安朗杰 (ALLE) 2026 Q3 法說會逐字稿

Good day, everyone. My name is Shell, and I will be your conference operator today. At this time, I would like to welcome you to the Allegion third quarter earnings call. (Operator Instructions)

At this time, I would like to turn the call over to Josh Pokrzywinski, Vice President, Investor Relations.

Thank you, Shell. Good morning, everyone. Thank you for joining us for Allegion's third quarter 2026 earnings call. With me today are John Stone, President and Chief Executive Officer; and Mike Wagnes, Senior Vice President and Chief Financial Officer of Allegion.

Our earnings release, which was issued earlier this morning, and the presentation we will refer to in today's call are available on our website at investor.allegion.com. This call will be recorded and archived on our website.

Please go to slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements that are made pursuant to the Safe Harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements.

Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details.

Please go to slide 3, and I'll turn the call over to John.

Thanks, Josh. Good morning, everyone, and thanks for joining us. Third quarter results were driven by strong organic growth in the Americas led by double-digit organic growth in our non-residential business. The team's performance reinforces what I hope you've come to believe about Allegion. We're a leader in security and access with premium brands and the highest margins in a great industry.

Our resilient business model has the proven ability to navigate inflation and withstand cyclical forces based on the value we provide to our customers and the large installed base we serve.

This model continues to evolve with technology as security and access become electrified and digitized, a trend we expect to benefit market leaders like Allegion for many years to come.

All of this allows us to deliver double-digit EPS growth through the cycle as we outlined at our Investor Day in May of last year.

Digging into the quarter, our Americas business is performing very well.

With continued momentum and spec writing trends through our demand generation engine, we expect non-residential strength to continue into 2027, which we'll comment on later in the presentation.

Residential has performed well in 2026 despite consumer headwinds from inflation and interest rates. However, these dynamics also make it difficult to forecast a strong recovery in the medium term.

I'm also pleased with another quarter of margin expansion in the Americas. We have managed inflation well thus far in 2026, primarily through agile pricing actions that continued in the third quarter.

In international, we have resolved the ERP challenge we highlighted in Q1, and that business is back to normal operations and lead times. However, as discussed last quarter, macro conditions are difficult across Western Europe, particularly in our largest market, Germany.

And we continue to be focused on execution and cost management in our international segment.

With respect to our full year, we're raising our reported revenue outlook to 9.5% to 10.5% and our outlook for organic revenue growth to 5% to 6% based on stronger demand and favorable price in the Americas.

We are raising our adjusted earnings per share outlook to $9.05 to $9.10. I'll provide additional details on this later in the call.

Please go to slide 4 and let's take a look at capital allocation, starting with our organic investments. In September, we launched the Allegion Optimize app in the Americas. Allegion Optimize gives installers, end users, and our channel partners one tool to commission, configure, manage, and troubleshoot our connected products throughout their life cycle.

We're rolling Optimize out initially across electronic door controls and locks, and we expect this app will ultimately manage our full non-residential connected portfolio globally.

Offering a single app to cover management of multiple product categories is a first in our industry.

Customers will benefit from faster, easier experiences with our intuitive interface that eliminates the friction of switching between multiple standalone apps for connected devices.

Turning to M&A, we completed the acquisition of the Overly Door Company in early October for approximately $90 million. Overly manufactures specialty doors for acoustics, blast, bullet resistance, and vault security. Overly's high-security solutions serve commercial and institutional customers with strength across US government, education, and healthcare markets.

Similar to our 2024 acquisition of Krieger specialty products, this complements our hollow metal portfolio with additional specialty products and regional capability. We expect Overly to add approximately one point to Americas revenues on an annualized basis at margins consistent with the overall enterprise.

Recently, we also made a $40 million follow-on investment in Ambient.ai through Allegion Ventures. Ambient.ai continues to prove the transformative potential of purpose-built AI and physical security, helping customers shift their security operations from reactive to proactive. This investment underscores our confidence in their technology, their leadership, and our increased collaboration.

Allegion paid $46 million in dividends and repurchased $120 million of shares in the quarter. We see attractive valuation in Allegion shares and expect to remain active in share repurchase. As we've said in the past, you can expect Allegion to be balanced, disciplined, and consistent with capital deployment oriented to profitable growth and driving long-term returns for shareholders.

Mike will now walk you through the third quarter financial results.

Thanks, John, and good morning, everyone. Thanks for joining today's call. Please go to slide 5. Revenue for the third quarter was approximately $1.2 billion, an increase of 9.6% compared to last year. Organic revenue increased 7.2% in the quarter, driven by strength in our Americas segment.

