FMC Corporation (NYSE:FMC) Q4 2023 Earnings Call Transcript

FMC Corporation (NYSE:FMC) Q4 2023 Earnings Call Transcript February 6, 2024

FMC Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone and welcome to the Fourth Quarter 2023 Earnings Call for FMC Corporation. This event is being recorded and all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Zack Zaki: Thank you, Bruno and good morning, everyone. Welcome to FMC Corporation’s fourth quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our fourth quarter performance as well as provide an outlook for first quarter and full year 2024. Andrew will then provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and today’s slide presentation are available on our website and the prepared remarks from today’s discussion will be made available after the call. Let me remind you that today’s presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission.

Information presented represents our best judgment based on today’s understanding. Actual results may vary based upon these risks and uncertainties. Today’s discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today’s discussion, earnings and adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today’s conference call are provided on our website. With that, I will now turn the call over to Mark.

Mark Douglas: Thank you, Zach and good morning, everyone. Details on our fourth quarter and full year 2023 results can be found on Slides 3 through 6. Market conditions and buyer behavior were pretty much as we had expected in the fourth quarter. with North America, EMEA and Asia performing to our plan. The one exception was Latin America. In addition to the ongoing channel correction, our results were negatively impacted by drought conditions in Brazil. This was somewhat offset by stronger sales of our more differentiated products which are showing continued resilience despite market conditions. Branded diamide sales in the quarter were up 5% and with sales essentially flat or higher in all regions. While products launched in the last 5 years outperformed the overall portfolio and comprised 14% of our total revenue.

The channel inventory correction is running its course at varying rates through the regions and we’re expecting this to continue through the first half of 2024. However, the underlying fundamentals of our business in this industry remains solid. Based on input from third-party data and our own commercial teams, crop protection products continue to be applied at steady rates. Looking at fourth quarter sales on a regional level, North America revenue was down 37% versus prior year from lower volume as expected after a record Q4 in 2022. In Latin America, sales were down 38%, 41% excluding FX, due to lower volumes and low double-digit pricing decline. Branded diamides were essentially flat to the prior year, aided by the successful launch of Premier Star in Brazil.

In addition, we had solid growth in Mexico supported by higher sales of new products. Fourth quarter sales in Asia were flat to prior year period as both in fungicides and biologicals effectively offset inventory destocking, particularly in India, where channel inventory remains elevated. Branded diamides [ph] sales in the region were in line with the prior year period. Revenue in EMEA was down 24% or 22% lower excluding FX, due to lower volume, mostly in herbicides. Price was a low to mid-single-digit benefit as the region continued to effectively implement price initiatives. Branded diamide sales experienced strong growth of more than 20%, driven by the launches of Verimark in Spain and Presto Core [ph] in Turkey. Shifting to EBITDA; fourth quarter results were 41% lower than the prior year period due primarily to lower sales.

Costs were a strong tailwind with contributions from lower input costs and diligent spending controlled in SG&A and R&D. Our full year 2023 results are listed on Slide 6. EBITDA margin of nearly 22% was lower by approximately 240 basis points but remains at industry-leading levels. This was accomplished through effective spend management and by holding or raising price in many geographies, especially in EMEA which benefited from a price increase of low double digits for the year. We had substantial cost favorability for the year that was more than offset by the decline in sales volume. Operating cost actions we took in the second half of 2023 in response to lower demand, delivered spend reductions well in excess of our $60 million to $70 million target.

Diamide sales for the full year were $1.8 billion, a decline of about 15%. However, sales of our branded diamides outperformed and were only down 7%. Across our portfolio, the new and more innovative products showed much greater resilience even in a weak demand environment. NPI sales were down only 2% and made up a little over 13% of our total revenue. a new annual record, up from 10% in 2022. New products that drove this performance include a number of products in Brazil, such as Premier Star insecticide for [indiscernible] and stone herbicides for sugarcane and soy and on fungicide [ph] for soy, based on our new active ingredient, fluindapyr. We also benefited themselves of Coragen Max insecticide for canola [indiscernible] insecticide for fruits and vegetables and overwatch herbicides for cereals.

