Stephen Tusa

Stephen Tusa inquired about Dover's price-cost management strategy for the upcoming year, specifically regarding raw material costs like steel, and the amount of price embedded in the current guidance. He also asked if management's positive economic outlook had changed recently.

Answer

CEO Richard Tobin stated that Dover aims for 1-1.5% over price-cost, embedding 1.5-2% price in the guidance, acknowledging potential commodity cost increases. He affirmed that the positive view on the general economy and business remains unchanged, citing strong Q4 organic growth, margin accretion, and a book-to-bill ratio above one.

Stephen Tusa inquired about Dover's price-cost dynamics for the upcoming year, specifically how the company plans to manage raw material costs like steel, and the amount of pricing embedded in the 2026 guidance. He also asked if recent economic observations had altered management's positive outlook.

Answer

CEO Richard Tobin stated that Dover expects to achieve 1-1.5% over commodity costs, with 1.5-2% price embedded in the guide, noting potential adjustments if commodity costs rise. He affirmed the positive view, citing strong Q4 organic growth, margin accretion, and a book-to-bill ratio above 1.

Stephen Tusa asked why Parker is more optimistic about the construction sector compared to other companies, inquiring if data centers or other factors are driving this view. He also questioned why the Q4 guidance appeared to be below consensus expectations.

Answer

Jennifer Parmentier, Chairman and CEO, clarified that while data centers are a small part, they are primarily seeing an increase in construction equipment. Todd Leombruno, CFO, stated that Q4 is typically their strongest quarter and is forecasted to be an all-time record, expressing no specific concerns about the guidance.

Stephen Tusa asked for Parker-Hannifin's perspective on the U.S. in-plant equipment market, considering reshoring and existing investments, and what factors could accelerate short-cycle inflection. Tusa also inquired about the aerospace business's margin guidance, specifically why a step down from over 30% in the first half to a lower figure is implied for the second half of the fiscal year. Additionally, Tusa asked about the construction market, noting Parker's more positive outlook compared to peers, and if data center activity or other factors were driving this. Finally, he questioned if there were any mechanical reasons for the fourth quarter's projected performance being slightly below consensus.

Answer

Chairman and CEO Jennifer Parmentier explained that in-plant equipment recovery is gradual, with customers prioritizing productivity and automation over large capacity expansion, and that geopolitical noise, tariffs, and interest rates are factors. CFO Todd Leombruno clarified that the aerospace margin guidance reflects the difficulty in predicting high spares and repairs volumes seen in Q2, but the forecasted margins still represent significant improvement and robust activity. Parmentier attributed the positive construction outlook primarily to an increase in construction equipment demand, with data centers being a smaller part. Leombruno stated that the Q4 forecast represents an all-time record and there are no specific concerns about its performance.

Stephen Tusa sought clarification on Honeywell's expected price for the year (around 3.5%) and the implied volume growth at the low end of the 3-6% organic sales guidance. He also asked for an update on stranded costs, specifically for advanced materials and aerospace, and the magnitude of margin improvement embedded in the aerospace guidance.

Answer

CFO Mike Stepniak confirmed price is expected to be above 3%, likely 3.5%. CEO Vimal Kapur clarified that at the low end of the 3-6% organic growth guidance, volume growth is 0, and at the high end, it's about 3%. Vimal Kapur stated that advanced materials stranded costs have been neutralized in 2026. For aerospace, specifics on stranded costs will be shared at Investor Day, with confidence in elimination within 12-18 months. Mike Stepniak indicated a 'modest' margin improvement for aerospace, suggesting 'low 30s incrementals.'

Stephen Tusa sought clarification on the expected price and volume growth for the year, specifically asking if the low end of the 3-6% organic growth range implies a volume decline.

