Joe Ritchie

Joe Ritchie asked about the margin profile of the recurring revenue business, specifically if the previously mentioned gross margin profile of north of 60% is materializing as expected. He also inquired about the first-year margin profile for the acquisitions in the current pipeline, given the expectation of 4-5 points of revenue contribution this year.

Answer

CFO Vik Kini confirmed that the recurring revenue business generally has a higher margin profile than the normal course business, often playing in the range mentioned, but noted that Ingersoll Rand is also reinvesting appropriately in areas like service technicians to drive future growth. He agreed that a more accretive margin profile is expected from the business at full run rate due to these reinvestments. For pipeline acquisitions, Vik Kini stated that while speculative, the playbook involves prudent purchase multiples, double-digit to mid-teens returns by year three, and taking multiple turns out from controllable cost actions and synergies. He broadly characterized first-year margins for acquisitions as potentially in the lower twenties, with a direct path to being in line with or better than segment average margins.

Joe Ritchie inquired about the margin profile of Ingersoll Rand's recurring revenue business, specifically if it's achieving the expected 60%+ gross margins, and the first-year margin profile of potential M&A targets.

Answer

CFO Vik Kini confirmed that the recurring revenue business generally has a higher margin profile, potentially in the 60%+ range, but noted they are reinvesting in areas like service technicians to drive growth, expecting a more accretive margin profile at full run rate. For M&A, Kini stated that while speculative, the playbook targets double-digit to mid-teens returns by year three, with acquisitions potentially starting in the lower twenties margin profile but with a clear path to segment average or better.

Joe Ritchie sought clarification on the ILC Dover impairment, asking if it was a new issue, and addressed investor concerns about the muted order growth in the compressor business over the past two years.

Answer

CEO Vicente Reynal clarified the impairment was a new development related to a delayed customer project for the next-generation International Space Station. Regarding compressors, he reaffirmed the long-term growth outlook, attributing recent muted growth to the normalization of large, one-time projects and stating the underlying base business remains stable.

Joe Ritchie from Goldman Sachs asked about the expected offsets to the 2026 cost reduction program for EBITDA margin expansion and the progression of these reductions throughout the year. He also questioned the drivers behind the traction in customer growth initiatives, particularly in lead generation and opportunities within the packaging segment.

Answer

CFO Dennis Fehr indicated that OpEx efficiency is the largest lever for 2026 margin expansion, partially offset by mix headwinds from non-recurring favorability in 2025, with pricing being a smaller tailwind. CEO Matt Moschner attributed customer acquisition acceleration to a comprehensive sales force transformation, emphasizing a new organizational structure, improved digital tools and processes, a consistent product ecosystem, and enhanced partner collaboration, which allows for flexible redirection of sales activities to high-growth areas like packaging.

Joe Ritchie asked about the expected offsets to Cognex's 2026 cost reduction program for EBITDA margin expansion and the anticipated progression of these reductions throughout the year. He also questioned the drivers behind the improved customer growth initiatives and lead generation, particularly in packaging, and if this momentum is expected to broaden across other end markets.

Answer

Dennis Fehr, CFO, identified mix as the primary offset to OpEx efficiency, with some non-recurring favorability from 2025 partially mitigated by portfolio optimization, and minor tailwinds from pricing. Matt Moschner, CEO, attributed customer growth to a four-pillar salesforce transformation (organization, process, product, partners) and noted increased flexibility to direct sales activities to high-growth areas like packaging.

Joe Ritchie asked about the customer base for the ePOD offering, specifically if Regal Rexnord is selling to multiple customers, integrators, co-locators, or hyperscalers. He also inquired about the content per megawatt provided by ePODs and the types of voltage equipment included.

Answer

CEO Lewis Pinkham confirmed they are selling into multiple customers and multiple data center projects in North America, including colo hyperscalers, but could not provide specific details due to confidentiality agreements. He could not provide content per megawatt specifics but stated Regal's bill of material share is 40-50%, comprising low/medium voltage switchgear, paralleling switchgear, low voltage power distribution units, and automatic transfer switches, with other components like containers and UPSs making up the rest. CFO Rob Rehard also participated in the discussion.

Joe Ritchie focused on the E-Pod offering, asking if Regal Rexnord is selling to multiple customers and customer types (integrators, co-locators, hyperscalers). He also inquired about the content per megawatt provided by the E-Pods and the types of power equipment included, specifically low voltage and medium voltage switchgear.

Answer

CEO Louis Pinkham confirmed sales to multiple customers and multiple data center projects in North America, including co-locators and hyperscalers, but could not provide specific details due to confidentiality agreements. He was unable to provide content per megawatt but detailed Regal's contribution to the bill of material (40%-50%) includes low voltage and medium voltage switchgear, paralleling switchgear, power distribution units, and automatic transfer switches, with third-party content like containers and UPSs.

Joe Ritchie of Goldman Sachs questioned why the rare earth magnet issue appeared more significant for Regal Rexnord than for its peers and asked about any risk of market share loss. He also asked for the biggest swing factors influencing the Q3 guidance for the AMC segment.

