Robert Wertheimer

Robert Wertheimer asked how the current uncertainty around costs and demand affects M&A conversations and how AMETEK approaches valuation and closing deals in this environment.

Answer

CEO David Zapico explained that the approach is deal-specific, and while a deal with heavy China supply chain exposure might be delayed, their overall pipeline remains robust. He emphasized their long-term view and experience navigating such cycles, stating that they see opportunities arising and are actively working on deals despite some being sidelined by trade dynamics.

Robert Wertheimer sought clarification on whether the inventory destocking trend is expected to continue into next year and inquired about the M&A pipeline, specifically if seller hesitation is slowing down deal activity.

Answer

Chairman and CEO David Zapico explained that while order trends are positive, the destocking recovery will be a slow, gradual process rather than a sudden reversal, deferring specific 2025 guidance. On M&A, he described the pipeline as robust and stated his subjective read is that deal activity is accelerating as sellers adjust to the current economic environment.

Robert Wertheimer inquired about the drivers of the sequential decline in gross margin beyond price/cost dynamics and asked if PACCAR's leadership in the vocational segment provides a margin tailwind for the upcoming year.

Answer

CEO Preston Feight attributed the margin performance primarily to the stated price/cost factors and highlighted the strong customer demand for PACCAR's new products. He confirmed that the company's strength in the vocational market is a positive margin tailwind and noted that over half of the company's current inventory consists of vocational trucks at body builders, positioning them well for continued strength in that segment.

Robert Wertheimer asked if the potential positive impact from the Section 232 tariff investigation was relative to competitors or an absolute benefit for the industry. He also inquired about how PACCAR is managing pricing and production in the current dynamic environment.

Answer

CEO Preston Feight responded that the impact from the Section 232 investigation could be both a relative advantage for PACCAR and an absolute benefit. Regarding the dynamic environment, he emphasized that the situation is fluid and the company is working collaboratively with suppliers, dealers, and customers to manage pricing and production.

Robert Wertheimer sought insights on gross margin trends and new truck pricing, given the stabilizing used truck market. He also asked about the potential for hybrid trucks and whether there is genuine customer demand beyond regulatory drivers.

Answer

CEO Preston Feight noted the Q1 gross margin guidance of 15.5%-16% reflects stability and sees an improving trend as truckload carriers return to the market. President and CFO Harrie Schippers added that low used truck inventory is a good leading indicator. On hybrids, Feight explained they could offer double-digit fuel efficiency gains, creating a business case for customers that could be further incentivized by regulations.

Robert Wertheimer asked for details on Deere's Software as a Service (SaaS) offerings, including the specifics of the 'Precision Essentials' product, the pipeline for new features, and the number of current SaaS models.

Answer

Josh Rohleder, Manager of Investor Communications, outlined three main SaaS buckets: foundational precision digital technologies, usage-based solutions like See & Spray, and future autonomous solutions. Josh Jepsen, CFO, added that these may be bundled in the future to focus on production system outcomes. Chairman and CEO John May noted the pipeline involves expanding current platforms to new crops and geographies and extending the tech stack to other segments like road building.

Robert Wertheimer inquired about farmer profitability at current commodity prices, asking for insights on the financial health of large, first-buyer customers versus the used equipment buyers needed to clear inventory.

Answer

Executive Josh Rohleder noted that profitability varies widely based on factors like land ownership and technology adoption, which can improve profitability by nearly $0.50/bushel. CFO Josh Jepsen added that ag fundamentals have improved quarter-over-quarter, with global grain consumption outpacing supply and stocks-to-use ratios at 20-year lows, creating a favorable setup.

Robert Wertheimer requested further commentary on the used equipment market, asking if there are early signs of customers trading up and how dealer used inventory balances are expected to progress throughout 2025.

Answer

An executive noted that used inventory levels stabilized in Q4 despite it being a heavy trade-in period, with Q1 presenting a good opportunity to drive levels down further. Cory Reed, President of Worldwide Agriculture & Turf, added that better-than-expected farm yields are supporting profitability and that demand for late-model used equipment is being driven by the need for precision technology like high-speed planting, encouraging farmers to re-enter the market.

