David Manthey • Robert W. Baird & Co. Incorporated

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President & CEO Neil Schrimsher projected a pricing contribution similar to Q4's 100 basis points for Q1, ramping to 150-200 basis points for the full fiscal year 2026. He identified data centers and semiconductor manufacturing as the most significant components of the technology vertical. Schrimsher also confirmed that while the project pipeline for automation is already strong, the potential for accelerated depreciation could further stimulate project conversion and investment in fiscal 2026.

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President and CEO Neil Schrimsher explained that their guidance incorporates expected price inflation, which contributed about 100 basis points to Q3 sales and is expected to be similar in Q4. He emphasized that MRO demand, representing 70% of the business, remains resilient, though some larger projects have seen deferrals. CFO David Wells clarified that the Q4 guidance includes minimal direct tariff impact due to timing, with most price increases being related to general inflation.

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President and CEO Neil Schrimsher attributed the margin strength to execution and favorable mix in the Engineered Solutions segment, noting some supplier benefits were not expected to repeat. CFO David Wells quantified the improvement, stating about 50 basis points came from Engineered Solutions. He also clarified the Hydradyne synergy mix is roughly 70% cost/margin and 30% sales. Executive Ryan Cieslak provided the incremental depreciation and amortization figure of about $3 million per quarter.

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President and CEO Neil Schrimsher clarified that ES sales, while often capitalized by customers, are not large investments and have strong returns, akin to OpEx. He confirmed that the encouraging order activity, particularly in automation and technology, continued into October. CFO David Wells and CEO Neil Schrimsher both addressed capital allocation, stating they remain disciplined on M&A but have an active pipeline for bolt-on and midsized deals. They affirmed that share buybacks will continue and that overall capital deployment is expected to increase in fiscal 2025.

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CFO Brian Delghiaccio clarified that the Q3 2024 results included a $20 million benefit, comprising a $15 million insurance recovery and a $5 million bad debt recovery. CEO Jon Vander Ark explained that ES event work has been slower this year due to fewer large-scale emergencies and because customers are pausing discretionary projects, like on-site cleanups, amid macro uncertainty related to trade policy.

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CFO Brian Delghiaccio clarified that the Q3 2024 period included a $20 million benefit, comprising a $15 million insurance recovery and a $5 million bad debt recovery. CEO Jon Vander Ark addressed ES event work, noting a slower first half for emergency response jobs. He added that discretionary work like on-site cleanups is being paused by customers due to macro uncertainty around trade policy, though the project pipeline remains good.

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CEO Jon Vander Ark attributed the margin improvement to a multi-lever approach, including optimizing customer mix, strategic pricing to reflect service value, and improved cost discipline through better labor utilization. He noted the team has made faster progress than anticipated toward its 25% midterm margin target and has high aspirations for future growth.

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CFO Robert Kraft confirmed the math was directionally correct but emphasized the timing, noting tariff costs will only begin to hit late in Q3. President & CEO Jon Michael Adinolfi affirmed this dynamic, stating Hillman expects a timing benefit in Q3 before reaching alignment on price and cost in Q4.

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President and CEO Jon Michael Adinolfi differentiated the current situation from COVID, noting that service levels are strong and supply chains are not similarly disrupted. For 2026, he stated it's too early for guidance but sees significant pent-up demand. He confirmed shipping contracts are based on ports (country of origin) and that Hillman is well-positioned with its 2025 contracts.

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CEO Jon Adinolfi stated that a 20% EBITDA margin is 'not out of the question' in the future. He explained that as the high-margin RDS business returns to growth, it will provide a favorable mix shift, lifting the consolidated margin. Adinolfi also confirmed they expect to see a 'nice expansion in ROIC over the next several years,' which is now tied to executive compensation.

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CEO Doug Cahill clarified that Intex serves many of Hillman's major customers and also provides entry into new channels like paint and auto, with no sales restrictions. CFO Rocky Kraft confirmed Intex's margins are structurally lower but will be improved over time through Hillman's operational scale. Cahill corrected the premise on RDS, stating the MinuteKEY 3.5 rollout is accelerating, not tailing off, with plans to reach 1,200 units by year-end and ramp up further in 2025, which is expected to return the segment to growth.

