John McNulty

John McNulty asked if the ongoing inflation in employee costs would lead Avery Dennison to incorporate these costs into pricing strategies, or if they would continue to be offset primarily by efficiency gains, and how this dynamic would play out in 2026.

Answer

SVP and CFO Greg Lovins explained that pricing typically follows raw material input costs. He noted that Material Reengineering serves as a key productivity bucket over a cycle, especially in flatter or deflationary periods, to help offset costs like wage inflation.

John McNulty asked if persistent employee cost inflation would eventually be incorporated into pricing strategies, and how this should be considered for 2026.

Answer

Greg Lovins, SVP and CFO, explained that pricing typically aligns with raw material input costs. He noted that Material Reengineering productivity helps offset wage inflation, particularly during flatter or deflationary periods, serving as a mechanism to manage these costs over a cycle.

John McNulty from BMO Capital Markets inquired about the Solutions Group, asking if tariff-related disruptions could lead to pent-up demand and a quick recovery in the second half. He also asked about the likelihood of securing a new Intelligent Labels account in the food and grocery channel before the end of the year.

Answer

President & CEO Deon Stander explained that while apparel consumption is resilient, customer sentiment remains muted due to tariff uncertainty, leading them to assume continued low single-digit demand in Q3. However, he expressed strong optimism for Intelligent Labels in food and logistics, which grew mid-teens, citing on-track rollouts and strong pilot ROIs that support new customer adoption. SVP & CFO Greg Lovins added that Q3 guidance assumes the apparel business will be down low single digits, an improvement from the 6% decline in Q2.

John McNulty of BMO Capital Markets inquired about the Solutions Group, asking about the potential for pent-up demand in the second half following tariff-related disruptions and the outlook for new customer conversions in the food and grocery channel for Intelligent Labels.

Answer

President & CEO Deon Stander acknowledged that customer sentiment remains muted due to tariff uncertainty but noted that underlying apparel consumption is robust. He expressed strong optimism for the food and grocery channel, citing excellent ROI in pilots and expecting new customer rollouts to accelerate. SVP & CFO Greg Lovins added that the company assumes a low single-digit decline for the apparel business in Q3, an improvement from the 6% decline in Q2.

John McNulty of BMO Capital Markets inquired about the Solutions Group, asking about potential pent-up demand in apparel for the second half and the likelihood of securing a new Intelligent Labels account in the food and grocery channel before year-end.

Answer

President & CEO Deon Stander explained that while consumer apparel demand is resilient, customer sentiment remains muted due to tariff uncertainty, leading Avery Dennison to assume continued low single-digit demand in Q3. However, he expressed strong optimism for the food and grocery Intelligent Labels segment, noting that non-apparel categories grew mid-teens and that the ROI from current rollouts like Kroger is exceeding expectations, giving confidence in new customer adoption. SVP & CFO Greg Lovins added that the Q3 apparel business is assumed to be down low single digits, an improvement from Q2's 6% decline.

John McNulty asked about the larger-than-usual increase in working capital during the first quarter and inquired about the company's strategy to mitigate the low single-digit impact from tariffs, specifically the mix between pricing actions and operational efficiencies.

Answer

CFO Gregory Lovins explained that the working capital increase was not due to pre-tariff inventory building but was driven by higher incentive compensation and customer rebate payments compared to the prior year. Regarding tariffs, Lovins stated the company will use a combination of sourcing adjustments and pricing surcharges, which are expected to be implemented relatively soon, to offset the impact.

John McNulty followed up on the logistics customer, asking about the expected cadence of their volume declines throughout 2025 and if any impact had already been observed.

Answer

President and CEO Deon Stander responded that it is difficult to predict the exact cadence of the transition. He reiterated that the company's 2025 guidance already incorporates the aligned volumes with this customer, which maintains Avery Dennison's position as the significant majority share provider.

John McNulty inquired about the scale and rollout timeline for the new Kroger opportunity in Intelligent Labels and asked about pilot programs and potential launches in the Quick-Service Restaurant (QSR) market for 2025, focusing on food safety.

Answer

President and CEO Deon Stander described the Kroger collaboration as a major inflection point for the food segment, the largest addressable market. He confirmed the rollout will start in the bakery department and expand over time but declined to specify the program's size, noting it will contribute to the 15%+ long-term growth target. For QSR, Stander confirmed existing rollouts focused on food safety and traceability, expecting recent FISMA regulations to accelerate RFID adoption.

John McNulty asked about Veralto's 2026 EPS growth guidance of mid- to high-single digits, which is more modest than previous double-digit growth despite similar top-line projections, inquiring if there were any specific concerns in end markets or on the cost side. He also asked how the trend towards warmer water cooling in data centers might change Veralto's opportunity.

Answer

CFO Sameer Ralhan explained that the 2026 EPS guidance reflects prudent core growth assumptions due to macro factors, combined with approximately 25 basis points of margin expansion (including In-Situ's impact). He noted that In-Situ is accretive to operating earnings by $0.02 per share but has a $0.04 dilution from the lack of interest income due to cash usage, with no material cost side issues. CEO Jennifer Honeycutt clarified that liquid cooling, regardless of water temperature, increases the need for Veralto's solutions due to smaller volumes of high-purity water requiring precision control, benefiting ChemTreat (dosing), Hach (monitoring), and Trojan (disinfection).

John McNulty asked about the more modest mid- to high single-digit EPS growth forecast for 2026 compared to past double-digit growth, questioning if there are pauses in end markets or cost-side concerns. He also inquired about the impact of warmer water cooling in data centers on Veralto's strategy and benefits.

Answer

Sameer Ralhan, SVP and CFO, clarified that the 2026 EPS guide is prudent due to macro uncertainties, but underlying demand is good. He noted a $0.04 dilution from the lack of interest income due to cash used for In-Situ, offsetting $0.02 accretion from In-Situ's operating earnings. Jennifer Honeycutt, President and CEO, explained that liquid cooling increases the need for Veralto's solutions due to high purity fluids and precision control, benefiting ChemTreat, Hach, and Trojan, regardless of water temperature.

John McNulty inquired about the acceleration of water quality pricing into Q4 and early 2026, and any pricing variations between water subdivisions. He also asked about Veralto's strong cash flow, building balance sheet cash, low leverage, and the likelihood of closing M&A opportunities in the next six to nine months.

Answer

Jennifer Honeycutt (President and CEO) explained that Veralto does not delineate pricing at the subdivision level but noted strong price execution in water quality, with future pricing expected to contribute 100-200 basis points to growth. Sameer Ralhan (SVP and CFO) expressed pride in the teams' execution driving strong free cash flow and cash accumulation, reiterating an active M&A pipeline and a disciplined approach to capital deployment.

