David Macgregor

David MacGregor sought to understand the discrepancy between strong prior-quarter SFC orders and flat second-half Tools Group organic growth, and asked about the performance of regional kickoffs and the company's strategy for its substantial cash balance.

Answer

Nick Pinchuk, President, CEO, and Chairman of the Board, Snap-on Incorporated, clarified that SFC orders are not guaranteed sales and that overall quarterly performance is a mix of various selling efforts. He reported positive regional kickoffs with robust, though non-definitive, orders. Regarding cash, he outlined priorities: maintaining working capital, ensuring dividend perpetuity (16 consecutive increases), consistent acquisition review (e.g., Car-O-Liner, Norbar), and share buybacks (over $80 million last year).

David MacGregor asked to reconcile strong mid-single-digit SFC (Sales Force Conference) orders from the previous quarter with the Tools Group's flat organic growth in the second half, and inquired about non-SFC fulfillment growth.

Answer

Nick Pinchuk, President, CEO, and Chairman of the Board, Snap-on Incorporated, clarified that SFC orders are not sales and can be subject to cancellations. He explained that the Tools Group's performance is a 'cocktail' of SFC, kickoff events, and various monthly promotions, where weakness in other areas can offset strong SFC orders, leading to a flat quarter. MacGregor also asked about the regional kickoffs. Pinchuk reported that the kickoffs were 'very positive' and generated 'reasonably robust' orders, based on his and Aldo Pagliari's observations, but reiterated that these orders are not definitive for future performance. Lastly, MacGregor questioned the company's strategy for its substantial cash balance and M&A priorities. Pinchuk outlined priorities: maintaining cash for working capital, ensuring the perpetuity of the dividend (with 16 consecutive increases), consistently reviewing acquisitions (citing Car-O-Liner and Norbar as examples), and share buybacks (noting over $80 million spent last year).

David MacGregor (Longbow Research) asked about the impact of capacity investments on sequential volume strength and SFC order fulfillment, the relationship between unit volume and organic growth in Snap-on Tools, the comparison of off-the-truck versus to-the-truck sales, and the liquidity of franchisees.

Answer

CEO Nick Pinchuk confirmed capacity investments aid volume management but stated SFC orders weren't the primary driver of sequential improvement, which stemmed from product pivoting. He clarified that pricing wasn't eroding despite 1% organic growth, attributing it to mix and promotions, and noted off-the-truck sales were slightly higher but within normal variability. Pinchuk also mentioned franchisee uncertainty, but didn't see restocking as a major future push.

David Macgregor of Longbow Research asked about the timing for realizing delayed C&I projects, the achievability of the long-term 4% growth target for the Tools Group, and plans for deploying the company's significant cash balance.

Answer

CEO Nicholas Pinchuk stated that C&I project timing is hard to predict as customers accommodate the new environment. He reaffirmed confidence in the Tools Group's long-term growth potential. Regarding capital, he expressed comfort holding cash in an uncertain environment but confirmed the company is capable of a large acquisition if the right opportunity arises, with no immediate changes to the current strategy.

David Macgregor of Longbow Research inquired about the expected timing for the realization of delayed C&I projects, whether the Tools Group can return to its long-term 4% growth target, and how the company plans to deploy its large cash balance, considering M&A, dividends, or buybacks.

Answer

Nicholas Pinchuk, Chairman & CEO, explained that C&I customers are adapting to the new environment and he expects projects to move forward, but could not provide a precise timeline. He affirmed his confidence in the Tools Group achieving its long-term growth targets. Regarding the cash balance, he stated that while they are always looking for a large, non-transformative acquisition, they are comfortable holding cash in an uncertain environment and are not currently contemplating special dividends or tenders.

David S. MacGregor from Longbow Research inquired about U.S. truck-level sales comps, potential franchisee destocking, the cause of negative mix in the Tools Group, the company's promotional response to weaker demand, and the status of manufacturing backlogs.

Answer

CEO Nicholas Pinchuk stated that truck-level sales comps were roughly flat with sell-in, with no significant destocking observed. He attributed the negative mix in the Tools Group to strong sales of lower-margin diagnostics, noting that Tool Storage was the weakest category. Pinchuk affirmed that while promotions are active, the company avoids deep price cuts, as evidenced by strong gross margins. He also confirmed that the Tool Storage backlog has been largely liquidated due to expanded capacity and softer demand.

Speaking on behalf of David MacGregor, Joe Nolan asked about current order activity and backlog levels in the critical industries and torque tools businesses. He also inquired about the margin outlook for the C&I segment and the sell-in versus sell-through dynamics for the Tools Group during the quarter.

Answer

CEO Nicholas Pinchuk described order activity in critical industries as 'pretty good' with a solid backlog, noting that the customized kitting business 'went bananas' in the quarter. He highlighted that strong profitability in C&I and RS&I was driven by a favorable mix and broad-based RCI gains. He concluded by stating that sell-in versus sell-through for the Tools Group was 'about the same' in Q4.

David S. MacGregor asked for details on the Snap-on Franchisee Conference (SFC) order growth, the drivers of the Tools Group's gross margin improvement, the outlook for Q4, and franchisee attrition trends.

Answer

CEO Nicholas Pinchuk reported that SFC orders were flat year-over-year, a positive result given market uncertainty. CFO Aldo Pagliari and Pinchuk attributed the 100 bps gross margin gain in the Tools Group to lower material costs, RCI savings, factory efficiencies, and a favorable product mix. Pinchuk expressed confidence in the Tools Group's momentum for Q4 but did not provide specific guidance, and noted franchisee attrition remains stable.

