC acquisition, and attractive categories within the smart building ecosystem. He also asked about the sequential ramp in Acuity Brands Lighting (ABL) Q4 sales, potential end market softening, and channel inventory levels for fiscal 2026.

Answer

Neil Ashe, Chairman, President, and CEO, Acuity, expressed satisfaction with the QSC integration and confirmed a consistent M&A pipeline to expand the AIS portfolio, alongside organic growth opportunities. Regarding ABL, Mr. Ashe noted that Q3 and Q4 performance combined was as expected, driven by strong independent sales and direct networks, despite a decline in corporate accounts. He believes ABL outperformed the industry.

Chris Snyder asked about the drivers of the strong 50% gross margin, questioning the impact of productivity actions and the inclusion of a full quarter of QSC. He also inquired about the pricing dynamics of the Contractor Select line versus products made in Mexico, and whether tariff impacts could drive a mix-up.

Answer

Karen Holcom, SVP & CFO, attributed the strong gross margin to top-line growth in ABL, ongoing improvements from product vitality and productivity, and the portfolio mix effect from the higher-margin Intelligent Spaces business. Neil Ashe, Chairman, President & CEO, added that the company's dynamic global supply chain and tiered product strategy (Contractor Select, Design Select) allow it to flex manufacturing to remain competitive, regardless of tariff impacts.

Christopher Snyder from UBS inquired about the high-level impact of new tariffs on Acuity's competitive position, given its significant manufacturing in Mexico, and asked if the company is observing any market freezing or project delays due to cost uncertainty.

Answer

Neil Ashe, Chairman, President, and CEO, explained that Acuity views tariffs as a supply shock and is confident in its relative competitive position due to its diversified global supply chain, with about half of its supply from USMCA-compliant operations in Mexico. He detailed the financial process, noting a lag between incurring tariff costs and realizing price increases, which impacts cash flow. Ashe also confirmed that market uncertainty led to some project delays late in the quarter, but it is too early to determine the full demand impact of the new tariffs.

Christopher Snyder of Morgan Stanley asked if the guided accretion from QSC includes any revenue or cost synergies and questioned the outlook for gross margins, given their continued strength.

Answer

Neil Ashe, Chairman, President and CEO, clarified that the initial guidance for QSC assumes it operates as it has been, with revenue synergies being a future opportunity and no plans for cost reductions. Karen Holcom, SVP and CFO, attributed strong gross margins to product vitality, service, and productivity initiatives. She affirmed that there is still room for margin improvement at Acuity Brands Lighting (ABL), though some SG&A investments will be made to drive future gains.

Chris Snyder questioned why Grainger isn't seeing a 'flight to quality' tailwind as in past disruptions and asked for a breakdown of the gross margin guidance reduction between LIFO and price-cost timing.

Answer

CEO D.G. Macpherson responded that the current environment is less of a supply disruption than the pandemic and asserted that internal metrics show significant share gains in Q2. CFO Deidra Meriwether added that the vast majority of the gross margin pressure, about 80 basis points for the High-Touch segment in the quarter, is from the LIFO impact, which is more significant than the price-cost timing issue.

Chris Snyder of Morgan Stanley questioned why Grainger doesn't appear to be benefiting from a customer 'lean-in' during the current disruption as it did in the past, and asked for a breakdown of the gross margin guidance reduction between LIFO pressures and price-cost timing.

Answer

CEO D.G. Macpherson countered that internal metrics suggest the company gained significant share in Q2 and that the current disruption is less about supply availability than the pandemic was. CFO Deidra Meriwether specified that the vast majority of the gross margin pressure is from LIFO accounting, citing an 80 basis point impact on the High-Touch segment in the quarter, with price-cost timing being a much smaller factor.

Christopher Snyder asked for quantification of the price impact from announced tariffs and questioned the rationale for maintaining the gross margin guidance. He also asked why the company uses Industrial Production (IP) as its primary volume benchmark given its limited scope.

