Luke McFadden

Luke McFadden (William Blair) inquired about the performance of discretionary areas within the land maintenance business in Q4 and the outlook for land maintenance in Q1, following previous tariff-related disruptions.

Answer

CEO Dale Asplund and CFO Brett Urban noted sequential improvement in Q4, particularly in discretionary ancillary spend, despite Q1 and Q2 being seasonal low points for land revenue. They emphasized the strengthened foundation of the business and ongoing investments in the sales force to drive growth, especially in the stronger Q3 and Q4 periods.

Luke McFadden asked about Ecolab's Global High-Tech business, specifically how the company is achieving and measuring market share gains in data centers, and for updated thoughts on the Aveva acquisition and the growth opportunity in microelectronics post-deal close.

Answer

Christophe Beck, Chairman and CEO of Ecolab, explained that the high-tech business combines data centers and microelectronics, both experiencing significant global investments. He highlighted the rapid opening of data centers and fabs, emphasizing the increasing need for power and water, which Ecolab addresses with its cooling and ultra-pure water solutions. Beck detailed how Ecolab's offerings, including direct-to-chip cooling and circular water solutions for microelectronics (enhanced by Aveva's capabilities), position the company for substantial growth, projecting Global High-Tech to be a $900 million business by 2026 with strong margins.

Luke McFadden asked about Ecolab's Global High-Tech business, specifically how the company is achieving and measuring market share gains in data centers. He also inquired about updated thoughts on the AVEVA acquisition and the growth opportunity in microelectronics post-deal close.

Answer

Christophe Beck, Ecolab's Chairman and CEO, explained that Global High-Tech combines data centers and microelectronics, both attracting significant global investments. He highlighted the rapid opening of data centers and fabs, emphasizing the increasing need for power and water, which Ecolab's technologies address. Beck detailed offerings like 3D Trezor for direct-to-chip liquid cooling and circular water solutions for microelectronics, noting AVEVA's role in ultra-pure water. He projected Global High-Tech, post-AVEVA, to be a nearly $900 million business by 2026, growing double-digit with strong margins.

Luke McFadden of William Blair inquired about UniFirst's pricing strategy, asking if the current pricing challenges are expected to alleviate in 2026 as customers adjust to tariffs, or if this dynamic is anticipated to continue. He also asked about any observed changes or acclimation within UniFirst's manufacturing client base regarding tariffs.

Answer

President and CEO Steven Sintros stated that the tariff environment remains fluid, and UniFirst is taking a patient and prudent approach. He acknowledged 'inflation fatigue' among customers, making it a challenging pricing environment, but expects customers to partner with UniFirst as costs increase. Regarding manufacturing clients, he noted it's too nuanced to observe significant changes yet, with broader employment trends showing weakness in traditional uniform-wearing industries.

Luke McFadden of William Blair asked about the anticipated trajectory of pricing challenges for UniFirst in fiscal 2026, inquiring if the current difficulties are expected to ease or persist as a long-term dynamic, especially concerning customer acclimation to tariffs. He also sought insights into any specific changes observed within the manufacturing client base, particularly regarding their adjustment to tariffs.

Answer

President and CEO Steve Sintros explained that the pricing environment has become less productive compared to periods of high inflation, and the tariff situation remains fluid, requiring a patient and prudent approach as costs gradually impact the business. He anticipates customer partnership but acknowledged 'inflation fatigue' creates a challenging environment. Regarding manufacturing clients, Mr. Sintros indicated it's too nuanced to identify significant shifts, noting broader weakness in hiring across traditional uniform-wearing industries without clear momentum from potential long-term reshoring impacts.

Luke McFadden of William Blair asked for an update on key initiatives, the reasons for reduced costs associated with them, the potential future cost impact from tariffs, and the drivers of strength in the First Aid segment.

Answer

EVP & CFO Shane O'Connor clarified that the reduction in key initiative costs is a timing issue related to the ERP project, with more current costs being capitalized rather than expensed. President & CEO Steven Sintros added that while tariffs could impact garment costs, UniFirst's diversified sourcing provides some mitigation. Sintros also highlighted strong, mid-double-digit growth in the First Aid van business, driven by successful penetration of both new and existing customers with a broader range of safety services.

Luke McFadden, on for Tim Mulrooney, asked if the raised full-year EPS guidance was primarily due to improved Core Laundry margins and questioned if any seasonality should be considered for the second half of the year.

Answer

EVP and CFO Shane O’Connor confirmed the improved outlook is mainly driven by anticipated improvements in Core Laundry Operations. He noted that while seasonality is consistent with prior years (Q2 being the least profitable), the fourth quarter of fiscal 2025 will face a tough year-over-year comparison due to the absence of the extra operational week that benefited Q4 2024's profitability.

Luke McFadden of William Blair & Company inquired if the slowdown in net wearer metrics was concentrated in particular end markets or was more broad-based. He also asked if the softer employment environment affecting wearer levels had similarly impacted new account growth.

Answer

President and CEO Steven Sintros responded that the decline in net wearer metrics is broad-based across the country and not concentrated in any specific end market. In contrast, he clarified that new account growth has remained solid, with the company finishing the year at record sales levels, and has not experienced the same fading trend as the wearer metrics.

