Aleksey Yefremov: Thanks a lot.
Chris Villavarayan: You’re welcome.
Operator: Our next question comes from Ghansham Panjabi with Baird. Please go ahead.
Matt Krueger: Hi. Good morning, everyone. This is actually Matt Krueger sitting in for Ghansham. Thanks for taking our questions. Just to kick things off we’ve talked a lot about some of the investments that have been made and some of the groundwork you’ve laid in 2023 to allow the company to add additional earnings power in future years. Can you detail some of those projects specifically maybe talk about some of the cash outlays that you’ve made and then also the specific returns that you expect on these types of investments into 2024 and then on a multiyear basis would be great.
Chris Villavarayan: Sure. Absolutely, Matt. So I’m going to kick it off with the investments and the three projects that we kicked off and I’ll let Carl walk you through the spend and how we see that going forward into 2024. So the three projects we kicked off first one was on the ERP implementation, which obviously from my prepared remarks it’s certainly progressing well and we’re certainly seeing efficiency gains that have helped us reduce the backlog in Refinish which is one of the primary drivers to our performance as I look at — the second one was on the purchasing initiative. And here again we put out a significant portion of our material spend to bid. And here we’re seeing single-digit improvement on top of what I would call is mid single-digit improvement in deflation, which puts us at high single-digit performance in our material performance for the year which is one of the primary drivers for how I see Q3 and Q4 coming out.
And obviously we should see that tailwind feeding into 2024. And on top of that the last initiative that we kicked off was focused on inventory. As I look coming in one of the things that we wanted to work on was reducing the inventory buildup that we had seen over the last two quarters coming out of the pandemic. And here we had an initiative focused on taking down close to $100 million of inventory. And to-date we have seen $90 million of improvement here. So certainly a significant driver that’s helping us with our free cash flow targets. Now I’ll turn it over to Carl to give you specifics on the numbers.
Carl Anderson: Yes Matt just to add to it. So if you look at through nine months of this year. In total, we had spent about $34 million as far as related consulting as well as S/4 implementation costs. And as we look forward in the fourth quarter we see that stepping down pretty much kind of by half as you kind of compare it to the third quarter. And as we get into 2024 most of that will be completely behind us going forward. So, as Chris said, it was very strategic. It really allowed the company to have — add more horsepower and velocity as it relates to a lot of these activities. So, we are setting ourselves up for 2024 as we go forward.
Matt Krueger: Got it. That’s helpful. And just to follow up on profitability. Obviously the improvement in Mobility was very impressive. Should we expect to see double-digit EBIT margins for that business into 4Q or something close to it what level of profitability should we expect on a run rate into 2024? Can we hold the levels that we’re at currently? Or is there something unique that that’s going on that we would expect to refer?
Carl Anderson: No. No, I think Matt you characterized it well the team has done a really, really strong job this year as far as on pricing as well as on overall kind of cost discipline for that business. Obviously, the fourth quarter will be a little bit impacted just based off here in North America with the UAW strike, which appears to be moving in a direction to kind of be behind. But again, there will definitely be a smaller impact as we think about what happened in the month of October for us. But as we go forward that is that Mobility margin profile we do expect to continue to be able to grow that especially as we get into 2024.
Matt Krueger: Okay, great. That’s it for me. Thanks.
Chris Villavarayan: Thank you.
Carl Anderson: Thank you.
Operator: Our next question comes from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Hi, good morning. Just given the magnitude of the guidance raise can you maybe quantify or rank order the biggest changes in expectations from the previous release whether it be backlog normalization price cost or other factors? And is there any additional conservatively baked into the 4Q outlook?
Chris Villavarayan: So, certainly an exceptional quarter. I would say whether it’s all regions and all the three segments we’re hitting on all cylinders, but maybe to break it down for you. First the improvement in our ERP efficiency really enabled Refinish to reduce the sales backlog. And then obviously, the material performance whether it’s the tailwind from the material deflation as well as the structural initiatives that we had from our consulting initiative on material. And when you put those together as well as the OE production, which was well ahead of third quarter projections. And this was globally and we had an extremely strong quarter in China. And as I look at Q4 that sentiment and that strength exists in Mobility.
And to the earlier questions, we have seen a 300 basis points jump in Mobility year-over-year over 200 basis point jump quarter-over-quarter. So, great performance there. All that said, you put let’s call it the pricing initiatives we have been driving as well as the cost initiatives. As to Carl’s remarks, we’ve had just all for end markets be price/cost positive for the first time in nine quarters since 2021.
