Rob Wertheimer

Rob Wertheimer asked about the rationale behind increased investment in OmniX and connected pool technology, seeking an overview of the benefits for Hayward. He also requested a recap of the differences between fully wired, fully connected automated pools and what OmniX offers.

Answer

President and CEO Kevin Holleran highlighted the strong online ratings for Hayward's Omni system and the industry-wide opportunity to upgrade and automate the installed base. He explained that OmniX provides more tangible and affordable opportunities for automation, allowing pool owners to build out their automated ecosystem piece by piece as equipment naturally needs replacement. He emphasized that all new Hayward variable speed pumps now feature OmniX capability and universal communications, broadening the funnel by allowing them to integrate with competitive pool pads, thus expanding aftermarket opportunities.

Rob Wertheimer (Melius Research) inquired about the strategic timing and rationale behind Hayward Holdings' increased investment in OmniX and other technology developments. He also sought clarification on the specific benefits that connected pools and the OmniX ecosystem bring to Hayward as a company.

Answer

President and CEO Kevin Holleran explained that the investment in OmniX is driven by the significant opportunity to upgrade and automate the estimated 3.5 million unautomated pools in the U.S. He highlighted OmniX's affordability and its ability to enable piece-by-piece automation as equipment is replaced. Holleran emphasized that the universal communications capability in OmniX-enabled variable speed pumps broadens the aftermarket funnel, allowing integration with non-Hayward systems and expanding overall market opportunities.

Rob Wertheimer inquired about Allison's 2026 pricing expectations, inflation rates, competitive positioning amidst tariffs, and the level of detail for segment data disclosure, specifically regarding EBITDA or operating income for the core legacy business.

Answer

Scott Mell, Chief Financial Officer and Treasurer, indicated 2026 pricing would be 250-400 basis points, lower than prior years, and noted substantial inflationary pressures. He added that tariffs would be largely recovered through pricing but remain a net drag on margins. Fred Bohley, COO and Transmission Business Unit Leader, clarified that segment reporting would include net sales down through operating profit, with enough detail for EBITDA, but corporate cost allocation for segment margins was still in progress.

Rob Wertheimer asked about Allison's pricing expectations for 2026, the anticipated rate of inflation, the competitive landscape, and the impact of tariffs. He also sought clarity on the upcoming segment data disclosure, specifically if EBITDA or operating income would be reported by segment, and any embedded profit trends for the core legacy business.

Answer

Scott Mell, Chief Financial Officer and Treasurer, indicated pricing expectations for the Allison Transmission business unit to be between 250 and 400 basis points, acknowledging substantial inflationary pressures across people and material costs. He noted that tariff recovery would be a net drag on margins. Fred Bohley, COO and Transmission Business Unit Leader, clarified that Scott's pricing comments were specific to the Allison Transmission business unit. Scott Mell confirmed that segment data would be disclosed down through an operating profit level, with enough detail to derive EBITDA and some cash flow metrics.

Rob Wertheimer of Melius Research LLC inquired about the potential for future inorganic growth, such as bolt-on acquisitions, following the transformational acquisition of Dana's off-highway business.

Answer

G. Frederick Bohley, COO of Allison Transmission, explained that while the immediate focus is on integrating the Dana business and realizing synergies, the deal's expanded global footprint and market presence will create more opportunities for future bolt-on acquisitions. He emphasized that the transaction provides a larger platform for both organic and inorganic growth.

Rob Wertheimer questioned the profitability of mega projects, asking if margins are higher or lower given Herc's outsized market share and added value, noting that industry results often don't show higher margins. He also asked if the sequential fleet growth outpacing rental revenue growth from Q3 to Q4 was due to mix or if volume would eventually show management effects.

Answer

Aaron Birnbaum (President) explained that mega project margins depend on the initial equipment mix (specialty vs. general rental), but over a three-year project, margins typically align with the rest of the business. Mark Humphrey (SVP and CFO) confirmed an element of time utilization, expecting improving fleet efficiency in 2026, with revenue growth outpacing fleet growth in the seasonal component.

Rob Wertheimer of Melius Research questioned the profitability of mega projects, asking if margins are higher or lower given Herc Rentals' outsized market share and specialized capabilities, especially considering industry trends where margins don't always increase with a higher mix of mega projects.

