Mike Harrison

Mike Harrison requested initial thoughts on the 2026 outlook, specifically regarding top-line and bottom-line growth, considering the strong order book, backlog in key markets, and cost actions.

Answer

Jugal Vijayvargiya, President and CEO, expressed excitement about high-growth markets (semiconductor, energy, defense, space) with order rates up 20% YTD. He noted challenges in China but aimed to offset them with growth in other regions. He also mentioned monitoring the Philip Morris FDA approval for its impact on 2026 sales, expecting overall momentum to continue towards the 23% midterm EBITDA margin target.

Mike Harrison asked for details on the equipment downtime in the Performance Materials segment, including its nature, affected product lines, resolution status, and whether such disruptions are inherent to the business or can be mitigated. He also sought initial thoughts on Materion's top-line and bottom-line growth outlook for 2026, considering key growth markets and cost actions.

Answer

CEO Jugal Vijayvargiya clarified that the equipment downtime affected beryllium and non-beryllium materials in their largest plant, was mostly resolved, and they expected to catch up sales in Q4 and Q1. He acknowledged that such issues are more impactful in a vertically integrated business but emphasized focus on capital improvements and maintenance to improve operational reliability. Regarding 2026, he highlighted strong momentum in high-growth markets (semiconductor, energy, defense, space) with 20% order rate increases, aiming to offset challenges in China (down 20% YTD) and monitoring the Philip Morris FDA approval for potential impact.

Mike Harrison of Seaport Research Partners questioned if temporary factors drove the high Electronic Materials margins and if strength outside China was a positive mix factor. He also asked for an update on the new and old Precision Clad Strip facilities and inquired about the sustainability and drivers of the turnaround in the Precision Optics business.

Answer

CFO Shelly Chadwick confirmed that regional mix is a significant factor for Electronic Materials margins and that business outside of China tends to be a positive mix item. CEO Jugal Vijayvargiya clarified that the new Precision Clad Strip facility is fully equipped and ready for increased orders, while the legacy facility continues to produce for other markets. Regarding Precision Optics, he attributed the strong sequential improvement to leadership changes and structural cost actions, stating the goal is to continue this momentum and return the business to its historical 20%+ EBITDA margin levels over time.

Mike Harrison asked for more details on the role of AI in PPG's innovation process, specifically regarding the new AI-designed clear coat product.

Answer

Chairman and CEO Tim Knavish expressed excitement about AI's role, explaining that PPG uses AI tools to scrape over 100 years of proprietary formulation expertise. This allows for quicker optimization of product performance, competitive pricing, and faster market launches. The new clear coat is the first such product, with about 50 AI-commercialized products (new or optimized) expected by year-end across various businesses. CFO Vince Morales clarified that AI helps identify the best raw material composition at the lowest price.

Mike Harrison from Seaport Research Partners requested more details on the role of AI in PPG's innovation efforts, specifically regarding the development of the new Deltron Premium Glamour Speed Clear Coat.

Answer

Chairman and CEO Tim Knavish expressed excitement about AI's role, explaining that PPG uses AI tools to scrape over 100 years of proprietary formulation expertise to optimize product performance, competitive pricing, and speed to market. He noted that the clear coat is the first product developed this way, with about 50 products expected to be commercialized by year-end using 'formulation AI' for new products or optimization. Knavish highlighted AI's broader use for internal productivity and customer-facing speed. CFO Vince Morales clarified that AI helps identify the best raw material composition for optimal pricing and customer outcomes.

Mike Harrison asked for more details on the underlying market dynamics driving the strong organic growth in the Food and Beverage segment, inquiring whether new business wins were primarily from share of wallet with existing customers or new customer acquisitions.

Answer

Christophe Beck, Ecolab's Chairman and CEO, noted that 4% organic growth in Food and Beverage is strong and significantly outperforms the market, which is closer to flat. He attributed this to the unification of hygiene and water services, currently implemented only in North America. Beck explained that new business wins are a combination of gaining new customers and expanding share of wallet within existing ones. By offering combined water and hygiene solutions, Ecolab helps customers achieve higher quality, safer food, and reduced costs, while also monetizing digital technology and capturing value pricing from generated savings.

