Joseph O'Dea

Joseph O'Dea inquired about the first half versus second half growth trends in Hubbell's grid infrastructure business, differentiating between transmission/substation and electrical distribution. He asked about the underlying growth rate for electrical distribution in the back half of 2026 and the visibility provided by the transmission and substation backlog. He also asked about Hubbell's free cash flow spend opportunities, including the M&A pipeline and appetite for share repurchases.

Answer

Gerben Bakker, Chairman, President, and CEO, expects transmission and substation to continue high single-digit to low double-digit growth. Distribution strengthened throughout 2025, leading to easier comps earlier in 2026. He suggested thinking of substation/transmission in high single digits and distribution in mid-single digits for 2026. Joe Capozzoli, CFO, anticipates $900 million-$1 billion in free cash flow for 2026, planning similar capital deployment to 2025, including CapEx, M&A, and share repurchases. Bakker added that CapEx offers the highest returns, followed by disciplined acquisitions in T&D and core electrical markets, with share repurchases as an alternative.

Joe O'Dea asked about the expected split in organic growth between the two segments in the second half of the year. He also requested more detail on Hubbell's sourcing from China and the company's strategy for managing that exposure going forward.

Answer

Executive Daniel Innamorato clarified that both segments will see a price contribution and that tariff exposure is slightly more weighted to Electrical. CEO Gerben Bakker and EVP & CFO Bill Sperry explained that China exposure has been halved over several years through divestitures and supply chain work. The current exposure is mostly components, and the company is actively negotiating with suppliers, working with partners moving production, and diversifying its supply base to manage it downward over time.

Joseph O'Dea questioned the 2025 outlook for electrical distribution, asking why growth wasn't projected to be higher given the easy comparison from 2024. He posed a similar question about the telecom business, which is only guided to low-single-digit growth despite a significant 2024 decline.

Answer

CFO William Sperry acknowledged that for electrical distribution, there could be upside to the guidance if market orders materialize. For the telecom business, Sperry noted the difficult comps from a very strong 2023. CEO Gerben Bakker added that the muted telecom growth forecast reflects a disciplined strategy to pursue profitable business rather than simply chasing volume after rightsizing the operation.

Joseph O'Dea from Wells Fargo & Company asked why the 2025 growth outlook for electrical distribution wasn't higher given the easy comparison from 2024. He also questioned the continued weakness in the telecom business, which was down 20% in Q4 despite easier comps.

Answer

CFO Bill Sperry acknowledged the logic that an easier comparison could lead to better-than-guided growth if the market is there. On telecom, Sperry noted the business is coming off very strong 2023 growth and is now stabilizing at a lower base. CEO Gerben Bakker added that the company is being disciplined on telecom growth, focusing on attractive, profitable business rather than just sales volume after seeing price declines in that segment.

Joseph O'Dea of Wells Fargo & Company inquired about the margin mix within the Utility Solutions segment as telecom recovers and asked about the company's exposure and preparedness for potential tariff scenarios.

Answer

CFO William Sperry indicated that telecom margins should return to attractive levels and that he does not foresee significant margin mix shifts across the utility businesses. CEO Gerben Bakker noted that tariff exposure is lower now due to portfolio changes and supply chain diversification, expressing confidence in the company's ability to manage future impacts.

Joseph O'Dea asked for more details on the North American retail fueling CapEx cycle, including regional trends and expected acceleration in demand throughout 2026. He also inquired about Dover's approach to further restructuring beyond the $40 million carryover, including decision timing and potential business segments for impact.

Answer

CEO Richard Tobin explained that the retail fueling CapEx cycle is primarily a North American phenomenon, driven by increased profitability at the pump after years of underinvestment due to EV concerns. He noted that Dover has reduced exposure in EMEA and emerging markets. Regarding restructuring, he indicated a 'pretty full plate' with current projects, including facility consolidations, and that benefits would be realized later in the year or into 2027, with an ongoing goal to attack fixed costs annually.

Joseph O'Dea of Wells Fargo asked what factors customers are watching that could alleviate demand uncertainty and sought to clarify if the revenue guidance raise was due to fundamental improvement or simply removing prior conservatism.

Answer

President and CEO Richard Tobin suggested that for large customers, a lower cost of capital would help advance major projects, but there is no single factor beyond general macro uncertainty. He clarified the guidance raise was mechanical: one point from FX, one from acquisitions, and the remainder from easier second-half comps, effectively rolling forward the strong H1 performance rather than removing a specific conservative buffer.

