Kyle Menges

Kyle Menges asked about the confidence behind the ambitious second-half revenue guidance, specifically inquiring about the drivers such as production capacity, secured retailer orders, or new IP launches, and whether the company expects to achieve profitability in the second half. Menges also questioned the potential impact on Labubu's revenue momentum.

Answer

Peng Li, Founder, Chairman, and CEO of Heres Group, explained that the revenue forecast is based on product launch timelines, production capacity (expected to reach 400,000 sets/month by year-end), customer orders, and channel partner arrangements. He noted that losses are narrowing, with fixed costs from legacy businesses being optimized. Li anticipates adjusted sales expenses to fluctuate around 20% of revenue, balancing growth with profitability. Regarding IP momentum, Li highlighted the overall market growth, KUKU's cumulative sales exceeding 6 million units, and the strategy to build a diverse IP portfolio.

Kyle Menges asked about the confidence behind the ambitious second-half revenue guidance, specifically inquiring about the drivers such as production capacity, secured retailer orders, or new IP launches, and whether the company expects to achieve profitability in the second half. Menges also questioned the potential impact on Labubu's revenue momentum.

Answer

Peng Li, Founder, Chairman, and CEO of Heres Group, explained that the revenue forecast is based on product launch timelines, production capacity (expected to reach 400,000 sets/month by year-end), customer orders, and channel partner arrangements. He noted that losses are narrowing, with fixed costs from legacy businesses being optimized. Li anticipates adjusted sales expenses to fluctuate around 20% of revenue, balancing growth with profitability. Regarding IP momentum, Li highlighted the overall market growth, KUKU's cumulative sales exceeding 6 million units, and the strategy to build a diverse IP portfolio.

Kyle Menges inquired about Alliance Laundry's margin drivers beyond volume and price for 2026, including cost-down and manufacturing efficiency initiatives, and the company's M&A pipeline and strategic acquisition targets.

Answer

CEO Mike Schoeb identified product mix, methodical cost-down initiatives focused on quality, incremental volumes, and factory efficiency optimization as key margin drivers. Regarding M&A, he stated that Alliance Laundry is capable, having completed 16 smaller tuck-in acquisitions, but emphasized that M&A is supplementary to strong organic growth and not essential for achieving past growth rates.

Kyle Menges sought clarification on Accelera's performance, specifically the growth trends in e-mobility versus electrolyzers and the differences in profitability between these two segments. Menges also asked for a more precise expectation for the engine segment's EBITDA margin in Q4 2025, considering lower volumes and tariff neutralization.

Answer

Mark Smith, Chief Financial Officer, stated that e-mobility sales, primarily from bus applications, are growing and have shown progress towards more stable profitability, despite a broader industry shakeout. Smith highlighted that electrolyzer demand has 'dried up faster than anything I have seen in my career,' leading to a significant hole in future projections, despite Q3 2025 revenue being close to original guidance. Regarding engine margins, Smith indicated that while Q4 volumes will be lower, he does not expect an 8% EBITDA margin, suggesting it will not be dramatically different from Q3's 10%, with cost management and tariff recovery mitigating some headwinds.

Kyle Menges asked for more details on Accelera's performance, specifically the growth in e-mobility versus electrolyzers and their respective profitability differences, and sought clarification on expectations for engine EBITDA margins in Q4 2025.

Answer

CFO Mark Smith noted e-mobility sales from bus applications are progressing towards stable profitability, while electrolyzer demand has significantly declined. Regarding engine margins, he stated he doesn't expect 8% EBITDA margins in Q4, acknowledging lower volumes but highlighting cost management. CEO Jennifer Rumsey added that the engine business is flexing down plants and expects better tariff recovery in Q4.

Kyle Menges from Citi asked about capital allocation strategy, the potential cash benefit from recent tax legislation, and how the industry is managing tariff cost pass-throughs.

Answer

CFO Mark Smith stated that with leverage metrics improving, the base case is for increased capital returns to shareholders. He estimated a $125-$250 million cash tax benefit but stressed this is dwarfed by tariff costs, which had a net negative impact of $22 million in Q2. He expects to reach a near price-cost neutral position on tariffs by Q4 through ongoing mitigation and customer negotiations.

