Hubbell Incorporated (NYSE:HUBB) Q3 2023 Earnings Call Transcript

Hubbell Incorporated (NYSE:HUBB) Q3 2023 Earnings Call Transcript October 31, 2023

Hubbell Incorporated misses on earnings expectations. Reported EPS is $ EPS, expectations were $4.07.

Operator: Thank you for standing by. And welcome to Hubbell’s Third Quarter 2023 Earnings Conference Call [Operator Instructions]. I would now like to hand the call over to VP of Investor Relations, Dan Innamorato. Please go ahead.

Dan Innamorato: Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2023. The press release and slides are posted to the Investors section of our Web site at hubbell.com. I’m joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call.

Additionally, comments may also include non-GAAP financial measures, those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now let me turn the call over to Gerben.

Gerben Bakker: Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss Hubbell’s third quarter results. Third quarter results demonstrate continued execution off of strong first half and multiyear performance. Price realization remains strong as prior actions to offset inflation continue to stick in the marketplace, supported by our leading position and service levels in attractive markets. Additionally, improved productivity and lower year-over-year raw material costs also contributed to another quarter of significant operating margin expansion. As anticipated, we accelerated our investments in capacity, productivity and innovation initiatives in the third quarter to drive long term returns for shareholders.

We expect that grid modernization and electrification will continue to drive GDP plus growth in our markets over the next several years, and Hubbell is uniquely positioned to solve these critical infrastructure needs for our customers in front and behind the meter. These investments we are making in the second half of this year will effectively position the company to capitalize on these visible growth opportunities through best-in-class quality and service as well as through the introduction of new products and solutions. More near term, we detailed last quarter how normalizing supply chain dynamics have enabled improved manufacturing lead times and allowed our channel partners to normalize their order patterns in response to more predictable product availability.

This process continued into third quarter. Bill will walk you through more of the details in a few minutes. But overall, we continue to view this as a natural outcome of supply chain normalization. Broadly, our sell through to end markets remains healthy and our positions with our customers remain strong. We anticipate that we will be mostly through this normalization process as we exit 2023. Our visibility to continued strong operating performance gives us the confidence that we can navigate effectively through the fourth quarter to deliver at the upper half of our prior guidance range. As we look ahead to 2024, we believe we are well positioned to drive profitable growth off of a strong multiyear performance base, and I will share some more color around our early planning considerations for next year at the end of the prepared remarks.

Before I turn the call over to Bill, Hubbell announced in a press release yesterday the acquisition of Systems Control for $1.1 billion. And you’ll note in today’s presentation materials that we’ve also closed on a bolt-on acquisition of Balestro. Both of these acquisitions are high quality businesses with strong strategic fits that enhance our industry leading platform of utility components, communications and controls. Systems Control is a leading manufacturer of mission critical substation protection and control solutions. The business is complementary to our portfolio and enhances our leading value proposition to our core utility customer base. Substation automation is an attractive space within the utility market as control and relay solutions are critical to upgrading and protecting aged infrastructure, while also enabling the integration of renewables and the electrification of the grid.

Systems Control has a proven business model and a demonstrated track record of delivering value for customers and financial performance that will enhance Hubbell’s long term growth and margin profile. Balestro is a leading manufacturer of high quality utility arresters and insulators that bolts on well to our existing portfolio. Importantly, this acquisition also provides us with additional manufacturing capacity that will enable incremental output in a constrained US T&D market. Bill will provide more color on both of these acquisitions in a few minutes, but we are very pleased to deploy capital to acquire attractive businesses like these that will drive strong returns and strong long-term value for our customers and shareholders. With that, let me turn it over to Bill to walk you through the details of the quarter.

Bill Sperry: Thanks very much, Gerben. Good morning, everybody. I appreciate you taking time to join us this morning. I’m going to start my comments on Page 4 of the materials that I hope you found on the Web site. And you’ll see here highlighted strong results for the third quarter with our performance broadly consistent with the themes and trends we’ve been discussing throughout the year. If I were to try to summarize that neatly in a sentence, I would say we’ve been enjoying broad based market strength in our key end markets, which has helped support strong margin expansion primarily driven by execution on the price cost front and doing that while absorbing the channel, managing inventories down in response to the supply chain improving from pandemic depths.