Joseph O'Dea asked for more detail on the company's "proximity manufacturer" advantage and inquired about the dynamics in the vehicle lift business, specifically whether weakness was due to market trends or internal management.

Answer

Executive Richard Tobin explained their advantage lies in competing against rivals who import fully assembled units, while Dover manufactures locally with fewer tariff-exposed components. He noted the vehicle lift weakness is a combination of market factors (auto/consumer exposure) and proactive volume management in response to its higher tariff exposure.

Joseph O'Dea of Wells Fargo & Company asked for details on the Q2 volume growth, seeking to parse out underlying demand versus pre-buy activity, and inquired about the progress of the company's multichannel distribution strategy.

Answer

CEO Steph Disher explained that strong Q2 volume was driven by three factors: a catch-up in share gains from Q1, pre-buy activity ahead of price increases and tariffs, and strong underlying execution. She confirmed the full-year share gain outlook remains at 2%. Regarding distribution, she highlighted the completion of the network's transition from Cummins, which now provides a solid foundation to support new partnerships and expand product coverage, with a focus on the US and Latin America.

Joseph O'Dea asked about the key drivers of Atmus's strong 2024 EBITDA margin, any non-repeating items affecting the 2025 outlook, and the expected quarterly cadence. He also inquired about the visibility into the company's market outgrowth guidance for both aftermarket and first-fit segments.

Answer

CFO Jack Kienzler explained that the 2025 margin outlook is impacted by FX headwinds and rising input costs, leading to a challenging first half with recovery expected later in the year. CEO Steph Disher added that the 2% market outgrowth guidance is strongly supported by committed business and new partner wins from 2024 that will carry over into 2025 across both segments.

Joseph O'Dea asked about the company's manufacturing footprint, its reliance on non-U.S. production for U.S. sales in the context of potential tariffs, and the competitive importance of Mexico as a supply source.

Answer

CEO Stephanie Disher explained that Atmos operates a 'regional for regional' supply chain, where most production serves its local market. She acknowledged exceptions, such as the Mexico facility supplying the U.S. and media production in South Korea. She described the Mexico plant as their largest globally and a source of competitive advantage.

Joseph O'Dea of Wells Fargo asked about the mix of the 8% aerospace growth throughout the year, Meggitt synergy contributions, and the gating factors for converting distributor quoting activity into orders.

Answer

Chairman and CEO Jennifer Parmentier reiterated the full-year aerospace growth mix but did not detail intra-year shifts, expressing confidence in margin expansion. She identified uncertainty around tariffs and interest rates as the main factors delaying customer purchasing decisions. EVP & CFO Todd Leombruno added that $50 million in Meggitt synergies remain and are expected to ramp through the year.

Joseph O'Dea from Wells Fargo asked about the typical lag time between signs of improving end-market demand and a subsequent channel inventory restock. He also requested an update on the status of mega-projects and whether they are beginning to translate into demand.

Answer

CEO Jenny Parmentier stated there is no specific timeframe for a restock, as distributors remain cautious with inventory despite bullish quoting activity. Regarding mega-projects, she confirmed they remain a key growth driver, but some projects are experiencing delays. She noted the overall pipeline remains robust, but the demand has not fully materialized yet.

Joseph O'Dea asked about the company's labor flexibility and operational agility that allows for strong margin performance amidst challenges like strikes and slowing end markets. He also inquired about the timing of orders related to mega projects and Parker's exposure to key areas like chemicals and power generation.

Answer

CEO Jenny Parmentier and CFO Todd Leombruno credited Parker's decentralized structure, with 85 general managers having full P&L responsibility, and the Win Strategy business system for enabling agility. Jenny Parmentier noted that while some mega projects are delayed, new ones are announced, and Parker benefits throughout the project lifecycle via its distribution network, citing a recent win for an EV battery line.

Joseph O'Dea asked what provides confidence in a return to industrial growth in fiscal 2026, given that the recovery has been pushed out this year. He also sought to clarify if current softness is due to weakening demand or simply an expected recovery not materializing.

Answer

Executive Jennifer Parmentier cited confidence from incoming long-cycle orders with good visibility and few cancellations. She also noted that the industrial business has been in a downturn for an average-to-above-average number of quarters, suggesting a cyclical turn is due. She clarified that the recent guidance change was not due to sequentially weakening demand, but because 'things that we thought would get better, just didn't happen.'

Joseph O'Dea from Wells Fargo & Company asked for more details on the timeline for achieving a balanced fleet management model and its potential impact on EBITDA margins. He also questioned whether the strength in the core electric utility business was driven more by underlying market activity or by market share gains.