Kyle Menges from Citi asked about capital allocation strategy, including leverage and share buybacks, and the potential cash benefit from recent tax legislation. He also followed up on tariff recovery plans and the rollout of the EPA 2027 compliant engine.

Answer

CFO Mark Smith reaffirmed the plan to return at least 50% of operating cash flow to shareholders and noted leverage has improved. He estimated a $125M-$250M cash tax benefit but stressed this is far outweighed by the negative impact of tariffs, which were a $22M net headwind in Q2. CEO Jennifer Rumsey confirmed the EPA 2027 engine platform launch remains on track for late 2026, supported by a $1 billion investment.

Kyle Menges sought to clarify if the reallocation of Power Generation orders was a current trend and asked about specific tariff mitigation actions and contract pass-throughs.

Answer

CEO Jennifer Rumsey stated that while not a significant trend, some limited and not atypical order reallocations are occurring, which are easily managed due to strong underlying demand. She mentioned inventory strategies and dual sourcing as current mitigation efforts. CFO Mark Smith added that Power Gen has the least exposure to changing economic sentiment and declined to comment on contract specifics.

Kyle Menges inquired about the outlook for R&D spending in 2025 compared to 2024, with a specific focus on the Engine and Components segments, and the longer-term trend. He also asked for the 2025 outlook for the aftermarket parts business.

Answer

CFO Mark Smith indicated that a more significant downward trend in Engine R&D expense is expected after 2025, following major product launches. For 2025, he noted no dramatic shift. For the parts business, Smith stated the outlook is for flat to 5% growth, likely including some pricing, and growing roughly in line with the economy.

Kyle Menges of Citigroup Inc. asked about the drivers behind the strong growth in the Industrial portion of Power Systems, particularly in mining. He also questioned the sustainability of the segment's high incremental margins of approximately 60% into 2025.

Answer

CEO Jennifer Rumsey and Executive Christopher Clulow clarified that overall guidance for the mining market is relatively flat and recent strength was partly due to rebuild demand, cautioning against over-reading a single quarter's results. CFO Mark Smith explained that the high incremental margins were driven by a combination of cost resets, pricing actions, and efficiency gains. While he does not expect 40-60% incrementals to continue, he anticipates further margin improvement next year.

Kyle Menges asked about the drivers behind EMEA's return to growth after two years and the confidence in sustaining this growth. He also inquired about the Q4 exit rate on margins and the expectation for a larger sequential step-up into Q1 2026.

Answer

CFO Mike Discenza attributed EMEA's growth to easier comparisons, potentially reaching a bottom, and strong performance in specific industrial motion businesses. Key growth drivers included off-highway, rail (winning new platforms), and heavy industries. He noted that Q4 is typically a seasonally low quarter, and a significant sequential step-up in both top and bottom line is expected from Q4 to Q1, supported by volume uplift, higher pricing run rates, and second-half weighted cost savings tactics.

Kyle Menges of Citi inquired about the rationale for lowering the second-half organic volume guide despite stable market trends and backlog growth, and also asked about Timken's applications and market potential in the emerging humanoid robotics sector.

Answer

EVP and CFO Philip Fracassa explained the guidance adjustment reflects a cautious stance due to trade uncertainty, not a deceleration in demand. President & CEO Rich Kyle addressed robotics, noting that while Timken is active in applications for humanoids, it's a long-term play. He emphasized the company's current strength is in broader automation, including factory, medical, and warehouse automation, supported by recent acquisitions like CGI.

Kyle Menges of Citi inquired about the rationale for lowering the second-half organic volume guide despite stable market trends and backlog growth. He also asked for Timken's perspective on its applications and market potential in humanoid robots and the broader automation sector.

Answer

EVP and CFO Philip Fracassa clarified that the reduced outlook reflects caution regarding trade uncertainty rather than a market deceleration. President & CEO Rich Kyle detailed Timken's strong position in factory and medical robotics through its broad product portfolio, noting that while the company is actively developing applications for humanoid robots, it represents a smaller, longer-term opportunity.

Kyle Menges asked for clarification on the reduction in the organic volume guide, given stable market trends and backlog growth, and also inquired about Timken's market potential and applications in humanoid robots and the broader automation sector.