The enterprise organic revenue increase was driven by both price realization and volume growth. Third-quarter adjusted operating margin was 24.7%, up 60 basis points compared to last year. Price and productivity net of inflation and investment was favorable by $15.6 million and was a 50 basis point tailwind to margin rate.

Volume leverage was also a tailwind to margin rate in the quarter. This favorability was partially offset by acquisitions, which were a 20 basis point headwind to margins.

I'll provide more details on revenue and margins within each of the regions. Adjusted earnings per share of $2.60 increased $0.30 or 13% versus the prior year. Operating income inclusive of acquisitions drove the majority of the year-over-year EPS growth.

Additionally, benefits from interest and other and share count were offset by a headwind from tax. Please note, third quarter 2026 adjusted operating income and adjusted earnings per share exclude the favorable impact from IEEPA tariff refunds. You can find additional information regarding this in our press release in 10-Q, which were filed this morning.

Finally, year-to-date available cash flow was $539.4 million, up 11.2% from the prior year. I'll provide more details on cash flow in the balance sheet a little later in the presentation.

Please go to slide number 6. Our Americas segment delivered revenue of $942.4 million, which was up 11.7% on a reported basis and up 9.1% on an organic basis. Our non-residential business increased low double digits organically driven by price and volume growth. Demand for our non-residential products remains healthy and as John mentioned earlier, specification activity continues to be strong. Our residential business grew mid-single digits in the quarter driven by price, consistent with year-to-date trends.

Electronics revenue for the segment was up low double digits for the quarter and continues to be a long-term growth driver for the business. In addition, acquisitions contributed 2.6% of growth in the quarter. Americas adjusted operating income of $283.8 million increased 12.6% versus the prior year. Adjusted operating margins were up 20 basis points in the quarter.

Price and productivity, net of inflation and investment was favorable by $13.5 million and was a 20 basis point tailwind to margins. Volume leverage was also a tailwind to margin rates. However, acquisitions were a 40 basis point headwind as we expected.

Please go to slide number 7. Our international segment delivered revenue of $230.2 million, which was up 1.8% on a reported basis and down slightly organically as favorable pricing was offset by lower volumes. The volume decline was the result of continued weakness in Western Europe as John discussed earlier. Acquisitions contributed 2.5% to segment revenue and currency was a headwind in the quarter.

International adjusted operating income of $31.9 million decreased 1.2% versus the prior year. Adjusted operating margin for the quarter decreased 40 basis points. Price and productivity net of inflation and investment was a 30 basis point tailwind to margin rate in the quarter. Net acquisitions drove a benefit to margin rates of 20 basis points. These benefits were more than offset by headwinds related to lower volume and unfavorable mix.

Please go to slide 8 and I'll provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $539.4 million, an increase of 11.2% versus the prior year. The cash flow increase was primarily driven by higher earnings. For 2026, we still anticipate our ACF conversion will be in the range of 85% to 95% of adjusted net income. Next, working capital as a percent of revenue was 7.9%, consistent with the prior year. Finally, our balance sheet remains healthy with a net debt to adjusted EBITDA at 1.5 times.

I will now hand the call back over to John.

Thanks, Mike. Please go to slide 9. With one quarter remaining in the year, we're raising our organic revenue growth outlook to 5% to 6% and adjusted EPS outlook to $9.05 to $9.10. We are raising our reported revenue outlook to 9.5% to 10.5% based on changes to the organic growth range and acquisitions. You can find more details on our outlook in the appendix.

In the Americas, we're raising our organic growth assumption to 7% to 8%, consistent with year-to-date organic growth in the segment. This is a result of a healthier non-residential demand environment and higher price realization. For international, our organic growth outlook remains unchanged at down low single digits as market demand in Europe, particularly Germany, remains weak.

For full year 2026, we expect to deliver low double-digit EPS growth consistent with our long-term earnings framework. As in prior periods, this outlook excludes the benefit of future capital deployment and therefore assumes a share count of 85.6 million.

Please go to slide 10. We'll provide our full 2027 outlook in February, but in the meantime, consistent with our usual practice, we'll share some high-level perspectives on the year ahead. We expect demand in our major end markets to be similar to current year with growth led by strength in the Americas.

Spec-writing trends support optimism on non-residential markets over the next several years, particularly in the context of our late cycle business model. Residential markets continue to face headwinds from inflation and high interest rates, but multiple years of low activity supports a stable demand outlook in 2027 with growth driven primarily by price.

