Michael Halloran

Michael Halloran from Baird asked about the sequential dynamics of the CPI segment, particularly the Q1 outlook and expected recovery, inquiring about any broader destocking beyond gaming. He also questioned the embedded expectations for the $10 bill onboarding, specifically regarding a second-half ramp, and how the international currency business is expected to flow throughout the year, considering external vendors and internal capacity ramp-ups.

Answer

CFO Christina Cristiano stated that CPI is projected to be flat in 2026 with a 30% EBITDA margin, with Q1 being the lowest quarter and growth accelerating thereafter. CEO Aaron Saak indicated that the $10 bill's full consumer release is prudently guided for Q4 2026, with the company also working on the $50 bill. Christina Cristiano added that international currency demand will accelerate through the year, facing a tough Q4 2026 comp, and profitability will improve after Q1 due to cost phasing. Aaron Saak confirmed that capacity expansion and other actions are not a constraint, and the company is well-positioned for sustained international currency growth.

Michael Halloran inquired about the sequential CPI dynamics, specifically Q1 expectations, recovery trends, and any broader destocking beyond gaming. He also asked about the $10 bill onboarding timeline, expected ramp-up, and how international currency flow is managed with outside vendors and internal capacity ramp-ups.

Answer

CFO Christina Cristiano outlined CPI's flat sales guide for 2026, with Q1 being the lowest quarter, and noted that vending softness from tariffs would improve in the second half. CEO Aaron Saak stated a prudent Q4 impact for the $10 bill, with a U.S. Treasury announcement expected mid-year. Christina Cristiano added that international currency will have a tough Q4 2026 comp, and Aaron Saak confirmed no short-term constraints in meeting demand due to capacity actions.

Michael Halloran asked for more detail on the significant backlog acceleration in the quarter, its composition, and how it is expected to convert to revenue throughout 2025 and into 2026. He also inquired about the go-to-market strategy for the newly formed Crane Authentication segment, particularly how the OpSec and De La Rue businesses will be consolidated and approach the market.

Answer

SVP and CFO Christina Cristiano attributed the record backlog primarily to the International Currency business, driven by the timing of large projects and five new micro-optic wins. She stated that about 65% of the backlog is expected to be delivered in 2025. President and CEO Aaron Saak explained the Authentication go-to-market strategy is structured around four key areas: government tax stamps, government ID, physical brand protection, and online brand protection, leveraging the strengths of both legacy OpSec and De La Rue.

Michael Halloran asked about the expected year-end leverage post-De La Rue acquisition, the M&A pipeline capacity, the margin impact from recent acquisitions on the SAT segment, and the potential for margin recovery in 2026.

Answer

CEO Aaron Saak stated that net leverage is expected to be approximately 2.3x after the De La Rue closing, with a continued disciplined M&A strategy focused on deals between $100M-$500M. CFO Christina Cristiano quantified the OpSec acquisition's dilutive impact on SAT margins at about 250 basis points for 2024 and 2025. Both executives indicated that margins are expected to recover and become accretive post-2025 as the new U.S. currency series, with higher technology content, begins to launch.

Michael Halloran inquired if the 2025 'flat revenue' guidance includes the pending De La Rue acquisition. He also asked about the normalization timeline for the U.S. currency business, specifically if 2026 would be a more normal year, and whether the 2025 order mix represents a historical low.

Answer

Management confirmed the guidance does not include any contribution from the De La Rue acquisition until it closes. President and CEO Aaron Saak agreed that 2026 should see normalization, with the timing of the new $10 bill release as a potential upside. He affirmed that the 2025 U.S. order mix, skewed to lower denominations, is 'very much near the lows' historically and is expected to revert to the mean over time.

Michael Halloran asked about the margin profile and future opportunity of the ePOD data center business, especially after the significant $735 million order, and inquired about signs of recovery in the broader industrial businesses, excluding data centers.

Answer

CEO Lewis Pinkham stated that ePOD adjusted EBITDA margins are expected to be 20%+ and will improve with productivity. He noted the $735 million order exceeded the previous $400 million funnel, and they plan to build on this momentum with capacity expansion. Regarding industrial businesses, Mr. Pinkham observed mixed trends with accelerating OEM sales and slowing distribution, expressing optimism about the January ISM but awaiting sustained improvement. CFO Rob Rehard also participated in the discussion.

Michael Halloran inquired about the margin profile of the E-Pod data center business, comparing it to segment levels, and asked for clarification on the future opportunity and run rate after the significant $735 million order, especially given previous discussions of a $1 billion funnel. He also asked about underlying demand trends in industrial businesses, seeking signs of recovery beyond the recent ISM data.

Answer

CEO Louis Pinkham stated that adjusted EBITDA margins for E-Pod projects are expected to be 20%+ initially, with potential for improvement through productivity. He confirmed the $735 million order exceeded the previous $400 million funnel and expects continued growth, supported by capacity expansion. Regarding industrial trends, Mr. Pinkham noted mixed signals, with OEM accelerating but distribution slowing, and expressed optimism about the January ISM but desired more sustained improvement and stronger distribution channel activity before confirming a strong recovery path.

Michael Halloran of Robert W. Baird & Co. asked for context on second-half end-market recovery expectations, order variability across segments, the impact of rare earth magnet supply issues, and the drivers behind recent data center wins.

Answer

CEO Louis Pinkham explained that the market situation is largely unchanged, with strength in aerospace, defense, and data centers expected to continue. He anticipates mid-single-digit order growth in the second half, driven by a low-double-digit increase in the AMC segment. Pinkham noted that rare earth magnets affect only about 1% of sales but caused a plant shutdown in Q2, an issue now largely addressed. He attributed the data center wins to Regal Rexnord's ability to provide customized switchgear solutions, highlighting a significant project win in July.

Michael Halloran inquired about the dynamics between long-cycle and short-cycle business, order trends, and the outlook for second-half project rollouts. He also asked about Regal Rexnord's competitive positioning and potential for market share gains stemming from its global manufacturing and sourcing footprint.

Answer

CEO Louis Pinkham highlighted strong momentum in longer-cycle projects, particularly within the IPS segment, which saw orders up approximately 9%. He noted that short-cycle business remains stable. Pinkham expressed confidence in the full-year guidance, supported by a robust second-half backlog that is up high-single-digits in IPS and low-double-digits in AMC. He affirmed that the company's 'in-region, for-region' strategy and dual-country sourcing provide a significant competitive advantage, creating opportunities for share gains across its segments.

Michael Halloran of Baird sought clarity on the sequential earnings cadence for 2025, questioning why Q1 is a low point despite positive orders, and asked for a review of free cash flow and leverage target assumptions.

