Alamo Group Inc. (NYSE:ALG) Q4 2023 Earnings Call Transcript

Alamo Group Inc. (NYSE:ALG) Q4 2023 Earnings Call Transcript February 23, 2024

Alamo Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Alamo Group Incorporated Fourth Quarter 2023 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Edward Rizzuti, Executive Vice President, General Counsel and Secretary. Please go ahead, sir.

Edward Rizzuti: Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746, and we will send you a release and make sure you are on the company’s distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1-877-344-7529 with the passcode 1294689. Additionally, the call is being webcast on the company’s website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Jeff Leonard, President and Chief Executive Officer; and Richard Wehrle, Executive Vice President, Chief Financial Officer, and Treasurer.

Management will make some opening remarks and then we will open-up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Jeff, I’d like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the company’s actual results in future periods to differ materially from forecasted results.

Among those factors which could cause actual results to differ materially are the following; adverse economic conditions which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints competition, weather, seasonality, currency-related issues, geopolitical events, and other risk factors listed from time-to-time in the company’s SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Jeff Leonard. Jeff, please go ahead.

Jeff Leonard: Thank you, Ed. I’d like to again thank everyone, who’s joined us on the conference call today and to express our appreciation for your continued interest in Alamo. The fourth quarter shaped up broadly in line with our expectations and we were very pleased with the financial results we reported today, despite gathering headwinds in several of our served markets, our teams achieved record quarterly sales and earnings for the ninth consecutive quarter. I would now like to turn the call over to Richard Wehrle, who will take us through a review of our financial results for the fourth quarter. I will then provide additional comments on the results and say a few words about the outlook as we enter 2024. Following our formal remarks, we look forward to taking your questions. Richard, please go ahead.

Richard Wehrle: Thanks, Jeff, and good morning, everyone. Alamo Group’s fourth quarter 2023 closed with an excellent performance that produced record net sales and net income, driven by continued strong demand of our products. Fourth quarter consolidated net sales were $417.5 million, an increase of 8% compared to $386.6 million in the fourth quarter of last year. Gross margin dollars increased by $11 million and gross margin percent was up almost 80 basis points in the quarter compared to the fourth quarter of 2022. Both margin dollars and percentage increase were driven by higher volume and price initiatives, we’ve had in place along with improved productivity. Operating income for the fourth quarter came in at $44.8 million versus $42.7 million in the fourth quarter of 2022, an increase of 5%.

Operating income as a percent of sales was just under 11% for the fourth quarter versus 11% for the same quarter last year. Consolidated net income for the fourth quarter was $31.5 million, or $2.63 per share diluted — per diluted share, an increase of 8% versus net income of $29.2 million or $2.44 per diluted share for the fourth quarter of 2022. Vegetation management was off in total sales compared to the fourth quarter of 2022. We expected this softness coming in both forestry and agricultural markets. Net sales were $214.4 million, a decrease of 8% compared to $232.5 million for the fourth quarter of 2022. As we have continued to monitor dealer inventory levels, which are up, but not at historical levels, we honored dealer requests during the quarter to reschedule shipments until 2024, which was a big reason for lower sales.

The division’s operating income for the fourth quarter was $19.8 million, down 35% versus $30.2 million for the same period in 2022. Industrial Equipment division, net sales had a tremendous quarter, coming in at $203.2 million, up 32% compared to $154.1 million for the fourth quarter of 2022 this was due to a solid performance across all product lines, particularly vacuum trucks, sweepers, debris collectors and stone removal equipment. While truck chassis deliveries and component part receipts return to more consistent cadence, there were a few late component deliveries that impacted this division’s operations, although, not as significantly as in previous quarters. This resulted in a substantial rise in operating income in the fourth quarter of 2023 — just over $25 million compared to $12.5 million for the fourth quarter of 2022, an increase of over 100%.

Consolidated net sales were a record for the full year of 2023, coming in at just under $1.7 billion, up 12% compared to $1.5 billion for full year of 2022. Strong demand for our products in both divisions along with positive impacts of pricing initiatives and improved supply chain and productivity were the main drivers of the increase. Consolidated sales were the highest in the company history. 2023 gross margin percent was up almost 200 basis points and gross margin increased $77 million versus 2022 an increase of 20%. The margin improvement resulted from continued improvement in supply chain conditions, which led to efficiencies and enhanced capacity utilization. Full year operating income for 2023 was just under $198 million or slightly below 12% of sales compared to a full year of 2022, which was $148.6 million, just under 10% of sales up 33% increase in operating income dollars and 190 basis point increase in operating income as a percent of sales.