Answer

CEO Louis Pinkham explained that Regal Rexnord's peers in the ultra-high precision motor space are often private, making direct comparisons difficult. He asserted that the company's global nature and ability to shift production to China is a competitive advantage, not a weakness, and that they see a potential opportunity to gain share from peers impacted by tariffs. For Q3, Pinkham identified the flow of magnets and the ability to accelerate data center project execution as the key swing factors within the AMC guidance range, expressing confidence in hitting the midpoint.

Joe Ritchie questioned Carrier's inventory dynamics, noting a significant quarter-over-quarter reduction but a year-over-year increase, and asked if this was due to building inventories in growing business segments. He also probed the conservatism of the 6.5 million unit industry average for residential, suggesting it implies an unusually long replacement rate.

Answer

Patrick Goris, EVP and CFO, Carrier Global Corporation, clarified that the year-end inventory increase of $200 million was a strategic decision to keep U.S. residential manufacturing facilities running at minimal levels, which was more economical than a full shutdown and cold start. He added that this inventory is expected to be liquidated throughout 2026, and quarter-over-quarter inventories did drop. David Gitlin, Chairman and CEO, Carrier Global Corporation, explained that the 6.5 million unit forecast is based on current macro conditions (unchanged interest rates, consumer confidence, home sales) observed in H2 2025, projecting H1 2026 industry units down 20-25% and H2 flat, leading to a full-year decline of 10-15%. He emphasized it's a conservative plan based on current market observations.

Joe Ritchie questioned Carrier's inventory dynamics, noting a 17% quarter-over-quarter reduction but an 8% year-over-year increase, asking if this was due to building inventories in growing segments. He also asked if the 6.5 million unit industry average for residential was conservative, given historical replacement rates and new housing starts.

Answer

Patrick Goris (EVP and CFO) explained that Carrier kept U.S. residential manufacturing facilities running at minimal levels, resulting in $200 million more inventory on books at year-end, which is expected to be liquidated in 2026. Quarter-over-quarter, inventories did drop. David Gitlin (Chairman and CEO) stated the residential forecast uses macro analyses and current market observations, assuming similar macro conditions to late 2025, leading to a projected 10-15% market decline for the year, acknowledging it's a conservative plan.

Joe Ritchie asked about the interplay between Carrier's own inventories, organic growth, and margins in early 2026, specifically inquiring about Q1 decremental margins given tough comps and elevated inventory. He also asked about the possibility of an accelerated share repurchase program.

Answer

CEO David Gitlin explained that Carrier purposefully kept production going at low levels in Q4 to avoid a difficult 'cold start' for operations, which resulted in an absorption hit but means less of a ramp-up will be needed in Q1. CFO Patrick Goris expects Q1 decrementals on the residential side to be similar to Q3 and Q4. Regarding share repurchases, Mr. Goris stated Carrier is focused on repurchasing about $3 billion this year, with the new authorization extending into 2028, but there are no plans for an accelerated share repurchase program at this point.

Joe Ritchie of Goldman Sachs asked about the interplay between Carrier's own inventories, organic growth, and margins in early 2026, specifically whether inventory builds from Q4 to Q1 would occur and the expected decremental margins for Q1. He also inquired about the potential for an accelerated share repurchase program.

Answer

CEO David Gitlin explained that Carrier purposely kept production going at low levels in Q4 to avoid a difficult cold start, leading to an absorption hit and slightly higher inventories. This strategy means less of a production ramp in Q1. CFO Patrick Goris stated that Q1 2026 decrementals on the residential side are expected to be similar to Q3 and Q4 2025, given tough comps. Patrick Goris also mentioned that the company is focused on repurchasing about $3 billion for the current year, with the new authorization extending into 2028, but no ASR plans at this point.

Joe Ritchie of Goldman Sachs asked for an update on the refrigerant canister supply issue and its impact in Q2. He also requested more detail on the performance of the non-data center commercial business within the Climate Solutions Americas (CSA) segment.

Answer

Chairman & CEO David Gitlin confirmed that the canister issue is no longer a problem, as the team took aggressive action to pre-charge units and ensure supply. Regarding the non-data center business, Gitlin highlighted that it grew 20% in the quarter within CSA, driven by strong performance in applied systems, service, and controls, as well as wins in mega-projects and U.S. manufacturing reshoring.

Joe Ritchie sought clarification on the 2026 outlook bridge, specifically the $0.10-$0.15 for tariffs, asking if it includes pricing benefit and if most of this benefit is expected in the first half. He also asked about leading indicators for business inflection and potential sources of optimism, given the recent ISM print over 50.

Answer

Mike Discenza (CFO) confirmed the $0.10-$0.15 tariff benefit includes pricing, and due to pricing actions weighted towards H2 2025, the year-over-year comp will look more favorable in H1 2026. Pricing will continue, with margin recapture on tariffs expected by exiting 2026. Lucian Boldea (President and CEO) identified the order book for off-highway, general industrial, renewables (wind), and aerospace as sources of optimism, with general industrial expected to be up mid-single digits. Later-cycle businesses like oil and gas and metals are still slower. Regionally, Europe and the US are performing well, while LATAM and China (due to solar) are down, but India is making up for it.