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CFO Deidra Meriwether clarified that while the underlying operations are similar, the outlook would not have included the negative LIFO impact if the company used FIFO accounting, which would have resulted in EPS growth north of 6% instead of 2%. She added that while revenue will follow normal seasonality from Q3 to Q4, gross margins are expected to improve in Q4 as the September price increases take effect.

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CFO Deidra Meriwether clarified that if Grainger used FIFO accounting, its EPS would have been up over 6% instead of 2%, and the outlook would not have included the negative LIFO impact. She explained that while revenue will follow normal seasonality from Q3 to Q4, gross margins are expected to improve in the fourth quarter as the September price increases begin to take effect, which will support operating earnings at year-end.

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Chairman and CEO D.G. Macpherson confirmed that Zoro's performance is driven by sustainable revenue growth and improving customer repeat rates, which allows for expense leverage. He also affirmed that if tariff-related price increases do not significantly degrade demand, the company could achieve its contribution margin target at a lower overall growth rate.

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CEO D.G. Macpherson stated that if market conditions improve beyond expectations, the incremental margin on that volume would be north of 20%. CFO Dee Merriwether confirmed the analyst's estimate for the below-the-line items was in the correct range.

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Chairman and CEO D.G. Macpherson clarified that the current share gain calculation is likely understated because the IP and PPI metrics used in their model seem to overstate actual market growth compared to other data points. He explained that while there are puts and takes across end markets, the overall demand trend has been consistently slow all year, without a significant change from previous quarters.

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EVP & CFO David Schulz confirmed that known, realized price increases are in the guidance, but potential future tariff-related increases are not. He noted the price benefit was relatively consistent across segments in H1. Schulz anticipated sequential gross margin improvement in H2 but cautioned against a direct comparison to 2022, citing a different pricing environment and the difficulty in quantifying the potential gain.

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David Schulz, EVP and CFO, confirmed the guidance intentionally excludes recent price increase notifications, consistent with past practice, viewing any potential pricing benefit as a mitigant to possible demand destruction. For SG&A, Schulz identified the annual merit increase as the primary driver of the sequential cost increase from Q1 to Q2, applying an approximate 3% increase to the company's people-related costs.

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EVP and CFO David Schulz confirmed SG&A would see a sequential increase from Q4 to Q1 due to incentive compensation, followed by another step-up in Q2 from merit increases effective April 1. He and CEO John Engel clarified that the recent UBS margin pressure was due to operating deleverage from lower sales, not a structural change, and that profitability is expected to recover as sales growth returns.

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CFO David Schulz quantified the recent storm benefit for the utility business at approximately $15 million, primarily from replenishment orders, with any rebuild recovery being a 2025 event. CEO John Engel stated that an updated transmission vs. distribution mix would be provided with the 2025 outlook. He emphasized that the company is seeing strong growth in the transmission and substation portions of the utility power chain, driven by secular trends like electrification and rising power demand.

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CFO Pete Beckmann identified the main drivers for the sequential Q3 decline as a weakening single-family starts environment, continued multifamily normalization, and commodity deflation. CEO Peter Jackson added that a 50 basis point rate cut would be a tailwind, potentially unlocking stalled multifamily projects and boosting consumer confidence, which could release pent-up demand.

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CEO Peter Jackson attributed the wider EBITDA range to increased uncertainty from potential policy changes and a volatile competitive environment. On digital, he acknowledged a slower pace, explaining they are resetting their adoption strategy. He remains '100% confident' in the $1 billion target, stating it's a question of 'when,' not 'if'.

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CFO Designate Pete Beckmann explained that productivity savings stem from process improvements in areas like procurement and manufacturing, while 'other commercial benefits' include better supplier terms and shorter fixed-price contracts. CEO Designate Peter Jackson confirmed that their current assumption is that the value per start, which includes home size and product mix, is flattening out based on recent trends.

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EVP Paul Johnston stated the market remains focused on entry-level efficiency products, with consistent brand performance. President A.J. Nahmad noted an exception where their OnCallAir platform drives sales of high-efficiency systems. Regarding the product mix, Johnston explained that while parts sales saw an uptick, the volume is insufficient to offset the top-line impact from lower equipment sales, and the trend is not a radical shift to repair.