Answer

Aaron Birnbaum, President, clarified that mega project profitability depends on the initial mix of specialty versus general rental equipment, but over a typical three-year project, margins align with the rest of the business. Mark Humphrey, SVP and CFO, added that fleet growth outpacing rental revenue in Q3-Q4 2025 was due to time utilization and fleet actions, with expectations for improved fleet efficiency and revenue growth exceeding fleet growth in 2026.

Rob Wertheimer asked for an update on customer attrition among former H&E Equipment Services Inc. accounts and whether dissynergies are now behind the company. He also questioned how rental rates compare post-acquisition and what actions are being taken to improve service levels and rental rates.

Answer

Larry Silber, President and CEO, confirmed that sales organization attrition has stabilized at normalized levels, with most positions backfilled and ongoing training for new sales associates. Aaron Birnbaum, SVP and COO, acknowledged that H&E Equipment Services Inc.'s pricing was lower than Herc's and that efforts are underway to move it upward using Herc's proprietary tools, which will be a gradual process. He also noted positive customer engagement with Herc's broader fleet breadth.

Rob Wertheimer sought an update on customer attrition among former H&E accounts, asking if dissynergies related to customer retention are now behind Herc Holdings Inc. He also questioned how rental rates stack up after a closer look at the acquired business and what actions are being taken to improve service levels and rental rates.

Answer

Larry Silber, President and CEO, confirmed that customer attrition has stabilized, with no further significant attrition expected beyond normalized levels. Aaron Birnbaum, SVP and COO, acknowledged that H&E's pricing was lower than Herc's upon acquisition and that Herc is actively working to move those rates upward using proprietary pricing tools and sales management efforts, a process expected to take time. He noted that while regional H&E customers have embraced Herc's broader fleet, local customers, affected by market disruptions, are being re-engaged through CRM and sales efforts, with confidence they will return over time.

Rob Wertheimer of Melius Research LLC inquired about Herc's fleet and capital expenditure strategy following the H&E acquisition, and sought clarity on the extent of revenue 'dissynergies' and the company's confidence in stabilizing the acquired business.

Answer

SVP & CFO Mark Humphrey explained that it is still 'early innings' and the immediate focus is on rightsizing the H&E fleet, with back-half 2025 CapEx increases dedicated to synergy-related fleet. SVP & COO Aaron Birnbaum added that employee turnover and anxiety at H&E have stabilized since the deal closed, mitigating further dissynergies, though Mr. Humphrey noted H&E still faces tough year-over-year comparisons.

Rob Wertheimer asked about the sequential revenue performance in power systems from Q3 to Q4, inquiring if it was due to capacity or timing issues. He also sought insights into evolving data center demand, specifically if there's a trend towards more behind-the-meter backup or design changes favoring/disfavoring diesel backup.

Answer

Jennifer Rumsey, Chair and CEO, attributed the sequential revenue dynamics to the 95-liter capacity expansion delivering benefits earlier in the year, typical year-end plant downtime, slight aftermarket softening, and negative impacts from India tariffs in Q4. She affirmed continued strong demand for diesel backup power from data center customers, with discussions centered on meeting multi-year needs.

Rob Wertheimer asked about the sequential revenue performance of power systems from Q3 to Q4, attributing any lack of growth to capacity or timing issues, and inquired about evolving data center design trends impacting diesel backup demand.

Answer

Chair and CEO Jennifer Rumsey explained that Q4 sequential revenue was impacted by early benefits from 95-liter capacity expansion, typical year-end plant downtime, slight aftermarket softening, and negative India tariffs. She confirmed continued strong demand for diesel backup power in data centers due to reliability needs.

Rob Wertheimer inquired about the engineering challenges of bringing natural gas engine platforms to larger sizes for prime power in data centers, and any recent shifts or evolutions in data center design or the use of backup versus prime power.

Answer

CEO Jennifer Rumsey explained that Cummins has strong natural gas engine capabilities, with development depending on market demand and a multi-year cycle. She emphasized that high reliability and backup power remain critical for data centers, with current exploration focused on peak shaving and additional prime power sources, including stationary energy storage solutions.

Rob Wertheimer asked for a detailed explanation of the engineering challenges and decision-making process involved in adapting Cummins' natural gas platforms for large engines suitable for prime power in data centers. Wertheimer also inquired about recent shifts in data center design, the role of backup power, and how the market has evolved over the past few months.