Answer

EVP & CFO Gregory Izenstark explained that leasing partners are now in place for the fleet initiative and that he does not expect a material impact on long-term margins, as any pressure can be offset by pricing and efficiency gains. President & CEO Christian Brown added that the electric utility market is a 'seller's market' with customers increasing capital budgets, and Centuri's growth is focused on meeting this rising demand rather than just displacing competitors.

Joseph O'Dea of Wells Fargo & Company inquired about the performance differences between the union and non-union electric segments, asking if the drivers were regional or other factors. He also asked about the timeline and potential value of the ongoing supply chain contract reviews.

Answer

Jim Connell, Chief Commercial and Strategy Officer, responded that the non-union electric business is seeing strong demand for increased crews from core customers. In contrast, the union side is more focused on bid projects and has experienced some timing delays. Regarding the supply chain, Mr. Connell stated that the company is making progress by focusing on the most significant contracts first but has not set a specific deadline, noting it will take time for the full benefits to be realized in the results.

Joseph O'Dea of Wells Fargo asked for an explanation of the moderated growth in the Control Systems and Software segment this quarter and for a comparison of the recovery trends between the Test and Measurement business and the legacy discrete business.

Answer

EVP & CFO Mike Baughman and COO Ram Krishnan attributed the software segment's quarterly growth rate to the timing of a large deal in Q2 and normal project lumpiness, reaffirming a strong full-year outlook. President & CEO Lal Karsanbhai explained that the legacy discrete business is recovering more slowly than Test and Measurement due to its higher exposure to depressed automotive and packaging markets in Europe and China.

Joseph O'Dea from Wells Fargo & Company requested an expansion on the Test & Measurement business, asking why its demand trends appear insulated from market pressures. He also asked about the future M&A strategy, specifically the potential size of bolt-on deals.

Answer

COO Ram Krishnan explained that Test & Measurement's strength comes from strong fundamentals in its aerospace & defense and broad-based portfolio segments, with semiconductors also recovering. Only the automotive segment remains weak. CEO Surendralal Karsanbhai clarified that future M&A will focus on bolt-on opportunities, generally sized as sub-billion dollar deals, balanced against capital allocation priorities like debt paydown and shareholder returns.

Joseph O'Dea from Wells Fargo & Company inquired about the primary drivers of the quarter's strong margin performance and their sustainability. He also asked about Emerson's future M&A appetite following the current phase of its portfolio transformation.

Answer

CFO Mike Baughman clarified that while price/cost was a positive factor, cost reduction was the largest driver of margin strength, supplemented by favorable business mix from AspenTech and some FX benefits. President and CEO Lal Karsanbhai stated that going forward, M&A will focus on disciplined bolt-ons, with priorities shifting to organic investment and returning cash to shareholders via dividends and buybacks.

Joseph O'Dea inquired about the envisioned timeline for the evolution to software-defined automation and how it would be implemented across MRO, brownfield, and greenfield projects. He also asked about the outlook for megaproject starts, particularly in the chemicals sector.

Answer

President and CEO Lal Karsanbhai described a multi-phase, multi-year journey for software-defined automation, starting at the site level and moving to the enterprise. COO Ram Krishnan added the technology will be scalable for both brownfield and greenfield applications. Regarding projects, Krishnan noted strong chemical activity in the Middle East and that the 2025 plan is more contingent on energy, LNG, and life sciences rather than a large chemical recovery.

Joseph O'Dea of Wells Fargo sought to clarify demand trends in Electrical Americas, contrasting strong data center growth with broader order commentary. He also asked how new high-voltage DC solutions for AI data centers affect the content-per-megawatt opportunity.

Answer

CEO Paulo Ruiz confirmed broader strength, with growth in commercial institutional and utilities, and an order inflection in MOEM. On the content question, he stated that Eaton's dollar-per-megawatt opportunity will increase. The higher power density in AI white space requires sophisticated technology that Eaton excels at, and the Resilient Power acquisition positions them to offer DC power solutions from the utility all the way to the chip.

Joseph O'Dea from Wells Fargo asked for more color on the timing of the new capacity investments coming online, specifically if most would be operational by mid-2025. He also questioned how quickly this new capacity would allow Eaton to work down its growing electrical backlog.

Answer

Chairman and CEO Craig Arnold stated that the capacity additions will come online over the next 2-3 years, with some already ramping up, and that they are counting on this new capacity to support volume growth next year. He clarified that while past-due backlog has come down, the overall growing backlog is a positive sign of strong markets and better long-term visibility from customers, not necessarily a sign that Eaton is a bottleneck for the industry.

