Nicole DeBlase

Nicole DeBlase of Deutsche Bank asked about the increased savings from the China transformation initiative and the potential carryover effect into 2026. She also requested details on the expected cadence of free cash flow for the remainder of the year.

Answer

EVP & CFO Cristina Méndez confirmed that the run-rate savings target for the China transformation has been raised from $30M to $40M, which will provide incremental savings in 2026. Regarding cash flow, she explained the full-year outlook was reduced due to a business mix shift toward service, which has less favorable working capital dynamics than new equipment. She noted this is a temporary effect and that second-half cash flow should be comparable to 2024 levels.

Nicole DeBlase of Deutsche Bank asked about the carryover savings from the China transformation program into 2026 and the expected cadence of free cash flow for the remainder of the year.

Answer

EVP & CFO Cristina Méndez confirmed that the China transformation's run-rate savings target was increased to $40 million, which will provide incremental savings in 2026. Regarding cash flow, she stated the second half will be similar to 2024, with the current weakness driven by a temporary business mix shift towards service, which has a different working capital cycle than new equipment.

Nicole DeBlase inquired about the path for EMEA margins to recover from their Q3 low point, specifically asking if mid-20s margins are achievable through restructuring alone or if volume growth is a necessary component for recovery.

Answer

CFO David Fallon stated that a combination of both volume growth and restructuring efforts will drive EMEA margin recovery. He anticipates a sales acceleration in EMEA in Q4, leading to improved operating leverage and significantly higher margins compared to Q3, also benefiting from addressing operational inefficiencies related to tariffs.

Nicole DeBlase asked about Vertiv's EMEA margins, specifically if Q3 was indeed the low watermark, the path back to mid-20s margins, and whether this recovery requires volume growth or if restructuring efforts alone can drive it.

Answer

David Fallon, CFO of Vertiv, confirmed that Q3 was anticipated to be the low watermark for EMEA margins. He stated that recovery would be a combination of both volume growth (with mid-teens sequential sales acceleration expected in Q4) and restructuring efforts. He also noted that addressing operational inefficiencies related to tariffs in EMEA would begin to show definitive impact in Q4, leading to significantly higher margins than Q3.

Nicole Deblase from Deutsche Bank asked for the key drivers that provide confidence in the significant step-up in adjusted operating margin implied by guidance between Q3 and Q4 2025.

Answer

CFO David Fallon attributed the expected improvement to two primary factors: first, the benefit of operational leverage from a projected sequential sales increase of over $200 million, and second, the anticipated resolution of the operational inefficiencies and execution challenges that impacted Q2 and Q3.

Nicole DeBlase from Deutsche Bank asked for the key drivers behind the guided margin trajectory, which implies a slight year-over-year decline in Q3 followed by a significant expansion of over 200 basis points in Q4.

Answer

CFO David Fallon explained the expected Q4 margin step-up is due to two primary factors: the benefit of operational leverage from a projected $200M+ sequential increase in sales, and the anticipated resolution of the operational inefficiencies and execution challenges that impacted Q2 and Q3.

Nicole DeBlase from Deutsche Bank inquired about Vertiv's ability to reprice its existing backlog to offset tariffs, the contractual levers available, and the general customer response to these discussions.

Answer

CEO Giordano Albertazzi confirmed that conversations with customers are ongoing where necessary. He noted that while contracts vary, there is generally a customer understanding of the unique tariff situation. He expressed confidence that the company has appropriately assessed the associated risks within its financial guidance.

Nicole DeBlase sought clarification on whether the flat Q4 order growth was an organic figure and asked if management could quantify its pipeline growth to provide more confidence in future order trends.

Answer

CEO Giordano Albertazzi confirmed the flat Q4 order growth was on an organic basis. While declining to provide a specific number for pipeline growth, he described it as 'robust' quarter-over-quarter and 'quite significant' year-over-year, noting that the visibility horizon has also extended, which supports the company's long-term plans.

Nicole DeBlase of Deutsche Bank asked for an update on trailing 12-month order growth expectations and questioned if current production capacity is sufficient to meet pipeline growth or if further expansions are needed.