International markets are expected to remain soft, driven by weak economic activity and persistent inflation. We expect to remain in an inflationary environment and will continue to drive pricing to protect operating profit dollars.

Operating leverage in the Americas segment should be consistent with our long-term framework for incremental margins. Internationally, we remain focused on self-help and have some benefit of carryover cost savings from 2026 actions. We plan to stay active in deploying capital, pairing bolt-on acquisitions with share repurchase.

Please go to slide 11. In summary, Allegion delivered high single-digit organic revenue growth this quarter, fueled by the strength of our Americas non-residential business. For the full year 2026, we're raising our reported revenue outlook and our adjusted EPS outlook. We remain agile and focused on strong execution. The Allegion team expects to continue delivering on our commitments and driving value for shareholders.

With that, we'll take your questions.

(Operator Instructions) John O'Dea, Vertical Research.

John, can you just talk a little bit more and unpack some of the strength that you're seeing in Americas non-res, the organic this quarter, kind of equal parts volume and price, and so in particular volume that's in that mid-single-digit type of territory? If you could talk a little bit about the end market strength there, where the spec writing activity is seeing signs of strength and any degree to which you think you're winning in the market and some of this to share related.

Yeah, Joe, appreciate the question. And certainly. As Americas non-residential is the largest business segment of the company and really our most important and high single digits this year, combination of volume and price. Our specification activity continues to be strong, as we've said the past few quarters, and that strength continues to be broad-based.

Certainly, growth in data center. Forms a good base for 2027 volume growth as we look forward, but we do expect other verticals to contribute there as well. And as we mentioned in the prepared remarks, we see an inflationary environment continuing, and you should expect price to remain elevated as a result.

We do feel that I think trade labor, skilled trade labor can be a bit of a governor. Year-on-year market growth. But again, as we said in kind of looking forward into 2027, that kind of high-single-digit environment with a combination of price and volume, what we feel is quite well supported by our specification activity.

With respect to where are we winning, I think our team wins every time we step on the field. We've got great brands, we've got a great field marketing and sales force, we've got great distribution partners and I think tough to say with share as we've answered many times in the past, we sell through distribution, so pinning down market share numbers in this space is kind of hard.

I appreciate that color. And then just given some of the headlines earlier this month, I wanted to ask about your technology integration with smart home providers.

If you could give a little bit of color on developments around the technology integration, how broadly penetrated you are with that across different providers and your perception of any risks attached to new entrants into the hardware space?

It's a timely question. And yeah, we saw the news media headlines as well as you did. So I would say first off, Allegion through our Schlage brand has been an innovation leader there and electronic and connected locking in the residential space for the past seven years. Schlage is Americas most trusted lock brand. We've got a great. Brand reputation, great product portfolio. We're integrated with all the major smart home devices and providers. We're integrated with Airbnb, as we've talked about on previous calls as well.

But you wind the clock back, it'd be maybe eight or nine years ago. We were the first Wi-Fi-connected deadbolt that integrated with Apple HomeKit.

That innovation has not slowed down, and I'd say with regards to new entrants into the space, that happens from time to time, I would say the product category that these companies have indicated they might be introducing a lock into.

Represents a low-single-digit percentage of Americas revenue and even smaller portion of Americas operating profit just to size it for you. But we feel confident in the Schlage brand and Schlage portfolio. And I think our performance this year in a rather soft demand environment speaks for itself.

Rafe Jadrosich, Bank of America.

Hi, good morning. Thanks for taking my question. Just starting on the pricing in Americas. On a year-over-year basis, it did not sort of maintained a similar level in 3Q versus 2Q, but you are lapping a lot tougher of a comp. Was there incremental pricing that was announced in 3Q? And then how do we think about that going forward?

Yeah, thanks for the question. If you remember last year, our pricing started to step up in the back half of 2025 as we dealt with the new tariff impacts that were implemented by the administration. So the comp app got tougher starting really in Q3. So you saw that this year we have a tougher comp.

The thing to remember about our business is we've been facing consistent inflationary pressure. So the days of just setting pricing once across the portfolio in early February. It's kind of changed over the last couple of years. So we take pricing as needed to combat inflationary pressures. So we've put in multiple price increases across select parts of our business.

I think the key thing to think about our business is we're always going to drive that pricing and productivity to try to cover that inflation and investment. And as you've seen over the last couple of years, we've been able to do that, driving positive dollars.

