Jacob Levinson

Jacob Levinson asked about Veralto's confidence in pursuing more M&A deals in 2026, given recent bolt-ons, a new buyback authorization, and a strong balance sheet, inquiring about activity levels. He also sought details on the In-Situ integration plan, specifically identifying low-hanging fruit and major opportunities.

Answer

CEO Jennifer Honeycutt expressed confidence in Veralto's M&A pursuits, citing full funnels in both Water Quality and PQI with actionable opportunities, while maintaining discipline on market, asset, and valuation. She confirmed expectations for continued M&A this year, noting that the share repurchase program provides an additional lever for shareholder value without impacting M&A capabilities. Regarding In-Situ, she highlighted excitement for top-line synergies, aiming to accelerate growth to low double digits by leveraging complementary product portfolios (In-Situ in water quality, OTT in water quantity) and expanding In-Situ's reach through OTT's international channels. She also mentioned cost synergies from VES deployment, global supply chain leverage, and resource optimization.

Jacob Levinson asked about Veralto's confidence in securing more M&A deals in 2026, given the new buyback authorization and strong balance sheet, and the activity levels behind the scenes. He also sought details on the In-Situ integration plan, identifying low-hanging fruit and biggest opportunities.

Answer

Jennifer Honeycutt, President and CEO, expressed confidence in M&A activity with full funnels in both Water Quality and PQI, emphasizing discipline in market, asset, and valuation. She stated that share buybacks offer another lever for shareholder value but don't detract from M&A aspirations. For In-Situ, she highlighted top-line synergies from complementary product portfolios (water quality/quantity) and leveraging OTT channels, alongside cost synergies from VES tools, global supply chain, and resource optimization.

Jacob Levinson of Melius Research asked for clarification on the "content intensity" or opportunity for Veralto's ChemTreat or Trojan businesses within data centers, comparing it to other non-residential facilities like power or chemical plants. Levinson also inquired about the performance and integration of TraceGains since its acquisition, specifically asking if the thesis of pulling traditional products into smaller/mid-sized CPG segments was progressing as expected.

Answer

Jennifer Honeycutt, President and CEO, stated that Veralto's commercial teams are adept at pivoting to opportunities, noting double-digit growth in data centers and related applications, which is a significant growth area despite not disclosing vertical market sales. Sameer Ralhan, SVP and CFO, added that Veralto's services address multiple touchpoints in data centers, focusing on reducing water/power consumption and maintaining uptime. Ms. Honeycutt expressed satisfaction with TraceGains' performance, noting its >20% growth rate is in line with expectations and will now be included in core growth. She confirmed Esko and TraceGains are integrating a digital backbone for CPG market digitization, which is on track.

Jacob Levinson asked about the content intensity or opportunity for ChemTreat or Trojan Technologies in data centers compared to other non-residential facilities like power or chemical plants. He also inquired about the performance and integration of TraceGains, and opportunities to pull traditional Veralto products into smaller/mid-size CPG segments.

Answer

Jennifer Honeycutt (President and CEO) noted double-digit growth in data centers and related applications, emphasizing Veralto's role in reducing water/power consumption and maintaining uptime. She expressed satisfaction with TraceGains' performance and integration, confirming its greater than 20% growth rate and ongoing collaboration with Esko to digitize CPG workflows, making it a growth-accretive business.

Jacob Levinson asked about the impact of trade uncertainty on CPG customer CapEx spending and the current state of the water market in China.

Answer

President and CEO Jennifer Honeycutt stated that CPG demand remains stable, with customers focused on retooling existing lines rather than building new ones. Regarding China, she confirmed the water market is "bouncing along the bottom" due to tough comps and a maturing market, with no recovery factored into second-half guidance.

Jacob Levinson inquired about the current sentiment among large customers regarding market conditions, especially in rate-sensitive sectors, and the drivers behind the acceleration in the medium customer segment.

Answer

Chairman and CEO D.G. Macpherson indicated that customer tone remains stable with no panic or significant tailwinds, varying by industry, and generally not expecting huge market growth. He noted some acceleration in the medium customer segment due to comps and focus on growth through marketing and merchandising, but not a huge inflection point.

Jacob Levinson from Melius Research asked about the current sentiment among Grainger's large customers regarding market conditions and inquired about the drivers behind the recent acceleration in growth from medium-sized customers.

Answer

D.G. Macpherson, Chairman and CEO, indicated that the tone of customer conversations remains cautious, with no significant volume tailwinds expected, and sentiment varying by industry. He also noted a slight acceleration in mid-sized customer growth, attributing it to favorable comparisons and ongoing marketing and merchandising efforts, while emphasizing it's not a major inflection point.

