Mike Halloran

Mike Halloran asked for an update on the tracking of new clean energy product launches, the process for achieving break-even in these categories, and initial thoughts on reclaiming losses in 2026.

Answer

President and CEO Aaron Jagdfeld affirmed a positive long-term outlook for clean energy products, noting a recalibration of R&D spend as PowerCell 2 and Power Micro begin shipping. He reiterated the North Star of achieving break-even by 2027, despite an expected market contraction in 2026 due to reduced federal incentives. He emphasized the need for market share gains in 2026 and the company's commitment to profitability in this strategic area.

Mike Halloran asked for an update on the tracking of new clean energy product launches, the process for achieving break-even in these categories, and early thoughts on reclaiming losses in 2026.

Answer

President and CEO Aaron Jagdfeld stated that while the long-term outlook for clean energy products is positive, 2026 will be tougher, requiring a recalibration of R&D spend. New products like PowerCell 2 and Power Micros are just launching, with limited data points. The North Star remains break-even by 2027, supported by rising electricity prices, declining technology costs, and potential interest rate pullbacks. He emphasized the need to see share gains in 2026 to avoid further recalibration, underscoring that it's not intended to be a perpetually money-losing business.

Mike Halloran asked about Flowserve's environmental perspective, including the pipeline, funnel, and conversion rates, and how the underlying trajectory for 2026 aligns with the company's long-term framework. He also inquired about pricing dynamics, market receptivity, competitive landscape, and the forward outlook for price-cost.

Answer

Scott Rowe, Flowserve's President and CEO, highlighted strong aftermarket performance, with the OE business becoming a smaller, more resilient part of the portfolio. He described the project environment as constructive, particularly for power and nuclear, and noted a five-year low in Middle East energy projects with future funnel opportunities. Regarding pricing, Mr. Rowe explained that U.S. pricing has been aggressive due to tariffs, with sticky prices in the aftermarket, leading to a price-cost neutral or slightly positive outlook. He acknowledged project pricing remains competitive but Flowserve is selective in bidding for large pump projects.

Mike Halloran inquired about the current environment from a pipeline and funnel perspective, the underlying trajectory of orders and conversion, and how this aligns with Flowserve's long-term framework, specifically looking ahead to 2026. He also asked about pricing dynamics, market receptivity, competitive landscape, and the forward outlook for price-cost.

Answer

Scott Rowe, President and CEO, explained that aftermarket business remains strong with consistent bookings over $600 million, driven by high utilization rates and improved capture rates, with tremendous long-term growth potential. For original equipment (OE) projects, which now represent a smaller, more resilient portion of the business, the environment is reasonably constructive, with Q3 showing improvement over Q2. He highlighted significant growth opportunities in power and nuclear, and anticipated improvement in Middle East energy projects by 2026. Regarding pricing, Mr. Rowe noted sticky prices in the run-rate and aftermarket segments, especially in the U.S. due to tariffs, leading to a price-cost neutral or slightly positive outlook. Project pricing remains competitive, but Flowserve is selective in bidding to ensure value creation.

Mike Halloran asked about the global auto production outlook for the next year, ITT's expected outperformance, and the funnel conversion to orders specifically on the Industrial Process (IP) side, including customer sentiment.

Answer

Luca Savi, CEO and President, detailed Q3 auto production growth, with China up 9.7% and Europe/North America also up. He forecasted 2025 global auto production to be up 2% to 91 million vehicles, primarily driven by China, while Europe and North America are expected to be down low single digits. For 2026, he anticipates flattish to low single-digit growth, with ITT continuing to outperform the market by 360 basis points. Regarding the IP funnel, Mr. Savi noted it is sequentially up 22% in active quotes and up 9% year-over-year without energy projects, showing positive signs across North America, APAC, and Latin America, with green project opportunities also considerably up.

Mike Halloran inquired about ITT's perspective on global auto production trends for the upcoming year, specifically how the company anticipates tracking against the market baseline given its consistent outperformance metrics. He also asked for an update on the Industrial Process (IP) funnel, customer sentiment, and confidence in converting opportunities to orders.

Answer

CEO Luca Savi detailed Q3 global auto production, highlighting China's 9.7% growth, and provided a full-year 2025 forecast of 2% growth, primarily driven by China, with Europe and North America expected to be down. He projected a flattish to low single-digit increase for 2026, reiterating ITT's expectation to outperform the market by 360 basis points. Regarding the IP funnel, Mr. Savi noted a 22% sequential increase in active quotes and a 9% year-over-year increase excluding energy, with positive signs across North America, APAC, and Latin America, including a considerable rise in green project opportunities.

