Robert Wertheimer • Melius Research

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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