Joseph O'Dea sought to confirm the key drivers of the second-half financial bridge and asked for an update on demand trends within the clean energy vertical.

Answer

CFO Vikram Kini confirmed that the second-half volume improvement is largely due to easier comps, supported by a strong order book, and that price/cost will be a key margin driver with actions already in place. CEO Vicente Reynal detailed a mixed clean energy landscape, with stagnation in U.S. renewable natural gas but good momentum in European biogas and Chinese power generation applications.

Joseph O'Dea of Wells Fargo asked for details on the 4% organic volume contingency in the guide, seeking to understand where the vulnerability lies by segment or product. He also inquired about demand trends at different equipment price points and requested a breakdown of the $150 million tariff impact by geography.

Answer

CFO Vik Kini stated the volume contingency was a prudent, commensurate de-risking across both segments rather than being tied to a specific product line. CEO Vicente Reynal added that demand remains solid for their highly engineered products, which are sold based on ROI and payback. Vik Kini clarified that the majority of the tariff cost is related to imports from China, including secondary impacts from domestic suppliers sourcing components from there.

Joseph O'Dea asked about the typical timeline of Ingersoll Rand's engagement in a large project, from initial involvement to shipment. He also asked for more color on PST trends, noting the softening multi-year growth stacks and seeking clarity on the expected Q4 improvement.

Answer

Chairman and CEO Vicente Reynal explained they engage in large projects from the beginning, with a typical order-to-shipment lead time of 12-18 months. CFO Vik Kini addressed PST, noting that after two consecutive quarters of positive organic order growth and stable book-and-ship trends, they expect this to translate to positive organic revenue growth in Q4.

Joseph O'Dea of Wells Fargo asked about the second-half margin cadence, the drivers of CapEx order activity in Welding, and the performance of ITW's business in China outside of the automotive segment.

Answer

Senior VP & CFO Michael Larsen projected second-half operating margins around 27%, with Test & Measurement showing the biggest sequential step-up. President & CEO Chris O'Herlihy identified Customer-Back Innovation (CBI) as the primary driver of growth in Welding. Larsen added that China's strong 15% growth was also supported by double-digit growth in Test & Measurement, Polymers & Fluids, and Welding, all correlated with new product introductions.

Joseph O'Dea from Wells Fargo & Company asked for more detail on the tariff price/cost dynamic, referencing the previously stated $250 million in imports from China. He also inquired about the contingency embedded in the guidance and which business areas are seen as most vulnerable or insulated.

Answer

CFO Michael Larsen confirmed the math was reasonable but noted the 2025 impact is less than the annualized figure, reiterating confidence in offsetting costs to be EPS-neutral or better. He agreed that not flowing through the Q1 beat and favorable FX serves as a contingency. President and CEO Christopher O'Herlihy highlighted the company's overall resilience due to its diversified portfolio and business model, noting some challenges in CapEx markets but stating the company is well-positioned.

Joseph O'Dea asked where management expects to see the earliest signs of an end-market recovery and about the company's ability to implement pricing quickly in response to tariff uncertainty.

Answer

CFO Michael Larsen suggested that early positive signs are visible in semi/electronics and that CapEx-driven businesses like Welding are at a point where cycles typically turn. CEO Christopher O'Herlihy explained that ITW's decentralized structure allows for nimble and quick pricing implementation to react to tariffs, as decisions are made at the divisional level close to the customer.

Joseph O'Dea inquired about North American trends, specifically contrasting CapEx versus OpEx demand and whether there's evidence of pent-up demand. He also asked how the increased focus on Customer-Backed Innovation (CBI) might affect R&D spending as a percentage of sales.

Answer

CFO Michael Larsen noted stability in CapEx-sensitive businesses like Welding and Test & Measurement, while softness was concentrated in construction and auto. CEO Chris O'Herlihy explained that R&D spend is an outcome of divisional project requests, and they 'fund all the good projects.' CFO Michael Larsen added that R&D has been steady at about 1.8% of sales and they don't foresee a significant change, as the dollar amount grows with revenue.

Joseph O'Dea of Wells Fargo requested an update on the current restructuring program's savings and any recent developments regarding the tax rate outlook for the next fiscal year.

Answer

CFO Marc Vandiepenbeeck reported that the company has achieved roughly dollar-for-dollar savings on its restructuring spend and is on track for the full $500 million run-rate benefit by the end of fiscal 2026. On taxes, he confirmed the expected 400-500 basis point headwind to the effective tax rate in 2026 remains, but the cash tax rate will not materially change, providing a slight tailwind for cash conversion.