Net income for 2023 was $136.2 million or $11.36 per diluted share versus net income of $101.9 million or $8.54 per diluted share for 2022, an increase of 34%. The company’s backlog at the end of 2023 came in at just over $860 million. That’s down 15% compared to backlog levels at the end of 2022. A few additional financial items I’d like to cover that relate to the balance sheet at the end of 2023, which continues to remain extremely strong. Working capital increased $53 million compared to the end of 2022, increased primarily from higher accounts receivable and to a lesser extent, inventory. For the full year of 2023, we reduced our debt level on our credit facility by almost $67 million. Our bank leverage ratio at the end of 2023 was just under 1:1, which is at lowest level in just over eight years — four years, excuse me.

And finally, the company’s trailing 12-month EBITDA was a record coming in at just under $247 million, up 26% compared to calendar 2022. For 2024, cash flow should remain strong as our focus will be continuing to reduce both inventory and debt. We will remain disciplined in execution on controlling costs and expenses in as inflation is expected to continue to put pressure on our margins. Supply chain will continue to be a major focus to reduce the amount of work in process we hold. So in summary, Q4 was a record for the quarter for Alamo Group. Sales were up 8%, which translated into an 8% increase in net income. We are also pleased that our Board recently approved an increase of our regular quarterly dividend of $0.22 per share to $0.26 per share for 2024.

With that, I’ll turn the call back over to Jeff.

Jeff Leonard: Thank you, Richard. We want to thank everyone who joined us on the conference call today. In the fourth quarter, we produced solid financial results that were broadly in line with our expectations. We were especially pleased that our fourth quarter results established the company’s ninth consecutive quarter of record sales and earnings. Overall, our markets continue to display significant strength during the fourth quarter, although they began to diverge directionally as we closed out the year. Municipal, county and state agencies continue to accelerate their investment in renewal and modernization of their infrastructure maintenance fleets. State rainy day funds remain near all-time highs and ended 2023 nearly double what they were before the pandemic in 2019.

The pace of spending by state and municipal governments continue to accelerate last year relative to 2022 and double-digit annual spending growth was reported again in 2023. This continued to drive robust demand across our full product offering in the Industrial Equipment division as well as our roadside and specialty mowing products in the vegetation management division. The market for our forestry and tree care products was more challenging in the fourth quarter as negative trends emerged in the wood biomass market. According to the USDA, United States wood pellet exports increased 6% by weight and the price per ton also increased 6% relative to 2022. Less positively, domestic suppliers are confronting cost pressures and tight supplies of Westwood Feedstocks that are pressuring margins in the long-term supply contracts.

This slowed planned investments in major equipment. Higher interest rates also constrained ordering activity related to these larger and more expensive products. While recent biomass market dynamics were less favorable in the final month of 2023. Demand for our forestry products remained at a good level in the fourth quarter, although off from the peaks of the previous two years. In the hobby farm and ranch segment, fourth quarter trends were also mixed after a long upward run spanning several years, cattle prices declined modestly in the fourth quarter but still ended the year with strong double-digit gains. Hog prices were lower in the fourth quarter and were down for the full year as well. Agricultural crop prices, including corn, soybeans and wheat, all moved lower in the fourth quarter, although they remained at historically good levels.

As a result of these commodity price trends, US farmer sentiment declined in the fourth quarter. The higher interest rates that prevail through the second half of the year caused dealers to push inventories lower. This was most notable in the hobby farm and ranch market, where dealers deferred certain planned equipment deliveries and canceled some longer lead time orders. This dealer de-stocking pattern impacted orders within the vegetation management division. Dealers selling the products of our Industrial Equipment division have not been impacted as much by higher interest rates as they don’t carry meaningful inventories of these major order products. Looking at how these market forces drove our business in the fourth quarter. Sales in the vegetation management division were down 8% and new order bookings declined 34% compared to the fourth quarter of 2022.

