Steve Tusa

Steve Tusa inquired about the company's confidence in avoiding future negative EAC charges, particularly after resolving the CH-53K issues. He also asked if the 13% underlying margin for Engineered Composites (AEC) in the current quarter is a reasonable run rate for 2026 and sought clarification on the margin profile of the Amelia Earhart Facility (Salt Lake) and its impact on the rest of the AEC business.

Answer

President and CEO Gunnar Kleveland stated that a large charge was taken to de-risk the CH-53K program, which is now performing to expectations, and no large charges are expected through the year. CFO Will Station confirmed that the 13% AEC margin is a reasonable run rate, expected to continue until the strategic review of Salt Lake is complete. Will Station clarified that CH-53K will not incur future losses due to the Q3 charge, and the goal for the remaining AEC business is mid-to-low teens margins, contingent on the resolution and divestment of the Salt Lake site.

An analyst from JPMorgan Chase & Co. inquired about the expected progression of the CH-53K and Gulfstream programs within the 2025 outlook and the anticipated ramp-up of AEC segment margins from the 6% exit rate to the guided 13.5% range for 2025. A follow-up question addressed the free cash flow outlook for 2025 after a strong 2024.

Answer

CEO Gunnar Kleveland stated that the 2025 plan reflects current performance projections, with a long-term goal for AEC margins to reach the mid-to-high teens after adjusting for GIS cost allocations. CFO Robert Starr clarified that the Q4 EAC adjustments reflect the best estimate for go-forward margins embedded in the 13.5% outlook. Regarding cash flow, Starr projected a range of $90 million to $120 million for 2025, with an internal target to convert over 90% of net income to free cash flow.

Steve Tusa from JPMorgan Chase & Co. asked for a breakdown of residential performance between ducted and ductless products, inquired about any signs of trade-down or increased price sensitivity in parts and repairs, and sought Watsco's market call for industry sell-through volume in 2026.

Answer

EVP Barry Logan stated that ducted and ductless products experienced identical declines in 2025, both affected by R-410A and R-12 transitions. COO Paul Johnston noted that parts sales (compressors and motors) were up double digits for the year but flat to down in Q4, which is a less significant quarter for parts. He did not observe price sensitivity or trade-down. Regarding the 2026 market call, Barry Logan, President A.J. Nahmad, and Chairman and CEO Albert Nahmad declined to provide a specific forecast, citing it's too early in the year. Barry Logan did share an intellectual exercise suggesting that 2025's 17% unit decline brought the 8-year compounded unit sales (at 3%) back in line, indicating a more conventional starting place for 2026 after the correction.

Steve Tusa asked for a breakdown of residential performance, specifically comparing ducted versus ductless products, and inquired about any trade-down or increased price sensitivity in parts and repairs. He also sought Watsco's market call for industry sell-through volume for the current year and clarity on the actual pre-buy volume from last year.

Answer

EVP Barry Logan and President A.J. Nahmad stated that ducted and ductless product declines were identical for the year and quarter, showing no divergence. President A.J. Nahmad noted that parts sales (compressors and motors) were up double digits for the year but flat to down in Q4 2025, which is a less significant quarter for parts. Management declined to provide a specific market call for industry sell-through volume for the current year, citing it as too early to tell. Barry Logan clarified that there was no pre-buy in the sense of inventory accumulation, but rather a 20% unit growth in Q4 2024 as R-410A systems were sold and installed, which contributed to a 7% component of the 17% unit decline in 2025.

Steve Tusa asked for a bridge on the strong Software and Control (S&C) segment margin and the trend in the software-related business within that segment. He also asked to reconcile the strong earnings growth and margin expansion with the year-over-year decline in cash flow.

Answer

Christian Rothe (CFO, Rockwell Automation) explained that S&C strength was broad-based, including Logix, software, ASEM (open compute platforms), and networking. Blake Moret (Chairman and CEO, Rockwell Automation) added that software ARR, particularly Plex, performed higher than the company average, contributing to profitability. Christian Rothe then clarified that the Q1 cash flow decline was due to incentive payouts from fiscal 2025 (which had no payouts in Q1 2025) and working capital being a slight use of cash in Q1 2026 compared to a source in Q1 2025.

Steve Tusa from JPMorgan Chase & Co. requested a breakdown of the strong Software & Control (S&C) segment margin, specifically inquiring about trends in the software-related business. He also asked to reconcile strong earnings growth and margin expansion with a year-over-year decline in cash flow.

Answer

CFO Christian Rothe explained that S&C's strong performance was broad-based, including Logix, ASEM, and network products, with the software side showing good growth. Chairman and CEO Blake Moret added that software ARR, particularly Plex, exceeded the company average. Christian Rothe attributed the lower year-over-year cash flow to incentive payouts from fiscal 2025 and working capital changes, noting that Q1 2025 had no incentive payouts and working capital was a source of cash.

Steve Tusa from JPMorgan Chase & Co. asked for an updated outlook on pricing for the remainder of the year and into next year. He also inquired about the potential timing for large U.S. investment projects to materialize into orders.