Before we move the discussion to 2024, I would like to highlight some of the actions we have taken to enhance visibility into channel inventory. In Europe, we have put surveys in place in 9 of our most important countries and covering hundreds of distributors and growers to gain insight into their inventory and especially of our products. In Asia, the larger countries, including India, are utilizing proprietary digital platforms to track inventory movement in real time across the channel as it passes from distributor to retailer and then to grower. In Mexico, we’re in the final stages of integrating our systems with those of our retailers which will also give us real-time visibility of inventory sellout. We are also piloting the same system and approach in Brazil.

In Argentina, we have increased the frequency of data updates to our inventory tracking system. And finally, in the U.S., we are expanding our forecasting process beyond distributors to now include retailers. This expanded data set will then be incorporated into our demand forecasting processes. Moving to 2024 expectations; our full year guidance and commentary being provided on Slide 7 through 10. Having closed 2023 and established a starting point for 2024, we now expect revenue of $4.5 billion to $4.7 billion, an increase of 2.5% at the midpoint. We are anticipating the full year global market to be flat to down low single digits as a softer first half is expected to be followed by the resumption of historical low single-digit percent growth in the second half.

The exception to this forecast is India, where we expect the market to be down for the full year, primarily due to channel inventory that the entire industry is carrying as a result of multiple seasons of unfavorable monsoons. Revenue growth for FMC in 2024 centers on volume growth led by NPI which after posting sales of $590 million in 2023, we expect to grow by approximately $200 million in 2024. Almost half of the NPI growth is expected to come from products launched in 2024. Major products driving higher NPI sales include Coragen Evo insecticide in Argentina and the U.S. Premier Star insecticide in Brazil, Overwatch herbicide in Australia as well as on suva [ph] fungicide in Brazil and Argentina. We expect moderate pricing pressure in the year with the largest impact in the first half.

FX is also expected to be a minor headwind for the year. EBITDA is expected to be between $900 million and $1.05 billion, flat to 2023 at the midpoint. Growth of new products and benefits from our restructuring are expected to be offset by higher cost of inventory carried forward from the prior year, lower fixed cost absorption and modest pricing pressure. The updated sales range is $150 million lower at the midpoint than our preliminary outlook presented in November. This range now reflects our actual 2023 results. The EBITDA range midpoint is $100 million lower than the preliminary outlook, mainly due to reduced revenue expectation for 2024 and minor additional headwinds to gross margin. Adjusted earnings per share is expected to be between $3.23 and $4.41 per share, an increase of 1% at the midpoint from low interest expense and D&A.

At our November Investor Day, we acknowledge that, although FMC had responded aggressively to market challenges in the second half of 2023. Broader actions were needed to better align our business operations with the current realities in the marketplace. We are moving quickly on a global restructuring plan that will fundamentally transform our operating model, including how we’re organized, where we operate and the way we work. This is a multipronged approach that focuses on shorter-term expenses and longer-term structural costs as we restructure the operating model. These structural changes will position for success as we move beyond 2024 and towards our 2026 goals. Slide 9 provides some additional detail on the actions we’re taking. The global restructuring program is currently underway and will largely be completed in Brazil by the end of Q1.

We have also made strong progress through a voluntary separation program in the U.S. with preparations for additional workforce reductions company-wide. Combined, approximately 8% of our workforce will be impacted as we begin to consolidate roles and adjust team structures. Reducing indirect spend is another place where we’ve accelerated our actions on many critical areas, including nonessential spend and implementing a new strategic sourcing strategy. We already announced plans to sell our noncrop Global Specialty Solutions business. We will be preparing for this over the last 2 months and we are now ready to begin marketing. And lastly, we are examining the company’s global and regional footprint. Our location strategy is a critical pillar in FMC’s overall transformation and we’ve made good progress in our analysis so far.

This includes examining office locations, manufacturing sites and research centers. Although this is a longer-term work stream, there will be milestones that we will announce throughout this year. As a reminder, we expect this restructuring plan to result in $50 million to $75 million of cost savings in 2024. It’s important to note that these savings are net of inflationary and other cost headwinds that we’re forecasting for the year. We expect $150 million of run rate savings by the end of 2025. We plan to complete this restructuring and deliver lower costs while continuing to prioritize investments in critical growth areas such as our plant health business, further engagement with growers and R&D, including new product innovation. Slide 10 lists some of the factors that would lead to varying EBITDA outcomes in our guidance range.

