Mitch Moore

Mitch Moore inquired about the IPS segment, specifically the impact of polymer processing weakness on overall growth and expectations for 2026, including order intake and backlog. He also asked for clarification on the healthy implied growth for ATS in Q1, considering comps, underlying markets, and shipment timing.

Answer

CEO Sundaram Nagarajan indicated that polymer processing has troughed, with expectations for improvement and no longer being a drag on IPS results. CFO Daniel Hopgood explained that ATS's Q1 growth benefits from favorable year-over-year comps due to a slow start last year, combined with strong underlying demand and a robust backlog entering the new fiscal year.

Mitch Moore from KeyBanc asked about the expected performance of polymer processing within the IPS segment for fiscal 2026, contrasting it with other more stable parts of the business. He also sought details on order intake and its contribution to backlog for polymer processing. Additionally, he requested clarification on the drivers of implied healthy growth in ATS for Q1, specifically the impact of prior year comps, underlying market improvements, and shipment timing.

Answer

Sundaram Nagarajan, President and CEO, indicated that polymer processing has troughed, with expectations for improvement in the coming year, no longer acting as a drag on IPS results. Daniel Hopgood, Executive Vice President and CFO, explained that ATS's Q1 growth is driven by strong underlying demand, particularly in semi, and favorable prior-year comps due to a slow start in ATS last year, coupled with a stronger backlog entering the new year.

Mitch Moore asked about product mix in Q3, specifically if consumers are trading down to lower-tier products. He also inquired about the moving pieces contributing to Watsco's record gross margins in the third quarter, including mix benefits and OEM pricing.

Answer

Paul Johnston (EVP, Watsco Inc) confirmed a trend of consumers migrating to base models, such as 15.3 SEER in the South, throughout the year. Aaron J. Nahmad (President, Watsco Inc) highlighted the success of OnCall Air in helping customers sell higher-efficiency systems. Rick Gomez (VP of Corporate Development, Watsco Inc) attributed record gross margins to growth in the higher-margin non-equipment business, carryover benefits from springtime OEM pricing actions, and resilient transactional margins driven by maturing pricing optimization tools.

Mitch Moore asked about the product mix in the quarter, specifically if consumers are trading down to lower-tier products. He also inquired about the drivers behind the record gross margins in Q3, asking how much was due to mix benefits from other HVAC products versus carryover OEM pricing.

Answer

Paul Johnston (EVP, Watsco Inc) confirmed consumers have been trading down to base models (e.g., 15.3 SEER in the South) 'all year long.' Aaron J. Nahmad (President, Watsco Inc) highlighted OnCall Air's success, with over 70% of sales through the platform being higher than minimum efficiency standards, contrasting with the industry's 85% minimum standard sales. Rick Gomez (VP of Corporate Development, Watsco Inc) identified three contributors to gross margin expansion: growth in higher-margin non-equipment business, carryover benefit from springtime OEM pricing, and maturing AI-enhanced pricing optimization tools leading to resilient and slightly up transactional margins.

Mitch Moore of KeyBanc Capital Markets inquired if the 2024 synergy upside was a pull-forward or an increase to the total opportunity, and asked about the company's manufacturing footprint in Mexico amid potential tariff risks.

Answer

CFO Rob Rehard clarified that the 2024 synergy outperformance was a pull-forward from 2025, with the total opportunity remaining the same. CEO Louis Pinkham stated that over 30% of the direct labor force is in Mexico and a dedicated team is managing potential tariff impacts through a flexible global footprint, operational efficiencies, and potential price actions, citing past experience and their 'in region for region' strategy.

Mitch Moore asked about the specific factors that drove Q4 results above guidance and questioned the rationale for the flat sales guidance for the MTS segment in fiscal 2025, given signs of stabilization.

Answer

CFO Bob VanHimbergen explained that the Q4 beat was driven by stronger-than-expected revenue in both the APS segment (particularly FPM and aftermarket) and the MTS segment (injection molding in the Americas and India). He clarified that the flat MTS sales guidance for fiscal 2025 reflects caution due to interest rate uncertainty and market volatility, despite recent stabilization. He also highlighted that MTS margins are expected to improve due to realized restructuring benefits.