Ivo Jurek: Yes. Look, one of the things that I would point out, while we anticipated that the Easter holiday was coming in into March, which was a little bit earlier than it was prior years. We have seen a little more choppiness at the second half of that month. And I would say that it was – the weaker performance was reasonably muted. I mean, it was less than half a day of sales. If you kind of want to kind of scope it, what was the impact? And I would more associate that with the Easter coming in earlier. And then – but on the other hand, I would say that some of the off highway builds are getting weaker. And I would anticipate that that’s going to continue to be a headwind into kind of the rest of the year. I don’t anticipate that ag is going to be recovering.
My sense is that the commercial construction equipment space is going to be somewhat challenged as well. But that probably is going to be offset by more constructive AR, more constructive IR [ph], some recovery in personal mobility in the second half. So I wouldn’t say, Julian, that anything has really changed. I would just say that March maybe came in half a rate below what we’ve kind of anticipated that we are going to see. And again, I would probably say it’s more on the back of that Easter holiday coming in a little bit earlier than prior year and probably impacting us a little more than what we’ve anticipated.
Julian Mitchell: That’s helpful. Thank you, Ivo. And then a more prosaic question, maybe for Brooks around tax rate. Clearly that increase has sort of offset the higher EBITDA margin guide for this year. So is it sort of a 25% type tax rate in the adjusted P&L for the year? And when we think about beyond 2024, does the tax rate we should use, is that more like the sort of low 20s type range?
Brooks Mallard: Yes. So, yes, I think for the year we’ve seen, we had these discrete items, and as I said in my remarks, largely they’re going to be offset. What we are seeing too is a little bit of a tick up in our statutory tax rate based on the mix of income in the jurisdictions they’re coming in from. And so that’s a little bit of an uptick for the year. I think going forward, 22% to 25% is going to be in this range and it’s going to be impacted, again, like I said, by the mix of income and where it’s coming in. And then obviously there’s other things going on with the pillar tax and different things like that, that may affect it a little bit here and there. But 22% to 25% is where we think we ought to be kind of for the midterm.
Julian Mitchell: That’s great. Thank you.
Operator: Your next question comes from the line of Mike Halloran with Baird. Your line is now open.
Mike Halloran: Hey, good morning, everyone.
Ivo Jurek: Hi Mike.
Mike Halloran: So I just kind of want to put all these pieces together here, because a lot of markets, a lot of different trend lines. If you net it together, is the guidance more or less assuming stability in relatively normal sequentials for your overall business for the remainder of the year?
Ivo Jurek: Yes, I think that that’s the right way to think about it, Mike. I think that stabilizing demand is probably the right way to think about that with some puts and some takes, right? So of highway, maybe weaker and some of the other segments may be performing a little bit better, AR, IR recovering. So that’s a good way to think about it, puts and takes and more stability.
Mike Halloran: And then could you provide an update on the operational improvement initiatives internally, probably a little bit more geared towards how the organization and teams are accepting it and how quickly you think you can start seeing some significant benefits. I know we just had the Analyst Day not that long ago. So more curious about the internal momentum and how the adoption curve is going?
Ivo Jurek: Yes, I think it’s a great question. Thank you for asking that, Mike. Look, we’re doing better. I think that the organization is much more comfortable and much more confident in its ability to execute on the vision that we have set in the targets and on the internal expectation. I would say that if you’re thinking about that, right, we’ve really not upgraded or updated our revenue guidance for the year. But at the midpoint, we have taken up our EBITDA margin guidance rather nicely, and we are forecasting, that we’ll continue to see gross margin improvements, which will drive the EBITDA margin improvement in a lower volume environment. And so we are executing quite well. We are doing probably slightly better than what we’ve anticipated at the beginning of the year.
Some things are happening right as we’ve anticipated. And if you think about it, we’re going to be delivering in 2024 kind of margin performance, both on the EBITDA and gross level, gross margin level kind of at historical high during an end market of volume drop. So that’s providing us with a very positive setup as we enter a more constructive volume environment kind of in the 2025 and 2026. So we are laser-focused on executing on our 2026 commitments to our shareholders. We’re making good progress. And based upon where I sit today and what I see from the organizational execution, I would feel much more confident that we’re going to be highly capable to deliver on that objective that we set up at the CMD.
Operator: Your next question comes from Deane Dray of RBC Capital Markets. Your line is open.
Deane Dray: Thank you. Good morning, everyone.