Answer

SVP and CFO Dee Merriwether estimated the net impact of initial tariff-related price increases at 1% to 1.5% and stated the gross margin guidance is maintained because the company will target price/cost neutrality over time. Chairman and CEO D.G. Macpherson explained that while their internal model is more accurate, IP has historically been a simple and correlated proxy, but its recent divergence prompted the shift to an annual outgrowth disclosure to reduce noise.

Christopher Snyder asked for confirmation that the 'minimal price' expectation for 2025 reflects supplier costs and inquired about the company's ability to push for more price if needed. He also questioned the gross margin seasonality and whether the full-year guidance seemed conservative.

Answer

CEO D.G. Macpherson confirmed that price expectations are tied to supplier costs and the company's goal is to remain price-competitive and price/cost neutral. CFO Dee Merriwether added that the minimal price outlook is because Grainger is not seeing inflation in the MRO-specific products it sells, unlike other categories like airplanes that are included in broader PPI indices, which explains the lack of a typical Q1 price-driven margin lift.

Chris Snyder asked if the lack of a volume uplift despite lower tariff-related pricing indicated softening demand, and inquired about sentiment from international customers post-tariffs.

Answer

CFO Vikram Kini responded that the company is simply maintaining its precautionary view from Q1 and has not changed its underlying volume assumptions. CEO Vicente Reynal provided a regional breakdown, noting positive organic orders in EMEA, healthy trends in Latin America, but sluggishness in North America and a wait-and-see approach in parts of Asia due to tariff uncertainty.

Christopher Snyder of Morgan Stanley highlighted the contrast between the strong Q1 book-to-bill and the guidance reduction, asking if there was any order pull-forward ahead of tariffs or if customer conversations were changing. He also asked if tariffs altered Ingersoll Rand's competitive position in the U.S.

Answer

CEO Vicente Reynal stated there was no evidence of order pull-forward, as most products are configured-to-order and distributor inventories are monitored. He reiterated that demand signals through April remained positive. He asserted that the company's 'in-region for-region' manufacturing model provides a distinct competitive advantage in the current tariff environment, as many competitors rely more heavily on imports.

Christopher Snyder asked if delayed projects in China were related to the U.S. election and whether to expect year-over-year margin declines in Q1 2025 due to a tough comparison.

Answer

CEO Vicente Reynal stated the specific China project delays were technical, not election-related, and that he has not seen a significant change in customer conversations post-election. CFO Vik Kini acknowledged that Q1 faces a difficult margin comp and that meaningful year-over-year expansion is not expected, with improvement anticipated as the year progresses.

Christopher Snyder followed up on "site readiness," asking if customers expect the underlying labor constraints to improve. He also asked about the potential impact and timing of the recent stimulus in China on Ingersoll Rand's business.

Answer

Chairman and CEO Vicente Reynal stated that labor constraints are expected to persist, which is why they anticipate a gradual recovery. On China, he said the stimulus's focus on energy efficiency aligns perfectly with IR's offerings, but it takes time to trickle down to the regions, so while it bodes well for 2025, no direct impact has been seen yet.

Chris Snyder from Morgan Stanley inquired about the significant Q2 order acceleration in Americas Commercial HVAC, seeking details on the driving end markets and the potential for continued improvement. He also followed up on the 'service flywheel,' asking about the outlook for service revenue growth given the recent surge in equipment sales.

Answer

Chair & CEO Dave Regnery highlighted that the growth was exceptionally strong and broad-based, with applied solutions up over 60%. He noted strength across verticals like healthcare, government, and data centers, emphasizing that the project pipeline remains robust. Regarding services, Regnery confirmed the compounding effect of strong applied equipment sales, which generate 8-10x the equipment price in service revenue over their lifecycle. EVP & CFO Chris Kuehn added that service margins are accretive and that the company is connected to customers from day one, giving them confidence in future service revenue.

Christopher Snyder asked for an update on Americas Commercial HVAC demand, questioning if customer conversations have changed or if there's a risk of project elongation due to cost uncertainty. He also asked for a ranking of the key drivers behind Trane's consistent market outperformance, such as equipment efficiency, service offerings, and its direct sales force.