The pace of recovery in the market is still the largest determinant factor. Our base assumption is that by midyear, every region will have had one full growing season to manage inventory to desired levels, aided by steady application rates by growers. Recovery may vary by region but we expect to see overall market growth in the second half of the year. Slide 11 provides our outlook for the first quarter. Expected revenue of $925 million to $1.075 billion is lower than the prior year by 26% at the midpoint which is consistent with the revenue declines of the last 3 quarters. Volume is expected to be the primary driver of lower sales with pricing pressure in Latin America and Asia, a smaller secondary headwind. EBITDA guidance for the quarter is between $135 million and $165 million with the decline versus prior year primarily driven by lower sales as well as higher cost inventory carried forward from 2023.

Taking into account the first quarter guidance that is lower than the prior year period, Slide 12 provides a bridge for how we plan to achieve our full year guidance over the remaining quarters. The largest component of EBITDA growth over the second to fourth quarter period is higher sales volume of new products. Not only do these products have a strong track record of delivering sales in difficult market conditions but they also contribute higher margins which will positively impact mix. We expect NPI sales to grow by over $200 million in 2024 with the majority of the growth occurring after Q1. Market recovery in the second half will also contribute to EBITDA growth. as well benefits from our restructuring program which we’ll build through the year as initiatives are implemented.

As you can see, we have built a plan primarily based upon elements we control and are not reliant on an outsized market recovery. to achieve our guidance. With that, I’ll now turn the call over to Andrew.

Andrew Sandifer: Thanks, Mark. I’ll start this morning with a review of some key income statement items. FX was a 1% tailwind to revenue growth in the fourth quarter with the strengthening of the Brazilian real, Mexican peso and euro, only partially offset by weakening of the Turkish Lira. For full year 2023, FX was a 1% headwind overall, with the most significant headwinds coming from Asian and European currencies, offset in part by a strong Brazilian Real and Mexican Peso. Looking ahead to 2024, we see continued minor FX headwinds on the horizon. For the first quarter of 2024, these have been stemmed primarily from the Turkish l ira and Pakistani rupee, offset in part by a strengthening Euro. Interest expense for the fourth quarter was $56.7 million, up $11.9 million versus the prior year period, driven by both higher interest rates and higher debt balances.

Interest expense for full year 2023 was $237.2 million, up $85.4 million versus the prior year. Substantially higher U.S. interest rates were by far the largest driver of higher interest expense for the year. with higher balance as a secondary factor. Looking ahead to 2024, we expect full year interest expense to be in the range of $225 million to $235 million, down slightly to the prior year, driven by both expected interest rate reductions and lower borrowings as we reduce leverage through the year. Our effective tax rate on adjusted earnings for full year 2023 came in slightly better than anticipated at 14.5%. The driven by a somewhat more favorable mix of earnings across principal operating companies than expected. The fourth quarter effective tax rate of 13.3% reflects the true-up to the full year rate relative to the 15% rate accrued through the third quarter.

As you may have noted from our earnings release schedules, there were two extraordinary events that impacted our GAAP provision for income taxes in the fourth quarter. First, our Swiss subsidiaries were granted new OECD Pillar 2 compliant tax incentives. As a result, we recorded deferred tax benefit assets of approximately $830 million net of valuation allowances to reflect the estimated future reductions in tax associated with these incentives. These incentives will allow FMC to maintain our advantaged tax structure for at least 10 additional years despite the implementation of Pillar 2. Second, changes in Brazilian tax law allowed us to release a long-standing valuation allowance position in Brazil, generating a tax benefit of approximately $220 million.

Along with other items, this resulted in a GAAP income tax benefit of roughly $1.2 billion. For 2024, we estimate that our tax rate should be in the range of 14% to 17% and up 1 percentage point versus the prior year at the midpoint. The increase in midpoint and broader guidance range reflect uncertainty associated with changes in tax loss related to the implementation of Pillar 2 and transitionary impacts related to the new Swiss tax incentives. Moving next to the balance sheet and leverage. Gross debt at year-end was approximately $4 billion, down $158 million from the prior quarter. Gross debt to trailing 12-month EBITDA was 4.0x at year-end, while net debt to EBITDA was 3.7x. On a full year average basis, gross debt-to-EBITDA was 3.6x, while net debt to EBITDA was 3.2x.