Joe Ritchie sought clarification on the 2026 outlook bridge's $0.10-$0.15 for tariffs, specifically if it includes pricing and the timing of the benefit. He also asked about leading indicators for potential inflection in the short-cycle business and sources of optimism given the improving backdrop.

Answer

Mike Discenza, CFO, confirmed that the $0.10-$0.15 tariff benefit includes pricing, with price actions weighted towards the second half of 2025, making the year-over-year comp more favorable in the first half of 2026. The company expects to be margin-neutral on tariffs by the end of 2026. Lucian Boldea, President and CEO, pointed to the order book for off-highway, general industrial, renewables (wind), and aerospace as sources of optimism. General industrial is expected to be up mid-single digits in 2026, while later-cycle businesses like oil and gas and metals are still slower. Regionally, Europe and the U.S. are performing well, with India strong despite declines in Latin America and China.

Joe Ritchie asked for a characterization of Johnson Controls' order pipeline today compared to 3-6 months ago, and whether there has been any discernible shift in demand growth between colos and hyperscalers within the data center customer base.

Answer

CEO Joakim Weidemanis described the order pipeline as remaining very healthy and healthier, attributing this to effective sales team efforts, the rollout of pragmatic pipeline management, and a deliberate focus on attractive market segments. Regarding data center customers, Joakim Weidemanis noted incremental changes in how hyperscalers and colos operate but no material shifts in the behavior of major players. He anticipates future growth will broaden from Asia Pacific and Europe, where the mix of hyperscalers versus local colos is slightly different, which he views as a positive development.

Joe Ritchie asked for a characterization of Johnson Controls' order pipeline today compared to 3-6 months ago, and whether there has been any discernible shift in demand growth between colocation data centers and hyperscalers.

Answer

CEO Joakim Weidemanis described the order pipeline as healthy and growing, attributing this to a practical, pragmatic pipeline management approach and a deliberate focus on attractive market segments. He noted no material changes in the behavior of major hyperscalers or colos but anticipated that future growth would broaden from Asia Pacific and Europe, leading to a more diversified mix of data center customers.

Joe Ritchie focused on the strategic investment in Excelsius and the launch of the CDU, asking how complementary the investment is, whether they will go to market together, and the opportunity over the next 12-24 months. He also followed up on the evolution of thinking regarding portfolio divestitures.

Answer

CEO Joakim Weidemanis explained that the CDU launch addresses a significant current market need, while Excelsius (two-phase cold plate technology) is a strategic investment looking ahead 4-5 years to anticipate future chip cooling needs. He confirmed plans for both commercial collaboration and technology/product integration. Regarding portfolio divestitures, Joakim reiterated no change to the plan of looking at alternatives for about 10% of the portfolio, with decisions guided by driving shareholder value over the next couple of quarters.

Joe Ritchie of Goldman Sachs asked for an initial framework for fiscal 2026, given the record backlog, and inquired about plans for long-term targets and a potential Investor Day.

Answer

CFO Marc Vandiepenbeeck stated it was too early for a detailed 2026 outlook but reaffirmed the long-term algorithm of mid-single-digit sales growth, over 25% incrementals, and double-digit EPS growth. He noted the new business system could improve these metrics and that an Investor Day would be scheduled after the strategic review is complete. CEO Joakim Weideminis added that the new system aims to decouple growth from historical investment levels.

Joe Ritchie asked about ITW's price-cost dynamics for 2026, seeking elaboration on the expectation for it to be positive, and inquired about the current percentage of COGS represented by resin, recalling past deflationary benefits.

Answer

CFO Michael Larsen stated that price-cost is expected to be slightly favorable for the full year 2026 but not a significant driver of margin improvement, noting that efforts have focused on supply chain mitigation. He also mentioned that the resin percentage of COGS is now much smaller than in previous years. CEO Chris O'Herlihy confirmed that the long-term contract dynamic for pricing still exists but with considerably less impact from resin costs.

Joe Ritchie from Goldman Sachs asked about ITW's price-cost dynamics for 2026, seeking elaboration on expectations. He also inquired about the current percentage of COGS represented by resin and whether declining resin prices could significantly benefit 2026 margins, recalling past deflationary periods.

Answer

CFO Michael Larsen explained that price-cost dynamics have normalized to be slightly favorable for 2026, but not a major margin driver, as efforts focus on mitigating increases rather than passing them on. He noted that resin's percentage of COGS is now 'pretty small' and not expected to be a material mover for overall company performance in 2026. CEO Chris O'Herlihy confirmed that while long-term contract dynamics exist, the percentage impact is considerably less than in prior periods.

Joe Ritchie asked about Dover's perspective on potential divestitures, inquiring if the company was considering "addition by subtraction" across its portfolio. He also asked about the biggest swing factors for organic growth across the portfolio in 2026, referring to the expectations on slide 9.

Answer

CEO Richard Tobin stated that while Dover has a fiduciary responsibility to consider purchase offers, the company is currently comfortable with its portfolio and preserves optionality for monetization if needed for leverage. Regarding swing factors for organic growth, he indicated that all segment expectations are "correct" and that any upside would likely come from small percentage point additions across multiple segments rather than a single large driver.

