Operator: Thank you. One moment for our next question. Our next question comes from Matt Summerville with D.A. Davidson. Your line is open.
Matt Summerville : Thanks. A couple of questions, and I apologize if you touched on this. But just with respect to China, in the zero to 3% constant currency growth expected. Can you kind of touch on your main product categories, water heaters, water treatment, some of the newer products, kitchen and HVAC relative to that zero to three, how do you see those product groupings positioned, if you will?
Chuck Lauber: Yeah. So we did lower it a bit our guidance. We were saying 3 to 5. And last year, we grew at 3% to 5%, Matt. And some of that is kind of what we’ve seen in demand through the first four months of the year. We’ve seen a bit of pressure on our core products as we’ve come in through the end of April. We’ve seen a bit of slowness in the market with core products, the newer products, the kitchen products that we’ve launched. Year-over-year, certainly, we launched this at the end of last year. So they continue to be well received. It’s just early on in that process. So seeing a little bit of pressure on the order rates through April.
Kevin Wheeler : Yeah, just maybe tie into that in Q1, we saw some heavy promotions, particularly in the March time frame. And we took an approach that we are very selective and targeted how we went to market on our approach. We have a premium brand there and really treated as much. So part of that softness we saw in some of the water heating and water treatment product had to deal with that. We’re not concerned about it. But as you look forward, there’s a couple of big drivers there. Consumer sentiment is just not coming back and the overhang from the real estate market is still there. So — what we just — we moved it down because that’s what we’re seeing today. As you know in China, things can change pretty rapidly. But we feel positive that we’re still going to be in that flat to up market.
We’re still getting our fair share of, I think, of the product categories, and we’re being very selective on how we’re spending our money when it comes to promotion. And we’re going to continue to watch our expenses to kind of balance that sales and profitability for the China business.
Matt Summerville : Got it. And then as a follow-up, still sticking with China, what’s your assessment of channel inventories in China? And then can you remind us how much of your China business today you feel is driven by replacement versus new?
Chuck Lauber: Yeah. I mean channel inventory is pretty normalized right now. We believe they’re kind of in that normal range. We’re estimating replacement business is – on the water heating side is about 50% to 60% in that range. So that does help our resiliency in China to have that buffer of replacement business continue to kind of drive a portion of our volume.
Operator: Thank you. One moment for our next question. Our next question comes from Jeff Hammond with KeyBanc. Your line is open.
Jeff Hammond : Hey, good morning, guys.
Chuck Lauber: Good morning.
Jeff Hammond : So just some clarifications here. Did you quantify or can you quantify how much you think was pulled forward 2Q to 1Q from the prebuy? And then just this 50-basis point headwind from shipping product, is that kind of a full year impact? And when do you think that the plant opens and what happens to that headwind once you get the plant open in Juarez?
Chuck Lauber: Yeah. I mean, that 50 basis points is a full year impact. It’s kind of on an annualized basis. And production is scheduled mid-2025 roughly. We’ve broken ground. We’ve made good progress. We’ll give updates as we go, but we’re pleased with the start of the construction of the facility in Juarez. The quantification of the pull forward in Q1, it’s always a little bit difficult to estimate that. It wasn’t a huge price increase, 4%, did drive some volume. Clearly, we saw that in the data through February. We felt a bit of relief of that volume in March. Order rates are still strong through April. We do have a backlog, though, as we exit the quarter. So it doesn’t impact our full year outlook, not a significant amount. We don’t believe in the quarter, but there was some.
Kevin Wheeler : Maybe just to make a comment on this. We also limit the amount of prebuy that we have with our price increases. We realized that people are going to try to pull forward a bit. But it’s going to be less than 30 days. And again, it’s really difficult because business has been pretty good going through the first quarter. How much was prebuy, how much was just the need for the market. And I think it’s going to wash itself out as we go into the next month or so. And that’s why we’ve kept our flat U.S. residential industry volumes and where they’re at. We don’t think the prebuy is going to change our outlook at all.
Jeff Hammond : Okay. And then just on the high mix product shift. How much of that is kind of being driven by clarification or support from IRA and then how sustainable do you think this kind of mix shift is?
Kevin Wheeler : Yeah. I would tell you the mix shift, I’ll separate that from the gas side of the business, we’ve always been a high efficiency leader in and that continues to — as people replace their existing lower efficient products that continues to replace those with higher efficiency. On the heat pump, rebates matter. And they’re very regionalized to more on the West Coast and parts of the East. And they do matter. But there’s number of programs out there, certainly where we’re going with the regulatory side of this in 2029. So we see this is not a onetime, we’ve been increasing on the year on heat pumps for the last three years. We expect that’s going to continue to 20%-25% as we get closer to 2029. This is not a onetime. It’s going to be an ongoing growth, and we expect that kind of growth over the next few years.
Operator: Thank you. One moment for our next question. Our next question comes from Scott Graham with Seaport Research Partners. Your line is open.
Scott Graham: Hey, good morning, Kevin and Chuck. And thanks for taking my question.
Kevin Wheeler : Hey, Scott.
Scott Graham: I wanted to understand maybe ask the prebuy question a little bit differently. We’re all looking at the AHRI data, and obviously, February was quite strong. Are you suggesting that March — that we’re going to see numbers of March down less than February was up, and then that works then into April numbers being down? Because you said 30 days, I’m not sure if I followed that.
