Michael Feniger

Michael Feniger asked about the scale of PACCAR's U.S. capacity expansion, the normalization of the used truck market, and potential margin tailwinds for the Parts business next year.

Answer

CEO Preston Feight stated that ongoing capital investments ensure PACCAR will not be capacity constrained in the coming years. Regarding used trucks, President and CFO Harrie Schippers noted the market has normalized and PACCAR's inventory is very healthy. Feight added that a recovery in the overall aftersales market should act as a tailwind for the Parts business in 2025.

Michael Feniger asked if PACCAR Parts' profit can grow at the same 4-6% rate as its guided Q3 revenue and inquired about the company's inventory position relative to the industry, considering tariffs and a potential pre-buy.

Answer

EVP Kevin Baney expressed confidence in profit upside for the Parts business, citing dealer capacity additions and new distribution centers. CEO & Director R. Preston Feight stated that PACCAR feels very good about its inventory, noting Kenworth and Peterbilt inventory is at 2.9 months of retail sales versus the industry's 4.2 months, and highlighted that PACCAR builds to order.

Michael Feniger of Bank of America inquired if PACCAR Parts' pretax profit could grow in line with its 4-6% Q3 revenue guidance and asked for an assessment of PACCAR's inventory position relative to the industry.

Answer

EVP Kevin Baney expressed confidence in profit upside for the parts business, driven by ongoing dealer capacity additions and strong customer service. CEO & Director R. Preston Feight stated PACCAR's inventory is well-positioned at 2.9 months of retail sales versus the industry's 4.2 months, highlighting that about half of their inventory is with bodybuilders due to strength in the vocational segment.

Michael Feniger questioned how potential 2027 EPA emissions changes are influencing PACCAR's cost management strategy in a soft market. He also asked for an outlook on the Parts business, questioning if its growth and margins are beginning to normalize.

Answer

CEO Preston Feight detailed two parts of the regulatory discussion: GHG standards and NOx standards, stating PACCAR is prepared for either outcome with investments in clean diesel technology. CFO Harrie Schippers noted the Parts team achieved solid margins above 30% in a soft market and expects growth to continue at 2% to 4% for the year.

Michael Feniger asked how PACCAR balances pricing for its premium trucks against defending its significant market share gains if competitors increase capacity. He also questioned the Parts segment's profitability trend, noting recent profit declines despite revenue growth.

Answer

CEO Preston Feight stated the core strategy is to build valuable trucks for customers, which allows PACCAR to maintain its premium pricing and gain share simultaneously, supported by a strong dealer network. On Parts, President and CFO Harrie Schippers emphasized that growing sales by 4% in a down market was an impressive achievement and guided for 2% to 4% growth in 2025, signaling another strong year.

Michael Feniger from Bank of America Merrill Lynch asked for clarification on the confidence behind the forecast for substantial public spending growth in 2026, the key puts and takes for the next fiscal year's outlook, and the timeline for reaching leverage targets while continuing M&A.

Answer

CEO Jule Smith explained that confidence in 2026 public spending stems from projected contract awards across state, federal, and local programs, which are expected to grow similarly to fiscal 2025's 14% increase. CFO Greg Hoffman noted that costs for the next year are largely locked in the backlog and that the company is on track to reach its ~2.5x leverage ratio target by late fiscal 2026 through strong operating cash flow. Smith added that while deleveraging is a commitment, the company will continue to pursue crucial strategic acquisitions.

Michael Feniger from Bank of America questioned the drivers of strong organic growth amid macro trends, the price-cost dynamics with fluctuating commodity prices, and the status of DOT funding and the upcoming federal transportation reauthorization.

Answer

CFO Gregory Hoffman attributed organic growth to both strong markets and share gains from newly acquired companies. He described the cost environment as stable despite mixed commodity price movements. Executive F. Smith noted that CPI is insulated from grant pauses as it relies on formula funding and expressed optimism about the federal reauthorization, citing a supportive administration and a proposed increase in the transportation budget.

Michael Feniger asked if the company or its customers were experiencing any pauses or delays in accessing IIJA funding. He also inquired how the record backlog is influencing the company's bidding strategy and the current competitive landscape.

Answer

Executive F. Smith stated they have heard of no pauses on funding for their projects and noted that the current administration's focus on 'hard infrastructure' could be a tailwind. He explained that the record backlog allows them to bid patiently at good margins and that the competitive landscape remains stable with competitors also being busy. CFO Gregory Hoffman added that growing the backlog despite strong revenue burn highlights robust demand.