Mike Harrison asked for more detail on the underlying market dynamics in the Food and Beverage business, given its strong organic growth, and whether new business wins are primarily from share of wallet with existing customers via One Ecolab or from entirely new customer acquisitions.

Answer

Christophe Beck, Chairman and CEO of Ecolab, expressed satisfaction with the 4% organic growth in Food and Beverage, noting it significantly outperforms the market where consumer goods are closer to flat growth. He explained that the strong performance, achieved while increasing margins, is driven by the unification of hygiene and water services in North America under One Ecolab. Beck clarified that new business comes from a combination of gaining new customers and new plants within existing customers, as Ecolab's comprehensive offering helps them produce safer food, reduce costs, and allows for monetization of digital technology and value pricing.

Mike Harrison of Seaport Research Partners asked about the elevated cash balance on the balance sheet and whether it was expected to remain high.

Answer

Scott Kirkland, CFO, explained the Q2 cash balance was temporarily inflated by a $500M bond offering ahead of a ~$525M debt maturity in July. While cash remains high, he stated the company values the optionality it provides for disciplined investment in the business and opportunistic M&A, noting the net leverage of 1.7x is below their long-term target of ~2.0x.

Mike Harrison asked if moving the Healthcare business into the Institutional segment was merely a reporting change or if it involved deeper operational integration.

Answer

Christophe Beck, Chairman and CEO, confirmed the move formalizes an operational strategy that has been underway. After divesting the surgical business, the final step was to leverage Institutional's scale to better serve hospitals by combining food service and infection prevention. He noted the future focus for Healthcare will be on instrument reprocessing, a business model that aligns well with Institutional's strengths.

Mike Harrison requested more detail on contractor backlogs and visibility for the next three to six months, specifically asking which Paint Stores Group submarkets show more confidence versus caution.

Answer

President and CEO Heidi Petz pointed to the commercial segment, including multifamily starts, as showing some improvement and continued outperformance, though the company is looking for sustained positive signals. She noted that the sightline in this area is more like 9 to 12 months, with potential pickup in late back half of 2026 or early 2027, which is accounted for in the current commercial outlook.

Mike Harrison requested more detailed information on contractor backlogs and their visibility over the next three to six months. He also asked which submarkets within the Paint Stores Group are exhibiting more confidence and which are showing a more cautious outlook.

Answer

Heidi Petz, President and CEO, highlighted the commercial segment, including multifamily starts, as showing continued outperformance and some improvement in starts. However, she emphasized the need for sustained positive signals. She noted that their visibility in this area extends 9-12 months, with a potential pickup anticipated in late second half of 2026 or early 2027, which is already factored into their current commercial outlook.

Mike Harrison of Seaport Research Partners asked for more detail on the raw material baskets driving expected deflation in the second half and questioned if there was a risk of competitors cutting prices.

Answer

SVP of IR Jim Jaye identified petrochemicals like solvents and some resins as sources of deflation, while tariffs are causing pressure on packaging and certain pigments. He and CEO Heidi Petz dismissed concerns about price cuts, noting a major competitor actually raised prices mid-season and reiterating Sherwin-Williams' focus on value and pricing discipline.

Mike Harrison from Seaport Research Partners asked for details on the raw material baskets driving expected deflation in the second half and questioned the risk of competitors cutting prices in response.

Answer

SVP of Investor Relations James Jaye specified that deflation is expected in petrochemicals like solvents and some resins, while tariffs are causing pressure on applicators and certain pigments, leading to a flat outlook for the year. CEO Heidi Petz added that they are seeing competitors do the opposite—raising prices—and Sherwin-Williams will maintain its pricing discipline.

Mike Harrison asked about the nature of Axalta's cost reductions, distinguishing between structural and temporary/discretionary costs, and whether discretionary spend might return in the next year.