Joe Ritchie asked about Dover's perspective on potential divestitures across its business, inquiring how the company views its current portfolio and the possibility of 'addition by subtraction.' He also asked to identify the biggest swing factors across the portfolio that could impact the 2026 organic growth expectations presented on slide 9.

Answer

CEO Richard Tobin stated that while Dover has a fiduciary responsibility to consider offers, the company is currently comfortable with its portfolio and preserves optionality for monetization if needed for large deals. Regarding swing factors, he indicated that all segments' expectations are 'directionally absolutely right,' and any upside would likely come from small, incremental gains across multiple segments rather than a single large driver.

Joe Ritchie asked about the outlook for in-plant equipment in the U.S., considering reshoring and investments, and what leading indicators Parker is monitoring for a short-cycle inflection. He also questioned Todd Leombruno about the implied step-down in Aerospace margins in H2 after a strong H1 performance.

Answer

Jennifer Parmentier, Chairman and CEO, stated that in-plant recovery is gradual, with customers prioritizing productivity and automation over large capacity expansion, and no single catalyst for short-cycle acceleration. Todd Leombruno, CFO, explained that the H2 Aerospace margin guide reflects high spares and repairs in Q2 that are difficult to predict, but the H2 forecast still shows a 60 basis point improvement year-over-year.

Joe Ritchie with Goldman Sachs asked for insights into the opportunity presented by the PowerGen business highlighted on Slide 7, including its growth rates and future prospects. He also questioned how potential rollbacks of tariffs might impact existing pricing and if this could provide a boost to margins.

Answer

Chairman and CEO Jennifer Parmentier explained that while not disclosing specific growth rates, the PowerGen business, representing about half of the 7% energy market vertical sales, has a robust, multi-year order book with solid growth expected for years to come due to its suite of interconnected technologies. Regarding tariffs, she stated that Parker has strong analytics and processes to adjust pricing as needed, emphasizing that tariffs are not used as a margin expansion device but rather for cost recovery.

Joe Ritchie asked about EMEA Commercial HVAC bookings (mid-teens growth), the potential for robust data center growth in EMEA, and Trane's geographical positioning. He also inquired about specific growth drivers and verticals for the EMEA side of the business, given broad-based growth.

Answer

Dave Regnery, Chair and CEO, confirmed global data center growth, including EMEA, but noted European data centers are typically 1/10th the size of US ones, though Trane is well-positioned if larger data centers are built. He mentioned broad-based growth in EMEA, including data centers and commercial office, as well as strong services growth, acknowledging less granularity on specific verticals compared to the Americas.

Joe Ritchie asked about the mid-teens growth in EMEA Commercial HVAC bookings, specifically if Trane is seeing data center acceleration in EMEA and its geographical positioning. He also inquired about the real growth drivers in EMEA, similar to the broad-based growth seen in the Americas.

Answer

Dave Regnery confirmed seeing data centers globally, including EMEA, but noted European data centers are typically smaller (about one-tenth the size of US ones). He stated Trane is well-positioned if larger data centers are built in Europe. He also confirmed broad-based growth in EMEA, including data centers, commercial office, and services, despite less granular vertical reporting than in the Americas.

Joe Ritchie of Goldman Sachs requested a breakdown of the $0.25 midpoint increase in the full-year EPS guidance. He also asked about the company's confidence in the residential business returning to its long-term GDP+ growth framework beyond 2025.

Answer

EVP & CFO Chris Kuehn explained the EPS guidance raise was driven by the Q2 operational beat, continued strength in Commercial HVAC, and a minor FX tailwind, which more than compensated for a roughly $300 million reduction in the full-year residential revenue outlook. Chair & CEO Dave Regnery affirmed that the Q2 residential issue was an isolated incident, not a structural problem, and expressed confidence in returning to the GDP+ framework, promising a more detailed 2026 outlook on the Q4 call.

Joe Ritchie asked for insights into the seasonality and cadence of earnings per share (EPS), particularly how to think about the first quarter given various moving parts. He also sought clarification on the assumptions underpinning the residential volume forecast for 2026, which projects a mid-single-digit decline for the full year with a steeper drop in the first half, and the key swing factors expected to influence this trend.

Answer

Alok Maskara, CEO, indicated that Q1 EPS is expected to be down, with the first half also down and the second half up overall, citing tough HCS comparisons due to R-454B launches and R-410A buying, along with BCS production moves and key account challenges. For residential volumes, Alok Maskara highlighted monitoring consumer confidence, interest rates, housing market activity (existing and new home sales), and dealer confidence. He emphasized that the largest factor shaping the 2025 performance was destocking, which is expected to be behind them in the second half of 2026. Michael Quenzer, CFO, added that the company will also be watching seasonal demand for an early hot summer.

Joe Ritchie from Goldman Sachs inquired about the expected seasonality and quarterly cadence of Lennox's adjusted EPS for 2026, particularly focusing on the first quarter given various market dynamics. He also sought clarification on the key assumptions and swing factors underpinning the mid-single-digit residential volume decline forecast for the full year, with a more pronounced decline in the first half.

