Tommy Moll

Tommy Moll of Stephens Inc. questioned the inventory investment for the A2L transition, asking if it was higher than planned and how it might trend. He also inquired about the current M&A environment and pipeline.

Answer

CEO Albert Nahmad confirmed inventory levels were higher than hoped due to soft demand but have already been reduced from a peak of $2 billion to $1.8 billion. On M&A, Nahmad expressed eagerness to acquire, noting the soft market may create opportunities and that a deal of size is 'under study.' President A.J. Nahmad affirmed they have the balance sheet to support ambitious acquisition plans.

Tommy Moll asked about the data center market opportunity, including competitive dynamics, the size of the opportunity (previously framed at $5 billion deficit next year), traction with specific customer types, and the nature of conversations and orders with hyperscalers.

Answer

President and CEO Aaron Jagdfeld highlighted the unique opportunity due to a structural supply deficit in backup power for data centers. He noted no hyperscaler orders in the current backlog but productive conversations, with Generac working to be added to approved vendor lists. He emphasized Generac's trusted brand and aggressive expansion plans, including increased CapEx and M&A, with initial shipments already underway.

Tommy Moll asked about the data center market opportunity, including competitive dynamics, the size of the opportunity (referencing a $5 billion deficit), traction with different customer types, and the status of hyperscaler orders within the current backlog.

Answer

President and CEO Aaron Jagdfeld explained that the data center market presents a unique opportunity due to a structural supply deficit in backup power components. He noted productive conversations with hyperscalers, though no orders are currently in the backlog, and emphasized Generac's trusted brand and aggressive expansion plans, including increased CapEx and M&A exploration. He confirmed initial shipments have begun.

Tommy Moll of Stephens Inc. inquired about Generac's recent entry into the data center market, asking when revenues might become meaningful, if incumbent lead times remain extended, and what key learnings the company has gathered so far.

Answer

Chairman, President & CEO Aaron Jagdfeld described the data center opportunity as one of the largest in the company's history, with a global backlog already exceeding $150 million. He stated that revenue impact will be minimal in 2025 but a significant story for 2026. Jagdfeld highlighted a structural market deficit of roughly 5,000 generators for 2026, creating a rapid entry opportunity. He noted the company may need to make bold moves to add capacity for 2027 and beyond, potentially making the C&I segment larger than the rest of the company in the future.

Tommy Moll from Stephens sought clarification on the utility segment's recovery pace, asking if the reduced organic guidance for the year was entirely within utility and if the recovery shape was as expected but timing shifted. He also inquired about the organic earnings algorithm for 2026, beyond the 4-6% top-line growth.

Answer

Bill Sperry (EVP and CFO, Hubbell Incorporated) confirmed that the reduced organic guidance was entirely within the utility segment, and the recovery shape was as expected, but timing shifted. Gerben Bakker (Chairman, President and CEO, Hubbell Incorporated) added that the pace for distribution also shifted. Sperry outlined the organic earnings algorithm as 4-6% top-line growth with 25-30% incrementals, leading to high single-digit growth, buttressed inorganically to reach double digits.

Tommy Moll inquired if the reduction in organic revenue guidance for 2025 was entirely within the utility segment, and if the shape of the recovery, though shifted in timing, remained as expected, including for distribution. He also sought clarification on Hubbell's organic earnings algorithm for 2026, beyond the 4-6% top-line growth.

Answer

Bill Sperry, EVP and CFO, confirmed that both points regarding the utility segment's organic guidance reduction and the shifted but expected recovery shape were accurate. Gerben Bakker, Chairman, President, and CEO, added that distribution saw a good inflection in Q3, with the pace shifted. Sperry explained the organic earnings algorithm as 4-6% top-line growth with 25-30% incrementals, leading to high single-digit growth, buttressed inorganically to achieve double-digit mid-cycle sustainable earnings growth.

Inquired about the impact of copper and other commodity inflation on earnings and the company's hedging strategy. Also asked if the operational earnings outlook for the year has improved, stayed the same, or worsened, independent of accounting changes.

Answer

Management stated they use price as their primary hedge against commodity inflation and feel well-covered, not exposed. The new FIFO accounting provides more time to react to cost increases with pricing. Operationally, they are on track to meet their original goals, which is considered an accomplishment given they've had to overcome new tariff costs and a more challenging first-half volume environment.