Answer

Mike Stepniak, SVP and CFO, confirmed that price would likely be around 3.5%. Vimal Kapur, Chairman and CEO, clarified that at the low end of the 3-6% organic growth guide, volume growth would be 0%, while at the high end, it would be about 3%. Stephen Tusa then asked about the timeline for eliminating stranded costs, particularly those related to advanced materials and aerospace. Vimal Kapur stated that advanced materials stranded costs have been neutralized in 2026. For aerospace, specifics will be shared at the June Investor Day, but the company is confident in eliminating them within 12-18 months. Stephen Tusa's final question was about the magnitude of margin improvement embedded in the aerospace guidance for the year. Mike Stepniak indicated a 'modest' improvement, suggesting 'low 30s incrementals.'

Stephen Tusa asked about the level of inflation experienced in the quarter and whether the 1% tariff-based pricing achieved in Q4 fully offset tariff costs. He also inquired about expectations for inflation and tariff impact in fiscal 2026, and the overall book-to-bill ratio for the current quarter.

Answer

Christian Rothe, SVP and CFO of Rockwell Automation, stated that inflation was relatively modest in the quarter, offset by cost reduction and margin expansion actions. He confirmed that the 1% tariff-based pricing in Q4 achieved EPS neutrality by offsetting tariff-based costs. For fiscal 2026, Rothe expects inflation to remain minimal and reiterated the goal of maintaining EPS neutrality for tariff-based pricing, emphasizing it's not for margin expansion. He also confirmed the book-to-bill ratio remained around one, with product orders matching shipments.

Stephen Tusa inquired about the level of inflation seen in the quarter, the impact of tariff-based pricing on EPS, and the current book-to-bill ratio.

Answer

Christian Rothe, SVP and CFO, stated that inflation was relatively modest, offset by ongoing cost reduction and margin expansion actions. He confirmed that tariff-based pricing achieved in Q4 was neutral to EPS, solely offsetting tariff-based costs, and this approach will continue in fiscal 2026. Rothe also reiterated that the book-to-bill ratio remained around one, with product orders aligning with shipments.

Stephen Tusa asked for clarification on the Q4 Electrical Americas revenue outlook, specifically if residential weakness persists and if one-time Q3 issues will ship, and whether the implied 18% growth is impacted by residential. He also questioned why Electrical Americas' margins might not improve more significantly next year, given current year's 50 bps decline, 100 bps inefficiencies, and absorption of tariffs and deals.

Answer

Paulo Ruiz, Chief Executive Officer, confirmed that residential remains weak but stated that the Q3 miss (less than one day of sales) would carry over as a tailwind for Q4, contributing to the strong double-digit growth. He also noted that Q4 has easier year-over-year comparables. Regarding margins, Ruiz explained that the current year's four acquisitions represent significant investments that will not be repeated at the same pace next year, allowing for a focus on digestion. He anticipates that the 100 basis points of inefficiencies from ramping 12 facilities will gradually diminish as the footprint matures, leading to improved margins over time, though he cautioned that it's too early for specific 2026 guidance.

Stephen Tusa asked for clarification on the Q4 Electrical Americas revenue, specifically if residential weakness and one-time shipping delays from Q3 explain why the implied 18% growth is lower than the prior range. In a follow-up, he questioned why Electrical Americas' margins wouldn't improve more significantly next year, given the current year's 50 basis points decline, 100 basis points of inefficiencies, and absorption of tariffs and deals.

Answer

CEO Paulo Ruiz confirmed that residential weakness and Q3 shipping delays, representing less than one day of sales, are carryovers that will act as a tailwind for Q4, contributing to the strong double-digit growth. He also noted that Q4 2024 had an easier comparable with only 9% growth. Regarding margins, Paulo Ruiz explained that while Eaton is absorbing costs from four acquisitions and investments this year, the pace of deals is not expected to continue next year. He anticipates that the 100 basis points of inefficiencies from ramping 12 facilities in Electrical Americas will gradually diminish as the plants mature, leading to margin improvement over time, though specific 2026 guidance will be provided in February.

Questioned the rationale for the lower EBITDA margin expansion guided for 2024 compared to 2023 and asked about the company's competitive strategy as a standalone entity amid industry consolidation.

Answer

The reduced margin expansion in 2024 is due to increased investments in growth areas like sales and product development. Over the long term, margin growth is expected to be consistent with past trends. The company is open to all possibilities but feels it is well-positioned to compete effectively on its own.