Jeffrey Sprague: I’m sorry, just a quick one for Brad. Does the tax rate bounce back to 20-something next year? Or what should we expect going forward?
Brad Cerepak: Yes, Jeff, the things we’re seeing here in Q3 and into Q4 on taxes, will not carry into next year. So said differently, I think our 2024 tax rate is going to be much like we saw earlier in this year when we gave guidance, somewhere in that 20% to 22% rate.
Jeffrey Sprague: Right. Thank you.
Operator: The next question comes from Andrew Obin with Bank of America. Please go ahead.
David Ridley-Lane: Good morning. This is David Ridley-Lane on for Andrew Obin. Rich, how would you characterize kind of the excess backlog at this point in time, and how that kind of interplays into the revenue you’ll see versus kind of the bookings trends that you need?
Richard Tobin: I don’t think that we have excess backlog anymore. I mean, I think that we’re – by the end of the year, we will have drawn down our longer cycle backlog, particularly in Belvac and MAAG, which drove a lot of it. I think it will end up being a little bit higher than kind of on average in terms of its aggregate, if you go back and look over the last five years, but that is more related to portfolio – general portfolio mix as opposed to anything else. So like I said, at the end of the year, we think that we’ll be in balance between our inventory and our – either the customer distribution inventory, I would expect the long-cycle business backlogs to be done that reduction to be done by the end of the year.
David Ridley-Lane: Got it. And then I know it’s tough to ask about bookings, but do you see bookings sequentially increasing in the fourth quarter then?
Richard Tobin: I got to go back and take a look. I mean, I would say flat. If I think about where bookings are coming from, we got a lot in ESG at high dollar value because quite frankly, we’re booking well into 2024 in that particular business just because of supply constraints. Flat, I would call it right now. I think that there’s an overall caution with the macro – everybody recognizes that lead times have been vastly reduced. So I think that there’s going to be a lot of hurry for bookings in Q4, but we would expect a pretty large acceleration in Q1, if we’ve got.
David Ridley-Lane: Understood. Thank you very much.
Richard Tobin: Welcome.
Operator: The next question comes from Mike Halloran with Baird. Please go ahead.
Michael Halloran: Hey, good morning everyone. Two here. So first, on the inventory side, you’re obviously bringing your inventory down a fair amount pretty aggressively, more so than what we’re hearing elsewhere. Do you have the same sense of urgency in the channel when you look at your channel partners? Or do you think they’re lagging the pace of your inventory drawdown?
Richard Tobin: No. I think that our channel partners are, in certain cases, below normal holding pattern. And that is because of the cost of carry with interest rates. So if you think about a typical distributor that’s got $100 million of inventory, a working capital loan that they would have been able to have 18 months ago was probably 2% or 3%. They’re probably paying nine now, right? So there’s a dynamic now because of higher interest rates of everybody trying to liquidate working capital because of the cost of that working capital, that’s included, by the way. And we’re in a little bit of a standoff in certain end markets where we would argue that inventories are down too low, but we are not going to incentivize revenue into the system either through price or through terms. We’re just going to sit tight and we’ll cut our own production into Q4 because that’s just harvesting demand that’s in 2024 into 2023.
Michael Halloran: So the comment that you made to the previous question about order having a better chance to turn positive in the first quarter, I’m guessing part of it is the comments you just made that inventory flush through the channel essentially normalizes by year-end, and you should have a lease normal throughput, if not a little bit more, given where inventory levels are in certain channels?
Richard Tobin: That’s correct. I mean, if you look at the topline revenue trajectory in some of our businesses, you have to take destocking into it. That’s not a reflection of end market demand. It’s end market demand minus destocking.
Michael Halloran: Great. And then on the DPPS side, maybe just kind of parse out the moving pieces there. Obviously, you have the continued destock on the biopharm piece, creating some pretty easy comps in the next year, but a lot of your other pieces are a little bit more IP sensitive. So maybe just talk about some of the moving pieces you’re seeing on that side.
Richard Tobin: Well, I think that overall, it’s underestimated, the amount of profit loss that we’ve had on the biopharma reduction. To the extent that we’re clocking at record margins in the quarter, while eating this pretty bad sandwich here, I think that – quite frankly, I think we’re pretty proud of. So to the extent that it’s pushed into 2024, at the end of the day, the comps get pretty damn easy once we get into Q1 of next year. The balance of the underlying business, Precision Components, where we basically bought FW Murphy into, look, we’re behind energy transition. We’re betting on gas in total LNG hydrogen, you name it. Order rates there, we expect to be really good. I think MAAG on plastics and polymers, we’ve driven down a lot of that backlog. That’s probably the one business that’s probably going to be weaker next year, but I think it gets completely offset by DPC and by FW Murphy and some amount of bio.
Michael Halloran: Great. Appreciate it.
Operator: The next question comes from Andrew Kaplowitz with Citigroup. Please go ahead.
Andrew Kaplowitz: Hey, good morning guys.
Richard Tobin: Good morning.
Andrew Kaplowitz: Rich, you’ve talked about being proactive regarding cost set. But if economic conditions stay somewhat difficult, what kind of opportunities do you have to deliver the kind of margins you just delivered in Q3? And then I think you were fearful at the beginning of the year that pricing in industrials might erode a bit. Have you seen any erosion or do you expect any erosion in your markets? Or would you still expect resilient price cost moving forward?
Richard Tobin: We’re always working on efficiency and structural cost takeout at the end of day. So that’s just part and parcel to the business model here. Look, in a dire demand environment, if I point back to how we performed during the COVID period, we’ve got the ability to flex the cost structure, we don’t want to, other than kind of productivity and efficiency driven not from a demand point of view. As it relates to pricing, look, I think there was a comment in the script, if you go back and look is that we fundamentally believe that inventory position is going to be incredibly important as it relates to pricing as it goes into 2024. And that’s why we’re taking a little bit of hard medicine here between now and the end of the year of not to incentivize demand through pricing action, right? We’ve done a lot of hard work of moving the margins up here, and we’re keeping these margins.