Answer

CFO Christian Rothe stated that full-year price realization will be 2%+, up from the initial 1% forecast, partly due to tariff-related actions. For next year, he expects to continue realizing price. CEO Blake Moret noted that while the funnel for large capacity projects is significant for next year, the timing depends on customers gaining cost and demand certainty, with recent wins shifting toward Rockwell's core industries like life sciences.

Steve Tusa of JP Morgan asked about the pricing outlook for Q4 and the next fiscal year, and inquired about the timing and potential triggers for the release of large U.S. capacity investment projects.

Answer

CFO Christian Roethe projected full-year price realization at 2%+, partly due to tariff-based actions, and expressed confidence in continued price realization next year. CEO Blake Moret noted that large project releases are pending greater cost certainty for customers, particularly around tariffs and demand. He believes a calmer trade environment and the new tax bill's benefits for smaller manufacturers will help accelerate these investment decisions.

Steve Tusa asked about the residential 'movement' (sell-out) in the channel for Q4 2025 and the assumptions for 2026. He also inquired about Carrier's inflation and total company price assumptions, specifically how commodities are being marked.

Answer

David Gitlin, Chairman and CEO, Carrier Global Corporation, stated that residential sell-out (movement) in Q4 2025 was down about 30%. Patrick Goris, EVP and CFO, Carrier Global Corporation, detailed that pricing for the total company is expected to be in the low single digits, around one percent. He explained that commodities are blocked on a rolling four quarters, with a projected $60 million headwind for 2026 from copper, steel, and aluminum (net of blocking), spread equally across quarters, and over 50% blocked for the full year. David Gitlin added that a price increase of up to 5-6% was announced for March, with an expected low single-digit realization.

Steve Tusa asked about the residential sell-out (movement) for the year, specifically what it ended at in the channel and what is assumed for the next year. He also inquired about Carrier's assumptions for inflation and total company price, and how commodities are being marked.

Answer

Patrick Goris (EVP and CFO) clarified that Q4 2025 residential movement (sell-out) was down about 30%. He stated total company pricing is expected to be low single digits (around 1%). For commodities, Carrier blocks on a rolling four quarters, anticipating a $60 million headwind for 2026 (copper, steel, aluminum), net of blocking positions, with over 50% blocked for the full year. David Gitlin (Chairman and CEO) added that a price increase of up to 5-6% was announced for March, with expected low single-digit realization.

Steve Tusa of JPMorgan Chase & Co. asked for a breakdown of the price and mix components within the low double-digit increase for residential in Q3, specifically how much was attributed to price versus mix. He also sought clarification on whether non-data center applied equipment in CSA was still up in the quarter, given the overall applied business growth.

Answer

CEO David Gitlin clarified that for Q3, the residential price/mix breakdown was 3% price and 8% mix. He confirmed that non-data center applied equipment in CSA was indeed up in the low teens for the quarter.

Steve Tusa asked for a breakdown of the price versus mix components in Carrier's CSA residential business for the third quarter. He also sought clarification on whether non-data center applied equipment in CSA was still showing growth.

Answer

CEO David Gitlin specified that for Q3, the breakdown in CSA residential was 3% price and 8% mix. He confirmed that non-data center applied equipment in the Americas was indeed up in the low teens during the quarter.

Steve Tusa of JPMorgan Chase & Co. sought a detailed breakdown of the assumptions for the U.S. residential and light commercial businesses in the fourth quarter, particularly in the context of the company's full-year 20% adjusted EPS growth forecast.

Answer

SVP & CFO Patrick Goris specified that Q4 residential sales are forecasted to be down about 15%, with volume down approximately 23% against a very tough prior-year comparison. Chairman & CEO David Gitlin added that light commercial is expected to be flattish in Q4, benefiting from an easier comp and encouraging recent trends in orders and demand from small and medium businesses.

Steve Tusa inquired about the slightly lighter North America margin, specifically a $15 million 'other' headwind, and asked for insights into the expected trend of North America margins in the coming quarters. He also asked about current data center lead times and the performance of the BMS business.

Answer

CFO Marc Vandiepenbeeck attributed the North America margin to a mix of strong system and service growth, noting a small, non-recurring $15 million product liability adjustment. He expects North America margins to improve in the second half. CEO Joakim Weidemanis stated that data center lead times are improving, with good progress on on-time delivery and lead times cut in half for some product lines, enhancing competitive advantage. Marc Vandiepenbeeck added that BMS growth was 'very solid' in the high single digits, with a strong backlog and accelerating pipeline, particularly resonating with mission-critical verticals.

Steve Tusa questioned the slightly lighter North America margin, asking about a $15 million "other" headwind and the expected trend for North America margins in upcoming quarters. He also sought an update on current data center lead times and the performance of the BMS business in the quarter, specifically regarding like-for-like applied orders growth.

