Operator: The next question comes from Chris Snyder with UBS. Please go ahead.
Chris Snyder: I wanted to ask on the Americas business into Q4. So if we look at and if my match right, if you kind of look at the Q4 or the full year organic guide, it kind of pegs Q4 revenues in the Americas anywhere from flat sequentially to maybe down 4% sequentially versus Q3. And when we look at all the pre-COVID years, it seemed like Americas was typically down anywhere from 4% to 7% into Q4. So it’s calling for better-than-normal seasonality. Can you just maybe talk about what’s driving that or is there Access Technologies?
Mike Wagnes: No, Chris, if you remember on an organic basis in the summertime, we talked about, hey, we’re burn through this channel destock. And we said it will be a little flatter this year than historically. So what you saw, we did get through that in the third quarter, which was what we expected. Now as we just think about Q4, sequentially, we’re normally down. We’re just not down as much as historically we may have been on a more normalized no channel and order pattern challenges that we had in the current year. So think of it as working through that channel item we discussed in the second quarter call.
John Stone: And I think, Chris, this is John. I heard you squeeze in, a mention of Access Technologies in there. And you’re right. I mean this is now considered in the organic part of the portfolio. And that business is performing very well. Again, you got strong backlogs, blue-chip customer base and a very healthy service business there. So yes, they’ve been performing well. Very happy with that acquisition.
Chris Snyder: Yes., I saw the organic growth come through this quarter there. I guess maybe if I could follow up. I think you kind of said earlier that when you talk to your channel partners, it sounds like the destock is largely in the rear view, if I heard that right. Like what does that assume for the cycle? Does that assume like the cycle is kind of flattening out? Are we through the destock even if the cycle kind of is going lower from here because it does feel like the amount of inventory in the channel does reflect what the outlook for the cycle is. Thank you.
John Stone: Yes. I think the way I would see that is similar to what Mike said. Given the rather dramatic volatility and upheaval that the entire industry experienced with the ramp in inflation and the pretty acute supply chain challenges in the latter half or actually, all of 2022. No parts in the first half to work over time, 6 days a week, et cetera, and over ship in second half. That is, at least in our view, normalizing. And I think you could see, as we progress on to another 2, 3, 4 quarters that cycle, Allegion’s seasonality, et cetera, starts to look more normal. Our lead times across the portfolio are back to a more normal level. And so with the 9-month or so construction backlog, a lot of work still out there, book and ship business, like Mike said and a spec engine that’s running all the time.
Yes, I’d say we feel just normalizing is maybe the word that I would use, Chris. And that’s what it starts to feel like. And again, our channel checks recently would indicate the same.
Operator: The next question comes from Tim Wojs with Baird. Please go ahead.
Tim Wojs: I have a couple of just kind of modeling questions. But I guess when you’re thinking about raw material inputs, steel, copper, zinc, that set of things. I mean, what are you seeing in terms of your purchases today? And how do you think about inflation versus deflation on kind of a go-forward basis on the raw side?
Mike Wagnes: Yes, Tim. It’s a great question. If you think of our business, if you remember, pure raw math, let’s call that maybe 15% of our COGS, and the remaining 35% you could get have some element of metal in it from a source component. We would expect to see some favorability, as you’ve seen. We got some tailwinds in commodity prices versus previous peaks. However, I’d caution you, there’s been significant inflation that we’ve experienced over the last few years in other elements of the cost base so that we’re still in an inflationary environment, but you are getting some relief from the previous highs of the commodity costs. So hopefully, that kind of gives you some color for you to factor in.
Tim Wojs: Okay. Okay. No, that’s helpful. And then just on pricing, if I kind of take a 3 years kind of stacked price in Americas, I think there was some acceleration kind of sequentially. And I don’t think you put through like a new increase, but is there some mix dynamic kind of going in there, or did you guys put through more price?
Mike Wagnes: Yes, Tim, as you know, we put price increases in over the last 18 months because we felt so much of that inflationary pressure. We manage this equation price plus productivity to cover the inflation and the investments. If you think about pricing moving forward, think of us as a more normal business, which does our annual price increase in the kind of the beginning of the year based on an expected inflationary level. No more of the multiple price increases a year, I think that’s behind us because inflation has moderated from the previous significantly elevated levels that you saw a year plus ago. And so just moving forward, just think of us, price plus productivity versus inflation and investment and most importantly, we price for value in the market that we provide our customers.
Operator: The next question comes from David MacGregor with Longbow. Please go ahead.
David MacGregor: Could you just talk a little bit about the mid-teens organic growth in the electronics and the software solutions business. I don’t know to what extent you might be able to open that up for us and help us with price versus units or residential versus non-res or Americas versus international, POS versus inventory build. Any sort of granularity around that would be helpful.
John Stone: Yes, I think in aggregate, mid-teens organic growth in the electronics and software solutions globally, quite proud of those numbers between new product launches and just good execution by the team. And I’d say the end user demand is still strong. Again, recent end user visits continue to reinforce this. I’ve been to a couple of large universities lately. And even though they’ve been on the electronics adoption for a couple of years, they’re still just scratching the surface. One university was, hey, I’ve got — I haven’t even started on the dorms yet. I’ve just been doing classrooms and event buildings and things like this. And as budget comes next year and putting it straight to e-locks for the dorms, I mean, that’s sample size of one, but it’s indicative of what we’re hearing in the end user base, particularly education and health care.
I would say our electronics and software business in Europe is doing very well. Blue-chip customer base, great value prop on the electronic cylinder with the SimonsVoss team. And the plano acquisition adding a bit of inorganic growth into that space as well, and that’s a space we’ll continue to invest in. Very proudly, it’s a tiny amount, but our solution for multifamily in the United States, the Zentra platform, that’s a very simple electronic access control platform designed specifically for multifamily applications is now a revenue-generating product for Allegion. So cloud-based SaaS revenue is a reality. It’s very small. We’re just getting started, but we do expect to accelerate that growth. I think the end-user economic benefits of electronics adoption is important and it’s real.
And I think the smartphone wallet and this mobile credentials and that convenience and personalized security you get out of that will continue to drive end user demand. That’s the main trend, David. I’d encourage you not to get wrapped around the axle about channel build or restock, destock, anything like that. It’s really, this is end user demand driven.