And you’ll hear us talk about, I think, a lot of those themes throughout the day as we discuss our performance with you. So you see sales of about $1.4 billion, a 5% increase, 4% organic, 1% from acquisition. And again, that’s basically in line with how we’ve been guiding you. The OP margins at 21.4% plus 440 basis points for last year, marking the third quarter in 2023 where we’ve had margins above 20%, again, very strong execution particularly on the price lever there. And I’d say that we — it gave us the extra margin to help invest that we think will really help us both grow in future years as well as be more efficient. So I think as we think about earnings and profit essentially in line with our expectations, a little bit stronger on margin, maybe a little bit lighter on sales growth.

So maybe getting there a little bit differently, but certainly in line with our expectations. You see $3.95 of earnings, 28% year-over-year increase, obviously, the strong operating performance driving those results. And free cash flow of $159 million higher income in the quarter but also higher CapEx, higher investment in trade working capital. And we are confident in the year getting to $700 million, so fourth quarter is a very seasonally strong as it typically is. So I think the way we were thinking about cash flow in Gerben’s comments, he talked about multiyear trends. So we’re talking about cash flow from ’21 to ’22 to ’23, going from $425 million to $500 million to $700 million. And we’re excited about the high quality earnings giving us that cash flow, because it allows us to lean into investing and making our great company even better in the future.

Let’s go to Page 5 and we’ll see performance graphically a rate against prior year here. And I’m going to start in the upper left on sales, you see 5% increase to just under $1.4 billion. We had talked about organic being 4%, acquisitions being 1%. The acquisitions, PCX, our data center acquisition as now we’ve kind of lapped out of that. So the incremental is coming from both EIG and Ripley, which were component manufacturers in the utility space, so helping drive utility growth there mostly. On the organic 4%, price was 6% and units were down 2%. As we think about the units, there was two soft end markets that we’re managing through. One is the resi side, where we’ve had double digit declines, I think interest rates having a big effect there.

And second is on the telecom side, and we can talk a little bit more about that where we still have very strong medium-term outlook expectations for telecom. But to balance where we see units being driven down, we believe is coming from channel actions to manage their inventories in a very natural response to this kind of multiyear cycle of having our lead times gap out during pandemic problems where we had both material and labor shortages. We forced our customers, therefore, to over-order and now they’re managing that inventory back down to target at normal levels, meaning they’re selling through to our end market at a higher rate than they’re buying from us. And as Gerben said, we’re starting to see that come to an end on the electrical side around now and we’re expecting the power side to be done by year end.

So I think ’24 should start to look like a much more normal order pattern year for us with healthy markets. On the upper right, you see operating profit $295 million for the quarter, 21.4% OP margin, 31% increase in dollars and a very healthy increase in basis points of margin expansion. Interestingly, as we look at trajectory and we see sequentially those margins are down versus the second quarter, that’s primarily due to investments that we’re making, essentially on the growth side, where we’re pushing hard on new product development, innovation and also making some capacity expansions as well as on the efficiency side, where we’re focusing on sourcing. I think we’ve shared with you in the past pie charts of our cost structure and a lot of our cost in the material side.

So our sourcing actually has to be very efficient and as well as supply chain efficiency. So we’re happy to have the margin to make these investments, because we think they’re going to make us more profitable in the future as we go forward. And earnings per share on the lower left, you see a $0.28 increase to $3.95, basically in line with OP growth. We had some tax headwinds that were largely offset by interest income. So one of the interesting impacts of higher interest rates where we have significant cash balances, we’ve been earning about 5% on that cash and even better, more towards 5.5% in the US. So help offset that tax headwind to keep keep earnings growth in line. And then you see the free cash flow down 18% to prior year. We obviously had more income but we have higher CapEx, higher working capital investment in inventory.

But one big driver was the timing of receipts, which flooded in, in early October. And so October has proved to be a very cash rich month, we think going to drive a very cash rich fourth quarter, which will get us over $700 million of cash flow for the year. So again, that three year walking cash really supporting us being able to be in a net investment position. So now I want to unpack the results between our two segments. And on Page 6, I wanted to start with the Utility segment. So another strong quarter for our utility franchise, you see 8% growth in sales and nearly 40% growth in OP dollars with 5 points of operating profit margin expansion. So strong performance by the franchise here. We’ll focus on sales first, up 8% to $838 million.

7 points of that is organic, 1 being via acquisition. The organic is essentially all price, so units effectively flat. And interesting, we’re starting to really see — we report to you in these two different business units between the components for transmission and distribution versus the comms and controls business unit. And we’re starting to see the portfolio effect here where for the past couple of years, the T&D components business has been outgrowing communications and controls. Last quarter, the growth was quite balanced. In this quarter, you see comps and controls outgrowing components. I think both effects being driven effectively by supply chain disruption becoming more normalized, and let’s talk through that for a minute. So on the T&D side, we’ll talk about three components: first, transmission; second, distribution; and third, telecom.