Answer

Jennifer Rumsey, Chair and Chief Executive Officer, explained that while Cummins possesses strong natural gas engine R&D capabilities, developing new large-engine products for data centers is a multi-year cycle. Rumsey emphasized that high reliability remains critical for data centers, ensuring backup power will persist. She noted that data centers are exploring prime power solutions, including peak shaving with existing products and stationary energy storage, as grid support becomes a challenge.

Rob Wertheimer of Melius Research inquired about the factors supporting Engine segment margins despite lower volumes and asked for an update on when to expect clarity on EPA 2027 regulations.

Answer

CFO Mark Smith attributed the resilient Engine margins to positive pricing on new light-duty products, stable product quality, and slightly higher joint venture income from China. Chair and CEO Jennifer Rumsey added that benefits from ongoing operational efficiency initiatives and prior restructuring also contributed to the performance.

Rob Wertheimer of Melius Research asked for more detail on the resilient Engine segment margins despite lower volumes, specifically probing the impact of pricing. He also sought an update on when the industry might get clarity on the EPA 2027 regulations.

Answer

CFO Mark Smith attributed the Engine margin performance to price increases on new light-duty products, stable product quality, and higher joint venture income from China. CEO Jennifer Rumsey added that benefits from ongoing operational efficiency programs and prior restructuring also contributed. Regarding EPA 2027, management's earlier comments indicated the timing for regulatory clarity is highly uncertain.

Rob Wertheimer of Melius Research sought clarification on the Q3 retroactive pricing agreement and asked what hyperscale data center customers are saying about the long-term role of reciprocating engines for backup power.

Answer

CFO Mark Smith and Executive Christopher Clulow clarified that the retroactive pricing was a localized, protracted negotiation in the light-duty business and not indicative of a broader shift in pricing power. CEO Jennifer Rumsey affirmed that for the next decade, reciprocating engines are expected to remain the primary solution for data center backup power due to their superior combination of lead time, cost, and reliability.

Rob Wertheimer asked for clarification on demand trends, specifically regarding off-highway strength, mixed signals in trucks, and any headwinds from distribution inventories, or if distribution should follow along with recovering cycles.

Answer

Mike Discenza (CFO) stated that the heavy truck market is not showing much life, and the on-highway sector is not a strength. While the off-highway order book is strengthening, it's not entirely broad-based, with agriculture still down despite positive signs in mining and construction. He added that distribution inventories are in a good spot, with no issues, and are expected to be a low single-digit contributor next year.

Rob Wertheimer asked for clarification on demand trends, specifically regarding the strength in off-highway, mixed signals in trucks, and any headwinds from distribution inventories.

Answer

Mike Discenza, CFO, clarified that the heavy truck market and overall on-highway sector are not showing significant strength. While the off-highway order book shows improvement, it's not broad-based, with agriculture still down despite positive signs in mining and construction. Distribution inventories are considered healthy, with no issues, and are expected to contribute low single-digit growth in 2026.

Rob Wertheimer followed up on CEO Lucian Boldea's 80/20 comments, asking if a deeper look at the portfolio revealed a wider dispersion in margin and growth than expected, or if certain areas, like the preference for 'engineer-to-engineer' over 'RFP business on volume scale,' were more obvious. He also inquired if the opportunities to expand acquired businesses globally, which hadn't been fully realized, were due to competitive blocks or simply a matter of prioritization.

Answer

CEO Lucian Boldea stated that the deeper dive revealed a significant degree of opportunity across different regions, markets, and business combinations, emphasizing that 80/20 is equally, if not more, about doubling down on successful businesses to accelerate top-line growth and improve mix. He acknowledged that businesses not meeting margin targets would also be addressed. Regarding the global expansion of acquired businesses, Mr. Boldea hypothesized that it was primarily a matter of prioritization, given the numerous initiatives underway. He clarified that these efforts were not entirely new but would be accelerated with a more deliberate, market-back approach, focusing on a few key businesses.

Rob Wertheimer asked for further insights into the 80/20 comments, specifically if the deeper look at the portfolio revealed a wider dispersion in margin and growth than expected, and inquired about the reasons behind unexploited opportunities to expand acquired businesses globally.