Answer

EVP and CFO Philip Fracassa explained the revised guidance reflects caution for the second half due to trade uncertainty, not a deceleration in demand. President & CEO Richard Kyle detailed Timken's position in automation, noting that while humanoid robotics is a small, long-term opportunity, the company is already well-established in factory, medical, and warehouse automation through its Rollon, ConeDrive, Spanea, and CGI brands.

Kyle Menges of Citi inquired about the rationale for lowering the organic volume guide despite stable year-to-date trends and sequential backlog growth. He also asked for Timken's perspective on the market potential of humanoid robots and the broader robotics sector.

Answer

EVP and CFO Philip Fracassa explained the reduced guidance reflects caution for the second half due to trade uncertainty, not a current deceleration in demand. President & CEO Richard Kyle addressed robotics, noting that automation is already a significant and growing market for Timken through its Rollon, ConeDrive, and CGI brands. He characterized humanoid robots as a longer-term opportunity with a small current revenue base but strong future growth potential.

Kyle Menges of Citi inquired about the rationale for lowering the second-half organic volume guide despite stable market trends and backlog growth, and also asked about Timken's applications and market potential in the growing field of humanoid robotics.

Answer

EVP and CFO Philip Fracassa explained the reduced guidance reflects caution due to trade uncertainty, noting it's atypical for their markets to accelerate in the second half. President and CEO Richard Kyle addressed robotics, stating that while automation is already a sizable market for Timken through various acquisitions, the humanoid robot segment is a longer-term play with small current revenue but a high expected growth rate.

Kyle Menges questioned the competitiveness of Timken's tariff-related pricing actions and how the company's U.S. manufacturing footprint positions it relative to peers. He followed up by asking for a breakdown of the $150 million tariff mitigation plan between pricing and supply chain initiatives.

Answer

CEO Richard Kyle stated that Timken's U.S. footprint is a competitive advantage and that the company is seeing competitors also raise prices. CFO Philip Fracassa provided extensive detail, noting the gross annualized tariff impact is estimated at $150 million, with over 80% driven by high China tariffs. He explained that LIFO accounting accelerates the cost impact, creating a timing lag before pricing catches up. Fracassa clarified that the mitigation will be predominantly achieved through pricing and surcharges, with the goal of being fully offset on a run-rate basis by year-end.

Kyle Menges asked about potential low-hanging fruit to strengthen the product portfolio and the company's ability to pass through tariff-related costs, referencing the 2018 experience.

Answer

CEO Tarak Mehta highlighted becoming more customer-centric by tailoring products to local market needs as a key opportunity. Regarding tariffs, both Mehta and CFO Philip Fracassa recalled the 2018 playbook, noting that while there can be a lag, they successfully mitigated past tariffs through pricing and surcharges over a couple of quarters.

Kyle Menges inquired about the lower-than-expected Next Generation Delivery Vehicle (NGDV) sales, challenges in increasing capacity, and the feasibility of achieving the 16,000-20,000 units annualized production run rate by year-end, as well as the reason for lowered CapEx guidance.

Answer

John Pfeifer, President and CEO, acknowledged NGDV production pace challenges in the new, highly automated plant but reiterated positive product feedback and the target to exit 2025 in a strong position for 2026, aiming for full-rate production by year-end. Matt Field, EVP and CFO, attributed the lowered CapEx guide to stricter spending controls and timing of spending.

Kyle Menges asked for clarification on the challenges driving NGDV sales below expectations and impacting capacity increases, specifically questioning the feasibility of reaching the annualized full run rate production target by year-end. He also inquired about the reasons for the lowered CapEx guidance.

Answer

CEO John Pfeifer affirmed the NGDV as an 'amazing product' with positive feedback, acknowledging that production in the new, highly automated plant has not yet reached the desired pace. He reiterated the target to exit 2025 in a good position for 2026 and to reach full-rate production by year-end despite challenges. CFO Matt Field attributed the CapEx reduction to stricter spending controls and timing of expenditures.

Kyle Menges from Citigroup noted that the Vocational segment's margin guidance already reaches the low end of its 2028 target and asked for a summary of the drivers behind this performance. He also questioned the rationale for increasing share buybacks while the stock is trading at a 52-week high.