Answer

CEO Louis Pinkham attributed the Q1 weakness to typical seasonality and the A2L pull-forward in PES, while confidence in the second half is driven by a doubling of the shippable backlog for longer-cycle AMC projects. CFO Rob Rehard detailed the path to $700M in 2025 free cash flow and a $900M exit run-rate for 2026, targeting leverage of approximately 3.0x by year-end 2025 and 2.5x by year-end 2026.

Michael Halloran of Robert W. Baird & Co. asked for clarification on the 2025 'limited growth' forecast, the expected timeline for short-cycle orders to align with revenue, and the free cash flow outlook for the upcoming year.

Answer

CEO Louis Pinkham clarified the 'limited growth' forecast for 2025 is on an organic basis, citing market uncertainties. He noted that the AMC segment's business cycle has lengthened to roughly six months, while PES remains short-cycle. CFO Rob Rehard added that the company maintains a path to a $1 billion free cash flow exit rate for 2025, driven by reduced interest and restructuring costs.

Michael Halloran asked about the sustainability of SPX FLOW's strong order trajectory and backlog momentum, seeking insights into the core drivers that would allow this to continue. He also inquired about any changes in ITT's overall 2026 outlook over the past 3-6 months, specifically regarding the end market outlook for the automotive sector within Motion Technologies.

Answer

CEO Luca Savi explained that SPX FLOW's momentum, particularly in nutrition and health, is driven by customers in a good CapEx cycle, with strong intimacy and collaboration on future CapEx and execution. He noted good opportunities in mixers, acknowledging an easy 2024 comparison. For ITT's 2026 outlook, Luca Savi mentioned that trends like aerospace recovery and defense strength have reinforced. Regarding Motion Technologies, he stated that global auto production in 2025 was positive mainly due to China, with Europe and North America down less than expected. For 2026, global production is expected to be flat to slightly down, with Europe flat and North America/China flat to low single-digit down.

Michael Halloran asked about the sustainability of SPX FLOW's order trajectory and its core drivers, and then inquired about any changes in ITT's 2026 outlook over the last 3-6 months, specifically regarding the auto end market within Motion Technologies.

Answer

CEO Luca Savi highlighted SPX FLOW's momentum driven by good CapEx cycles in nutrition and health, strong customer intimacy, and opportunities in mixers, acknowledging an easy 2024 comparison. Regarding the 2026 outlook, Mr. Savi noted reinforced trends in aerospace recovery and defense. For Motion Technologies, he stated 2025 auto production growth was mainly China, with Europe and North America down, and projected global production for 2026 to be flat to slightly down.

Michael Halloran inquired about the current landscape for capital equipment and large projects, asking if ITT is observing any customer hesitancy or project delays. He also asked for an update on the global automotive market and the drivers behind ITT's continued outperformance.

Answer

CEO Luca Savi responded that ITT's project order performance has been 'remarkable,' driven by market share gains in oil & gas and general industrial, with no significant project delays causing concern. Regarding the auto market, Savi noted that Q2 production was up and the full-year outlook is slightly improved. He attributed ITT's outperformance to broad-based success across all major regions and powertrain types, including EV and hybrid.

Michael Halloran of Robert W. Baird & Co. asked for a bridge between prior and current guidance and questioned the resilience of the Industrial Process segment in a potential slowdown.

Answer

CFO Emmanuel Caprais explained that while the full-year EPS guidance is maintained, the components have shifted, with positive FX and buybacks offsetting higher inflation and a cautious H2 outlook. Both Caprais and CEO Luca Savi highlighted the record $1 billion IP backlog and improving project margins as key factors providing resilience and confidence for 2025 performance, despite a slight moderation in the project funnel.

Michael Halloran asked for details on order patterns within the Industrial Process (IP) segment, focusing on both short-cycle and project activity, and questioned how that momentum is expected to trend into 2025.

Answer

CEO Luca Savi reported strong Q4 organic orders in the IP segment, which grew 12%, driven by a 25% increase in projects and an 8% rise in short-cycle orders. He noted the weekly order run rate was the second-highest on record. For the full year, organic orders grew 5%. Savi added that the project funnel remains rich, especially in the Middle East and Latin America, supporting future growth.

Michael Halloran asked for an outlook on the automotive market for the rest of 2024 and into 2025, and requested clarification on the net financial impact of the kSARIA acquisition in the fourth-quarter guidance.

Answer

CEO Luca Savi acknowledged a challenging auto market but highlighted ITT's continued outperformance, which is expected to be around 700 basis points for 2024. For 2025, he anticipates a flat to low-single-digit market with continued outperformance from ITT. CFO Emmanuel Caprais specified that kSARIA is expected to contribute approximately $50 million in Q4 revenue with a modest impact on income, while causing about 400 basis points of margin dilution for the CCT segment.

Michael Halloran asked for Humana's views on the 2027 advance rate notice, specifically considering the 8.5% HCR fee-for-service cost trend for 2025 as a leading indicator and if an effective growth rate north of 9% makes sense.

Answer

Celeste Mellet, CFO, stated that speculating on the rate notice is imprecise and Humana would not comment on starting points or headwinds/tailwinds, awaiting the first look early next year.

Michael Halloran from Baird asked IDEX to frame the growth perspective of its portfolio relative to historical performance, especially after the stage three evolution, and when revenue levels might consistently normalize towards the company's order growth range.

Answer

Eric Ashleman, President and CEO, stated that IDEX historically tracked industrial production but is now aiming to shift towards mid-single-digit growth (GDP plus). This is driven by higher-tech assets aligned with 21st-century secular trends and integrated technology collaboration within platforms like Material Science Solutions. He noted that revenue normalization requires an industrial volume step-up and continued growth from strategic areas like Material Science Solutions, data centers, and water.

Michael Halloran from Baird asked how IDEX's current portfolio and strategic evolution, particularly Phase Three, are expected to impact the company's growth algorithm on a forward organic basis compared to the 3-4% range seen in the 2010s. He also questioned when revenue levels might consistently normalize towards the recent order growth range.

Answer

Eric Ashleman, President and CEO of IDEX Corporation, explained that historically IDEX tracked industrial production, but the current strategy aims to move the fulcrum to the right, targeting mid-single-digit growth (GDP plus) driven by higher-tech assets aligned with 21st-century secular trends and integrated technology collaboration. He noted that consistent revenue normalization requires a volume step-up in the base industrial world, which has yet to inflect, alongside continued growth from strategic platforms like Material Science Solutions and water.

Sought to confirm that the guidance change was due to a slower pace of growth and timing rather than fundamental deterioration, and also asked about the company's capital deployment strategy and M&A funnel.

Answer

The company affirmed that the issue is timing and pace, not deterioration, with confidence improving after a volatile Q2. On M&A, they explained the strategy has shifted to smaller, strategic tuck-in acquisitions to complement the large platforms they have recently built, and the current M&A funnel reflects this focus.

Michael Halloran of Robert W. Baird & Co. asked for clarification on the components of the full-year guidance and the company's confidence in it, given new tariffs and cost savings. He also inquired about the portfolio's resilience in a potential economic pullback.

