Brooks Mallard: We don’t only give guidance by segment. We just laid it out in total terms.
Mike Halloran: Okay. Thanks for that. Appreciate it.
Brooks Mallard: Yep.
Operator: Your next question comes from the line of Andy Kaplowitz of Citigroup. Please go ahead.
Andy Kaplowitz: Hey, good morning everyone.
Ivo Jurek: Morning, Andy.
Brooks Mallard: Morning.
Andy Kaplowitz: Ivo, could you give us a little more color on what you’re seeing by region? You mentioned the 28% growth in China, but that was a little worse than you expected and part of the reason for the lower core guidance. So could you talk about what you’re seeing on the ground there and your outlook for the rest of the year? And then you mentioned a difficult comparison in North America. Is it the personal mobility turn down there or anything else that sort of happened over there?
Ivo Jurek: Yes. No, great. Look, on China, we had a terrific quarter, obviously, vis-à-vis second quarter performance kind of looking at what’s happening out there around our competitors and some of the reporting companies. So I feel that the team is executing really, really well. But we’ve anticipated, frankly speaking, that China recovery is going to take a little stronger hold than what we have seen. And if anything, I would say that it slowed down a little bit further as we were exiting second quarter. So now we anticipate that China is going to be kind of flat to low single digits up for the full year which would imply that the recovery is not going to be as robust in the second half as what we thought. And if you kind of look at the segments, I mean obviously, Auto in China is very strong, both on the OEM side as well as on the replacement side of our franchise.
I think that we see some very strong numbers there in terms of automotive performance. And industrial is a little bit weaker. But again, I mean, it’s – you take a look at some of the export data, some of the industrial activity in China, taxing surveys. And I think that certainly, our performance is more in line with what you see kind of externally reported. And on the question on personal mobility, personal mobility is more associated with just the channel rebalancing. So we have seen some of the consumer weakness to roll in, there was lots of equipment that has been built over the last kind of 18 months, and that’s creating some short-term headwinds in the end market. But I’ll say that our design activity remains incredibly robust. We have a pipeline of opportunities that we are converting at a very high rate, that’s at all-time high nearly $400 million of those opportunities in the pipeline.
So a very significant number of programs that we were awarded in Q2, and we are very confident in our ability to continue to deliver on our midterm objectives that we’ve laid down for personal mobility. So – and I think I stated that obviously, there will be ups and downs in some of the quarterly deliveries in mobility, but it’s a very, very strong future prospect for the business.
Andy Kaplowitz: Very helpful, Ivo. And then headed into the second half of 2023 and into 2024, it seems like price versus [ph] cost is trending better than you thought, but could you confirm that? And then you mentioned a number of initiatives that you – that could enhance Gates profitability as you go forward. Maybe you can talk about some of these initiatives you’re working on as you head into 2024?
Rich Kwas: Andy, it’s Rich. Did you ask about price cost in the first part of the question?
Andy Kaplowitz: Yes, exactly.
Ivo Jurek: Yes. Look, price/cost remains positive. It was quite positive in second quarter, obviously, and it remains positive in second half albeit more moderating. We are starting to see some level of deflation, but not to a significant degree. And we will obviously continue to price in accordance with the operating environment in terms of how inflation is going to be performing in the second half.
Rich Kwas: Longer-term projects
Ivo Jurek: On the longer-term projects, yes. So we’ve spoken about having a number of projects that we anticipate to bring to a foray in terms of more operational footprint realignment. We have long ways in executing that project in China. We anticipate it will be done by the end of the year. That’s simply closing a facility in Shanghai area moving in into one of our existing facilities outside of Shanghai. So that’s a good savings project. And we have a number of incremental projects that as we are catching up. to our demand and as our capacity is more aligned with the underlying demand trends, we expect that over the next 18 months, we’ll be in a position to be able to execute number of incremental projects that are going to give us the opportunity to set the business to a lower breakeven point.
And obviously, we’ve spoken a number of our 80/20 initiatives that goes are proceeding quite well. We anticipate that is kind of for five year process where we believe we can continue to deliver and derive benefits in terms of profitability. So, we are reasonably confident that we can continue to expand our gross profit and ultimately have that translate into operating earnings.
Operator: Thank you. Your next question comes from the line of Julian Mitchell of Barclays. Please go ahead.
Julian Mitchell: Thanks, good morning. Maybe just wanted to sort of focus on the sales guide looking out a bit. So, I think your guidance implies organic sales in the fourth quarter are down year-on-year, maybe low single digits. So, I just wondered if you could confirm that. And then when we think about that in the context of history, I think the only downturn I’ve seen since you came public was about six quarters, seven quarters long in terms of sales. How are you sort of advising us to think about the longevity of that next downturn starting in the fourth quarter? Thank you.