Answer

CEO David Regnery stated that the company has not seen widespread project delays, attributing this to the strong payback and carbon footprint reduction offered by their applied systems. Regarding market outperformance, Regnery declined to rank the drivers, instead describing it as a 'system of things' including the direct sales force, business operating system, and innovation processes. He emphasized that the company's culture, which encourages problem-solving and innovation, is the ultimate differentiator.

Christopher Snyder of UBS inquired about the sustainability of the Service business's double-digit growth, which outpaces the typical high-single-digit guidance, and asked for the outlook baked into the 2025 forecast. He also questioned if the improvement in Commercial HVAC equipment orders was due to project lumpiness or a broader-based recovery across its many verticals.

Answer

CEO Dave Regnery expressed pride in the $6.5 billion Service business, noting its recent low-teens growth. While maintaining a conservative high-single-digit long-term guide, he highlighted that the growing backlog of complex applied systems creates a strong future service pipeline. Regnery confirmed the high-single-digit Commercial HVAC order growth in the Americas was broad-based, with 13 of 14 verticals growing in 2024, driven by a diverse product portfolio and a strong sales force, not just data centers. CFO Chris Kuehn added that the growth in applied systems, up over 120% in the Americas on a 3-year stack, builds an installed base that will drive future service revenue.

Christopher Snyder of Morgan Stanley asked for details on the mechanics of the services business, including the lag from equipment sale to service revenue, margins, and specifics on reinvestments. He also followed up on the service model for the data center vertical.

Answer

CEO Dave Regnery described the services business, about one-third of company revenue, as a resilient, high-single-digit grower. He explained service revenue typically ramps up in years two and three post-installation, driven by sophisticated systems and connected solutions that monitor energy use. CFO Chris Kuehn confirmed services have higher-than-average margins and noted that accelerated investments are focused on adding service technicians and improving digital tools. Regnery added that for sophisticated systems like data centers, customers prefer OEM service, and Trane already has a large installed base being serviced.

Chris Snyder from Morgan Stanley inquired about the competitive dynamics against smaller players, potential for market share shifts, the current pricing environment, and the implied volume growth in the second-half guidance.

Answer

President and CEO Richard Tobin stated that Dover maintains a positive price-cost position and expects continued margin accretion, though it's too early to confirm market share shifts. For the second half, Tobin indicated no dramatic change in overall volume expectations but noted a rotation in growth drivers. He explained that high-growth areas like biopharma will see tougher comps, while other businesses are expected to recover, causing a mild, mix-driven dilution to consolidated margins.

Chris Snyder from Morgan Stanley questioned the pricing trajectory, asking if the rollback of the tariff estimate from $80 million to $40 million would result in lower realized price in Q3 compared to Q2. He also asked for a breakdown of the 1.5 point increase in the organic growth guide, seeking to identify the source of the volume upside beyond the 1 point contribution from price.

Answer

SVP & CFO Mike Wagnes clarified that the company adjusted its surcharge immediately when government tariff policies changed and provided a modeling framework of 25% of the $40 million tariff revenue in Q2 with the remainder spread over the second half. He specified that the better-than-expected volume driving the guidance raise is coming from the Americas non-residential business, which is performing very well.

Christopher Snyder sought to clarify the guidance mechanics, confirming that the revenue outlook excludes tariff-related price actions while the profit outlook includes them. He also asked about the impact of 'project paralysis' on volumes.

Answer

CFO Michael Wagnes confirmed the guidance mechanics were stated correctly. CEO John Stone acknowledged that higher interest rates had caused some privately financed projects to pause but suggested these planned projects could move forward once the financing environment improves, creating a potential backlog of work.

Christopher Snyder of Morgan Stanley asked about the size of the Q4 tariff-related pull-forward in the residential business and the company's exposure to government buildings within its institutional segment.

Answer

CFO Michael Wagnes estimated the Q4 pull-forward at mid-single-digit millions, which benefited the quarter but will create a headwind for Q1 2025. CEO John Stone clarified that the institutional business has limited exposure to federal government funding issues, as projects are primarily funded locally through municipal bonds and property taxes.

