Tomohiko Sano

Tomohiko Sano asked for an update on the $200 million-plus robotic actuators pipeline and expectations for orders in 2026 and 2027. He also inquired about the net leverage target for 2026 and capital allocation priorities.

Answer

CEO Lewis Pinkham expressed excitement about the robotics pipeline and Kollmorgen Essentials but maintained a low double-digit growth outlook for the automation business, noting it's too early to predict acceleration from humanoids. CFO Rob Rehard stated the net leverage target for 2026 is about 2.7x by year-end, reaching around 3x by mid-year. He emphasized prioritizing debt paydown and CapEx for growth and supply chain realignments, aiming for less than 2.5x leverage before considering other capital allocation options. CEO Lewis Pinkham also participated in the discussion.

Tomohiko Sano asked for the latest developments and order expectations for 2026 and 2027 regarding the $200 million+ robotic actuators pipeline. He also inquired about the net leverage target for 2026 and the company's capital allocation priorities.

Answer

CEO Louis Pinkham expressed excitement about the robotic actuators pipeline and new products like Kollmorgen Essentials, but maintained a low double-digit growth outlook for the automation business, noting the early stage of humanoid opportunities. CFO Rob Rehard stated the net leverage target for 2026 is approximately 2.7x by year-end, with debt paydown remaining the priority. He added that the company aims for less than 2.5x leverage before considering other capital allocation options.

Tomo Sano asked about the expected persistence of one-time costs, such as integration expenses and inventory write-downs, recognized in the current quarter, and when margin recovery is anticipated once these costs subside. He also requested an update on the market outlook for the Engineered Building Solutions (EBS) business, including its growth strategies, margin improvement initiatives, and any organic or inorganic plans, noting the focus on other segments for recent M&A.

Answer

James Perry clarified that transaction expenses are largely behind them, while some integration expenses for ERP implementation will continue but be adjusted out. He confirmed the inventory write-off was a one-time event related to a terminated distribution relationship. Joseph Armes described EBS as the most cyclical business, facing a tough commercial construction market. He highlighted new product development as a key organic growth opportunity and noted that while the Toronto market backlog is being revenued, new high-rise residential starts in Canada have slowed. He expressed confidence in EBS's positioning for market recovery and its focus on high-end institutional projects.

Tomo Sano asked about the persistence of costs such as integration and inventory write-downs recognized in the quarter, and when margin recovery is anticipated once these costs subside. He also requested an update on the market outlook, growth strategies, and margin improvement initiatives for the Engineered Building Solutions (EBS) business, including both organic and inorganic approaches.

Answer

James Perry, EVP and CFO, clarified that transaction expenses are largely behind, while integration costs will continue but be adjusted out, and the inventory write-off was a one-time event. He emphasized Adjusted EBITDA margin as the best comparative tool. Joseph Armes, Chairman, CEO and President, described EBS as the most cyclical business facing a tough commercial construction market, highlighting organic growth opportunities from new product development and project wins, and positioning the segment for a market rebound.

Tomo Sano asked about Alliance Laundry's supply chain management amidst global disruptions and the progress of its digital solutions and service-based revenue initiatives.

Answer

CEO Mike Schoeb stated that Alliance Laundry has not experienced meaningful supply chain disruptions, maintaining sufficient inventory and alternative sources. Regarding digital solutions, he explained that while service-based revenue is currently minimal, the focus is on leveraging data and analytics from hundreds of thousands of connected machines, citing the early success of Scan-Pay-Wash with over 90,000 transactions in 90 days.

Tomo Sano asked about Alliance Laundry's management of supply chain challenges and inventory levels amidst global disruptions, and progress in expanding digital solutions and service-based revenues like Laundry IQ and SaaS offerings.

Answer

CEO Mike Shabe stated that supply chain issues have been minimal, with sufficient inventory and alternate sources to manage any blips. On digitalization, Mr. Shabe highlighted that while service revenue is currently minimal, the focus is on leveraging analytics and data from hundreds of thousands of connected machines. He cited the ScanPayWash launch, which saw over 90,000 transactions in 90 days, as an example of additive digital strength.

Tomo Sano asked for an update on the current competitive landscape in the pest control industry, how Rollins' modernization efforts differentiate it from competitors, and expectations for these initiatives in maintaining or expanding market position.

Answer

Jerry Gahlhoff (President and CEO) stated that the competitive landscape remains healthy and unchanged, with Rollins taking market share through its multiple brands and diverse customer acquisition methods (e.g., HomeTeam's builder channel, Fox's door-to-door, Orkin's brand power and performance marketing). Ken Krause (EVP and CFO) added that Rollins' leadership in growth and its reputation as an acquirer of choice further solidify its strong competitive position.