Jacob Levinson of Melius Research LLC asked about the impact of tariffs on the economics of private label versus branded products and the key drivers behind Zoro's recent strong performance.

Answer

CEO D.G. Macpherson explained that the economic impact of tariffs on private label products is highly SKU-dependent and it's too early to determine a broad trend. For Zoro, he attributed its success to improved customer acquisition and a higher repeat business rate, which is up 200 basis points year-over-year. He noted that this strategy, which leverages logic from MonotaRO, is driving significant operating leverage as the business grows.

Jacob Levinson asked about Grainger's ability to flex its sourcing in response to tariff headwinds versus simply raising prices. He also questioned how the economics of the private label offering change with the current tariffs.

Answer

Chairman and CEO D.G. Macpherson explained that while Grainger has worked on building a resilient supply chain, some categories are exclusively sourced from China, making immediate shifts difficult. He noted that tariff impacts are evaluated on a case-by-case basis, as the economics between private label and national brands can shift dramatically depending on their respective countries of origin, potentially making a private brand offering unviable in some scenarios.

Jacob Levinson requested specific examples of step-changes in AI capabilities at Grainger and asked about the productivity gains in new distribution centers (DCs) compared to legacy facilities.

Answer

CEO D.G. Macpherson highlighted two examples: a proprietary machine learning model that significantly improved DC stocking and service levels, and the use of generative AI to enhance customer chat responses. Regarding DCs, he explained that while new automation provides significant productivity gains for small parts picking (up to 4x), overall building productivity improvement is more modest as other areas still rely on manual processes like forklifts.

Jacob Levinson asked how Grainger balances investment spending on demand generation with margin preservation in a sluggish macro environment, and also questioned the company's capital allocation plans given its large cash balance and low leverage.

Answer

Chairman and CEO D.G. Macpherson explained that the key to funding long-term demand-generating investments is driving consistent productivity in core operations. SVP and CFO Dee Merriwether added that the cash balance was elevated by a recent bond offering for future debt repayment and that the capital allocation strategy remains unchanged, with excess cash likely to be returned to shareholders via share repurchases.

Jacob Levinson of Melius Research LLC asked about the specific process or incentive changes driving both revenue growth and cost reduction, leading to margin improvement. He also inquired about the implications for Cognex's machine vision business from new foldable product form factors expected from a large electronics customer.

Answer

CEO Matt Moschner attributed the performance to an intense focus on funding growth initiatives while simultaneously driving cost efficiencies across the entire organization. CFO Dennis Fehr added that it reflects a programmatic approach by the leadership team. Regarding electronics, Moschner explained that such projects have long engagement cycles, and current growth is from adding more value via acquisitions like Moritex and supporting customers' geographic manufacturing shifts.

Jacob Levinson of Melius Research asked about the company's capital allocation strategy, specifically how it is balancing opportunistic share buybacks against the need to preserve cash given the uncertain economic outlook.

Answer

CFO Dennis Fehr explained that capital allocation is supported by strong free cash flow generation. While the primary goal of buybacks is to offset dilution, after repurchasing $150 million over the last two quarters, the pace will likely be 'more reduced' in Q2. He clarified that rather than building a 'rainy day fund,' the priority is preserving capital for potential M&A, which is an important part of their strategy.

Jacob Levinson asked whether the broader public consciousness of AI has increased competition for acquiring niche machine learning technology assets, similar to those Cognex has acquired in the past.

Answer

CEO Robert Willett stated that while many AI startups are now 'for sale,' they often haven't achieved their business plans, leading to more realistic valuations and creating an opportunity for Cognex. He emphasized that success in industrial machine vision requires not just great technology but also deep domain and application expertise, which is Cognex's core strength and a significant differentiator when evaluating potential acquisitions.

Jacob Levinson asked for an update on the Logistics business, specifically how the customer base has diversified beyond large e-commerce players. He also inquired about the Semiconductor market, asking what has changed to make it a notable growth driver for Cognex again.

Answer

CEO Robert Willett stated the Logistics market has bottomed and is now seeing broad-based growth from large e-commerce players, smaller 'base logistics' customers, and share gains in the parcel and post segment. Regarding SEMI, he explained that while it's a mature market, customers continue to rely on Cognex for difficult, 'specced-in' applications, with growth now driven by the market cycle and new opportunities for advanced deep learning technology.