Answer

CFO Abhi Khandelwal confirmed comfort with the guidance, explaining that the Q2 outlook is supported by the backlog and the full-year guide incorporates a $60-$65 million tariff impact offset by pricing. He noted the extra $20 million in cost savings is a proactive measure. CEO Eric Ashleman added that the company's resilience stems from its strategic growth platforms in advantaged markets, multiple layers of productivity initiatives, and the agility provided by its 80/20 business principle.

Michael Halloran of Robert W. Baird & Co. asked for clarification on the soft Q1 2025 guidance, the expected cadence of performance through the year, and the company's confidence in a second-half recovery, particularly in the semiconductor market. He also inquired about the future growth and margin impact of the company's platform optimization and delayering initiatives.

Answer

CFO Abhishek Khandelwal explained that the Q1 softness is primarily due to the non-recurrence of $40 million in Q4 projects and a significant sequential headwind from share-based compensation. He contrasted the current environment, where the Health & Science Technologies (HST) segment has strong momentum from new blanket orders, with early 2024's industrial strength. CEO Eric Ashleman added that the semiconductor outlook includes a customer-specific inventory adjustment in the first half but is supported by positive MRO trends and strong bookings for next-generation technology, bolstering confidence in a second-half rebound. Ashleman described platform optimization as a key strategy to gain commercial efficiency and resource leverage, driving both top-line growth and earnings expansion.

Michael Halloran of Robert W. Baird & Co. asked for clarification on the drivers of the soft Q1 2025 guidance and the company's confidence in the subsequent recovery, focusing on project timing, share-based compensation, and end-market improvements like semiconductors. He also inquired about the long-term impact of platform optimization and delayering on IDEX's growth profile and incremental margins.

Answer

CFO Abhi Khandelwal explained that the Q1 outlook is impacted sequentially by the non-recurrence of $40 million in Q4 projects and a $0.20 EPS headwind from share-based compensation. He noted that while industrial backlog is lower year-over-year, the Health & Science Technologies (HST) segment has strong momentum from new platform blanket orders. CEO Eric Ashleman added that a specific customer inventory adjustment in semiconductors will affect H1 but is offset by positive MRO trends. Regarding optimization, Ashleman stated the goal is to drive both top-line growth and bottom-line leverage by creating commercial efficiencies and focusing resources closer to the customer, which is reflected in the 2025 guidance.

Michael Halloran of Baird inquired about the drivers for the sequential revenue outlook in the fourth quarter and the expected order cadence into next year. He also asked about IDEX's long-term growth algorithm following its recent portfolio reshaping, including the expected contributions from market growth, synergies, and acquisitions.

Answer

CFO Abhi Khandelwal attributed the Q4 sequential ramp to specific, large projects in the backlog for the ABEL, MPT, and Mott businesses. CEO Eric Ashleman outlined the long-term growth strategy, stating the reshaped portfolio now targets mid-single-digit plus organic growth, supplemented by acquisitions to reach a high-single-digit total growth rate. He expects this to drive double-digit earnings expansion, supported by high margins and 80/20 principles.

Michael Halloran of Baird inquired about the drivers for the Q4 sequential outlook and the company's long-term growth algorithm, given the recent portfolio reshaping and focus on revenue synergies.

Answer

CFO Abhi Khandelwal attributed the Q4 ramp to specific, large projects in the backlog for the ABEL, MPT, and Mott businesses. CEO Eric Ashleman outlined a long-term growth algorithm targeting mid-single-digit plus organic growth, supplemented by 1-2 points from M&A, aiming for high-single-digit total growth and double-digit earnings expansion, driven by the shift towards faster-growing markets in HST.

Michael Halloran of Robert W. Baird & Co. asked if there were any changes to the detailed end-market revenue outlook provided last quarter. He also sought to confirm the thought process around margin cadence for the year, questioning if any unsustainable factors drove the strong Q1 margin performance.

Answer

CFO Scott Cottrill confirmed that the end-market outlook remains unchanged, which is why the full-year guidance is maintained. He stated that the margin cadence thought process is consistent, with Q2 typically similar to Q1, and there was nothing unsustainable in the Q1 performance. President & CEO D. Scott Barbour added that his primary concern remains the demand environment and its potential impact on absorption later in the year.

Michael Halloran inquired about the fiscal 2026 pricing outlook, seeking clarity on the cadence of the expected low-single-digit decline and the specific drivers of market share gains through material conversion.

Answer

An executive clarified that the year-over-year pricing pressure is concentrated in Q1 2026, as the company laps a prior-year impact, with pricing expected to be sequentially flat afterward. CFO Scott Cottrill added that share gains are driven by the conversion to polypropylene (HP) pipe, particularly in larger diameters and within the residential land development market where ADS has built strong relationships and sees a superior value proposition.

Michael Halloran questioned whether the underlying business outlook and customer conversations have materially changed recently, and also asked about the current competitive and pricing landscape.

Answer

CEO D. Barbour responded that customer sentiment has not changed since the last quarter, with clients remaining unsettled about the market's direction. He characterized competitor behavior as very steady for the past 7-9 months, with pricing decisions focused on achieving local objectives rather than broad, disruptive actions.

Michael Halloran inquired about the dynamics between pricing and rising material costs, asking why the company isn't raising prices to offset inflation and seeking clarity on the underlying demand trends in the nonresidential construction market.

Answer

CEO Scott Barbour explained that the primary issue is weaker-than-expected demand in the nonresidential market, which makes it difficult to pass through rising material costs in the short term. He noted this weakness also slowed growth in Allied Products. CFO Scott Cottrill added that the negative price-cost dynamic is expected to persist until the end markets improve, likely next fiscal year.

Michael Halloran from Robert W. Baird & Co. asked about multi-year earnings levers beyond pricing that could be accelerated and potential risks in the second half of 2025, such as FTR rechecks, SEP growth, duplicative memberships, and Q4 utilization.

Answer

CEO Mark Bertolini confirmed Oscar is accelerating medical cost initiatives and deploying AI in clinical operations to drive value. CFO Scott Blackley addressed the risks, stating the FTR impact is minimal, dual-eligible membership is a manageable ~2.5% of their book, and SEP growth is moderating. He affirmed that these factors are incorporated into the updated 2025 guidance.

Michael Halloran of Robert W. Baird & Co. inquired about the current conditions and stability of Mueller's end markets, specifically focusing on the utility and residential sectors. He also asked if the implied fourth-quarter margin is a sustainable run rate for fiscal year 2026, considering the various moving parts in recent years.