Mike Halloran from Baird asked about trends in residential discretionary spending, specifically regarding proactive water heater replacement. Halloran also inquired whether the pricing actions taken by A. O. Smith were sufficient to achieve price-cost positive or neutral margins, or if a gap would remain relative to inflation, particularly looking ahead to 2026.

Answer

Charles Lauber, Chief Financial Officer, stated that the proactive replacement rate remains resilient, consistently above 30% based on quarterly surveys, though it is continuously monitored. Regarding pricing, Lauber confirmed that price increases typically aim to cover margin plus cost, and while there's some pressure on Q4 margins, the company is currently comfortable with its price-cost relationship. He deferred further commentary on 2026 pricing until the next quarter.

Mike Halloran asked about trends in residential discretionary spending, specifically regarding proactive water heater replacements. He also inquired if current pricing actions were sufficient to achieve price-cost positive or neutral outcomes, considering inflation and tariffs.

Answer

Charles Lauber, CFO, stated that proactive replacement remains resilient, with survey results consistently above 30%, though they continue to monitor for developing trends. Regarding price-cost, he explained that price increases typically aim to cover margin plus cost, and while there's some pressure on Q4 margins, they are currently comfortable with their price-cost relationship. He noted the last price increase was effective in Q2.

Mike Halloran with Baird inquired about Franklin Electric's end market outlook for 2026, focusing on water markets, expected sequential trends, and the anticipated drivers of growth (volume vs. price). He also asked for clarification on the energy systems margin profile.

Answer

CEO Joe Ruzynski stated that U.S. and Canada water markets are expected to remain subdued but anticipate volume growth driven by innovation, channel partnerships, and new products. He noted more optimism for international water market growth. CFO Jennifer Wolfenbarger and CEO Joe Ruzynski clarified that energy systems margins are expected to be in the low to mid-30% range, with tariffs being the primary year-over-year impact in Q3, partially offset by a September price increase effective in December.

Mike Halloran inquired about Franklin Electric's end market outlook for the upcoming year, specifically focusing on sequential trends, the balance of volume versus price growth in core water markets, and the expected margin profile for the Energy Systems segment.

Answer

CEO Joe Ruzynski indicated expectations for a subdued but volume-growing U.S. and Canada market, driven by innovation and channel relationships, while expressing more optimism for international water market growth. CFO Jennifer Wolfenbarger clarified that Energy Systems' price increases in December and supply chain normalization should help offset tariff pressures, with operating margins expected in the low to mid-30s for next year.

Mike Halloran (Baird) asked about the underlying market dynamics for Xylem heading into 2026, seeking confirmation of expectations for normal-ish growth despite current China headwinds. He also inquired about Xylem's long-term strategy and management approach for the China market.

Answer

CFO Bill Grogan affirmed that the fundamental dynamics across all four segments remain strong for 2026, excluding China headwinds and a slight increase in "walkaway" revenue due to accelerated 80/20 initiatives. He highlighted resilient municipal demand and differentiated industrial technology. CEO Matthew Pine outlined Xylem's China strategy as staying the course but right-sizing the business for the current demand environment, including a significant workforce reduction (around 40%). He noted the market's hyper-competitiveness and will monitor it closely through the first half of 2026, with teams reallocating resources to align with market opportunities and technology.

Mike Halloran from Baird asked if there are any underlying marketplace dynamics that would prevent Xylem from achieving 'normal-ish' growth in 2026, beyond the known China headwinds. He also inquired about Xylem's long-term strategy for managing and addressing the China market.

Answer

CFO Bill Grogan affirmed that fundamental dynamics for all four segments remain strong, supporting normal growth, with the main headwinds being China and a slight increase in walkaway revenue from accelerated 80/20 progress. CEO Matthew Pine stated that Xylem is right-sizing its China business for the demand environment, including restructuring actions (e.g., 40% workforce reduction), while maintaining a long-term view but sizing for current market realities.

Mike Halloran inquired about the implied fourth-quarter outlook, specifically whether the expected growth inflection is driven by pricing, demand, or other factors, and when price-cost dynamics are expected to turn positive for Graco.