Answer

CEO Alok Maskara stated that Q1 and the first half are expected to be down year-over-year due to tough HCS comps (R-454B launch vs. R-410A buying) and BCS production moves, with the second half projected to be up. He highlighted consumer confidence, interest rates, housing (existing and new home sales), and dealer confidence as key watch factors, emphasizing that the end of destocking, a major 2025 impact, will be a significant positive for 2026. CFO Michael Quenzer added that a hot summer could quickly drive demand and inventory replenishment.

Joe Ritchie asked for clarification on the $300 million year-over-year increase in inventory, what constitutes the 'right size' for 2026, and how it impacts free cash flow. He also sought clarification on the 20% decremental margins for Q4, specifically if it applies to the entire business or HCS, and how HCS decrementals might trend in H1 2026 during inventory wind-down.

Answer

CEO Alok Maskara acknowledged high inventory, aiming to reduce $150-$200 million of the $300 million year-over-year increase by Q2 next year, with the remainder supporting emergency replacement and fill rates. CFO Michael Quenzer confirmed the 20% decremental was for the entire business in Q4, with HCS having a slightly higher decremental due to absorption impact. Alok Maskara noted Q1 usually benefits from production, but more detailed color on HCS decrementals will be provided in January.

Joe Ritchie asked for quantification of the company's inventory levels, the 'right size' for 2026, and the factors contributing to the free cash flow guidance cut. He also sought clarification on decremental margins in HCS for Q4 and the first half of next year, given the inventory wind-down.

Answer

CEO Alok Maskara acknowledged higher-than-expected inventory, aiming to reduce $150-$200 million of the $300 million increase by Q2 next year, with the rest due to investments in emergency replacement and fill rates. CFO Michael Quenzer confirmed the free cash flow cut was entirely due to finished goods inventory. Michael Quenzer stated the 20% decremental for Q4 applies to the entire business, with HCS having a slightly higher decremental due to absorption impact. Alok Maskara noted that H1 usually benefits from production but structurally lower costs exist, promising more color in January.

Joe Ritchie asked about the incredible momentum in gas power equipment orders in 2025, exceeding original expectations, and the nature of customer discussions, including the positive trend in pricing for backlog and slot reservation agreements (SRAs).

Answer

CEO Scott Strazik confirmed strengthening pricing, noting SRAs are 10-20 points higher than existing backlog. He explained the intensity of discussions led to exceeding 2025 targets and projected 100 GW under contract by end of 2026, with a larger proportion shifting to orders. CFO Kenneth Parks added that playing in the aero-derivative market informs their understanding of customer utilization.

Joe Ritchie asked about the incredible momentum in gas power equipment orders in 2025, noting the backlog and SRAs exceeded original expectations, and inquired about the nature of customer discussions, types of customers, and the positive impact on pricing and backlog margins.

Answer

CEO Scott Strazik confirmed strengthening pricing, with slot reservation agreements (SRAs) showing 10-20 points higher pricing than existing backlog. He noted the intensity of discussions led to exceeding the 60 GW target, reaching 83 GW, and projected 100 GW by end of 2026, likely with a larger proportion of firm orders. CFO Kenneth Parks added that improved equipment pricing also leads to long-term pricing improvement in service contracts.

Joe Ritchie asked for details on the commercial limitations of the existing Prolec GE joint venture agreement and how GE Vernova plans to leverage full ownership to accelerate profitability and capture the $80 billion addressable market opportunity by 2030.

Answer

CEO Scott Strazik explained that Prolec GE's exclusivity for transformers in North America limited GE Vernova's ability to utilize its global capacity. Full ownership removes these restrictions, allowing for optimized use of both Prolec's North American factories and GE Vernova's international facilities to improve cycle times and profitability. He highlighted opportunities to streamline commercial strategy, pricing, and customer experience through bundled solutions, expecting nearer-term benefits from North American commercial synergies and longer-term potential from international export of medium/low voltage technology.

Joe Ritchie asked for more details on the commercial limitations under the current Prolec GE agreement and how GE Vernova plans to leverage full ownership to accelerate profitability within the $80 billion addressable opportunity by 2030.

Answer

CEO Scott Strazik explained that Prolec GE's exclusivity for North American transformers limited GE Vernova's ability to fulfill demand using global capacity, especially for fast-shipped orders. Full ownership removes this, allowing leverage of both North American and global capacity. It also streamlines the customer experience and commercial strategy, enabling bundled solutions with GE Vernova's circuit breakers and switchgears. He expects near-term North America commercial synergies and longer-term international export of medium/low voltage technology.

Joe Ritchie sought to reconcile the Power segment's new equipment orders, questioning the relationship between the gigawatts booked and the sequential increase in the dollar value of those orders.

Answer

CFO Ken Parks clarified the gigawatt order and conversion figures. CEO Scott Strazik explained the dollar-to-gigawatt variance by highlighting the sales mix, stating that the first half of the year was weighted toward simple-cycle orders, while the second half will feature a substantially larger mix of higher-value combined-cycle orders.

Joe Ritchie sought to reconcile the Power segment's new equipment orders, questioning how order dollars could increase sequentially while the number of gigawatts booked into backlog appeared to decrease.