Robert Wertheimer of Melius Research LLC inquired about the stickiness of Trimble's software, asking if there has been any change in churn for smaller customers and how the company plans to gain share in a potential downturn.

Answer

Executive Robert Painter affirmed the software's stickiness, noting that AECO's net retention has held steady at approximately 110% and that the company is seeing strong growth, not churn, in its small and midsized customer base. In a downturn, he believes Trimble is well-positioned to gain share as smaller, feature-focused competitors may struggle to secure funding, while Trimble's strong balance sheet and go-to-market engine provide a distinct advantage.

Robert Wertheimer asked about the stickiness of Trimble's software business, specifically regarding churn among smaller customers during a construction slowdown. He also sought expanded comments on how Trimble could gain market share in a downturn.

Answer

CEO Robert Painter confirmed the software's stickiness, noting that the AECO segment's net retention has held steady at about 110% and that growth has been strong among small and midsized customers. In a downturn, he believes Trimble is positioned to gain share as smaller, less-capitalized competitors struggle, creating opportunities for Trimble to win customers or make strategic tuck-in acquisitions.

Robert Wertheimer of Melius Research asked for a strategic overview of the Transportation and Logistics segment following the mobility business divestiture and inquired about the specific growth drivers for the Transporeon business.

Answer

Executive Robert Painter stated that the mobility divestiture improves the segment's growth and profitability metrics and simplifies focus, while maintaining a key commercial relationship with the new entity. He attributed Transporeon's strong performance to significant bookings growth, particularly from new logos and cross-selling, driven by AI-powered products like autonomous procurement. He noted that realizing full revenue potential in 2025 will also depend on an improvement in the European freight market.

Robert Wertheimer asked for a strategic overview of the Transportation and Logistics segment after the mobility business divestiture and inquired about the drivers behind Transporeon's impressive results.

Answer

Executive Robert Painter stated that divesting the mobility business simplifies the T&L segment, improves its financial metrics, and allows for greater focus. He attributed Transporeon's success to strong bookings from winning major new logos and cross-selling, which positions the business for future growth once the European freight market improves.

Asked for a high-level perspective on the Transportation and Logistics segment after the mobility divestiture and inquired about the strategic growth drivers for the Transporeon business beyond a market recovery.

Answer

The mobility divestiture improves the segment's financial metrics and allows for greater focus. An ongoing commercial relationship will be maintained. Transporeon's growth is driven by strong bookings from new logos and cross-selling. However, significant revenue acceleration in 2025 will depend on a freight market recovery in Europe, so modest growth is expected.

Robert Wertheimer asked about Cummins' data center business in China, including how the market is served and the geographic momentum of the global data center market.

Answer

CEO Jennifer Rumsey explained that data center growth drivers are global, with the U.S. and China being key markets. She confirmed Cummins serves the China market through local plants, including joint ventures. Executive Christopher Clulow specified that backup power for Chinese data centers primarily uses 60-liter engines from the Cummins Chongqing joint venture plant.

Robert Wertheimer asked if Cummins sees an opportunity to create more recurring revenue from its data center engines. He also inquired about the drivers of the Power Systems segment's excellent results, seeking to understand the split between the data center surge and internal operational improvements.

Answer

Chair and CEO Jennifer Rumsey acknowledged that while data center engines are currently used for backup power, there is a potential shift as power shortages grow, and Cummins is strategically considering its role. Both Rumsey and CFO Mark Smith emphasized that the segment's profitability is due to both the data center demand surge and a multi-year effort on improving operating performance and supply chain management.

Robert Wertheimer of Melius Research asked how increased market uncertainty is affecting M&A conversations, the company's willingness to close deals, and the overall outlook for acquisitions in 2025.

Answer

CEO Vicente Reynal stated that the M&A funnel remains very strong, with a continued focus on disciplined, bolt-on acquisitions. He noted that market uncertainty can be an opportunity, as it encourages family-owned companies to seek a stable home like Ingersoll Rand. He emphasized that the company's 'in-region for-region' strategy and ownership model remain attractive to sellers, and due diligence accounts for the current macro environment.

Robert Wertheimer asked for a broader perspective on the China market, noting that the Q4 weakness seemed related to order timing rather than a macro slowdown.

