Nicole DeBlase

Nicole DeBlase asked about short-cycle order trends during the quarter, specifically requesting details on regional performance and monthly cadence.

Answer

Mike Stepniak, SVP and CFO, reported that short-cycle orders performed well in the US, Middle East, and India throughout the year and in Q4. However, Europe and China, particularly for Industrial Automation, were 'just okay.' He anticipates high single-digit overall short-cycle orders for Q1, with mid-single digits for Building Automation and Aerospace, while Industrial Automation and Process Automation and Technology will continue to be monitored. Nicole DeBlase then asked about Industrial Automation margins, specifically the magnitude of expected year-on-year expansion in 2026. Mike Stepniak stated that Industrial Automation is expected to see close to 100 basis points of margin expansion, citing significant opportunities from productivity, pricing, and volume leverage.

Nicole DeBlase asked about short-cycle order trends during the quarter, specifically their regional performance and monthly cadence. She also inquired about industrial automation margins, particularly the magnitude of expected year-on-year expansion, given it's projected to be the greatest among all segments in 2026.

Answer

CFO Mike Stepniak noted that short-cycle orders performed well in the US, Middle East, and India throughout Q4, while Europe and China (specifically for industrial automation) were 'just okay.' For Q1, orders are expected to be high single digits generally, with mid-single digits for Building Automation and Aerospace, and continued monitoring for Industrial Automation and Process Automation & Technology due to slow catalyst conversions. Regarding industrial automation margins, Mike Stepniak stated that the segment is expected to achieve close to 100 basis points of expansion, driven by opportunities in productivity, pricing, and volume/demand leverage.

Nicole DeBlaise with Deutsche Bank asked how short-cycle industrial trends shaped up throughout Q3, specifically if they remained stable compared to the exit of Q2, or if there were any notable trends.

Answer

Chairman and CEO Vimal Kapur stated that short-cycle trends were better in Q3 compared to Q2, and similar trends are expected in the Q4 guide, indicating very similar dynamics in end markets between Q3 and Q4.

Nicole DeBlaise inquired about how short-cycle industrial trends developed throughout Q3, asking if they remained stable compared to the exit of Q2 or if there were any notable changes.

Answer

Vimal Kapur, Chairman and Chief Executive Officer, stated that short-cycle trends were actually better in Q3 compared to Q4 (referring to prior expectations for Q4), and similar dynamics are expected between Q3 and Q4, with no substantial quarter-on-quarter changes anticipated.

Nicole DeBlase asked about the quarterly cadence of EPS, specifically if the first half to second half revenue split is directly reflected in EPS or if it's more pronounced due to under-absorption in the first quarter. She also inquired about the competitive landscape regarding pricing, asking what competitors are aiming for in terms of price increases for 2026, given some noise about competitiveness in the new construction channel.

Answer

Michael Quenzer, CFO, confirmed that Q1 will be tougher for EPS due to absorption, but Q2 will see increased cost productivity to mitigate this. He reiterated that revenue is the primary driver for margins, with 35% decrementals offset by productivity and absorption. Alok Maskara, CEO, stated that based on current observations, competitors appear to be targeting similar price increases. He acknowledged some increased competitiveness in the low-end residential new construction (RNC) business, but emphasized that Lennox focuses on its core dealer network and competes on technology, availability, and service, noting that the industry remains disciplined overall.

Nicole DeBlase from Deutsche Bank asked about the quarterly cadence of EPS, specifically if the first half to second half revenue split is directly reflected in EPS or if it's more pronounced due to Q1 under-absorption. She also inquired about the competitive landscape regarding pricing, particularly in the new construction channel, and whether competitors are aiming for similar price increases for 2026.

Answer

CFO Michael Quenzer confirmed that Q1 will be tougher for EPS due to absorption, but Q2 will see more cost productivity to mitigate this. He reiterated that revenue is the main driver of margins, with 35% decrementals/incrementals offset by productivity/absorption. CEO Alok Maskara stated that competitors appear to be targeting similar price increases for 2026. He acknowledged some increased competitiveness in low-end residential new construction but emphasized that Lennox focuses on its core dealer network and competes on technology, availability, and service, maintaining industry discipline.

Nicole DeBlase asked for Scott Strazik's higher-level thoughts on the recent announcement from Trump pushing for an emergency power auction, and its potential impact on gas power demand, the U.S. market, and GE Vernova.

Answer

CEO Scott Strazik acknowledged the clear need to evolve market mechanisms to encourage new firm power generation capacity in the U.S. He noted that while the market is already moving (from 46 GW to 83 GW on contract in 2025, targeting 100 GW in 2026), GE Vernova is motivated to iterate with the administration for even faster growth, but emphasized that changing policy takes time.