Answer

CEO John Pfeifer attributed the Vocational segment's strong performance to stable end markets and high demand for advanced technology like autonomy and AI. CFO Matthew Field reiterated the company's capital allocation priorities, stating that even at a 52-week high, the stock is believed to trade at a discounted multiple, making share repurchases an attractive use of capital after organic growth investments.

Kyle Menges asked for color on the significant sales decline in telehandlers and questioned whether the strong revenue in refuse and recycling was driven by market growth, outperformance, or dealer stocking.

Answer

CEO John Pfeifer advised against over-analyzing Q1 telehandler sales, noting that while impacted by the Cat contract loss, Oshkosh's market share in the category actually increased. He attributed the refuse and recycling growth to a combination of improved production output and the successful expansion of its dealer network, stating he does not foresee it creating a difficult comparison next year.

Kyle Menges from Citigroup Inc. requested a breakdown of the Access segment's projected 15% revenue decline between aerial work platforms (AWPs) and telehandlers. He also asked how the company is thinking about its telehandler production capacity given the changes with the CAT contract and the launch of a new product line.

Answer

CEO John Pfeifer declined to provide a revenue breakdown by product line within Access but reiterated that the overall guidance reflects customer conversations and market conditions, including the CAT agreement change. He affirmed that telehandlers have been and are expected to remain strong. He also stated that capacity decisions are based on a 5-plus year outlook, and the company is proceeding with increasing output at its Jefferson City plant to meet long-term demand.

Kyle Menges asked for more detail on the Access market, seeking to differentiate demand softness between large and small rental customers. He also questioned the near-term NGDV ramp-up, noting what appeared to be a sequential decline in deliveries.

Answer

President and CEO John Pfeifer described the Access market as 'normalizing,' with softness tied more to private construction exposure than customer size. He clarified that NGDV deliveries actually increased, with the reported figure being an artifact of cost-to-cost accounting, and stated the production ramp is progressing well with positive field feedback.

Kyle Menges inquired about demand trends for the first half of next year, contextualizing the 60-70% Q4 order book fill rate against historical norms. He also asked about inventory levels, particularly the need for destocking in the vocational market, and how Section 232 savings might be passed on to customers, specifically regarding tariff surcharges.

Answer

CEO R. Preston Feight stated that PACCAR's inventory is at a healthy 2.8 months, down from 4.2 months industry-wide, and does not indicate a need for destocking, even in the vocational segment where PACCAR is a market leader. He expects the first half of next year to fill in well as customers gain clarity on tariffs and the 35 mg NOx standard. Regarding Section 232 savings, Feight indicated the intention is to move away from tariff surcharges (previously $3,500-$4,000 per truck) and integrate savings into normal pricing discussions, benefiting both PACCAR and customers.

Kyle Menges asked about demand into the first half of next year, contextualizing it with the Q4 order book (60-70% full) and comparing it to a 'normal' fill rate. He also inquired about inventory levels, particularly in the vocational market, and any need for destocking. Finally, Mr. Menges asked how savings from Section 232 rebates might be passed to customers, specifically if existing tariff surcharges would be removed.

Answer

Preston Feight, CEO, stated that industry inventory is improving (4 months, down from 4.2), and PACCAR's inventory is healthy at 2.8 months, even with a high vocational share. He expects H1 next year to fill in reasonably well due to tariff clarity, the 35 mg NOx standard, and upcoming capital allocation discussions. Regarding rebates, Mr. Feight indicated the intention is to move away from tariff surcharges and integrate benefits into normal pricing discussions, aiming for stability and fair pricing for premium trucks.

Kyle Menges asked for the rationale behind the guided increase in R&D spending for next year in a potentially flat market. He also requested an outlook for the North American medium-duty market.

Answer

CEO Preston Feight explained that the R&D increase is modest and necessary to fund important projects in powertrain, connectivity, and electronics that enhance customer profitability. He also stated that he expects the medium-duty market in North America to 'remain a good market' next year.

Kyle Menges asked for commentary on the medium-duty truck market, including inventory levels, and whether the 2027 emissions standards could also catalyze a pre-buy in the medium-duty segment.

