So we’ll need to — we’ll have to deal with pricing to adjust for that. But we will also be looking at when we look at 410-A replacements for outdoor only, looking at treating that similar to how we would treat an aftermarket replacement, which would have limited warranty implications, and we’re still evaluating that, but we will look at that. So net-net, EPA ruling more 54-B sooner is overall good, a bit more uncertainty as we navigate this with our partners, but I don’t think there’s going to be a company more prepared to deal and address with the switchover.
Julian Mitchell : That’s very helpful. And then just a quick sort of more financial question. The HVAC segment, I think, Patrick, you had mentioned some maybe temporary sort of headwinds and tailwinds moving around in that third quarter profit number. So maybe just a finer point on that. And I wanted to check that the guidance seems to embed a sort of low double-digit HVAC margin for Q4 and kind of sort of mid-20s operating leverage for the year whole inclusive of the Toshiba impact. Just wanted to check that those are sort of roughly the right thought processes.
PatrickGoris: Yes. The answer to your last 2 questions, Julian, are yes on both counts. In terms of the HVAC margins, Sam pointed out that the transcript — the life transcript said that I said that it’s a $60 million tax benefit within JV income, within HVAC, it’s $160 million, and that was offset by some discrete items that went the other way. But in summary, the large expansion of margins within HVAC, 410 bps year-over-year, despite the headwind from Toshiba Carrier consolidation, it’s really driven by strong price cost and productivity. And that is the main driver that we see in that segment that also translates to the overall company. So some minor headwind to that. As I mentioned, acquisitions. We always invested with us a little bit there. But the main driver is productivity and price costs.
Operator: Our next question comes from Jeffrey Sprague with Vertical Research Partners.
Jeffrey Sprague : Patrick, thank you for the color on how you’re thinking about the guide. I just want to get a little bit more into the deal, Matt, if we could. You’re sitting on $3.9 billion in cash. I just wonder how much of that is sort of usable to consummate the deal versus cash that might be geographically stranded or other things? And I’m sure Viessmann is generating cash here. Does that go out the door to them as a closing adjustment? Or is that accessible to you to sort of self-fund the deal to some degree? And thirdly, just what are you looking at as kind of your blended funding cost based on the actions and locks that you took in Q3?
David Gitlin : Yes. I’ll start, Jeff, with the cash that we have. So we have $3.9 billion at the end of Q3. We expect that to grow further by the end of the year. You can think of about $1 billion of that generally is what we need to run the business would be, call it, not accessible, we wouldn’t plan on using that. The remainder of the cash we would intend to use for the acquisition. So that’s one. Two, with respect to cash at Viessmann. The type of acquisition we’ve done is a lockbox mechanism, which is typical for European deals. And in essence, it means that all these earnings and the cash generated within Viessmann as of January 1 of this year 2023 remains within Viessmann. And we get access to that the day we acquired them.
And so we do expect at the time of closing to have access to that cash and to use some of that cash again to pay down some of the short-term — the terminals we expect to use, for example, to fund the acquisition. The last question you had was, I think, was about the blended rate. And we assumed back in April a little bit of a conservative rate overall at about 6% to finance the transaction. And based on everything we know now, some of the locks we’ve put in place, we think we’re very close to that number. It would also mean that our overall cost of debt, weighted cost of debt post the transaction would be right around 4% based on where interest rates are today.
Jeffrey Sprague : Great. And just back to the earlier point, so there’s a $116 million gain in HVAC segment results in the quarter, but that is fully or mostly offset by what exactly?
PatrickGoris: Jeff, 1-6, $16 million tax gain within HVAC as equity income. That is all offset by some smaller other items. So $16 million.
Operator: Our next question comes from Joe Ritchie with Goldman Sachs.
Joe Ritchie : Dave, can we maybe just talk a little bit about just the broader environment, the market is breaking out, given project financing concerns, higher rates environment, high rate environment, just what are your thoughts on all of the mega projects that have kind of moved forward. Ultimately, what needs for your business, whether you’ve started to see any of that or a substantial amount of that into your orders. Just any thoughts around that would be helpful.
David Gitlin : Yes. Look, I think it was interesting. We saw ABI come out at 44% and exactly what you said, Joe, that there was — that created a fair amount of anxiety, but there wasn’t as much exuberance when it was over 50 for 3 of the last 5 months and it went through a stretch where it was over 50, I think, for almost a year straight. So I think, look, we take those metrics with, I think, a sober view, but a very look at the agility that we have as a team to pivot to where the strength is. So we look at certain verticals that remain just extremely strong, and we see that we still have in commercial HVAC extremely elevated backlog levels going into next year. And it’s because that some of the orders we’ve seen in education, not only K-12 with the Ester funding, but also higher end, very strong data centers.
We look at some areas of industrial, not only in the United States. But even though real estate remains under a lot of pressure in places like China, commercial real estate in the United States is under pressure, we see things like the Chips Act and we see things like some of the EV type spending we’re seeing in China very strong, and we’re winning more than our fair share of a lot of that new construction. And that’s driven by some of the regulatory environment, decarb trends. So look, we take a very balanced view. I don’t think a lot of people were thinking that light commercial would be up 30% this year, which it will be. I think going into next year, we’ll go into next year, good backlog in commercial HVAC. We think that we’re sort of bottoming them out in some of the resi space in the United States.
We see aftermarket growth double digits. We’ve done a really nice job with the Abound and Lynx and the whole playbook around driving more recurring revenues to smooth some of the cycles, we’ve come a long way there. And then I think with some of our businesses like container, we went through a rough patch on container, which we fully expected, and we see that starting to recover here in 4Q going into next year. So I think we’ll have a very balanced view. But we’ll go into next year looking with good backlog in the longer-cycle businesses, and we still see orders trends in some of the key verticals that I think position us for solid growth next year.