Answer

President and CEO Lucian Boldea stated that the deeper look revealed a significant degree of opportunity in different regions, markets, and business combinations, with many 'jewels' in the portfolio. He expressed excitement about doubling down on high-performing businesses to accelerate top-line growth and improve mix. Regarding global expansion, Mr. Boldea hypothesized that past limitations were due to prioritization and the sheer number of initiatives, and the 80/20 approach will accelerate and be more deliberate in expanding a few key regional businesses globally.

Rob Wertheimer asked for more detail on the revised outlook for the distribution market, current inventory levels, the nature of the services business, and the drivers behind the recovery in the renewable energy sector.

Answer

EVP and CFO Philip Fracassa explained the distribution outlook change was a cautious move, with channel inventories at healthy levels. He noted the services business is seeing some discretionary spend push-outs, and the wind energy strength was primarily in China, partly due to a pull-forward ahead of regulatory changes. President & CEO Richard Kyle added that price realization occurs faster in distribution, which positively impacts revenue.

Rob Wertheimer of Melius Research LLC questioned the change in the distribution outlook, asking about inventory levels, the nature of the services business, and the drivers behind the recovery in the renewable energy and wind sector.

Answer

EVP and CFO Philip Fracassa clarified the distribution outlook change was a cautious adjustment, noting channel inventories appear to be at good levels. He described the services business as mainly industrial repair, which can see discretionary spending pushed out amid uncertainty. He attributed the wind energy strength to a step-up in China, partly due to a regulatory pull-forward, but sees the market on a recovery path. President & CEO Rich Kyle added that price realization is typically faster in distribution.

Rob Wertheimer of Melius Research LLC asked for commentary on the weaker outlook for the distribution channel, current inventory levels, and the nature of the services business. He also inquired about the drivers of the recovery in the renewable energy sector, particularly in wind.

Answer

EVP and CFO Philip Fracassa explained the distribution outlook adjustment was a cautious measure, noting that channel inventories are at appropriate levels. He described the services business as primarily industrial repair, where spending can be deferred amid uncertainty. The wind energy strength was attributed to a rebound in China, which included some demand pull-forward from the second half. President & CEO Rich Kyle added that price realization occurs faster in the distribution channel.

Rob Wertheimer of Melius Research LLC questioned the more cautious outlook on the distribution channel, asking about inventory levels. He also sought details on the nature of project push-outs in the services business and the drivers behind the recovery in the renewables sector.

Answer

EVP and CFO Philip Fracassa clarified that the distribution outlook change was a minor, cautious adjustment, noting that channel inventories are at good levels. He attributed service business push-outs to delays in discretionary spending amid trade uncertainty. Regarding renewables, he confirmed a strong first half in wind energy, driven by China, but noted some of this was a pull-forward ahead of regulatory changes. President & CEO Richard Kyle added that price realization occurs faster in the distribution channel, which positively impacts its revenue.

Rob Wertheimer of Melius Research LLC questioned the change in the distribution market outlook, asking about inventory levels and the nature of project push-outs in the services business. He also sought details on the strength in the renewables and wind energy market.

Answer

EVP and CFO Philip Fracassa clarified the distribution outlook change was a minor adjustment reflecting caution, with inventories at good levels. He explained services push-outs are related to discretionary spend delayed by trade uncertainty. On wind energy, he noted a strong first half driven by China, partly due to a pull-forward ahead of regulatory changes. President and CEO Richard Kyle added that price realization is faster in distribution, which impacts its revenue figures.

Rob Wertheimer asked for IDEX's general thoughts on lithography drivers and the potential cycle, given the various ongoing developments in the sector. He also inquired about IDEX's pricing power within data center buildouts and how margins are expected to trend as orders from these applications convert into revenues.

Answer

Eric Ashleman, President and CEO of IDEX, clarified that IDEX's semiconductor business is under 10% of overall revenue, with a small single-digit portion in advanced lithography, primarily at the high end of the duty cycle. He noted that trade restrictions remain largely unchanged, but positive momentum is driven by chip builds for advanced AI and data center memory, leading to increased capital gear activity and positive order velocity, despite long lead times. Regarding pricing power in data centers, Eric Ashleman stated that it operates similarly to the rest of IDEX, focusing on high-critical, low-bill-of-materials items. Pricing strategies are based on material input recovery, and while the market is growing and mission-critical, the approach is not fundamentally different, resulting in very good flow-through on the business.

Rob Wertheimer asked for general thoughts on lithography drivers and the potential cycle. He also inquired about IDEX's pricing power and margin trends specifically for data center buildout orders.

