Ken Hoekster

Ken Hoexster inquired about the drivers behind the anticipated 300 basis point sequential improvement in domestic margins for Q4, the potential for accelerating cost-cutting benefits into 2026, and UPS's initial thoughts on the upcoming Supreme Court hearings regarding tariffs and a potential reversal of the de minimis exemption.

Answer

Brian Dykes, CFO, attributed the sequential margin improvement to an expected peak volume surge, strong holiday demand surcharges, and enhanced network efficiency from 42 new automation projects and reconfiguration, reducing reliance on variable capacity. Carol Tomé, CEO, stated that UPS would closely monitor the Supreme Court hearings on tariffs but could not speculate on the outcome.

Ken Hoekster inquired about the current backlog, particularly the 12-month process, and how the two upcoming acquisitions (Frauscher and Delner) might impact organic growth. He also asked for insights into the margin impact from the shift to new builds versus modernizations, and the margin outlook for the fourth quarter.

Answer

President and CEO Rafael Santana noted stronger coverage for 2026 compared to 2025, with minimal impact from the Evident acquisition on the total backlog. CFO John Olin confirmed Evident's accretive margin and EPS performance in its first quarter of ownership. Olin expects Frauscher to close by year-end and Delner in H1 2026, both anticipated to be accretive to margin and EPS. Regarding margins, Olin explained that while unfavorable mix from the shift to builds was felt, it was offset by strong operational excellence, favorable timing of price escalation, and integration program benefits. He expects margin growth to expand in Q4, though absolute margins will be seasonally lower.

Ken Hoekster asked about Wabtec's backlog, specifically how to interpret the 12-month process and the expected impact of the upcoming Frauscher and Delner acquisitions on organic growth. He also inquired about the margin impact from the telegraphed shift from new builds to modernizations (mods) and sought clarification on the fourth-quarter margin outlook, particularly if it applied to freight or overall.

Answer

President and CEO Rafael Santana stated that Wabtec has stronger coverage for 2026 compared to 2025, with acquisitions having minimal impact on the total backlog due to their flow business nature. CFO John Olin confirmed that the Inspection Technologies acquisition was on track, accretive to margin and EPS in Q3. He expects Frauscher and Delner to close by year-end and H1 2026, respectively, providing inorganic growth and being accretive to margin and EPS, though not yet in current guidance. Olin explained that while Q3 experienced unfavorable mix from the shift to mods, this was offset by strong operational excellence, favorable timing of price escalation, and integration program benefits, leading to slightly better-than-expected margins. He reiterated expectations for margin growth to expand in Q4, though absolute margins would be seasonally lower due to fewer production days.