Tomo Sano asked about the current status of APi Group's M&A pipeline, including prioritized geographies and service lines for future bolt-on acquisitions, and inquired about labor availability, technician retention, wage pressures, and capacity constraints.

Answer

Russ Becker, President and CEO, indicated that the M&A cadence would remain similar, with culture, values, and fit being the primary criteria. He noted that most transactions occur in North America Safety (fire protection, electronic security, elevators), with international activity dependent on 'country readiness.' Mr. Becker also mentioned looking at slightly larger opportunities. On labor, he emphasized strong retention (north of 90%) due to purpose-driven leadership and investment in people. He highlighted efforts to recruit from non-traditional places and robust training programs, stating that labor constraints are an industry-wide challenge requiring innovative solutions.

Tomohiko Sano from JPMorgan Chase & Co. asked for color on the drivers of sustained double-digit inspection growth, the impact of technology and AI on margins, and progress with digital strategies internationally.

Answer

EVP & CFO David Jackola noted that low-to-mid single-digit pricing contributes to growth. President and CEO Russ Becker added that technology and AI are expected to provide SG&A leverage over time, though efforts are in the 'first inning.' Regarding international digital strategies like Chubb Vision, he stated it's in its infancy but represents a tremendous opportunity given the company's 50 million connected devices.

Tomohiko Sano inquired about the pricing outlook for 2026, specifically whether new products, innovation, and high-end launches are expected to support price increases, considering demand and volume.

Answer

Chris Koch, Chair, President, and CEO, expects new products and enhanced customer service to enable Carlisle to extract value and increase content per square foot. For 2026, if volumes return to healthy levels, he anticipates being compensated for these advantages. He outlined key conditions for a strong year: positive new construction (0.5-1%), rational capacity utilization, labor shortages, and increasing reroofing demand. He noted that if new construction turns positive in 2026, he expects significant upward pricing momentum.

Tomohiko Sano from JPMorgan Chase & Co. asked about the pricing outlook for 2026, specifically whether new products, innovation, and high-end product launches are expected to support price increases, contingent on demand and volume.

Answer

Chris Koch, Chair, President, and CEO, affirmed that Carlisle expects to extract value from new products and enhanced customer service, pricing to value. He stated that if volumes return to healthy levels in 2026 and new construction turns positive, combined with rational capacity utilization, labor shortages, and increasing reroofing demand, he would expect to see upward momentum on pricing.

Tomohiko Sano of JPMorgan Chase & Co. requested more color on pricing power in the stable commercial reroofing market versus other segments and sought clarification on the full-year EPS outlook, noting a more tempered tone.

Answer

CFO Kevin Zdimal explained that pricing for innovation is based on the value delivered, such as labor or energy savings. CEO D. Christian Koch added that the 'Carlisle Experience' reinforces this value, helping maintain price. Regarding the outlook, Zdimal confirmed that while the forecast is lower than the previous double-digit growth expectation, the company still anticipates achieving a record EPS year in 2025.

Tomohiko Sano asked for clarification on the EBITDA margin pressure, specifically detailing the timing-related cost headwinds from higher incentive compensation and medical costs, and their expected trend into Q4 and 2026. He also inquired about macro and market trends for education, healthcare, and data centers.

Answer

CFO Chris Calzaretta attributed higher SG&A to incentive compensation due to strong financial performance, noting it's not a go-forward run rate. He explained medical costs were an atypical Q3 spike from high-cost claims, not expected to recur. CEO Vic Grizzle added that education and healthcare segments remain stable, with healthcare slightly positive, and the data center market continues to be robust.

Tomohiko Sano inquired about the EBITDA margin pressure, specifically the timing-related cost headwinds such as higher incentive compensation and medical costs, and how these are expected to trend in Q4 2025 and into 2026. He also asked for an update on macro and market trends for education, healthcare, and data centers for Q4 2025 and 2026.

Answer

CFO Chris Calzaretta clarified that higher SG&A in the Mineral Fiber segment was due to increased incentive compensation, reflecting strong year-to-date financial performance and an updated full-year outlook, and is not indicative of future quarterly run rates. He added that higher medical costs were due to an atypical uptick in high-cost claims in Q3, which is not expected to recur. CEO Vic Grizzle stated that education and healthcare segments remain stabilized, with healthcare showing slightly positive trends. He confirmed that the data center opportunity continues to be robust, supported by new product launches.

Tomohiko Sano asked about the financial contribution of the Temploc product to Mineral Fiber sales and AUV, and its potential for future acceleration. He also inquired about the evolution of the Canopy e-commerce platform and any plans to expand its product offerings.