Asked if the company could gauge the actual consumption or install rate of its products by VIP customers in 2024 to understand true demand. Also inquired about the M&A pipeline and the company's appetite for a rumored large transformer deal.

Answer

While not tracking at an SKU level, the company uses customer CapEx budgets and project plans to gauge demand, and noted that growth in the public power market in 2024 gives them confidence that install rates are growing. On M&A, they just closed a small bolt-on acquisition, the pipeline remains robust, and they declined to comment on specific rumors.

Tommy Moll asked for details on the Q4 budget flush assumption, specifically quantifying Elo's top-line contribution and the sequential quarter-over-quarter organic demand. He also inquired about the recent success in RFID, including a high-profile announcement in the fresh category, and if Zebra's business would benefit, seeking forward visibility and pipeline indicators for continued elevated growth rates.

Answer

CFO Nathan Winters stated that the Q4 guide includes $100 million from Elo, with overall organic demand expected to be flat year-on-year, excluding M&A, FX, and pricing. He noted that year-end spend is anticipated to be similar to last year. CEO Bill Burns confirmed strong double-digit RFID growth over several years, with a robust pipeline across retail, transportation & logistics, manufacturing, and government. He highlighted new opportunities in grocery (fresh category), quick-serve restaurants, and healthcare, driven by expanded use cases and Zebra's comprehensive RFID solutions.

Tommy Moll asked about the assumptions for year-end budget flush in Q4, seeking quantification of Elo's top-line contribution and the sequential organic growth. He also inquired about the forward visibility and pipeline for RFID, especially in light of recent high-profile announcements in the fresh category.

Answer

CFO Nathan Winters stated that the full-year organic growth rate remains consistent with prior guidance. For Q4, he noted that approximately 8.5 percentage points of the 9.5% growth guidance come from Elo, Photoneo, and favorable FX, with Elo contributing $100 million. This leaves organic demand flat year-on-year, with year-end spend expected at similar levels to the previous year. CEO Bill Burns highlighted strong double-digit RFID growth over several years, with a robust pipeline across retail, transportation & logistics, manufacturing, and government. He confirmed that new opportunities like fresh and grocery further drive demand, and customers continue to expand RFID use cases due to demonstrated value.

Tommy Moll sought clarification on the 'balanced' second-half outlook, asking about the underlying assumptions for large deal conversions and what was observed in Q2. He also questioned the strategic thinking behind acquiring Elo and moving more into consumer-facing markets.

Answer

CEO Bill Burns reiterated that the outlook is balanced, factoring in some year-end spending at similar levels to last year, while acknowledging softness in Europe. He explained the Elo acquisition extends Zebra's strategy into the consumer-facing side of retail and other verticals, driven by customer demand for a unified Android platform across mobile and fixed devices for use cases like self-service checkout, kiosks, and in-store media networks.

Tommy Moll inquired about the significant improvements in seller effectiveness KPIs, such as customer touches and sales per rep per day, asking about the drivers behind these inflections and the current stage of operational changes. He also sought to understand the broader macro environment by distinguishing between MSC Industrial Supply's self-help initiatives and external challenges, particularly given the national account data.

Answer

Martina McIsaac, President and COO, stated that the company is in the "third inning" of sales effectiveness, driven by a new sales management process, good territory design, and clear expectations. Erik Gershwind, CEO, described the macro environment as stable with pockets of improvement (e.g., aerospace) and stabilization (e.g., heavy equipment, agriculture), but also acute softness (e.g., heavy truck). He noted that core customer improvements are largely due to self-help initiatives like website upgrades and marketing, while national accounts are showing encouraging signs in September and October after Q4 softness. Ryan Mills, Head of IR, highlighted the core customer's five consecutive months of year-over-year growth as evidence of self-help.

Tommy Moll asked about the significant improvements in seller effectiveness KPIs, such as customer touches and sales per rep per day, seeking insight into the drivers behind these inflections and the current stage of operational changes. He also questioned how to differentiate between MSC Industrial Supply's self-help initiatives and broader macro trends, especially given national account performance.