Answer

CFO Marc Vandiepenbeeck clarified that the North America margin was impacted by mix and a non-recurring $15 million product liability adjustment, expecting stronger performance in the second half. CEO Joakim Weidemanis highlighted significant progress in data center on-time delivery and lead time reduction, attributing it to operational improvements and a new VP of operations. Marc Vandiepenbeeck added that the BMS business achieved very solid high single-digit growth, supported by a strong backlog and accelerating pipeline, aligning with the Mission-Critical strategy.

Steve Tusa asked about the drivers behind the expected decline in amortization for the current year, its relation to the $400 million restructuring charge, and whether this decline is sustainable and part of stranded cost takeout. He also inquired about order expectations for the first quarter, given a tough prior-year comparison.

Answer

CFO Marc Vandiepenbeeck clarified that the amortization decline was due to impairments and portfolio actions, not the restructuring charge, and is sustainable, being incremental to stranded cost takeout. He also stated that the company expects order growth in Q1 despite the tough comparison, driven by an improving pipeline. CEO Joakim Weidemanis reinforced that the company is focusing efforts on faster-growing market segments.

Steve Tusa of JPMorgan Chase & Co. questioned the low single-digit order growth, asking about its trend into the fourth quarter and the timeline for providing a longer-term financial outlook.

Answer

CEO Joakim Weideminis attributed the modest order growth to ongoing softness in China offsetting strong performance in the Americas. He stated that core vertical markets like data centers and healthcare remain healthy. In China, the company is being disciplined by prioritizing higher-margin systems and service growth as the market matures.

Steve Tusa asked about the Pool segment's pricing trend, noting a low single-digit expectation for next year despite a strong Q4, and whether competitive factors are influencing this. He also inquired if consumers or dealers are shifting towards cheaper products or if there are any significant mix dynamics. Finally, he asked for clarification on the total company's price contribution, estimating it around 1.5 to 2 points.

Answer

CEO John Stauch explained that Pool pricing will see a sizable year-over-year increase in Q1, moderating later in the year, still double the normal rate but less than 2025, and is not intended to move beyond inflation. He noted no meaningful shift to cheaper products but emphasized focusing on value and innovation. He confirmed the total company price contribution is about 2 points, with Pool having slightly more due to metals and tariffs.

Steve Tusa questioned the low single-digit pool pricing trendline for next year, asking if competitive factors are influencing this, given the strong Q4 exit. He also asked if consumers or dealers are shifting to cheaper products and about the total company's price contribution.

Answer

CEO John Stauch explained that pool pricing will see a sizable year-over-year increase in Q1, then moderate, still double the normal expectation but less than 2025. He noted no meaningful shift to cheaper products but emphasized the need to provide value beyond just price increases. He confirmed that the total company's price contribution is roughly 2 points, offsetting about $80 million in expected inflation, with pool having slightly more inflationary pressure.

Steve Tusa inquired about the Pool segment's margin performance, noting a weaker-than-expected productivity trend and a challenging comparison to the prior year. He also asked about the observed pickup in Pool volume, interpreting it as a potential sign of life for replacement of the aged installed base, and how Pentair is balancing this volume growth against pricing strategies.

Answer

CFO Bob Fishman confirmed that the company is on track for its $80 million transformation savings target, with Pool's ROS expected to rebound in Q4 despite a challenging Q3 comparison. He highlighted strategic investments in Pool for future top-line growth, including sales plays, new products, and digital solutions, aiming for an effortless customer experience. CEO John Stauch added that Q3 Pool performance felt more predictable, with stable new pool builds and aftermarket conditions, and expressed encouragement for a volume-based growth plan next year with prices holding. He noted that price read out is approximately 4% for the company and 5% for Pool, with Pool's 7% guide comprising 5% price, 1-2% from the Gulfstream acquisition, and flat market volume.

Steve Tusa asked about the weaker-than-expected productivity in the Pool segment margins, the full-year outlook for the company, and whether the picking up volume in Pool indicates a bounce in replacement of the age-installed base, and how this is balanced against pricing.

Answer

CFO Bob Fishman addressed the transformation commitment, Pool's ROS rebound in Q4, and the strategic investment in Pool for future top-line growth. CEO John Stauch added that Pool's Q3 felt more predictable, with stable new pool builds and aftermarket, and that prices are holding. Bob Fishman further clarified Pool's price and volume contributions for the year.

Steve Tusa of JPMorgan Chase & Co. asked for clarification on the timing of price realization, specifically whether the full impact of recent increases was reflected in Q2 results. He also inquired about the outlook for Q4 and any specific caution embedded in the guidance for that period.

Answer

EVP and CFO Bob P. Fishman confirmed that the full run-rate of pricing actions was not seen in Q2 and would accelerate in Q3 and Q4, alongside higher tariff headwinds. He added that the Q3 guide contains more caution, with Q4 expected to be more about channel partners positioning for the 2026 season, pending potential interest rate reductions.

Steve Tusa sought confirmation on the key components of the full-year profit bridge, including productivity savings and inflation, and asked for channel feedback regarding potential tariff-driven demand destruction in the Pool segment.