Year-end order backlog in this division declined 39% relative to the fourth quarter of 2022. These numbers need to be viewed with perspective, though, as the division’s sales, orders and backlog remained elevated compared to pre-pandemic levels. The division’s fourth quarter EBITDA of 12.6% was 360 basis points lower than the prior year. However, on a full year basis, EBITDA was 80 points higher versus 2022. The division’s backlog represents a solid four months of sales at the current pace, two months longer than the level reported pre-pandemic. Fourth quarter sales were lower compared to the prior year in forestry, tree care and the hobby farm and ranch markets, but sales of mowers to governmental agencies were sharply higher. Fourth quarter EBITDA was impacted by costs associated with sales incentives to motivate retail sales, although these incentives were more modest than those employed in the second and third quarters.

Fourth quarter sales in the industrial equipment division were 32% higher than the prior year. The division’s order bookings in the fourth quarter were down 9% just due to a difficult comparable. This was the result of an extraordinarily large snow removal equipment order that was received in the final quarter of 2022. The year-end order backlog in this division was 18% higher than the prior year. Fourth quarter EBITDA of 15.1% was 320 basis points higher than the prior year with the improvement driven by better efficiency, better manufacturing flow, as the chassis supply situation continued to improve. Full year EBITDA of 13.6% also marked a 320 basis point improvement versus 2022. And again, this was primarily the result of improved efficiency and higher chassis receipts.

At the 2023 monthly sales pace, the division’s backlog represents approximately nine months of sales. All of the product lines within this division achieved fourth quarter sales growth in excess of 20%. We were especially pleased that Royal Truck equipment that we acquired in late October had a very strong fourth quarter, with sales more than 60% higher than the prior year. Royal Truck contributed nicely to the division’s sales and EBITDA in the quarter. We’re very excited about the new opportunities we have identified in the highway safety market and expect we can continue to grow in this area. We were also pleased that our teams were able to substantially complete the transfer of compact sweeper manufacturing from our Kent, Washington facility to our facility in Mukwonago, Wisconsin in the fourth quarter, and then to divest the Kent facility.

Overall, we were pleased with the results achieved in the fourth quarter, despite a more mixed market environment. The fact that our teams were able to offset much of the impact of the more challenging conditions in vegetation management, with performance improvements in industrial equipment, clearly shows the strength of our product offering. As we enter 2024, the trends evident in the fourth quarter are expected to continue. The excess channel inventory and vegetation management will take some time to work through, and it now appears that the highly anticipated benefits of an interest rate reduction may not occur until later in the year. We are closely monitoring this and will not hesitate to adjust our capacity as needed to match current demand.

We’ve remained bullish on the prospects for our industrial equipment division and expect the good momentum evident in the fourth quarter to continue, driven by elevated spending by governmental agencies, combined with a modest sustained tailwind from the federal infrastructure bill. We’re expecting another sequential improvement in chassis receipts in the first half of 2024, and this will help sustain a reasonable level of organic growth. Our balance sheet is strong, and we’ve reduced total debt by more than 22%, or more than $67 million during 2023. This positions us well for what we expect will be a more active M&A market in 2024. So in conclusion, we believe the company is in a good position as we enter 2024, and we’re optimistic about our prospects for the new year.

Before closing my remarks today, I’d like to thank our customers, dealers, suppliers, our thousands of exceptional employees and our financial stakeholders for their continued support for the company. This concludes our prepared remarks. We’re now ready to take your questions. So operator, please go ahead.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Mig Dobre with Baird. Please go ahead.

Mig Dobre: Good morning. Thank you for taking the question.

Jeff Leonard: Hi, Mig.

Mig Dobre: Maybe we can start with vegetation management. Can you maybe give us a little more insight into the order cancellations that you experienced in the quarter? And it sounds like you expect dealer destocking to continue in 2024. Is there a way to frame the overhang from the destock in dollar terms?

Jeff Leonard: I’m not sure I can give you that on this call. We can certainly put something together for you. The pace of order cancellations in the fourth quarter was actually down a bit from Q3, Mig, but it was still heavily concentrated in the hobby farm and ranch segment where dealers cancel firstly to reprice orders as we’ve seen for a while, and then to partially replace those new orders. But we’re also an off-season period in that market at the moment. So I think the real tale of the tape will be how the early months of 2024 shape up as we head into the spring season. But it really wasn’t that unusual compared to what we saw in Q3, for example. But the order softness remains, and that’s really just because the inventory still remain too high out in the dealers.