Answer

CFO Ken Parks first clarified the order flow, noting 9 GW were contracted, with 2 GW going to orders and 7 GW to slot reservation agreements (SRAs), plus conversions from prior SRAs. CEO Scott Strazik then explained the discrepancy by highlighting the order mix: the first half of the year was weighted toward simple-cycle orders, while the second half will feature substantially more combined-cycle orders, which carry a much higher dollar value per gigawatt.

Joe Ritchie asked about the constraints on accelerating the private label initiative and its penetration across product lines, and also inquired about Core & Main's positioning and necessary investments for the growing data center opportunity, given its current small business portion.

Answer

CEO Mark Witkowski explained that private label growth is constrained by product development, sourcing, vetting, logistics, and customer acceptance, with a solid plan for approximately one point of expansion per year. Regarding data centers, he noted Core & Main's strong foundation, broad geographic reach, and local relationships, emphasizing ongoing investments to enhance capabilities and capacity in key markets to capture more of this rapidly growing business.

Joe Ritchie inquired about current inventory levels, how far above optimal they remain, and the company's expectations for inventory reduction in 2026.

Answer

EVP and CFO Pat Hallinan emphasized a focus on cash generation, targeting over $500 million in working capital reduction in Q4 (including receivables and inventory). He acknowledged higher-than-desired inventory levels due to supply chain shifts (moving 15% of U.S. COGS out of China). For 2026, the company is targeting at least $200 million in inventory reduction, with a longer-term opportunity approaching $1 billion.

Joe Ritchie questioned the current inventory levels, asking how far above desired levels the company remains and what the expectations are for inventory reduction in 2026.

Answer

Pat Hallinan, EVP and CFO, stated a strong focus on cash generation, targeting over $500 million in working capital reduction for Q4 (receivables and inventory). He acknowledged current inventory is heavier than desired due to supply chain moves. For 2026, he targeted at least $200 million in inventory reduction, with a long-term opportunity approaching $1 billion, but noted tariff mitigation efforts would consume the first half to two-thirds of next year.

Joe Ritchie sought further understanding of Mirion's SMR opportunity, including the scope of the $10 million project booked in Q3 and the broader potential for future SMR-related business.

Answer

Thomas Logan, Founder, Chairman and CEO, Mirion, detailed the expanding SMR market with over 120 projects globally, emphasizing Mirion's broad positioning through acquisitions like Paragon and Sertrek, and significant government support. Brian Schopfer, EVP, CFO, and Medical Group President, Mirion, clarified that the $10 million booking represented a component of the portfolio, not a full suite, and noted additional SMR bookings in Q4 with different players.

Joe Ritchie sought further understanding of the SMR opportunity, specifically details on the $10 million project booked in Q3 (e.g., megawatt size, full or partial project) and the broader related opportunities going forward.

Answer

Thomas Logan, Founder, Chairman and CEO, explained that the SMR opportunity is expanding with over 120 discrete projects globally, focusing on first-of-a-kind instances to prove viability. He emphasized Mirion's strong positioning with recent acquisitions like Paragon and Certrec, expanding its solution set beyond traditional offerings to include comprehensive physical/cybersecurity and regulatory support. Brian Schopfer, EVP, CFO, and Medical Group President, clarified that the $10 million booking was a piece of the portfolio, not a full suite, and noted Q4 SMR momentum is with different players.

Joe Ritchie from Goldman Sachs asked about the bankability of growth from the nuclear installed base, the timing of the $350 million order pipeline, and whether a UK project's cost increase would create a lingering margin issue for the Nuclear and Safety segment.

Answer

CEO Tom Logan affirmed the durability of installed base growth, calling it a 'generational trend' driven by fundamental power needs and pro-nuclear policy shifts. CFO Brian Schopfer added that some pipeline projects have shifted but the overall opportunity remains robust, with the 2026 pipeline also building. Schopfer clarified the UK project cost was a one-time accounting true-up, not a lingering issue, and reiterated the company's commitment to its 30% EBITDA margin target by 2028.

Joe Ritchie asked about the attractiveness of ITT's M&A funnel, the types of acquisitions being pursued, and the company's strategy for capital deployment in 2026, especially if M&A opportunities do not materialize. He also inquired about the current orders activity, particularly in Industrial Process, and whether ITT is tracking towards a billion-dollar range for Q4 orders and its full-year book-to-bill.

Answer

Luca Savi, CEO and President, described the M&A funnel as rich with progressing opportunities, primarily in pumps and valves, and some connectors focused on aero and defense, emphasizing a rigorous strategic and financial process. He noted that ITT has deployed $1.9 billion in capital since early 2024, with $900 million on M&A, and confirmed that capital would be deployed, with share repurchases as a backup option. Regarding orders, Mr. Savi affirmed tracking towards a billion-dollar range for Q4, despite Q3 facing tough comparisons due to early customer orders. He expects a full-year book-to-bill comfortably above 1, resulting in a higher backlog at year-end 2025 than at the start of the year. Emmanuel Caprais, CFO, added that the short-cycle orders picture is also positive.

Joe Ritchie asked about the attractiveness and composition of ITT's M&A funnel, seeking color on the types of acquisitions being pursued. He also questioned how ITT is handicapping its ability to execute deals in 2026 and its capital deployment strategy if M&A opportunities do not materialize. Finally, he inquired if ITT is tracking towards a billion-dollar range for orders in Q4, consistent with recent quarters.