David MacGregor asked about the 2026 price outlook for single ply roofing, questioning if fundamentals might tighten to support a second-half price increase and how Carlisle views the CCM pricing dynamic given current market conditions.

Answer

Chris Koch, Chairman, President, and CEO, noted that pricing has been relatively flat. He outlined four keys for price movement: reroofing demand, continued labor shortage, rational capacity expansion, and a slightly positive new construction market. He believes a new construction rebound could create upward pricing pressure mid-year. He also highlighted that new technologies like R7 embed price increases by providing more value, which impacts the P&L even if not reflected as a traditional price hike. He confirmed that labor shortages are constant and potentially worsening.

David MacGregor asked about the 2026 price outlook for single-ply products, questioning if market fundamentals might tighten to support a second-half price increase, and sought insight into CCM's forward visibility and pricing dynamics.

Answer

Chris Koch, Chairman, President, and CEO, Carlisle, stated that pricing has been relatively flat. He outlined four conditions for price movement: reroofing demand, continued labor shortage, rational capacity expansion, and a slightly positive new construction market. He believes a rebound in new construction could create upward pressure on traditional mid-year price increases. He also noted that new technologies like R7 embed price increases by providing more value, and clarified that labor shortages are potentially worsening.

David MacGregor from Longbow Research asked for an update on the CWT segment's high single-digit growth guidance, specifically regarding the residential market outlook, and requested commentary on the market dynamics between membrane and polyiso products.

Answer

CFO Kevin Zdimal provided a detailed market breakdown, reaffirming a flat to slightly down residential market for the year, with commercial reroofing remaining the primary growth driver. CEO D. Koch added that CWT growth will be supported by new products like UltraTouch, channel gains, and automation initiatives. Regarding products, Zdimal noted polyiso has been growing faster than membrane due to increased insulation content per job but did not provide a specific growth breakout.

David S. MacGregor asked for an update on the M&A market, including seller motivation, valuation multiples, and the deal pipeline. He also inquired about the strategic consequences of ongoing consolidation within the building products distribution channel.

Answer

CEO D. Koch reported that valuation multiples remain high but noted a slight uptick in the number of deals in the pipeline, ranging from small bolt-ons to larger opportunities. Regarding distribution consolidation, Koch acknowledged the trend and stated Carlisle is well-positioned due to its flexibility. He highlighted that direct-to-contractor sales have already grown to the mid-teens percentage of sales, and the company's strong logistics capabilities allow it to service customers directly while continuing to support its distribution partners.

David MacGregor from Longbow Research asked for an assessment of the polyiso insulation market, particularly how it will absorb new capacity and the impact on pricing. He also requested an outlook for principal raw material inputs and a breakdown of the CWT segment's EBITDA decline between strategic investments and volume deleverage.

Answer

CEO Chris Koch expressed confidence in the market's ability to absorb new polyiso capacity, emphasizing Carlisle's strength as an integrated building envelope solutions provider. Regarding CWT's EBITDA, he attributed roughly one-third of the decline to residential market deterioration and two-thirds to strategic investments. VP of Investor Relations Mehul Patel detailed these investments, which include expanding the sales organization, marketing programs, R&D for new products, and IT system enhancements.

David MacGregor inquired about the composition of the 400 basis points margin improvement in the water treatment business in 2025 and the multi-year annual profitability growth outlook, including current margins versus North America segment averages. He also asked about consumer demand patterns in water treatment and their influence on the 2026 guide.

Answer

CEO Steve Shafer explained that margin improvement stemmed from prioritizing specific market segments, deprioritizing others (which caused a growth drag), restructuring actions in late 2024, and integrating acquired businesses. He noted current operating margins are around 13%, with an expectation to reach 15% in 2026, compared to North America segment margins of 24.4%. Shafer added that consumer demand shows some caution, as water treatment can be a discretionary spend, but the category is still growing with penetration opportunities, allowing A. O. Smith to grow faster than the market by expanding its dealer network.

David MacGregor from Longbow Research inquired about the composition of the 400 basis points margin improvement in the water treatment business in 2025 and the multi-year outlook for profitability growth, including current margins relative to North American segment averages. He also asked about evolving consumer demand patterns influencing the 2026 water treatment guidance.

Answer

CEO Steve Shafer explained that water treatment margin improvement resulted from prioritizing profitable market segments, deprioritizing others, and integrating acquired businesses, with further margin expansion expected. CFO Chuck Lauber specified current water treatment operating margins are around 13%, projected to reach 15% in 2026, compared to the North America segment's 24.4%. Mr. Shafer noted cautious consumer demand for discretionary water treatment items but anticipates continued growth from category expansion, penetration, and dealer network buildout.

David MacGregor requested an update on gas tankless products, including progress on manufacturing relocation, market development, and Q3 margin contribution. He also asked about market feedback and acceptance levels for the phased product launch.

Answer

Stephen Shafer, CEO, reported that the investment in gas tankless products, including manufacturing in North America, is progressing well, despite a challenging market tied to residential construction. He noted changes in strategy from China to North America caused some delays but expressed confidence in the product and supply chain for future competition. Charles Lauber, CFO, added that Q3 margin pressure from gas tankless was about 20 basis points, less than the previously discussed 40 basis points. Stephen Shafer confirmed positive market feedback on the product, with customers loving it, and highlighted efforts to build out the full portfolio and business model.