Answer

Eric Ashleman (President and CEO) noted that IDEX's semicon business is under 10% of overall revenue, with a small single-digit portion in advanced lithography, where trade restrictions are largely unchanged. Positive momentum comes from chip builds for advanced AI/memory, increasing capital gear demand, though lead times are long. He stated that pricing dynamics in data centers are similar to other IDEX businesses, focusing on high-critical, low-bill-of-materials items and material input recovery, with good flow-through on business ramp-up.

Rob Wertheimer asked about Stanley Black & Decker's margin trajectory and drivers beyond 2026, specifically regarding the natural rate of inflation, whether productivity fully offsets it, and if future margin gains will be primarily price-led or driven by the 3% productivity tailwinds.

Answer

EVP, CFO, and Chief Administrative Officer Pat Hallinan explained that beyond 2026, the company targets gross annual savings of approximately 3% of its cost structure (~$300M). After accounting for wage/benefit inflation and net material inflation (primarily metals), this typically results in net savings of around $100M, allowing for choices between incremental margin expansion and brand investment. SG&A will be managed relative to volumes, and pricing will be driven by innovation, brand building, or in response to significant material inflation or tariffs.

Rob Wertheimer of Melius Research asked about Stanley Black & Decker's margin trajectory and drivers beyond 2026, specifically inquiring about the natural rate of inflation, whether productivity fully offsets it, and if future margin gains will be primarily price-led or driven by the 3% productivity tailwinds.

Answer

Pat Hallinan, EVP, CFO, and Chief Administrative Officer, explained that beyond 2026, the company targets gross annual savings of approximately 3% of its cost structure, or about $300 million. After accounting for wage, benefit, and material inflation (which tends to be net inflationary, driven by metals), this typically results in net savings of around $100 million. These net savings provide flexibility for incremental margin expansion or brand investment. SG&A will be managed relative to overall volumes, and pricing will be driven by innovation and brand building, or in response to significant material inflation.

Rob Wertheimer of Melius Research LLC questioned the performance of the outdoor products segment, asking if the weakness was due to market-wide trends or a loss of market share, and if this softness was impacting other consumer tool categories.

Answer

COO, EVP and President of Tools & Outdoor Christopher J. Nelson attributed the slow outdoor season to a late start caused by weather, but noted that POS activity has since become more robust. He stated the issue was market-related, not share-related, and expressed confidence in the company's share position with brands like DEWALT and Cub Cadet. He did not indicate a spillover effect into other tool categories.

Rob Wertheimer asked for insights into the Paragon acquisition, specifically what actions AMETEK took and what factors contributed most to the positive improvements seen in the business, as a way to understand AMETEK's approach.

Answer

Chairman and CEO David Zapico explained that AMETEK acquired a very good business in Paragon, which was undermanaged on the operational side. AMETEK improved operations, combined it with an existing AMETEK business with complementary capabilities, restructured it to be more customer-focused and P&L-aware, and applied AMETEK's global capabilities. He described this as a common playbook, with Paragon leading the way and FARO following.

Rob Wertheimer asked for insights into the positive improvements seen in the Paragon acquisition, seeking to understand what AMETEK has done and what aspects of its playbook have been most effective.

Answer

Chairman and CEO David Zapico explained that Paragon was a good business that was 'undermanaged on the operation side.' AMETEK improved operations, combined it with an existing business, restructured it to be more customer-focused, and applied its global capabilities. This playbook, which involves buying good businesses in known markets, leveraging existing capabilities, and focusing on operational improvements, is being successfully applied to Paragon and will be to FARO as well.

Rob Wertheimer of Melius Research asked about the drivers behind the strong Q4 margin performance and whether there were any observed impacts on laboratory or scientific instrument demand from changes in government policy.

Answer

Executive David Zapico attributed the strong margin performance, with core margins up 140 basis points, to AMETEK's operational excellence programs, good productivity, and positive price-cost mix. He noted that laboratory demand is currently very strong internationally, particularly in Asia, and sees potential pro-growth U.S. policies around energy, military spending, and equipment investment as positives for the company.

Rob Wertheimer asked for a technical explanation of the Monarch Compute Campus project, specifically how waste heat from Cat engines is used for cooling and how its efficiency compares to combined cycle turbines. He also inquired whether the project involves diesel backup or exclusively gas recips, and about the robustness of Caterpillar's quoting and activity pipeline for similar projects.