Answer

Carl Anderson, SVP and CFO, stated that the vast majority of cost actions taken over the last couple of years are structural reductions, enabling more efficient operations. He acknowledged some tactical, discretionary reductions (e.g., T&E) that might partially return next year. Anderson expects the conversion rate of incremental revenue to EBITDA to improve from 35% to closer to 40%, reflecting the stickiness of structural reductions.

Mike Harrison inquired about the margin performance in the Consumer and Specialties segment, specifically the 150-200 basis point decline year-over-year, and the factors contributing to it, including pet care discounting, mix, specialty additives volume, and temporary expansion costs. He also asked about the dollar amount and capacity expansion of the bleaching earth investment in Turkey, and the trends in working capital, particularly inventory levels in pet care and MGO.

Answer

CFO Erik Aldag stated that Consumer and Specialties margins were as expected, primarily impacted by temporary logistics costs from a U.S. cat litter plant upgrade. He clarified that discounting with retail partners did not negatively impact margins due to increased volumes and fixed cost leverage. CEO Douglas Dietrich added that margins are expected to return to and exceed last year's levels due to the cessation of temporary expenses, returning volumes, and accretive new contract volumes. Douglas Dietrich detailed the $9 million-$10 million bleaching earth expansion in Turkey, increasing capacity by about 30% to meet 20% annual growth, particularly in renewable fuels and sustainable aviation fuel. Erik Aldag explained that while AR and AP are stable, inventory is slightly elevated in pet care and MGO due to strategic positioning and river closures, but is expected to normalize by year-end, with strong Q4 cash flow anticipated.

Mike Harrison of Seaport Research Partners inquired about growth dynamics in the Household and Personal Care segment, the drivers of strong Q2 operating income in Engineered Solutions, and the company's capacity for M&A.

Answer

Chairman & CEO Douglas Dietrich and Group President D.J. Monagle detailed mixed conditions in Household and Personal Care, noting strong growth in specialty products but slower, more competitive conditions in pet care, which are being addressed with promotions and capacity expansions. CFO Erik Aldag and Dietrich explained that Engineered Solutions' Q2 outperformance was due to strong productivity and cost management, while the Q3 guidance reflects macro uncertainty and higher tariff costs. Dietrich confirmed the company's strong balance sheet provides flexibility for M&A.

Mike Harrison asked for more details on the increased marketing spend in the Consumer Group, including specific product lines and the impact of manufacturing inefficiencies from plant consolidations, seeking quantification and trend analysis.

Answer

Frank Sullivan, Chairman and CEO, clarified that increased marketing spend is primarily higher advertising, disproportionately focused on social media and e-commerce, particularly for cleaners and The Pink Stuff. Russell Gordon, VP and CFO, quantified manufacturing inefficiencies at approximately $10 million in unfavorable year-over-year conversion costs and absorption in Q1, expecting this to continue in Q2 due to ongoing plant consolidations, such as the Toronto facility transfer.

Mike Harrison of Seaport Research Partners asked about the key drivers of the Q4 outperformance, recent demand trends, whether inflation is primarily tariff-driven, and for guidance on FY26 depreciation, amortization, and CapEx.

Answer

Chairman & CEO Frank Sullivan attributed the strong Q4 to new product introductions in Consumer, double-digit growth in developing markets, and strong unit volume growth in PCG and CPG, viewing Q3 as a weather-related aberration. He estimated tariffs account for a significant portion of inflation. VP of IR & Sustainability, Matthew Schlarb, provided FY26 guidance of ~$200M for D&A and $220M-$240M for CapEx.

Mike Harrison asked for an update on the $55 million price versus raw material cost tailwinds for the year, how much has been realized, and the outlook for fiscal 2026. He also inquired about organic growth initiatives, cross-selling, geographic expansion, and growth potential across all segments.

Answer

CEO Celeste Mastin confirmed $15 million of the $55 million price/cost benefit was realized by Q3, with another $15 million expected in Q4 and the remainder ($20-25 million) in early next year due to slower cadence from inventory for footprint optimization. She highlighted rapid expansion of ND Industries products, strong medical adhesives performance (EBITDA doubled, revenue up 60%), and BAS's performance on a strong prior-year comp, with adoption of 4SG insulated glass sealant and Middle East expansion.