Relative to our covenant which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 4.17x as compared to a covenant of 6.5x. As a reminder, our covered leverage limit was raised temporarily to 6.5x through June 30. It will step down to 6.2x at September 30 and again to 5.0x at December 31. We expect to have ample headroom under these limits as we progress through the year with improving leverage as we shift to positive year-on-year EBITDA comparisons midyear and as we reduce debt through free cash flow generation and through proceeds from the anticipated divestiture of our Global Specialty Solutions business. We expect covenant leverage to be below 3.5x by year-end. We remain committed to returning our leverage to levels consistent with our targeted BBB/BAA2 long-term credit ratings or better.

As I discussed at our November Investor Day, our midterm leverage target is now approximately 2x net on a rolling 4-quarter average basis. While we will still be meaningfully above this level at the end of 2024, we are confident that with EBITDA growth and disciplined cash management that we will reach our targeted leverage in 2025. Moving on to free cash flow on Slide 13. Free cash flow was negative $524 million for 2023. Adjusted cash from operations was down $960 million compared to the prior year, driven by significantly lower payables and EBITDA, offset in part by lower cash used by receivables and inventory. Cash interest and taxes were also headwinds to cash from operations. Capital additions and other investing activities of $144 million were up $25 million compared with the prior year.

with continued spending on capacity expansion to support new active ingredient introduction. Legacy and transformation spending was essentially flat for the third year in a row after excluding onetime proceeds from the divestiture of an inactive site in 2022. Compared to our November guidance midpoint, free cash flow improved by more than $225 million, with this improvement nearly entirely due to better-than-anticipated net receivables performance. Looking ahead now to free cash flow generation and deployment for 2024 on Slide 14. We are forecasting free cash flow of $400 million to $600 million in 2024. And a swing of more than $1 billion from 2023 performance at the midpoint of this range. Underlying this forecast is our expectation of adjusted cash from operations of $670 million to $850 million, up over $1 billion at the midpoint, with the increase driven by a significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivables due to revenue growth and with modest improvement on other items such as cash interest.

Capital additions of $95 million to $105 million are down roughly $45 million at the midpoint as we tightly manage capital investment in light of our current leverage. That said, we continue to fund needed capacity expansion to support new active ingredients over the next several years. Legacy and transformation cash spending is expected to be between $155 million and $165 million, with underlying legacy spending generally in line with prior years and with spending of approximately $75 million for our restructuring program. With this guidance, we anticipate free cash flow conversion of 104% at the midpoint for 2024. In terms of cash deployment, we expect to pay $290 million in dividends at the current rate in 2024. The remainder of free cash flow as well as any proceeds from divestments or disposals will be used to pay down debt.

And with that, I’ll hand the call back to Mark.

Mark Douglas: Thanks, Andrew. Our first quarter guidance reflects the trend of volume declines and related impacts to EBITDA that we’ve seen over the last 3 quarters. The destocking trend is expected to level off and start inflecting after the first quarter. Looking more broadly at 2024, we have a plan that is based largely on elements that we control. First, NPI sales are expected to drive revenue growth this year after already showing resilience in the prior years. We have demonstrated a history of growing this high-margin segment of our portfolio over the past several years. We are not counting solely on market growth in 2024. And second, the restructuring program we initiated last year is well underway and this is another area in which FMC has demonstrated strong execution in the past.

We’re also taking actions to increase visibility into inventories in the channel as well as grower levels through a combination of system implementations and strengthening our relationship with the grower. This is going to be a transition year for the crop chemicals market and we are taking the actions necessary to position ourselves to achieve our medium and longer-term goals. Despite the updated guidance for 2024, our outlook for 2026 has not changed. While it may take well into 2024 to start to rebound from the global channel inventory reset, the drivers for our industry and business remains strong. and many of the challenges we are facing this year, such as working through high-cost inventory are temporary. With the anticipated return to more normal market conditions in ’25 and ’26 along with our portfolio and deep pipeline of innovative products, we see strong growth ahead.

With that, we can now open the line for questions.

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Q&A Session

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Aleksey Yefremov from KeyCorp.

