We are projecting interest rates to decline in 2024, not in the first half, but we have baked in a 25-basis-point decline in borrowing rates in Q3 and 25 basis points in Q4. So that’s what drives the difference, right? This doesn’t reflect any potential acquisitions in 2024. We don’t reflect those in our guidance. But assuming that we continue to show strong cash flow and continue to pay down debt, it kind of results in this type of interest expense profile.
Jeff Zekauskas: Yeah.
John Corkrean: Celeste, do you want to talk about index pricing?
Celeste Mastin: Absolutely. So, yes, as I mentioned, when you look at our outlook for 2024, we anticipated a mid-single-digit price in 2024 and that was directly related to what we anticipate will happen with our index pricing, as well as some product reformulations for sure. So you saw that — you see that in our guidance. Those are largely a margin preservation tool, but they do, Jeff, have a little bit of a lag effect and so they are not really lumpy, but you will — what you are seeing is the impact of those raws coming down in the prior year starting to get reflected in price in the upcoming year. As far as what’s happening in raw materials, we actually right now — as you know, we monitor 4,000 different raw materials, so I am talking about raw material count here, about almost half of those materials are still in the declining phase and I — declining — I am talking about Q4 versus Q3 here.
So we will continue to have raw material benefit carryover into 2024, because it does take a while for these raw materials to make their way through production onto our P&L.
Jeff Zekauskas: Okay. And then my second question…
Celeste Mastin: Still a deflationary raw material environment.
Jeff Zekauskas: Sure. Then for my second question, if you look at your three major segments, this year HHC had a very strong year, Engineering Adhesives was pretty good and Construction was pretty tough. In 2024, which segment do you think we will do the best, which the worst, what’s the one in between? And when you look at your acquisition environment, you have spent a couple of $100 million this year on acquisitions. What do you think you are going to spend next year? What’s the outlook for opportunities as best as you can tell?
Celeste Mastin: Yeah. So when I look at these three segments, HHC, EA and CA. I think both EA and CA will do well in 2024. I’d call it, kind of mid-single-digit organic growth in both of them. CA being a little higher than EA. HHC, we will probably still see them down low-single digits as we kind of work through a lot of this index pricing, and as you know, they solidly get their feet underneath them coming out of the destocking phase. Relative to M&A, I think, you will see a very similar M&A performance and focus from us and spending in 2024 as you did in 2023.
Jeff Zekauskas: Okay. Great. Thank you so much.
Operator: Our next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.
Celeste Mastin: Good morning, David.
David Begleiter: Good morning, Celeste. Thank you. Celeste, can you talk to the Q1 guidance, sequentially implies a pretty dramatic severe decline in detrimental margins, why is that?
John Corkrean: So, David, maybe I will take that and Celeste can add to it. It’s really the reflection of the seasonality of the business. So when you look at Q1, it’s the beginning of December through the beginning of the — end of February, so you have got the Christmas and New Year’s holidays, you have Chinese New Year. So it’s always our lowest revenue quarter and that — and correspondingly lowest margin quarter. So it’s really nothing changing in the dynamics of the P&L. It’s really just the lower volume quarter for us.
David Begleiter: Understood. Thanks.
Celeste Mastin: And this year Chinese New Year is about three weeks closer to the end of our quarter. And so China’s recovery has been very inconsistent. It’s bouncing around a lot. We are anticipating we might see some impact from that.
David Begleiter: Understood. And to be clear just on raw materials. What do you expect them to be down on a percentage basis in 2024 versus 2023?
Celeste Mastin: So my reference to raw material cost reduction in 2024 is largely related to carryover. So that’s one impact. When I was speaking to our 4,000 different raw materials that we track, I was speaking about Q4 versus Q3. That’s where we saw the biggest bulk of our raw materials, not quite half was still declining. Now interestingly enough, right? A third of them are still are increasing as well. So it’s really a mixed bag as it relates to raw materials, but hopefully that clarifies my comments.
John Corkrean: And David, I can give you just a little more color. If you look what we are — what is reflected in our guidance and what we are seeing is that the impact of raw materials through the P&L year-on-year and the impact of pricing have to be relatively neutral, right? So, and as Celeste said that, the raw material impact is predominantly carryovers and it won’t be as big of a benefit this year, we talked about this year, the combination of raws and pricing. At the beginning of the year, we expect them to contribute $130 million to $150 million of benefit ended up being more than that. But next year, as I said, the raws and pricing should more or less offset, and as we said, pricing will be down kind of low-single digits. So you can kind of do the math on what that would look like from a P&L standpoint.