Michael Feniger questioned why GTV guidance is at the lower end despite a strong Q2 and asked about potential headwinds to EBITDA flow-through in the second half of the year.

Answer

CFO Eric Guerin clarified the GTV guidance reflects a tough Q4 comparison against $169 million in 2024 CAT event GTV, which is not in the current forecast. For EBITDA, he stated that year-over-year growth is expected to accelerate in H2, with no significant headwinds anticipated beyond minor startup costs for new international contracts.

Michael Feniger from Bank of America noted the year-over-year decline in SG&A and asked for color on cost controls, and also inquired about the assumptions for the service revenue take rate embedded in the 2025 outlook.

Answer

CFO Eric Guerin attributed the SG&A performance to a disciplined focus on operational efficiency while still investing in growth. CEO Jim Kessler added that as a company built on acquisitions, there are ongoing opportunities for efficiency gains. Regarding the take rate, Kessler stated they follow a disciplined annual review process but declined to share specific assumptions in the 2025 forecast.

Michael Feniger asked for clarity on the GTV growth cadence for the year given the Q1 decline against a reaffirmed full-year outlook. He also inquired about the potential impact of auto tariffs on pricing and loss ratios, and later asked for an explanation of the 150 basis point increase in the service revenue take rate.

Answer

CFO Eric Guerin confirmed the Q1 GTV decline was anticipated and that the company expects a stronger second half to meet its full-year guidance. Executive Sameer Rathod addressed the tariff question, stating that while the situation is fluid, the key dynamic remains the spread between repair cost inflation and used car inflation. Regarding the take rate, Guerin explained that the company does not comment on its composition but continuously adjusts fees and commissions based on market dynamics.

Michael Feniger of Bank of America Merrill Lynch asked if Construction Industries sales could see double-digit growth in Q4 and if the pricing headwind would neutralize by year-end.

Answer

CFO Andrew Bonfield confirmed expectations for a strong Q4 in Construction Industries, driven by the absence of the large dealer inventory destock seen in the prior year. He clarified that while the pricing headwind from merchandising will diminish further in Q4 as they lap its introduction, some drag will likely persist into 2026.

Michael Feniger asked about the expected $250-$350 million Q2 cost headwind from tariffs and the potential mitigation strategies, such as pricing actions or cost reductions, that Caterpillar is evaluating for the remainder of the year.

Answer

Joe Creed, COO and incoming CEO, explained that Caterpillar is implementing short-term, 'no-regrets' actions like reducing discretionary spending and slowing some inbound shipments. He noted that longer-term actions like moving supply chains require more certainty. Regarding pricing, he emphasized the need to balance tariff offsets with market conditions and competitive positioning, highlighting the success of current merchandising programs. Chairman and CEO Jim Umpleby added that the company is cautiously optimistic that trade deals could reduce the final tariff impact.

Michael Feniger of Bank of America asked about dealer inventory levels, seeking to understand Caterpillar's confidence in its forecast for flat machine inventories in 2025 after a build in 2023 and a decline in 2024.

Answer

Executive Andrew R. Bonfield explained that the recent inventory swings were primarily in Resource Industries, not Construction Industries. He stated the 2025 forecast is based on ongoing conversations with dealers, and while Q4 retail sales were better than expected, the company is not yet calling it a sustainable trend for 2025.

Michael Feniger asked about the outlook for the oil and gas business into 2025, considering factors like LNG permitting, gas prices, and the different trends in reciprocating engines versus Solar Turbines.

Answer

Chairman and CEO Jim Umpleby avoided 2025 guidance but provided color on current trends. He noted continued weakness in well servicing but strength in gas compression for reciprocating engines. He described the Solar Turbines business in oil and gas as 'quite strong,' with robust booking and quotation activity. He added that a restart of LNG export permitting would be a medium- to long-term positive.

Michael Feniger of Bank of America asked if a 2026 mix shift toward highways could moderate headline pricing growth, and whether the ~$1 billion in free cash flow represents a new baseline that might alter capital allocation strategy.

Answer

Chair & CEO J. Thomas Hill expressed confidence in 2026 pricing, citing visible highway demand and a turn in private markets. Senior VP & CFO Mary Carlisle stated that while capital allocation priorities remain the same, the level of capital available has increased. She indicated that returning cash to shareholders in H2 is likely, with the amount dependent on M&A developments.

Michael Feniger of Bank of America asked if contractors bracing for tariff-related cost inflation provides Vulcan with cover to raise prices, even as its own costs are moderating.

Answer

CEO James Hill responded that Vulcan does not price based on its costs but rather on the value it provides to customers. He contextualized the potential tariff impact as being less significant than the 'breakneck inflation' of recent years, which the market absorbed. He concluded that he does not anticipate tariffs having a material impact on aggregates pricing.

