Rob Wertheimer

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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 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 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.

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.