Joseph O'Dea

Joseph O'Dea asked Centuri to outline the key changes implemented in 2025 that drove significant growth and backlog, and how these initiatives would be further advanced in 2026. He also questioned the organization's current sizing relative to the 2026 base revenue guidance and the additional investments required if demand exceeds expectations.

Answer

Chris Brown, President and CEO, attributed the growth to implementing an effective sales pipeline, tight operational oversight, and improved capital efficiency through fleet leasing. He emphasized these are now institutionalized practices. He added that Centuri is not at capacity and continuously adds resources, particularly headcount (up 12-15% in the last 13 months), focusing on people-side capacity building and a 'one Centuri' approach to resourcing.

Joseph O'Dea asked about the key changes implemented in 2025 to drive growth opportunities and backlog increase, and the potential for further advancement in 2026. He also inquired about the organization's sizing relative to the 2026 base revenue guidance, and required investments if demand exceeds the guide.

Answer

Chris Brown, President and CEO, Centuri, outlined three key operational changes: an effective sales pipeline, tight block-and-tackling oversight, and capital efficiency through fleet leasing. He stated they are not sized to capacity, emphasizing continuous hiring (12-15% headcount increase in the last 13 months) and cross-training to build capacity.

Joseph O'Dea asked about the building blocks for the residential market to return to 9 million units from the current 6.5 million, considering factors like replacement timing, repair versus replace trends, and the path to recovery. He also inquired about Carrier's competitive advantage in CDUs (Cooling Distribution Units), if sales are typically system-based, and any margin implications.

Answer

David Gitlin (Chairman and CEO) linked residential recovery to fundamental macro improvements: lower mortgage rates, improved consumer confidence, and a pickup in new/existing home sales. He believes repair vs. replace is not a long-term trend due to economics favoring replacement, the impact of low existing home sales, and refrigerant changes. For CDUs, he stated no margin drag. Carrier opted for organic CDU production (mini chillers), introduced 1MW/1.3MW units in 2025 with wins, and plans 3MW/5MW units for 2026, attributing wins to customer relationships and BMS interaction across cooling cycles.

Joseph O'Dea asked for more detail on the 4% organic growth in the IOS segment, specifically if it surprised internally and the contributing factors, including equipment versus software. He also sought further color on the types of Agentic AI enhancements being developed or deployed for customers.

Answer

Olumide Soroye, President and CEO, stated that the IOS growth was primarily due to teams executing the Fortive Business System strategy faster and more impactfully than anticipated, with strong performance across Fluke, software businesses, and gas detection, rather than a macro shift. He provided examples of AI-enabled enhancements in ServiceChannel's Q4 product release and previously mentioned Provation, emphasizing their role in delivering business value through workflow software.

Joseph O'Dea requested more detail on the 4% organic growth in the IOS segment, including the sources of internal surprise, potential benefits from general industrial demand in mid-2025, and a breakdown between equipment and software. He also asked for specific examples and color on the types of Agentic AI enhancements currently being developed or in the market.

Answer

Olumide Soroye, President and CEO, attributed IOS strength to teams executing the Fortive Business System strategy faster and more impactfully, citing strong demand in areas like data center and defense for Fluke, and excellent execution across software and gas detection. He clarified the outlook doesn't presume significant macro changes. For AI, he mentioned ServiceChannel's Q4 release with AI-enabled features for repair and maintenance, and previous examples from Provation, emphasizing targeted enhancements that deliver real business value within customer workflow software.

Joseph O'Dea asked for more color on Fortive's 'Growth Oxygen' initiative, including what it encompasses, the timing of its impact on organic growth, and the composition of organic growth between price and volume.

Answer

President and CEO Olumide Soroye described 'Growth Oxygen' as a disciplined process to identify and fund high-confidence, high-return organic growth ideas (product enhancements, commercial capacity, add-on services) across Fortive's 10 brands, using Q3 margin expansion to invest in Q4 for 2026 impact. He noted that while pricing strength is expected to continue, many new growth ideas are volume-driven, and the volume contribution to growth is expected to improve over the next 1-3 years.

Joseph O'Dea asked for more details on Fortive's 'Growth Oxygen' initiative for its operating brands, noting the Q3 R&D decrease and inquiring about the scope of resourcing and the expected timing of its impact on organic growth. He also questioned the organic growth composition, specifically the price and volume split, and where Fortive sees the best opportunities for volume improvement.

Answer

Olumide Soroye, Fortive's President and CEO, described 'Growth Oxygen' as a strategic planning process to identify and fund high-potential organic growth ideas, including product enhancements, commercial capacity expansion in attractive markets (e.g., data centers, India), and new services/software offerings. He noted that some Q3 margin expansion would be reinvested in Q4 to accelerate these initiatives for 2026 impact. Regarding organic growth, Mr. Soroye highlighted continued pricing strength and expressed optimism for significant volume upside across businesses, particularly Fluke and the iOS segment, with specific ideas to drive volume growth over the next 1-3 years.