Nicole DeBlase sought higher-level thoughts on Trump's recent announcement pushing for an emergency power auction and its potential impact on gas power demand, the U.S. market, and GE Vernova.

Answer

CEO Scott Strazik acknowledged the clear need to evolve market mechanisms to encourage new firm power generation capacity. He emphasized that the market is already moving regardless, as evidenced by GE Vernova's growing orders, but noted it's early for policy changes to happen overnight.

Nicole DeBlase asked about the cadence of cost synergy realization for the Prolec GE acquisition, what drives faster savings, and the impact of industry capacity expansion on pricing within the Prolec GE business.

Answer

CFO Ken Parks stated that cost synergies ($60-$120 million by 2028) would start flowing relatively soon after the acquisition closes in H1 2026, driven by G&A and design leveraging, without requiring large investments. CEO Scott Strazik added that Prolec GE's 25% EBITDA margins indicate it's already well-run, and some synergies might be 'reverse synergies' from learning Prolec GE's best practices. He expects synergies to cut in during 2027 and beyond, focusing on accelerating fulfillment and quality.

Nicole DeBlase asked about the cadence of cost synergy realization for the Prolec GE acquisition and the impact of industry-wide capacity expansion on pricing within the Prolec business.

Answer

CFO Ken Parks stated that cost synergies, estimated at $60 million-$120 million by 2028, are not expected to be a 'huge hockey stick' but will start flowing relatively soon after the anticipated H1 2026 closing, focusing on G&A, design, and leveraging best practices. CEO Scott Strazik added that Prolec GE is already a well-run business with 25% EBITDA margins, suggesting 'reverse synergies' from Prolec's practices. He expects synergies to materialize from 2027 onwards.

Nicole DeBlase inquired about the drivers behind the acceleration in order growth, particularly from a vertical perspective within Applied, and any color on data center order growth magnitude. She also asked about the quarterly cadence of organic growth for fiscal 2026, noting a projected deceleration in Q1 and how it progresses to mid-single digits for the full year.

Answer

CEO Joakim Weidemanis highlighted data centers, pharmaceutical/biologics manufacturing, large research campuses, and advanced manufacturing as key healthy growth verticals driving the record $15 billion backlog. He explained that the Q1 organic growth deceleration is primarily a 'compares issue,' with the first half expected to be lower than the second half, but the backlog and recurring service business provide good predictability for the full year's mid-single-digit growth.

Nicole DeBlase asked about the significant increase in CST orders, questioning if it signals a market rebound or easier prior-year comps. She also inquired about the performance of Europe commercial, which was down mid-single digits in Q3, and the reasons behind it.

Answer

CEO David Gitlin highlighted the tremendous performance of the container business, which was up 50% in Q3 and projected up 30% for the year, driven by share gains and new products. He noted North American truck trailer was flattish but expected good Q4 growth, though it's too early to call a strong rebound. For Europe commercial, Mr. Gitlin attributed the Q3 decline primarily to timing issues, expecting double-digit growth in Q4 and strong backlog for next year. He also mentioned that the rentals business was down due to year-over-year comparisons with the Olympics in Paris.

Nicole DeBlase of Deutsche Bank asked about the significant increase in CST orders, questioning if it signals a market rebound or easier prior-year comps, and sought details on container versus truck/trailer performance. She also inquired about Europe commercial's mid-single-digit decline in Q3, asking if it was a timing issue and about data center pursuits in the region.

Answer

CEO David Gitlin highlighted tremendous performance in the container business, up 50% in the quarter and projected up 30% for the year due to share gains from new products. He noted North America truck trailer was flat but moving in the right direction, while European truck trailer was down a few percent. For Europe commercial, he attributed the Q3 decline to a timing issue, expecting double-digit growth in Q4 and strong backlog for next year, driven by robust data center pursuits.

Nicole DeBlase asked about EMEA margins, specifically if Q3 was the low watermark, the path back to mid-20s margins, and whether this can be achieved through restructuring alone or if volume growth is essential.

Answer

CFO David Fallon confirmed that Q3 was likely the low watermark for EMEA margins. He expects a combination of sales acceleration in EMEA in Q4 (up mid-teens sequentially) and addressing operational inefficiencies (including those related to tariffs) to drive significant margin improvement in Q4. He noted that many supply chain actions to mitigate tariffs were put in place to address inefficiencies in EMEA, and their impact would be seen in Q4.