Answer

Martina McIsaac, President and COO, indicated they are in "about the third inning" of operational changes, attributing improvements to a new sales management process, territory design, and performance assessment, enabling more effective customer coverage with fewer sellers. Erik Gershwind, CEO, described the macro environment as stable with pockets of improvement (e.g., heavy machinery, agriculture) and acute softness (e.g., heavy truck). He emphasized that core customer improvements are largely due to self-help initiatives like website upgrades and marketing, a point reinforced by Ryan Mills, Head of IR, citing five consecutive months of core customer growth despite a sub-50% MBI.

Tommy Moll from Stephens Inc. asked for more color on the nature of supplier price increases and sought a preliminary outlook for fiscal 2026 margins, including gross margin and OpEx drivers.

Answer

CEO Erik Gershwind explained that supplier price pressures have broadened from surgical tariff-related issues to more general inflation. For fiscal 2026, he cautiously projected revenue stabilization, stable gross margins, and moderating OpEx growth due to productivity efforts, suggesting a return to a more typical incremental margin profile.

Tommy Moll from Stephens Inc. asked for more detail on the nature of supplier price increases and sought a preliminary outlook for fiscal 2026 margins, focusing on gross margin and key OpEx drivers.

Answer

CEO Erik Gershwind described supplier discussions as fluid, noting that price pressures have broadened from surgical tariff-related issues to more general inflation. For fiscal 2026, Gershwind was cautious but outlined a path to more typical incremental margins, citing revenue stabilization, stable gross margins, and moderating OpEx growth driven by productivity initiatives and the leveling off of prior investments.

Tommy Moll requested a more precise outlook for Q4 HCS volumes, specifically regarding direct versus two-step expectations, given differing prior-year comps. He also asked for a framework on the potential accretion from the Durodyne and SUPCO acquisition in 2026.

Answer

CEO Alok Maskara stated that Q4 HCS direct versus two-step expectations are based on Q3 performance, implying a greater decline in two-step, with parts and accessories growing more in two-step. He noted that the one-step business is impacted by weak residential new construction. CFO Michael Quenzer estimated the Durodyne and SUPCO acquisition could be accretive by $0.30-$0.40 per share in 2026, with 25% EBITDA margins before amortization, contributing to top-line growth.

Tommy Moll asked for a more precise outlook on fourth-quarter HCS volumes, specifically direct versus two-step expectations, given differing prior-year comps. He also inquired about framing reasonable accretion expectations for the recent acquisition (Durodyne and SUPCO) in 2026.

Answer

CEO Alok Maskara explained that Q3 direct versus indirect performance was applied to Q4, implying two-step would decline more than one-step. He noted parts and accessories growing across both, more so in two-step, while one-step is impacted by weak residential new construction. October trends are close to expectations. CFO Michael Quenzer estimated accretion in the $0.30 to $0.40 range for 2026, pending final purchase price allocation, highlighting the acquired business's 25% EBITDA margins before amortization and expecting incremental EBITDA margin and top-line growth.

Tommy Moll from Stephens Inc. requested details on the withdrawal of the tariff-related surcharge and asked about future tariff risks. He also questioned the philosophy behind the EPS guidance raise, suggesting it might be conservative given strong Q2 results.

Answer

CEO Alok Maskara explained that the total tariff impact is now expected to be less than half of the initial $250M estimate due to mitigation efforts and lower-than-expected China tariffs, which allowed them to withdraw the majority of the related surcharge. On guidance, Maskara cited remaining market uncertainties (tariffs, RNC weakness) for maintaining a $1 EPS range, aiming for a balanced outlook. CFO Michael Quenzer added there is some conservatism in cost assumptions.

Tommy Moll of Stephens Inc. inquired about the significant Aerospace & Defense (A&D) orders for Globe, specifically regarding shipset content for Virginia and Columbia class submarines. He also asked about the organic margin progression in A&D, the operational assumptions behind the raised Q4 guidance, margin performance at Doble, and the potential impact of the AUKUS treaty on the Maritime business.

Answer

President and CEO Bryan Sayler stated that while he couldn't detail new shipset content from the Maritime acquisition yet, the company is very upbeat about the Navy's progression. SVP & CFO Chris Tucker highlighted phenomenal core A&D margins driven by favorable pricing, lower material headwinds, positive mix, and sales leverage. Tucker confirmed the Q4 outlook is operationally stronger, not just due to interest savings from the VACCO sale proceeds. He explained that Doble's Q3 margin dip was due to sales timing and that year-to-date performance remains strong. Sayler addressed the AUKUS treaty, noting it reinforces their conviction in UK shipbuilding investments, though the direct impact is long-term.