And we continue to run incentives, which elevated our marketing costs in that division to try to move those inventories out of dealer stocks. It’s been pointed out to me repeatedly that the thing you got to think about here from a dealer perspective is the dealer’s balance sheet is denominated in dollars, not units, and so as the price of those units has gone up over the years have been less units of space on the balance sheet and inventory. So it tends to squeeze short line suppliers like us maybe when those balance sheets start to come under pressure. So none of that is really surprising, we’ve been through it before. And I think we can still see some daylight towards the middle of the year of this division. I’m still optimistic that this is some clear up towards the back end of Q2.

That’s just my latest haunch.

Mig Dobre: If we look at your implied orders in the fourth quarter or calculated, if you would, orders and vegetation management, our math is about $176 million in orders. And I’m curious if you think that this level of order intake is what we should be thinking for 2024, at least for the front half of 2024? Or if you expect another step down, for instance, as this destock continues to materialize?

Jeff Leonard: Yeah, that’s a great question, Mig. I think what I would say about it is the bookings that you see are net. So it’s net of order cancellations. So it does tend to depress the order run rate. And I think we’ll continue to see those order cancellations slow for the next quarter to, which will drive the net booking number higher. So no, I don’t believe this is the new normal for long-term, certainly not for 2024. It’s hard to call the bottom in the ag space. But I think when we look at what our dealers are telling us and where their inventories are, we’re either at the bottom or close to it, really close to it right now. And so I think we should start to see those numbers ticking back up. I hope that helps you a little bit.

Mig Dobre: Yeah. No, it is helpful. I’m trying to understand from a revenue standpoint, if that’s kind of where you are in terms of bookings and backlog. So from a revenue standpoint, how we should be thinking about the front half of 2024, relative to the $214 million that you put up in the fourth quarter?

Richard Wehrle: Mig, this is Richard. We kind of think the first quarter, as we move out, it will be relatively what you’ve seen here in the fourth quarter in that general range and probably somewhat into the second quarter.

Mig Dobre: And then from a margin standpoint, sequentially, are we looking at something similar to the fourth quarter?

Edward Rizzuti: We’re hoping to hold it right where it’s at here. I think as Jeff mentioned, on the repricing we’re talking about, we think our — we think in standard gross margins, we think that will come down some. But overall, we think our efficiencies, and we’re working on reducing our purchase price variances that we can actually start getting and pushing back to our vendors to reduce costs. So our incoming — our incoming costs should come down. And if that’s the case, hopefully, we’ll hold the margins roughly in the same area that we’re at now.

Richard Wehrle: And Mig, remember, there’s some seasonality here. The Q4 spend in the revenue stream tends to be lower, and that will start to increase towards the back of the first quarter and into the second. So that should support at least a modest improvement in EBITDA, normally it does, if you look at the pattern in this division.

Mig Dobre: Okay. Understood. And then final question for me is, obviously, there’s pressure on margin in Vegetation Management. We talked about the revenue and what’s going on with destock. At what point in time do you think you’re going to have to, adjust capacity or adjust the cost base to at least try to stabilize margins if these trends continue into the back half of 2024?

Richard Wehrle: Yeah. We’re working on that right now, Mig, because we’ve had some under-absorption flow through into the P&L. And we don’t tolerate that long-term. So we’re working on that right now.

Mig Dobre: All right. I appreciate it.

Operator: The next question will come from Chris Moore with CJS Securities. Please go ahead.

Chris Moore: Hey. Good morning, guys. Thanks for taking, I have couple.

Richard Wehrle: Hi, Chris.

Chris Moore: Good morning. Maybe stay on same similar lines, but just in terms of the 12% operating margin target for this year. Is it fair to say that, it will be challenged in the first half of the year and with a little improvement, the Vegetation side, you may be back up in that arena? Or just kind of any thoughts you have at this stage?

Richard Wehrle: I do, Chris. I think as we move towards the back end of Q2, we’ll get back to that pace, because, as we said a moment ago, the margin should trend upward in The Vegetation Management, particularly notably in Q2. It will start at the back-end of this quarter in a couple of weeks’ time. It’s already starting to warm up down here in the south. So I think that will bode well for us. So I think we’ll be back there certainly within the second quarter. That’s my expectation as we sit here now. Speaker 1 As I say, it’s really hard to call the bottom on ag, because it really comes down to the sentiment of dealers. And to get this dealer sentiment improve, we need to get interest rates moving in a better direction for them.

Because they’re not really in a bad place right now. They’re just pessimistic, about what the short-term yields. Everybody was sort of factoring in this earlier in the year, interest rate reduction, which gave us a moment of optimism, and I think that crushed fairly quickly in the hobby farm and ranch segment. But in any event, we’re still going to reassess our targets. We gather up our management typically in the second quarter, early in the second quarter, pull together the best brains in the company, revised our strategy. And at that point, we’ll revise our targets. So I would say, towards the back end of the second quarter, look for some news on revised targets.