John McNulty from BMO Capital Markets asked about the acceleration of water segment pricing into Q4 2025 and early 2026, and if there were variations in pricing across water subdivisions. McNulty also questioned Veralto's strong cash flow generation and accumulating balance sheet cash, asking about the likelihood of M&A opportunities closing in the next six to nine months given the low net leverage.

Answer

Jennifer Honeycutt, President and CEO, confirmed strong, balanced price and volume execution in water, driven by tariff anticipation, and expects pricing to align with the 100-200 basis points contribution framework, with strong Q4 delivery. Sameer Ralhan, SVP and CFO, expressed pride in the teams' cash generation and confirmed the intention to deploy capital for long-term value through an active M&A pipeline, while maintaining a disciplined market company valuation framework.

John McNulty questioned the sustainability of volume growth, asking about potential pre-buying ahead of tariffs, and inquired about the outlook for free cash flow and the M&A pipeline.

Answer

President and CEO Jennifer Honeycutt confirmed that volume growth is demand-driven with no evidence of pre-buying, citing strong visibility from direct sales. SVP and CFO Sameer Ralhan reiterated the strong free cash flow guidance. Honeycutt described the M&A pipeline as active but noted that the company remains disciplined amid elevated valuations.

John McNulty asked what drove the unexpected strength in Q1, given the business's typical predictability, and how to think about the record-level margins progressing through the year.

Answer

President and CEO Jennifer Honeycutt attributed the Q1 outperformance to sustained momentum from reinvigorating the Varalto Enterprise System (VES), investments in commercial execution, and new product development. SVP and CFO Sameer Ralhan added that strong Q1 margins were driven by volume leverage and that the full-year outlook prudently builds in a potential lag for tariff countermeasures.

John McNulty asked about the growth drivers in the water business, particularly in food & beverage and power, and inquired about the company's exposure and strategy related to the growing data center market.

Answer

President and CEO Jennifer Honeycutt explained that while F&B and power were strong, the water business is diversified and agile in pivoting to growth areas, also benefiting from industrial reshoring. Regarding data centers, she confirmed their focus is on water-cooled applications and that while it's a growth driver, the company's overall growth algorithm is broad-based and not dependent on any single industry.

John McNulty asked for a detailed breakdown of the margin improvement in the Americas, considering the reported volume drop. He also requested an update on the Alberta project, including potential offtakes, construction timing, and costs.

Answer

Eduardo Menezes, Chief Executive Officer, noted the one-time helium impact on Americas volumes. Melissa Schaeffer, Chief Financial Officer, added that strong on-site volumes in HyCO and non-helium merchant products, along with strong non-helium pricing, drove margin improvement despite some negative cost impacts. Eduardo Menezes confirmed Alberta's construction timing and cost estimates remain unchanged, with ongoing negotiations for potential off-takers.

John McNulty sought to understand the drivers behind the 150 basis point margin improvement in the Americas segment, particularly given a 4% volume drop. He also requested an update on the Alberta project, including progress on potential off-takers, construction timing, and costs.

Answer

Eduardo Menezes, Chief Executive Officer, attributed the Americas volume impact to a one-time helium event. Melissa Schaeffer, Chief Financial Officer, elaborated that strong on-site volumes in HyCO and non-helium merchants, along with robust non-helium pricing actions, drove the margin improvement, despite some negative cost impacts. For the Alberta project, Eduardo Menezes confirmed that construction timing and cost estimates remain consistent with prior disclosures ($3.3 billion, start-up in early 2028), and negotiations with potential off-takers are ongoing but not yet definitive.

John McNulty from BMO Capital Markets sought clarification on the $185-195 million cost savings plan, asking if it was incremental to previous announcements and about the implementation effort for digital and AI initiatives.

Answer

CFO Melissa Schaeffer explained this is the total program, which includes a 10% headcount reduction that is 60% complete. She quantified the savings at approximately 40 cents of EPS in FY25 versus pre-program levels. CEO Eduardo Menezes added that the AI and digital transformation initiatives represent future opportunities on top of the current plan.

John McNulty from BMO Capital Markets inquired about the expected EBITDA contribution from underperforming projects and the reasons for the significant cost overruns and delays at the Alberta project. He also asked about the performance and resilience of the company's gasification projects in China amid geopolitical tensions.

Answer

CEO Eduardo Menezes explained that underperforming projects are expected to generate enough EBITDA to cover depreciation, essentially recovering the capital on an undiscounted basis. He attributed the Alberta project's issues to self-inflicted execution problems in a difficult construction environment, leading to a spiral of delays and capitalized interest. Regarding the China gasification projects, Menezes stated their combined EPS contribution was near zero in 2023-2024 and that he does not foresee significant impacts from U.S.-China tensions on this localized business.

John McNulty of BMO Capital Markets asked for the expected savings in 2025 from recent restructuring initiatives and the anticipated EPS contribution from the Uzbekistan project for the year, given the planned downtime.

Answer

Chief Financial Officer Melissa Schaeffer estimated the annual savings from a 5% workforce reduction at approximately $75 million, with the benefit ramping up in the second half of the fiscal year, partially offset by inflation. For Uzbekistan, she stated Q1 had a partial contribution, Q2 will be down for maintenance, and Q3 and Q4 should reflect a full run rate.

John McNulty inquired about the key drivers for the fiscal 2025 earnings guidance, seeking a breakdown of contributions from price, new projects, and core volume growth. He also asked about the ideal structure for an equity partnership in the Louisiana blue hydrogen project.

Answer

Chairman, President and CEO Seifi Ghasemi explained that the FY2025 guidance is conservative due to economic uncertainty in China. He anticipates a 1-2% price increase, volume growth aligned with regional GDP, and contributions from numerous smaller projects. Regarding the Louisiana project, Mr. Ghasemi stated the ideal equity partner would also be an offtake customer, but the company is also considering financial partners. The partnership would involve equity participation in the entire manufacturing project.

John McNulty asked for clarification on the SG&A outlook for 2026, seeking insight into the expected growth level given continued investments and the reinstatement of the 401(k) match, and how this would play out over the year.

Answer

VP of Investor Relations Ben Meisenzahl explained that the 401(k) match reinstatement and retroactive contribution for 2025 made the 2026 comparison apples-to-apples, eliminating a year-over-year impact. He noted that SG&A is expected to be up a low single-digit percentage, including restructuring costs from 2025 and incremental Suvinil costs, driven by strong cost controls and anticipated savings of approximately $46 million in 2026. Chair, President, and CEO Heidi G. Petz emphasized the goal to 'earn our SG&A' by pacing it to volume.