Answer

CFO Bob Fishman confirmed the analyst's assumptions for the profit bridge were correct, including $80 million in net productivity and a price increase of around 5% to offset tariffs. CEO John Stauch noted that there has been no significant channel feedback on demand destruction yet, adding that the 80/20 strategy has streamlined communication with key distributors, who have been notified of the phased price increases.

Steve Tusa asked for clarification on how the 100%+ Applied orders reconcile with the 35%+ total orders in Commercial HVAC, and if something outside the core Applied business, like liquid cooling orders, is driving the revenue acceleration in the second half of 2026. He also asked for the standing Tier 1 and Tier 2 raw materials base.

Answer

Chris Kuehn clarified that both Applied and Unitary orders grew (Unitary in low single digits), and services also contribute to total order growth. Dave Regnery explained that the H2 revenue acceleration is primarily due to the conversion of strong orders already booked in H2 2025 (Americas up 30%+, Europe up high teens%). Chris Kuehn stated that Tier 1 raw materials are around $750 million and Tier 2 are around $5.5 billion-$6 billion.

Steve Tusa asked to reconcile the 100%+ Applied orders with the 35%+ total Commercial HVAC orders, inquiring what was down or if services were included. He also questioned if liquid cooling related orders were driving the acceleration in second-half revenue, and asked for the standing Tier 1 and Tier 2 raw materials base.

Answer

Chris Kuehn, Executive Vice President and CFO, clarified that both Applied and Unitary orders grew in Q4 (Unitary low single digits), and services are part of the total, with prior comps also playing a role. Dave Regnery, Chair and CEO, explained that the revenue acceleration in H2 is primarily due to the conversion of already booked strong orders (9-month average lead time), not necessarily new liquid cooling orders, though robust demand for other thermal management elements exists in the pipeline. Chris Kuehn stated Tier 1 raw materials are around $750 million and Tier 2 are around $5.5 billion-$6 billion.

Steve Tusa from JPMorgan Chase & Co. asked for a breakdown of the price and mix expectations for the residential business in the second half. He also sought to reconcile the $150 million revenue headwind with previous estimates of pre-buy activity and questioned the slight deceleration in services growth.

Answer

EVP & CFO Chris Kuehn clarified that second-half residential price/mix is expected to be in the low-double-digit range, with volumes down. Chair & CEO Dave Regnery explained the $150 million headwind includes both elevated channel inventory of $100-125 million and the lingering impact from the cylinder shortage. Regarding services, Regnery stated he was very happy with low-teens growth and pointed to accelerating connected solutions as a key future driver.

Steve Tusa from JPMorgan Chase & Co. asked for an update on the dynamics related to growth in the value tier and the rationalization of low-margin residential new construction (RNC) accounts, which were mentioned in a previous quarter. He also inquired about the impact of the LIFO to FIFO accounting change on the shape of 2026, and when the cost recognition would align with commodity movements, given Lennox's hedging strategies.

Answer

CEO Alok Maskara confirmed that there was no change in the dynamics of growth in the value tier or RNC account rationalization, stating these factors continue as previously discussed. CFO Michael Quenzer explained that the FIFO accounting change would primarily impact Q1 2026 with some absorption, and potentially Q4 2026 into 2027 due to natural timing differences between FIFO and LIFO, but overall, it would have a net neutral impact for the full year 2026.

Steve Tusa asked for an update on the dynamics related to 'other items' from slide 10 of the previous quarter, specifically concerning growth in the value tier and the rationalization of low-margin residential new construction (RNC) accounts, inquiring if there had been any changes. He also questioned how the accounting change from LIFO to FIFO would impact the shape of 2026 and when it would align with commodity movements.

Answer

Alok Maskara, CEO, confirmed that there have been no changes in the dynamics of growth in the value tier or the rationalization of low-margin RNC accounts, noting that these factors continue as previously discussed. Michael Quenzer, CFO, explained that the FIFO accounting change would contribute to the absorption comment made for Q1 2026, with some variations expected between Q4 2026 and 2027 due to the natural timing differences between FIFO and LIFO. He concluded that the overall net impact of the accounting change for 2026 would be neutral.

Steve Tusa asked for quantification of any over-absorption benefit in Q3 and the expected under-absorption impact in Q4. He also inquired about any signs of competitors engaging in aggressive price competition or market share grabbing, beyond Lennox's decision to exit low-margin R&C business.

Answer

CFO Michael Quenzer clarified there was no significant absorption benefit/hit in Q3; the impact will be in Q4, noting that 15%-20% of COGS are factory costs. CEO Alok Maskara confirmed Q3 was neutral on absorption as production was ramped down, with the full hit in Q4. On pricing, Alok Maskara stated the industry remains competitive but OEMs have maintained pricing for tariffs and A2L. Online skirmishes are between contractors and consumers, not OEMs and contractors, with no significant change in competitor behavior beyond Lennox's decision to exit low-margin R&C business.

Steve Tusa asked for quantification of the over-absorption benefit in Q3 and the expected under-absorption hit in Q4. He also inquired if Lennox was observing any competitors getting out of line with price competition, particularly with online pricing or attempts to gain market share.