Mike Harrison asked for an update on the $55 million price versus raw material cost tailwind target for the year, including how much has been realized and how much is expected in fiscal 2026. He also inquired about the potential for accelerated growth in EA and other segments through organic initiatives and bolt-on acquisitions.

Answer

Celeste Mastin, President and Chief Executive Officer, clarified that $15 million of the $55 million price/raw material benefit was realized through Q3, with another $15 million expected in Q4, and the remainder in early 2026, attributing the slower cadence to higher inventory for footprint optimization. She highlighted the rapid expansion of ND Industries products into new geographies and the doubling of EBITDA and 60% revenue growth in medical adhesives technology, noting strong performance and geographical expansion in BAS.

Mike Harrison inquired about the progress on the $55 million pricing versus raw material cost tailwinds for the year, the amount realized, and the outlook for raw material costs into fiscal 2026. He also asked about organic growth initiatives, cross-selling, geographic expansion, and expected growth rates for EA and other segments.

Answer

Celeste Mastin, President and Chief Executive Officer, confirmed the $55 million target, with $15 million realized by Q3 and another $15 million expected in Q4, with the remainder in early next year, noting a slower cadence due to inventory for footprint optimization. She highlighted rapid expansion of ND Industries products, significant growth in medical adhesives (EBITDA doubled, revenue up 60%), and strong BAS performance including 4SG insulated glass sealant adoption and Middle East expansion.

Mike Harrison asked about monthly volume trends during Q2 and into June, seeking specifics on the timing of the pause in China exports. He also explored packaging trends, questioning if the strength in flexible packaging and weakness in end-of-line packaging was due to a market shift from cardboard to flexible formats.

Answer

President & CEO Celeste Mastin described Q2 volumes as consistently flat to slightly negative month-over-month, with some weakening in the Building Adhesives segment in May. She noted the China electronics pause occurred later in Q2 and may persist for another month or two. While acknowledging the shift to flexible packaging, she attributed H.B. Fuller's outperformance primarily to share gains driven by its ability to provide regulatory and supply chain solutions, and confirmed flexible packaging adhesives are more demanding, higher-value applications.

Mike Harrison from Seaport Research Partners inquired about the Performance Chemicals segment, specifically the drivers of margin pressure, including the mix of lower-margin products and the impact of rising oleochemical costs. He also asked about the sustainability of the exceptionally strong margins in Fuel Specialties and sought guidance on the overall earnings outlook for Q3.

Answer

President and CEO Patrick Williams explained that the Performance Chemicals margin pressure was partly due to a market shift to commoditized products but emphasized it was primarily an internal issue of pricing discipline that the company needs to fix. He confirmed rising oleochemical costs are a major driver and expects the margin lag to persist into Q3, with improvement likely in Q4. For Fuel Specialties, Williams attributed the strong margins to price discipline, favorable product mix, and growth in non-fuel applications, but noted that while margins will remain high, they will likely moderate from Q2's peak. He projected that in Q3, Fuel Specialties might come off slightly, Oilfield Services would be flat to slightly up, and Performance Chemicals would not improve until Q4.

Mike Harrison of Seaport Research Partners asked for quantification of the pure pricing component of average ticket growth and inquired about the nature of the eight store acquisitions in the quarter, as well as the pipeline for smaller deals amidst the pending Breeze transaction.

Answer

CFO J. Kevin Willis acknowledged a large franchisee's pricing action but highlighted premiumization and NOCR as larger growth opportunities. CEO Lori Flees added that while pricing is a contributor, no pervasive company-wide actions have been taken for new costs. Regarding acquisitions, she explained that six stores were a strategic transfer from a franchisee, and the other acquired stores were from multiple smaller operators. She confirmed Valvoline continues to pursue smaller acquisitions with strong returns.

Mike Harrison of Seaport Research Partners asked for an explanation for why European MDI is being imported into North America and inquired about the outlook for the MTBE joint venture in the second half.