Answer

CEO Joe Creed explained that using waste heat for cooling makes the project more efficient and financially competitive, and Caterpillar works with customers to optimize these solutions. He noted that the latest projects, including Monarch and Joule, are moving towards all-natural gas solutions, often using fast-start gas gensets for backup rather than diesel. Creed emphasized Caterpillar's microgrid experience and diverse portfolio, allowing them to configure the best solution for each customer, and confirmed a growing pipeline of discussions for such projects.

Rob Wertheimer inquired about the Monarch Compute Campus project, specifically the use of waste heat for cooling and the efficiency comparison with combined cycle turbines. He also asked about the backup power solution (diesel vs. gas) and the robustness of the inquiry and quoting pipeline for such integrated power solutions.

Answer

CEO Joe Creed explained that utilizing waste heat for cooling enhances project efficiency and competitiveness. He noted that the JUUL project transitioned from diesel to gas-fired backup, and the latest Monarch order is also natural gas-based. Creed emphasized Caterpillar's diverse portfolio and microgrid expertise, enabling tailored solutions for customers, and confirmed a growing pipeline of inquiries and discussions for these projects.

Rob Wertheimer of Melius Research LLC asked if Caterpillar is booking orders against future reciprocating engine capacity and about the capacity situation at Solar Turbines for data centers.

Answer

CEO Joe Creed confirmed they are taking orders for data center applications that extend into the timeframe when new capacity will be online, based on long-term planning with customers. He also stated that Solar Turbines is seeing "unprecedented interest" for power generation and is currently able to keep up with demand while working to increase output.

Rob Wertheimer asked about the current status of service excellence investments, whether the company has reached peak investment, and if there are new technologies or tools being developed to enhance leadership in the service segment.

Answer

Judy Marks, Chair, CEO, and President of Otis Worldwide Corporation, discussed continued productivity from 45,000 field professionals, with ongoing provision of more tools and technology like inspection robots, AI tools for parts identification, and Otis ONE for predictive maintenance to improve first-time fix rates. She confirmed that the investment in service excellence is still underway and planned for 2026, involving applying more mechanics in underperforming locations to improve service and retain customers, expecting returns for many years.

Rob Wertheimer from Melius Research asked about Otis's service excellence investments, inquiring about the current state versus the desired state, whether more investment is anticipated, and the potential margin implications. He also asked if new technologies or tools are being developed to enhance leadership in the service segment.

Answer

Judy Marks, Chair, CEO, and President of Otis Worldwide Corporation, stated that Otis anticipates continued productivity from its 45,000 field professionals and will continue providing more tools and technology, including robot inspections, AI tools for parts identification, and Otis ONE for predictive maintenance to improve first-time fix rates. She confirmed that the investment in service excellence is still underway and planned for 2026, involving applying more mechanics in underperforming locations to improve service and customer retention, with returns expected for many years to come.

Rob Wertheimer of Melius Research LLC sought to reconcile management's comments on North American demand, asking for clarification on how strong order growth and a recovering multifamily market align with mentions of project delays.

Answer

CEO Judith Marks clarified that the project delays relate to the execution of the current backlog at job sites, where macro uncertainty around tariffs has caused some minor slowdowns affecting revenue timing. In contrast, the strength is in new orders, with four consecutive quarters of teens growth in North America. This strong order intake is building the backlog that will drive revenue growth in 2026 and beyond.

Rob Wertheimer of Melius Research LLC sought to reconcile the commentary on North America, asking for clarification on how the region could have strong backlogs while also experiencing project delays.

Answer

Chair, President & CEO Judith Marks clarified the distinction: the project delays are related to the *execution* of the current backlog at job sites, partly due to macro uncertainty around tariffs. This is separate from the *orders* trend, which has been very strong for four consecutive quarters, building a healthy backlog that will primarily benefit revenue in 2026.

Rob Wertheimer followed up on the discussion of cycle margins, asking if PACCAR's North American truck margins are expected to differ from historical averages over the next few years. He also requested PACCAR's European market share for the year.

Answer

CEO Preston Feight acknowledged the challenge of predicting long-term margins due to factors like USMCA negotiations. He emphasized PACCAR's focus on providing high-value trucks, leveraging new lineups, and utilizing connected truck data and agentic AI to enhance customer profitability. President Kevin Baney confirmed PACCAR's heavy-duty European market share was 13.5%.