John McNulty asked for clarification on the SG&A outlook for 2026, considering ongoing investments and the reinstatement of the 401(k) match, and how it would play out through the year.

Answer

Ben Meisenzahl, VP of Investor Relations, explained that the 401(k) match for 2025 was retroactively applied, making 2026 comparisons apples-to-apples. He noted SG&A is projected to be up a low single-digit percentage, including restructuring costs and Suvinil, with $46 million in savings expected for 2026. Heidi G. Petz, Chair, President, and CEO, emphasized the goal to 'earn our SG&A' by pacing it to volume.

John McNulty requested an early read on the Suvinil acquisition, including planned actions, synergy opportunities, and expected profitability levels for 2026.

Answer

President and CEO Heidi Petz expressed excitement about the acquisition, highlighting significant commercial and operational opportunities, though it's early days for detailed plans. SVP of Finance and CFO Al Mistysyn noted Suvinil's expected low single-digit consolidated sales increase in Q4 2025 with an immaterial negative EPS impact due to one-time costs. He projected the business, initially a $525 million mid-teens EBITDA, to grow into the high teens, low 20s EBITDA over the midterm as systems are implemented and synergies realized.

John McNulty asked for initial insights into the recently closed Suvinil acquisition, specifically regarding planned actions, potential synergy opportunities, and expectations for its profitability levels as the company looks towards 2026.

Answer

Heidi Petz, President and CEO, expressed enthusiasm for the acquisition, highlighting significant commercial and operational opportunities, though noting it's still 'early days.' Al Mistysyn, SVP of Finance and CFO, detailed the fourth-quarter impact: a low single-digit increase in consolidated sales, a low 20% increase in Consumer Brands Group sales, and an immaterial negative impact on diluted EPS due to one-time transaction costs and inventory step-up, with the business expected to be slightly accretive. For 2026, he anticipates EBITDA to grow from the mid-teens to high teens/low 20s over the midterm as systems are integrated and synergies realized.

John McNulty of BMO Capital Markets requested more detail on the SG&A spending, questioning whether it's primarily for headcount or store expansion and why the back-half spending appears less robust after adjustments.

Answer

SVP of Finance & CFO Al Mestyshin clarified that the SG&A increase was driven by targeted investments in the Paint Stores Group, including over 91 new stores and 108 additional reps. He explained that second-half SG&A growth is expected to be a modest low single-digit percentage due to cost discipline and the realization of savings from increased restructuring initiatives.

John McNulty of BMO Capital Markets asked for more detail on the SG&A spending increase, questioning whether it was driven by headcount or store openings, and sought clarity on the spending outlook for the second half of the year.

Answer

CFO Allen Mistysyn clarified that the SG&A increase was primarily driven by targeted sales rep additions and new stores within the Paint Stores Group, along with some timing of marketing spend. He noted that after adjusting for the pull-forward of new headquarters costs, SG&A is expected to grow only in the low single-digit range for the second half of the year due to cost discipline and restructuring benefits.

John McNulty inquired about Sherwin-Williams' ability to implement price increases to offset potential raw material inflation from tariffs, particularly during the peak paint season.

Answer

Executive James Jaye noted that while most raw materials are sourced regionally, tariffs are impacting items like applicators and pigments, pushing the full-year raw material outlook to the higher end of 'up low-single-digits'. Executive Allen Mistysyn added that the company will raise prices if necessary, even in summer, as it has done in the past. He also highlighted other cost-offsetting levers, including simplification, digitization, and tight control over SG&A and working capital.

John McNulty sought to understand the source of optimism for the Paint Store Group's residential repaint segment, asking what customers are saying about their backlogs.

Answer

CEO Heidi Petz characterized the sentiment as 'moderate optimism,' driven by proactive partnerships with contractors to help them secure more leads and grow their business. SVP & CFO Allen Mistysyn added that while H1 2025 will be choppy, they anticipate demand improvement in H2, with the Paint Stores Group expected to outperform.

John McNulty asked about the competitive landscape beyond well-understood changes, inquiring about opportunities in the Consumer and Performance Coatings groups and the state of customer inventory levels.

Answer

Executive Heidi Petz described the current environment as a 'unique moment' where Sherwin-Williams' consistency is a key differentiator. Executive Allen Mistysyn stated that consumer inventory levels are stable and not a cause of recent sales weakness, which he attributed to a soft DIY market. He also affirmed the company's disciplined approach to potential M&A.

John McNulty asked for clarification on Hexcel's 2026 incremental margins, noting that the implied 30% from the revenue outlook seemed lower than Q4 2025, and questioned why it wouldn't be higher given expected demand pull and existing assets. He also inquired about Hexcel's capital allocation priorities for 2026, specifically debt reduction after the ASR and the likelihood of further share buybacks.

Answer

Tom Gentile, Chairman, CEO, and President, clarified that the incremental margins are expected to be in the low to mid-30s, driven by operating leverage as production rates increase and Hexcel absorbs fixed costs and depreciation from underutilized assets. He stated that the first priority for capital allocation in 2026 is debt reduction to return to the target leverage ratio of 1.5-2.0 times net debt to EBITDA, which is expected by year-end. After achieving this, Hexcel will 'certainly look at continued share repurchase,' noting $384 million remaining on the authorization.

John McNulty asked for further clarification on Hexcel's incremental margins, noting the 30% implied in the guidance seemed lower than Q4 2025 and questioning why it wouldn't be higher given demand and existing assets. He also inquired about capital allocation, specifically if further share buybacks are expected in 2026 after debt reduction.

Answer

Tom Gentile, Chairman, CEO, and President of Hexcel, clarified that incremental margins are in the low to mid-30s, driven by operating leverage as production rates increase and fixed costs are absorbed. Regarding capital allocation, Gentile stated that debt reduction to the target leverage ratio of 1.5x-2x is the primary priority for 2026, after which continued share repurchases will be considered, noting $384 million remaining on the authorization.

John McNulty asked for quantification of Hexcel's inventory cushion in terms of months or quarters, and how the company plans for labor additions in 2026 given recent headcount reductions.

Answer

CEO Tom Gentile stated that Hexcel's inventory has been running high, over 100 days, but is now around 90 days, with a target steady state of 70 days. He confirmed that hiring has already begun in Europe in Q4 due to strong 2026 demand and will continue throughout 2026 to align with production rates.