Answer

CEO Vic Grizzle stated that while Temploc's current sales impact is minimal due to being in the early stages of market development, key building blocks like inclusion in IES software and IRA tax credits are in place for future growth. He added that the Canopy platform is successfully reaching smaller customers and is becoming increasingly profitable, with plans to continue expanding its portfolio.

Tomohiko Sano with JPMorgan Chase & Co. asked about the revised CapEx guidance, specifically inquiring about the items that were adjusted for the full year compared to three months prior. Sano also asked about A. O. Smith's capital allocation priorities going forward, particularly in a persistent macro headwind environment, focusing on buybacks, dividends, and acquisitions.

Answer

Stephen Shafer, Chief Executive Officer, explained that the CapEx outlook was slightly lowered due to pushing out some planned Q4 investments into early next year, partly related to prudence around DOE commercial regulatory initiatives. Charles Lauber, Chief Financial Officer, emphasized the importance of the dividend, the strategy of using buybacks to manage cash levels while reserving firepower for acquisitions, and the continued focus on deploying capital to strengthen the resilient core business and explore higher-growth adjacencies.

Tomohiko Sano asked about the revised CapEx guidance, specifically what items were adjusted for the full year. He also inquired about A. O. Smith's capital allocation priorities going forward, particularly if macro headwinds persist.

Answer

Stephen Shafer, CEO, explained that the CapEx outlook was slightly lowered due to pushing out some Q4 investments into early next year, partly related to prudence around DOE commercial regulatory initiatives. Charles Lauber, CFO, emphasized the importance of the dividend, which has been raised for 32 years. He stated that buybacks are framed to not grow cash while reserving firepower for strategic acquisitions that meet their criteria. Stephen Shafer added that they continue to deploy capital to their resilient core business while also seeking adjacencies for higher growth.

Tomo Sano inquired about tariffs and pricing, specifically if Allegion is observing any signs of pricing fatigue or customer weakness, and how other market players are reacting to pricing.

Answer

President and CEO John Stone stated that Allegion's teams and customers have responded well to the inflationary impact of tariffs, and the industry as a whole has seen price realization. He affirmed Allegion's readiness to cover continued inflationary pressures with price. Given the healthy demand environment in non-residential markets, he has not observed any signs of pricing fatigue.

Tomo Sano asked about the residential outlook for Q4 in the Americas, noting the mid-single-digit improvement in Q3 and the lack of clear recovery signs for 2026. He sought insight into expected Q4 performance and the contribution of new electronic products. He also inquired about pricing power and agility in managing tariff-related costs, asking if there are signs of pricing fatigue or customer weakness, and how other market players are reacting.

Answer

SVP and CFO Mike Wagnes stated that overall residential market demand remains soft, and while Q3 benefited from new e-lock introductions (like the Arrive lock), Q4 is expected to align more with the softer market demand, not mid-single-digit positive growth. President and CEO John Stone affirmed that Allegion's teams and customers have responded well to tariff-related inflation, with the industry seeing price realization. He noted healthy non-residential demand and no signs of pricing fatigue, with Allegion ready to cover continued inflationary pressures with price.

Tomohiko Sano of JPMorgan Chase & Co. asked about the outlook for the International business in the second half, given the volume decline in Q2, and how the company expects to achieve its full-year flat organic growth forecast. He also inquired about the margin impact of recent acquisitions in the segment and the expected margin levels into 2026.

Answer

SVP & CFO Mike Wagnes noted that the fourth quarter is seasonally the strongest for the International business and reiterated the full-year outlook for roughly flat organic performance. He highlighted that the Elletech acquisition is margin accretive, with margins in the mid-20s percent range, and that M&A in the segment should be viewed as accretive to the overall International margin rate.

Tomohiko Sano requested more insight into the outlook for utility segment pricing trends, considering Valmont's and competitors' capacity expansions, and how pricing might evolve for 2026 and beyond.

Answer

Tom Liguori, EVP and CFO, explained that current favorable pricing is partly due to Q1 tariff mitigation plans, with a strong bid market and tight demand-supply dynamics supporting healthy margins. He anticipates the pricing outlook to remain strong for the foreseeable future.

Tomohiko Sano asked for more color on the outlook for utility segment pricing trends, considering capacity expansions by both Valmont and competitors. He also inquired whether the $11 million bad debt expense in agriculture margins was expected to continue in Q4 and beyond.

Answer

EVP and CFO Tom Liguori stated that the pricing outlook for the utility segment remains strong due to a tight demand-supply balance in the bid market, healthy margins on winning projects, and ongoing tariff mitigation pricing. Regarding agriculture margins, he explained that the $11 million bad debt expense was a prudent reserve for Brazil exposures, indicating that Q4 might still be challenging but expressing confidence that issues would be resolved by Q1, leading to double-digit operating margins.