Answer

CEO & Director R. Preston Feight stated that industry inventory for medium-duty is around six months, while Kenworth and Peterbilt are lower at 4.5 months, putting PACCAR in a good position. He confirmed that the same regulatory factors affecting Class 8 in 2027 could also stimulate the medium-duty market in 2026.

Kyle Menges from Citigroup asked for an update on the medium-duty truck market, including inventory levels, and whether the 2027 emissions standards could trigger a pre-buy in that segment during 2026.

Answer

CEO & Director R. Preston Feight stated that industry inventory for medium-duty is around six months, while Kenworth and Peterbilt are better positioned at 4.5 months. He confirmed that the same factors driving a potential Class 8 pre-buy, such as the 2027 emissions standards, also apply to the medium-duty market and could stimulate demand in 2026.

Kyle Menges requested more detail on the Q2 gross margin guide, specifically asking about sticky cost inflation outside of tariffs. He also sought to understand the confidence behind the 2% to 4% growth forecast for the Parts business, given lower truck deliveries.

Answer

CEO Preston Feight reiterated that the Q2 cost impact is primarily assigned to tariffs. CFO Harrie Schippers added that other cost elements are flat, with good productivity and cost reduction programs in place. Schippers also clarified that pricing, which was up about 2.5% sequentially in Q1, contributes to the confidence in Parts revenue growth.

Kyle Menges questioned the resilience of vocational Class 8 orders, asking for confidence that dealers are not overordering and seeking more detail on the medium-duty market outlook for 2025.

Answer

CEO Preston Feight expressed confidence in the order book, highlighting that PACCAR's dealer inventory at 2.3 months is well below the industry's 3.1 months, and noted that backlogs at body builders are for trucks already sold to customers. Regarding the medium-duty market, he expects a return to more historically normal levels in 2025 with strengthening in the second half, and pointed to PACCAR's market share growth from 14.5% to 18% as a sign of strength.

Kyle Menges asked about the Construction & Forestry segment, noting the improving order book alongside intense pricing competition, and questioned if price realization could turn positive next year.

Answer

Josh Beal, Director of Investor Relations, confirmed the market's positive response to recent incentives but acknowledged the competitive environment. CFO Joshua Jepsen added that underlying fundamentals like contractor backlogs are solid and bonus depreciation could provide a tailwind. He expects pricing levels to find stability heading into Q4.

Kyle Menges asked for clarification on the full-year 2025 guidance, noting that it appears to be weighted towards the second half and questioning if this assumes an improvement in retail demand in key end markets.

Answer

An executive clarified that the guidance's back-half weighting is primarily due to tougher year-over-year comparisons in the first half of 2025. In fiscal 2024, Large Ag sales declined 30% in the second half versus only 10% in the first half, with a similar dynamic in Construction & Forestry. This creates a lower comparison base for the back half of 2025, leading to progressively better year-over-year performance as the year unfolds.

Kyle Menges of Citigroup inquired about the momentum in the Industrial Powertrain Solutions (IPS) segment, including the sustainability of its growth rate into 2026 and the drivers of order reacceleration after a flat July. He also asked about the margin impact of selling more systems in IPS and data center solutions in AMC.

Answer

CEO Louis Pinkham stated it was too early to provide a 2026 forecast but expects to enter the year with low-single-digit growth. He expressed confidence in IPS achieving mid-single-digit order growth for the quarter, citing a strong $300 million cross-sell funnel and a 15% year-to-date backlog increase. Pinkham clarified that systems solutions in IPS typically have margins at or slightly above the company average, while data center wins are a positive mix contributor for the AMC segment.

Kyle Menges asked whether there was evidence of pre-buying ahead of tariffs in segments beyond PES, particularly given the strong 9% order growth in IPS. He also inquired if the $18 million in Q1 synergies was in line with expectations and about the company's confidence in achieving its full-year synergy target.

Answer

CEO Louis Pinkham stated that the company did not observe material pre-buying outside of some in residential HVAC, clarifying that the strong IPS orders were driven by longer-cycle projects, not customer stockpiling. CFO Robert Rehard confirmed that the $18 million in Q1 synergies was in line with their plan and that they remain on track for the $54 million full-year target. Pinkham added that tariff-related disruptions would not impact synergy realization due to the company's 'in-region, for-region' strategy.