And then as you think of the current year, think of it as that PPII neutral on a margin rate for the full year and some positive dollars. So there's going to be pricing actions, but it's not going to be the one-time in the beginning of the year that you might have known Allegion to do in, let's say, 2014 through 2019. It's been a more consistent adaptable environment to the changing inflationary pressures we face.

Okay, that's helpful. So it does sound like there's been some incremental pricing, which is why you're not slowing kind of on the two-year. Can you just talk about your visibility on the level of inflation you're expecting into next year, maybe compared to this year? What are you expecting in terms of input costs and then like how much price you would need to offset that?

I would say obviously the details of the magnitude of exact pricing and inflation, we'll give that when we give the outlook in February when we announce earnings. In general though, think of it as we're planning for a highly inflationary environment.

And so we're going to make sure that we take the necessary actions. To price our products to combat that environment that we're in today and we expect to continue into next year. The magnitude of it? We'll come back to you in February, but just remember we're focused on driving that pricing and productivity to offset that inflation and investments and expect us to do that into next year as well. But the details of the actual percentages, let us finish out the year and get back to you in February.

Alexander Virgo, Evercore ISI.

Yeah, thanks very much. Good morning, gentlemen. Appreciate you taking the question. I wonder if you could just talk a little bit to the sort of implied slowdown in the guide in Q4, just sort of thinking about is that something that's just a reflection of prudence given the comps get easier?

And then just to clarify on the pricing and the carryover into the first half, I suppose, of next year, any chance you can give us a sense of how much that might end up being? Thank you.

Hey, Alex, this is John. I would say a couple of things. Largest business segment being our Americas non-residential business, and that's a construction facing business. Project size has been growing, and that's going to put a little lumpiness when you look quarter to quarter. And what we think is the better thing to look at is just the year to date or the full year high single-digit organic growth that that business is driving.

Taking one quarter and extrapolating that forward is not the best idea. There's going to be some lumpiness because of project size. There's going to be some lumpiness because we're construction facing. And in the Americas, the middle two quarters are always going to have a little bit more construction activity than the two tails. I'm going to ask Mike to step in and speak to the pricing part of the question.

Yeah, there will be carryover. Pricing into next year. I think it's more important for you as you think about next year. Carryover wouldn't be sufficient, obviously, as you think about the back half of the year. We do anticipate putting that pricing increase in early February next year.

We'll announce that, obviously, to the channel partners first. But as you think about pricing next year, think of an elevated inflationary environment and expect Allegion to put that pricing announcement in early February like we customarily do to drive that pricing also for the back half of the year.

Timothy Wojs, Baird.

Maybe just on the pricing cadence, Mike, I mean, just, kind of transitioning, it sounds like a little bit to maybe more, I'd say kind of selective pricing as well as kind of broad based pricing. Does that change your ability to kind of line up price with inflation versus historically, I think there's been a little bit of a lag or does it really kind of change that timing dynamic at all?

Tim, if you think about our business over the last, I'd say, a year and a half, we've gotten better at reacting to inflationary pressure, so you don't see that significant a lag that you might have saw in 2021.

Some of the challenges we encountered in '21, we've learned from, and as you've seen over the last year and a half, we are quicker. I don't expect to see periods of time where there's big headwinds because we're late in taking those pricing actions.

Look for us to take pricing to combat inflationary pressures and driving that PPII. We talk about neutral on a dollar basis, if you think about quarters, then over the course of the year, it tends to be neutral, on a rate, as you saw this year, but we're committing to at least driving that neutrality on a dollar basis.

Okay.

I'm sorry, positive on a dollar basis, neutral on a margin rate basis.

Thank you, Josh.

On a rate basis. Yeah. Okay. Okay. And then I guess just a bigger-picture question. John, could you kind of talk about the AI impact on your spec writing business?

What you guys are working on implementing and if that's an opportunity for productivity, but also, for, I guess, greater volume, if you can be more efficient with the spec writing network.

Yeah, it's a good question, Tim, and I think we're making some really well thought out and exciting investments internally on leverage of AI tools and that's across every function in the business. And when you think about what does an AI model of any flavor, LLM or otherwise. Need to really do a good job for you. It needs a very large and robust data set.

And when we're specifying 2.5 million openings in any given year, we've got an exceptionally large data set to train models on and use those models for efficiency, just like you're saying. That's happening right now. It's happening in conjunction with channel partners, so our responsiveness.

In terms of initial specification or change orders is definitely increasing for the benefit of the customer. So I think we're in the pole position really to make the best use of AI in a spec writing environment from an accuracy and a speed standpoint. And it's really built upon this enormous data set that we've built up over time, and we'll continue to build.

