Dan Rizzo: Okay, and then with the strengthening idea, are we now back above pre-COVID levels in terms of demand?
A – Tod Carpenter: No, we’re still more modest in that business. You know performing well, but certainly more modest.
Dan Rizzo: Okay. And then final question, if we hit into a U.S. recession, I guess towards €“ in the next few months, I mean could you still easily or not easily, but could you still hit the low end of your outlook based upon what you know?
A – Tod Carpenter: Well, we think so, just simply because that’s why we give it the range, and we have factored in everything we believe. We know everything we’re seeing on the incoming in the business. You know we’ve baked in our backlog understandings, etc. So we believe that the guidance that we’ve really given today, really takes those scenarios into account. Clearly, the only headwind that we would see is if we would be much more severe recession than anyone is currently considering, but we’ve baked into the guidance everything that we believe we know and as was indicated by the answer earlier, you know our second half is a bit more modest at this point with our outlook. So we believe we’ve taken a very balanced approach and a prudent approach to create this guide.
Dan Rizzo: All right. Thank you very much.
Operator: Your next question comes from the line of Rob Mason with Baird. Your line is now open.
Rob Mason : Yes, good morning. Thanks for taking the question. Tod, you made the comment that your overall sales outlook had not really changed, but clearly the composition within mobiles changed a bit with first it being stronger and aftermarket having slowed a little bit. The destocking impact, I know you had noted isolated incidents of that last quarter in the OED channel, and just you speak to where you think that is, how €“ you know when it began; how long it may take to run its course and how independent in the OED channels actually performed in the quarter, if you could?
Tod Carpenter: Yes, sure Rob. So when you look at where we’re at with destocking, it’s clear that it was a bit more than we would have expected at this point. However, I would tell you, the OE channel was more severe than the independent channel and the independent channel acted about as we would have expected. We have had a number of people out across our distributors. We feel as though we’re at pull-through levels there, and so while it could step down a little bit more, we’ve taken that into account within the guide. We’re pretty comfortable on the independent channel. The one that actually went a little bit further this quarter than we would have expected is the OE channel. They pulled their inventories down a bit more than we would have expected.
Perhaps we should have seen that, knowing that they were the most aggressive relative to the inventory buildup last year when they couldn’t get parts, but that’s the net result. So net-net, it’s just a little bit more than we would have expected. Nothing to suggest, hey, there’s a line here to be interpreted into something and we’re pretty comfortable with where we are.
Rob Mason : Just, there was also a mention of some of the restructuring charge assigned to customer program exits. And again, you’ve called those out already earlier this year, your choice to move away from some business. Was this incremental or is this just catching up to the actions you’ve already called out, the cost restructuring in it?
Scott Robinson: I mean these are some actions we took during the quarter. So we’re continuously focused on managing our pricing and managing our margins, and we want to have reasonable commercial relationships with our customers. And you remember, we had one particular program we talked about last year. This is another program that we focused on and work with our customer to work ourselves out of this particular program, and I think it’s a good move for the company. You know we want to manage the capital required, and we don’t want to have higher revenues. So this is something that we’re going to continue to focus on. This one was a little bit bigger than average, and we did take a charge in the quarter to account for it, but it’s something we’re focused on and I think our team is doing a really good job of managing pricing and working ourselves out of situations that we don’t think are acceptable to the company.
Rob Mason : I see. I see. If I could slip one more in real quick. Just Scott, maybe just to return to the margin outlook for the second half of the year, and you touched on some of the moving pieces there with inventory valuation gross margin. But just again, at a high level it looks like margins would step €“ at the midpoint of your guidance, the margins would step down on you know maybe 5% more volume in the second half versus the first half. How much of the step down should I think is in the gross margin line versus growth in OpEx? You investments…
Scott Robinson: Yes, a fair question. I think the OpEx will be relatively stable. That’s a lot easier to control and as you spend, you expand. I think it all is related to gross margin and I apologize for the volatility in our income statement, but I think it’s kind of a function of the times that we live in, and our finance team does an excellent job of managing the variances and making sure we properly account for those, and we have to roll those off as the inventory rolls off. And so it’s a little bit volatile. I think next year hopefully it will be a lot smoother in terms of gross margin and easier to understand. But we do have a little bit of volatility you know in those quarters, especially the sequential quarter comparisons which challenges everyone’s ability to understand it.
That’s why I say, I think you want to try to take a little more of a balanced view and look at the first, second and third quarters together and you’ll have a better view of the margin you know. Just to give everybody a feel, if you track the margins you know going back to Q2 of last year, 31.1%, then a 31.5% and then a 32.9% in Q4 of last year for 32.6% for the full year, and then this year we did a 33.9% in the first quarter and a 34.5% in the second quarter. So you can see our pricing actions are coming through as we promised, and the costs that we’re experiencing with this strong inflation is being capitalized in the inventory and then expensed off. And this is kind of the peak of it, we think. Our costs seemed to have stabilized, so we’re happy about that, and we’ll take it forward from there.
So hopefully that gives you a little bit more color for both you and Bryan.
Rob Mason : It does. It does. Thank you.