Answer

CEO Marietta Zakas addressed the end markets, noting an expected slowdown in residential construction due to high interest rates and buyer hesitancy, consistent with previous guidance. President & COO Paul McAndrew added that the municipal repair and replacement market remains strong and resilient. Regarding margins, Zakas explained that while full 2026 guidance will come later, the company expects to build on its current momentum. She highlighted the implied full-year 2025 gross margin approaching 37% and noted future benefits from the brass foundry closure and targeted price increases to mitigate tariffs.

Michael Halloran of Baird sought clarification on the expected margin acceleration in the second half of the year, asking about its drivers and magnitude. He also asked for an outlook on the land development market given current interest rates.

Answer

CFO Steven Heinrichs confirmed that second-half margins are expected to be higher due to seasonality, benefits from the legacy foundry closure, and incremental improvements in the repair products business. On land development, President and COO Paul McAndrew noted that demand for new homes remains resilient, supported by low existing home inventory, and that the company's guidance assumes modest growth in this area.

Michael Halloran inquired about the expected demand and order cadence for the second half of the year and the primary drivers for the anticipated step-up in margins.

Answer

CEO Vicente Reynal noted that a strong first-half book-to-bill of 1.06 provides a solid backlog for the second half, with demand remaining stable through Q2 and into July. CFO Vikram Kini added that the margin improvement is driven by typical seasonality, volume flow-through, productivity initiatives, M&A integration, and a favorable comparison for the PSC segment in Q4.

Michael Halloran of Robert W. Baird & Co. asked for a bridge from the previous 2025 guidance to the current one, seeking to confirm if the organic volume reduction was precautionary. He also inquired about nuances between short- and long-cycle businesses and when the Precision & Science Technologies (PST) segment's order growth would convert to revenue growth.

Answer

CEO Vicente Reynal confirmed the guidance change was a prudent, precautionary measure to de-risk the year, holding total revenue guidance flat despite positive tailwinds from pricing and M&A. He noted good balance in both short- and long-cycle demand. CFO Vik Kini added that the PST segment saw organic order growth in both its sub-segments, which is expected to drive revenue momentum in the second half of the year.

Michael Halloran inquired about the demand assumptions embedded in the 2025 guidance and the margin performance and outlook for the Precision and Science Technologies (PST) segment.

Answer

CEO Vicente Reynal stated that the 2025 guidance assumes market stability, not improvement, with organic growth weighted toward the second half. CFO Vik Kini explained that Q4 PST margin weakness was due to lower volumes in ILC Dover's Aerospace & Defense business and in China, but expects a return to a 30% margin profile in 2025 driven by synergies and productivity.

Michael Halloran asked for context on the disconnect between improving leading indicators like Marketing Qualified Leads (MQLs) and the downward revision of organic growth guidance, which was attributed to project push-outs. He also asked what needs to happen for these indicators to align with order trends.

Answer

Chairman and CEO Vicente Reynal acknowledged the encouraging MQL activity but noted the conversion time from lead to order has elongated beyond the historical 6-8 weeks due to customer site readiness and pre-election uncertainty. He emphasized that these are real projects, not cancellations, which bodes well for the future. He expects a gradual recovery in 2025 and noted that the backlog grew both year-over-year and sequentially in Q3.

Michael Halloran of Robert W. Baird & Co. asked about the order outlook for the Measurement and Control Solutions (MCS) segment, including customer destocking, forward-looking sentiment, and the timeline for its book-to-bill ratio to exceed one. He also requested an update on the progress of Xylem's simplification and 80/20 initiatives.

Answer

CEO Matthew Pine described overall demand as resilient, noting temporary funding delays in the UK and Canada that are expected to resolve in the second half. CFO William Grogan added that MCS commercial demand is strong, with orders expected to improve sequentially, and reiterated the forecast for a positive book-to-bill ratio by year-end. Regarding simplification, Pine stated the transformation is ahead of schedule, while Grogan confirmed that the 80/20 methodology is now being implemented across all four segments, with margin improvements in Applied Water and Water Infrastructure serving as key proof points.

Michael Halloran of Baird inquired about the mechanics of Xylem's tariff-related pricing strategy, asking about the mix of surcharges versus formal price increases and the timing of their implementation. He also questioned how the tariff situation might alter the company's ongoing business simplification and restructuring efforts.

Answer

CEO Matthew Pine explained that pricing actions are a mix of approximately two-thirds formal price increases and one-third surcharges, with the impact being more significant in the second half of the year. Regarding the company's restructuring, CFO Bill Grogan noted that the fundamental approach remains unchanged, though they may accelerate simplification efforts in tariff-impacted areas. He highlighted that the new, more nimble operating structure is proving highly beneficial in the current environment.

Michael Halloran of Robert W. Baird & Co. asked for details on the Measurement and Control Solutions (MCS) segment's margin progression through 2025, its expected exit rate, and the underlying end-market drivers supporting its high single-digit growth forecast.

Answer

CEO Matthew Pine explained that MCS margins likely hit a trough in Q4 2024 due to a product mix shift towards energy meters. He anticipates sequential margin improvement throughout 2025 as the mix normalizes and restructuring benefits take hold, resulting in a full-year 2025 margin rate higher than 2024's. The high single-digit growth is supported by a strong project pipeline, particularly a near 40% growth in energy meters, and an expected recovery in water meter projects in the second half of the year.

Michael Halloran sought more detail on the Measurement & Control Solutions (MCS) segment's backlog reduction and its growth outlook for the next year. He also asked for an update on the company's portfolio simplification (80/20) initiatives and the expected timing of their impact on revenue and margins.

Answer

Executive William Grogan clarified that the past-due backlog in MCS is now largely resolved and expects the segment to perform within its long-term framework next year, despite potential timing shifts. Executive Matthew Pine explained that the financial benefits from the 80/20 simplification efforts are expected to materialize in 2025, following implementation in Q4 2024. He acknowledged a potential for slight top-line pressure but reaffirmed the company's long-term 4-6% growth outlook.

Michael Halloran asked for clarification on Q2 order trends, questioning if there was an 'air pocket' and how back-half expectations have changed. He also inquired about the competitive pricing environment and the margin profile of the current backlog.

Answer

President & CEO R. Scott Rowe explained that the aftermarket business remains healthy, but large project bookings in energy and chemicals paused in Q2 due to macro uncertainty. He stated back-half expectations remain solid and the pricing environment is constructive, though slightly more competitive on projects. SVP & CFO Amy Schwetz confirmed that the backlog margin is in a 'really good place,' benefiting from the 80/20 program and strong execution margins on large projects.

Michael Halloran of Robert W. Baird & Co. asked for clarification on the Q2 order weakness, questioning if it was a temporary 'air pocket' and how back-half expectations have changed. He also inquired about the competitive pricing environment and the margin profile of the current backlog.