The transmission part of the business continues to be very strong, demand strong, shipment growth strong, backlog strong, pricing strong. On the distribution side, there are elements that continue to be quite strong on backlog and growth. In particular, there’s places where there’s some part shortages and in particular, some of these MOV blocks, which we’ll talk about a little bit later that are causing some of the insulator arrester units to have just be growth constrained essentially. But where the book-and-bill parts of distribution have come back and lead times have come way back, we’re seeing again our channel managed the inventory down in some of those parts and the distribution portion bigger than transmission. Telecom is clearly weakening temporarily here.

We make primarily in closures, a little bit of connectors and hardware as well, but we make plastic, fiberglass and palmer concreting enclosures. If you’re crossing the street and you look down as you’re pushing the crosswalk button, you’ll often see on those corners a lid and our brand would say, Quazite, you might see the brand name of the telco. And those are boxes that contain the electronics, keep them safe and dry and accessible for maintenance. And Telecom had become an important customer of that — of the Enclosures business and we see very clear weakening there by the telcos. I think there’s a mix of high interest rates but we’re seeing the timing of their projects being affected by stimulus dollars where if they wait to start a project into next year, they’ll receive some stimulus and have someone else pay for it.

So we’re seeing that have pretty significant demand on the timing of projects. The medium term outlook for that spending is still very robust. So we still consider a growth vertical but having this stimulus impacted, I think, weakness. So that’s up in T&D. On the comp side, similarly affected differently by the supply chain disruption basically have been prevented from finalizing chips and AMI going into meters and so business has been constrained. We’ve seen the chip supply loosen up here in the third quarter and a nice nearly 30% growth at attractive margins. And so we see some momentum now coming on the comp side. So basically, the portfolio, the pieces and cylinders of our portfolio are firing at different times here, but the net result is a very strong performance, especially as you look over on the operating profit side on the right side of the page, nearly 40% growth to $200 million of profit at 24% margins.

Price costs, still a quite a positive dynamic. We feel good about that, that the price continues to stick. The cost has all of ’22, was inflationary from a materials perspective and ’23 actually turned to become a tailwind. So providing an awful lot of lift to that margin story and some momentum into our fourth quarter that gives us confidence, as Gerben mentioned, to raise our guidance for the fourth quarter. So again, utility franchise performing really nicely, great financial performance. And we’ll go to Page 7 to talk about the Electrical segment. And for them, quite strong execution on the operating profit line by Electrical Solution segments. You see the 17% growth and the attractive margin expansion there. All accomplished with a 1% decline in sales to $538 million, a 1% decline is comprised of price being up low single digits and the volume being down mid single digits.

And so we’re sort of talking about the different end market pieces there. And before breaking it down, I think important to note that the volume is up sequentially and we think that’s a very good sign. You’ve heard me talk about the channel managing. The inventory is down that’s most notable in our nonres exposure area. And with that volume up sequentially and as we see the order patterns emerging, we believe the fourth quarter will see the segment be able to grow. And we’d be able to discuss the end of the channel inventory management phase, which would be quite welcome. On the resi side, it’s been soft, down double digits. The industrial is the brighter part. We see growth and healthy shipments. The reshoring tailwind, we think is real. And in particular, our verticals are doing very nicely between data centers and renewables.

And so when we look to the right side of the page, we see the margin expansion. We see the growth of OP dollars while absorbing some of the volume impacts of the channel inventory management phase and soft resi. It’s actually we think quite a successful story. But Gerben in his opening comments mentioned a couple of portfolio moves. And on Page 8, I want to walk you through a little bit more detail than he gave you in his remarks. This is really the outcome of our business development process, which is very intentional and focused on finding us high growth, high margin profile businesses that we can acquire and make more valuable on our platform than they are as stand-alone companies. And we believe we have two really good instances that that I’ll talk you through and really good for — to see the cash flow performance of the enterprise really enable us to comfortably do not only two acquisitions, but one being in the $1 billion kind of size range.

So that’s good. I’m going to start at the bottom of the page with Balestro. See Balestro, an $85 million deal with $40 million of sales that I think looks very typical to you all. I would call it a very typical Hubbell tuck-in. We’ve been in contact with them on for many years. It’s exciting to get this to fruition. Balestro has a very attractive local business in Latin America, making insulated arrester products. But the real attraction for us is what you see on the left of the picture, those little hockey pucks are MOV blocks. They help take insulator arrester products, which you see kind of in the spine there and prevents the conduction of electricity, which then allows our products to really protect other expensive equipment from the high voltage surges and other damaging effects.