Answer

CEO Giordano Albertazzi declined to provide a future range for TTM order growth but reiterated his optimism based on the strong pipeline. On capacity, he explained that it is constantly expanding through both new facilities, like the recently opened one, and continuous improvement via the Vertiv Operating System, which liberates capacity in existing factories. He expressed confidence in having the capacity to support growth.

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 capacity expansion, specifically whether the announced investment in the Pennsylvania Electrification plant was incremental to the 2028 plan and if there was any change in thinking about capacity on the Gas Power side.

Answer

CEO Scott Strazik explained that for Gas Power, the priority remains hitting the 20-gigawatt run rate in H2 2026 before considering further expansion. For Electrification, he confirmed growing confidence in ramping up production within existing factories through incremental investments in labor and shifts, as seen in Pennsylvania. He indicated that an updated revenue outlook for Electrification through 2028 would be provided after the company's strategy cycle.

Nicole DeBlase asked about capacity expansion, specifically whether the announced investment in the Pennsylvania Electrification plant was incremental to the 2028 outlook and if there were any changes to gas power capacity plans.

Answer

CEO Scott Strazik clarified that for Gas Power, the focus remains on reaching a 20 GW run rate by late 2026 before considering further expansion. For Electrification, he confirmed growing confidence in ramping up within existing factories via investments in labor and machinery, like in Pennsylvania, and stated that an updated 2028 revenue outlook would follow the company's strategy review.

Nicole DeBlase asked for a breakdown of the estimated $300-$400 million tariff impact, including the gross cost versus mitigation actions, and whether GE Vernova expects to fully offset these costs by 2026.

Answer

CFO Ken Parks explained the impact primarily stems from China and affects about a quarter of GE Vernova's direct spend. Mitigation includes contractual pass-throughs, moving supply chains, and accelerating G&A cost-out initiatives. CEO Scott Strazik added that the Offshore Wind business is most affected and that the company is using this as an opportunity to improve its industrial operations.

Nicole DeBlase from Deutsche Bank asked about the significance of the recent small modular reactor (SMR) announcement, including the potential for accelerated deployment and rising customer interest.

Answer

CEO Scott Strazik described the announcement as meaningful, as it brought in investor-owned utilities like Duke and AEP, expanding beyond government-owned launch partners. He noted strengthening customer interest globally, particularly in Japan, and opportunities for SMRs at existing nuclear sites. He clarified the first plant is still expected in 2029, with broader impact in the 2030s.

Nicole DeBlase asked for details on what is driving management's confidence in the expected acceleration of Power segment equipment orders during the fourth quarter.

Answer

CEO Scott Strazik cited strong momentum, with Power orders up 34% in Q3 and 14 gigawatts of gas turbine orders booked year-to-date, double the prior year's level. He confirmed expectations for Q4 to be the strongest orders quarter of 2024 and projected that 2025 orders would be similar to or modestly stronger than 2024, with a notable shift toward North American demand driven by hyperscalers.

Nicole DeBlase from Deutsche Bank questioned the drivers behind the significant increase in software gross margins to over 75% and asked if this level is sustainable. She also sought an explanation for the negative free cash flow in the quarter and the outlook for Q4, including the impact of CapEx for the new structure.

Answer

CFO Carol Hibbard attributed the software margin improvement to the scaling benefits from an increasing number of operational systems, confirming the 70%+ level should be sustainable. She explained the negative free cash flow was due to the timing of cash receipts and would recover in Q4. However, she guided for CapEx to approximately double in the next couple of quarters to support the manufacturing of the new storage structure.

Nicole DeBlase of Deutsche Bank asked about the unusual sequential revenue decline forecasted for Q3, questioning if it was related to acquisition timing. She also inquired if the current, higher operating expense level is the new run rate and asked for quantification on the expected SG&A step-down.

Answer

CFO Carol Hibbard explained the Q3 revenue guide is primarily a function of the lower number of system starts from a year prior, which are now in their heavy installation phase. She stated the current R&D level is a good run rate, but SG&A was elevated due to acquisition costs and is expected to step down by approximately $4 million to $5 million in the next quarter.

Nicole DeBlase of Deutsche Bank inquired about the expected magnitude of the Q2 operating expense increase and the reasons behind the gross loss in the Operations Services segment.