Answer

CFO Michael Quenzer stated there was no significant absorption benefit or hit in Q3, but Q4 will see an impact, noting that 15-20% of COGS are factory costs. CEO Alok Maskara clarified that Q3 was neutral, with the full hit expected in Q4. Alok Maskara stated the industry remains competitive with account-by-account battles, but OEMs have generally maintained pricing for tariffs. He reiterated that online skirmishes are more between contractors and consumers, with no significant change in OEM competitive behavior beyond the low-margin R&C business.

Steve Tusa from JPMorgan Chase & Co. sought to clarify the full-year cost inflation figures, asking how much of the total impact has been booked year-to-date. He also asked about the timing of when recent price increases were fully reflected in Q2 results.

Answer

CFO Michael Quenzer clarified that of the total expected cost increase for the year, about $80 million was incurred in the first half. CEO Alok Maskara added that the new pricing was not fully effective for the entire quarter, stating it was booked 'midway through the quarter' as the product mix shifted more to R-454B and the tariff-related pricing took effect.

Steve Tusa asked for confirmation on a significantly lower conversion rate in China and whether the China aftermarket is experiencing structural changes, such as intensified price pressure from new equipment into services, leading to a strategic shift in value focus. He also inquired about the price-cost outlook for the current year.

Answer

Judy Marks, Chair, CEO, and President of Otis Worldwide Corporation, confirmed the conversion rate in China is lower and explained that Otis is making strategic decisions to focus on higher-value units and better service stickiness, even if it impacts the rate, leading to a healthier portfolio. She expects a slight improvement but it will remain lower. Christina Mendez, Executive Vice President and CFO of Otis Worldwide Corporation, anticipated price-cost trends similar to 2025, with good performance outside China and positive low single-digit price in China, though China remains challenged. Judy Marks added that commodities are not a significant headwind for the year.

Steve Tusa from JPMorgan Chase & Co. questioned the conversion rate in China, noting it appeared significantly lower than past reports, and asked if this, combined with attrition, indicated a structural shift with intensified price pressure in the China aftermarket. He also inquired about the company's price-cost outlook for the current year.

Answer

Judy Marks, Chair, CEO, and President of Otis Worldwide Corporation, confirmed that the China conversion rate is lower due to strategic decisions to focus on higher-value units and targeted recaptures, which impacts the rate but creates a healthier portfolio. She expects a little improvement but for the rate to remain lower. Cristina Méndez, Executive Vice President and CFO of Otis Worldwide Corporation, indicated that the price-cost trend for 2026 is expected to be similar to 2025, with positive low single-digit price in the rest of the world, but China remaining challenged (1-2 points down sequentially). Judy Marks added that commodities are not a significant headwind for the year.

Steve Tusa, MD and Senior Equity Analyst at JPMorgan Chase, inquired about the sequential improvement in Otis's maintenance retention rate and whether a year-over-year increase is still targeted for year-end. He also questioned the expected services revenue growth for Q4, anticipating an acceleration towards 7%, and sought clarification on the full-year new equipment margin decline.

Answer

Judy Marks, Chair, CEO, and President, stated that retention has "very slightly improved," emphasizing that rebuilding trust and improving retention is a continuous, day-to-day effort rather than a sudden step function. Cristina Méndez, EVP and CFO, projected Q4 services growth to be around 6%, with repair accelerating to 10% or above, but modernization growth moderating to 10% due to the calendarization of China bond projects. She clarified that the full-year new equipment operating margin decline is expected to be 130 basis points, not 150 basis points.

Steve Tusa asked for an update on customer retention, specifically if it's improving sequentially and if Otis still targets an increase year-over-year. He also inquired if the acceleration in repair and stable maintenance would lead to an overall acceleration in services revenue growth for Q4, potentially from 6% to nearly 7%. Finally, he sought clarification on the new equipment margin decline, questioning if it was 150 basis points or 130 basis points.

Answer

Judy Marks, Chair, CEO, and President, Otis Worldwide Corporation, indicated that retention has very slightly improved, but it's a long-term journey with no anticipated step-function improvement, emphasizing ongoing investments in customer focus. Cristina Méndez, EVP and CFO, Otis Worldwide Corporation, projected Q4 services growth to be around 6%, with repair accelerating to 10% or above, but modernization growth moderating to 10% due to the calendarization of China's bond execution. Ms. Méndez clarified that the new equipment margin decline for the full year is expected to be approximately 130 basis points.

Steve Tusa from JPMorgan Chase & Co. asked for clarity on how Otis is positioned for the next year based on its backlog, particularly in China, and sought confirmation that China orders are expected to improve sequentially.

Answer

Chair, President & CEO Judith Marks confirmed that China orders are expected to improve sequentially. She contrasted the outlook, stating that while the new equipment backlog in China will be down entering 2026, the backlog in the Americas is strengthening (up 5%), Asia Pacific is up double-digits, and the rest of the world ex-China is growing strongly.