Tommy Moll of Stephens Inc. asked about the details of recent large Aerospace & Defense orders for submarine programs, the drivers of the segment's strong organic margin expansion, clarification on the improved Q4 operational outlook, margin performance at the Doble business, and the potential impact of the AUKUS treaty on the Maritime business.

Answer

President and CEO Bryan Sayler confirmed significant submarine orders and viewed the AUKUS treaty as a long-term positive reinforcing UK naval investment, but noted specifics on new Maritime content would be shared later. SVP & CFO Chris Tucker attributed strong A&D margins to price realization, favorable material costs, positive mix, and operating leverage. Tucker also confirmed the Q4 operational outlook has improved and explained that a Q3 margin dip in the Doble business was due to shipment timing, not a fundamental issue, with strong orders indicating future strength.

Tommy Moll of Stephens Inc. inquired about the Aerospace & Defense segment's large submarine-related orders, organic margin progression, and the drivers of the updated EPS guidance. He also asked about margin performance at the Doble business and the potential impact of the AUKUS treaty on the Maritime business.

Answer

President and CEO Bryan Sayler and SVP & CFO Chris Tucker confirmed that A&D margins were exceptionally strong due to favorable pricing, mix, and operational leverage. They noted the updated guidance reflects a stronger Q4 operational outlook, lower tariffs, and reduced interest expense. Regarding the Utility segment, they explained a Q3 margin dip at Doble was due to shipment timing, not a fundamental issue, with strong orders pointing to future strength. Bryan Sayler also commented that the AUKUS treaty reinforces the long-term value of the company's UK naval investments.

Tommy Moll of Stephens Inc. asked about the significant Aerospace & Defense orders for Globe, the drivers behind the segment's strong organic margin performance, the updated Q4 operational outlook, margin progression at Doble, and the potential impact of the AUKUS submarine treaty on the Maritime business.

Answer

President and CEO Bryan Saylor confirmed the positive outlook for naval programs but noted specific shipset content details for the new Maritime business would be shared later. He also stated that the AUKUS treaty, while long-term, reinforces the company's investment conviction in UK shipbuilding. SVP and CFO Chris Tucker attributed the strong A&D margins to favorable pricing, better-than-expected material costs, positive mix, and sales leverage. He also confirmed the Q4 outlook is operationally stronger and explained that Doble's Q3 margin dip was due to sales timing, with the year-to-date performance remaining very strong.

Tommy Moll of Stephens Inc. inquired about the large Aerospace & Defense orders for Globe, specifically regarding shipset content and the pipeline for Virginia and Columbia class submarines. He also asked about the drivers of organic A&D margin progression, the implied operational strength in the updated Q4 guidance, margin performance at the Doble business, and the potential impact of the AUKUS treaty on the Maritime business.

Answer

President, CEO & Director Bryan Sayler stated there was no significant change to Globe's content but noted additional content from the Maritime acquisition, with details to be shared later. He also viewed the AUKUS treaty as a long-term positive that reinforces UK shipbuilding investments. SVP & CFO Chris Tucker explained that strong A&D margins were driven by favorable pricing, better material costs, positive mix, and sales leverage. Both executives confirmed the Q4 operational outlook is stronger than previously guided. Tucker attributed a Q3 margin dip at Doble to shipment timing, emphasizing strong year-to-date performance and robust orders.

Tommy Moll asked about the drivers for the strong growth in Annual Recurring Revenue (ARR), including service attach rates and successful product categories. He also inquired about the Q4 guidance, which implies flat sequential sales and lower EBITDA, and later asked about the long-term interplay between faster-growing recurring revenue and total reported revenue for fiscal 2026.

Answer

President, CEO & Director Ron Konezny explained that ARR growth is driven by higher attach rates, with nearly all new IT business now including attached services. For Q4 guidance, he noted that caution around product mix impacting gross margin is the primary factor for the profit outlook. Regarding the long-term model, Konezny confirmed that ARR and profitability are expected to continue outpacing top-line growth, as the company prioritizes higher-margin, multi-year solution sales which are more valuable despite dampening one-time revenue.