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Executive Barry S. Logan explained that one less sales day had a larger impact than new construction, which was also affected by contractors' choices regarding refrigerant types. Paul Johnston added that he believes Watsco has not lost share. Regarding margins, CEO Albert Nahmad reiterated the company's aspirational goal of achieving a 30% gross profit margin over the long term.

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Executive Paul Johnston stated that A2L had a minimal impact in Q4, with pricing actions around 8% and more expected due to tariffs. Executive Barry S. Logan clarified that residential unit growth was 16% with an additional 3% from price/mix. Executive Aaron Nahmad explained that Watsco has a commercial relationship with HouseCall Pro but no ownership, instead highlighting their proprietary OnCall Air platform.

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Executive Paul Johnston and EVP Barry S. Logan explained that hurricanes cause short-term local disruptions but are not material to national results, confirming that October's mid-single-digit growth was not a temporary storm-related snapback. An unnamed executive and Barry Logan affirmed the 27% gross margin goal, with ambitions for 30%, stating that recent pressure was from product and customer mix, not price degradation, and that the upcoming A2L transition offers a significant opportunity to reprice the market.

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CEO Doug Black confirmed that the Pioneer integration is complete and it is now part of the broader 'focus branch' initiative, which has seen over 200 basis points of margin improvement. He highlighted delivery efficiency, sales force productivity, and digital tools like siteone.com as key drivers of sustained SG&A leverage. CFO John Guthrie added that approximately $250 million remains on the share repurchase authorization and it is a key method for returning value to shareholders when acquisition activity is lighter.

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CEO Doug Black detailed that the DispatchTrack software is driving SG&A efficiency by centralizing delivery dispatch, with tangible progress seen in Q1. He noted that the focused branch efforts, including the Pioneer integration and 22 branch closures, have successfully reduced overhead, contributing to a 3% decrease in base business SG&A. To increase wallet share, Black highlighted a multi-pronged strategy: targeting smaller customers where market share is low, enhancing sales force productivity to cover more revenue with the same headcount, and utilizing inside sales associates to onboard new customers and win back lapsed ones.

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CEO Doug Black and executive John Guthrie confirmed that the focused branches and Pioneer integration are the primary drivers for expected SG&A leverage and margin improvement in 2025. Doug Black noted that while customer labor supply is a persistent concern, no significant new impacts have been seen yet. John Guthrie added that grass seed deflation is expected to continue in the first half of the year, with more clarity on the second half outlook expected in the spring.

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EVP & CFO John Guthrie detailed that agronomic product prices were down 8% while landscape product prices were down 2%. He projected normalization for grass seed and PVC pipe prices around mid-2025. CEO Doug Black described the branch closures as a 'one-time catch-up' to aggressively address underperforming locations, distinct from routine post-acquisition consolidations, though it signals a more aggressive future stance.

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CEO Peter Arvan clarified that the main benefit from rate cuts would be stimulating housing turnover, a key driver for new pool demand, more so than just lowering project financing costs. He explained the guidance was adjusted because, despite strong maintenance trends, there has been no material improvement in new construction permit data to suggest a second-half rebound.

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President and CEO Peter Arvan acknowledged that 2024's mild early-season weather creates a tougher comp, which is factored into guidance. Regarding Horizon, Arvan explained it is heavily tied to new home construction and is positioned to thrive when the housing market recovers. Capital allocation for Horizon is focused on protecting its competitive position in the Sunbelt rather than aggressive national expansion, making it a less capital-intensive part of the business currently.

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President and CEO Peter Arvan affirmed the long-term growth algorithm remains intact, with the only caution being that the 1% growth contribution from acquisitions is becoming harder to achieve at their current scale. He explained that the high average pool price is partly due to a mix skewed towards high-end projects and that while a return of entry-level pools could lower the average, he doesn't foresee significant deflation in labor or material costs.

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CEO Daniel Florness explained that the contribution margin for the $10,000+ customer group closely mirrors the overall company profile, as this group constitutes nearly 80% of sales. He clarified that the inventory investment is already providing an attractive return by freeing up time for sales teams, and the payoff will improve further in the second half of 2025 and into 2026 as inventory is rationalized within the distribution network.