Answer

President & CEO R. Scott Rowe clarified that the aftermarket business remains strong, and the Q2 softness was confined to large project bookings in energy and chemicals, which paused due to macro uncertainty. He stated the second-half outlook remains solid. On pricing, he noted that while the run-rate business pricing is sticky, the project environment has become slightly more competitive. SVP & CFO Amy Schwetz confirmed the backlog margin is in a 'really good place,' benefiting from the 80/20 program and strong execution margins on recent projects.

Michael Halloran from Robert W. Baird & Co. asked for clarification on the Q2 order weakness, wanting to know if it was a temporary 'air pocket' and how expectations for the second half of the year have changed. He also inquired about the competitive pricing environment and the margin profile of the current backlog.

Answer

President & CEO R. Scott Rowe clarified that the aftermarket and MRO business remained healthy, while the weakness was in large project bookings in energy and chemicals due to macro and tariff uncertainty. He noted the project environment has become more constructive recently, supporting the 1.0 book-to-bill target for the year. On pricing, Rowe stated that list price increases on run-rate business have been sticky, but the project environment has become slightly more competitive. SVP & CFO Amy Schwetz added that the backlog margin is in a very good place, benefiting from the 80/20 program and strong execution margins on large projects.

Michael Halloran asked about Flowserve's competitive positioning regarding its global manufacturing footprint versus peers, especially for sourcing castings and forgings, and how receptive the market has been to recent price increases. He also sought details on the mechanics of managing margins within the existing project backlog.

Answer

President and CEO Robert Rowe stated that Flowserve's global manufacturing footprint provides a competitive advantage by enabling in-region production, mitigating tariff impacts on finished goods. He noted that raw material sourcing is similar to peers. Rowe confirmed two price increases in 2025, one annual and one in March specifically for tariffs, and expressed confidence in their stickiness. For the backlog, he highlighted the use of updated terms and conditions that allow for repricing projects via change orders to offset cost inflation.

Michael Halloran sought clarification on how the projected 200+ basis points of margin improvement from 80/20 and commercial excellence initiatives fit within the existing 2027 financial targets. He also asked for details on the expected quarterly cadence for 2025.

Answer

CFO Amy Schwetz confirmed the 2027 targets already included approximately 200 basis points from portfolio management (now driven by 80/20) and another 200 basis points from operational excellence. She explained that the 2025 quarterly cadence will revert to historical seasonality (Q1 lowest, Q4 highest) due to tough comps from a large project in Q1 2024 and the progressive ramp-up of benefits from the 80/20 program and Mogas synergies throughout the year.

Michael Halloran of Baird inquired about the expected duration and timeline of the growth opportunity in the power market, particularly nuclear, and asked about the company's M&A funnel and capacity for more deals following the MOGAS acquisition.

Answer

CEO Scott Rowe described the power market opportunity, especially nuclear, as a long-term growth driver with a horizon longer than two years. CFO Amy Schwetz affirmed that the M&A funnel remains robust and that Flowserve has the organizational and balance sheet bandwidth for further acquisitions, aided by the straightforward integration plan for MOGAS.

Michael Halloran of Robert W. Baird & Co. asked for details on the 12-to-18-month plan to bring the clean energy business to neutral profitability and clarified if this target is net of the already-profitable Ecobee business.

Answer

Chairman, President & CEO Aaron Jagdfeld confirmed that Ecobee is profitable and ahead of plan, with the drag coming from the 'clean energy products' like storage and solar. He explained that heavy development costs for new products like PowerCell 2 and PowerMicro are tapering off. However, he noted that the 12-18 month timeline is difficult to define precisely because of market uncertainty following recent policy changes. The company will recalibrate investment based on the market size but remains committed to its 2027 profitability goal for the segment.

Michael Halloran sought to clarify the moving parts in the updated guidance, asking if the low end is driven solely by demand degradation and requesting a framework for COGS exposure to tariffs and regional sourcing.

Answer

President and CEO Aaron P. Jagdfeld confirmed the low end of guidance reflects a potentially softer consumer environment. He detailed that of the $125 million potential H2 tariff impact, China-specific sourcing accounts for less than 10% of material purchases, a figure that has been halved over five years and is expected to halve again. He added that current inventory levels will buffer some immediate tariff impacts, particularly for clean energy products.

Michael Halloran requested the residential growth expectation for Q1 and asked for a broader discussion on how Generac's new capacity managed lead times during the recent outage environment compared to historical patterns.

Answer

CFO York Ragen confirmed expectations for strong double-digit growth for residential products in Q1. CEO Aaron P. Jagdfeld elaborated that significant investments in capacity, including the Trenton facility and automation, allowed the company to respond rapidly to demand surges. This prevented extended lead times and the 'scarcity mentality' ordering from distributors seen in the past, leading to what he described as a healthier and different pacing for the business going forward.

Michael Halloran of Baird asked for historical context on the current surge in demand from power outages, questioning how the uplift compares to past events and whether there is a spillover effect into non-impacted regions.

Answer

President and CEO Aaron P. Jagdfeld stated that the projected $200 million in incremental 2024 revenue from recent hurricanes aligns with historical models. He emphasized that Generac's expanded manufacturing capacity allows for a much quicker production ramp than in the past. Jagdfeld also confirmed a significant spillover effect, noting that October is on track to be a record month for in-home consultations (IHCs) with strong demand growth seen outside of the storm-affected states.

Michael Halloran of Robert W. Baird & Co. asked for clarification on whether the guidance assumes an acceleration in underlying fundamentals or relies more on easy comps and internal growth initiatives. He also inquired about the opportunity set, both organic and inorganic, in the data center market.

Answer

CEO Ivo Jurek confirmed the guidance is based on 'steady as she goes' fundamentals against easier comps, supplemented by specific growth initiatives, not a broad market acceleration. Regarding data centers, he stated the organic opportunity is so significant that M&A is not a current focus, as the company is leveraging its core competencies to meet the surging demand for liquid cooling solutions.

Michael Halloran of Robert W. Baird & Co. sought to clarify if the back-half guidance assumes a fundamental market acceleration or is based on easier comps and company-specific initiatives. He also asked about the potential for organic or inorganic expansion of the data center product portfolio.

Answer

CEO Ivo Jurek confirmed the guidance is based on 'steady as she goes' fundamentals against easier comps, plus the impact of growth initiatives, not a broad market recovery. On data centers, Jurek stated the organic opportunity is so significant that M&A is not a focus. He emphasized that Gates is leveraging its core competencies in hoses, pumps, and fittings to meet the rapidly growing demand for liquid cooling solutions.

Michael Halloran from Robert W. Baird & Co. sought to clarify if the back-half growth guidance assumes an acceleration in fundamentals or is driven more by easy comps and growth initiatives. He also asked about the opportunity set in data centers, including M&A.

Answer

CEO Ivo Jurek confirmed the guidance assumes 'steady as she goes' fundamentals against easier comps, layered with growth initiatives. Regarding data centers, Jurek downplayed M&A, stating the organic opportunity is 'rather significant' as liquid cooling penetration is expected to be 'dramatically bigger' than previously thought. He emphasized that Gates is focused on its core competencies and tailoring its product portfolio for this market.

