Joshua Spector : I wanted to ask on margins within the Solutions segment. So your sales were up in 3Q year-on-year, but your EBIT is down. Your margin did improve, but it was fairly marginal. So — and I think some of the things you called out was higher investment, the cost, et cetera. So one, can you give any granularity around those different pieces for 3Q? And then two, when you look at next year and say, you get volume growth within intelligent labels, you have some easier comps. What’s the right incremental we should be thinking of on that growth?
Greg Lovins: Yes. Thanks, Josh. This is Greg. So I think when you look at overall Solutions in the quarter, as you can see, our organic growth in the quarter was about 0.5 point, but the majority of that is driven by the Intelligent Labels growth, as we’ve already talked about at around 10 points. And base apparel and our base business down in the segment was down. Now when we look at that 0.5 point of growth, we had a little bit of price up, and volumes overall were down a little bit in the quarter, particularly in the base, as I mentioned a second ago. And I think as you probably heard us talk about in the past, in the Solutions segment, we need a point or so of growth in order to offset things like wage inflation, things like that, that are an annual increase in cost of that business.
So we had year-over-year employee costs go up as well as the investments that we’ve been making in Intelligent Labels from a carryover perspective as well as investments as we were ramping up the new programs here. So those are really the areas that I think impacted margins in the quarter. So we were happy to see the sequential improvement that we made in Q3, even though we’re still below prior year. We do expect further sequential improvement in Q4, I would say, 1 point or so from where we were in Q3. And I would expect in when we look next year to get back closer to the margin rates we were at last year in the Solutions segment overall.
Operator: Next question is from the line of Anthony Pettinari with Citigroup Global Markets.
Anthony Pettinari : You’ve had this year where organic sales is down 10%. And I’m just wondering, do you feel that there’s any market share shifts in either Materials or Solutions? Are you potentially losing some shareholding, gaining? Any kind of conclusions you can draw looking at the last 3 quarters and anything that you would differentiate between Materials and Solutions, understanding Solutions is getting a bit better?
Deon Stander: Yes. Thank you, Anthony. I think our view is that largely the function of volume being down is just reflecting the inventory that was built during last year and the slow unwind of it as we go through this year. And we know having looked at this very closely, that we have maintained or even expanded share across our Materials businesses in 2023. We’ve held and slightly expanded share in our base apparel business and our overall IL share continues to grow as well, Anthony. And that reflects our continued focus by the teams on ensuring that they’re really delivering excellence in service and quality to our customers and helping them address some of the challenges they themselves are facing right now.
Operator: Next question from the line of Mike Roxland with Truist Securities.
Michael Roxland : Just wanted to get your insights into what’s happening in Europe. One of your peers is cutting labor stock adoption in Europe, citing continued weak demand. So what gives you the confidence that the bottom has been reached at this point and that demand in Europe were up ultimately?
Deon Stander: Well, Mike, I think we highlighted there is a degree of uncertainty around the macro environment, and we’ve seen softer consumption in Europe. And I think we’ve been very clear that we’re not necessarily the calling the time in the recovery. We do see slow sequential improvement. And I think the thing that I always go back to is that at the end of the day, we’re serving, ultimately across multi-cycle time phase. We serve markets that are both growing and diverse and typically, are GDP-plus. And so at a point, the markets will recover, demand will come back, and we are ideally positioned in that regard. We have leadership positions in both our businesses, and we have strategies that continue to deliver successfully over the years. And we have a team that leads the industry in both of our businesses as well.
Greg Lovins: Mike, I think I would add just as we talked about, I think, last quarter, historically, we’ve been in a period of a destock or a downturn. We’ve seen volumes rebound or accelerate kind of quickly at the end of that cycle. And what we’ve been talking about this year through this period is a little bit more steady improvement over the last number of months and quarters, as you can see in these bar graphs that we showed. And I think that steady improvement reflects a couple of things. One is the improvement of inventory levels at our converters and our direct customers over the last quarter or so, but also that costliness in kind of the slowdown in consumer demand at the same time. So I think that those two things hitting at the same time is leading to a more steady increase in our recovery rather than a more accelerated ramp at the end of that destocking cycle.
And I think that’s why we’re continuing to project a steady continued improvement quarter-over-quarter as we go forward.
Operator: Our next question is coming from the line of Christopher Kapsch with Loop Capital Markets.
Christopher Kapsch : Yes, it’s a two-part question. One — and sort of piggyback off of some of the other commentary. But just on the comments around the sequential improvement in demand in Materials segment thus far into October. Just wondering if you could characterize that by sort of by geography and/or by category? And then secondly, in Intelligent Labels, there’s a number of RFID programs that are gaining traction, for lack of better characterization, and maybe that improving visibility helps give you confidence in around the commentary about the sustainability of the 20% growth CAGR — 20%-plus growth CAGR going forward. I’m just wondering if you could, to the extent that some of these programs are in conventional big-box retailers, but beyond apparel.
I’m just wondering if there’s any evidence that would suggest that just the addressable — the TAM is expanding, given the use case for this Intelligent Labels given what they’re being attached to beyond apparel?
Deon Stander: Yes. So Chris, let me address the first question, and I’ll get to the second. We have seen low sequential improvement in demand sorry, in volume in our Materials business in the first part of October. That’s reflected in the bar chart. And I think that reflects both the continuation of the destocking moderating largely in Europe, as we said, we think it’s largely complete now by the end of Q3. There’s a little bit to go in Q4 in North America. And so we would anticipate volume to slowly sequentially improve in that regard. As it relates to IL overall, our Intelligent Labels platform, we have a high degree of confidence in that 20% growth rate. And let me tell you why, Chris. I think firstly, we are really seeing our non-apparel categories, largely now logistics and food, continue to accelerate.
And you can see that both in Q3 and in Q4. These are actual rollouts that are happening in logistics customers and food customers. They’re in flight. They are delivering real value for our customers. And most importantly, as that value becomes more visible, it becomes a compelling proof point for the broader segment to think about adopting. We saw that when apparel first adopted as well, and we’re seeing a mirror of that as we anticipate going forward. I think the second thing is apparel is recovering, and it will bounce back at a point. And when that happens, we are the market leader in apparel IL overall. And it’s not just the recovery of the volume in apparel, it will also be the continuation of new use cases. I think I spoke previously about our rollout with Inditex on a loss prevention application that is in addition to the inventory productivity we typically see.