Steve Tusa from JPMorgan Chase & Co. inquired about the outlook for 2026 based on the current new equipment backlog in China and sought confirmation that Chinese orders are expected to improve sequentially.

Answer

CEO Judith Marks confirmed that China orders are expected to improve sequentially. She provided a global backlog overview, stating the Americas backlog is up 5% and Asia Pacific is up double-digits, positioning them well for 2026. However, she noted that while China's modernization and service backlogs will be up, the new equipment backlog will be down entering next year. She also contextualized that China now represents about 10-12% of global revenue.

Steve Tusa sought confirmation that first-quarter orders would sustain the 5-6% momentum seen in Q4. He also inquired about the reason for the weaker Q1 EPS incrementals from operations ($0.05) compared to the full-year projection ($0.50), excluding the software impact.

Answer

Lal Karsanbhai (President and CEO) confirmed that Q1 orders are expected to sustain the momentum. Michael Baughman (EVP and CFO) and Lal Karsanbhai explained that the lower Q1 incrementals are due to a tough comparison with Q1 2025, which benefited from strong discretionary cost containment and favorable project closeouts, resulting in 265% leverage.

Steve Tusa sought clarification on whether Q1 orders momentum is expected to sustain the 5-6% range seen in Q4. He also questioned the lower operational EPS contribution in Q1 2026 ($0.05) compared to the full-year guidance ($0.50), asking if there were specific reasons for weaker incrementals aside from the software impact.

Answer

President and CEO Lal Karsanbhai confirmed that Q1 orders momentum should sustain the 5-6% range. CFO Michael Baughman explained that the Q1 operational EPS is impacted by a tough comparison to Q1 2025, which benefited from strong discretionary cost containment and project closeouts, resulting in a high EBITDA margin.

Steve Tusa of JPMorgan Chase & Co. asked about the intra-quarter trend for orders in Q3 and sought clarity on the growth outlook for the software business into fiscal 2026, particularly concerning any challenging comparisons for AspenTech.

Answer

President & CEO Lal Karsanbhai stated that MRO bookings were consistent throughout the quarter, with some timing variations on large capital projects, but no underlying weakness. COO Ram Krishnan confirmed that AspenTech's ACV growth is expected to remain strong, in the high single to double-digit range, with no concerning comps anticipated for next year.

Steve Tusa inquired about the performance of Fortive's Facilities and Asset Lifecycle (FAL) software business, specifically asking about construction-related pressures, IT spending trends, and the impact of AI on customer budgets. He also requested the total organic growth rate for FAL in the quarter.

Answer

Olumide Soroye, Fortive's President and CEO, reported continued growth in the FAL platform, with strong pull-through for ServiceChannel, especially with new AI-powered work order insights. He noted that customers view facilities software as an effective way to scale AI impact, leading to strong IT spending in this area. Gordian's planning software also performed well, with new product launches contributing to growth. Mark Okerstrom, Fortive's CFO, stated that FAL's total growth in the quarter was helpful to the fleet average.

Steve Tusa asked about the performance of Fortive's Facilities and Asset Lifecycle (FAL) software business, including any construction-related drags and how customers are treating IT spending in this area, also inquiring about FAL's organic growth in the quarter.

Answer

President and CEO Olumide Soroye highlighted continued growth in the FAL platform, with strong pull-through from ServiceChannel, especially with AI-powered work order insights. He noted that customers view facilities software as a valuable way to scale AI impact. Gordian's planning and capital planning software also performed well, separate from procurement. CFO Mark Okerstrom stated that FAL's total growth in the quarter was 'helpful to the fleet average.'

Steve Tusa of JPMorgan Chase & Co. questioned the rationale for the new, simplified guidance policy and asked if the company's approach to bolt-on M&A has changed.

Answer

CFO Mark Okerstrom explained the simplified guidance aims to focus on the multi-year value creation plan. CEO Olumide Soroye detailed a more disciplined M&A approach, emphasizing a dynamic balance between buybacks and accretive bolt-ons, with elevated strategic scrutiny and a focus on proprietary deal cultivation.

Steve Tusa of JPMorgan Chase & Co. questioned the company's new guidance philosophy of not providing a specific organic growth forecast. He also asked about the company's approach to bolt-on M&A, probing whether there was a reset in the process or a change from Fortive's historical strategy.

Answer

CFO Mark Okerstrom explained that providing only annual adjusted EPS guidance is intended to simplify investor communications and maintain focus on the company's multi-year value creation plan. CEO Olumide Soroye detailed a 'very different' capital allocation strategy, emphasizing a dynamic balance between share repurchases and accretive bolt-on M&A, all subject to elevated financial and strategic scrutiny. He noted they are 'open for business' but will maintain a very high bar for deals.

Steve Tusa asked for the breakout of pricing by segment for the quarter. He also questioned the puts and takes on margins for next year, including the impact of restructuring costs and any potential crowding out of distribution investments due to heavy T&D spending.