Michael Halloran of Robert W. Baird & Co. sought to clarify if the guidance assumes steady fundamentals against easier comps rather than an underlying market acceleration. He also asked about the potential for organic or inorganic expansion in the data center market.

Answer

CEO Ivo Jurek confirmed the guidance is based on steady fundamentals, easier comps, and company-specific growth initiatives, not a broad market acceleration. Regarding data centers, Jurek stated the organic opportunity is so significant that M&A is not the current focus. He emphasized that the company is leveraging its core competencies to tailor its existing product portfolio for the high-growth liquid cooling space.

Michael Halloran of Robert W. Baird & Co. sought to clarify if the guidance assumes steady fundamentals against easier comps rather than an underlying acceleration, and asked about the opportunity to expand the company's data center exposure.

Answer

CEO Ivo Jurek confirmed the guidance is based on steady fundamentals and easier comps, supplemented by specific growth initiatives. Regarding data centers, Jurek stated the organic opportunity is so significant, particularly with accelerating liquid cooling adoption, that the company is focused on executing with its existing portfolio of tailored, high-reliability products rather than pursuing M&A.

Michael Halloran inquired about the timing and cadence of offsetting the dollar impact of tariffs throughout the year and asked about the company's competitive positioning from a global footprint perspective. He also followed up on the progress of internal initiatives and whether they could be accelerated to counteract potential demand softness or tariff impacts.

Answer

CFO L. Mallard stated that the company expects to fully offset the tariff dollar impact, with minimal effect in Q2 and a close match in Q3 and Q4, resulting in about a 25 bps EBITDA margin dilution for the year. CEO Ivo Jurek added that 75-80% of the offset will come from price, with the rest from operational initiatives. He affirmed the company's strong competitive position due to its 'in-region for-region' manufacturing footprint. Regarding internal initiatives, Jurek noted that the company is ahead of schedule, particularly on 80/20 and material cost-out, which is reflected in the strong gross margin performance, and that the company is focused on managing compressible costs to protect margins.

Michael Halloran of Baird sought to understand the basis for customer optimism and what might be required to translate that sentiment into actual orders. He also asked about the company's capital deployment priorities.

Answer

CEO Ivo Jurek acknowledged customer optimism but emphasized that Gates relies on hard data, suggesting sentiment may be driven by potential industrial policy and pent-up CapEx. CFO L. Mallard outlined a balanced capital deployment strategy focused on share buybacks, continued debt reduction towards a sub-$2 billion target, and increased CapEx for high-return internal projects like footprint optimization and system enhancements.

Michael Halloran of Robert W. Baird & Co. inquired about whether stressed end markets are showing sequential stability and asked about the company's current approach to M&A cultivation.

Answer

CEO Ivo Jurek confirmed that replacement markets are providing stability, with industrial replacement 'flatlining' and personal mobility stabilizing ahead of expected 2025 growth. On M&A, Jurek stated that while they have an active team and pipeline, the immediate priority has been balance sheet repair. He believes share buybacks currently offer better returns for shareholders given the stock's valuation, but the company is positioned to pursue M&A as the stock rerates.

Michael Halloran from Robert W. Baird & Co. asked for confirmation on channel inventory levels and questioned the implied margin step-down in the Q4 guidance.

Answer

President, CEO & Chairman Todd Adams confirmed that channel inventory levels are balanced, as products are typically for immediate construction or MRO needs. Regarding Q4 margins, Adams stated that the implied step-down is not indicative of a known issue but rather reflects their 'quarter by quarter' approach to guidance, suggesting there is no specific negative event being signaled.

Michael Halloran inquired about the historical reaction of the government channel, particularly in drinking water, to periods of uncertainty. He also asked about the timing of cost benefits from inventory builds versus the impact of price increases.

Answer

Todd Adams, Chairman and CEO, responded that the government vertical is relatively small and he doesn't see it as a particular headwind, given other growth drivers in drinking water. On timing, Adams agreed it was a reasonable high-level assumption that pre-bought inventory would help contain costs in Q2, with the full impact of pricing realized later in the year.

Michael Halloran asked for confirmation that Dodge starts data implies market stability into H1 2025 with tailwinds in H2 2025 and 2026. He also inquired about balance sheet usage, particularly the M&A funnel and its actionability.

Answer

CEO Todd Adams confirmed the assessment, noting the majority of the benefit from projected institutional starts would materialize in 2026. On capital allocation, he stated that M&A cultivation activity is 'picking up,' and he anticipates actionable opportunities to convert in 2025, while continuing double-digit dividend growth and share buybacks.

Michael Halloran from Robert W. Baird & Co. asked about the sequential trends embedded in the full-year guidance, whether it assumes normal seasonality, and for an update on the M&A pipeline and strategic focus.

Answer

CEO Joe Ruzynski stated that market trends felt more normal than anticipated and that the guidance for the second half assumes a return to normal seasonality. CFO Jennifer Wolfenbarger added that the company is confident in its ability to mitigate tariff and commodity cost impacts. Regarding M&A, Ruzynski confirmed the pipeline is robust and the focus remains on acquiring businesses in faster-growing markets that leverage Franklin's distribution channels.

Michael Halloran of Robert W. Baird & Co. sought clarification on the full-year guidance components, the expected business cadence, the proportion of replacement sales, and the competitive positioning of the company's manufacturing footprint amid tariff discussions.

Answer

Interim CFO Russell Fleeger confirmed the guidance assumes price increases will be offset by some volume pressure. He anticipates a relatively normal seasonal cadence with strong backlogs in Energy Systems providing visibility. CEO Joseph Ruzynski stated that replacement-driven business is over 70-75% and highlighted the company's competitive advantage from its 'in region, for region' manufacturing strategy, which minimizes tariff exposure and is being enhanced by recent investments and acquisitions.

Michael Halloran requested a detailed breakdown of the 2025 growth guidance, including assumptions for foreign exchange and organic growth, and asked about the company's M&A strategy regarding near-adjacencies and specific areas of interest.

Answer

CFO Jeffery Taylor outlined the 2025 guidance, projecting a $15-20 million FX headwind, 1-4% organic revenue growth, and 3-7% organic EPS growth. CEO Joseph Ruzynski added that positive order trends and focused investments provide confidence. Regarding M&A, Ruzynski stated the focus is on near-adjacencies like wastewater, municipal, and industrial markets where the company has existing exposure and can strategically add to its portfolio.

Michael Halloran from Robert W. Baird & Co. asked about current inventory levels and pricing dynamics within the water channels, and inquired about CEO Joseph Ruzynski's strategic focus for change and emphasis in his new role.