Answer

Chairman, President & CEO Peter Huntsman expressed confusion about the European MDI imports, stating he couldn't imagine the rationale but confirmed it was happening. Regarding the MTBE joint venture, he indicated it would be a 'struggle' to see much improvement in the second half of the year.

Mike Harrison from Seaport Research Partners inquired about the drivers behind the 5% above-market growth, its sustainability, the factors causing margin weakness in Asia Pacific, and the expected earnings cadence for the second half of the year.

Answer

CEO Joseph Berquist attributed the growth to broad-based share gains, especially in Asia Pacific and with advanced solutions, stating confidence in sustaining a 2-4% above-market rate. He explained that Asia Pacific margins were impacted by new business incentives, product mix, and oleochemical costs, but expects modest improvement. Berquist and CFO Tom Coler projected a stronger second half driven by new business, cost actions, and acquisitions, without assuming market improvement, noting Q4 would likely not be sequentially higher than Q3 due to seasonality.

Mike Harrison of Seaport Research Partners requested more color on the specific growth drivers within the healthcare business and the typical qualification timeline for new materials. He also asked about current trends in China and potential warning signs for the second half.

Answer

President, CEO & Chairman Ashish Khandpur detailed that healthcare growth is strong (17% in Q2), driven by medical devices (e.g., glucose monitors), medical supplies (catheters), and drug delivery systems. He noted qualification timelines can range from 2-6 years for FDA-regulated products. Regarding China, Khandpur pointed to pressure on the Color business due to government-led "supplier structural reform," which is tightening credit. This is being offset by growth in the SEM business tied to high-performance computing and AI.

Mike Harrison of Seaport Research Partners asked for more details on the pheromones offering, the upcoming commercial pilot, and the long-term viability of the $1 billion revenue target by 2030.

Answer

Chairman and CEO Pierre Brondeau stated that a full-scale commercial pilot for pheromones is launching in the second half of 2025. He emphasized that the results from this pilot will be critical in assessing the realism of the $1 billion revenue target for 2030. A more definitive, fact-based update on this long-term outlook will be available after the current season's campaign concludes at year-end.

Mike Harrison from Seaport Research Partners inquired about quantifying one-time impacts in the Surfactants business, the margin pressure from raw material inflation, the timing of price recovery, and the effects of the new collective bargaining agreement at the Millsdale site.

Answer

Luis Rojo, President, CEO & Director, clarified that a $6 million impact included Pasadena startup costs, an environmental reserve, and a recoverable EPA fine. He highlighted significant raw material inflation, noting that recent price increases should help recover margins in the second half. Rojo explained the new collective bargaining agreement is a routine four-year event and mentioned an associated inventory build impacted cash flow.

Mike Harrison asked for details on the drivers behind the positive 5% price/mix in the Surfactants segment and its outlook for 2025. He also requested help establishing a normalized 2025 EBITDA baseline by clarifying the impact of numerous 2024 one-time items, and specifically questioned the expected Q1 impact from the Pasadena facility ramp-up.

Answer

President and CEO Luis Rojo attributed the strong Surfactant price/mix to high-single-digit growth with higher-margin Tier 2 and Tier 3 customers, as well as strong performance in the oilfield market. While declining to provide specific EBITDA guidance, Rojo noted that over $30 million in one-time negative events from 2024 should not repeat. He confirmed the Pasadena facility's pre-operating costs will continue in Q1 but will be offset by revenue and savings in the second half of 2025.

Mike Harrison inquired about current channel inventory levels in key regions, the specific drivers expected to lift EBITDA margins to the mid-teens target, and the anticipated earnings and margin cadence for 2025.

Answer

CEO Douglas Kaye stated that channel inventories are down, but customers are now buying 'just-in-time' due to capital costs instead of restocking. He outlined a path to mid-teens EBITDA margins by improving gross margins from 29% to ~32% and reducing OpEx as a percentage of sales from 26% to ~20%. He also projected that the second half of 2025 would be stronger than the first half, with lower margins in Q1 and Q2.