John McNulty asked for a quantification of Hexcel's current inventory cushion and details on the labor additions anticipated for the 2026 production ramp-up.

Answer

Tom Gentile, CEO, Chairman, and President, stated that Hexcel's inventory cushion is currently around 90 days, down from over 100 days, with a target of 70 days for a steady state. He confirmed that hiring for the 2026 ramp has already commenced in Europe in Q4 2025 and will continue into early 2026 and throughout the year to align with projected production rates.

John McNulty of BMO Capital Markets questioned if Hexcel's more aggressive management of headcount signaled a change in strategy and how the company would ensure it could ramp up quickly when demand returns. He also asked for details on where the planned capital expenditure reductions were being made.

Answer

Chairman, CEO and President Tom Gentile confirmed a more practical approach to aligning headcount with current production, clarifying this involves slowing hiring and using attrition rather than layoffs. He assured that high inventory levels and existing capital investments provide a sufficient cushion to meet customer ramp-ups. The CapEx reduction of $10 million was achieved by re-prioritizing and deferring numerous smaller projects, as major capacity investments are already complete.

John McNulty asked for a breakdown of the 2024 SG&A increase between headcount and wage inflation, the outlook for SG&A growth in 2025, and the expected scale of the ramp in R&T spending.

Answer

Executive Patrick Winterlich attributed the SG&A increase to a combination of ERP implementation costs, one-time CEO succession charges, and general labor inflation. Chairman, CEO & President Tom Gentile added that R&T spending is expected to be approximately 3% of revenue going forward to fund innovation for next-generation aircraft.

John McNulty questioned PPG's future focus on inorganic versus organic growth, considering the company's recent internal focus, strong balance sheet, and cash flows, and whether a more aggressive approach to acquisitions is anticipated.

Answer

Chairman and CEO Tim Knavish stated that both organic and inorganic growth are important, but organic growth and margin expansion remain the primary focus, as they often deliver better shareholder returns. He confirmed that PPG is still open to acquisitions (bolt-ons or transformational) that align with its enterprise growth strategy, are timely, and are priced appropriately, emphasizing a disciplined approach to maximizing shareholder value, including share repurchases.

John McNulty questioned PPG's future strategy regarding inorganic growth, asking if the recent internal focus and organic share gains mean acquisitions are less necessary, or if the company's stronger position will lead to a more aggressive M&A approach.

Answer

Chairman and CEO Tim Knavish clarified that both organic and inorganic growth are important, but organic growth remains the primary focus for delivering shareholder returns. He stated that acquisitions are still considered for industry consolidation and value addition, but they are carefully evaluated based on asset fit, timing, and price, especially in light of the company's stock valuation. He emphasized a balanced approach to maximizing shareholder value.

John McNulty from BMO inquired about the significant decline in the refinish business, seeking clarification on the underlying causes, the potential for recovery, and the expected timeline for this segment.

Answer

Chairman and CEO Tim Knavish explained that the refinish business is experiencing a transitory slump in collision claims, exacerbated by distributor destocking due to delayed industry normalization expectations. He noted that insurance dynamics, particularly affordability and availability, have depressed claims, but moderation in insurance rate growth is expected to drive normalization by mid-2026. Knavish emphasized PPG's best-in-class productivity solutions are driving share gains and positioning the company for growth once the market normalizes.

John McNulty asked about the significant decline in the refinish business, its potential for recovery, and the expected timing for such a turnaround.

Answer

Chairman and CEO Tim Knavish explained that despite a transitory slump in collision claims, PPG maintains market share momentum due to best-in-class productivity solutions. He attributed the decline to industry destocking and delayed normalization of claims, driven by insurance dynamics. CFO Vince Morales added that claims data, while improving, remains negative. Normalization of the industry is expected by mid-2026, after which the business should return to sales and earnings growth.

John McNulty from BMO Capital Markets inquired about the soft volumes and margins in the Global Architectural segment, seeking clarity on the European recovery, the outlook for Mexico projects, and the drivers behind the margin pressure.

Answer

CEO Timothy Knavish explained that the European recovery was hampered by weakness in Eastern Europe, though other areas showed momentum. He noted that Mexico's project spending is expected to improve sequentially. Knavish attributed the Q2 architectural margin decline to a combination of negative FX, an unfavorable sales mix in Mexico, a temporary supply chain disruption in Australia, and the impact of a higher-margin business divestiture.

John McNulty of BMO Capital Markets inquired about the softness in Global Architectural Coatings volumes and margins, specifically questioning the recovery pace in Europe and the project spending outlook in Mexico.

Answer

Chairman & CEO Timothy Knavish explained that the European recovery stalled due to weakness in Eastern Europe, though other regions showed positive momentum. In Mexico, retail sales have recovered, but project work is only improving sequentially. Knavish attributed the margin pressure to a combination of unfavorable FX, a less profitable sales mix in Mexico, a transitory supply chain disruption in Australia, and the impact of a recent divestiture.

John McNulty of BMO Capital Markets questioned why PPG maintained its full-year guidance despite a strong Q1, favorable FX trends, and an improved Q2 volume outlook, asking what factors might be holding the forecast back.

Answer

CEO Timothy Knavish provided a detailed overview of tariff impacts, concluding they are minimal and built into the guide. He emphasized PPG's structural resilience and mitigation efforts. CFO Vince Morales detailed the puts and takes, noting that headwinds from Mexico's project pause and lower auto builds are being offset by favorable FX, higher self-help expectations, faster share gains, and a quicker stabilization in Europe.

John McNulty asked about the Comex distribution platform in Mexico, specifically the mix of products sold for domestic use versus export, to assess tariff risks.

Answer

CEO Tim Knavish stated that it is '100% domestic use' within a few decimal points, making tariff risk on these products immaterial. He gave examples of products like protective coatings for local construction and traffic solutions for Mexican roads. CFO Vince Morales added that expanding the range of PPG products sold through the 5,200-store Comex network is a key growth engine for 2025.

John McNulty sought confirmation on the automotive outlook, asking if the current downturn would persist through Q4 before recovering in early 2025. He also asked how much of the new cost-cutting program is tied to the auto and industrial segments.

Answer

Chairman and CEO Timothy Knavish agreed with the Q4 downturn/Q1 recovery timeline but cautioned that a potential U.S. auto strike is not factored into guidance. He confirmed a portion of the restructuring program is dedicated to the automotive footprint, particularly in Europe. SVP and CFO Vince Morales added that the auto industry is managing inventory well, which is a positive sign.

John McNulty asked about Linde's exposure to European capacity closures, specifically if there are any anticipated speed bumps like large one-time payouts or business disappearances over the next year or two.