Answer

Executive Jeffery Taylor stated that channel inventories are normalized and the company is getting positive pricing on engineered products, though facing negative pricing on commodity products like plastic pipe. CEO Joseph Ruzynski added that for 2025, the company will lean more on productivity than price to offset inflation. Regarding his strategic focus, Ruzynski highlighted "focus and velocity" on key initiatives, such as driving innovation in electrification and IoT, expanding into faster-growing verticals, and using data and digital tools to improve operational integration and forecasting.

Michael Halloran sought clarity on the timing and impact of pricing actions related to tariffs and the resulting margin trajectory for the second half of the year, particularly for the PQI segment.

Answer

SVP and CFO Sameer Ralhan explained that pricing actions began impacting results late in Q2, with the full run-rate benefit expected in Q3 and Q4. He projected that Q3 margins would be similar to Q2, with a "meaningfully better" margin performance expected in Q4 as pricing fully offsets tariff impacts.

Michael Halloran asked about the cadence of selling days for the year and sought to bridge the strong Q1 results to the Q2 guidance, questioning the drivers of the sequential change.

Answer

SVP and CFO Sameer Ralhan clarified that the extra selling days from Q1 will reverse in Q4, with no impact on Q2 or Q3. He explained the Q2 guidance reflects prudence amid geopolitical uncertainty, a potential timing lag between tariff implementation and countermeasures, and a mix shift toward equipment sales, which can temporarily affect margins.

Michael Halloran inquired about changes in end-market dynamics since the previous quarter and asked about the underlying assumptions for the full-year guidance, including cadence and market trends.

Answer

President and CEO Jennifer Honeycutt noted that recent performance is largely a continuation of prior trends, including strength in industrial water, steady analytics growth, and an ongoing CPG market recovery. SVP and CFO Sameer Ralhan added that the 2025 top-line guidance assumes these trends will continue consistently, noting the business has minimal seasonality outside of a potential Q4 uptick in equipment sales.

Michael Halloran inquired about the underlying trends in the CPG market, asking if the gradual improvement narrative has changed and what gives management confidence for 2025. He also asked about remaining gaps in the digital workflow offering post-TraceGains.

Answer

President and CEO Jennifer Honeycutt described the CPG recovery as "slow and steady" rather than a sharp inflection. She cited five consecutive quarters of recurring revenue growth and two quarters of equipment sales growth in PQI as positive indicators. Regarding the digital workflow, she stated that CPG customers are early in their digitization journey and Veralto sees further opportunities to solve customer pain points both organically and inorganically.

Michael Halloran from Robert W. Baird & Co. questioned the timing of the strategic review for the China business and asked for the margin outlook for the second half of the year, specifically for the Rest of World segment and the price-cost dynamics in North America.

Answer

CEO Stephen Shafer explained the China review is about broadening the options to ensure future success as the market evolves. CFO Charles Lauber detailed that Rest of World margins face headwinds from lower China volumes, while North America margins will be impacted by rising steel costs and the full effect of tariffs in the second half, which will be offset by pricing actions implemented in May.

Michael Halloran of Robert W. Baird & Co. Incorporated sought clarification on the components of the 6-8% COGS impact, asked about demand seasonality expectations for the remainder of the year, and questioned the extent of supply chain and footprint rebalancing required in response to tariffs.

Answer

CFO Chuck Lauber confirmed the 6-8% tariff impact is separate from steel cost outlooks. He expects a normalized annual cadence for demand, supported by the company's initiative to level-load production. Chairman and CEO Kevin Wheeler added that channel inventory is in good shape, being flat to slightly down year-over-year. President and COO Stephen Shafer explained that cross-functional teams are managing both short-term actions, like sourcing from alternate supplier facilities, and longer-term changes, which are dependent on how the tariff situation evolves.

Michael Halloran inquired about the expected demand cadence for the upcoming year in North America water heaters and whether it would return to normal seasonality. He also asked for details on the North America margin outlook, specifically the reasons for the water treatment portfolio adjustments and the timing of when the 50-basis-point drag from new tankless production would dissipate.

Answer

CFO Chuck Lauber confirmed that the 2025 outlook assumes a return to a more normal seasonal cadence for water heaters, with about 51% of sales in the first half, but noted difficult comps from an unusually strong first half in 2024. Regarding margins, Lauber explained the 50-basis-point headwind from tankless production will persist through 2025 as production transitions. An executive, likely President and COO Steve Schafer, added that the water treatment restructuring is a strategic shift to focus on more profitable and competitive channels, which is expected to improve margins in that business by approximately 250 basis points.

Michael Halloran asked about industry sell-out dynamics and whether A. O. Smith's data supports its stable share claims, and also inquired about the price/cost trend given steel cost movements.

Answer

CEO Kevin Wheeler noted that while sell-out data isn't perfect, customer feedback indicates a flattish market. CFO Charles Lauber added that their proactive replacement survey remains strong, providing confidence. On costs, Lauber explained that while steel is a slight tailwind for Q4, other unfavorable material costs result in a relatively flat overall cost outlook and a stable price/cost dynamic.

Michael Halloran of Robert W. Baird & Co. asked about the order trajectory during the second quarter, how Dover's outlook for the second half has evolved, and the specific factors driving the updated full-year guidance.

Answer

President and CEO Richard Tobin explained that margin performance exceeded expectations, driven by accretive growth platforms that offset lighter volumes in areas like cryogenic components and traditional refrigeration. Tobin clarified that the guidance increase was primarily a roll-forward of the strong first-half performance and that the company removed previous cautionary language due to sustained positive order momentum.

Michael Halloran asked about any divergence in order trends between short-cycle consumable businesses and long-cycle CapEx projects, and also inquired about the current state of company and channel inventories.

Answer

Executive Richard Tobin responded that while short-cycle businesses are performing well, the guidance trim reflects concern over potential delays in customer CapEx projects due to macro uncertainty. He added that company inventory is intentionally high after buying forward on materials to support expected demand, and they can manage it down in the second half.

Michael Halloran sought to confirm the earnings cadence for 2025, asking if the underlying assumption is for stable demand at current levels. He also requested an update on the M&A environment, including the quality of the pipeline and valuation expectations.

Answer

Executive Richard Tobin affirmed that sequential demand should be relatively stable, with growth weighted towards Q2 and Q3. On M&A, he noted the pipeline has improved in quantity and quality, with many deals coming to market. He also mentioned working on proprietary deals and that the company's cash position makes it popular. Executive Brad Cerepak added that the cash is generating interest income and is not assumed to be deployed in the forecast.

Michael Halloran asked for clarification on the scope of 'managing capacity utilization' in Q4 and sought confirmation that the 25% margin target for Clean Energy & Fueling applied to the entire segment.

Answer

CEO Richard Tobin explained that managing capacity is a selective Q4 action to optimize cash flow, not a broad-based move like in the past. He explicitly confirmed that the 25% margin goal applies to the entire Clean Energy & Fueling segment.