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CEO Daniel Florness confirmed that contracts allow for price adjustments but emphasized that the primary focus is on providing customers with sourcing optionality. He noted that Fastenal has been diversifying its sourcing teams outside of China for the past five years. CFO Holden Lewis added that the company's direct sourcing capabilities and proprietary pricing tools enable a high degree of transparency and detailed communication with customers, which is crucial for navigating these conversations.

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CEO Daniel Florness framed the large number of smaller accounts as a significant long-term opportunity, especially as Fastenal improves its capabilities for "unplanned spend," which is more characteristic of these customers. Regarding tariffs, Florness stated that the company has well-developed, "surgical" processes from past experiences to manage tariffs, provide visibility to customers, and act as a strong supply chain partner.

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President & CEO John Turner attributed the single-family strength to recent market share gains with large customers. He and SVP & CFO Scott Deakin explained that sustained investment in a common ERP platform, digital customer portals, and automation has driven operational efficiencies, enabling the $55 million in annualized cost reductions.

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CEO John Turner acknowledged that steel price inflation is likely but will probably occur after the current fiscal quarter due to existing inventory and pre-sold contracts. He and CFO Scott Deakin confirmed the Q4 outlook reflects a bottoming of the cycle, with demand that deteriorated in late Q3 continuing. They also confirmed the next $20 million in cost savings will reach its full run rate in Q1 fiscal 2026.

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CEO John Turner stated that the company will realize about half of the quarterly benefit from the cost cuts in the upcoming second quarter, with the full run-rate benefit being achieved by the third quarter. Regarding steel prices, Turner indicated that the company would not lap the year-over-year declines until the next fiscal year.

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CFO Robyn Bradbury explained that pricing improved sequentially to flat in Q1, with steel improving and PVC stabilizing, leading to an expectation of flat to slightly up pricing for the full year. She confirmed the prior year's 53rd week creates a Q4 headwind and noted Q2 has a favorable comp while Q3 will be tougher.

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CFO Mark Witkowski stated that municipal PVC pipe is less than 15% of COGS and expects an overall neutral pricing environment for 2025, with some supplier increases sticking while other categories face headwinds. He confirmed that unannounced deals are not in the guidance and noted that Q1 was off to a good start, in line with expectations, with strong bidding activity.

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CFO Mark Witkowski affirmed that fiscal 2025 is shaping up to be a more typical year, with expectations for slightly positive end market volumes and 30-50 basis points of operating margin expansion. CEO Steve LeClair stated that tariffs are generally viewed as neutral to positive, noting that less than 15% of products are imported and direct imports constitute less than 2% of COGS.

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CFO Mark Witkowski stated that municipal pipe (PVC and ductile iron) is 25-30% of the business and emphasized the company's flexible, variable cost structure as its contingency plan. He clarified that August sales represented a return to normal organic volume growth, not a surge that would recover all sales lost to weather, due to customer capacity constraints.

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CEO Kevin Murphy explained that the guidance increase was primarily due to the flow-through of strong Q3 performance and deflation moderating a quarter earlier than expected. He added that the refrigerant transition is largely complete and that price inflation contributed only low-single digits to the 10% HVAC growth.

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CFO Bill Brundage confirmed the interpretation was 'about right,' stating that mid-single-digit cost growth reflects 3% volume growth plus investments and wage inflation. He reiterated the expectation that easing deflationary pressures and volume growth would improve SG&A leverage as the year progresses, and that the outlook assumes revenue acceleration in the back half. Regarding the selling day, he noted it was one fewer day in Q3, likely in February due to the prior year's leap day, with no other unique impact on expenses.

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CFO Bill Brundage explained that their forecast relies on leading indicators like housing starts and the ABI, which embed some expectation of rate cuts, rather than broad GDP projections. He confirmed the guidance components (market decline, deflation, acquisition contribution, market share gain) and noted the loss of one sales day. CEO Kevin Murphy added that achieving broadly flat profit in a down market is a solid result, with potential for faster acceleration if market conditions improve.