Answer

Sanjiv Lamba, CEO, stated that the rationalization is proceeding as expected, with no surprises. He noted that while some European customers (in steel and chemicals) are currently below their minimum take-or-pay (MTOP) levels, Linde is contractually protected by fixed fee payments. He expressed confidence in their tier-one customers' cost positions, expecting them to be the 'last man standing,' thus not anticipating significant rationalization impacts or large one-off payments.

John McNulty from BMO Capital Markets asked about the impact of European capacity closures on Linde, specifically if the company anticipates any speed bumps, large one-time payouts, or business disappearances given recent announcements.

Answer

CEO Sanjiv Lamba stated that the rationalization pace in Europe aligns with Linde's internal expectations, with no surprises. He noted that even with some customers below MTOP in Europe (steel and chemicals), Linde is still being paid fixed fees, contractually protecting the company. He does not expect significant rationalization impacts or large one-off payments, as Linde's tier-one customers are expected to remain.

John McNulty of BMO Capital Markets asked if the return profile of the sale of gas project backlog has improved, possibly due to a less competitive environment.

Answer

CEO Sanjiv Lamba stated that the return profile has not moved significantly because all projects must meet the same rigorous risk-return criteria. He emphasized that timely execution and strong contracting are equally important for returns. He also noted that the competitive dynamic remains largely unchanged, with about half of projects being a 'make or buy' decision for the customer.

John McNulty from BMO Capital Markets asked about potential onshoring opportunities in the U.S. beyond electronics, such as in metals or steel, should protectionist trade policies continue.

Answer

Sanjiv Lamba, CEO, acknowledged that while there are no substantive developments outside of electronics in the short term, Linde is engaged in conversations about new U.S. capacity. He believes that as tariff policies stabilize, onshoring will create attractive opportunities, and Linde is well-positioned to benefit due to its network density, though he declined to speculate on specific sectors.

John McNulty of BMO Capital Markets inquired about the $10 billion backlog, specifically asking how much of the equipment portion is protected from potential tariffs and foreign exchange volatility.

Answer

CEO Sanjiv Lamba clarified that the sale of equipment portion (~$3.2B) is typically protected by contractual clauses and firm pricing. For the larger sale of gas business, a recent analysis of U.S. projects showed a de minimis impact from tariffs. He added that historically, currency devaluations have often offset tariff impacts, giving them confidence in their current project positioning.

John McNulty asked about the composition of the nearly $4 billion increase in the sale of gas backlog, inquiring about the projects making up the non-Dow portion and their expected startup timelines.

Answer

CFO Matt White explained that while large clean energy projects like Dow have longer 4+ year timelines, the remainder of the new backlog consists of more traditional projects with a normalized 3-year timeline from announcement to startup. CEO Sanjiv Lamba added context, noting the backlog is dynamic, with about $1 billion in projects starting up and converting to revenue this year.

John McNulty asked about Ecolab's pricing strategy, specifically whether pricing is becoming easier to implement due to a clearer value proposition or tougher due to potential price fatigue and moderating inflation, excluding the tariff surcharge.

Answer

Christophe Beck, Chairman and CEO of Ecolab, stated that pricing is getting stronger, and the total value delivered to customers is also significantly increasing, typically two to three times more than the captured pricing. He noted that customer retention remains very high, indicating a strong customer-for-life relationship. Beck affirmed that the 2-3% value price range appears to be the company's sweet spot for the long run, with the trade surcharge also contributing to current pricing levels.

John McNulty asked about Ecolab's pricing strategy, specifically whether pricing is becoming easier to implement due to a clearer value proposition or tougher due to potential price fatigue and moderating inflation, excluding the tariff surcharge.

Answer

Christophe Beck, Ecolab's Chairman and CEO, stated that pricing is getting stronger, and the total value delivered to customers is also significantly increasing, typically 2-3x more than the captured pricing. He noted high and stable customer retention rates in the 90s, indicating customer satisfaction with the value proposition. Beck concluded that 2-3% value pricing, combined with the trade surcharge, appears to be the company's sweet spot for the long run.

John McNulty from BMO Capital Markets inquired about the trend in delivered product costs (DPC) during the quarter and the outlook for the second half, considering tariffs and raw material volatility.

Answer

CFO Scott Kirkland explained that while market commodity costs rose by low-single digits, net DPC was slightly favorable due to supply chain efficiencies. He anticipates market inflation to persist in the low-to-mid single digits but expects Ecolab to outperform this through ongoing supply chain initiatives. CEO Christophe Beck added that this dynamic was a key driver of the 100 basis point gross margin expansion in Q2.

John McNulty from BMO Capital Markets asked for a comparison of growth rates for the top 35 accounts under the 'One Ecolab' initiative versus the core business to better understand its impact on volume.

Answer

Christophe Beck, Chairman and CEO, explained that the 'One Ecolab' initiative is progressing very well by focusing on increasing penetration with top corporate accounts. The strategy involves identifying a customer's best-performing unit and replicating that success across their network. While not disclosing specific numbers, Beck confirmed the program is driving growth and also improving internal operational performance through AI platforms, putting the company ahead of its savings delivery targets for the program.

John McNulty asked for the company's outlook on delivered product costs (DPC) for 2025, noting the various puts and takes in the market.

Answer

Scott Kirkland, CFO, responded that after normalizing in 2024, Ecolab expects a return to normal, low single-digit inflation for delivered product costs in 2025. He added that the company will continue working to offset a portion of this increase through ongoing supply chain efficiencies.

John McNulty inquired about the growth drivers in the electronics and data center business, the outlook for the next 12-24 months, and whether growth is coming from new or existing facilities.

Answer

CEO Christophe Beck described the 'Global High Tech' business as a strong double-digit grower serving both microelectronics and data centers. He stated that growth comes from both new and existing facilities, with a preference for embedding technology in new builds. Beck emphasized the massive future water and energy needs driven by AI, positioning Ecolab's circular water and direct-chip cooling solutions as critical for the industry's future.

John McNulty asked for details on the raw material side, including major buckets, the impact of tariffs, and whether the tariff headwind is largely behind Axalta.

Answer

Carl Anderson, SVP and CFO, stated that incremental tariff costs were about $20 million, which Axalta managed effectively, and believes they are mostly behind this headwind. He noted the raw material basket was down about 1% in Q3, with benefits from lower solvents and isocyanates costs, partially offset by increases in monomers and some pigments. He expects a stable raw material backdrop for the next three to four quarters.