Joseph O'Dea asked about the indirect revenue channel's end-market exposure and strategic fit in the new portfolio. He also inquired about the strategy and timing for offsetting the earnings dilution from the upcoming divestiture.

Answer

CFO Marc Vandiepenbeeck explained that the indirect channel is leveraged for the mid-to-low end of the market, complementing the direct channel's focus on complex, high-value projects. Regarding dilution, he stated the plan is to efficiently return divestiture proceeds to shareholders post-close, similar to the 2019 Power Solutions sale, while taking restructuring actions to improve the operating model.

Joseph O'Dea of Wells Fargo inquired about the margin expectations for the European business in the second half of the year, including the cadence from Q3 to Q4. He also asked about the high-level economics of repair versus replace and why a shift toward repair is not being observed despite higher equipment costs.

Answer

SVP & CFO Patrick Goris projected second-half European margins around 11-11.5%, with a significant step-up in Q4 to about 12% due to stronger sales and accelerating productivity benefits. Chairman & CEO David Gitlin suggested the refrigerant transition to 454B is a key factor encouraging replacement over repair, as consumers opt for new, compliant systems rather than servicing older units with potentially more expensive refrigerant.

Joseph O'Dea from Wells Fargo requested a more detailed breakdown of the tariff impact, including the cost headwind and mitigation efforts, and its effect on residential pricing. He also asked for drivers of the strong non-data center growth in Americas commercial HVAC.

Answer

CEO David Gitlin reiterated that cost actions have mitigated all but $300 million of tariff impacts, which is being covered by price, largely in the Americas residential business. He attributed the strong non-data center commercial HVAC growth to freed-up manufacturing capacity, success in mega-projects (reshoring, healthcare, pharma), and market share gains, which are offsetting weakness in areas like commercial office buildings.

Joseph O'Dea asked about the company's preparations for potential tariffs on goods from Mexico and requested a more detailed breakdown of the 2025 HVAC margin expansion drivers.

Answer

CEO David Gitlin confirmed that known tariffs are mitigated but acknowledged uncertainty around Mexico. He assured that the team is actively planning mitigation strategies through pricing, operational actions, and other measures to protect the company's EPS targets. CFO Patrick Goris detailed the HVAC margin bridge, attributing about 150 basis points of improvement to productivity and price/mix, which is then partially offset by planned investments, especially on the sales side.

Joseph O'Dea of Wells Fargo & Company inquired about activity levels in the Americas non-residential market, asking about potential demand pull-forward from tariffs and the strength of specification activity in Q2 versus Q1. He also asked for details on the drivers of the strong Americas margin, specifically the timing of price/cost impacts from tariffs and the nature of the favorable mix.

Answer

President & CEO John Stone confirmed there was no evidence of tariff-related pull-forward and that specification activity momentum has continued strongly through 2025. SVP & CFO Mike Wagnes explained that the favorable margin mix was driven by strong, higher-profitability non-residential growth. He clarified the tariff impact is now estimated at $40 million for the year, with a slight lag in recovery, and advised it would be imprudent to model the same level of margin expansion for the rest of the year.

Joseph O'Dea requested a framework for Q2 expectations following the strong Q1 performance and asked for details on the go-to-market strategy, particularly the balance between stock-and-flow versus specification-driven business.

Answer

CFO Michael Wagnes advised modeling the full year first but noted a potential one-month price/cost lag in Q2 and an unusually low Q1 tax rate as key factors. CEO John Stone explained their 'pull strategy' is driven by a large field sales team generating end-user demand, characterizing it as a 'book and ship' business with short lead times. He reiterated that they are not seeing evidence of inventory builds in the non-residential channel.

Joseph O'Dea of Wells Fargo asked for a breakdown of the expected 2025 margin expansion across the Americas, International, and Corporate segments, and questioned the magnitude of the headwind from the company's exit from China.

Answer

CFO Michael Wagnes stated that while the Americas will be the primary driver, the International segment is also expected to expand margins in 2025. He mentioned corporate costs would see a normal inflationary increase. Regarding China, he clarified that with only $5 million in 2024 revenue, the resulting headwind to 2025 organic growth is minimal.

Joseph O'Dea sought more detail on the moving parts of the 2025 outlook, particularly beyond the expected improvement in residential and weakness in multifamily. He also asked about the current price/cost environment, customer sensitivity to further price increases, and the timing for implementing next year's pricing.