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Co-CEO Mike Battles explained that when customer sites shut down due to weather, the waste generation is lost, but noted strong performance in March and April suggests the issue was temporary. Co-CEO Eric Gerstenberg added that deferred inventory increased, and the network can catch up. On PFAS, Gerstenberg stated that customers act on any contamination level, so a change in the official limit is not expected to impact business.

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Co-CEO Mike Battles explained that revenue from weather-related production shutdowns is permanently lost, but Co-CEO Eric Gerstenberg added that a buildup of deferred inventory creates a backlog that can be worked through. On PFAS, Gerstenberg stated that a change in contaminant levels would not be a significant factor, as customers are motivated to remediate any level of contamination, not just to meet a specific threshold.

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Co-CEO Mike Battles and Co-CEO Eric Gerstenberg clarified that SKSS capacity is comparable to the prior year after the Noble acquisition and Newark idling. CFO Eric Dugas explained the SKSS EBITDA run-rate improves after Q1 as higher-cost inventory is sold through and the benefits of 'charge-for-oil' pricing are realized. Battles noted Field Services grew organically in the high single digits. Gerstenberg stated the Industrial Services outlook is positive because the number of booked turnarounds for 2025 is up substantially, suggesting projects were pushed from 2024 into 2025.

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Co-CEO Michael Battles indicated that the $200 million SKSS EBITDA target is aggressive for the near term, suggesting modest improvement from the current ~$150 million run rate is a more realistic expectation for 2025. An executive, likely CFO Eric Dugas, explained the HEPACO AR issue was a temporary timing delay caused by billing system integration and not a credit risk. Battles confirmed the remaining share repurchase authorization was $545.5 million.

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Executive Tara Hemmer explained that tariffs could positively impact domestic non-fiber commodities like aluminum and steel. While they are monitoring potential retaliatory tariffs on fiber, she expressed confidence in their brokerage team's ability to pivot to a wide variety of domestic and international markets. CEO Jim Fish added that the company's prior shift away from reliance on China for OCC was beneficial.

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EVP and CFO Devina Rankin provided a clear breakdown of the figures. She explained that after adjusting Q4's reported $61 million EBITDA for $4 million in synergies, the implied full-year 2024 pro forma EBITDA for the business on a WM-measured basis is approximately $350 million. The 2025 forecast of ~$460 million is built from a 9% organic growth rate on that base, plus $85-$90 million of realized synergies.

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EVP & COO John Morris stated that no material financial impact from the recent hurricanes is included in the current outlook. President & CEO Jim Fish acknowledged the softness in the industrial economy, reflected in a 4.1% decline in roll-off volumes, and suggested a post-election pickup is possible but uncertain. EVP & CFO Devina Rankin noted that interest rates and housing starts are key macro indicators they are watching for this segment.

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CEO Erik Gershwind acknowledged the gap but pointed to sequential improvement late in the quarter as key initiatives in web, marketing, and sales are beginning to take effect. CFO Kristen Actis-Grande explained that core customers have higher gross margins, and their reacceleration is key to improving profitability. Erik Gershwind added that the expanded vending/In-Plant footprint has fixed costs, creating significant operating leverage for when demand rebounds.

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CFO Kristen Actis-Grande confirmed the Columbus savings are on track and at a run rate, and broke down the sequential personnel cost increase into merit, benefits, and variable comp reset components. President and COO Martina McIsaac stated that the company is well-positioned to capitalize on any government purchasing changes due to its recent public sector restructuring, seeing potential upside.

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CEO Erik Gershwind and CFO Kristen Actis-Grande confirmed a typical Q4-to-Q1 sequential sales increase is 1%, underscoring the current weakness. Gershwind explained that the company is avoiding deeper cost cuts to protect long-term growth investments. Actis-Grande acknowledged incremental marketing costs in Q2 but noted they are part of a broader plan that includes productivity savings and significant full-year headwinds from compensation resets and D&A.

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CEO Erik Gershwind affirmed the 20%+ incremental margin goal is achievable over the cycle, citing latent leverage from prior fixed-cost investments and a new, intensified focus on productivity. CFO Kristen Actis-Grande confirmed that Q4 acquisition contribution will be zero and explained the 'other expense' variance was due to a non-recurring balance sheet revaluation tied to the Mexican peso.

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