Kyle Menges from Citigroup asked for details on the drivers behind the company's market outgrowth, particularly in the IPS segment, and requested specific examples of recent cross-selling successes.

Answer

CEO Louis Pinkham explained that outgrowth is broad-based, driven by new products in PES, integrated solutions in AMC, and the industrial powertrain system in IPS. He highlighted that the cross-sell funnel for the industrial powertrain is up double year-over-year and cited a mid-teens million-dollar mining project in Southeast Asia as a key win where the company sold an integrated system instead of individual components.

Randy, on behalf of Kyle Menges from Citigroup, inquired about the incremental benefits from cross-selling synergies in the IPS segment and whether Q3 represented a margin bottom for the AMC segment.

Answer

CEO Louis Pinkham stated that cross-selling and powertrain initiatives contributed 1-2 percentage points to IPS's growth, emphasizing the large opportunity that remains. CFO Rob Rehard indicated that Q3 was 'pretty close to a bottom' for AMC margins and expects improvement in Q4 driven by higher sales, cost actions, and the absence of prior FX headwinds.

Kyle Menges of Citigroup inquired about the Resource Industries backlog and visibility into 2026, and asked for an update on the company's commodity exposure, specifically to coal.

Answer

CEO Joe Creed noted that while sales to users are expected to be softer, order rates are healthy and the backlog is up, particularly for large and articulated trucks, providing positive momentum. CFO Andrew Bonfield reiterated that coal represents a low-single-digit percentage of total company revenue and is diminishing over time.

Kyle Menges sought more detail on the pricing outlook for the Construction and Resource Industries segments in the second half of the year, asking if pricing could turn flat to positive as the company laps its merchandising programs and potentially implements tariff-related price actions.

Answer

Joe Creed, COO and incoming CEO, stated that the market remains competitive and pricing decisions are complex. CFO Andrew Bonfield clarified that the company's 'no-tariff scenario' does not assume price increases in the second half. However, the negative impact from merchandising programs will moderate as they are lapped. He confirmed that no pricing actions for tariff mitigation have been assumed yet, as the company awaits more clarity. Creed added that pricing dynamics vary by segment.

Kyle Menges of Citi requested more detail on the Resource Industries segment, asking about the progression of customer conversations and orders into Q1 and the specifics of negative pricing actions expected in the quarter.

Answer

Executive D. Umpleby noted that while customers show capital discipline, key indicators like commodity prices, product utilization, and fleet age remain favorable. Executive Andrew R. Bonfield specified that the negative Q1 price impact is from merchandising programs targeting heavy construction and quarry and aggregates.

Kyle Menges asked if the planned Q4 dealer inventory reduction is sufficient heading into 2025 and also inquired about the state of used equipment inventories.

Answer

CFO Andrew Bonfield stated that used equipment inventories remain at historically low levels and are not a concern. Regarding new equipment, he confirmed the planned Q4 reduction is expected to bring machine dealer inventory to roughly flat year-over-year, a level the company is comfortable with based on current dealer feedback and sales planning.

Kyle Menges of Citigroup Inc. requested an analysis of the key factors embedded in the margin guidance for the second half of the year, focusing on pricing, steel costs, and other potential headwinds.

Answer

CFO Scott Mell stated that strong pricing of over 400 basis points is expected to continue but will be offset by volume declines, particularly in the vocational mix, and some impact from tariffs. COO G. Frederick Bohley added that tariff exposure is limited due to a high percentage of North American sourcing and that steel and aluminum cost pass-throughs lag by 6-12 months.

Kyle Menges inquired about the drivers behind Allison's strong Q1 margin performance, which surpassed the implied full-year guidance, especially considering the downturn in the high-margin parts business.

Answer

Chief Operating Officer G. Bohley attributed the robust margin expansion to several factors. He highlighted $39 million in price increases, the non-recurrence of a one-time UAW signing incentive from the prior year, and a favorable price recognition of approximately 500 basis points year-over-year, which collectively offset lower sales volume and unfavorable material costs.

Kyle Menges requested a deeper dive into the volume assumptions for the North American On-Highway 2025 forecast, seeking clarity on the outlook for medium-duty versus Class 8 straight trucks.