Answer

CEO John Stone reiterated a stable macro outlook for 2025, with growth expected from improving residential markets and continued strength in institutional verticals like K-12 and data centers. CFO Mike Wagnes stated that in the ongoing inflationary environment, Allegion will continue to use pricing to cover cost pressures. He noted that any price changes would be communicated to the channel first, consistent with historical industry practice.

Joseph O'Dea of Wells Fargo asked for more detail on the destocking headwind and market share dynamics, questioning how much share gained last year is expected to be given back. He also asked about the HCS margin bridge from Q2 into the second half.

Answer

CEO Alok Maskara confirmed the view that the ~$125 million destocking headwind is now largely complete. On market share, he noted that Lennox achieved its highest-ever residential share in 2024 and expects to remain at a very healthy level in 2025 even after giving some back. CFO Michael Quenzer stated that HCS margins are expected to increase by at least 50 basis points in the second half, even with lower volumes, driven by strong price-cost management.

Joseph O'Dea requested a breakdown of the increased inflation guidance from 3% to 9%, how the corresponding price increases might change if tariffs are altered, and what products Lennox sources from China compared to competitors.

Answer

CFO Michael Quenzer detailed that the 6% increase in the inflation guide equates to about $240 million in additional costs, with nearly half related to China tariffs and the rest to metals from Mexico and secondary U.S. supplier impacts. CEO Alok Maskara added that some pricing is tied to surcharges that could be withdrawn if tariffs change, and noted Lennox is likely underexposed to China versus peers, sourcing mainly electronics, motors, and components, but not mini-splits.

Joseph O'Dea requested details on the 3% inflation assumption and questioned why the guided 1% price increase doesn't fully cover this inflation.

Answer

CFO Michael Quenzer clarified the 3% inflation is an average across a ~$4 billion cost base, with higher rates in SG&A. CEO Alok Maskara and CFO Michael Quenzer both explained that the significant price realization from the R-454B transition is captured in the 'mix' component of the revenue bridge, not the 'price' component, which helps cover the inflationary pressures.

Joseph O'Dea of Wells Fargo & Company asked for an update on market share, inquiring where Lennox stands after reversing previous losses. He also sought clarification on the 10%+ pricing for R-454B products, asking if this represents a realized price increase.

Answer

CEO Alok Maskara confirmed that Lennox has reversed prior share losses and is on a positive trajectory, particularly in residential, while the focus for 2025 is to regain share in commercial. Regarding pricing, he stated the 10%+ increase for new R-454B products is what the company is targeting and is supported by market moves, but detailed clarity on the realized impact would be provided after Q4.

Joseph O'Dea from Wells Fargo asked for details on the location and duration of the temporary production furloughs. He also requested an outlook for order activity across different regions in the second half of the year.

Answer

CEO Judith Marks stated the furloughs are temporary, measured in weeks, and primarily occurring in North America and China, aligning with new equipment revenue challenges. For H2 orders, Marks expects modernization strength to continue globally, with China accelerating significantly. CFO Cristina Méndez added that new equipment orders in China should ramp to flat/slightly positive, Americas growth will slow against tough comps, and EMEA will be up low-to-mid single digits.

Joseph O'Dea from Wells Fargo asked for details on where the temporary factory furloughs are occurring and for the company's order expectations for the second half of the year across its segments and regions.

Answer

Chair, President & CEO Judith Marks stated the temporary furloughs are measured in weeks and are occurring in North America and China, aligning with new equipment revenue challenges. For H2 orders, EVP & CFO Cristina Méndez and Marks projected continued strong modernization orders globally, a ramp-up in China new equipment orders to flat/positive, and stable sequential order trends in the Americas against tougher comps.

Joseph O'Dea of Wells Fargo requested more detail on the revised Americas new equipment outlook, asking which verticals are seeing project delays. He also questioned why the modernization business appears more resilient to these delays compared to new equipment.

Answer

Chair, CEO and President Judy Marks explained that while the North American market was down, Otis's orders grew mid-teens. The weaker revenue outlook reflects the burn-down of a softer backlog from 2023 and early 2024. She cited the low Architectural Billings Index as a sign of broader construction uncertainty. Marks noted that modernization is less discretionary, often driven by equipment failure, tenant frustration, or non-discretionary safety mandates and government investments, making it more resilient.

Joseph O'Dea inquired about the scale and potential of the China cost-saving initiatives relative to its revenue base and asked for color on the Q4 service margin, which was sequentially lower.