David MacGregor of Longbow Research requested an update on A. O. Smith's gas tankless water heater initiative, including progress on manufacturing relocation, market development, and its impact on Q3 margin contribution and implied Q4 performance. MacGregor also asked about initial market feedback and acceptance levels for the product, considering its phased launch and incremental models.

Answer

Stephen Shafer, Chief Executive Officer, reported that the manufacturing capability in North America and product development for gas tankless water heaters are progressing well, despite a challenging market tied to residential construction. Shafer noted some delays in the current plan due to strategic changes from China to North America. Charles Lauber, Chief Financial Officer, added that the margin pressure from this initiative was about 20 basis points for the quarter, less than the historically discussed 40 basis points. Shafer confirmed positive product feedback, with customers appreciating the market-leading product, and the company is working on its business model for this segment.

Joe Nolan, on behalf of David Macgregor at Longbow Research, asked about the directional trend of input costs other than steel for the second half of the year and inquired about the outlook for the water treatment business.

Answer

CFO Charles Lauber stated that other input costs are up slightly year-over-year but are expected to be ratable for the year without a significant increase in the back half. CEO Stephen Shafer noted the water treatment business is making good progress, with a focus on priority channels and integration work, and is now positioned to get back to growth after a reset period.

David S. MacGregor of Longbow Research questioned the company's U.S. manufacturing capacity, its ability to repatriate production, and how tariffs influence its vertical integration strategy. He also asked about the status of the 2026 commercial product regulatory changes.

Answer

Chairman and CEO Kevin Wheeler explained that since the company is already highly vertically integrated and operates an 'in-country, for-country' model, repatriation is not a significant issue. He affirmed they have sufficient capacity and flexibility across their U.S. plants. Regarding the 2026 regulations, Wheeler stated that since the changes are law passed by Congress, the company is proceeding as if they will go into effect as scheduled and is preparing its facilities accordingly.

David S. MacGregor asked about the timing of the benefits from the China restructuring and where the greatest impact would be seen. He also asked for the company's target for inventory days on the balance sheet.

Answer

CFO Chuck Lauber stated the China restructuring is already underway and will be fully implemented by the end of Q2, with benefits starting to accrue immediately. The changes are focused on streamlining the organization and reducing structural costs (primarily SG&A) to better align with the current business size. Regarding inventory, Lauber noted levels are slightly high but the company is targeting an overall working capital days metric of below 40 days by the end of 2025.

David S. MacGregor questioned if North American water heater softness was due to slowing replacement demand or builder markets, and asked for a comparison of current premium unit volumes in China versus pre-COVID levels.

Answer

CEO Kevin Wheeler attributed the softness primarily to an inventory correction from normalizing lead times, not a change in replacement demand. CFO Charles Lauber added that improving order rates support this view. Regarding China, Lauber stated that while over 90% of water heater sales were premium pre-COVID, that figure is now a little over 60% after seeing an increase in the premium mix year-over-year.

David MacGregor asked about Whirlpool's 2026 flat industry units forecast, specifically the implied flat replacement demand outlook versus observed strength, and the assessment of pent-up demand. He also inquired about the expected benefit in 2026 from the relief on elevated flooring costs in North America following the substantial 2025 product refresh.

Answer

Chairman and CEO Marc Bitzer explained that replacement demand remains healthy structurally, driven by post-COVID appliance usage, but is less margin-accretive. Discretionary demand, tied to remodeling and existing home sales, is not factored into the 2026 guidance but represents potential upside, contingent on mortgage rates and consumer sentiment. He highlighted significant multi-year pent-up demand in housing. Regarding flooring costs, Mr. Bitzer noted that 2025 bore the brunt of phase-in/phase-out costs, warehousing inefficiencies, and significant flooring expenses from the record product introductions. 2026 will benefit from the absence of these costs and the full impact of increased floor space and strong sell-out of new products.

David MacGregor inquired about Whirlpool's 2026 flat industry unit forecast, specifically the implied flat replacement demand outlook despite observed strength, and sought clarification on the extent of pent-up demand in the housing market. He also asked about the expected benefit in 2026 from the relief on elevated flooring costs in North America following the substantial 2025 product refresh.

Answer

Chairman and CEO Marc Bitzer explained that replacement demand remains healthy due to post-COVID appliance usage, but is less margin-accretive. He clarified that the guidance does not factor in upside from discretionary demand, which would stem from increased remodeling or existing home sales, despite potential for a slow unfreezing of the housing market. Bitzer also noted significant pent-up demand tied to housing undersupply and the aging stock of existing homes, suggesting discretionary demand could accelerate faster than new home sales if consumer sentiment improves. Regarding flooring costs, Bitzer highlighted that 2025 bore the significant introduction costs (factory inefficiencies, warehousing, flooring), and 2026 will benefit from the absence of these costs and the full impact of higher flooring and strong sell-out of new products.

David Macgregor of Longbow Research asked for an estimate on the quantity of pre-loaded, tariff-free imported products in the U.S. and inquired about the promotional outlook for the second half of the year.

Answer

Marc Bitzer, Chairman & CEO, estimated there were easily 60 to 90 days of excess inventory from Asian imports as of May, which has created significant short-term disruption. He noted that while Whirlpool reduced its own promotional activity in Q2, the overall industry remained intense due to this inventory. He speculated that the promotional environment would likely be more muted going forward but refrained from giving a specific forecast.