Answer

CEO Vicente Reynal characterized the China market as stable, with order rates holding steady from the first half to the second half of 2024. He noted that 2024 faced tough comps from 2023's stimulus-driven investments and highlighted that the company is successfully pivoting investments to other Asian regions like Vietnam and Australia, which are showing strong momentum.

Robert Wertheimer asked about the remaining opportunity for margin expansion, given the extraordinary performance, and whether the company's focus is shifting more towards growth than margin.

Answer

Chairman and CEO Vicente Reynal emphasized the company focuses on both growth and margin, or "the power of the and." CFO Vik Kini added that while the ITS segment has seen significant gains, there is now more outsized opportunity for margin improvement in the PST segment, aligning with their Investor Day targets.

Robert Wertheimer questioned how the Section 232 investigation into truck supply chains might advantage Allison's regional supply footprint and also asked for an update on market dynamics for medium-duty trucks.

Answer

CEO David Graziosi stated that Allison is well-positioned for any supply chain shifts due to its strong U.S. manufacturing footprint for the North American market. Regarding medium-duty trucks, he confirmed that the market has softened as anticipated in their February forecast, with inventory levels having been well-supplied, and this view remains unchanged.

Robert Wertheimer asked about the capital allocation plans for 2025, particularly regarding cash returns to shareholders, and inquired about any unique factors driving the 2025 cash flow guidance.

Answer

G. Bohley, COO, CFO & Treasurer, affirmed that the capital allocation strategy remains consistent: funding organic growth, evaluating strategic M&A, and returning capital to shareholders. He emphasized that with the stock viewed as undervalued, share repurchases are considered a very good use of cash. No unusual items were noted for the 2025 cash flow guidance.

Robert Wertheimer asked about the company's capital allocation strategy, pointing to the high cash balance and questioning if there was a deliberate pause in the aggressive share buyback program.

Answer

CFO Fred Bohley reiterated Allison's established capital allocation priorities: funding organic growth, pursuing acquisitions, and returning capital to shareholders. While acknowledging the cash balance is higher than historically, he characterized it as a matter of timing and affirmed the long-term commitment to return excess cash to shareholders rather than maintain a permanently higher balance.

Robert Wertheimer inquired about the conflicting signals in the Construction Industries segment, such as minimal dealer inventory build despite strong sales, negative pricing, and expectations for flat full-year dealer inventory. He sought clarity on customer and dealer sentiment.

Answer

Joe Creed, COO and incoming CEO, clarified that successful merchandising programs drove stronger-than-expected sales to users, which absorbed the anticipated dealer inventory build. This strength is now leading to increased dealer orders and backlog growth. He stated that this will likely alter the typical seasonal pattern, with less inventory reduction in the second half of the year. Creed characterized customer sentiment as one of 'cautious optimism,' a view supported by his recent meetings with dealers.

Robert Wertheimer of Melius Research requested an outlook on Caterpillar's large and diverse oil and gas business, with a specific focus on the current cycle for gas compression.

Answer

Executive D. Umpleby projected moderate growth for the total oil and gas business in 2025. He noted that while reciprocating engine services might be slightly down, the Solar Turbines business has a very healthy backlog and strong order activity, particularly for gas transmission and compression in the United States.

Rob Wertheimer asked for an overview of the power generation opportunity for Solar Turbines, including applications and whether the business has enough capacity to meet growing demand.

Answer

Chairman and CEO Jim Umpleby confirmed a growing power generation business for Solar, driven by demand for trailerized units from rental fleets serving grid stabilization, utilities, and data centers. He stated that Solar is not capacity constrained and can increase production. He also highlighted the new, larger Titan 350 gas turbine, which will allow Solar to compete for projects in a higher power range than before.

Robert Wertheimer asked for more detail on key margin drivers, specifically seeking to understand if the fleet repositioning costs are temporary and if the margin drag from the specialty rental mix is expected to continue.

Answer

Executive Matthew Flannery explained that fleet repositioning costs have increased due to relocating equipment to serve large projects, a shift from prior periods of broad-based growth. He noted the future of these costs depends on demand location. Executive William Grace detailed the mix impact, stating that higher-growth ancillary services within specialty, while profitable and strategic, have a dilutive effect on overall margins, attributing a significant portion of the Q1 margin decline to this dynamic.