Answer

CEO Luca Savi described a rich M&A funnel focused on pumps, valves, and connectors (especially aero and defense), emphasizing a rigorous strategic and financial process, and noting the over-delivery of recent acquisitions. He affirmed ITT's commitment to deploying capital, having deployed $1.9 billion since early 2024, with share repurchases as a backup option. Mr. Savi confirmed expectations for Q4 orders to be in the billion-dollar ballpark, explaining Q3's tough comparison and reiterating a full-year book-to-bill comfortably above 1, leading to a higher year-end backlog.

Joe Ritchie requested a deeper analysis of the Svanohoi acquisition's greater than 40% growth, asking what is driving its significant outperformance. He also sought to reconcile ITT's strong pump orders with commentary about project delays and aggressive pricing in the market.

Answer

CEO Luca Savi and CFO Emmanuel Caprais attributed Svanohoi's success to 'flawless execution,' product differentiation, and strong performance across LNG, LPG, and ammonia applications, noting H1 orders grew over 80%. On the pumps business, Savi stated that despite a couple of minor delays and price competition, ITT's strong order book is primarily a 'market share gain story' driven by superior service and project execution that fosters customer loyalty.

Joe Ritchie asked about the rationale behind Graco's additional backlog disclosure, given its historical non-backlog nature. He also sought an early framework for 2026, specifically how to think about segment margins, considering notable industrial margin expansion despite limited growth.

Answer

CEO Mark Sheahan explained the backlog disclosure clarified that last year's Q3 included significant backlog flow-through, which is not recurring. He noted current backlog is stable at $225M-$230M, returning to a book-and-ship model. CFO David Lowe stated that volume is key to future margins, believing moderate growth in industrial and contractor segments would elevate margins. Mark Sheahan added that Graco's operational efficiency and expense management, combined with any market tailwinds, would significantly boost volume and margins.

Joe Ritchie inquired about the additional backlog disclosure provided this quarter, seeking to understand its purpose and what it signals, and asked for an early framework for 2026, specifically regarding segment margins given recent industrial margin expansion.

Answer

CEO Mark Sheahan explained the backlog disclosure was to clarify that last year's Q3 included a significant backlog reduction ($25-30 million), making comparisons difficult. He noted current backlog is stable at $225-230 million, down from a peak of $500 million during the supply chain crisis, indicating a return to a book-and-ship business model. CFO David Lowe and Mark Sheahan emphasized that future margin improvement, especially in 2026, would primarily be driven by volume growth, coupled with continued operational efficiency and expense management.

Joe Ritchie of Goldman Sachs questioned the timing of the September price increase and the potential for the Contractor segment to recover its tariff-impacted margins in the second half of the year.

Answer

President and CEO Mark Sheahan stated the September timing was to allow for tariff assessment and to give channel partners adequate notice, noting the reception was positive. Regarding margins, he explained that while there's potential for a rebound, it is highly dependent on future sales volume, and he is satisfied with overall profitability in the current sluggish environment.

Joe Ritchie of Goldman Sachs asked about the timing and customer reception of the September price increase and questioned if the Contractor segment could recoup recent margin pressures later in the year.

Answer

CEO Mark Sheahan stated the price increase timing was to allow for tariff assessment and to give partners notice, adding that the reception has had 'no surprises whatsoever.' He noted that a Contractor margin rebound is dependent on volume but expressed overall satisfaction with profitability in a 'choppy' environment, emphasizing disciplined spending and cash flow generation.

Joe Ritchie asked if there could be additional portfolio announcements beyond the Solsys and Aerospace spins, particularly as Honeywell approaches the Aerospace spin in the second half of 2026.

Answer

Vimal Kapur, Chairman and Chief Executive Officer, stated that based on the current portfolio assessment, the announced actions are complete. He emphasized that portfolio revitalization is a continuous activity, and while there are no plans for further material exits, Honeywell will certainly consider bolt-on or tuck-in acquisitions to strengthen the core businesses of Buildings, Process, and Industrial.

Joe Ritchie with Goldman Sachs acknowledged Honeywell's portfolio transformation and the new structure, asking if there could be additional portfolio announcements, specifically regarding exits, as the company approaches the Aerospace spin in the second half of 2026.

Answer

Chairman and CEO Vimal Kapur stated that based on the current portfolio assessment, the planned exit actions are complete. He emphasized that portfolio revitalization is an ongoing activity, and while there are no plans for further material exits, the company will consider bolt-on or tuck-in acquisitions that fit the core of buildings, process, and industrial, which are mission-critical parts of automation driving common outcomes and leveraging the Forge platform.

Joe Ritchie from Goldman Sachs asked about the relationship between tariffs and the demand contingency, and which segments might benefit if tariffs are permanently lower. He also inquired about the decision timeline for the strategic review of the PSS and warehouse businesses.

Answer

SVP & CFO Mike Stepniak responded that short-cycle businesses are managing tariff impacts well, with the main uncertainty residing in the energy business due to potential project and catalyst order delays. Chairman & CEO Vimal Kapur stated that the strategic review process has begun and he expects to provide more clarity on the available options by the end of the year, though a definitive timeline cannot be set.