So effectively, our insulator arrester business in the US has been constrained by lack of availability of these MOV blocks. And so it’s an exciting deal for us to size of local business to really help us now get that supply chain vertically integrated, make more capacity available so we can actually grow and grab share in those businesses, which are high margin businesses. So very strategic acquisition for us even though of typical tuck-in sort of size. Systems control being a larger size than typical for us. On this page, I may talk about the footprint of systems control and next page, I’ll maybe switch to a little bit more what it does. But you see $1.1 billion of acquisition size with $400 million of sales, that’s all in backlog essentially.

So it’s kind of prewired for that for next year. We are anticipating closing. We’ve just signed it. We’re anticipating closing by year end as normal closing conditions get satisfied. We will be anticipating source of funds for the acquisition coming from cash and debt. As a result of the acquisition, we’re anticipating our debt-to-EBITDA being around 1.7 times on a gross basis and net basis about 1.5. So interesting to see how the balance sheet has grown and the cash flow has grown to allow $1 billion deal to be very affordable by leverage means. We’re anticipating attractive accretion from the acquisition, it may be worth noting, I think a couple of you put out some notes that were emphasizing synergies. And I would not describe systems control as a synergy oriented deal, at least on the cost side, there certainly will be cost synergies, but there’s always in the first year integration costs as well.

So the net of that doesn’t tend to be a big impact, but the real synergy for us is with our sales force and our client base really being able to grow the business very effectively. And as well, I think the second item on interest expense, we mentioned our cash. We’ve been earning about 5 points and borrowing will probably be in the 6s, but that’s all subject to market conditions at the time of close. So we’ll kind of reserve the time to get that organized for when we give you guidance, we’ll give you more specifics on all of that. And maybe on Page 9, I can do a better job of explaining exactly what systems control is and what it does. So you see on the bottom of the page, when you have generation, you got to step up the voltage to transmit it on one of those 90-foot steel towers.

And when it gets to the last mile, it gets stepped down in voltage and then distributed to the user. And each of these substations around it’s fun if you drive on the highway, you’ll now start to look, I hope and see these white buildings inside of the substation which contain these control and relay panels, which monitor and control the flow of electricity, and prevent damage to any of the really expensive equipment around it. And so this business kind of fits very nicely with Hubbell in many ways. It’s all the same customers. In fact, you’re getting relationship oriented customers who like this product done on a turnkey basis, which is good for us. If you look around that substation on the upper left, we’re already selling insulators, arresters, switches, bushings, hardware, connectors and the like, sprinkled around.

So this is now kind of a chunky investment here in the control building. It has the same traits as typical level power systems where the cost of our product is quite low relative to the investment in the performance and the other equipment around it. So the protection of that becomes very valuable. It’s going to involve very close work with our customers in designing and executing these buildings. So we’re very pleased and I think it fits well. Its financial history has been very attractive. It’s grown at double digits over the last eight years or so. The investment thesis on growth is really simple here. This outlook for substation spending is very robust as the 53,000 substations out there start to age. And secondly, the way these buildings are constructed, we think there’s going to be a pivot from in-field construction to in factory construction.

And this turnkey solution at systems control provides — fits that trend. We think both of those trends are going to allow for continued double digit growth at high margins. So I think the last part of fit worth mentioning is the management team. Brad and his team, we really enjoyed getting to know them. We think a lot of times with private equity owned businesses we run into — a mercenary has been hired to address something up and sell it and Brad is 22-year vet at this company, he has a deep passion to grow it. And I would say, we’re really excited to partner and provide Hubbell’s resources to enable Brad to engage in the growth strategy, and we welcome Brad and his team to the Hubbell family. So let’s talk about how the year is expected to finish and then I’ll let Gerben tell you about how that sets up ’24.

But on Page 10, you’ll see that we had sales growth when we talked to you last in July of 8% to 10%. We’re narrowing that to the 8% range. In July, we had earnings at 14.75 to 15.25, so we’re cutting that range in half, and we feel good that the fourth quarter momentum will get us to the upper half of the range that we had initially shared with you back then. And the cash flow, really robust at $700 million. So the fourth quarter is always left obviously. And we think what we should expect in our fourth quarter is typical seasonality, and there’s mid single digit fewer days. So we usually get that impact on sales sequentially. The price cost dynamic, we’ve got momentum there, which is going to help drive margin expansion in the fourth quarter.