Michael Feniger asked about plans to set new long-term targets for cash gross profit per ton, as the company is nearing its previous goal, and also requested details on the 2025 free cash flow outlook.

Answer

Chairman and CEO James Hill confirmed that since they are approaching their $11 per ton goal faster than anticipated, they plan to establish new long-term targets in the 'not-too-distant future.' Regarding 2025 free cash flow, SVP and CFO Mary Andrews Carlisle stated that full guidance will be provided in February but suggested that CapEx should remain in the historical 8-9% of revenue range for modeling purposes.

Michael Feniger inquired about the timing of the impact from Section 232 steel tariffs and whether customers in the Environmental Solutions (ES) segment were altering their order patterns due to tariff concerns.

Answer

SVP & CFO Jennifer Kong-Picarello clarified that the direct impact from steel tariffs is minimal as Terex does not import raw steel, and component-related impacts are included in the overall tariff guidance. President & CEO Simon A. Meester stated that ES booking patterns are returning to normal seasonality, with no evidence of customers pre-buying to get ahead of tariffs; demand remains strong based on fundamentals.

Michael Feniger of Bank of America Merrill Lynch asked for the key drivers behind the reduction in the full-year margin guidance to the mid-17% range, specifically focusing on the assumptions for decremental margins in the second half.

Answer

EVP and CFO Philip Fracassa explained that the margin guidance was lowered due to three main factors: the negative leverage from a lower volume outlook, a more unfavorable mix than previously expected, and incremental cost headwinds, including a slightly longer ramp-up for the Belts plant. These factors combined to drive a slightly higher overall decremental margin assumption for the year.

Michael Feniger from Bank of America Merrill Lynch asked for the key drivers behind the reduction in the full-year adjusted EBITDA margin guidance, questioning if it was solely due to lower organic growth and if the company's view on decremental margins had changed.

Answer

EVP and CFO Philip Fracassa explained that the margin guidance was lowered due to a combination of factors. While improved tariff impact was a positive, this was more than offset by the negative leverage from a lower volume outlook, a more unfavorable product mix than previously anticipated, and incremental cost headwinds related to the belts plant ramp. These combined to drive a slightly higher decremental margin assumption for the year.

Michael Feniger asked for the specific drivers behind the reduction in the full-year adjusted EBITDA margin guidance to the mid-17% range, particularly concerning the assumed decremental margins in the second half.

Answer

EVP and CFO Philip Fracassa explained that the margin guidance was lowered due to three main factors that more than offset an improved tariff outlook: the negative operating leverage from a lower volume forecast, a more unfavorable product mix assumption, and incremental cost headwinds from the belts plant ramp taking slightly longer than anticipated.

Michael Feniger of Bank of America Merrill Lynch asked for the drivers behind the reduction in the full-year adjusted EBITDA margin guidance to the mid-17% range, questioning if it was purely due to volume deleverage or if the view on decremental margins had changed.

Answer

EVP and CFO Philip Fracassa explained that the margin guidance was lowered due to a combination of factors. These included the impact of a lower volume outlook, a more unfavorable business mix than previously anticipated, and incremental cost headwinds related to the belts plant ramp. He noted these items resulted in a slightly higher overall decremental margin assumption for the second half, which more than offset the benefit from a reduced net tariff impact.

Michael Feniger of Bank of America Merrill Lynch asked for the drivers behind the reduction in the full-year margin guidance, questioning if it was solely due to lower organic growth and if the view on decremental margins had changed.

Answer

EVP and CFO Philip Fracassa explained that the margin guidance change was driven by a few factors. While the tariff outlook improved, this was more than offset by the negative impact of a lower volume outlook, unfavorable product mix, and incremental cost headwinds from plant ramps. These combined factors resulted in a slightly higher overall decremental margin assumption for the year.

Michael Feniger inquired about any signs of a customer pre-buy ahead of potential tariffs and asked about the pricing environment within the renewable energy sector.

Answer

CFO Philip Fracassa confirmed there was no material evidence of a pre-buy in the fourth quarter. CEO Tarak Mehta acknowledged that while the renewables market saw price pressure in 2024 due to lower volumes, the company's market share has stabilized and they do not see competitive intensity increasing in 2025.

Michael Feniger noted the inventory build relative to sales and asked if inventory levels would be aligned with demand by year-end, or if further reductions would be needed in 2025. He also asked for a big-picture outlook on the price-versus-cost dynamic for 2025.

