Katie Fleischer is an Equity Research Analyst at KeyBanc Capital Markets, specializing in mobility, industrials, and equipment sectors. She covers companies including Vontier, recently initiating coverage with an Overweight rating and a $50 price target, and her price targets align with consensus among leading Wall Street analysts. Joining KeyBanc in August 2022, Fleischer holds FINRA licenses such as Series 7, Series 63, Series 86, Series 87, and the Securities Industry Essentials, reflecting her professional credentials and regulatory registration. Her research has quickly contributed to market forecasts and investment recommendations, positioning her among the firm’s emerging voices in sector analysis.
Katie Fleischer inquired about the expected margins for Zebra's new reporting segments (Connected Frontline and Asset Visibility and Automation) for Q4, asking if they would be significantly different from Q3 or remain steady.
CFO Nathan Winters confirmed that the margins between the new reporting segments are expected to be pretty steady from Q3 to Q4, indicating no major changes in their gross margin profiles quarter-to-quarter.
Katie Fleischer asked if there are any expected differences in margins for the new reporting segments in Q4 compared to Q3, or if they are anticipated to remain relatively steady.
CFO Nathan Winters stated that the margins between the segments are expected to be pretty steady between Q3 and Q4, with no major changes anticipated in the gross margin profile quarter-to-quarter.
Katie Fleischer, on for Ken Newman of KeyBanc Capital Markets, asked for clarification on how accelerating orders in Q2 and Q3 translate to sales expectations for the second half. She also requested an update on the strategic project funnel, which was not detailed in the slide deck.
CEO Surendralal Karsanbhai explained that the observed order acceleration directly supports the company's plan for sales acceleration in the second half, which is necessary to achieve the full-year underlying sales growth target of approximately 4%. He also provided the latest figures for the project funnel, stating it stands at $11.4 billion, with $375 million in projects awarded during the quarter.
Katie Fleischer asked if Grainger could quantify the amount of price increase requests received from suppliers and estimate how long it would take for those costs to flow through to the P&L.
Chairman and CEO D.G. Macpherson declined to quantify the requests but noted they have been 'all over the map.' He explained that due to existing inventory levels (typically around 3 months), the cost increases will take time to flow through, with a small impact in Q2 but a more noticeable effect beginning in Q3 and beyond.
Katie Fleischer from KeyBanc Capital Markets asked for more color on the margin outlook for the recently acquired Source Atlantic, particularly how to model the margin compression in upcoming quarters.
Executive Ronald Knutson reiterated the goal of a 10% margin for Source Atlantic, driven by gross margin improvements and facility consolidations. However, he cautioned that top-line pressure in the Canadian market will likely push the achievement of this target into next year. Executive John King added that the largest driver for margin improvement is the consolidation of Source Atlantic's unprofitable greenfield locations into existing Bolt Supply facilities, but the murky Canadian economic backdrop is currently creating top-line headwinds.
Katie Fleischer, on for Ken Newman, asked how Cognex is positioning for potential tariffs and any margin impacts that could arise if another trade war materializes.
CFO Dennis Fehr stated that based on tariffs announced to date, there is no material direct impact on the company's cost of goods sold. While acknowledging near-term uncertainty as a secondary effect, he emphasized that any significant long-term reshoring trend resulting from trade policy would represent a 'tremendous' market upside for Cognex.
Asked about end-market trends throughout the quarter and the sustainability of the high margins on used equipment sales.
The company noted incremental improvement during the quarter, with utilization up sequentially, but described local markets as steady rather than recovering. Regarding used equipment margins, they stated that maintaining the 60%+ level will be challenging due to some softening in values, but they are confident in achieving 50%+ margins going forward.
Katie Fleischer of KeyBanc Capital Markets inquired about the company's operating leverage outlook beyond Q1 and the potential for incremental margins upon a macro recovery. She also asked for more detail on the impact from the aerospace strike and the drivers of sales weakness between September and October.
CEO Erik Gershwind expressed confidence in returning to long-term incremental margins of 20% or more, driven by an eventual top-line rebound and normalizing OpEx after fiscal 2025. CFO Kristen Actis-Grande noted aerospace has weakened sequentially. Gershwind added that recent softness is most pronounced in large accounts, independent of hurricane impacts.
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