Answer

CFO Carol Hibbard projected a $5 million to $10 million sequential increase in Q2 OpEx, driven by long-term investments and recent acquisitions, which should moderate thereafter. Regarding Operations Services, she explained the loss was due to increased resource investment to support customers with large system go-lives, a situation expected to continue in the near term but at a lesser level, emphasizing the long-term focus on reliability.

Nicole DeBlase of Deutsche Bank asked for the reason behind the revised Q4 order outlook of 5-7% growth and questioned why Q4 margins are expected to be strong, contrary to typical sequential seasonality.

Answer

President & CEO Lal Karsanbhai characterized the 5-7% order outlook as strong, reflecting a mix of mid-single-digit process growth and a double-digit exit rate for discrete. COO Ram Krishnan explained that the strong Q4 margin outlook is due to the full benefit of tariff-related price actions taking effect, which only partially impacted Q3.

Nicole Deblase from Deutsche Bank noted the strong margin performance in the Electrical Global segment and questioned why the full-year guidance wasn't raised. She also asked about pipeline activity in Europe.

Answer

CFO Olivier Leonetti explained the decision to not raise the guide was based on prudence, though the long-term goal is to increase Global margins closer to Americas' levels through restructuring and portfolio actions. CEO Paulo Ruiz added that they are seeing traction on data center orders in Europe and 'green shoots' in the region's short-cycle business.

Nicole DeBlase questioned the slight shift in full-year EPS guidance, with the first half now representing 47% of the total versus 48% previously. She also asked about the moving parts of price versus volume in the guidance and whether volume expectations for the second half were reduced.

Answer

CFO Olivier Leonetti explained the $0.10 shift was due to corporate items like higher interest costs for the Fiber Bond acquisition and the timing of equity compensation, as well as a timing delay in recovering tariff impacts, which creates a $0.05 headwind in Q2. President and COO Paulo Sternadt clarified that the overall end market growth view is similar to before, with the company confident in its ability to outgrow the market due to its strong backlog, leading to the raised organic growth guidance.

Nicole DeBlase from Deutsche Bank questioned the modest 2025 margin expansion guidance for Electrical Americas given its strong performance, and also asked about the current M&A pipeline and areas of interest.

Answer

Paulo Sternadt, President & COO, explained that 2025 growth is more volume-driven with less pricing benefit, and margins will be impacted by start-up costs from new capacity additions. Regarding M&A, he reiterated that the company's focus remains on bolt-on acquisitions in its core growth areas of data centers, utilities, and Aerospace to accelerate organic strategy.

Nicole DeBlase from Deutsche Bank inquired about Eaton's business performance in China, noting that other companies have reported a worsening environment. She also asked for evidence supporting the view that short-cycle markets in Europe are bottoming out and potentially recovering.

Answer

Chairman and CEO Craig Arnold reported that Eaton's China business performed very well in Q3, with growth near double digits, which he attributed to specific company initiatives like new joint ventures. For Europe, he stated that the company believes its more short-cycle exposed markets have bottomed out. He noted seeing a 'little bit of lift' in some areas like distributed IT in Q3 and expressed a more positive outlook for MOEM and residential markets going forward.

Nicole DeBlase from Deutsche Bank followed up on the Commercial & Residential vertical, asking if its non-data center orders were also up high-single-digits and if there was potential upside to the flat full-year outlook. She also requested an update on nVent's service offerings for its liquid cooling solutions.

Answer

CEO Beth Wozniak confirmed that Com/Resi orders were positive but reiterated a cautious stance for the full year, particularly on the residential side, due to potential tariff impacts. Regarding services, she stated that nVent has always provided engineering support but is now formalizing and building out its service offering to support a broader customer base, expecting it to grow over time.

Nicole DeBlase inquired if the margin outlook holds for both business segments and how tariff impacts are distributed. She also asked for details on the company's pricing actions, such as whether they are list price increases or surcharges.

Answer

CFO Gary Corona stated there was nothing unique to call out between the segments, as both are deploying the same playbook to manage the dynamic environment, though System Protection will see differential growth in H2. CEO Beth Wozniak explained that pricing actions are actively managed, typically through list price increases to distributors, and that multiple increases may occur throughout the year as the situation is monitored.