Tommy Moll asked about the rationale for delaying tariff-related price increases until the normal September cycle and the decision-making behind Zoro's SKU count reduction.

Answer

CEO D.G. Macpherson explained that maintaining a normal price increase schedule was best for customer stability and that the LIFO impact was a more significant factor than the price-cost timing. Regarding Zoro, he stated that the SKU reduction was a healthy process to remove low-volume 'noise' products and improve the customer experience, with plans to continue expanding the assortment thoughtfully.

Tommy Moll of Stephens Inc. inquired about the rationale for delaying tariff-related price increases to the standard September cycle and the strategy behind Zoro's significant SKU count reduction.

Answer

CEO D.G. Macpherson explained that the decision to maintain the normal price increase schedule was to ensure customer stability, noting positive feedback. He emphasized that the primary driver of gross profit pressure is the LIFO accounting impact. Regarding Zoro, he described the SKU reduction as a healthy process to eliminate non-performing products that created 'noise' and to improve the overall customer experience, with plans to continue expanding the assortment thoughtfully.

Tommy Moll asked for more insight into the utility business, specifically the performance of the public power segment versus investor-owned utilities (IOUs), and questioned the visibility and metrics supporting the significant increase in the full-year data center growth outlook from 20% to 40%.

Answer

Chairman, President & CEO John Engel detailed that while IOUs returned to growth, public power customers are lagging due to a slower destocking cycle but are expected to recover in the second half. Regarding data centers, Engel emphasized WESCO's outstanding visibility, which stems from direct end-user relationships, shared customer build schedules, a record backlog up 36% year-over-year, and an expanding scope of supply driven by AI applications.

Tommy Moll of Stephens Inc. inquired about the outlook for the third quarter, asking for specifics on July's daily sales pacing and whether to expect any significant changes to the consolidated EBITDA margin compared to the second quarter's performance. He also requested an operational update on the Canadian branch consolidation.

Answer

EVP & CFO Ron Knutson responded that July's sales trends were consistent with Q2. He noted that while Jexpro Services faces tougher comps in the second half, Lawson Products has easier ones, creating a netting effect. Knutson stated there were no unusual items in Q2's margin but reminded that Q4 typically sees some compression from fewer selling days. Regarding Canada, he confirmed they are early in the process of consolidating six locations, with four slated for 2025, and that the process is proceeding well without major disruptions. He also highlighted the strong standalone performance of Bolt Supply, which achieved nearly 16% EBITDA margins.

Tommy Moll of Stephens Inc. asked for guidance on third-quarter performance, including July's daily sales pacing and the consolidated EBITDA margin outlook. He also requested an operational update on the Canadian branch consolidation.

Answer

EVP & CFO Ron Knutson responded that July's sales trends were consistent with Q2, noting that while Jexpro faces tougher comps in the second half, Lawson has easier ones. He stated there were no unusual items affecting Q2 margins that would impact the rest of the year, but pointed out Q4 has fewer selling days. Regarding Canada, Knutson confirmed that four of six planned facility consolidations are in process for 2025 and that the company is realizing its underwritten gross margin expansion goals.

Tommy Moll of Stephens Inc. sought clarification on the Q4 outlook, asking if the guided high single-digit sequential revenue decline should be based on the Q3 guidance that includes or excludes the one-time benefit. He also asked about the planning cycle and visibility for the logistics business into next year.

Answer

CFO Dennis Fehr clarified that the Q4 seasonal decline guidance should be applied to the Q3 revenue guidance that *excludes* the one-time benefit. CEO Matt Moschner explained that while Cognex has multi-year discussions with logistics customers, firm orders typically fall within a 3-to-6-month visibility window once CapEx is approved, a trend he sees as stable.

Tommy Moll of Stephens Inc. asked for more insight into the upcoming enhancements for fastenal.com aimed at capturing spot-buy purchases and how competitors are responding to Fastenal's market share gains.

Answer

CEO Daniel Florness detailed the significant opportunity in capturing spot-buy business from existing large accounts and smaller customers through an improved e-commerce platform, aiming to stabilize and grow the under-$5k customer segment. President & CSO Jeffery Watts noted that competitors find it difficult to match Fastenal's global footprint and integrated supply chain solutions, which provides a competitive advantage, especially during times of uncertainty like the current tariff environment.