Chris Moore: Got it. Thanks.

Richard Wehrle : Chris, one other point to this too, I think we all kind of seem to forget about is how well the Industrial Equipment division is performing. I mean their margins are up every single quarter that we’ve had here going back to Q2 of next year. And as Jeff mentioned earlier, our expectation is that’s going to continue to go on as we move into balance into 2024 here. So I think that’s the beauty of our business, we’ve got two businesses here, and we can’t forget about the industrial piece, because their performance has done really well.

Jeff Leonard : And Chris, it’s Jeff. One other thing I’d like to point out, we had some extraordinarily high SG&A costs come through at the corporate level this quarter, because of the changes that we announced in our Board of Directors yesterday. We had high recruiting costs. And if you back those back out, that’s clearly a one-time event, we’d have been right on what the analysts were expecting for us in the quarter. So that’s why I said I’m still bullish, and there are some things going on in the background here that we know about that are just causing us to say, look, okay, this is a bit of a one-time event in Q1 that won’t repeat in Q2. So I still like where we sit very, very much. And as I’ve said for the last couple of quarters, these two divisions would converge in a better place, and industrial made up a little more ground than I expected in Q1.

And I think our vegetation management guys did a really good job playing deep in protecting their bottom line and did a little bit better maybe than I could have hoped they could do with the pressure on the top line in that division. Having said that, we do have some under absorption we need to deal with, and we’re going to deal with it promptly to make sure that we don’t have that repeat in the second quarter. So that’s our plan for me.

Chris Moore: Got it. That’s very helpful. And Richard, the 11.6% industrial margin this quarter, there — is that about the top? Or are there still room for even more improvement on that front?

Richard Wehrle: No, there’s going to continue to be more room for that, Chris, because as we mentioned in there, we still got component issues on a few items that when you’re dealing with something of that magnitude and the sheer size and volume of a unit that’s pretty expensive from a cost standpoint, and you miss something that doesn’t get — that we complete that unit. It sits in WIP, which our WIP is still high. We’re pushing $31-plus million in WIP and that’s very difficult to get through. It does relieve itself as you move forward. But again, sometimes you just get those things that pop out. And that’s — I think if those continue to improve, which we’re expecting we’re pushing our procurement folks to kind of get a little bit more level loading of those deliveries of those components that we need to complete these units, we’ll continue to see margins moving in the right direction for them, and it should be up.

Jeff Leonard: Yes. When you look at that division, Chris, the vacuum truck business continues to perform exceptionally well. The fleet utilization has been excellent all through the fourth quarter and it has started well in the first quarter as well. And then our sweepers group is starting to gain momentum, too. They had a nice take-up year-over-year and a nice sequential pickup quarter-over-quarter. And our snow removal group, the margins continue to expand there and their backlog is still rising. So I think when you look at the picture in the Industrial division, it looks very bullish from my point of view. And we still haven’t eliminated all of the costs related to the inefficiencies that Richard was referring to. So we’ve still got some running room to pick up there. So I think the outlook for Industrial is bullish from my point of view.

Richard Wehrle : And Chris, they came in at 12.3% EBIT for the quarter, which is a huge improvement over even Q3 by itself. And I think we’ve been asked the question, do we expect their margins to continue to go north above that? And the answer is yes.

Chris Moore: Got it. Okay. Very helpful. I will leave it there. Thanks guys.

Jeff Leonard: Thanks, Chris. Appreciate it.

Operator: Your next question will come from Mike Shlisky with D.A. Davidson. Please go ahead.

Q – Mike Shlisky: Yes. Hi. Good morning. Thanks for taking my questions

Jeff Leonard: Hi, Mike

Q – Mike Shlisky: Hi, there. So another debt reduction here in the fourth quarter and the back half of 2023, given where your business is headed here in 2024 when you take both the segments together. I’m curious, Rich, if you can give us any thoughts whether you think you can get to zero net debt by the end of the year? Or just any kind of brackets around your plans and targets for any debt reduction over the next couple of quarters?