Answer

Executive Judith Marks explained the initiatives are part of a structural pivot to a service-oriented model in China, balancing cost-cutting with investment in service skills. Executive Cristina Mendez added that the $30M run-rate savings are mainly in New Equipment, while service margins were impacted by a strategic investment in hiring 2,000 new field mechanics, which is critical for long-term growth despite the short-term productivity drag.

Joseph O'Dea requested more detail on growth drivers in the Americas and Europe, specifically regarding price versus volume and market share gains amidst pressures in office and multifamily. He also asked about plans for Otis's cost structure in China given the smaller market size.

Answer

Chair, CEO and President Judith Marks highlighted an inflection point in the Americas, with Q3 orders up 23% and all verticals turning positive. In EMEA, she stated Otis is outperforming a challenging market. Regarding China, she confirmed that Otis will take more costs out by optimizing its operational footprint and workforce, while strategically balancing volume, price, and customer liquidity.

Joseph O'Dea of Wells Fargo & Company sought confirmation on the expected organic growth trends across segments in the second half and asked for an explanation of the impressive margin performance in the Consumer business.

Answer

CEO William Brown confirmed the expectation that SIBG and TEBG growth would accelerate in the second half, while Consumer would remain more consistent with its first-half performance. CFO Anurag Maheshwari explained that the Consumer segment's strong margin of over 21% was primarily driven by significant productivity gains in both supply chain and G&A.

Joseph O'Dea from Wells Fargo asked about 3M's tactical approach to imports from China, specifically if orders are being paused. He also inquired if the import exposure is weighted more heavily toward the Consumer business and asked for an update on the guidance for corporate and unallocated costs.

Answer

CEO William Brown and CFO Anurag Maheshwari confirmed they are not pausing orders from China and do not plan to. Brown affirmed that the import exposure is indeed more weighted to the Consumer business. Regarding guidance, Maheshwari stated that the corporate and unallocated segment is trending toward the higher end of its guided range, driven by G&A efficiencies, though some items are related to timing.

Joseph O'Dea asked about the appropriate level of cash for the company to carry and the expected cash balance at year-end 2025. He also inquired which regions or end markets management is watching most closely for signs of an industrial production acceleration.

Answer

CFO Anurag Maheshwari projected a year-end 2025 cash balance of over $6 billion after accounting for ~$3.1B in shareholder returns and $3B in legal settlement payments. CEO William Brown identified the U.S. and Europe as the key regions he is watching for an IPI recovery, given 3M's weighting. He also noted concern around auto builds, which are forecast to be down in the U.S. and Europe where 3M has higher content per vehicle.

Joseph O'Dea of Wells Fargo Securities asked for more details on the 'operating equipment efficiency' (OEE) metric, including what best-in-class performance looks like and 3M's targets. He also inquired about electronics demand and whether recent growth was market-driven or from share gains.

Answer

CEO William Brown explained that OEE is a fundamental manufacturing metric where 3M is currently at ~50% utilization on key assets, well below the best-in-class level of 80%+. Improving OEE is key to freeing up capacity and informing network consolidation. On electronics, he stated that 3M is growing slightly faster than the market due to technology-driven spec-in wins for its sophisticated films in consumer devices and is also performing well in semiconductors.

Joseph O'Dea inquired about the significant margin improvement in the QSC business, asking if it was transitory, and sought details on the drivers behind the performance. He also asked for the potential size of the order pull-forward in the ABL segment and the company's outlook for fiscal '26.

Answer

Neil Ashe, Chairman, President & CEO, explained that the strong QSC margin was driven by robust top-line growth and the adoption of Acuity's 'Better, Smarter, Faster' productivity tools, which improved operating leverage. He acknowledged some order acceleration in Q3 for both AIS and ABL but stated the company's expectation is that the combined Q3 and Q4 performance will normalize to their original second-half forecast. For future planning, he indicated the company will remain conservative.

Joseph O'Dea from Wells Fargo & Company asked for clarification on whether the company's financial guidance remains intact, inquired about the specific pricing strategy to offset tariffs, and questioned the surprisingly strong operating margin of the newly acquired QSC.

Answer

CFO Karen Holcom confirmed there is no change to the company's previously issued guidance. CEO Neil Ashe explained that pricing actions to offset tariffs will be strategic, varying across product lines to cover costs while also creating competitive advantages. Regarding QSC, Karen Holcom stated its margin profile is strong and similar to the legacy AIS business, with Neil Ashe adding that they see opportunities for future margin expansion.

Joseph O'Dea from Wells Fargo questioned the long-term margin opportunity for QSC, given its current profile relative to the Intelligent Spaces Group (ISG), and asked about the degree of overlap in the go-to-market channels for Distech and QSC.

