Craig Arnold: Yes. We — as you can imagine, we anticipated this question because we too are reading some of the conflicting headlines in terms of what’s going on in the data center market. And then as we talked about, our data center business continues to be very strong. And what you talked about, Josh, in the context of AI and these other various technology platforms that continue to be rolled out. That’s just, once again, generating the need for more data, more processing and ultimately more data centers. And I know there’s a little bit of a cause for some concern given what some of the hyperscale guys did with respect to their own outlook. But I can tell you that for us, the data center market continues to be very strong.
And even the hyperscale guys are still talking about mid-teens kind of growth over the next 3 to 4 years. And so those are very strong numbers. And we haven’t talked about autonomous driving and expansion of 5G. And every device that we make today and that is made by every company continues to get more intelligent, driving a greater need for data and processing. And so we think the data center market is going to be a great market for quite a number of years to come, and it’s supported by our order intake and our negotiations. To your question specifically on capacity, at this point, we really don’t have a lot of spare capacity. We’re making investments to expand our capacity. But at this point, we have lots of visibility into the data center market, and it feels good.
Tom Okray: Yes. I would also point out…
Andrew Obin: And just — yes, sorry.
Tom Okray: Oops, sorry, Andrew. I would also point out that this isn’t only an America’s phenomenon. We’re seeing strong order growth across the entire globe.
Andrew Obin: And just a follow-up question. And at both stimulus, I think, related to IRA but also what’s happening with LNG in Europe, what’s the latest out of Crouse-Hinds? Because I think it is exposed to all these trends. And also have — does Crouse-Hinds benefit from any decarbonization efforts, hydrogen, carbon sequestration? Just as I said, just maybe talk a little bit about what you’re seeing in Crouse-Hinds.
Craig Arnold: Yes. Appreciate the question. The first thing I’ll just maybe give the team a little bit of a news announcement that we’ve changed the name. What was formerly known as Crouse-Hinds and B-Line is now we’re calling it our global energy infrastructure business, so GEIS. And so just if you hear us talk about GEIS, that’s the formerly known Crouse-Hinds and B-Line business. And I’d say absolutely, I mean, as the name implies, anything that has to do with energy infrastructure is a real positive for our GEIS business. And we would expect that, that business continues to perform well as we continue to see investments in energy. And certainly, as we look at hydrogen and other new greener forms of energy, all of the infrastructure that’s required to support those investments will be very positive for our GEIS business as well.
Tom Okray: Yes. I mean, for example, if you look at trailing 12-month orders in GEIS and utilities, they were close to 30%, very strong.
Operator: The next question is from the line of Stephen Volkmann from Jefferies.
Stephen Volkmann: Craig, maybe just start off, could you provide a little bit more color on what you’re seeing in commercial and institutional that made you sort of bump that market outlook up?
Craig Arnold: Yes. And I’d say, once again, the very minimum, we saw very strong order intake in Q4. But also, we talked a little bit what’s going on generally in nonres construction. And we look at the commercial negotiate nonres commercial contracts, construction contracts, just really posting pretty significant numbers in the fourth quarter. And so we thought that, that market would be positive. But given the activity level, our negotiations in that segment as well as what’s going on more broadly in the industry and some of the macro data, it caused us to be even more positive on that market. And so it’s, I’d say, a good news story. We’ll wait and see how it plays out in total. But certainly, the data that we saw in the fourth quarter was definitely more positive than what we anticipated.
Stephen Volkmann: Okay. Great. And then I know it’s early for this question. But Tom, since you brought it up, I think you mentioned something about breakout performance in 2024. Not sure if that was sort of military aero-specific. But just can you expand on that a little bit?
Tom Okray: Yes. No, it is a little early, but I walked into it and I mentioned it in the prepared remarks. We’re just seeing significant order growth in military OEM. And we’ve been waiting to see that just given what’s happening in the world. And now it’s starting to come through in all of our order metrics, whether it’s trailing 12 months or Q4 year-over-year or even sequentially, up very, very high numbers.
Craig Arnold: In fact, our military OE orders for the last 12 months was up 45%-ish.
Tom Okray: Exactly and 80% in the quarter.