Answer

CEO Mark Sheahan clarified that the fourth-quarter guide implies hitting the low end of the low single-digit range, driven by incremental pricing actions, stable to better order rates in Q3, and easier year-over-year comparisons in the Contractor business, rather than a fundamental improvement in demand. He also stated that price-cost would definitely turn positive in Q4, noting Q3 gross margin was up excluding the Corab acquisition impact.

Mike Halloran inquired about the factors driving Graco's implied fourth-quarter growth guidance, asking if it stemmed from pricing, demand improvement, or other elements, given above-normal seasonality. He also asked when price-cost dynamics would turn positive and tariff drag would normalize.

Answer

CEO Mark Sheahan clarified that guidance implies hitting the low end of low single-digit growth, driven by incremental pricing, stable to better Q3 order rates, and easier Q4 contractor comparisons, not a fundamental demand improvement. He confirmed price-cost would turn positive in Q4, noting Q3 gross margin was up excluding the Corab acquisition.

Mike Halloran of Baird asked for details on the strategic rationale behind the ColorService acquisition and what catalysts are needed to improve customer confidence in the core construction and DIY markets.

Answer

President and CEO Mark Sheahan detailed that the ColorService acquisition was a strategic move into adjacent dosing technology, expanding their reach into new industries. Regarding construction, he identified improved housing affordability as the critical 'green shoot' needed to unlock significant pent-up demand.

Mike Halloran asked about the carryover pricing percentage into next year, assuming no further incremental price increases. He also inquired about any competitive benefits or notable dynamics observed due to tariffs, comparing Pentair's footprint to others in the industry.

Answer

CFO Bob Fishman estimated a 1% to 2% price carryover for next year. CEO John Stauch stated that competitive dynamics regarding tariffs are largely a common playing field, as companies chase similar commodities and access points. He noted Pentair's China purchases are reduced to approximately $100 million and emphasized efforts to find alternatives for future tariff challenges.

Mike Halloran asked about the carryover pricing into next year, specifically the percentage impact if no incremental price increases were implemented. He also inquired about any competitive benefits or notable competitive dynamics related to how tariffs are affecting Pentair versus others in the industry.

Answer

CFO Bob Fishman stated that the company expects a price carryover of 1-2 points into the next fiscal year. CEO John Stauch commented on tariffs, noting that all competitors are generally on a common playing field regarding supply chains and commodity access. He highlighted Pentair's success in reducing China purchases to approximately $100 million and expressed confidence in current mitigation strategies while actively seeking alternatives for potential future challenges.

Pez on behalf of Mike Halloran from Robert W. Baird & Co. Incorporated asked for details on the drivers of margin phasing in the second half and for an update on the M&A funnel, including how acquisition opportunities have evolved.

Answer

President & CEO Aaron Saak and SVP & CFO Christina Cristiano detailed the margin drivers. For CPI, H2 margins will benefit from a mix shift towards higher-margin gaming sales. For SAT, margins will accrete due to accelerated synergies from the De La Rue integration and normal seasonality. Regarding M&A, Aaron Saak expressed confidence in closing another deal within a year, noting the funnel is the healthiest it's been and that recent acquisitions have opened new adjacencies like ID verification.

An analyst from Baird, speaking for Mike Halloran, asked about the performance of the commercial business, specifically the pull-through of legacy Hayward products with ClorKing customers. The second question concerned the M&A pipeline and capital allocation priorities given the healthy balance sheet.

Answer

President and CEO Kevin Holleran expressed excitement about the commercial business, which has doubled in size since the ClorKing acquisition, with meaningful organic growth as well. He stated the goal is for commercial to become a double-digit percentage of the overall mix. On capital allocation, Holleran prioritized organic growth investments first, followed by M&A, noting a healthy pipeline of opportunities. SVP & CFO Eifion Jones added that the strong balance sheet and cash flow also allow for shareholder returns, referencing the new $450 million share repurchase authorization.

An analyst, on behalf of Mike Halloran, asked about the sales process for the new Nexa SaaS platform, customer adoption, and whether field testing has revealed new areas for future organic or M&A investment.

Answer

CEO Robert Pagano described the Nexa sales process as different from traditional sales, focusing on solving specific customer problems through strategic accounts and demonstrating value with a payback of less than one year in pilot programs. He confirmed that learnings from Nexa are informing new product development and helping sell core products. CFO Shashank Patel added that learnings from existing leak detection platforms were integrated into Nexa.