John McNulty of BMO Capital Markets asked about the potential growth contribution from the Nimbus and Iris digital platforms in 2026 and inquired about the current M&A pipeline in Refinish and Industrial given market weakness.

Answer

President and CEO Chris Villavarayan explained that digital tools like Nimbus will accelerate growth by improving customer lock-in and enabling cross-selling of adjacent products, which already contributed 2% of growth in Q2. Regarding M&A, he noted that while more bolt-on targets are available, the company's current focus will likely remain on share repurchases given the stock's valuation, unless a highly strategic and opportunistic deal arises.

An analyst on behalf of John McNulty asked why the full-year sales guide was lowered while the EBITDA guide was maintained, and if there was upside to cost savings.

Answer

CFO Carl Anderson explained that the EBITDA guide was held flat due to two factors. First, the company is executing on new cost-saving actions that are incremental to the previously announced $30-$40 million transformation initiative. Second, the original full-year outlook contained a degree of conservatism that is now helping to offset the impact of a softer revenue forecast.

John McNulty of BMO Capital Markets questioned if Axalta has additional levers to pull on its transformation initiative if the macro or tariff situation worsens, and also inquired about the M&A pipeline and capital allocation priorities.

Answer

CFO Carl Anderson confirmed that Axalta has additional levers at its disposal, including potentially accelerating freight and logistics savings and realizing benefits from increased capital expenditures in plant productivity. CEO Chris Villavarayan added that the current market volatility is creating more M&A opportunities and that the company's strong balance sheet provides optionality, suggesting more news on this front in the coming quarters.

John McNulty asked about Axalta's 2024 margins already reaching the 2026 'A Plan' target and the outlook for 2025, as well as the potential top-line contribution from new auto OEM wins in a flat market.

Answer

CEO Chrishan Villavarayan confirmed that while the 21% margin target has been hit early, the plan was for '21% plus,' with further upside from supply chain and productivity initiatives. He emphasized a pivot toward growth, having stabilized margins. For auto OEM wins, he highlighted outperformance in China and Latin America, quantifying the LatAm opportunity as 'north of $50 million' for next year. CFO Carl Anderson added that the company is in the 'early innings' of productivity gains from capital investments.

John Patrick McNulty inquired about the drivers behind the standout organic growth in the Construction Products Group and Performance Coatings Group, asking for details on subsectors, end markets, and the backlog outlook for these businesses.

Answer

Frank Sullivan, Chairman and CEO, attributed growth in the Construction Products Group to Tremco Roofing's reroofing and institutional projects, Purera HVAC refurbishment, WTI's supply and apply model, and Tremco Sealants' 'One Tremco' approach and shift to project-based sales. For the Performance Coatings Group, he highlighted StoneHard's aggressive sales force expansion and the Industrial Coatings Group's outperformance by competing for larger accounts like John Deere.

John McNulty inquired about the standout organic growth in the Construction Products Group and Performance Coatings Group, asking for details on subsectors, end markets, backlog, and the guide's conservatism, and later about the drivers of Performance Coatings Group's organic growth.

Answer

Frank Sullivan, Chairman and CEO, highlighted growth drivers in CPG including expanding sales forces, a solid backlog in Tremco Roofing, sales from PureAir, WTI contracting, and a 'One Tremco' approach. He noted Tremco Sealants' shift to 60% project-based sales. For PCG, he attributed growth to Stonehard's aggressive sales hiring and the Industrial Coatings Group's (ICG) outperformance by adding salespeople and securing larger accounts, such as John Deere.

John McNulty from BMO Capital Markets asked for the expected incremental savings from the MAP 2025 program in fiscal 2026, the remaining potential for working capital improvements, and an update on the M&A pipeline.

Answer

Chairman & CEO Frank Sullivan projected approximately $70 million in incremental MAP 2025 benefits for fiscal 2026. He also noted there is still a 200-300 basis point improvement expected in working capital over time. Regarding M&A, Sullivan confirmed the company has 'plenty of dry powder' and is seeing more favorable valuations, expecting the acquisition growth machine to deliver more deals.

John McNulty requested an update on the onshoring trend and asked for context on the growing MAP 2025 project pipeline, including its potential size relative to past targets.

Answer

CEO Frank Sullivan stated that while small-to-medium onshoring projects continue, larger projects are now expected to play out over a longer timeline. Regarding MAP 2025, he revealed the savings target is now likely to reach $500 million, up from the initial $465 million, with the full benefit realized in fiscal 2026, driven by a cultural shift toward collaboration and efficiency.

John McNulty asked about the Consumer segment's strong margins despite challenging volumes and the potential operating leverage in a normalized DIY market. He also inquired about inventory issues in the Specialty segment and the timeline for recovery.

Answer

Frank Sullivan, Chair and CEO, explained that MAP 2025 initiatives have unlocked significant efficiencies and capacity, positioning all segments, especially Consumer, for strong bottom-line leverage once volume returns. He noted that SG&A spending was down year-over-year. Regarding the Specialty segment, Sullivan stated that the challenged environment has likely bottomed out, with the segment returning to positive EBIT growth, and he expects modest improvement for the rest of the year.

John McNulty asked for an update on the expected synergies and earnings contribution from the recently acquired Cornerstone (Wagaman) assets in 2026, and for details on the new technology trials planned for that year.

Answer

CFO Mike Feehan indicated that while 2025 will see integration costs offsetting sales from the Wagaman acquisition, they expect a positive contribution in 2026. CEO Kurt Bitting added that the new trials are focused on the AMAC segment, specifically in high-interest areas like biocatalysis and advanced plastics recycling.

John McNulty from BMO Capital Markets asked for an update on the synergy and earnings potential from the Cornerstone (Wagaman) acquisition in 2026, and for more details on the new product trials planned for 2026.

Answer

CFO Mike Feehan indicated that while specific 2026 guidance for the Wagaman acquisition is not yet available, it is a strategic asset expected to create opportunities in the Gulf Coast. CEO Kurt Bitting added that new trials are focused on the AMAC segment, particularly in the high-interest areas of biocatalysis, using silicas as enzyme carriers, and advanced recycling catalysts.

John McNulty of BMO Capital Markets inquired about the expected synergies and earnings contribution from the recently acquired Cornerstone (Wagaman) business in 2026 and asked for more details on new trial programs for emerging technologies.

Answer

CFO Mike Feehan explained that while 2025 involves integration costs, the Wagaman acquisition is expected to be a strong contributor in 2026 through synergies and new customer opportunities. CEO Kurt Bitting added that the new trials are focused on the Advanced Materials and Catalysts segment, particularly in high-growth areas like biocatalysis and advanced recycling catalysts.