Joe Ritchie of Goldman Sachs asked about the relationship between tariffs and the demand contingency, and which segments might benefit if tariffs were permanently lowered. He also inquired about the decision timeline for the strategic alternatives for the PSS and warehouse automation businesses.

Answer

SVP & CFO Mike Stepniak noted that short-cycle businesses are managing tariffs well, but the main uncertainty relates to energy project orders and catalyst demand, which can be delayed by customers. Chairman & CEO Vimal Kapur stated that they expect to have better clarity on the strategic options for PSS and warehouse automation by the end of the year, with a desire to converge the timing with the other portfolio separations, though no certain timeline can be set yet.

Joe Ritchie inquired about the continued positive momentum in spec writing, particularly in non-residential and office segments, asking for an update on key verticals and any discernible changes from the previous quarter. He also asked about Allegion's M&A pipeline, the two-point placeholder for next year's revenue contribution, and potential earnings accretion from current acquisitions.

Answer

President and CEO John Stone confirmed consistent growth in spec activity throughout 2025, broadly supporting the outlook for organic growth in non-residential Americas, without singling out specific verticals. Regarding M&A, Mr. Stone highlighted a strong pipeline across both segments, aligning with Investor Day priorities for portfolio expansion, electronics, and software, emphasizing a disciplined and strategic approach. SVP and CFO Mike Wagnes advised using the appendix for full-year acquisition benefits to project carryover rates for the first two quarters of the following year.

Joe Ritchie inquired about the strength of Allegion's M&A pipeline and the potential earnings accretion from current acquisitions into the next year.

Answer

President and CEO John Stone confirmed a strong M&A pipeline across both International and Americas segments, focusing on product categories like mechanical, electronics, and complementary software. He reiterated Allegion's disciplined approach to acquisitions, ensuring strategic alignment and strong shareholder returns. SVP and CFO Mike Wagnes advised using the full-year benefit and carryover rates provided in the appendix to estimate the EPS benefit from acquisitions for the first two quarters of the next year.

Joe Ritchie inquired about the current demand environment and full-year outlook, noting the lumpy nature of orders, and asked for more detail on the significant backlog growth in the energy segment.

Answer

CEO Andrew Hider emphasized a long-term view, highlighting a strong trailing twelve-month book-to-bill ratio of 1.17 and healthy funnels across Life Sciences, Energy, and Food. CFO Ryan McLeod added that orders, excluding transportation, grew over 10% in the first half of the calendar year. He confirmed the energy backlog growth was driven primarily by nuclear refurbishment activity for CANDU reactors.

Inquired about the overall demand environment across key end markets and sought specific details on the significant growth in the energy business backlog.

Answer

The company has a strong trailing twelve-month book-to-bill ratio and healthy funnels across all segments. The energy backlog growth is driven by nuclear refurbishment projects (CANDU reactors), not yet by SMRs, which are a future opportunity.

Joe Ritchie from Goldman Sachs inquired about the full-year outlook for Electrical Americas and Global orders, the growth of the backlog, and whether recent order strength extends beyond the data center market.

Answer

CEO Paulo Ruiz confirmed strong order momentum is expected to continue, particularly in Electrical Americas, leading to a book-to-bill ratio above one for the year. He clarified that excluding a prior-year large order, underlying Electrical Americas orders were up 11% on a trailing-twelve-month basis, with strength also seen in commercial, institutional, and utility markets.

Joe Ritchie from Goldman Sachs inquired about current short-cycle trends within nVent's industrial footprint and the outlook for the second half of the year. He also asked about the company's capacity planning for liquid cooling over the next 12-24 months and whether current investments are sufficient.

Answer

CEO Beth Wozniak reiterated the full-year guidance for low-to-mid single-digit growth in the industrial vertical, noting positive sell-in and sell-out trends through distribution. On capacity, she confirmed that nVent is making investments but anticipates the need for further capital and capacity expansion into 2026 and beyond as the liquid cooling portfolio and customer base expand.

Joe Ritchie of Goldman Sachs questioned the composition of the 5%+ core sales growth guidance, asking if it was primarily price-driven, and inquired about the margin cushion from being price-cost positive amid changing tariff impacts.

Answer

President, CEO & Chairman Todd Adams described the 5% growth guidance as a conservative 'placeholder,' noting it includes slightly more price than initially planned. He attributed strong margins not just to pricing and supply chain moves, but also to a 210% YoY increase in continuous improvement projects, which he described as a sustainable driver of performance.

On behalf of Joe Ritchie from Goldman Sachs, Rick Shrivastav asked about the drivers behind the industrial growth outlook, pricing strategies for list prices and A&D contract renewals, and the normalization status of the industrial backlog compared to pre-pandemic levels.

Answer

An executive detailed strength in mining, food & beverage, and warehousing, with oil & gas and semiconductor expected to recover later. CEO Mike Hartnett explained that new A&D contracts are being negotiated to reflect the 32% PPI increase since 2020. An executive also noted that the industrial backlog, particularly for Dodge, has returned to a more normalized, book-and-turn state.