Aleksey Yefremov: Mark, could you discuss your diamides business? You’re talking about healthy sales in branded diamides, can you also provide an update on non-branded? What is the situation there? And what is the outlook?

Mark Douglas: Yes, sure. I mean, listen, we do that deliberately because there are two very different businesses, obviously. And we’ve discussed this multiple times in the past. Our branded business continues in a very strong fashion as we talked about in November, we’re launching new products on a constant basis and especially the latest one which is Premier Star in Brazil which has done extremely well in its first quarter of launch. Those are the products that are really expanding the diamide franchise. Our partners are doing exactly what we and the rest of the industry are doing which is drawing down their inventories. So they did this in ’23 and their current forecast show further declines as they draw their inventories down. At some point, that will come to an end and we’ll move forward. But ’24 from our view of where our partner revenues are look very similar to what happened in ’23 which is basically just drawing down inventories.

Aleksey Yefremov: And just a follow-up on that. Do you have visibility into consumption of your partners versions of diamides, is that healthy and also about pricing of those partner sales?

Mark Douglas: Yes. Listen, it’s impossible for us to talk about what they’re doing with their revenue growth targets or where they’re growing. We don’t have insight into that. All we do is provide them either formulations in some cases or more importantly, actual technical active ingredient. And don’t forget, a lot of our partners use these products for seed treatment applications which is a very, very different market from us. So treat it as a separate market. We don’t get involved in it. We provide the raw materials; that’s how we think of it.

Operator: Our next question comes from Kevin McCarthy from VRP.

Kevin McCarthy: Mark, in your prepared remarks, I think you mentioned that you anticipate a moderate headwind from pricing in 2024. Can you kind of talk through your expectations in terms of where you’re more optimistic, less optimistic on pricing by region? And with regard to the first quarter, in particular, do you think that price will be any better or worse than the minus 5% that you posted in the fourth quarter?

Mark Douglas: Yes, certainly, Kevin. I mean, first of all, the dynamic this year is going to be pretty much the reverse of last year, where we had very, very strong pricing as we went through the first half of 2023. Obviously, as we go through this year, we’re going to start to lap those price increases, so the difference gets a little different. I would say, obviously, we’ve highlighted EMEA a highlight for us, it was in ’23, continues to be that way in 2024. North America is looking good as well in terms of managing price I would say the place where we expect the most headwind is no surprise to anybody will be Latin America and that’s mainly in Q1. We expect that to abate as we go through the year, mainly because of that lapping of price as I just talked about.

So think of it as Latin America with really Brazil has been the main area there. With regards to Q1, we talked about a pricing headwind. It is a small number in terms of percent. So I would suggest less than the 5% that you just mentioned. We already see that in Brazil. So that’s part of what we have forecast for Q1.

Kevin McCarthy: Okay. And then secondly, perhaps for Andrew, can you talk about the amount of working capital that you think you can extract in 2024, including inventory. And as you draw down inventory, what impact do you think or do you expect that, that will have on your earnings, if any, I imagine it creates fixed cost absorption challenge. Is that true? And how would your guide be different if you weren’t drawing down inventory, if that makes sense?

Andrew Sandifer: Yes. Thanks, Kevin. Sure. I think certainly, as we’re looking to free cash flow for ’24, working capital, particularly accounts payable and to a lesser degree, inventory are really the big drivers of cash release in 2024. And that’s in part because of an expectation as we go through the year, then we start rebalancing and production and inventory. We have been intentionally throttling back pretty severely manufacturing over the past two quarters and well into Q1. We would expect to see some ramping back up in manufacturing activity as we go through Q2 through Q4. That will help with bringing up accounts payable. At the same time, we’re selling down from the higher levels of inventory we have right now which includes some higher-cost carryover inventory from prior years.

So if you look at the big contributors, it’s about 2/3 accounts payable, 1/3 inventory that is a benefit from a cash flow perspective. From a P&L perspective, Q1 in particular, is impacted by the carryover of higher cost inventory from last year. As we get further into the year, we have been buying at lower cost. There are lower cost materials and inventory that we’ll get to as we work it down. And then as we rebuild production, we expect that to be at or better cost than what we have in inventory right now. So this is a part of that, unfortunately, the pronounced quarterly cadence this quarter as well. As we — and I think certainly finished the year, we’ll have re-established a balance and a more normal balance between inventory and payables and the inventory we will have will be at a more normalized cost base to current market costs.