Answer

Neil Ashe, Chairman, President and CEO, explained that QSC has a financial profile similar to the existing ISG business and that the priority is growth, not immediate cost-cutting. He sees no structural barriers to margin expansion over time. He clarified that the most significant overlap is not among systems integrators but among sophisticated end-users who use both Distech and QSC, which he believes will create a natural pull for combined solutions.

Joseph O'Dea from Wells Fargo sought more detail on the outlook for a 'pretty strong' calendar year 2025, asking about key drivers. He also requested a breakdown of the Lighting business's growth algorithm (market growth, share gain, new verticals, price) and inquired about the company's management of the East Coast port situation.

Answer

Neil Ashe, Chairman, President and CEO, explained that the positive outlook is based on data analysis and feedback from agents who are very busy, suggesting a project pipeline buildup. He detailed the growth algorithm as: 1) growing with the market, 2) taking share through differentiated performance, and 3) entering new verticals like refueling. He also noted a strategic pricing approach to capture value. Karen Holcom, SVP and CFO, stated that since most products arrive via West Coast ports and they have sufficient inventory for East Coast products, they do not expect a material impact from the port situation.

Joseph O'Dea from Wells Fargo requested a breakdown of the $125 million tariff exposure and asked about Rockwell's competitive positioning given its manufacturing footprint. He also inquired about the implied price versus volume mix in the guidance.

Answer

CFO Christian Rothe detailed FY24 import figures into the U.S.: ~$350M from Mexico, and ~$100M each from Canada and China. CEO Blake Moret emphasized that the U.S. is Rockwell's largest manufacturing country by revenue and that redundant capacity built during the supply chain crisis provides significant flexibility. Moret did not confirm a specific price/volume split in the guidance, citing uncertainties around tariff pricing and project timing as reasons for maintaining a wide guidance range.

Joseph O'Dea of Wells Fargo & Company inquired about the progress of COGS-related cost savings within the $250 million program and requested a regional breakdown of the channel inventory destocking status.

Answer

CFO Christian Rothe confirmed that many COGS-related actions are in flight, with Q1's outperformance driven by manufacturing efficiency and sourcing, and momentum is building for the second half. CEO Blake Moret detailed that destocking is largely complete in North American distribution and European machine builders, while China may take until Q2 or Q3 to normalize.

Joseph O'Dea asked about the drivers for the significant sequential revenue decline expected in the Intelligent Devices segment in Q1 and the relative impact of end-market vs. channel destocking in fiscal 2024.

Answer

CFO Christian Rothe cited seasonal lows in configure-to-order products and shipments previously outpacing orders as reasons for the Q1 Intelligent Devices decline. CEO Blake Moret noted that destocking and end-market demand are interrelated, making a precise split difficult, but said destocking effects were more pronounced earlier in fiscal 2024.

Joseph O'Dea of Wells Fargo & Company requested the specific dollar amount of the LIFO headwind expected in Q2. He also asked for more detail on the opportunity to mitigate the $1.7 billion gross tariff impact through improved USMCA compliance and shifting production out of China.

Answer

EVP and CFO Pat Hallinan estimated the Q2 LIFO impact to be in the $200 million to $250 million range. He explained that improving USMCA compliance is a key part of the mitigation strategy, as it not only reduces the 25% tariff on goods from Mexico but also enables shifting more volume to the company's existing assets and capacity in that country.

Joseph O'Dea of Wells Fargo asked for a breakdown of regional growth expectations for the Fluke business in 2025. He also inquired about the growth outlook for Qualitrol, considering capacity constraints, and demand trends for Hengstler in Europe.

Answer

President and CEO James Lico expects Fluke to grow low-single-digits-plus in 2025, with North America as the strongest region, some growth in Western Europe, and China likely down for the year. For Sensing, he reiterated multi-year double-digit growth for Qualitrol, with capacity being ramped to meet strong demand. He noted that Hengstler's weakness is tied to its higher exposure to European and Chinese discrete automation markets.

Joseph O'Dea of Wells Fargo inquired about the cause of shipment push-outs at Qualitrol and asked about the drivers of the strong 20% SaaS growth at AHS, particularly from Provation.

Answer

President and CEO James Lico explained the Qualitrol shipment issue was due to internal supply chain and capacity constraints, not a lack of customer demand. He attributed Provation's strong SaaS growth to an accelerating trend of hospitals moving to the cloud, making them ready for Provation's Apex solution. Executive Elena Rosman added that Provation's growth will accelerate in Q4 as it laps a headwind.