Craig Arnold: In the quarter. So really strong.
Tom Okray: Really strong, yes.
Craig Arnold: And given the lead times in that business, it will certainly support the growth assumption that we have baked in for 2023. But we do expect that 2024 will be a really strong year.
Tom Okray: And it comes back to the way Craig started out the presentation of what these megatrends. And maybe we’ll have pockets of weakness here and there, but the portfolio is so sound that — we’ve also got the aero megatrend with pent-up demand. We’ve got military that’s growing. We have pent-up demand with vehicles. So we’re really not susceptible to any one small thing that’s going to knock us down. It’s a very robust portfolio.
Operator: The next question is from the line of Jeff Sprague from Vertical Research.
Jeffrey Sprague: I was wondering if we could just drill into Global Electrical a little bit more, just the quarter itself and then the outlook. Could you possibly elaborate a little bit more on what happened in the margins in the quarter? And I guess the perspective of my question is, it was a pretty sizable sequential step-down in margins on similar revenues, and it looked like similar FX to me sequentially. Maybe I’m wrong there. But is there something else going on with mix or some other factor in the margins in the quarter? And then I was wondering if you could also just address the top line outlook in Global. The 4% to 6% is somewhat moderating. Just maybe a little color on the underlying demand trends you’re seeing there or if anything is going on in the channels.
Tom Okray: Yes. Thanks, Jeff. Let me start out with talking about the Americas margins. I mean the story is really when you look at it compared to Electrical…
Craig Arnold: Global margins. Global margins.
Tom Okray: Yes. No — oh, yes. We have 20% in the Americas volume growth. We had 8% in Electrical Global. So there’s the real disparity going on there. And if you look closer into Global as well, we had some transactional FX issue, not necessarily translational but transactional, where we still have dollar-denominated costs. And with the dollar weakening, that hurt us there. So that was part of also the compare and the hurting of the margins on Electrical Global.
Craig Arnold: And on the growth side of the equation, I’d say that we’re looking at kind of mid-single-digit growth in our Global business. And I’d say in the face of what we’re saying today is likely typical recession, we think mid-single-digit growth is the right kind of place to kind of be thinking about that business. Now once again, if the world turns out to be a little happier than what we’re anticipating and on the margin, I would say that I think we’re all feeling a little better today about 2023 than we were maybe a month ago. And we have seen even in the European market, on a relative basis, some strengthening. Those numbers could be better. But at this point, given our current assumptions, we think mid-single-digit growth for our Global business is the right place to kind of be thinking about it.
And the other one I would say just on the margin that could be slightly better than what we’re currently thinking is what’s happening today in China. Nobody anticipated COVID running through China as quickly as it did. It had an impact in Q4 for sure. Part of maybe the inefficiency challenges we had in Global was the fact that we had some unanticipated disruptions coming out of Asia, coming out of China, specifically around COVID. But at this juncture, they’re through it, and they got through it much quicker than anyone imagined. And we think on the margin, China and Asia could be stronger than what we anticipated.
Tom Okray: Right. Yes. Thanks for the assist, Craig. Yes, coming back to the margin question, in addition to transactional FX, Jeff, we also saw weakness in China opening up. So APAC was weaker than we had expected.
Jeffrey Sprague: Great. And then just as a follow-up. Can you just — sorry if you said it, I missed it. But I know you’re not going to give us price. But when I look at the margin bridge for next year, what does that kind of assume for the price/cost gap there? I assume there is some lift. Maybe you could give us a little perspective on what you’re expecting.
Tom Okray: Yes. We’re not going to break it out specifically as per our policy. What I will say is that we expect to continue to effectively manage price/cost. It’s something we really focus on, and we expect to manage it effectively.
Craig Arnold: And the only thing I would add to what Tom is that I would not anticipate it would be accretive to margins, right? So clearly, there’s still inflation that we have in the business. We are more than offsetting inflation. But in terms of how it’s impacting the margins in the business, I would not expect that it would be accretive to margins. That’s really a function of what we’re doing to drive improvements in efficiencies as well as the volume lift that we’re getting from the company overall.
Operator: The next question is from the line of Nicole DeBlase from Deutsche Bank.