Nicole DeBlase asked for an update on channel inventory levels following the Q4 destocking and requested that nVent quantify its COGS exposure to potential tariffs from Mexico, Canada, and China.

Answer

Chair and CEO Beth Wozniak indicated that after a Q4 inventory reduction by distributors, order patterns picked up in January, and with positive sell-out, she expects trends to improve. On tariffs, Wozniak stated that imports from China are minimal and covered. She noted that exposure to Canada is also minimal, while Mexico represents a low-teens percentage of COGS, which the company is managing through supply chain and pricing actions.

Nicole DeBlase asked if there were tangible signs of improving orders in Industrial and Commercial/Residential, or if 2025 optimism was more macro-driven. She also requested a holistic update on channel inventory levels.

Answer

CEO Beth Wozniak described order activity in those verticals as "stable," with the positive 2025 outlook based on an expected improvement in the macro environment post-elections. Regarding inventory, she noted that distributor sell-out has been stronger than sell-in, indicating distributors are cautiously managing their inventory levels, a situation she expects to normalize in 2025.

Nicole DeBlase asked for color on the Power Tools & Lifting business, where orders turned negative, and sought clarity on the implied organic order trend for the third quarter.

Answer

CEO Vicente Reynal stated there was no significant negative trend in Power Tools, highlighting strength in the material handling sub-segment and new product launches. CFO Vikram Kini declined to provide specific Q3 order guidance but noted that July's momentum was comparable to Q2's and that tariff clarity could provide a future boost.

Nicole DeBlase of Deutsche Bank asked if Q1 margins were negatively impacted by price-cost headwinds before the tariff-related pricing actions took effect in April. She also inquired about order activity and demand trends in Europe.

Answer

CFO Vik Kini responded that there was no dramatic price-cost impact in Q1, as the tariff issue is more of a Q2-forward dynamic and was partially offset by normal carryover pricing. CEO Vicente Reynal added that the company was very pleased with performance in Europe, which saw mid-single-digit organic order growth in the ITS segment during the quarter.

Nicole DeBlase inquired about the company's cost exposure to potential tariffs from Mexico and Canada and asked for an update on the performance of the legacy Ingersoll Rand medical business within the PST segment.

Answer

CFO Vik Kini explained that tariff exposure is limited due to their 'in region, for the region' manufacturing footprint and that mitigation plans are in place. CEO Vicente Reynal described the legacy medical business as 'fairly stable,' stating that the 2025 guidance does not assume a V-shaped recovery but rather a muted and stable performance.

Nicole DeBlase of Deutsche Bank noted that the Q4 EPS guidance implies lower sequential growth than historical seasonality and asked for the key drivers behind this.

Answer

CFO Marc Vandiepenbeeck explained the deviation is due to two main factors: a conservative view on the bottom-line impact from tariffs and a structural change in seasonality following the divestiture of the shorter-cycle residential business. He noted that while Q4 remains a healthy quarter for HVAC and Controls, the overall business is now less seasonal.

Nicole DeBlase asked if the company had raised its pricing expectations due to tariffs and whether it had embedded any volume contingency in its guidance given macro uncertainty.

Answer

CFO Marc Vandiepenbeeck responded that in Building Solutions, the focus is on value provided rather than a simple price/volume dynamic. He confirmed that the guidance does account for potential macro uncertainty, particularly for the roughly 25% of the business that is shorter-cycle in nature.

Nicole DeBlase inquired about the outlook for the company's backlog in fiscal 2025, asking whether the guidance assumes the backlog will decline from its current record levels or remain stable.

Answer

CFO Marc Vandiepenbeeck expressed confidence that the backlog will continue to improve. He cited the strong trend line and a healthy pipeline of opportunities, particularly in the data center vertical, as key drivers. This growing backlog provides high visibility and supports the company's mid-single-digit revenue growth forecast for the year.

Nicole DeBlase of Deutsche Bank inquired about order trends throughout the quarter and into July, particularly for short-cycle businesses. She also asked about future M&A plans and the company's appetite for more deals before the planned separations.

