Deane Dray: Thank you.
Operator: Our next question comes from Nigel Coe with Wolfe Research. You may proceed with your question.
Nigel Coe : Thanks. Good morning, everyone. We’ve covered a lot of ground here. But I want to go back to 1Q 2023, perhaps Monish. We calculate a 15% margin, which is kind of similar to Julian’s mid-teens. I don’t think we’ve ever seen a margin that low. I think the GFC, we saw 17% and change margin. So just wondering why margins will be so low. And I understand supply chain is a factor here, but why 15%? What’s going on? And as part of this sort of question, the kind of the coverage of the full year plan even at the low end of the range is still really, really low. So I think it’s about 17% to 19% coverage, making a very big back-end loaded year. So I know you said volume gets better, but what gives you confidence and what can give investors confidence enough capture in the back half of the year?
Monish Patolawala : Yes. So I think two different questions and both great ones. So I’ll try to answer the first one, similar to what I told Julian. Volume gives us the best leverage. And when you just look at it even sequentially and you adjust for FX, which helped us versus a guide that we had given volumes are going to be flat. We have started very low in the month of January, and that puts tremendous pressure on our fixed cost, number one. Number two, we have a restructuring charge. And then number three, our tax rate is 19%. And then, of course, we have another normal 1Q items from an accounting basis that we take. So when you put all that together, I would say, Nigel, it comes down to volume. Volume is down 10% to 15% on a year-over-year basis.
And so that’s number one. This is the toughest comp and you have DR and the exit of Russia, both of which we have disclosed in the past. When you apply them at company margin, which is at 46%, that puts pressure also on a year-over-year basis. When I go through the remaining quarter year and as you correctly asked the question, what happens on margins, as you start thinking about we exit some of these comps that are difficult, 1Q being the toughest, volumes will start, our comps will start getting better. The supply chain efficiencies, the actions that we have announced also in 1Q and some of the actions we took in 4Q will all start showing up in the remaining of the year. Again, as I mentioned, some of these items, including cost out from raw materials take a little bit of time as we work through our higher cost of inventory through the system.
If you also look at external data, and that’s what we can look at because none of us are able to predict what we can in the future, external data says the second half gets better. It gets better in China, it gets better globally. And that’s another reason why we are hopeful that as volumes come back in the second half, we should see our own margins go up and our own revenue go up. But with that said, at the end of the day, we control — we don’t control the markets, but what we definitely control is our own actions. And so continuing to drive supply chain efficiency, continuing to make sure that we are being as nimble and agile as we can. Using Mike’s words, we are looking at everything. We’re being very careful and discretionary in hiring.