Answer

Bill Sperry, EVP and CFO, stated that pricing for the year was in the 3% range, reasonably balanced between segments. He deferred detailed 2026 margin guidance to the January call but noted the long-term framework includes 25-30% incrementals, implying continued investments. Gerben Bakker, Chairman, President, and CEO, added that price-cost-productivity management would continue. Regarding Aclara/grid infrastructure, Bakker noted it's now more MRO-based with smaller, more predictable projects. Sperry and Bakker debated the 'crowding out' effect, concluding that while T&D spending is high, growth is expected across all three markets, and Hubbell is well-positioned regardless of where investment dollars flow.

Steve Tusa from JPMorgan Chase & Co asked about the pricing breakout by segment for the quarter, the puts and takes on margins for next year, and the visibility on the bottoming of the Aclara and grid infrastructure drag. He also questioned if other businesses were being crowded out by heavy T&D investment.

Answer

Bill Sperry (EVP and CFO, Hubbell Incorporated) stated that pricing for the quarter was in line with the 3% full-year range and reasonably balanced between segments. He deferred detailed 2026 margin guidance but noted the long-term framework includes investments and wraparound price. Gerben Bakker (Chairman, President and CEO, Hubbell Incorporated) added that price-cost-productivity would continue to be managed. Bakker explained that grid automation's future projects would be less lumpy and more predictable, focusing on MRO and public power. Sperry and Bakker debated the 'crowding out' point, concluding that while T&D investment is strong, distribution also shows healthy growth, and Hubbell is well-positioned across all three markets.

Asked for specifics on price realization in Q4 and the assumption for 2025, the nature of pricing discussions with VIP utility customers, and the expected earnings seasonality for Q1 2025.

Answer

Price realization in Q4 was slightly over 1% overall, higher in Electrical than Utility. For 2025, pricing discussions with customers are constructive and proactive, focused more on timing than feasibility, especially concerning potential tariffs. For seasonality, Q1 2025 EPS is expected to be in the low 20s percentage of the full year, similar to 2024, though the Q1 organic growth rate will be slightly below the full-year guide.

Steve Tusa inquired about the trend in Building Automation (BA) margins, noting their strength in recent quarters but a slight weakness in Q3, and asked for the outlook into 2026. He also asked about potential changes to pension accounting and the reevaluation of the earnings format.

Answer

Mike Stepniak, Senior Vice President and Chief Financial Officer, expressed satisfaction with BA's performance, attributing Q3's margin dynamics to mix between projects and products, with sequential margin expansion expected into 2026. Vimal Kapur, Chairman and Chief Executive Officer, reinforced that BA's performance aligns with Honeywell's growth and margin expansion strategy. Mike Stepniak confirmed that pension accounting changes are on the agenda for 2026 to simplify reporting.

Steve Tusa of JPMorgan Chase & Co. questioned the trend in Building Automation (BA) margins, noting their strength in recent quarters but a slight weakness in Q3, asking about the moving parts and the outlook for 2026. He also inquired about any plans to change pension accounting and reevaluate the earnings format before the Aerospace spin-off.

Answer

CFO Mike Stepniak expressed satisfaction with BA's performance, attributing Q3's margin dynamics to mix between projects and products, and projected continued sequential margin expansion into 2026. Chairman and CEO Vimal Kapur reinforced BA's alignment with Honeywell's growth and margin expansion strategy, expecting other businesses to follow suit in 2026. Mike Stepniak confirmed that pension treatment is on the agenda for 2026 discussions to simplify reporting and improve visibility, but no specific announcement is ready.

Steve Tusa of JPMorgan Chase & Co. sought to clarify the full-year margin guidance, asking if the Building Automation segment margin was approaching 28% for the year. He also asked about the status of the financial contingency that was put in place last quarter.

Answer

SVP & CFO Mike Stepniak noted that Building Automation incrementals are very high, especially on the product side. VP of Investor Relations Sean Meakim suggested 28% was likely aggressive for the full year but within the business's capability. Chairman & CEO Vimal Kapur confirmed BA would be the highest margin business in 2025. Regarding the contingency, Mike Stepniak stated that while they have better visibility, pluses and minuses (stronger BA, softer energy projects) leave them in a similar net position as last quarter.

Steve Tusa from JPMorgan Chase & Co. asked for clarification on the full-year margin guidance, specifically if the Building Automation segment margin was expected to approach 28%. He also inquired about the status of the tariff-related contingency hedge mentioned in the previous quarter.

Answer

VP of Investor Relations Sean Meakim stated that while a 28% full-year margin for Building Automation is aggressive, the business is capable of achieving it. Chairman & CEO Vimal Kapur confirmed it will be Honeywell's highest-margin business in 2025. Regarding the contingency, SVP & CFO Mike Stepniak said the company has better visibility and confidence in the current guide, as puts and takes (softer long-cycle projects, better short-cycle orders) have balanced out.

Steve Tusa questioned Vertiv's long-term margin outlook, specifically if the company remains on track for its 2029 target of 25% adjusted operating margin, and the expected incremental margins, considering tariff impacts and investments in modular work.