Answer

SVP & CFO Mike Stepniak reported that Q2 orders were up 6%, led by Aerospace, and that despite a softer June in some areas, July started strong with no major concerns about a slowdown. Chairman & CEO Vimal Kapur noted that while M&A activity is slightly slower due to current transactions, the pipeline remains strong, and the company is enhancing its capabilities in complex carve-out deals, which increases future optionality.

Nicole DeBlase from Deutsche Bank inquired about order trends throughout the quarter and into July, particularly for short-cycle businesses. She also asked about future M&A plans and the company's appetite for more deals before the spin-offs are complete.

Answer

SVP & CFO Mike Stepniak reported that overall Q2 orders were up 6%, led by Aerospace. While June was a bit softer for IA and ESS, July orders started strong, and the company does not see a slowdown. Chairman & CEO Vimal Kapur stated that while deal activity might slow slightly due to current integration and spin-off work, the M&A pipeline remains strong. He expressed confidence in Honeywell's growing capability to execute complex carve-out deals, which increases future optionality.

Nicole Deblase of Deutsche Bank asked about demand trends, specifically whether there was evidence of a tariff-related pre-buy in Q2, and if the company is seeing any 'green shoots' of recovery in Europe.

Answer

CEO William Brown responded that any pre-buy activity was not substantial, highlighting that Q2 orders were up low-single digits. Regarding Europe, he expressed cautious optimism but pointed to weak auto builds as a key watch item that could temper a broader recovery, even as the industrial business showed some growth.

Nicole DeBlase of Deutsche Bank asked if full-year expectations for G&A productivity and growth investments have changed. She also inquired about 3M's latest outlook for global auto builds and the electronics market for 2025.

Answer

CFO Anurag Maheshwari confirmed that the plan for a $225 million increase in growth investments remains on track. He noted that G&A saw structural efficiencies in Q1 that could provide further upside. CEO William Brown provided the market outlook, stating that global auto builds are now forecast to be down 1.8% for the year, a significant reduction from prior estimates. He expects the consumer electronics market to be flat to up low-single digits.

Nicole DeBlase asked for an outlook on China for 2025 and for an update on the progress of insurance recoveries related to legal settlements.

Answer

CEO William Brown stated that 3M expects slower, low-single-digit growth in China for 2025, down from ~10% growth in 2024, citing a slowing macro and potential tariff impacts. On insurance, he reported that 3M recovered about $170 million in Q4, bringing the full-year total to about $340 million, mostly for Combat Arms. He affirmed that the company is actively pursuing carriers to honor their commitments.

Nicole DeBlase of Deutsche Bank requested more details on the portfolio review, asking about the types of businesses considered non-core and their potential size. She also asked about business trends in China and the company's ability to benefit from stimulus there.

Answer

CEO William Brown explained the portfolio review is viewed through a strategic lens, focusing on where 3M's technology and innovation can create a competitive advantage. He mentioned a few small, non-material businesses are in the early stages of a sale process. Regarding China, which is about 10% of sales, Brown noted year-to-date growth of 11%, with mid-single-digit growth in Q3. Executive Bruce Jermeland later clarified that this strength was driven by electronics, not automotive.

Nicole DeBlase asked if the expected full-year margin decline would apply to both segments, given that the Electrical segment saw margin expansion in Q1. She also inquired about the current performance and outlook for the telecom business.

Answer

CEO Gerben Bakker confirmed that the dilutive mathematical effect of adding price to offset costs would be a headwind for the Electrical segment's margin percentage as well, despite strong underlying performance. EVP & CFO Bill Sperry stated that for the telecom business, sales declines are flattening, the order book is growing, and with easier comps, it feels like the business has inflected.

Nicole DeBlase from Deutsche Bank AG sought confirmation that channel inventory levels are in a good position and clarified that the Q4 outlook implies normal seasonality plus the deferred storm-related sales from Q3.

Answer

CEO Gerben Bakker confirmed directly that channel inventory is 'working out.' CFO William Sperry agreed with the Q4 outlook characterization, stating it would be 'seasonal plus a pickup from the storms.'

Nicole DeBlase's associate inquired about the company's confidence in accelerating revenue growth for the remainder of 2025 and asked if the pause in federal IIJA spending poses a risk to vocational vehicle demand.