Answer

President and CEO Tarak Mehta stated that net working capital is on the high side historically and that the company is working on process changes to improve efficiency. CFO Philip Fracassa clarified that on an organic basis, inventory actually declined by about $10 million in Q3, with more expected in Q4. On price-cost, Mehta anticipates flattish pricing in 2025, as there is no significant driver for prices to decline given continued input and labor cost inflation.

Michael Feniger from Bank of America Merrill Lynch inquired if the new $2.5 billion free cash flow forecast represents a new baseline for United Rentals and how the boom in data center construction is influencing the company's business mix and CapEx strategy, particularly in the power vertical.

Answer

EVP & CFO William Grace confirmed that the recent tax bill has effectively raised the normalized free cash flow baseline by about $400 million to around $2.4 billion, assuming similar growth CapEx levels. President & CEO Matthew Flannery stated that while data centers are a significant source of work, the company's strategy of investing more heavily in specialty rentals to capture complex projects remains unchanged, and this approach applies to data centers as well as other large projects.

Michael Feniger asked for details on the drivers behind the 15% pro forma specialty growth, including end markets and customer wallet share. He also inquired about the Gen Rent cycle, asking if it needs to turn negative before reaccelerating and what the potential catalysts for such a reacceleration would be.

Answer

Executive Matthew Flannery attributed the strong specialty growth to a combination of factors, including cross-selling to long-standing customers, the complexity of large projects requiring more support, and scaling up new product platforms like Power and HVAC. Regarding Gen Rent, he stated they do not believe it needs to go negative before accelerating and that the business is well-positioned to capitalize on a market pickup driven by factors like lower interest rates or a stronger economy.

Michael Feniger asked if United Rentals can continue to drive rental rates in 2025 if equipment pricing softens. He also inquired about the current fleet age and mix, and how it is positioned for an environment potentially favoring mega-projects and Specialty rentals.

Answer

Executive Matthew Flannery affirmed the company's ability to drive rates, citing the need to offset cumulative inflation and the strong value proposition offered to customers, supported by industry-wide discipline. He also stated that the fleet age is at its lowest pre-COVID level (just over 50 months), providing significant headroom and positioning the company well for future demand.

Michael Feniger asked about the sequential increase in inventory, the geographic source of COGS to assess tariff impacts, and any non-recurring items to consider for FY26 modeling.

Answer

CFO Pat Watson explained the inventory increase was mainly in WIP and raw materials due to a long supply chain and that holding lower-cost inventory is beneficial with rising tungsten prices. He also highlighted several non-recurring items for FY26, including the absence of ~$6M in insurance proceeds and an ~$8M catch-up portion of the IRA tax credit. CEO Sanjay Chowbey confirmed the company is using tariff rates as of April 30 and has plans to fully mitigate the impact.

Michael Feniger asked for color on potential tariff impacts from China, Mexico, and Canada, and how the company's global footprint might mitigate these risks. He also inquired about the outlook for Kennametal's own inventory levels and their assessment of inventory in the distribution channel.

Answer

CFO Pat Watson detailed the company's sales exposure, noting China is about 10% of sales, Canada is half of that, and Mexico is around $40 million. He explained that trade is often bilateral and the company can leverage its global footprint to mitigate potential tariff costs. Watson also stated that while Kennametal's own inventory is slightly elevated and will be reduced, channel inventories at the customer level appear well-aligned with current demand.

Michael Feniger asked for more context on the tariff impact, specifically regarding COGS exposure and the underlying assumptions. He also questioned how potential price increases would be received in the market, given the competitive pressure from low-cost suppliers mentioned in the prior quarter.

Answer

CFO Timothy Mammen clarified that the current financial impact is based on existing tariffs, with the highest rate affecting metal components from China. CEO Mark Gitin stated that the primary mitigation strategy is shifting manufacturing, not raising prices. He reiterated that significant price competition is confined to the China cutting market, which is less than 5% of IPG's business. Both executives noted that any low-cost competitor importing to the U.S. faces a 145% tariff, which strengthens IPG's competitive position due to its local U.S. manufacturing.

Michael Feniger of Bank of America asked about the size and outlook for the e-mobility business, whether competition is intensifying beyond cutting into areas like welding, and how potential tariffs might affect the company's manufacturing footprint.

Answer

CFO Tim Mammen noted that e-mobility is less than 20% of revenue and the outlook remains uncertain but stable. CEO Mark Gitin emphasized that competition is primarily in cutting, as IPG maintains a strong moat in EV battery welding with its differentiated technology. Both executives highlighted the company's manufacturing flexibility to mitigate tariff impacts without requiring significant new CapEx.

