Margin Impact
Q: Why did gross margin drop 70bps?
A: Management explained that the 70bps decline in gross margin was driven by persistent commodity deflation and a shift in the sales mix, reflecting the tough market environment in Q2. "

Pricing Guidance
Q: What is H2 pricing cadence?
A: They expect modest price improvements in the back half, with Q3 continuing deflation and Q4 nearing flat pricing as tariff effects begin to stabilize the market. "

Deflation Impact
Q: Are deflation effects due to inventory losses?
A: Management clarified that the margin pressure is not from inventory losses but from tough bidding environments caused by ongoing commodity deflation. "

Mix Impact
Q: How much mix affects margins?
A: Approximately one-third of the margin pressure resulted from a shift in the sales mix, with the remainder attributed to deflation, and little evidence of significant customer trade-down. "

Commodity Trends
Q: What key commodity movements are seen?
A: They noted that copper remains inflationary while steel and PVC are experiencing deflationary pressures, affecting cost structures across segments. "

Operating Margin Outlook
Q: What margins are expected in H2?
A: Guidance indicates operating margins should recover to the mid-8–9% range in the second half, aided by seasonal uplift and cost control measures. "

Pricing Impact
Q: How do tariffs affect pricing?
A: Tariff influences are expected to partly stabilize commodity deflation, leading to a more balanced pricing dynamic between inputs and finished goods, though conditions remain dynamic. "

Cost Efficiency
Q: What are the growth investment costs?
A: Investments, particularly in HVAC and capital projects, have driven OpEx growth by around 5.5% while headcount remained flat, reflecting a drive for better cost efficiency. "

Customer Group Growth
Q: Organic or M&A-driven growth?
A: The majority of growth in key groups—HVAC up 17% and Waterworks up 10%—was organic, with only a minor contribution from acquisitions, underscoring strong internal performance. "

Competitive Dynamics
Q: Did share gains pressure margins?
A: While share gains did put some pressure on margins in the latter part of the year, management believes that improved pricing discipline and operational adjustments are beginning to rebalance this trade-off for sustainable performance. "

Demand Trends
Q: How is commercial demand trending?
A: Despite modest market pressures, February’s performance aligned with the overall Q2 growth, and full-year guidance remains in the low single-digit range. "

Infrastructure Funding
Q: Any DOGE or federal funding effects?
A: There are no near-term DOGE impacts, and infrastructure investments are primarily driven by local market needs rather than federal funding initiatives. "

Waterworks Mix
Q: Is residential in waterworks declining?
A: There is a slight shift away from residential within Waterworks, yet the overall balanced mix across public works and municipal segments remains robust. "

Finished Goods Pricing
Q: Are list price increases realized?
A: Management noted that most finished goods price increases are passed through to the customer, even though variability exists when pricing is done on a project-by-project basis. "

Fire Segment Challenge
Q: How is the fire segment affected?
A: The fire business continues to show strong volume, but is notably impacted by steel pipe deflation, which poses a significant commodity challenge. "

Margin & SG&A Outlook
Q: Will SG&A recovery offset margin drops?
A: Despite deflationary pressures, operating margins are held steady across segments, with strategic investments balancing out SG&A recovery challenges. "

Long-term Framework
Q: Is the long-term framework sound?
A: Management remains confident in the long-term strategy, targeting sustained above-market growth with disciplined cost management and eventual margin improvements. "