Robert Wertheimer inquired about the company's IT investments, asking about the strategy, expected payback, and specific goals for the technology spending.

Answer

Executive William Grace explained that the company is making strategic investments in areas like AI and advanced telematics to enhance efficiency and the customer experience, which has a near-term impact on margin flow-through. Executive Matthew Flannery added that the company will not sacrifice these crucial long-term investments for short-term margin targets, underscoring a focus on sustainable value creation.

Robert Wertheimer inquired about the tangible effects of North American market uncertainty on Wabtec's business pipeline, specifically asking if it's impacting customer appetite for new locomotives versus modernizations.

Answer

CEO Rafael Santana acknowledged that North America is lagging international markets but emphasized the company's strong international momentum, profitability, and pipeline. He noted that customer behavior is specific, with some investing in new Tier 4 locomotives rather than just modernizations. Santana stressed that Wabtec manages a global business and can shift volumes, focusing on delivering the 2025 guidance and driving profitable growth into 2026.

Robert Wertheimer of Melius Research LLC inquired about Wabtec's new 5-year long-term framework, questioning the basis for the increased margin improvement target of over 350 basis points and the strategic role of pricing power within the revenue growth forecast.

Answer

CEO Rafael Santana affirmed that strong business fundamentals and an aging North American fleet create significant opportunities to price for value. CFO John Mastalerz added that the new 5-year plan uses 2024 as its base and that the company sees more margin opportunity today than it did three years ago. He detailed that approximately two-thirds of the margin expansion will stem from cost management, including Integration 3.0 and lean initiatives, with the remaining one-third driven by innovation and value-based pricing.

Robert Wertheimer sought clarification on whether the new Kazakhstan order was included in the Q3 backlog and asked for an assessment of the current pre-order pipeline strength.

Answer

CFO John Olin confirmed the $405 million Kazakhstan order is included in the reported Q3 backlog. CEO Rafael Santana described the overall business pipeline as strong, with double-digit order growth year-to-date, particularly in international markets, providing momentum into 2025 and beyond. He reiterated the long-term growth outlook.

Robert Wertheimer questioned the drivers behind the Q1 EBITDA margin decline and the revenue scenarios needed for margin improvement. He also asked if lower Q1 CapEx signaled a more cautious fleet deployment strategy.

Answer

CFO W. Humphrey clarified the margin pressure was expected in the seasonally low Q1, attributing it to one less calendar day and tougher comps on insurance costs and local market weakness. He stated the lower Q1 CapEx was not a signal of caution but a reaction to choppy demand in January and February, expecting spending to accelerate in Q2.

Robert Wertheimer questioned Herc's 2025 guidance, asking why the adjusted EBITDA growth midpoint is lower than the rental revenue growth midpoint and whether the company can continue to offset high equipment inflation with rental rate increases.

Answer

CFO W. Humphrey explained that total revenue is expected to grow slower than equipment rental revenue due to stable disposal levels, which pressures the EBITDA growth rate. He added that over the last four years, the company's pricing lifts have successfully offset fleet inflation, viewing it as a long-term equation rather than a single-year issue.

Robert Wertheimer asked for the rationale behind increasing the CapEx guidance, questioning if it signals strong absorption from mega projects or a view of industry supply constraints. He also requested a precise definition of 'fleet efficiency'.

Answer

COO Aaron Birnbaum explained that the higher CapEx aligns with stronger revenue guidance and the specific fleet mix needed for accelerating mega projects. CFO W. Humphrey added that achieving organic fleet efficiency year-to-date supports the investment. CEO Lawrence Silber defined fleet efficiency as achieving revenue growth that outpaces fleet growth on an OEC basis.

Robert Wertheimer of Melius Research followed up on the HST segment, asking if the business has now returned to a 'normal' state and is poised to resume its historically higher trend-line growth, or if any upward reversion to the mean should be expected.

Answer

CEO Eric Ashleman stated that while HST is entering positive territory, the company is taking a cautious approach to its life science recovery forecast, not assuming a sharp snapback, though long-term prospects for at least mid-single-digit growth remain strong. He also noted a conservative stance on the semi outlook. Critically, he emphasized that new businesses like Mott are diversifying HST's growth drivers into areas like energy transition, making the segment's performance less dependent on the cyclicality of its legacy markets and better positioned for sustained growth.

