Andrew Bonfield: Yes. So at that time, Michael, and thanks for the question, obviously, we were in a situation where actually demand was reducing when we did see those inventory reductions from dealers. And what that did mean, obviously, was the production levels were declining much more rapidly, which impacted overall, both leverage as well as absorption. As we look it out over this period of time, we are still seeing healthy demand as we’ve indicated. We actually still expect positive sales to users in the second half of the year. What that does mean is when we are making modest inventory adjustments and dealers are making modest inventory adjustments, we are able to absorb that a little bit better than we have done historically.
The whole point about all of this is, just to remind everybody, we’re around the midpoint of the range. We are actually being proactive with our dealers, particularly around things like excavators, where there’s a little bit better availability to actually help them reduce inventory at a time when actually demand remains very strong out there in the market.
Michael Feniger: Andrew, just to put a fine point on it, obviously, dealer retail sales accelerated in the quarter. To inform your view that dealer inventories for the rest of the year, your comfortability around it, do you expect those retail sales to accelerate? Is that your base case? Is it to moderate slightly and remain positive? Just directionally to give us comfortability with the second half, how are your retail sales outlook in the second half informing your view on the inventory levels out there? Thank you.
Andrew Bonfield: Yes. So if you actually take the view that we expect retail sales to continue to grow in the second half, we’re not giving a prediction as to whether they’ll accelerate or decelerate. That’s all we’re going to be saying about that. But just a point is actually, with a deal inventory reduction and with actually increased retail sales, the levels of inventory that actually dealers hold on a month basis actually would decline by the end of the year. That’s how the math works.
Michael Feniger: Thanks.
Operator: And your next question comes from the line of Rob Wertheimer with Melius Research. Your line is open.
Robert Wertheimer: Hi, so my question is actually on Cat’s own inventories. And I know you’ve got rising sales to deal with, at least so far. But I’m curious, are you still holding safety stock on raw materials and components? Is any of the finished goods waiting on completion? Or is it all just rising sales flowing through? And then just maybe how much cash could come out of inventory if inventories normalize slightly? Thanks.
James Umpleby: Good morning, Rob. Thanks for your question. So certainly, we are still seeing supply chain challenges. As I mentioned earlier, there is an overall improvement but it only takes one part to prevent us from shipping a machine or engine. And so we’re still dealing with supply chain constraints around large engines, which impact both E&T and machines. And we also have some issues with things like semiconductors for displays that are impacting other machines as well. So to answer your question, our inventory, quite frankly, is a bit higher than I would like. And I do expect over time, as supply chain conditions improve, that we will be able to be more lean and improve our turns. So the good news is that even with our factory is not running as lean as we would like and having a bit more inventory internally than we would like, we still of course, produced very strong cash in the quarter.
So I won’t quantify how much cash could come out of inventory. But certainly, if in fact, we were — when we get back to pre-pandemic levels in the supply chain, we should be able to free up some additional cash.