Answer

CFO David Fallon confirmed that the path to the 25% long-term margin target by 2029 remains intact, with long-term incremental margins assumed to be in the 30-35% range. He acknowledged tariffs as a significant headwind in 2025 but expects to be back on track, noting that growth investments are made upfront for future returns.

Steve Tusa asked for an update on Vertiv's long-term margin outlook, specifically regarding the 25% target by 2029, the expected incremental margins (30-35% range), and how tariffs or new project types like modular work might impact these incrementals.

Answer

David Fallon, CFO of Vertiv, confirmed that the path to the 25% long-term margin target by 2029 remains intact, with an expectation for incremental margins in the 30-35% range. He acknowledged that tariffs created some noise in 2025 but anticipates that 2026 will not face tariff headwinds, potentially even seeing a tailwind, and that the company expects to remain within the target incremental margin range.

Steve Tusa of JPMorgan Chase & Co. asked about the 2026 margin outlook, questioning if it could be a more 'normal' year for margin expansion given the strong expected exit rate for 2025.

Answer

CEO Giordano Albertazzi responded that the direction coming out of 2025 is encouraging for the company's long-term margin trajectory. He affirmed that Vertiv's long-term margin objectives remain correct, suggesting alignment with the idea of continued improvement.

Steve Tusa of JPMorgan Chase & Co. inquired about Vertiv's margin outlook for 2026, noting the strong implied exit rate for 2025 and asking if next year could represent a more normalized margin environment despite ongoing investments.

Answer

CEO Giordano Albertazzi responded that the company's trajectory exiting 2025 is encouraging for its long-term goals. He affirmed his confidence in Vertiv's previously stated long-term margin objectives, suggesting 2026 would align with that path.

Steve Tusa from JPMorgan Chase & Co. asked for clarification on the Electrical Americas organic backlog growth and whether total electrical orders on a TTM basis were expected to turn positive. He also asked if the new production capacity impact is reflected in the second-half guide.

Answer

CEO Paulo Ruiz confirmed the 17% backlog growth in Electrical Americas. CFO Olivier Leonetti clarified that TTM orders for the total electrical sector had already turned positive. Ruiz affirmed that the impact of new capacity is factored into the second-half guidance, with six projects ramping up in H2 2025 and more to follow in 2026.

Steve Tusa of JPMorgan Chase & Co. asked for a broad assessment of the current electronics cycle and inquired about the potential impact of new 'direct to the Board' chip manufacturing processes on DuPont's content.

Answer

Jon Kemp, President of the Electronics division, described a mixed cycle with growth currently driven by AI applications while consumer markets remain weak. He noted that DuPont is well-positioned for new chip assembly technologies due to its broad portfolio spanning chip fabrication and advanced packaging.

Steve Tusa of JPMorgan Chase & Co. requested an overview of the current electronics cycle, including the status of consumer market recovery, and asked about the potential impact of new chip assembly methods on DuPont's content.

Answer

Jon Kemp, President of the Electronics division, described a mixed environment where AI is the primary growth driver, while other markets show early signs of stabilization. He views new assembly technologies as an opportunity, given Qunity's end-to-end portfolio which facilitates deeper customer collaboration on system integration.

Steve Tusa of JPMorgan questioned the second-half margin outlook, suggesting the implied incremental margins seemed conservative, and asked about the potential EPS growth algorithm for 2026 given current momentum and cost savings.

Answer

President and CEO Richard Tobin clarified that aggregate incremental margins are expected to moderate in the second half due to a business mix shift toward relatively lower-margin segments. For 2026, Tobin expressed strong optimism, stating that a full year of current margin levels combined with a larger roll-forward of cost savings will drive very attractive incremental margins on any revenue growth.

Steve Tusa of JPMorgan Chase & Co. asked for the embedded assumption on foreign exchange impact and for more detail on the specific areas of weakness within the consumer electronics market.

Answer

CFO Anurag Maheshwari clarified that the full-year FX headwind is now expected to be about $0.05 per share, with the impact concentrated in the first half due to year-over-year hedge benefit comparisons. CEO William Brown added that consumer electronics demand is softening from a strong first half, with the slowdown seen across TVs, tablets, phones, and notebooks.

Steve Tusa asked for color on Q2 organic growth expectations and inquired about any potential impact from government pressures on higher education organizations.

Answer

EVP and CFO Jason Conley projected Q2 organic growth would accelerate from Q1, with the Network segment improving to mid-singles and TEP to the high-single-digit range. President and CEO Neil Hunn stated that government education funding levels are not expected to be cut, merely administered differently via block grants, and they have seen no slowdown at the customer level.

The analyst sought confirmation that the margin guidance adjustment was solely due to FX and asked if Altair's strength in aerospace, which contrasts with a competitor's weakness, indicates direct market share gains.

Answer

The CFO confirmed that the margin guidance change was entirely due to foreign exchange impacts. The CEO stated that while not pointing to a specific competitor, he believes Altair is gaining market share in aerospace and is performing well regardless of broader market trends.