Answer

David Graziosi, CEO, explained the guidance assumes a softer medium-duty market versus 2024, citing improved inventories and alignment with OEM forecasts. In contrast, he expects continued robust and stable demand for Class 8 vocational trucks, consistent with the last 12-18 months, with constraints remaining at the bodybuilder level.

Kyle Menges sought more insight into the performance of the aftermarket parts business, noting the commentary had shifted from weakness in North America to global weakness, and asked about the outlook for 2025.

Answer

CFO Fred Bohley clarified that year-over-year movement wasn't significant but noted a tough comparison to H1 2023. He expects Q4 parts revenue may be down mildly sequentially. For 2025, he anticipates a 'fairly good year,' potentially the second-best on record, but does not expect a return to the peak H1 2023 levels as most of the pent-up demand has now been satisfied.

Kyle Menges from Citigroup asked for early color on the 2026 order books, which had been open for a month, seeking initial trends and farmer sentiment.

Answer

CEO Gerrit Marx stated that while it's too early for a full 2026 forecast, the company maintains that 2025 will be the trough year for demand. He highlighted that future demand depends on resolving uncertainties around global trade and tariffs. However, he noted early positive signs in EMEA and reiterated that once production aligns with retail, CNH's wholesale volumes and revenue will increase even in a flat market.

Kyle Menges of Citigroup Inc. asked for a quantification of the tariff impact on the updated EPS guide and inquired how the unchanged production hour guidance aligns with lower industry outlooks and dealer inventory levels.

Answer

SVP & CFO Damon Audia provided a detailed bridge for the EPS guidance change, attributing an incremental $0.15 headwind to tariffs due to better clarity and delayed pricing actions. He explained the production guidance is a net effect of deeper cuts in North America offsetting modest changes in Europe, and noted that the lower-horsepower industry weakness has minimal impact on their own production hours.

Kyle Menges from Citigroup asked about the sustainability of the strong Europe/Middle East (EME) margins, the risk of a product mix shift away from the high-margin Fendt brand, and the Q1 performance of the PTx Trimble business.

Answer

CFO Damon Audia explained that EME is AGCO's most stable market and that the premium Fendt brand continues to gain share due to a 'flight to quality' by farmers, making a negative mix shift unlikely. He also noted the PTx Trimble business was profitable in Q1 with over $60 million in sales. CEO Eric Hansotia added that AGCO has tripled its dealer coverage for PTx since year-end and the technology take-rate on AGCO equipment is now around 90%.

Kyle Menges from Citigroup Inc. inquired about the potential impact of upcoming German elections on the business. He also asked about the 2025 top-line synergy opportunity from the PTx Trimble acquisition, specifically regarding the cross-selling of Trimble products through the Precision Planting dealer network.

Answer

CEO Eric Hansotia stated that AGCO does not anticipate a significant impact from country-specific elections, viewing the recent rightward shift in the EU parliament as more relevant and generally farmer-friendly. He noted significant progress on dealer integration, with over 1,000 PTx dealers now in place, and said the 2025 focus is on driving cross-selling and expanding the number of AGCO dealers carrying the full PTx portfolio.

Kyle Menges requested details on the change in the assumed tariff impact, which increased from $0.40 to $0.50 per share, and asked about demand trends in North American Materials Processing and the impact of bonus depreciation.

Answer

SVP & CFO Jennifer Kong-Picarello explained the increase was due to higher EU reciprocal tariffs, secondary tariff impacts, and Section 232 steel tariffs. President & CEO Simon A. Meester noted that while bonus depreciation is a positive, he expects the benefits to materialize more in 2026 than in the second half of 2025, as customers assess the cash impact.

Kyle Menges asked what gives management confidence in exceeding the $25 million ESG synergy target and questioned the company's strategy for its Monterrey, Mexico facility regarding production shifts and supply chain sourcing.

Answer

CEO Simon Meester explained that confidence comes from a robust project pipeline showing synergies across the entire Terex portfolio. Regarding the Monterrey facility, he stated that while it is a key asset, major product moves are paused until the dynamic tariff environment stabilizes. He also clarified its role in the company's North American production footprint.

Kyle Menges asked why ESG's margins are guided to be flat year-over-year despite expected sales growth and synergies, and inquired about the level of synergies included in the 2025 guidance. He also pointed out a discrepancy between his EBITDA calculation and the company's guidance.