David S. MacGregor of Longbow Research questioned which product segments are most affected by tariff-impacted imports and asked about the growth of the direct-to-consumer (DTC) channel for the SDA business.

Answer

Marc Bitzer (executive) clarified that imports impact the entire product spectrum, from opening price points to mass premium, not just one segment. On the SDA business, he highlighted that the DTC channel has grown to represent about a quarter of the business, calling it an attractive model for building customer loyalty that augments, rather than replaces, traditional retail.

David S. MacGregor asked about the status of the production rate recovery mentioned in the prior quarter and whether the guided price/mix benefit for 2025 seems light given the comprehensive new product rollouts.

Answer

CEO Marc Bitzer and CFO Jim Peters clarified that the company did not achieve production volume leverage in Q4; instead, they adjusted production down to match retailer destocking and avoid inventory build. Regarding the price/mix guidance, Bitzer explained that the benefit is moderated by the timing of launches throughout the year and the inclusion of one-time product transition expenses, which are factored into the guidance.

David S. MacGregor questioned the Q3 consolidated EBIT margin variance from prior guidance and the implied 8% margin for Q4. He also asked about the drivers behind the Small Domestic Appliances (SDA) segment's margin decline and the outlook for a seasonal rebound.

Answer

CFO Jim Peters confirmed the Q3 margin miss was due to a non-cash loss from the Beko Europe equity stake. He stated the implied Q4 strength is driven by accelerating cost actions, continued North America pricing benefits, and normalized production levels. CEO Marc Bitzer highlighted the strong sequential margin improvement in North America as evidence of their strategy's success. Regarding the SDA segment, Bitzer noted the business is on track for full-year guidance, with Q3 impacted by seasonality and marketing investments for new products, which positions it for a strong Q4.

David MacGregor from Longbow Research inquired about Toro Company's fiscal 2026 sales growth guidance, specifically the organic volume expectations across individual business lines, considering the impact of the Tornado acquisition and pricing. He also pressed for details on the residential segment's projected improvement from Q1 to Q2-Q4 and the potential for channel restocking. Additionally, McGregor asked about the increased AMP program savings target, its sources, and the allocation strategy for these savings between the bottom line and reinvestment, as well as the outlook for raw material costs in fiscal 2026.

Answer

Chairman and CEO Rick Olson explained that organic growth on the professional side is expected from underground, golf, and landscape contractor businesses, while the residential segment's recovery rate depends on consumer confidence and macroeconomic factors. VP and CFO Angie Drake added that homeowner caution is built into residential guidance, but productivity and cost savings will help margins, and early snow trends are encouraging. Drake detailed that the increased AMP savings target of $125 million by F27 will come from supply-based, design-to-value, route-to-market, and operational efficiency workstreams, without requiring increased volume. She confirmed the company expects to continue reinvesting up to 50% of savings, noting that $75 million was realized in F25, with some over-indexing on investment due to headwinds. For raw material costs, Drake anticipates inflation early in 2026, settling mid-year, with these factors incorporated into guidance.

David MacGregor inquired about the components of the 2026 sales growth guidance, specifically the implied volume outlook across different business lines, the expected improvement in the residential segment from Q2-Q4, the source of the increased AMP savings target, the updated strategy for reinvesting AMP gains, and the outlook for raw material costs in 2026.

Answer

Rick Olson, Chairman and CEO, explained that sales growth is driven by the Tornado acquisition, continued strength in professional underground and golf businesses, and a strong return of landscape contractors, while residential expectations are muted due to macro factors. Angie Drake, VP and CFO, added that homeowner caution persists but productivity and cost savings will aid residential margins, with early snow trends being favorable. Ms. Drake detailed that the increased AMP savings come from supply-based, design-to-value, route-to-market, and operational efficiency workstreams, not requiring increased volume. She confirmed the continued plan to reinvest up to 50% of AMP savings, noting higher investment in 2025 due to headwinds, and stated that raw material costs are expected to see early-year inflation settling mid-year.

In a follow-up, David Macgregor of Longbow Research asked about the competitive impact of the tariff environment on Toro and sought clarification on whether certain tariffs are cumulative or mutually exclusive.

Answer

Chairman, President & CEO Richard Olson stated that while Toro is similarly positioned to competitors on professional products, he believes the company has a solid competitive advantage on homeowner products due to its U.S. manufacturing focus and mitigation strategies in place since 2018. VP & CFO Angela Drake opined that the tariffs in question are likely mutually exclusive but emphasized the situation is highly dynamic and being monitored daily by an internal task force.

David S. MacGregor inquired about the financial impact of the AMP productivity initiative, asking how much of the stated run-rate savings benefited Q1 earnings and the expected cadence for the rest of the year. He also asked about professional snow product inventory levels and the outlook for the landscape contractor season, and concluded by asking for price-to-cost expectations for fiscal 2025.

Answer

CFO Angela Drake clarified that while the company achieved a $64 million total run-rate savings, $7 million in gross savings were realized in Q1, which is factored into the full-year guidance. CEO Richard Olson addressed the snow market, noting that despite some storms, key markets saw snowfall more than 50% below average. Professional snow inventories are down year-over-year but still elevated, a factor included in their outlook. He added that contractor budgets appear to be in good shape for the spring. Drake stated that for the full year, the company expects a return to a more normal 1-2% price increase, excluding any new tariffs.