Joseph O'Dea asked for more details on the North American retail fueling CapEx cycle, including regional specifics and expected progression in 2026. He also inquired about the $40 million carryover from prior restructuring actions, asking if more restructuring was planned and which business segments might be impacted.

Answer

CEO Richard Tobin explained that the retail fueling CapEx cycle is primarily a North American phenomenon, driven by improved retail margins and a historical lack of investment due to EV concerns. He noted that Dover has reduced exposure in emerging markets and EMEA. Regarding restructuring, he stated that the company has a full plate with current actions, with benefits from refrigeration and clean energy expected in the back half of 2026, and that attacking fixed costs is an ongoing goal.

Joseph O'Dea followed up on comments regarding in-plant customers prioritizing productivity and automation over capacity expansion, asking what this trend means for Parker-Hannifin's wallet share and how a pivot towards capacity expansion would impact the company. O'Dea also inquired about Parker's CapEx plans, which are up about $100 million year-over-year, asking for details on where this higher spend is directed, particularly if any is for capacity expansion related to the highlighted Off Highway activity.

Answer

Chairman and CEO Jennifer Parmentier explained that Parker participates in both scenarios, gaining wallet share from retooling, upgrading, and retrofitting, as well as from new factory construction. She noted that while the recovery is gradual, distributors are ready for higher participation. Parmentier confirmed that CapEx investments are directed towards automation, productivity, and capacity expansion across the businesses to maintain service levels and world-class manufacturing, including in areas like Off Highway.

Joseph O'Dea inquired about the implications for Parker's wallet share when customers prioritize productivity and automation over capacity expansion, and what a shift towards capacity expansion would mean. He also asked about the increased CapEx plans, specifically if any of it is targeted towards off-highway or capacity expansion.

Answer

Jennifer Parmentier, Chairman and CEO, stated that Parker participates in both scenarios (retooling/upgrading and new factory builds), securing a significant share of the wallet in each. She confirmed investments in automation, productivity, and capacity expansion across businesses to maintain service levels and world-class manufacturing.

Joseph O'Dea with Wells Fargo inquired about customer activity and dealer feedback regarding greenfield and brownfield investments in the U.S. North America in-plant sector, and the nature of these investments. He also asked for more details on the strength in HVAC, particularly new wins in filtration.

Answer

Chairman and CEO Jennifer Parmentier noted that CapEx spending remains selective, but Q1 saw stronger activity in distribution and in-plant, with projects starting to move forward, though she lacked specific breakdowns for local versus foreign investment. For HVAC, she highlighted nice filtration wins in gas turbines within the energy market and also on the mobile side of the business, indicating it has been a growth area for the filtration group.

Joseph O'Dea of Wells Fargo asked for more detail on the 8% aerospace growth forecast, focusing on margin mix implications between OE and aftermarket, and the expected contribution from Meggitt synergies. He also inquired about the latest sentiment from North American distributor partners.

Answer

Chairman & CEO Jennifer Parmentier reiterated the full-year aerospace growth outlook and expressed confidence in continued margin expansion. EVP & CFO Todd Leombruno added that $50 million in Meggitt synergies are still to be realized and will ramp through the year. Regarding distributors, Parmentier described sentiment as bullish with high quoting activity, though some project decisions are being delayed by tariff and interest rate uncertainty.

Joseph O'Dea asked for a breakdown of the mid-single-digit organic growth for fiscal 2026, including color on price, volume by regions, HVAC versus fire and security, and what is already secured versus what still needs to be achieved. He also requested an update on the $500 million multi-year restructuring program, specifically what was achieved in 2025 and what's baked into the 2026 guide.

Answer

CEO Joakim Weidemanis highlighted the record $15 billion backlog and recurring service business providing good predictability, stating the guidance doesn't rely on unproven execution. CFO Marc Vandiepenbeeck detailed that all regions would be within mid-single digits, with EMEA slightly above average. Applied and HVAC would grow faster than mid-single digits, while Fire & Security would be on the lower end. Regarding restructuring, Marc stated that approximately $200 million was spent in fiscal 2025, ahead of schedule, with the runway benefit reflected in 2025's upside and the 2026 guide. He noted that further incremental restructuring might be needed, with expected returns translating into the new operating leverage profile.

Questioned why the 2025 mid-single-digit growth expectation for electrical distribution isn't higher given the easy comparison from 2024. Also asked why the telecom business was still down significantly in Q4 and why its 2025 growth outlook is muted.

Answer

The company acknowledged there could be upside to the electrical distribution forecast if market orders are strong. For telecom, the 2023 comps were very strong. The outlook for 2025 is muted because they are being disciplined and focusing on profitable growth in that segment, where pricing has been weak, rather than just chasing volume.