And we’re going to continue to invest in both our businesses growth prospects as well as its efficiency to set up a stronger ’24 and beyond. So again, I think the three year walk shows a pretty interesting picture of the pandemic contraction in ’20, the expansion with supply chain disruption in ’21 and ’22, and ’23 being normalizing supply chains and price cost really driving this 25% growth over that three year period. So we really feel we’re coming out of the pandemic as a bigger, stronger, more profitable enterprise and I think we’re pleased with the investing we’ve been able to do in ’23 to really help support ’24 and beyond. I’ll let Gerben sort of give you some of his preliminary thoughts on that.

Gerben Bakker: Great. Thanks, Bill. And as we look ahead, we feel well positioned for 2024 and beyond. Grid modernization, electrification megatrends remain intact and we continue to believe our utility markets can deliver mid single digit organic growth over the next several years. Our industry leading utility franchise is uniquely positioned to enable us to serve our utility customers as they invest to make the grid infrastructure more reliable, resilient and renewable. While we anticipate telecom markets to remain weak through the first half of next year, Strong demand in T&D markets, particularly transmission and substation support visible growth. We also anticipate that the deployment of infrastructure stimulus funding will drive further demand for Hubbell Utility Solutions in the second half of next year.

In Electrical Solutions, we continue to see significant opportunity to drive further value across the portfolio by competing collectively and operating more efficiently as we bring these businesses closer together. We’ve made good progress in reshaping this portfolio over the last several years with 25% of segment revenues now tied to growth verticals aligned to mega trends like data centers, renewables and utility T&D and we expect continued growth in these areas next year. Industrial markets have been solid with support from US industrial nearshoring and manufacturing project activity and nonresidential markets have remained stable. We’ve yet to see the signs of macroeconomic uncertainty or higher interest rate impact in these markets, but this is something we are closely monitoring as we build out contingency scenarios for planning into next year.

From an operational perspective, the price/cost productivity equation will be more dynamic to navigate as we enter a more normalized environment, but we have levers at our disposal to manage this effectively. We expect that execution and productivity initiative will become a more important focus area for us moving forward to enable us to offset persisting inflation while maintaining the strong pricing levels we have achieved over the last several years. We’ll provide additional color along with our ’24 outlook early next year, but overall, we remain confident in our ability to deliver continued profitable growth off of a strong multiyear base of performance. With that, let me turn it over to Q&A.

Operator: [Operator Instructions] Our first question comes from the line of Jeff Sprague of Vertical Research.

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Q&A Session

Jeff Sprague: First, just thinking about Q4 implied kind of a nice acceleration in organic growth. Obviously, the comp is easier. But I just wonder if you could give us a sense of how you see volume progressing in Q4? It sounds like you would expect it to inflect positive in EP and backing into probably a decent volume quarter in utility also. But would love your perspective on just some granularity on the organic as Part 1 here?

Bill Sperry: Jeff, I think you almost answered your own question, but it is significant to us that the electrical side has been facing some of this overstock situation for a few quarters now. So we think that’s nice to see that inflecting into a growth position and sort of getting that period back to — back to a normal book and bill sort of fourth quarter and really ’24, and I think that’s that’s kind of the story.

Jeff Sprague: And then just thinking about margins into next year, Bill or Gerben, obviously, we’re coming off a high level. So it sounds like you expect price to be positive. You still have inflation in aggregate, maybe not so much in materials. But maybe just kind of talk about roughly how you would bridge us on an incremental or however you want to frame it, because we’re also trying to dial in these investment headwinds? I would assume you’re going to continue to invest for growth going forward, but it sounds like maybe it’s a headwind in 2023, but is more kind of maybe just in the base than part of sales growth in 2024. But maybe you could just give us a little bit more color on how to think about bridging the margins.

Bill Sperry: I think we’re — frankly, we’ll be much more — give you much more granularity when we’re together in January, and we give you our guidance. But I think you’re putting your finger on some important things basically, you’ve got the expectation that volumes will be positive. And in those cases, it’s the fixed cost absorption and the incrementals helping push margins up. I think the investment point, we’re still calibrating exactly how much we’re going to do. I think, from Gerben’s and my perspective, the great news is to see how creative and aggressive our teams have been in coming up with investment ideas. So it’s more a function of Gerben and I regulating that and as opposed to, gee, we don’t have any ideas as to how to improve the franchise.