David S. MacGregor of Longbow Research questioned if strong Q4 Residential sales were pulled forward from fiscal 2025 and asked for the key drivers of the expected adjusted gross margin improvement in 2025 on flat revenue.

Answer

CEO Richard Olson stated there was no unusual pull-forward of sales in Q4, attributing the Q1 outlook to ongoing homeowner caution and high snow product inventory in the channel. Regarding fiscal 2025 margin expansion, Olson and CFO Angela Drake cited benefits from the AMP productivity initiative, cost management actions, and an expectedly favorable product mix in the second half of the year, including a recovery in snow product sales.

David MacGregor asked about demand trends in August following the noted slowdown in July. He also requested details on the magnitude of productivity benefits from the AMP initiative in the Professional segment and the timing of when lower steel costs might benefit the P&L, including contract reset schedules.

Answer

CEO Richard Olson described August as 'a bit more normalized' while still showing some caution, which is factored into Q4 guidance. CFO Angela Drake highlighted AMP progress from a supplier summit and portfolio actions, while Olson noted that higher plant utilization in strong businesses also boosts productivity. Regarding steel costs, Olson stated that major contract negotiations are still pending and that the focus is on driving down costs through the AMP initiative with suppliers, rather than relying solely on market price fluctuations.

David MacGregor sought insights into mid-year aggregates pricing, comparing this year's experience to prior years, and whether pressures in downstream markets are constraining pricing.

Answer

Ward Nye, Chairman and CEO, was not surprised by mid-year pricing, given the relatively static volume environment. He expects constructive mid-year pricing for next year, driven by improving public, heavy non-residential, and potential H2 housing recovery. He clarified that downstream businesses are narrow, and the prior sale of California asphalt businesses buffers perceived suffering in that segment, indicating no undue pressure on pricing.

David MacGregor sought Martin Marietta's insights on mid-year aggregates pricing, how this year's experience differed from prior years, and if pressures in downstream markets are currently constraining pricing.

Answer

Chairman and CEO Ward Nye was not surprised by mid-year pricing, given the relatively static volume environment, and noted that adjustments were primarily in areas with new M&A. He anticipates a constructive outlook for mid-year pricing next year due to improving public and heavy non-residential sectors, and a recovering housing market. Ward Nye clarified that downstream businesses are not experiencing undue pressure, with specific issues in Minnesota's asphalt business being unique and buffered by prior asset sales.

David Macgregor inquired about the pricing of the 20 million tons of aggregates being acquired, asking if there is an opportunity for an ASP lift, and also asked about the potential impact of railroad mergers.

Answer

CEO C. Howard Nye suggested there is a 'value' opportunity with the acquired assets, implying potential for price improvement. Regarding rail mergers, he expressed confidence, noting Martin Marietta's position as the largest rail shipper of aggregates and its strong relationships with Class I railroads. He does not foresee any peril to the business from potential consolidation.

David S. MacGregor of Longbow Research LLC asked about the M&A environment from a different angle, inquiring if there have been any changes in the permitting process that would improve the company's ability to execute reserves-oriented acquisitions.

Answer

Chair and CEO Ward Nye stated he does not see notable changes in the permitting process. He explained that while there is some federal oversight on air and water, the most significant barriers—zoning and land use permits—are 'decidedly local' at the city or county level. He believes these high local barriers will persist and play to Martin Marietta's strength in land use management. Nye described the company's strategy of acquiring adjacent land, which, once permitted over several years, removes setbacks on existing quarries and opens up new reserves, allowing them to 'win twice.'

David S. MacGregor asked about the risk of the federal government de-obligating previously allocated funds for state DOT infrastructure projects.

Answer

CEO Ward Nye characterized the risk of de-obligation as low. He reasoned that the IIJA's core highway and bridge funding aligns with the stated priorities of building 'real infrastructure.' Given that a reauthorization will be needed post-2026, he believes the current administration will be motivated to ensure the allocated funds are spent. Nye concluded that any potential policy nuances are unlikely to affect the aggregates-intensive projects that are core to Martin Marietta's business, viewing the likelihood of negative impacts as relatively low.

David S. MacGregor sought clarification on the tonnage related to the narrowing acquisition price delta and then asked about the potential benefit of cement tariffs on the Dallas-Fort Worth market.

Answer

CEO C. Nye clarified the price delta applied to the Blue Water and Frei acquisitions and noted pricing in California is now largely aligned. Regarding tariffs, he explained that the DFW market is already strong and largely insulated from imports due to logistics. While tariffs would be a positive, the market's fundamental strength is driven by its robust economy, not import exposure.

David McGregor inquired about the implications of customer mix, specifically the growing presence of larger consolidated contractors and remodel work, on longer-term margins and the levers available to offset any negative impact. He also asked for a breakdown of the 4% equipment growth, distinguishing between parts for maintenance/repair and equipment sales in the remodel segment.

Answer

President and CEO Peter Arvan views customer consolidation as an opportunity, stating that Pool Corporation's technology suite provides a competitive advantage by integrating with larger companies, enhancing efficiency, and reducing cost to serve. He clarified that the vast majority of equipment sales are for replacement business due to failed components, rather than new construction or remodel projects.

David S. MacGregor asked where the company has the greatest opportunity to flex its business model to protect margins if the macro environment worsens, and whether a pullback in consumer confidence is driving a shift to DIY activity in the Pinch a Penny business.

