Joe O'Dea

Joe O'Dea inquired about Otis's ongoing efforts in maintenance, specifically focusing on retention and recapture strategies, and the expected timeline for these initiatives to drive an increase in revenue growth. He also asked for more details on the improved outlook for new equipment in the Americas, including insights into recent demand drivers in infrastructure and residential verticals, and whether these projects were previously in the pipeline.

Answer

Judy Marks, Chair, CEO, and President, Otis Worldwide Corporation, stated that while 2024's retention was unsatisfactory, significant investments in service excellence are underway, with sequential improvement expected, though returning to a 94% retention rate will be a long journey. She noted the portfolio is approaching 2.5 million units and recapture rates are pleasing. For Americas new equipment, Ms. Marks attributed the positive outlook to increased demand in residential, infrastructure, and data center segments across all geographies, coupled with improved execution at job sites. She highlighted five consecutive quarters of orders growth in the Americas, indicating future revenue strength due to the typical 18-month lag.

Joe O'Dea from Wells Fargo inquired about Otis's ongoing efforts to improve maintenance retention and recapture rates, seeking insights into the timeline for achieving higher revenue growth in this segment. He also asked for more details on the Americas' new equipment outlook, specifically regarding recent demand drivers in infrastructure and residential verticals.

Answer

Judy Marks, Chair, CEO, and President, highlighted strategic investments in service excellence to boost customer retention, acknowledging it's a long-term journey to rebuild trust and reach the 94% retention target. She noted sequential improvements and continued portfolio growth, approaching 2.5 million units, which enhances repair opportunities. Cristina Méndez, EVP and CFO, added that maintenance growth remains stable at 3% year-to-date, driven by 4% portfolio growth and 3% price, with efforts focused on mitigating mix and churn headwinds. For Americas new equipment, Judy Marks expressed optimism due to strong demand in residential, infrastructure, and data center segments, coupled with improved new equipment execution at job sites. She emphasized five consecutive quarters of orders growth in the Americas, providing strong line of sight for future revenue.

Joe O'Dea from Wells Fargo asked about behind-the-meter infrastructure investments, specifically for data centers, and their content implications for both utility and electrical segments compared to front-of-the-meter investments. He also inquired about the grid automation segment's CAGR relative to targets and the broader value or synergy that the meters and AMI business brings to the portfolio despite underperforming growth targets.

Answer

Gerben Bakker (Chairman, President and CEO, Hubbell Incorporated) explained that data center investment directly impacts the electrical side with products like grounding systems, connectors, and PCX business, with ongoing NPD for higher amperages. He noted that utilities primarily serve data centers, leading to significant investment in grid interconnection and generation, benefiting Hubbell's utility segment. Bill Sperry (EVP and CFO, Hubbell Incorporated) added that direct data center exposure is behind-the-meter, while front-of-the-meter growth also benefits the utility segment. Bakker acknowledged that the financial performance of meters and AMI (Aclara) has been below expectations but emphasized its strategic value in grid modernization, with half of grid automation revenues now coming from non-Aclara products that are growing strongly and contributing to the overall portfolio.

Joe O'Dea asked about the impact of behind-the-meter infrastructure investments, particularly in data centers, on Hubbell's content opportunity across both utility and electrical segments. He also questioned the grid automation's CAGR relative to targets and the broader synergy value of the meters and AMI business within the portfolio.

Answer

Gerben Bakker, Chairman, President, and CEO, explained that data center investment directly impacts the electrical side (Burndy, grounding systems, PCX business) and indirectly benefits the utility side through power provision and grid interconnections. Bill Sperry, EVP and CFO, noted that explicit data center exposure refers to behind-the-meter, while in-front-of-meter growth goes to utility customers. Bakker acknowledged that grid automation's financial performance was below expectations but highlighted its strategic contribution to grid modernization, with half its revenue now from non-Aclara products growing at the high end of the portfolio.

Asked for details on the growth trajectory for the Grid Infrastructure business in the second half, given strong orders. Also inquired about the M&A pipeline and the likelihood of capital deployment activity.

Answer

Management expects continued strength in transmission and substation (mid/high teens growth) and accelerating growth in distribution due to easier comps. This, combined with Aclara returning to growth in Q4, drives the strong second-half outlook. On M&A, they just closed a small bolt-on acquisition, the pipeline is active, and their focus remains on high-growth areas like T&D and data centers, balanced with share repurchases.

Joe O'Dea noted the International segment's first quarter of volume growth after four declines and asked for more details on the quarter's performance and any momentum.

Answer

President and CEO John Stone expressed satisfaction with the International team's performance, acknowledging that while end markets remain largely flat organically, some segments were at historical lows. He highlighted the strong performance of Allegion's electronics businesses and the continued momentum from the ELATEC acquisition in the electronics space.