Chris Snyder of Morgan Stanley asked if the second-half organic growth acceleration is primarily driven by price and new products, and inquired about potential competitive advantages in the consumer segment from tariffs impacting low-cost Asian competitors.

Answer

CEO William Brown confirmed that price contributes about 40 basis points to the second-half growth but also emphasized the impact of self-help initiatives, particularly in the auto business. He agreed that tariffs on competitors create an opportunity in the consumer market, but expects it to manifest as volume and share gains rather than increased pricing power.

Christopher Snyder from Morgan Stanley asked about the timeline for achieving growth in excess of GDP, questioning if it depends more on innovation cycles or an improvement in end markets. He also sought clarification on whether future portfolio exits would be through sales rather than organic wind-downs.

Answer

CEO William Brown emphasized a 'walk before you run' approach, focusing first on growing with the market. He stated that outperformance will require both long-term R&D success and near-term improvements in sales execution, independent of macro forecasts. He also clarified that while minor SKU pruning is normal, significant business exits would be inorganic sales where 3M would ensure it gets paid appropriate value.

Chris Snyder of Morgan Stanley questioned the difference between the previously guided 3-4% price impact for Q2 and the actual 1.5% result. He also asked if customer conversations are still focused more on supply assurance than on price.

Answer

CEO Daniel Florness explained that the timing of pricing actions was altered by pauses in tariff implementations, leading to the 3-4% impact being an exit rate rather than a quarterly average. VP of Sales Operations Kevin Fitzgerald projected a 3-5% price impact in Q3, potentially rising to 5-8% by year-end, dependent on tariff finality. Daniel Florness concluded that customer conversations have now shifted to be more about price, acknowledging a sense of tariff fatigue.

Christopher Snyder from Morgan Stanley asked about fastener supply chains, noting their heavy reliance on Asia and questioning why a shift to Mexico hasn't occurred as it has in other industries. He also inquired about the potential for nearshoring this production.

Answer

CEO Daniel Florness acknowledged North America's long-term advantages, such as stable energy costs, but explained that Asia possesses immense, long-established scale in fastener production. He reasoned that manufacturers are hesitant to make the massive capital investment required to build similar scale in North America or Mexico because the tariffs that make such a move economically viable could be reversed at any time, creating significant investment risk. He concluded that Fastenal has not found manufacturing capabilities in North America to satisfy its needs at scale.

Christopher Snyder from Morgan Stanley questioned the reason for the divergence between flat Onsite signings and strong FMI signings in the quarter.

Answer

CFO Holden Lewis explained that Onsite signings can be lumpy and that FMI technology is deployed widely at non-Onsite locations, emphasizing the consistent growth in the installed base for both. CEO Dan Florness added that approximately 90% of locations with FMI vending are not Onsites, and the faster speed-to-revenue from FMI is a positive for the business.

Christopher Snyder questioned the company's confidence that there was no Q1 pre-buy activity, asking if the first quarter of positive organic growth was primarily attributable to new customer wins. He also followed up on the timing of the realization of announced price increases.

Answer

CEO Ivo Jurek reiterated that sales-in vs. sales-out data from channel partners indicates no inventory build-up. He attributed the positive core growth not to pre-buys but to a pragmatic outlook, strong performance in the recovering personal mobility market, and significant market share gains in the robust automotive replacement channel. CFO L. Mallard clarified that while price increases were implemented in Q2, the realization and cost impact will primarily occur in Q3 and the second half of the year, matching the timing of incoming tariff costs.

Christopher Snyder of Morgan Stanley asked for color on the specific end markets driving growth in China and questioned whether this strength could be related to tariff pre-buying activity ahead of potential U.S. policy changes.

Answer

CEO Ivo Jurek reported that growth in China was broad-based, with strong performance in Personal Mobility and diversified industrial, and constructive results in Ag, Construction, and Automotive replacement. He dismissed the idea of tariff pre-buys, emphasizing that Gates' China operations are predominantly "in China for China" and serve local OEMs. He further supported this by noting that the broader East Asia and India region showed similarly constructive growth.