Answer

Executive Julie Beck reiterated confidence in achieving the $25 million run-rate synergy target by the end of 2026 but stated it was too early to update the forecast. She emphasized the guidance reflects continued strong performance and operating margins for the ESG business. She also clarified that the company's $660 million EBITDA guidance is an adjusted number, which would account for the calculation difference.

Kyle Menges of Citi Group asked for an update on the ESG segment's backlog, its expected coverage for the remainder of the year, and the anticipated timing for realizing acquisition synergies.

Answer

CEO Simon Meester described the ESG backlog as 'very healthy and strong,' with a typical six-month cycle and a book-to-bill ratio over 100% for recent quarters, positioning the segment for a strong 2025. CFO Julie Beck reiterated the target of $25 million in run-rate synergies by the end of 2026, confirming that some benefits are expected to materialize in 2025, with more details to be provided on the Q4 call.

Kyle Menges of Citigroup requested a deeper analysis of the free cash flow guidance, questioning the core business contribution after accounting for tax benefits and asset sales. He also asked about pricing trends for legacy Herc versus H&E.

Answer

SVP & CFO Mark Humphrey explained that normalized free cash flow is 10-15% of revenue, but the 2025 guidance is impacted by the absence of five months of H&E's cash flow. Regarding pricing, he confirmed it was a positive contributor for legacy Herc but declined to give specifics, noting H&E's pricing headwinds are factored into its revenue forecast.

Kyle Menges requested color on customer sentiment in core end markets, particularly regarding tariffs. He also asked about the impact of weather on Q1 margins and any other unexpected cost pressures.

Answer

COO Aaron Birnbaum noted that large national contractors have plenty of work while local contractors feel a slowdown, and it's too early for feedback on tariffs. CFO W. Humphrey added that margin pressure was anticipated due to moderating used equipment values (now stabilized), fixed cost absorption from M&A, and not yet anniversarying higher insurance costs.

Kyle Menges of Citigroup asked about the sequential improvement in used equipment recovery rates, questioning if the normalization period is over. He also asked for clarification on why the H&E termination fee was not included in the Q1 guidance update.

Answer

President & CEO Matthew Flannery suggested that used equipment recovery rates have stabilized, attributing the strength to a disciplined market and a robust retail sales channel. EVP & CFO William Grace explained the H&E fee was incorporated into the Q2 guidance update, as it is standard practice for the company to tighten ranges and incorporate such items mid-year, rather than in the first quarter's reaffirmation of initial guidance.

Kyle Menges asked about the level of confidence in the project backlog for the rest of the year and whether mega projects provide greater visibility. He also inquired about how potential tariffs on new equipment could affect the value of the company's existing used fleet.

Answer

Executive Matthew Flannery expressed high confidence in the 2025 outlook, citing strong visibility from large projects, a supportive backlog, a positive customer confidence index, and solid field-level feedback. On the used fleet, he stated it's too soon to see a tariff impact but theorized that if new equipment prices rise, it would act as an 'umbrella' and support higher used equipment values, a trend seen in the past. He noted the record Q1 used sales reflect strong underlying demand.

An analyst on for Kyle Menges asked for color on the 2025 gross CapEx guidance, specifically which areas of the fleet are being grown and if any are being pulled back. He also inquired about changes in customer behavior and sentiment following the recent election.

Answer

Executive Matthew Flannery stated there are no plans to pull back on any fleet categories due to strong utilization. He detailed that of the total CapEx, about $500 million is for growth, with a significant portion allocated to the specialty business. Regarding sentiment, Flannery noted it remains strong, consistent with 2024. Executive William Grace added that customer sentiment has improved post-election, driven by expectations of a pro-growth environment.

Kyle Menges requested more color on industrial end markets beyond manufacturing, such as MRO, and asked about the outlook for ancillary and re-rent revenue growth into next year.

Answer

Executive William Grace identified headwinds in the petrochem sector as the primary area of industrial weakness, which he views as a timing issue, while manufacturing remains strong. Regarding ancillary revenue, he stated it should correlate with Specialty growth but cautioned that the year-over-year contribution from the Yak acquisition will be anniversaried, moderating the growth rate.