Joe O'Dea asked about Allegion's conversations with building owners and architects regarding macro uncertainty, seeking insight into sidelined activity and the factors needed to bring it back. He also questioned the International segment's volume growth, noting it was the first positive quarter after four declines, and asked for more details on this momentum.

Answer

President and CEO John Stone indicated that channel checks show non-residential project activity is healthy, with some private finance returning. He identified a more favorable interest rate environment as a key factor to bring more private finance off the sidelines. For the International segment, Mr. Stone expressed satisfaction with the team's performance, noting that while the end-market view remains flattish, electronics businesses are performing well, and the Elitech acquisition continues to add momentum.

Joe O'Dea asked for the company's perspective on what residential industry volume normalization would look like for 2026, considering factors like existing home sales and interest rates. He also inquired about how the industry would approach pricing in 2026, given past inflation and regulatory changes, and if a typical pricing algorithm would still apply.

Answer

CEO Alok Maskara stated that while 2025 volumes are abnormally low due to destocking, a 'normal' year for 2026 would be closer to 9-10 million units for the industry, with more details to come in January. He praised the industry's pricing discipline in 2025 and expects pricing in 2026 to continue offsetting inflation, similar to past trends, with some carryover benefit from tariff-related pricing and A2L-related mix. He also noted Lennox's strategy to walk away from low-margin residential new construction business.

Joe O'Dea asked for Lennox's perspective on industry volume normalization for residential units, considering historical ranges and current low levels, and how factors like housing turnover and interest rates might shape 2026 industry volumes. He also questioned the industry's pricing approach for 2026, specifically if the historical algorithm of mid-single-digit list price increases and 1-2% realization can be sustained given recent price hikes and inflation.

Answer

CEO Alok Maskara stated that Lennox aims to outperform the industry and believes 2025's low volumes are abnormal due to destocking. He anticipates a 'normal' industry year in 2026 to be closer to 9-10 million units. On pricing, he praised the industry's discipline in 2025 for A2L and tariff offsets and expects similar actions in 2026 to offset inflation, with carryover benefits from tariffs and A2L mix. He noted Lennox has exited some low-margin residential new construction business.

Joe O'Dea from Wells Fargo asked for color on QSC's margins in Q4, comparing them to legacy AIS margins, and the timeline for QSC to align with legacy margins, including its margin expansion opportunity in 2026. He also inquired about specific cost actions taken, the dynamic supply chain advantage, and the current percentage of sourcing from China versus previously. Finally, he sought clarification on the Q3 pull-forward impact on 2026.

Answer

Karen Holcom, SVP and CFO, Acuity, noted strong performance across AIS, including QSC, with QSC benefiting from adopting Acuity's operating system. She expects QSC margins to continue expanding over time, with a focus on growth for AIS. Neil Ashe, Chairman, President, and CEO, Acuity, detailed cost actions, including moving the majority of tariff-impacted material sourcing away from China and accelerating productivity efforts and organizational restructuring in ABL. Mr. Ashe clarified that the Q3 pull-forward was largely isolated to the back half of the year, with normalized operations expected.

Joe O'Dea of Wells Fargo asked for details on the composition of the 8% aerospace organic growth forecast for FY26, focusing on margin mix between OE and aftermarket, and inquired about Meggitt synergy contributions. He also asked about the gating factor for converting distributor quoting activity into firm orders.

Answer

Chairman and CEO Jennifer Parmentier reiterated the growth breakdown (OEM high-single, MRO low-double) and stated confidence in continued margin expansion. EVP & CFO Todd Leombruno added that $50 million in Meggitt synergies remain and will be realized through the year. Regarding distributors, Parmentier identified uncertainty around tariffs and interest rates as the primary factors delaying purchasing decisions, but noted distributors remain bullish.

Joe O'Dea asked about the progress of the company's restructuring program, including the expected cost and savings impact in 2025. He also inquired about the evaluation of pricing in the backlog and the ability to be compensated for value delivered.

Answer

CFO Marc Vandiepenbeeck said restructuring expectations are unchanged, with early benefits in the second half of 2025 but the majority of savings realized in fiscal 2026. He explained that pricing power comes from selling full, outcome-based solutions, and contracts typically include change-order processes to recover costs and margins from factors like tariffs.

Joe O'Dea asked for context on the positive inflection in below-ground fueling and sought clarification on the $25 million restructuring carryover for 2025, asking if more actions were planned.

Answer

CEO Richard Tobin explained the fueling recovery is driven by improved labor availability and easing inflation. He clarified the $25 million in restructuring is from 2024 actions, and that additional restructuring costs are expected in 2025 to achieve synergy targets from recent acquisitions, particularly in Clean Energy.