Richard Wehrle: No, Chris, we’ve got roughly about — Mike, I’m sorry, we got about $240 million, $235 million in term. So and the balance of it is in our revolver interest to continue to move forward in 2024 and reduce the revolver done. And we do have that ability if an excess cash does come in. We can pay on the term on the back — on the long-term piece of it on the back end. So it doesn’t — that’s our intent to continue, but when we have it off to zero, no. But we’re going to do everything we can, obviously, to reduce or to eliminate the revolving piece of that debt and then continue to — any excess cash we have is to pay on the term permanently.

Jeff Leonard: And Mike, we’re obviously trying to keep this balance sheet in great shape for what we’re expecting to be a better M&A mark in 2024. We’re already seeing some signs of that. So obviously, that’s the most important thing, be ready to jump on the opportunities when they come.

Q – Mike Shlisky: Got it. And that’s kind of where I was going to go with my next question, and that was how it’s going with the Royal Truck business since you acquired it, I couldn’t have notice that your new Chairman is someone who has — who is no stranger to the highway infrastructure safety business, and you called this your next new platform. I know you mentioned in some of your opening comments, but could you maybe give us a little more detail of the number or sizing of the M&A candidate, you can maybe add to that group over the next 12 to 18 months or so.

Jeff Leonard: This space, Mike, is a typical kind of a market space we like. It’s fairly fragmented. There’s a lot of middling size companies, companies in that $30 million to $70 million annual revenue range, but then there’s a couple of big players in that space that we like a great, great deal. And so you’re right, Rick Parod, our new incoming Chairman announced this morning has a background in that space, and he went with me out of the ATSSA show, the American Traffic Safety Show a few days ago kind of picking the tires on a few things. So we like the space. We think we can grow there and we think there’s near-term opportunities there.

Q – Mike Shlisky: Got it. And if I can maybe wrap up with a more broad question. When you put together the outlook for margins in both the groups and the outlook for potentially turning around in visitation and obviously, strong growth in industrial here. I just like — can you give us some kind of sense as to whether you expect a year of growth net-net for revenues and margins in 2024 on a holistic basis.

Jeff Leonard: Rich, you want to take first

Richard Wehrle: No, I think probably what you want to look at the two divisions, the industrial, we expect revenue levels to be higher than they were in 2023 — for the vegetation management, I think probably it’s going to be a bit soft as we mentioned, as you start the half first half of the year but we think we can gain some momentum and try to get something that’s relatively in the general same ballpark of where we were in 2023.

Jeff Leonard: Yes. I still think there’s some net-net for growth, Mike. I’m the optimist in the group because I do believe we’re near the bottom on Ag. I was the first one to say, look, it’s hard to call the bottom when you’re immersed in the business. When the guys run in the business or deepened, it’s hard to call the bottom. But all the signals that I see tell me we are either at the bottom or very, very, very close to it in the hobby farm and ranch segment. So, I still — I’m still an optimist on 2024. And as I said, I’m very, very bullish on where our industrial division is going. They still got great momentum. They’re still booking good orders. Again, they had a kind of a difficult variable from a booking point of view.

And I think I mean that now a little a year ago at this time. But they had a great quarter, and their backlog is up like 18%. So, they’re really well positioned to continue to gain ground here, and that is our strategy. As one of our market segments, softens, the others accelerate. And if we can keep doing that, we’re in a really nice place. So, I think you’ll see us refresh our targets, Mike, here in a couple of months, and I think they’ll be well received. That’s my answer.

Q – Mike Shlisky: Just to follow-up there. So, flat to up in one segment, up nicely in the other segment, and both do have margin opportunities in 2024 as well, both segments?

Jeff Leonard: Yes, that’s my belief.

Q – Mike Shlisky: All right. I’ll leave it there. Thanks, guys.

Jeff Leonard: Thanks, Mike. Appreciate it.

Operator: [Operator Instructions] Our next question will come from Tim Moore with EF Hutton. Please go ahead sir.

Tim Moore: Thanks. And great full year organic sales growth and wonderful backlog finished on the Industrial Equipment side with new orders definitely ahead of my forecast there. I just want to drill more into one topic. Investors really weren’t believing or may be overlooking when your stock price is $160 in October and based on some calls I was standing, but it seems like a very good catalyst. I know Richard started highlighting this topic three questions ago, but just the Industrial Equipment operating margin runway. We know that you’ve got to — you’ll be getting operating leverage growth just on volumes. And Richard mentioned getting the whip-down with the procurement team and more inefficiencies taken out. Can you maybe dive into more just on the inefficiencies front?