Michael Halloran of Robert W. Baird & Co. asked for an outlook on business trends for the remainder of the fiscal year, specifically questioning the sustainability of growth in the Advanced Technology Solutions (ATS) segment and the timeline for the end of destocking in the medical interventional business. He also inquired about the financial details of the contract manufacturing divestiture, including its revenue size and whether more portfolio pruning is expected.

Answer

President and CEO Sundaram Nagarajan detailed the outlook, noting sustained strength in the ATS segment driven by investments in computing power for AI and cloud. For the Medical and Fluid Solutions (MFS) segment, he confirmed the Atrion acquisition is performing well and destocking severity is lessening. He identified ongoing weakness in industrial systems within the Industrial Precision Solutions (IPS) segment. Executive VP & CFO Daniel Hopgood quantified the divested medical business as approximately 4% of the medical segment's year-to-date sales, stating the sale will be about 100 basis points accretive to the segment's margins.

Michael Halloran asked for more detail on the assumptions embedded in the revenue guidance, including end-market recovery curves and backlog conversion. He also inquired about the expected incremental margin performance once volumes recover, particularly in the ATS and MFS segments.

Answer

CFO Daniel Hopgood detailed that the low end of the revenue guidance assumes a modest ATS recovery and little recovery elsewhere, while the high end assumes a more traditional, accelerated recovery. He confirmed the current backlog is expected to ship this fiscal year. For incremental margins, Hopgood reiterated the long-term blended target of 35%, with organic growth contributing at a higher rate and acquisitions like Atrion at a lower rate.

Michael Halloran inquired about Nordson's growth cadence for fiscal 2025, asking if the guidance assumes normal seasonality and what customer feedback indicates. He also questioned if the Q4 performance in the electronics (ATS) segment was anomalous and what provides confidence for its continued modest improvement.

Answer

CEO Sundaram Nagarajan detailed varied end-market conditions, noting steady consumer non-durables but muted capital spending in IPS, and weakness in medical interventional solutions offset by modest growth elsewhere in MFS. CFO Daniel Hopgood confirmed the guidance assumes flat organic growth and typical seasonality, with a slight Q1 impact from the Chinese New Year. Nagarajan affirmed the Q4 ATS performance was normal and that positive order trends support the outlook for modest growth.

Michael Halloran sought clarity on the revenue and margin cadence for the second half of 2025, asking if incremental pricing is being offset by an assumption of weaker volume. He also questioned if the softer back-half margin outlook was due to conservatism or the mathematical effect of tariff-related price increases.

Answer

CEO Robert Pagano explained the cautious second-half outlook stems from macro uncertainty related to tariffs, not an observed slowdown, noting that Q1 and April were strong. CFO Shashank Patel added that second-half margins are typically lower sequentially and the guide accounts for potential volume deleverage. Both executives confirmed that the combination of price, global sourcing actions, and onshoring is expected to maintain the full-year margin outlook.

Michael Halloran from Baird inquired about the demand outlook, asking if the company's perspective had changed recently and what they were hearing from the channel. He also asked about the long-term sustainable margin range for the European business once current restructuring and market pressures normalize.

Answer

CEO Robert Pagano stated the demand outlook is largely unchanged, with uncertainty pausing some new construction but institutional markets remaining strong. On European margins, he explained they are structurally lower than in the U.S. due to the OEM mix. The goal is to return to pre-downturn levels by managing the fixed cost base, as seen with the facility closure in France, and that a return in volume is key to margin recovery.

Michael Halloran of Robert W. Baird & Co. inquired about Graco's strategic priorities in managing the tariff situation, asking what the company is ultimately trying to solve for in terms of margins and demand, and confirmed the scope of the 1-2% revenue impact.

Answer

Executive Mark Sheahan explained that Graco's strategy is to be patient and avoid overreacting, using its strong inventory position and financial health to buy time for the tariff situation to gain clarity over the next three months. He stated the company can pull the pricing lever if needed but prefers to wait. Sheahan confirmed the 1-2% potential revenue impact is exclusively related to the company's business in China.

Michael Halloran of Baird sought clarification on the 2025 low single-digit growth outlook, asking if it assumes a steady state from current order levels. He also asked for details on the Contractor segment's adjusted operating margin and how the $16 million in reorganization savings would be allocated across the new segments.

Answer

Executive Vice President Mark Sheahan confirmed the outlook is based on consistent recent order levels, supplemented by pricing actions and new products. CFO David Lowe added that major headwinds from China and the semiconductor market have stabilized. Executive Christopher Knutson clarified the Contractor segment's adjusted margin was around 25-26% for the quarter. Lowe and Knutson explained the reorganization savings would begin immediately and be allocated across the new segments, with the Industrial segment receiving the largest share.

Michael Halloran from Baird questioned if the primary goal of the restructuring is to add incremental growth and drive margin benefits. He also sought clarity on the implied Q4 growth outlook and the context around recent order and backlog trends.

Answer

Executive Mark Sheahan affirmed that growth is the main driver for the restructuring, highlighting the new 'Expansion Markets' group for M&A. He noted that specifics on efficiencies would be shared later. Sheahan confirmed the full-year guidance implies a continued low single-digit decline in Q4. He explained that the backlog has normalized to $230 million from a peak of $450 million, transitioning Graco to a more typical 'book and ship' model, which should remove the headwind from backlog reduction in 2025.

Michael Halloran asked about the channel's reaction to inventory management strategies and for an update on Pentair's capital allocation priorities, including share buybacks and M&A.

Answer

CEO John Stauch described the current environment as complex, with the channel's ultimate reaction to pricing and supply management still developing. CFO Bob Fishman reiterated the company's commitment to a balanced capital allocation strategy, including debt paydown, dividend increases, share repurchases like the $50 million in Q1, and strategic M&A, all focused on maximizing ROIC.

Michael Halloran of Baird asked about performance differences between the Everpure and Manitowoc Ice businesses, cross-selling progress, and the company's approach to share buybacks.

Answer

CFO Bob Fishman noted commercial filtration is performing well, and Manitowoc Ice is expected to return to growth next year. President and CEO John Stauch added that cross-selling synergies are ahead of expectations. Regarding capital, he stated the focus is on buybacks and debt paydown while the M&A pipeline remains slow.

Michael Halloran sought clarification on the pre-buy take rate and its effect on 2025 seasonality. He also asked if there was a noticeable change in the attachment rate of pools to new home construction.

Answer

CEO Kevin Holleran explained that while early buy participation was higher, a smaller percentage of those orders shipped in Q4 2024 compared to the prior year, creating a larger backlog entering 2025. CFO Eifion Jones added that Q1 seasonality is expected to be normal. Regarding housing, Holleran stated that new pool attachment rates likely declined in 2024 and highlighted that low existing home turnover also negatively impacted new pool construction.