Rob Wertheimer questioned whether PACCAR's truck margins in North America are expected to differ from historical averages in the coming years, considering its competitive and production position, and also asked for the European market share for the year.

Answer

CEO Preston Feight acknowledged the challenge of predicting long-term margins due to factors like USMCA negotiations. He emphasized PACCAR's focus on providing high-value trucks with the newest lineup, lowest cost of ownership, and leveraging connected truck data and agentic AI for customer profitability. President Kevin Baney stated that PACCAR's heavy-duty European market share was 13.5%.

Rob Wertheimer inquired about the impact of Section 232 tariffs on PACCAR's competitive position, considering competitor production and potential exemptions, and how and when rebates would flow through financials. He also asked about PACCAR's pricing strategy given the new clarity on tariffs.

Answer

Preston Feight, CEO, stated that Section 232 tariffs would benefit PACCAR's customers and improve PACCAR's competitive position due to its U.S. manufacturing base. He explained that tariffs would peak in October, with rebates gradually implementing from November 1st, achieving stability by early next year. Regarding pricing, Mr. Feight highlighted PACCAR's high-quality, fuel-efficient trucks and anticipated pricing opportunities as the less-than-truckload and vocational markets remain strong and the truckload sector eventually resumes replacement cycles.

Rob Wertheimer asked about the impact of Section 232 tariffs on PACCAR's competitive position and the financial flow of rebates, as well as the company's pricing strategy in light of new tariff clarity.

Answer

CEO R. Preston Feight explained that the Section 232 tariffs, effective November 1, will be beneficial for PACCAR's customers and improve the company's competitive position due to its U.S. manufacturing base. He noted that tariffs peaked in October and the full benefit of rebates would be realized by early next year. Regarding pricing, Feight highlighted the competitive market and PACCAR's high-quality products, anticipating pricing opportunities as the truckload sector recovers and replacement cycles resume.

Rob Wertheimer requested clarification on the cross-selling of industrial volumes from healthcare solutions and inquired about the general progress and ramp-up of cross-selling efforts within the healthcare segment.

Answer

CEO Jim Fish clarified that the industrial volume cross-selling referred to internalizing volumes that previously went to competitors. EVP and CFO Devina Rankin and EVP Enterprise Strategy and President Rafael Carrasco highlighted strong cross-selling progress, leveraging WM's National Accounts platform for healthcare and extending traditional solid waste services to WM Healthcare Solutions customers. They cited examples like a hospital customer increasing annual spend by $5 million and over 7,000 small and medium-sized customer cross-sales, emphasizing the value of becoming a single-source provider.

Rob Wertheimer sought clarification on whether the increased industrial volumes from WM Healthcare Solutions customers were considered cross-selling and asked about the general progress of cross-selling efforts in the healthcare segment.

Answer

Jim Fish (CEO) confirmed that the industrial volumes from WM Healthcare Solutions customers being internalized were indeed a form of cross-selling. Devina Rankin (EVP and CFO) highlighted strong cross-selling success, leveraging WM's National Accounts platform for healthcare customers. Rafael Carrasco (EVP Enterprise Strategy and President) provided specific examples, including a hospital customer increasing annual spend by $5 million and over 7,000 cross-sales to small and medium-sized customers, split evenly between original WM and Stericycle books of business.

Rob Wertheimer focused on the impressive gross margin performance, asking for more detail on what contributed to it, especially given headwinds from mix and material costs. He also inquired if contract escalation is a steady factor or if there was lumpiness in the quarter.

Answer

CFO John Olin explained that contract escalation primarily recovers costs, with timing differences sometimes creating a positive impact. He also cited a favorable mix from the higher gross margins of the Inspection Technologies acquisition. Olin emphasized that the biggest driver was the company running well, with a strong focus on cost and operational excellence, which is expected to continue into Q4 and 2026.

Rob Wertheimer commented on the impressive gross margin performance in the quarter, despite headwinds from mix and material costs. He asked for more detail on what contributed to the strong gross margin, specifically inquiring if contract escalation is a steady or lumpy factor and seeking comments on the Q4/2026 outlook.