Robert Wertheimer of Melius Research followed up on the HST segment, asking if management believes the business is back to a normal growth trajectory or if there is potential for an upward reversion to the mean after a period of volatility.

Answer

CEO Eric Ashleman stated that while HST is returning to positive growth, the company is taking a conservative approach to its projections, particularly for the life sciences recovery, and not assuming a sharp snapback. He emphasized that the segment is now more balanced and diversified with the addition of businesses like Mott, which serves different, fast-evolving markets like energy transition. This diversification makes HST less dependent on the cycles of its two traditional core markets.

Rob Wertheimer of Melius Research asked for an expansion on the theme of converting analog processes to digital, inquiring how this trend is evolving IDEX's operations and if it has become a broader strategic focus.

Answer

CEO Eric Ashleman confirmed the theme is scaling up across the company as a benefit of building a more thematic organization. He provided examples including digital customer-facing tools in the fragmented FMT businesses, automation and digital functionality in the Fire segment to address crew size issues, and the integrated digital analytics at the core of the Intelligent Water platform.

Rob Wertheimer of Melius Research asked for an expansion on the theme of converting analog processes to digital and how this trend is evolving IDEX's operations.

Answer

CEO Eric Ashleman confirmed this is a growing theme enabled by building scale in key areas. He provided examples such as digitizing customer interactions in the FMT segment, increasing automation and digital functionality in the Fire & Safety business to address smaller crew sizes, and integrating hardware with digital analytics in the Intelligent Water platform.

Robert Wertheimer asked about the composition of organic growth in the Tools segment, noting the strength in Europe and Rest of World compared to North America and questioning if there were structural factors driving this performance.

Answer

An executive, likely COO Chris Nelson, explained that in North America, growth is driven by a focused strategy on the professional end-user and improved customer service levels, leading to new opportunities. In EMEA, growth is the result of targeted investments in key markets with better growth trajectories and share gain opportunities, which are yielding significant returns, particularly for DEWALT offerings.

Robert Wertheimer asked for more detail on the drivers of the North American Tools & Outdoor performance, questioning the contribution from factors like channel partner inventory strategies, retail weakness, and holiday season expectations.

Answer

EVP and CFO Pat Hallinan (or another executive) explained that Q3 POS was modestly negative as expected, and there is a clear dynamic of a stronger professional market versus a weaker DIY market. He pointed to lower R&R activity levels as a significant factor impacting DIY sales. While no immediate catalyst is seen for the first half of next year, the company is optimistic about longer-term trends like construction spending and residential home starts driving future growth.

Robert Wertheimer asked about the decision-making process behind hiring 2,000 new field professionals, questioning if it was driven by productivity trends, anticipated modernization growth, or an aging workforce.

Answer

Executive Judith Marks confirmed it was a conscious investment to address general workforce challenges and prepare for growth in both the service portfolio and modernization. She acknowledged an aging workforce and stated the investment was a worthwhile trade-off for a short-term impact on Q4 service margins to ensure long-term capability and customer fulfillment.

Asked about the delivery timeline for the GreenWaste order, the status of discussions with potential strategic partners, and whether customer orders are contingent on the company's financing situation.

Answer

The GreenWaste delivery timeline involves completing the start-of-production (SOP) for the 200kW refuse truck, with initial deliveries possible in Q4 2025. The company is in its strongest position yet for strategic partnerships, with commercial traction being the key catalyst. Customers are aware of the company's financial situation but are proceeding with orders, and contracts do not currently have financing contingencies.

Robert Wertheimer asked if the market mix shift towards higher-end pools, suggested by permit data, is noticeably impacting Hayward's financials, such as through a richer product content per pool.

Answer

CEO Kevin Holleran confirmed that while the higher-end of the new construction market is holding up better, the best-performing products remain core aftermarket items. However, he noted that the high-end pools that are being built feature richer, high-margin content like automation and advanced sanitizers. CFO Eifion Jones added that the company has seen a positive product mix impact from a shift towards core categories like filtration and heaters.