[Andy Batodia], Goldman Sachs.

Yeah, congrats on the quarter and good growth there on the non-residential side. I did want to touch upon the residential growth. We saw mid-single-digit growth organically, but I believe it's largely attributed to price realization with the AIA ABI coming in yesterday and the September read was weaker than expected, August and July was also below the 50 number. So I just wanted to understand what you've seen from a volume standpoint on the resi side. What has happened to like underlying demand there and when would you expect to return to positive volume growth absent of pricing?

Yeah, I appreciate the question. And I'd say consistent with our prepared remarks, you're right in that growth in our residential business that recently has been driven primarily by price, the end market volume has been kind of flattish.

Price realization has driven that. And as we said, looking forward, it's tough given high inflation and high interest rates to expect any kind of strong recovery in the residential sector, but we also don't see it getting a lot worse.

And so I think that informs our look into 2027, that growth in the residential space will primarily be driven by price.

Okay, got it. That makes sense. And I guess switching gears, more holistically, I wanted to touch upon your data center opportunity.

Where does Allegion participate today? Is it more like the door hardware, perimeter security? Is it other solutions? And how large is this opportunity for you? What portion of your non-residential growth is more data center linked?

Yeah, it's a good question. And I'd say we are active in the data center space. I think our specification writers, our end user consultants have done a great job in terms of getting a leading position in terms of doors and door hardware with the large data center builders.

As we mentioned in the second quarter, data centers were approaching 5% of our non-residential business. I'd say it's there now, growing rapidly and has been a source of volume growth this year, and we look for that to continue.

I would just keep in mind whatever you believe about data center construction and buildout, doors and door hardware are some of the last things to go into the building on the construction project. We are late cycle on each project. So we do feel good about the trends there and about our market position with respect to our core products.

Got it. Thanks, John. I'll get back in queue.

(Operator Instructions) David MacGregor, Longbow Research.

Good morning, everyone. Congratulations on a great quarter, John. And I appreciate the early preliminary thoughts on 2027. I guess I want to ask about your acquisition program and 2025 was obviously a more M&A active year than 2026. And I'm just wondering how much of that slower pace in '26 related to the need to make progress on integrating the '25 transactions versus maybe valuations or funnel development issues. But how are you thinking about 2027? Could it be a more active year and what would need to change to make it a more active year?

That's a really good question, David. And I would say, first off, if you look at 2025, just from a deal count perspective, we would say that was, let's just say, very high.

And M&A of any sort is rather episodic in its timing. It's not something that I think anyone can do on this perfectly linear basis. So I don't think. 25 as a deal count as any kind of benchmark or goal or any of that. What we're after on acquisitions is what we talked about at our 2025 Investor Day, looking to complement and continue to build out our mechanical portfolio like we just did with the acquisition of Overly Door Company. Very excited about that one.

Add electronics, add electromechanical. Acquisitions and complementary software for those faster growth verticals in our segment. And I think the point on the pace is really while we are oriented towards profitable growth, we do see acquisitions continuing to be a part of our growth story for the future. We're going to be very disciplined on what we buy strategically and what we buy from a valuation perspective. So those acquisitions that come in are going to drive good value for our shareholders and not just growth for growth's sake. So I think that's going to throttle the pace of deal flow more so than anything else, just being disciplined around our strategy and around what we pay.

Thanks for that. Just secondly, and for the cash flow model here, I'm just wondering how higher freight logistics costs influence how you think about your inventory levels going forward?

Yeah, David, obviously, if you think about cash conversion, we've thrown out that 85% to 95% cash conversion. I wouldn't expect to see any change to that percentage based on something like freight. That's a pretty big range for us.

With inventory, we'll always be smart to make sure that we have the necessary parts to ship product.

So but if there's inflationary pressure, which there is, it will impact inventory on the balance sheet, right, because inventory costs more. The key thing for us and as I think about it, are we driving the necessary pricing, which I talked about earlier in the call. So I would say if you think about the framework, 85% to 95% ACF conversion, I think that's a.

Decent framework to think of us long-term at and then inventory levels, I think they won't move enough to where it impacts that framework we provided.

Brandon Knutson, Morgan Stanley.

Hi, good morning. Can you hear me okay? Great. I wanted to start out on electronics. You've seen strong growth there after the year started mid-single digits accelerating on a two-year stack essentially as you go throughout the year. Are you seeing an acceleration in electronics adoption? Are there any actions that you're taking currently to drive that acceleration that we're seeing this year?