Michael Feniger inquired about the visibility and drivers of the second-half double-digit EBITDA growth guidance, whether the company is past the worst of project delays, and the outlook for achieving the 10% free cash flow margin target for the full year.

Answer

CEO Troy Rudd stated that second-half growth will be balanced between top-line increases and margin improvement, supported by a record backlog and pipeline. He noted that while they have a handle on project delays, some may linger due to government personnel changes. CFO Gaurav Kapoor affirmed the company's focus on the annual 10% free cash flow margin target, expecting strong second-half performance consistent with historical trends.

Michael Feniger inquired about the expected trajectory of Net Service Revenue (NSR) growth for the fiscal year and asked for clarification on the impact of recent federal funding freezes on AECOM's project pipeline and overall business visibility.

Answer

CEO Troy Rudd stated that while Q1 NSR growth of 5.5% exceeded internal expectations, the company still anticipates an acceleration in the second half of the year, supported by a record backlog and pipeline. Rudd emphasized that federal funding freezes have no material impact on the business due to minimal exposure to affected agencies like the EPA and USAID. He highlighted the company's strong position in Department of Defense work and a 100% win rate (8 for 8) on its largest strategic pursuits in the quarter.

Michael Feniger asked about the potential impact of the new U.S. administration on public sector client demand, the expected cadence of NSR growth in fiscal 2025, and the sustainability of achieving a 10% free cash flow to NSR margin.

Answer

CEO Troy Rudd stated that infrastructure is a bipartisan priority and sees opportunities from deregulation and permitting reform, noting 95% of IIJA funding is secure. He confirmed good visibility into an H2'25 growth acceleration. CFO Gaurav Kapoor affirmed that the 10% free cash flow to NSR margin is an achievable and core focus, supported by the company's culture and future margin expansion, though it's hard to be precise given the number of projects.

Michael Feniger sought clarity on whether the expected moderation in pricing would be gradual and asked about the drivers behind the strong Q1 free cash flow conversion.

Answer

CFO Brian DelGhiaccio confirmed that the pricing moderation is expected to be gradual, supported by the 63% of their restricted contract portfolio tied to alternative indices that are currently outperforming CPI. He attributed the strong free cash flow primarily to EBITDA growth, along with some favorable working capital timing, such as one less payroll period, noting the result was in line with internal expectations.

Michael Feniger asked if aggregates pricing might revert to its long-term 3-4% average by 2026 in a 'higher for longer' rate environment, and how cement versus ready-mix margins are evolving in 2025.

Answer

CEO Ward Nye and CFO Jim Nickolas asserted that the price-cost spread should continue to widen. Nye believes pricing will remain in a 'fundamentally better place' due to the inherent value of the product. Nickolas added that with moderating cost inflation, they expect another 100 basis points of gross margin expansion in 2025. Regarding segment margins, Nye expects ready-mix to see some compression as it absorbs input cost hikes from aggregates and cement, while the strategic cement business is performing exceptionally well with constructive pricing and high operational availability.

Michael Feniger asked for an estimate of the weather's impact on 2024 shipment growth and inquired about the cadence of 2025 pricing, specifically if the guidance includes mid-year increases.

Answer

CEO C. Nye acknowledged the weather impact was significant but did not provide a specific percentage, agreeing that 2025 volumes could be higher than the cautious initial guide if weather normalizes. He confirmed that the preliminary 2025 pricing outlook does not factor in any potential mid-year increases, which could provide an additional tailwind to results.

Michael Feniger from Bank of America questioned if potential U.S.-Europe tariffs would alter AGCO's strategy for its Massey Ferguson brand in North America. He also inquired about the state of the used equipment market and inventory levels.

Answer

CEO Eric Hansotia and CFO Damon Audia responded that while they have multiple contingency plans, no major supply chain shifts will occur without clear and stable tariff rules. They are exploring minor adjustments like local kitting. On the second point, Eric Hansotia stated that used equipment is not a significant problem for AGCO, with values holding steady and volumes at manageable, pre-COVID levels.

Michael Feniger asked if M&A competition is increasing in the Northeast, given recent activity from peers. He also inquired about the company's view on underlying cost inflation trends and how that informs their pricing strategy for 2025.

Answer

CEO John Casella stated that they do not see significantly increased M&A competition, as many of their deals are relationship-based, though larger deals are always competitive. CFO Bradford Helgeson described cost inflation as 'stubborn,' running at 4-5% this year. He noted that the company is budgeting for this level of inflation to continue into 2025 and plans to offset it through ongoing cost reduction programs and disciplined pricing.