Answer

CEO Peter Arvan stated that if the macro worsens, the impact would be on discretionary spending, but the large maintenance and repair business remains stable. He emphasized the company's proven ability to flex variable costs related to transportation, labor, and performance-based compensation. He also noted that they have not seen a major shift from 'do-it-for-me' to DIY, as channel partners like Pinch a Penny cater effectively to both customer types.

David S. MacGregor asked about the company's long-term plans for expanding its private label product offerings and the margin profile of these products. He also inquired about the expected level of technology spending in 2025 following the $20 million investment this year.

Answer

President and CEO Peter Arvan stated that private label is a key part of their strategy, focusing on chemicals and maintenance products rather than equipment. He highlighted that these brands are margin-accretive and offer a significant growth opportunity by leveraging their vast distribution network. Regarding technology, he does not anticipate a major change in the level of spending for 2025, viewing it as a necessary ongoing investment.

David MacGregor of Longbow Research asked for details on the drivers of the strong $150.5M backlog, the growth strategy for the defense sector, and commercial synergies from recent acquisitions. He also inquired about a potential margin inflection point, the sustainability of ME&A spending, the fiscal 2026 outlook for the balance sheet and free cash flow, and whether the company would prioritize integration over new M&A.

Answer

CEO John Batten and CFO Jeff Knudson explained that backlog strength is broad-based, with significant contributions from defense, marine propulsion, and pleasure craft. Batten highlighted that defense growth is driven by both U.S. Navy programs and NATO land-based vehicles via the Katsa acquisition, with a focus on expanding capacity to meet demand. He confirmed the company is at a margin inflection point due to supply chain normalization, sourcing efficiencies, and product discipline. Knudson noted that current ME&A spending can support revenue well north of $400M and that the company aims to lower leverage to enable future bolt-on acquisitions, which can be pursued concurrently with integration efforts.

David S. MacGregor of Longbow Research inquired about current order patterns and backlog stability, asking if there were signs of cyclical pressure or deferrals. He also sought details on the company's ability to mitigate tariff impacts through pricing actions without hurting Q4 margins, the integration progress and synergy potential for the Kobelt and Katsa acquisitions, and specific examples of the operational efficiencies that drove gross margin improvement.

Answer

CEO John Batten stated that order rates are strengthening, particularly in marine workboat and government defense, with no significant cancellations, though he noted potential softness in the smaller pleasure craft segment due to tariffs. Executive Jeffrey Knutson explained that the company was proactive on pricing and sourcing to mitigate tariff impacts and does not expect a significant hit to Q4 margins. Batten expressed confidence in replicating their acquisition playbook with Katsa and Kobelt, highlighting opportunities in Kobelt's industrial brakes. Knutson detailed operational efficiency gains from factory Kaizen events, global sourcing, and design reviews for high-volume products like ARFF transmissions.

David Macgregor of Longbow Research questioned if there was any sales pull-forward into Q2, the sustainability of market share gains, the size of the mid-market segment, the backlog conversion timeline, ROI timing for international automation, the net impact of tariffs, and future growth priorities.

Answer

CEO Laurel Hurd and CFO Bruce Hausmann confirmed they were not aware of any sales pull-forward. Hurd attributed market share gains to product innovation and expansion into the 'significantly bigger' mid-market price point. She noted automation benefits in Europe and Australia would begin in 2026. Hausmann stated most of the backlog will ship in 2025 and the Q2 tariff impact was neutral. Hurd outlined growth priorities as the Americas, Europe, and expansion in carpet tile and resilient flooring, stating they don't need an acquisition to meet growth targets.

David S. MacGregor asked about the timing of tariff impacts versus mitigation efforts, the reasons for the inventory increase, the expected benefits of the new Global Product Category Management role, the contribution of procurement to margins, and the current state of the 'return to office' demand driver.

Answer

CEO Laurel Hurd and CFO Bruce Hausmann stated they expect the timing of tariff costs and mitigation efforts to be well-aligned. Bruce Hausmann clarified the inventory increase was a typical seasonal build for a strong Q2, not a tariff-related pre-buy. Laurel Hurd described the new product management role as a long-term strategic investment to optimize innovation. She also highlighted that the globalized supply chain is already yielding benefits, such as rolling out automation globally. Both executives characterized the 'return to office' dynamic as being in the 'early innings,' creating beneficial churn and a 'flight to quality' in office space.

David S. MacGregor from Longbow Research inquired about the substantial increase in the 2025 CapEx forecast, the key drivers for the guided gross margin improvement, the remaining SG&A leverage, and the rationale behind the flat interest expense guidance.

Answer

CFO Bruce Hausman explained the $45M CapEx for 2025 includes ongoing high-return automation projects and some timing shifts from 2024. CEO Laurel Hurd added these projects are increasing throughput. On gross margin, both executives pointed to multiple factors, with Hurd highlighting the positive mix from growing Nora sales. Regarding SG&A, they noted a continued focus on disciplined spending. Hausman clarified that interest expense is now more predictable as the company's debt is largely fixed-rate.

David S. MacGregor questioned the increasing penetration of multi-product sales (carpet, LVT, nora) under the 'One Interface' strategy, nora's production capacity, the specific contributors to gross margin expansion, and the scalability of SG&A expenses.

Answer

CEO Laurel Hurd confirmed that multi-product wins are increasing, driven by the 'One Interface' sales team integration and compensation structure. She stated that nora capacity is sufficient for now due to recent automation investments. CFO Bruce Hausmann attributed the 158 basis point margin expansion to a mix of raw material deflation and higher fixed cost absorption. Laurel Hurd added that regional mix was also a benefit and that SG&A is managed through targeted investments in growth areas, like expanding the nora sales team, while maintaining overall efficiency.