I think on the price comment that you made, there is a little bit of wrap around embedded from the timing of price increases in ’23, but that’s pretty small, certainly compared to the last two years. And will be whether there’s any new price beyond that will remain to be seen, and we’ll share that with you as we get to year end. I think we do expect productivity because you mentioned the inflation side and we’ve been pretty simplistically trying to maintain a balance between price and material cost on one hand and productivity and nonmaterial inflation on the other. When a nonmaterial inflation gets 5%-ish , right, it’s a little bit harder to rely on just productivity to do that. That being said, we have a lot of this investment that we’ve been talking about is aligned towards being more productive.

So we’re going to continue to target that price/cost productivity to be balanced. But again, I think we’ll be a lot more clear with you and granular with you, Jeff, when we’re together next time.

Jeff Sprague: And maybe just a quick one for Gerben. Nice deal here, obviously, on the utility side. I just wonder if you could give us a little bit more color on how you can leverage it internally, either for growth or margin expansion? And what kind of — Bill kind of tried to dial us back a little bit on cost synergies. I’m sure there are some, though, like how do you integrate this into your footprint, leverage purchasing, that sort of thing to fully maximize the value here?

Gerben Bakker: And we’re obviously very excited to bug deals, but obviously, the systems control, the size and the scale that it adds to the franchise we’re really excited about. The good news with this business coming in that it’s historically been high growth and it’s very profitable, as you can see. So that’s certainly a nice position coming into the portfolio. As we look and we diligence this business there’s some really nice trends that I think will serve this business right. One is that they’ve been for 60 year a relining control panel manufacturing, but over the last 10 or 20 years, they’ve moved into more turnkey systems. And in essence, what that does is take labor of putting these systems together traditionally in the field to a more controlled environment in the factory where they can not only have a better control environment, they test them and it takes a lot of time out of the field.

So this is a trend that we’re actually seeing in the business started when we acquired PCX, that similar dynamics, some of the new products that we’re developing have those features in place. So it’s an area that we believe will see outsized growth coming in. What we can add to it is, we looked at who their customers are, it aligns extremely well with where some of our customers are with the exception that they still have a much smaller share of those customers. And I think this is where we really see that with our sales or with our people, we can add to complementing that. So I do believe it’s more about the sales growth than probably typical cost synergies that we would see smaller tuck-ins coming in, but really excited about having this in the portfolio on what we can do with it.

Operator: Our next question comes from the line of Steve Tusa of JPMorgan.

Steve Tusa: So just on the — can you update us on the price cost productivity numbers? And then Bill, you always have like a pretty good balanced view of the macro here. I remember back in the day, you would talk about how things were either kind of trending as you would expect with a rhythm to it or whether things were kind of choppy in a low growth world. How would you kind of characterize the demand you’re seeing today into ’24, like just from a consistency and visibility perspective across your portfolio?

Bill Sperry: I would say the hard part about your question is, I think you’re asking about out the door demand from our channel to the end user, and I think that has been a nice stable demand. I’d point out two weak areas between telco and resi. And together, they’re each on 1 side of our segment and they’re each about 10%. So there’s 80% of the company, I would say, Steve, that’s seeing nice, healthy markets from the out the door sales side. I think the part that makes it a little more challenging is how much of that’s coming out of inventory in the channel versus how much is coming out of our factory shipping new stuff. And that’s where we’re sort of in this inflection phase that I think our electrical side was probably a quarter earlier.

And so I think they’re out of it and our power side has another quarter or so to go. And so it’s a — that disconnect is just makes it a little less smooth. And I think from a — I think you’re using a good word of predictability and visibility, I think we’re looking forward to ’24 being a little more straightforward of, if demand gets an order to get a shipment.

Steve Tusa: And then is price cost and productivity for the year, like what that new number is if there’s an update to it [Multiple Speakers] yes, price cost productivity…

Bill Sperry: Yes. So when you look at it on a year-over-year basis, this is kind of — we got this eight quarter ’22 and ’23 very positive picture. ’22, I would characterize as really strong price pull with material inflation. ’23 has been a little bit less price pulled but with material tailwind. So it created an even bigger net. And as you look at it quarterly, it’s stepping down in the second half. So third and fourth quarter, a little bit less, but still I mean, on an absolute basis, a really big contributor to our margin expansion story.

Steve Tusa: Can you get an absolute number?

Dan Innamorato: Driving the majority of the margin expansion, Steve.

Operator: [Operator Instructions] Please standby for our next question, which comes from the line of Nigel Coe of Wolfe Research.