Nigel Coe: Great. Thank you.
David Gitlin: Thank you.
Operator: One moment for our next question. The next question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.
Jeff Hammond: Hi. Good morning, guys. Just a couple of cleanups on HVAC. One, just on resi, maybe speak to sell-through versus sell-in, what are you thinking for the market versus absence of destock? And then the light commercial down mid-single digits, is that purely comps? Or are you seeing order weakness there?
David Gitlin: Well, I — look, on the latter one first, comps is a part of it and orders is just it’s very difficult to look at orders, because we’re seeing such enormous swings in orders. So you can look at a certain quarter with orders down 30% or 40%. What we’re actually looking more at for light commercial is coverage. We’re looking at just fundamental demand that we’re seeing out in the marketplace and how much backlog we have to support that demand, and then we look at the underlying verticals. So as we look at the first half of 2024, we have good coverage for the sales that we expect, and that goes into — way beyond where it normally would go. It goes into the second quarter. So we’re watching inventory levels. We have generally pretty good coverage.
We do know that some verticals remain quite strong, like K-12 and things like some of the lower-end retail parts of the business. And then, we’re watching new orders come in to feed the second half of the year in the light commercial space. Please remind me what was your question on resi?
Jeff Hammond: Just on resi, what you think market demand is? Yes.
David Gitlin: Yes. I think we’re now back to a point, which would have been more like what we would have been used to pre-COVID, which is you’ll start to see sales and movement start to feel very similar to each other. We sell into the channel, what moves from our channel partners and to the dealers. So we should start to see more of a 1:1 match for movement, our sales and our movement from our distributors. We’re sort of back to more normal levels. And you think about the market over these last handful of years, look at a market level, you’re looking at total shipments on ducted splits of back in 2018, 2019 of around $6.5 million. And this year, you’re looking at about $6.5 million. So it feels like we’re kind of in the zone of where we would have been pre-COVID and we’ll grow from there.
Last year was a bit of a reset year coming off a couple of years where we got up into that $8 million range. And now we’re sort of back to more traditional levels, and we feel good about the growth rates that we have projected for resi for this year.
Jeff Hammond: Okay. And then just on the commercial resi fire business, when do you think you’ll have resolution on what’s kind of the lean spin versus sale at this point?
David Gitlin: Yes. When we think about — we’re looking at combining the commercial and the residential fire in an exit together. And I’ll tell you right now, our number one priority is we want to make sure that we do everything we can to close security, close the commercial refrigeration as effectively and as soon as we can, working with the buyers. And that’s a little bit more than half of the EBITDA that we’re exiting. The next priority we have in line is industrial fire and that’s frankly progressing very well. We’re looking at hopefully an announced deal here within the next couple of months. Then we’re doing all the prep work right now internally for commercial and resi fire, and we’re preparing it both ways. We’re preparing it as though we could do a sale with the [QOV] (ph) and all the work associated with that.
And we have a whole prep activity around a public market exit. And in the meantime, we’re heads down focused on improving the underlying performance of what are really great franchises in those businesses like Kidde and Edwards. And at the end of the day, which way we’ll go sale or public market exit, it just comes down to maximizing long-term shareholder value, and we continue to assess that internally.
Jeff Hammond: Okay. Great. Appreciate the color.
David Gitlin: Thank you.
Operator: One moment for our next call. The next question comes from Stephen Tusa with JPMorgan.
Stephen Tusa: Hi, good morning.
Patrick Goris: Good morning.
Stephen Tusa: Congrats on closing the Viessmann deal?
Patrick Goris: Thank you. We’re excited by it.
Stephen Tusa: Dave, you mentioned $6.5 million ducted splits. What were you talking about versus the $8.5 million? What exactly data point are you talking about there?
David Gitlin: Yes, Steve, I know you’ve talked different. That’s like total split volume for North America.
Stephen Tusa: So how does that differ from the HRI data?
David Gitlin: For the industry? We can take it off-line, Steve, if you have different…
Stephen Tusa: Okay. And then just for — when we kind of roll forward into 2025, can you just help us with what — how much — what that profile looks like? How much OP rolls off and then the interest savings, would that — how should we kind of maybe put what you’re talking about this year in context for next year?
Patrick Goris: Yes, Steve. It might be helpful to look at the EPS bridge we included in our deck for this. And the way I’m thinking this is our core business this year, the dark blue one grows by about 14% or so percent year-over-year. Next year, assuming, of course, we exit all the businesses — at the end of this year, that would be a $0.30 dilutive impact that we would lose. What’s not embedded there is, of course, is the offset related to the redeployment of the net proceeds. So core business $2.55 this year per our guide. We would be disappointed, of course, and if we could not continue to grow that at double digits. Add to that, the redeployments of the net proceeds. In addition to that, free cash flow given that we would be close to 2 times net leverage, we’d be back in the market doing repo. And so, I think we would be positioning ourselves for our core business to grow at attractive rates after this year. Hope I answered the question?
Stephen Tusa: Yes. So kind of take like $2.55 and then like grow at it at about 10%-ish?
Patrick Goris: This year, we’re doing 14% in our core business, excluding the impact of the Viessmann dilution, so we’d be disappointed if it’d be less. But — so yes, somewhere in the teens. On top of that, the redeployment of the net proceeds and the free cash flow we generate, we intend to repurchase the equivalent shares issued to the Viessmann family. And so there is — I think there’s a lot of earnings power available to us.
Stephen Tusa: Yes. Okay. That helps. And then just one last one. What was price cost for the quarter?
Patrick Goris: Price cost for the quarter?
Stephen Tusa: Yes. The net. So what was pricing for the quarter and then the net, yes.
Patrick Goris: No, understood. I don’t have an exact number, but it was significantly favorable because for the overall company point of view, our margin expanded 80 basis points. That was basically all due to price cost and productivity. I embed productivity in there, Steve. It was probably — that was over 200 bps offset by some unfavorable mix and investments.
Stephen Tusa: Okay. Great. Thanks a lot for detail. Appreciate it.
Patrick Goris: Thank you.
Operator: One moment for our next question. The next question comes from Brett Linzey with Mizuho. Your line is open.
Brett Linzey: Thanks. Good morning. Just wanted to come back to Asia and specifically China, you gave a little bit of color there, but fourth quarter orders up 20%, 25% there. Could you just give the complexion between the buildings markets versus transport markets in that order number and some of the activity you’re seeing there.
David Gitlin: Yes. We — well, first of all, we saw extremely high. It was around 20% orders in China, Brett. The ref orders were extremely high, but it’s a relatively small number amongst — for the business overall, but that was very high. And we had a little bit of headwind on the commercial HVAC side in China and then F&S was kind of in the mid-single-digit range. So, we were very pleased, I would say, overall, with the orders in China. It’s about 9% of our sales when we picked up Toshiba. We picked up a little bit more on the residential and light commercial business. And we have a lot of new product launches in that space. So kind of like what I said with Viessmann before where we introduced a new product that gets us into a new market.