David Macgregor of Longbow Research inquired about how much of the 2-3 million tons lost to weather in Q2 could be recovered in Q3 and asked for more specific details on backlog growth.

Answer

Chair & CEO J. Thomas Hill explained that the weather-related volume catch-up would be spread throughout the second half, with some already seen in July's strong shipments. He confirmed that backlogs are up substantially in highways and non-residential, supporting the full-year guidance and providing a strong setup for 2026.

David MacGregor of Longbow Research questioned the potential impact of tariffs on the ready-mix business via cement imports and asked if cost moderation was occurring in areas beyond fuel, such as maintenance and services.

Answer

CEO James Hill confirmed that cost inflation has moderated, meaning the rate of increase has slowed, which has been helped by operating efficiencies. He also noted some costs were deferred due to weather. Regarding tariffs, he reiterated that he does not see a significant impact on Vulcan's business at this point, including its ready-mix and asphalt operations.

David MacGregor of Longbow Research questioned whether Vulcan's profitability strategy might evolve to favor volume and market share gains over continued large price increases.

Answer

CEO Tom Hill maintained that the company's strategy is not a choice between price and cost, but an integrated approach. He explained that the 'Vulcan Way of selling' and 'Vulcan Way of operating' are designed to improve both pricing and cost efficiencies simultaneously, leading to superior unit margin growth that can 'beat history,' as evidenced by nine consecutive quarters of double-digit improvement.

David Macgregor from Longbow Research asked about the volume leverage in Workplace Furnishings excluding price/cost impacts, the potential for upside to the Kimball/Mexico synergy targets, and the expected pace of share repurchases for the year.

Answer

CFO Vincent Berger stated that incremental margins from volume in Workplace Furnishings are expected to be in the 35-40% range before investments. He also indicated that the company is leaning towards the high end of its $0.70-$0.80 EPS benefit range from synergies, with potential for further upside. Regarding share repurchases, he noted that decisions are made on a quarterly basis and depend on free cash flow deployment strategy.

David Macgregor from Longbow Research asked about the expected volume leverage in Workplace Furnishings, the potential for upside to synergy savings targets from the Kimball and Mexico initiatives, and how to model full-year share repurchases.

Answer

EVP & CFO Vincent Berger stated that incremental margins from volume in Workplace Furnishings should be in the 35-40% range before investments. He indicated the company is trending toward the high end of its $0.70-$0.80 EPS synergy savings target. Regarding buybacks, he noted that decisions are made on a quarter-by-quarter basis and depend on free cash flow deployment.

David Macgregor from Longbow Research asked about the volume leverage in Workplace Furnishings net of price/cost pressures, the potential for upside to the projected savings from the Kimball acquisition and Mexico facility, and how to model share repurchase activity for the full year.

Answer

CFO Vincent Berger stated that incremental margins from volume in Workplace Furnishings should be in the 35% to 40% range before investments. He also signaled that the EPS benefit from the KII and Mexico initiatives is leaning toward the high end of the previously communicated $0.70 to $0.80 range, if not slightly more. Regarding share repurchases, he noted that the level of activity is a quarter-by-quarter decision based on free cash flow deployment.

David Macgregor from Longbow Research questioned the level of volume leverage improvement in Workplace Furnishings, the potential for upside to synergy savings targets, and the outlook for the pace of share repurchases.

Answer

EVP & CFO Vincent Berger stated that incremental margins with volume in Workplace Furnishings should be in the 35% to 40% range before investments. He signaled upside to the synergy savings, noting the company is leaning closer to the $0.80 end of the previously communicated $0.70-$0.80 EPS benefit range. Regarding share repurchases, Berger indicated that the pace is re-evaluated quarterly and is a function of free cash flow deployment, declining to provide a full-year forecast.

David Macgregor from Longbow Research asked about the volume leverage in Workplace Furnishings considering both synergies and price/cost pressures, the potential for upside to synergy savings estimates, and the outlook for full-year share repurchases.

Answer

EVP & CFO Vincent Berger stated that incremental margins with volume are expected to be in the 35% to 40% range before investments. He also signaled upside to the KII and Mexico synergy savings, noting they are leaning toward the high end of the $0.70-$0.80 EPS benefit range. Regarding buybacks, Berger clarified that repurchase decisions are made quarterly and are not based on a fixed annual plan.

David MacGregor's associate, Joe Nolan, asked for a high-level view on the puts and takes for the price-cost dynamic into the second half of the year.

Answer

CEO Brian Chambers reiterated the company's core strategy: a '1-2 punch' of driving value through innovation and brand to command premium pricing, while simultaneously focusing on operational excellence and cost optimization across the entire enterprise. He stated this long-term approach allows them to navigate short-term market choppiness effectively.

David MacGregor sought clarification on tariff mitigation plans and asked if Harley-Davidson's U.S.-centric manufacturing and sourcing could ultimately become a competitive advantage.

Answer

CEO Jochen Zeitz outlined a multi-pronged mitigation strategy: engaging with administrations, adjusting supply chains for both short and long-term impacts with a focus on China, controlling expenses, and selectively using pricing. He acknowledged that high tariffs on imported motorcycles could become a competitive advantage in the U.S. due to Harley's domestic manufacturing, but this could be offset if retaliatory tariffs are imposed in key export markets like Europe.