So that absence of that headwind going into 2025 should be a powerful tailwind as we look ahead.

Operator: Our next question comes from Joel Jackson from BMO Capital Markets.

Joel Jackson: I want to asked a little more about the cadence of the year given Q1, given the full year. There was a comment earlier on this call that you expect EBITDA contraction to turn to growth midyear. If we just take — it would seem like you would need about 30% plus growth in the last three quarters EBITDA growth to get to your $975 midpoint. I assume Q2 is going to be interesting quarter. when do you exactly expect — what does Q2 look like? Still contraction end of the quarter starting getting growth? Like anything you could help to help us bridge how we go from contraction back to growth would be really helpful.

Mark Douglas: Yes. Sure, Joel. Andrew, do you want to take that one?

Andrew Sandifer: Sure. Look, I would put it this way. We’ve long said that we think that this channel inventory correction takes a full year in every market to reach sort of a bottom. We have not gotten to that full year yet. This phenomenon really started in the latter part of Q2 of 2023. Thus, the Q1 revenue drop pretty much in line with the previous three quarters where we’ve been going through this channel destocking trends. So I think as we think about trajectory for 2024, Q2 is the real transition. We expect a shift to growth in Q2. It may not be significant growth but we do expect to grow as we anniversary the initial drop that started this phenomenon. And as you pointed out, I mean, certainly in that last Q2 through Q4, where our guidance implies about 16% top line growth — or excuse me, 15% top line growth and about 30%, 32% bottom line growth.

That starts in Q2 where you have this inflection and then accelerates in the second half. And as Mark commented on in his prepared comments, it’s really driven by new product introduction, right? And I can’t emphasize enough when $200 million of year-on-year growth of new product introduction in a year where we’re only forecasting $115 million is total revenue growth at the midpoint. It’s a significant mix benefit and it’s very much tilted in the second half. So I do understand it’s a bit of a very back-end loaded profile. But I think there is a clear logic to it. Q1, we’re finishing out the first year of this channel inventory correction getting past the anniversarying of it. We have this hangover from high-cost inventory from the prior year.

Q2, we see a transition back to positive comparisons and then an acceleration in the second half driven by new product introduction.

Joel Jackson: You had a really comprehensive Investor Day about 2 months ago. And you laid out the target of $1.2 billion to $1.5 billion EBITDA in 2026. I mean you’re obviously maintaining those targets right now. And I don’t expect major changes 3 months later. If it’s a marathon and you’re now laying out there third of the way it’s merited now at a slower pace than you would have thought. Can you talk about how you can catch up in ’25 and ’26 to hit Merin [ph] cassette piece you thought you would?

Mark Douglas: Yes. Joel, listen, I mean, I think for us, as I said, ’24 is a bit of a transition year. Yes, we did lower the full year of ’24 but that’s fundamentally on one thing. We finished ’23 lower than we expected. It is as simple as that. The numbers just flow from there. We were not going to hold a number that we thought was unrealistic just because we said it in November. We don’t think that’s the right way to run this business. Now when you look at ’25 and ’26, particularly ’25 Andrew just commented on something that’s very important and I mentioned it, we had a lot of headwinds that are temporary right now that are impacting us in 2024. They will go away. First of all, the high-cost inventory. The biggest impact of that is Q1 gets less in Q2.

And then as we go into the second half, it dissipates. We also have the benefit of the mix impact from all the new products we’re selling. The $200 million of NPI is at above average margins for us. So that changes mix as we go through the year. So you take those pieces and then you take the restructuring plan which is also now underway in building, we intend to have that at $150 million run rate by the end of ’25. So you take those pieces they all build as we go through this year, that allows you to make that catch-up period as you go through ’25 and ’26. And then obviously, the market itself, market has been unbelievably depressed over the last 9 months and going into the first part of this year. That will not stay like that. The market will come back.

It will grow at its normal low single-digit growth rates. Once we get into that period, we have a great tailwind going into ’25. So I think we catch up. That’s why we haven’t changed it. We have a view. We know what we’re going to be launching; that’s an important view for us. So think of it as those elements will make up the ’25, ’26 period.