John McNulty of BMO Capital Markets asked for an update on the expected synergies from the Cornerstone (Wagaman) acquisition in 2026 and for more detail on the trial programs for emerging technologies like biocatalysis.

Answer

CFO Mike Feehan indicated that while 2025 will see integration costs offset sales, the Wagaman acquisition is expected to be a positive contributor in 2026 through synergies and new customer opportunities. CEO Kurt Bitting added that trial programs are focused on high-interest areas like using silicas for biocatalysis and catalysts for advanced recycling to improve energy efficiency.

John McNulty from BMO Capital Markets asked about the expected synergy and earnings contributions from the Cornerstone (Wagaman) acquisition in 2026 and sought more details on new product trials in biocatalysis and advanced recycling.

Answer

CFO Mike Feehan stated that while specific 2026 guidance for the Wagaman acquisition is not yet available, they expect it to be a valuable addition with integration proceeding well. CEO Kurt Bitting added that trial activity is strong in the AMAC segment, particularly for silicas as enzyme carriers in biocatalysis and for catalysts that improve efficiency in advanced plastics recycling.

John McNulty of BMO Capital Markets inquired about the polyethylene catalyst business, asking if a slowdown tied to tariffs has been observed and if there are any delays from customers for the new 2026 facility. He also asked about the potential for increased volume from U.S. customers if protectionist tariff policies continue.

Answer

Kurt Bitting, CEO, responded that Ecovyst has not yet seen any impact on polyethylene catalyst demand from tariffs but is monitoring the situation. He confirmed there are no known delays for customer capacity additions that underpin Ecovyst's Kansas City expansion. Bitting explained that with 75% of sales in the U.S.-centric Ecoservices business, the company generally benefits from strong U.S. manufacturing, while its global production footprint for the Advanced Materials and Catalysts segment helps mitigate direct tariff impacts.

John McNulty from BMO Capital Markets questioned the potential for cost-cutting in the sustainable fuels catalyst business due to the prolonged downturn and inquired about the deployment of the growing cash balance, including the M&A outlook.

Answer

CFO Michael Feehan responded that cost reductions were already implemented in Q2 and Q3, but further actions are limited as the assets are fungible with other product lines. CEO Kurt Bitting added that the capital allocation priority is funding organic growth and maintaining balance sheet flexibility. He confirmed continued interest in complementary, bolt-on M&A and noted that market activity appears to be picking up.

John McNulty from BMO Capital Markets inquired about the full-year 2025 outlook, noting the implied Q4 strength seems to defy typical seasonality. He also asked for a detailed breakdown of the drivers behind the Thermal & Specialized Solutions (TSS) segment's outperformance, questioning the sustainability of factors like aftermarket demand versus the regulatory-driven OEM shift.

Answer

SVP & CFO Shane Hostetter explained the Q4 outlook is supported by the non-recurrence of approximately $35 million in Q3 operational issues in the TT and APM segments, which offsets some seasonality. He also cited continued strength in TSS. Regarding TSS performance, President & CEO Denise Dignam credited strong execution and market transition, acknowledging some potential short-term hoarding in the aftermarket but expressing confidence in double-digit growth for the year and into 2026.

John McNulty of BMO Capital Markets inquired about the new Navin Fluorine strategic venture for immersion cooling fluids, asking about production capacity, commercialization timing, and customer orders. He also sought clarification on the TiO2 segment's 2025 EBITDA outlook and the nature of the projected $100-$150 million in ore contract savings.

Answer

President and CEO Denise Dignam explained the Navin partnership is a critical step for commercialization, involving a $14 million investment for a facility sized for field trials and process refinement. SVP and CFO Shane Hostetter confirmed the outlook for TT segment improvement in 2025 vs. 2024 and clarified that the ore savings are a cash flow benefit of $100-$150 million, expected to phase in during late 2026 and into 2027 as contracts expire.

John McNulty asked about the 2025 CapEx budget of $250-$300 million, specifically whether it includes spending for the data center immersion cooling opportunity and the timing for a final investment decision. He also asked for an update on the TSS segment, particularly the outlook for Freon inventory destocking and Opteon volume growth.

Answer

CFO Shane Hostetter confirmed the CapEx range and reiterated a focus on asset-light approaches. CEO Denise Dignam added that while commercialization of the immersion cooling technology is targeted for next year, details on the asset plan remain confidential. For TSS, she stated Chemours is less dependent on Freon in 2025 and expects Opteon growth of at least 23%, though she cautioned that 2025 is an 'OEM year' with less pricing flexibility in the aftermarket.

John McNulty, on for Caleb Bowman, asked for a breakdown of the $250 million cost-saving plan between fixed cost-out and volume-dependent efficiencies. He also requested an update on the data center cooling pilot facility and customer interest, and whether recent Freon sales trends signal a bottoming of destocking pressures.

Answer

CFO Shane Hostetter clarified that the majority of the $250 million in savings are identified, structural cost-outs from procurement, operational optimization, and asset footprint changes, rather than being dependent on volume. CEO Denise Dignam confirmed the data center project is on track for commercial quantities in 2026 with significant customer interest. Regarding Freon, Hostetter agreed that while declines continue as HFO adoption grows, the pace of decline has steadied compared to the past.

John McNulty of BMO Capital Markets inquired about the Performance Chemicals segment's underlying margin, asking what it would have been without the impact of high-cost CTO inventory. He also asked about the specific levers driving the strong free cash flow performance.

Answer

CFO Mary Hall clarified that second-half margins are expected to be similar to the first half but will not have the drag from high-cost CTO. She noted that strong paving activity in June and July should also benefit Q3. Hall attributed the strong free cash flow primarily to improved earnings and disciplined inventory management. CEO David Li added that the company's strong execution and repositioning strategy are leading to more predictable cash flows.

John McNulty asked about current pricing in the Performance Materials business, particularly in light of potential tariffs, and sought an update on the progress and timeline of the strategic review for the Industrial Specialties business.

Answer

CEO David Li and CFO Mary Hall explained that pricing is an annual lever they can use but feel well-positioned to mitigate the minimal expected tariff impact through their 'local for local' production model and other actions. Regarding the strategic review, Mary Hall stated the process is progressing well with broad interest and that the goal to announce a path forward by year-end reflects a deliberate, thoughtful approach, not an unusual delay.

John McNulty asked about the focus of increased innovation spending within the Performance Materials segment and questioned why working capital is not expected to be a source of cash in 2025 despite the planned consumption of high-cost CTO inventory.