David S. MacGregor of Longbow Research asked for more concrete details on tariff mitigation strategies. He also inquired if Harley-Davidson's U.S.-centric manufacturing and sourcing could ultimately become a competitive advantage in the domestic market.

Answer

CEO Jochen Zeitz outlined a five-point mitigation plan: 1) engaging with administrations in the U.S. and Europe, 2) implementing short- and long-term supply chain adjustments, with an immediate focus on China, 3) accelerating or slowing shipments to navigate timing, 4) controlling overall expenses, and 5) selectively using pricing as a lever. He agreed that high tariffs on imported motorcycles could become a competitive advantage in the U.S. but noted the risk of retaliatory tariffs in export markets like Europe.

David S. MacGregor of Longbow Research asked about the quantifiable impact of weather on Q3 retail sales and the company's market share expectations for 2025.

Answer

CEO Jochen Zeitz confirmed that weather, particularly Hurricane Helen on the East Coast, created a tougher retail environment and led to dealership closures, impacting sales towards the end of September. Regarding 2025 market share, he declined to give specific guidance but expressed confidence that the strong product lineup, especially in Touring and CVO, positions them well to defend and potentially gain share, building on the success seen from recent innovations.

David S. MacGregor of Longbow Research asked about the quantifiable impact of weather on Q3 retail sales and the company's market share expectations for 2025.

Answer

CEO Jochen Zeitz confirmed that weather, particularly Hurricane Helene, had a significant negative impact on retail sales toward the end of September due to dealership closures. Regarding 2025 market share, he did not provide a specific forecast but expressed confidence that the strong product lineup, especially in Touring and CVO where the company has gained share, positions them well to defend their position.

David S. MacGregor from Longbow Research asked for quantification of weather's impact on Q3 retail sales and for the company's market share outlook for 2025.

Answer

CEO Jochen Zeitz confirmed that weather, particularly a hurricane on the East Coast, negatively impacted retail in late September. He declined to provide a specific 2025 market share forecast but expressed confidence in defending their position, highlighting the significant market share gains achieved in the Touring segment this year due to product innovation.

Inquired about the planned 15-20 new locations, asking for the split between OTC (On-Time and Complete) and non-OTC markets, and also questioned the current capacity utilization of distribution centers and any need for future investment.

Answer

The vast majority of the new 2025 branches will be in OTC markets to leverage network effects, with a significant number also focused on expanding the waterproofing business. Regarding capacity, the focus is less on utilization metrics and more on ensuring a high level of customer service, which is a key competitive advantage and is often enhanced by adding new locations within a market.

Asked for a breakdown of the 12% growth in the private label business, inquiring about the contribution from new SKUs versus contractor preference, the product mix across business lines, and how the company manages relationships with vendors it competes with.

Answer

The growth is a balanced mix of growth in existing categories and the addition of new ones, like a new commercial insulation product. The strategy helps customers differentiate their offerings. The company manages vendor relationships well, noting that private label is a common retail strategy and that they maintain good relationships with partners who understand their approach.

David S. MacGregor of Longbow Research asked for the drivers behind the 'lower product costs' cited in each segment, questioning if it was purely scale benefits or other structural changes. He also raised the obligatory question about the company's exposure to potential tariffs.

Answer

CEO Clifton Pemble confirmed that lower costs are 'definitely the scale' benefits from higher production volumes and supply chain efficiencies, not structural changes. Regarding tariffs, he stated that while exposure exists, Garmin believes it is 'optimally positioned' to minimize potential impacts and that the situation is too fluid to build into current guidance.

David MacGregor of Longbow Research asked about the potential revenue headwind from recent store closures, the company's exposure to tariffs on European imports, and current capital allocation priorities for acquisitions.

Answer

Executive Michael McLamb explained that there is no significant revenue headwind from the 10 recent store closures, as they were primarily duplicated locations within large sales territories. On tariffs, he noted that European imports represent less than 15% of total revenue and believes the company could navigate a reasonable tariff, partly offset by the strong U.S. dollar. Executive Bill McGill stated that the acquisition strategy remains focused on opportunistic additions in marinas, superyacht services, and retail businesses with high-margin components.

David MacGregor asked how the service business is factored into the 2025 outlook and how MarineMax can organically grow its service offerings if new boat sales remain stagnant.

Answer

CEO Bill McGill explained that the company's strategic diversification into higher-margin, related businesses like marinas and superyacht services positions it to perform well even if boat sales are down. He highlighted that resilient offerings like yacht management and chartering are less cyclical than sales. While there is upside in traditional boat servicing, the strategic moves were made precisely to create a more durable business model in various market conditions.

Asked about the quantifiable impact of weather on Q3 retail sales and the company's market share expectations for 2025.

Answer

Management confirmed that weather, especially Hurricane Helen, had a significant negative impact on retail sales toward the end of September. They declined to give specific 2025 market share guidance but feel well-positioned to defend or gain share, citing the strength of their new Touring and CVO products.

Asked for more detail on the commercial synergy opportunities, why confidence has increased, if the opportunity can be sized, and its potential contribution in 2024.

Answer

Confidence increased after closing the deal and identifying specific opportunities, such as significant aggregates pull-through in Houston and the ability to reprice legacy Argos cement contracts. These underpriced contracts were about $10/ton below market and represent a $10-12M synergy opportunity. While traction is good, the financial impact of synergies will be more weighted to the second half of the year.