Lal Karsanbhai: No. Hey, Chris, Lal here. No, look, we continue to see the funnel expand organically to begin with. So it did grow from quarter over quarter, which is why we thought it was important to show you. But what’s most interesting, it’s growing in the right spots for us. It’s growing along the growth platforms that were — where we have the focus of the organization. So that comprises about $6.6 billion of the funnel today, of which energy security and transition is a big part of that. Sustainability and decarbonization is a large part of it. If you look at the wins, they are very much aligned in the same way as the funnel, winning at about 60% aligned on the growth platforms-ish with energy transition a big part of what we are converting here.
So feel really good about it. I — we’re watching it carefully, of course, in terms of movement through FID and other elements, but at this point in time, continue to have optimism, particularly products that are purely connected to national security, nearshoring, or energy affordability elements. So, feel pretty good about what we see in front of us.
Christopher Glynn: Thanks. And if I could ask another on discrete, what kind of impacts are you seeing in terms of channel versus end demand?
Ram Krishnan: From a channel perspective, I mean, if you’re referencing destocking, we’re not seeing that. The discrete slowness is purely market driven, certainly European machine builders, China is an end market, and an overall slowdown in the factory automation segment in North America. And you see that with obviously a lot of our peers that have a lot more exposure and discreet. Frankly, versus our peers, we’re holding our own in terms of the order rate decline in discreet, and we do expect to see a second half ‘24 positive orders for the business.
Christopher Glynn: Great. Thank you.
Operator: The next question comes from Andy Kaplowitz with Citigroup. Please go ahead.
Andy Kaplowitz: Well, I think last quarter when you began to talk about FY ‘24, you mentioned more normalized incrementals in the mid 30% range, but you’re guiding to mid to high 40% ex-test and measurement. So could you give us a little more color into the assumptions? I know you get price for ‘24 and you’re starting off a little lower, but it seems like you’re still getting supply chain tailwind benefits. Andrew, how would you assess your performance versus your longer term algorithm of 35%? Is it possible that that algorithm could be a bit conservative?
Lal Karsanbhai: It’s possible. Yes, Andy. We’ve been operating in the mid-50s over the last couple of years. There’s a significant amount of momentum around cost in the business. As I mentioned, we have tailwinds that will be delivered through the actions we’re taking, not just within the segments, but also at corporate as we go through 2024. Now having said that, on the supply chain side, we’re on the positive side of most of the measures. Obviously, logistics environment is flipped. And on material flow, generally significantly better. Of course, we fight spot shortages as you’d expect in any business. But generally, we are in a very different world on the supply chain. So that’s all very positive. So it’s really around execution.
Look, we have a — the gross margins of the business are 49% in 2023. They’ll expand further, as Mike described, in 2024. And with that comes an expectation of a higher leverage and a higher incremental for the business. So at this point, feel very comfortable with the guide we put out there for the year in that mid to high 40s which is, I think, differentiated. And we’ll really think through what we talk about and guide on a longer-term basis from a financial plan perspective as we go through the year.
Mike Baughman: Just to amplify that a little bit, Andy, we’ve also been talking about this $100 million of corporate platform cost takeout, which has been reading through in the businesses, and we’ll read through in the business in ’24 as well, which is an uplift for the year.
Andy Kaplowitz: It’s great to hear. And then I know you want to retire the KOB 1, 2, 3 names, but when we think about ‘24, I think you’ve been averaging something like 65% KOB3. Would you expect that to hold up at around that level? And what are you seeing on the KOB3 side? Is there just a lot more activity that could also help with margins given that tends to be higher margin work?