Answer

CFO John Olin explained that contract escalation helps recover costs, with a positive timing impact in Q3, though it's typically an annual process with potential lags. He also cited a favorable mix from the higher gross margins of the Inspection Technologies acquisition. Olin emphasized that the primary driver was the company 'running well,' with strong operational excellence and a focus on cost across the enterprise, which he expects to continue into Q4 and 2026.

Rob Wertheimer of Melius Research LLC inquired about the potential industry dynamics and efficiency impacts of a hypothetical coast-to-coast rail merger.

Answer

CEO Rafael Santana explained that Wabtec views such a development as a significant opportunity for increased carloads and rail volumes. He elaborated that this would make rail more competitive against other transport modes, allowing it to win market share, which would be a positive outcome for both the industry and Wabtec.

Rob Wertheimer of Melius Research LLC inquired about the potential efficiencies or inefficiencies in the rail industry resulting from coast-to-coast operations, hinting at the impact of a potential major merger.

Answer

CEO Rafael Santana responded that Wabtec views potential consolidation as a significant opportunity. He explained that it would likely lead to increased carloads and rail volumes, making rail a more attractive mode of transport and ultimately creating a positive outcome for both the industry and Wabtec.

Rob Wertheimer from Melius Research LLC questioned if any residual inefficiencies from labor disruptions might affect second-half margins and if bonus depreciation would alter the company's CapEx strategy.

Answer

CFO Brian Delghiaccio confirmed there would be no residual margin impact, as all incremental labor disruption costs will be excluded from adjusted results. He stated that the second-half margin moderation is due to tougher year-over-year comparisons, not inefficiencies. He also explained that bonus depreciation does not change their steady and consistent approach to capital expenditures, as they follow a ratable asset replacement cycle.

Rob Wertheimer of Melius Research LLC asked if there are any residual margin inefficiencies from labor disruptions beyond the planned adjustments. He also questioned if the 100% bonus depreciation changes the company's appetite for CapEx.

Answer

CFO Brian Delghiaccio confirmed that the planned adjustments will back out the incremental costs, so no residual inefficiencies are expected to impact adjusted results. He explained that second-half margin performance is more about tougher year-over-year comps than current events. Regarding CapEx, Delghiaccio stated that bonus depreciation does not fundamentally change their steady, consistent, and ratable asset replacement strategy, as they would not retire an asset that still has remaining useful life.

Asked about the company's philosophy on AI development and releases, how the 'Connect and Scale' initiative has prepared them for AI, and how Trimble's data differentiates itself from competitors.

Answer

The CEO explained that AI is being deployed across all functions internally for efficiency and externally in products. The 'Connect and Scale' work was crucial for preparing their data infrastructure. Trimble's key differentiator is the breadth, depth, and density of its data, which uniquely combines the physical (hardware) and digital (software) worlds across entire industry lifecycles, providing a systemic view that competitors lack.

Rob Wertheimer asked about the root causes for delayed customer decision-making and whether this hesitancy extends to smaller projects or is confined to larger ones.

Answer

CEO Vicente Reynal attributed the delays primarily to uncertainty around tariffs and specific government funding acts affecting renewable energy. He clarified that the hesitancy is concentrated in larger, long-cycle projects, which are experiencing slower movement due to factors like spec changes or EPC resource constraints, rather than outright cancellations.

Asked about the competitive landscape in the refuse truck market, specifically the structural limitations of battery-electric alternatives, and inquired about the durability testing and customer importance of the new 200-kW stack.

Answer

The refuse market is highly attractive as battery-electric trucks face structural weight and payload limitations that more batteries cannot solve, an advantage that also extends to Class 8 transfer trucks. Durability is a top customer priority, and the 200-kW stack is undergoing rigorous testing to prove its long-term reliability, with a goal of 20,000 hours of life.

Asked about the nature of interest in other industrial markets (rail, stationary power), whether it's demand-pull or company outreach. Also questioned how customers are approaching California's clean truck mandates and whether they are benchmarking Hyzon against other fuel cell providers.

Answer

Parker Meeks confirmed that interest from other markets like stationary power and airport ground support is largely a demand-pull from strategic partners and customers with their own decarbonization goals. Regarding fleet strategy, he stated that customers are testing multiple solutions, including competitors' fuel cell trucks. Hyzon is confident this benchmarking works in its favor due to its technology's advantages in weight, volume, and cost, which enables a positive cash contribution margin.