Luke McFadden inquired if the recent deceleration in non-farm payroll growth had any impact on net wear levels within Cintas' rental business during the quarter.

Answer

Todd Schneider, President and CEO, acknowledged the deceleration in non-farm payrolls but emphasized Cintas' ability to grow beyond jobs growth and GDP by converting no-programmers, selling additional services, maintaining high retention, and through M&A. He stated Cintas is not relying on employment pickup for growth. For a follow-up on demand trends, Mr. Schneider reported no significant change in demand from Q1 to the start of Q2, with all route-based businesses showing good momentum and the rental business performing well despite employment levels.

Luke McFadden inquired if the deceleration in non-farm payrolls had impacted net wear levels in Cintas' rental business during the quarter. He also asked for further elaboration on demand trends through the first quarter and into the early weeks of the second quarter.

Answer

Todd Schneider, President and CEO, acknowledged the broader employment trends but emphasized Cintas' ability to grow through various strategies like converting no-programmers, selling additional services, strong retention, M&A, and pricing, without relying heavily on robust jobs growth. He stated that demand trends showed no significant changes from Q1 to early Q2, with all route-based businesses maintaining strong performance.

Luke McFadden asked if the deceleration in non-farm payrolls had any impact on net wear levels in the rental business during the quarter and sought further details on demand trends observed through Q1 and into the early weeks of Q2.

Answer

President and CEO Todd Schneider acknowledged the employment data but emphasized Cintas's ability to grow beyond jobs growth and GDP, driven by converting no-programmers, cross-selling, strong retention, and M&A. He stated there were no significant changes in demand trends from Q1 to early Q2, with all route-based businesses, particularly rental, maintaining good momentum.

Luke McFadden (William Blair) inquired about the primary drivers behind the accelerated growth in the Manufacturing & Distribution (M&D) segment, asking if it was due to lapping prior headwinds or underlying business momentum. He also sought clarification on the implied free cash flow calculation for the fourth quarter.

Answer

President and CEO Scott Salmirs attributed M&D's growth to strategic focus on strong end markets like semiconductor and pharma, coupled with investments in specialized sales talent. Executive VP and CFO David Orr clarified the free cash flow outlook, noting that the normalized guide includes one-time ELEVATE and RavenVolt costs, implying approximately $140 million needed in Q4, supported by Q3's $150 million performance and strong collection efforts.

Luke McFadden sought clarification on Concrete Pumping Holdings' recovery timeline, specifically if a fiscal 2027 market recovery implies continued negative growth in 2026, and asked for details on weather-related revenue headwinds. He also inquired about the company's geographic footprint in relation to anticipated heavy construction projects like semiconductor fabs and data centers.

Answer

CEO Bruce Young stated that while improvement is expected by 2027, the exact timing of a 2026 turnaround remains uncertain, and the company is not yet providing guidance beyond 2026. CFO Iain Humphries clarified that the $2 million weather-related headwind for Q3 2025 was a year-over-year comparison, indicating worse conditions than the prior year's May and June. Bruce Young expressed confidence in the current geographic footprint but noted the company has expanded for sizable projects and will continue to do so strategically.

Luke McFadden sought clarification on the recovery timeline, asking if a fiscal 2027 market recovery implies continued growth decline in 2026. He also asked for a precise clarification on the weather-related revenue headwind for Q3 2025 compared to the prior year, and about the company's geographic footprint strategy in light of heavy construction projects concentrating in specific markets.

Answer

External Director of Investor Relations Cody Slach stated that while improvement is expected by 2027, it's difficult to predict the exact turning point in 2026. CFO Iain Humphries clarified that the $2 million weather headwind for Q3 2025 represents the impact *compared to* last year, indicating May and June 2025 were worse than the prior year, not an additive amount. Cody Slach also responded that the company feels good about its current geographic footprint, noting they have expanded for sizable projects in new areas and will continue to do so.

Speaking on behalf of Tim Mulrooney, Luke McFadden of William Blair asked for clarification on the revised 2025 guidance, questioning if the delayed market recovery until 2026 applies to both commercial and residential construction and what factors might prolong this timeline. He also requested more detail on the visibility and specific areas of strength within the infrastructure market.

Answer

CEO Bruce Young explained that the residential market is experiencing only minor softness, while the commercial market's recovery is being held back by uncertainty surrounding tariffs. He expressed optimism for a commercial rebound once tariff issues are resolved and interest rates potentially decline. Regarding infrastructure, Young confirmed broad-based growth in both the U.S. and U.K., highlighting projects like roads, bridges, water treatment plants, and airports as key drivers.

Luke McFadden, on for Tim Mulrooney, asked about the impact of macroeconomic hiring trends on customer behavior and whether net wear levels were a headwind. He also inquired about the free cash flow outlook, given working capital's role in prior quarters.

Answer

President, CEO & Director Jim Barber characterized the impact from the hiring environment as 'neutral.' EVP & CFO Kelly Janzen added that while Q3 saw strong working capital management contributing to positive cash flow, the company will continue to manage cash tightly, but did not provide specific forward-looking guidance for Q4 free cash flow.