Answer

Interim CEO Luis Fernandez-Moreno confirmed the increased R&D spend is almost entirely for developing new silicon anode applications for batteries, related to the Nexeon investment. CFO Mary Hall explained that the cash benefit from reducing CTO inventory is expected to be offset by working capital increases in other growing business areas, resulting in a neutral net impact for 2025.

John McNulty asked for the key drivers of the significant sequential margin improvement in Performance Chemicals, given lower sales in the high-margin paving business, and requested a quantification of the major improvement drivers for 2025.

Answer

CFO Mary Hall attributed the Q2-to-Q3 margin improvement to a favorable mix shift from exiting low-margin products and the elimination of financial drag from the Crossett facility, which was shut down at the end of Q2. For 2025, she highlighted expected savings of $20-$25 million from the Crossett closure plus $10 million from corporate actions, but cautioned that lower CTO costs will likely be partially offset by competitive pricing adjustments.

John McNulty of BMO Capital Markets inquired about the specific drivers of growth in Healthcare and Water and asked about the prioritization of M&A pipeline development amid the ongoing company separation.

Answer

CEO Lori Koch attributed the strong growth to lapping destocking, underlying megatrends, and specific share gains in China's RO market. She confirmed that while the Qunity separation is the top priority, a dedicated strategy team is actively building an M&A pipeline focused on healthcare and water.

John McNulty of BMO Capital Markets inquired about the specific drivers of growth in Healthcare & Water and asked about the priority of M&A planning amid the ongoing company separation.

Answer

CEO Lori Koch attributed the strong growth to lapping a prior year destock, underlying secular megatrends, and market share gains in China. While separating Qunity is the top priority, she confirmed the strategy team is actively building an M&A pipeline to be ready for execution post-spin, focusing on healthcare and water.

John McNulty asked for details on the drivers behind the strong performance in the Water business and inquired about the size and applications of the AI-related business within Interconnect Solutions.

Answer

CEO Lori Koch attributed the Water business's strength to favorable prior-year comparisons and strong demand for reverse osmosis and ion exchange technologies, highlighting future opportunities in PFAS cleanup. Jon Kemp, CEO-elect of Qnity, noted that the data center business, representing about 15% of the portfolio and a key AI driver, grew in the mid-teens, propelled by advanced chips, packaging, and interconnects.

John McNulty inquired about the key drivers behind the strong growth in the Water segment and its outlook for 2025, as well as the expected cadence of growth for the semiconductor platform throughout 2025.

Answer

CEO Lori Koch attributed the Water segment's 11% Q4 organic growth to secular tailwinds like clean water access and sees mid- to high-single-digit growth in 2025, with long-term opportunities in DLE and PFAS. For the new ElectronicsCo, she guided for 6-7% organic growth, with Q1 being the strongest quarter due to favorable comps before moderating.

John McNulty of BMO Capital Markets asked if the market is nearing a supply-demand tipping point given recent industry capacity closures, and how the Botlek closure impacts Tronox's vertical integration strategy.

Answer

CEO John Romano noted that 750,000 tons of industry capacity have been removed since 2023, positioning the market for recovery once demand returns. He clarified that the Botlek closure does not make Tronox fully integrated and the company will continue to manage its asset footprint to maintain its cost advantage and the right supply balance.

John McNulty asked about the drivers behind the softer pricing environment expected in the first half of 2025, despite new tariffs, and inquired about the new $125-$175 million cost-cutting initiative, specifically its reliance on volume versus efficiency and its expected timeline.

Answer

CEO John Romano explained that Q1 pricing would see a slight downward movement similar to Q4 due to competitive activity, but expects an upward recovery in the second half, aided by tariffs in Europe. CFO John Srivisal clarified the cost program is focused on efficiency, not volume, with $25-$30 million in run-rate savings expected in 2025 and the majority realized by the end of 2026. Romano added that technology, like automated process control, is a key enabler of these savings.

John McNulty inquired about the quantifiable cost benefits for 2025 from resolving 2024's high-cost inventory and operational issues, and sought details on the antidumping tariff playbook in the EU and Brazil.

Answer

CEO John Romano explained that running at lower rates cost $25-$35 million per quarter, a headwind that will reverse. He also detailed a new operational efficiency initiative, leveraging technology from the 'neutron' program to lower costs without new volume, with specifics to be announced later. Regarding tariffs, he noted that final EU duties are expected in Q1 2025 and that Chinese exporters are currently absorbing provisional duties, causing short-term market choppiness but creating a long-term positive outlook.

John McNulty of BMO Capital Markets asked about the expected scaling of innovation-driven sales from the $10 million target in 2025 into fiscal 2026 and beyond. He also requested quantification of the advanced manufacturing tax credit benefiting the Intermediates segment.

Answer

CEO Guillermo Novo explained that long-term platform innovations will gain commercial momentum in 2026, while near-term growth is being driven by core innovations in pharma, specialty additives, and personal care. He also highlighted the impact of process innovation. CFO William Whitaker quantified the tax credit for the Intermediates business, stating it provides approximately $5-6 million in incremental savings per year, recognized ratably, and is expected to continue through 2029.

Speaking for John McNulty, an associate asked about sequential pricing trends, the potential for positive pricing power, the quantified impact of pharma inventory destocking, and whether that process is now complete.

Answer

CEO Guillermo Novo stated that pricing is largely a rollover from prior contracts with no improvement forecasted, and the year-over-year headwind is already factored into guidance. He explained that the pharma inventory control actions were mostly a Q1 event and are now largely behind them. He broke down the Life Sciences performance gap as roughly one-third pricing, one-third volume/inventory, and one-third other business issues.

John McNulty inquired about the drivers behind the expected margin degradation in the Housing and Infrastructure Products (HIP) segment for 2025 and asked for a breakdown of the projected $125 million to $150 million in cost savings by division.

Answer

EVP and CFO Steve Bender explained that the forecasted HIP margin change is primarily due to an anticipated shift in product mix, not a weakening environment. Regarding cost cuts, Bender noted that while efforts are company-wide, major contributions will come from logistics and procurement, which will benefit both the PEM and HIP segments, along with tighter SG&A management.

John McNulty asked if there have been any offsetting permanent capacity closures for the new acetyl capacity coming online in Asia and questioned the risk of that new capacity moving into other global markets.

Answer

CEO Scott Richardson responded that he has not seen permanent capacity reductions but has observed the industry operating at lower rates, with existing players flexing their networks down to match demand. He added that the arbitrage window for moving product out of Asia is not open, as shipping and storage are expensive and complex, which has prevented significant volumes of material from moving out of the region.