Ryan Gwillim: Yeah. No. Megan, you’re right. The absorption hit is real. I mean, it’s a coming off of a first quarter and second quarter where we were running about as hard as we could in that facility and really into the third quarter and then scaling back to kind of normal production levels for this year. I mean, we’re taking, call it, a little bit more than 10% of production out of Fond du Lac here year-over-year. It becomes a more material piece of the puzzle. And as Dave said, don’t sleep a little bit on the input cost, and again, it’s a good story that PNOC is positive. But in past years, that spread would have been, it could have been $50 million, $60 million, $70 million and this year, it’s half of that. So the ability for us to price over some of the input cost inflation is a bit challenging.
And lastly, I would just tell you, the guidance is, we are — some of these are estimates. Obviously, if the world looks a little better. I think we all know that Mercury can outperform that margin guidance. But as we said today, I think, it’s a kind of middle of the road margin of where we think we can land the year.
Megan Alexander: Okay. That’s helpful. Thank you. And then maybe just another follow-up, would you be able to quantify maybe what the pipeline fill was last year and more of what’s just a hard compare in the first quarter versus what you’ve embedded in terms of what you’re seeing as it relates to the cautious wholesale ordering patterns, just particularly on Propulsion as we’re trying to get a sense for how to think about the cadence of that segment, in particular, beyond the first quarter?
Ryan Gwillim: Yeah. So if you think that whole step that production levels at Fond du Lac will be down kind of 10%-ish year-over-year, a lot of that is going to be in the first quarter and second quarter of the year. And most of that is kind of 75 horsepower to — it’s below 300 horsepower, there’s really no shortage of 300 horsepower and above. So most of that 10% would be the first quarter and a little bit of the second.
Megan Alexander: Okay. I appreciate that. Thank you.
Operator: Our next question is from Craig Kennison with Baird. Please proceed.
Craig Kennison: Hey. Good morning. Thanks for taking my question. It’s been a helpful call as always. I guess I wanted to dig into Navico a bit. I think we’re coming on the three-year anniversary this summer of that transaction. And I guess, Dave, I’d be curious to get your take on, what has gone well and what has not gone so well?
Dave Foulkes: Yeah. Thanks, Craig. Yeah. Coming up on the three-year anniversary. So I think what’s gone well is, I continue to believe that Navico is absolutely the right asset for us to own. There was nothing like it in the marketplace and there still isn’t anything like it in the marketplace. It plays very strongly to our move really from in a boat company to technology company. It really has some of the best technology assets in the business. And despite the fact that the financial performance is not what we’d originally anticipated at this time, I would say, there are several factors covering that that I’ll talk about in a second. It is actually doing well, extremely well, in a lot of those sub-segments of electronics.
It continues to do well in producing unique solutions that nobody else can produce, like the Fathom system. We’re beginning to see a flow of new products that reflect our directions, like, the Ultrawide, which is, I mean, extraordinarily well-received and other things that will be coming out late in the year. So I think the asset is the right asset for us. We just bought it ahead of a market downturn. One of the things I guess is, if you think about Navico’s kind of mix, it’s about 30% marine OEM, 10% or 12% RV and specialty vehicles, and a little bit less than 60% aftermarket. I think what we did not foresee, a couple of things we didn’t foresee really, were the destocking that is experienced over the past several years, what we think is essentially troughed now and also the really severe decline in RV manufacturing that it continues to experience.
So those are the things that we have had to combat. Now, I would tell you that, Navico was about 10% up in March of 2023. We expect that margin to expand in 2024, as the combination of new products takes hold and also as the full year effect of cost reductions take hold. So I would say, positives are strategic benefit and new products coming out. Some of the negatives are more associated with how the market has performed generally, including destocking in the past two or three years.
Craig Kennison: Yeah. Thank you. Dave, that’s very helpful. And if I could just drill down, like with Mercury, we can very clearly see your share gains show up in the industry data, but it’s less obvious for Navico whether you are getting a larger share of wallet from your OEM customers as you sort of integrate all of those solutions along the lines of your ACES strategy. So I’m just curious, is there a way to frame your share of wallet across the Navico portfolio?
Dave Foulkes: Yeah. We have not broken that out, but since you asked the question, I think, we can look into whether we do that on a more systematic basis going forward. I can tell you that the Simrad brand has gained market share last year and continues to do extremely well and we imagine that only accelerating as the Ultrawide, which is unique in the marketplace, takes hold. Obviously, Craig, you’ll be at Miami, and hopefully, you’ll see a whole bunch of Fathom systems appearing and you could call that market share gain if you think about it as the number of OEMs for which we perform fully integrated services. But it’s a good question, and we will think about whether we can establish some KPIs that make it more easy to track.
Craig Kennison: Great. Hey. Thank you.
Operator: Our next question is from Xian Siew with BNP Paribas. Please proceed.
Xian Siew: Hi, guys. Thanks for the question. I wanted to ask about the Engine P&A guidance. Looks like revenues are kind of expected to be flattish, but EBIT margin is up, I think, 150 bps. Could you maybe walk through some of the drivers there?
Ryan Gwillim: Yeah. Happy too. That is really a bit of a mixed story. We think that Distribution will still be a little bit sluggish, certainly in the first part of the year, but that our Products business, the higher margin Products business, will be up, as it has been really the last handful of quarters. So that — remember, that’s a business that generally takes a point or two of price and generally the market is another one point or two points. We think that’s going to kind of play through on the Product side with Distribution trailing of this. The other item to remember is the Brownsburg transition in our facility, our new facility in Indianapolis or just outside, continues to go well. It’s been a bit of a harder lift in 2023 than anticipated, but the comp should be a little better going into 2024 and beyond.