Answer

CEO Ryan McMonagle expressed confidence, citing distinct drivers for the ERS and TES segments. He noted strong ERS demand and favorable comps, while for TES, he pointed to a record March and a backlog that grew by $51 million. McMonagle added that the company is not seeing any impact from the IIJA pause in its backlog or customer discussions, highlighting that customers can pivot to renting equipment, which plays to Custom Truck's strengths.

Nicole DeBlase of Deutsche Bank AG asked about the mechanics of the tariff-related price increases, questioning if they were surcharges or more permanent list price changes. She also inquired if the amount of restructuring for the year had changed and if the timing remained front-half loaded.

Answer

President and CEO Christopher O'Herlihy explained that the pricing actions are a mixture of both surcharges and list price increases, with the decision made at the divisional level based on market specifics. CFO Michael Larsen confirmed that the total amount and timing of restructuring have not changed, with the actions tied to the 80/20 front-to-back process and still expected to be 80% complete in the first half of the year.

Nicole DeBlase of Deutsche Bank AG asked about the expected quarterly cadence of the planned SG&A savings. She also inquired if the company has additional cost-cutting levers available, in either COGS or SG&A, should a more recessionary environment unfold.

Answer

EVP and CFO Pat Hallinan advised modeling the SG&A savings roughly flat across the remaining three quarters and confirmed the company has more levers to pull if needed, while stressing the importance of protecting critical growth investments. An executive added that ongoing supply chain transformation efforts provide further flexibility and support long-term margin goals, even as near-term priorities shift to tariff mitigation.

Nicole DeBlase asked about the current trends in input costs, noting that while steel is down, there are other factors, and questioned how these costs are impacting gross margins.

Answer

An executive, likely EVP and CFO Pat Hallinan, explained that the year's theme has been slightly down material costs offset by slightly up freight costs. He specified that U.S. ground freight has been higher and more persistent than expected, driven by labor and capital costs rather than fuel. This has resulted in some net inflation from freight, which is offsetting material tailwinds. For next year, the company expects a neutral price-cost environment.

Nicole DeBlase asked if the investment cycle for the emergency replacement sales force was complete and inquired about the company's plans for share buybacks for the remainder of the year.

Answer

CEO Alok Maskara confirmed the sales force investments were made last year and are now complete, with no more incremental investment required. Regarding capital allocation, CFO Michael Quenzer stated the company will continue buybacks for dilution and be opportunistic with further repurchases, while CEO Alok Maskara added to expect 'a lot more buyback' than last year, especially at current prices.

Nicole DeBlase inquired about the 2025 outlook for new construction versus replacement demand within the HCS segment and the expected directional margin trends for each business segment.

Answer

CFO Michael Quenzer stated new construction (20% of HCS) is expected to be flattish with potential upside from lower interest rates. He confirmed the overall company margin is guided to be flat, with Building Climate Solutions (BCS) margins expanding and Home Comfort Solutions (HCS) margins contracting year-over-year, driven largely by productivity benefits in BCS.

Nicole DeBlase of Deutsche Bank inquired why Q3 segment margins are guided to be flat sequentially, which is contrary to typical seasonal patterns. She also asked for an update on the order trend for short-cycle businesses during the quarter.

Answer

CFO Todd Leombruno explained that the flat sequential margin guidance is due to two factors: Aerospace margins are not expected to repeat Q2's record high, and the International segment faces currency headwinds. He noted that North American industrial margins are actually guided to expand. CEO Jenny Parmentier added that short-cycle order trends remained stable with no significant change.

Nicole DeBlase asked if there was any evidence of customers pre-buying ahead of tariffs contributing to the strong order rates. She also questioned if the company can continue to target 30-35% incremental margins into fiscal 2026.

Answer

Executive Jennifer Parmentier stated there was minimal evidence of pre-buy activity, attributing the order strength to longer-cycle projects. On margins, Executive Todd Leombruno affirmed that 30-35% incrementals remain the target the team is held accountable for, calling it a 'best-in-class' number. He noted performance can vary with top-line growth but expressed confidence in the team's ability to manage incrementals in any environment.