Yeah, I think we're always driving for growth in electronics. And that comes from everything you can think of, from demand generation engine with our specs, introducing new products. We have introduced a new family of connected locks in the commercial space. I’m very proud of that, very excited about the launch. It's going well. So steady stream of new products driving organic growth.

Excellence in our demand generation engine and our end user consulting. And I'd say the way we continue to think about it is high single-digit growth driver for the business over the cycle.

Quarter to quarter, is there some lumpiness here and there? Does a comp make things look a little lumpy from time to time? Always. But over the cycle, high single-digit growth driver for the business, and we see continued trends of both new adoption of electronics and conversion from mechanical to electronics and now even upgrades of old E locks to new electronic locks.

All those factors are coming into play and I think we're well positioned to take advantage.

Great, thank you. And then on the residential side, you highlighted that the growth there is primarily going to be driven by price. As you see continued sort of macro headwinds from higher interest rates, is it getting harder to get price? Are you seeing any pushback from your customers on the pricing front? Any color there?

Yeah, I think that's fair to always expect some pushback and some negotiation. That's how those things go. But inflation is real, inflation is high, we are pushing price. To cover for that as Mike has said a couple of times on the call and in the Q&A, and we'll continue to do that. We just feel that given the current environment, we don't see reason to expect a strong recovery in the residential space in the medium term.

Great. Thank you. I'll pass it on.

Julian Mitchell, JPMorgan.

Hi, good morning. Just wanted to start off with a question around the sort of end markets into next year and when you look back historically at Allegion and the relationship of non-residential orders and sales to changes in the interest rate environment, I suppose anything you could. Share with us on how recent rate moves have affected your commentary. So I think you talked about high single-digit organic growth again in Americas non-residential into 2027.

Are you assuming anything changes in terms of the composition of end markets driving that because of what's happened recently in rates and when would you think rates would show up in terms of slowing any commercial new construction activity?

Yeah, I appreciate the question, Julian. And I'd say a couple things. One would be the growth in data centers. This is all new build. This is the next add to our large installed base. So that new build kind of has its own dynamics. And again, it's whatever you believe about that build out and that continued strength.

We are participating, we're participating well, and we're late cycle in each of those projects. So I do feel good about our position there and the rather long tail that we would expect to see.

Elsewhere, as we've mentioned in the past couple of quarters, and you can see it in the news as well, recent JLL reports have even said commercial office demand has five straight quarters of growth, kind of coming back from the dead after the pandemic and the work from home dynamics. You see that in major metro areas, New York and San Fran really leading the way. So some tower work has come back that hasn't been there in a while.

Multifamily is some places contracting, other places growing. So I think when you look at Allegion, never forget that portfolio. Our sales force, our demand generation engine is broad-based. That's also where we feel justified in our optimism that our spec writing shows strength broad-based. So it's across all the institutional verticals. And the commercial verticals have started to show some signs of life. And again, data centers just being its own dynamic right now that's very strong.

That's helpful. Thank you. And then just on the margins and the aspects around that 50 bps tailwind from PPII that you've seen, is that a good kind of placeholder, assuming no major changes in the cost inputs from here, just wanted to check on that. And it looks like your guidance embeds a step up in margin improvement year-on-year in fourth-quarter from what we've seen in the last few quarters. Anything specific to call out there? Thank you.

Yeah, Julian, if you think about for this year, 2026, we would expect to see flat to slightly up margins for the full year, obviously, that means fourth-quarter has that step up as you just mentioned. A part of that is comp related if you think about especially in the Americas last year, that rate was a little lower, so we have some favorability.

As you think about next year, we expect to see margin expansion. The magnitude of that is similar to my comments earlier. When we get to February, we'll give an outlook. Couple of things we did put on the slide though as you think about next year, expect us to drive that PPII, right, to combat the inflationary pressure.

And then in the Americas, the core incrementals that we highlighted at our Investor Day, think of next year within the parameters of that framework we laid out, so you have an idea as to the amount of margin expansion next year, we'll come back in February and we'll give you that when we give EPS, but at least we wanted to provide you some framework for you to think about next year as part of this earnings call.

That's great.

Thank you. At this time, I see no more callers in the queue, so I'll hand the call back to John Stone for closing remarks.

Well, thank you all for joining the call and thanks for a great Q&A. We look forward to connecting with you on our full-year earnings call in February. Be safe, be healthy.

Thank you for joining the call. You may now disconnect.