Ivo Jurek: Good morning, Deane.
Deane Dray: Hey maybe just want to circle back. There’s been a lot of discussion about like the tone of business and stabilizing demand and so forth. And you’ve given lots of good color there. And just maybe, if you can make a distinction between the demand that on aftermarket versus First Fit. And just the idea, when you look at the slides, you’re down First Fit Industrial in both segments and also down First Fit industrials, North America and EMEA. So just maybe you have to dig deeper into the individual verticals, ag, commercial construction and so forth. And just saying First Fit is not specific enough. But just how do you reflect on the First Fit all being down at this stage in a stabilizing environment?
Ivo Jurek: Yes, I would say that the First Fit is predominantly impacted by ag, commercial construction and personal mobility. Those three verticals are driving, I would say, 95% of the First Fit performance, while the replacement business is up, low single digits globally. And I would say that, that’s driven by a very, very solid performance in AR in the automotive replacement side. So up mid-single digits and stabilizing performance in the industrial replacement, which is down, I would say, low single digits. So you’re right, you need to take a look at the puts and takes. And if you recall what I stated, I believe that the off-highway is going to continue to be a headwind throughout the year. But I also believe that we can maintain strong performance in automotive replacement and that we will start seeing improving trends as we work through the year in the industrial replacement side of our business.
Deane Dray: Great. That’s helpful. And then I might have missed it, but when you talked about cadence in the quarter, how did April start off? And did you – any of that Easter holiday early impact. Was that recouped noticeably in April?
Ivo Jurek: So the March month was not really impacted from an order intake on the Easter side of the holiday or the Easter holiday side. It was more the shipments that were more impacted in Europe, particularly Europe and North America, about – think about it again, maybe half a day of sales. It wasn’t significant, but we kind of came a shade under what we have anticipated at the midpoint at the CMD. In April look, we continue to see choppiness. Again, I will probably repeat myself commercial construction, ag, IR came in kind of as we anticipated, steadily improving not no hockey stick improvement. AR remains solid. So continuation of what we have seen. So the market environment is choppy. That’s the best way to describe it. You can have several weeks in a row that are very good, and then you may have a very weak, a week of order intakes and shipments. So it’s pretty much playing itself out as we are anticipating in our forecast for Q2.
Deane Dray: Thank you.
Operator: Your next question comes from the line of David Raso of Evercore. Your line is open.
David Raso: Yes. Hi just a couple of quick cleanups. I don’t think I heard a currency guide for the year. I’m just curious where your head is on currency now for the year.
Brooks Mallard: Well, we don’t really forecast currency, Dave. We – I mean we just take the current rates and we use those for the balance of the year. And so I mean, I’m not going to try to predict what’s going to happen with FX, that’s for sure. So that’s how we look at that. So whatever the prevailing rates are when we kind of put roll up our forecast, that’s what we use for the balance of the year.
David Raso: I mean, given it was slightly negative in the first quarter, it was a drag. Is it just safe to assume that it’s a little bit of a drag for the year? I mean, obviously it’s a…
Brooks Mallard: It’s a drag through the first three quarters, and then it kind of gets positive towards the end of the year, but it’s a drag overall for the year, about 30 bps from the top line perspective.
David Raso: Okay. The footprint optimization, can you give us a quick update where we stand with those? And which are the ones that particularly when they get across the finish line should make a difference?
Ivo Jurek: Well, we have not quantified those. So the CMD, as you know, we have a number of projects that are ongoing, and we will update you at the time of completion, just like we did in China, with our China project last year. But I would not think about substantial benefits until latter part of 2025, early 2026.
David Raso: Okay. And then lastly, I think you said not just book-to-bill above one, but actually orders up year-over-year, right? I know the revenue is down. So book-to-bill can be above one and order is still down. But I heard you correctly; you said your orders are actually up as a company year-over-year in the first quarter. Is that correct?
Ivo Jurek: That’s correct.
David Raso: So the idea of organic being down 3.5% in 2Q is – I mean, obviously, I don’t think of you as a long lead time company. It just goes back to your comment. Yes, maybe the orders were up in the first quarter, but it’s choppy enough. We can’t count on converting up orders in 1Q into even flat organic for the quarter? I mean is that sort of the idea like the orders are moving around enough week to week? It’s just sort of a…
Ivo Jurek: Yes, Dave, I think that that’s the right way to think about it. Look, some of the outperformance in Q1 versus prior year has been driven by some of the longer cycle projects, I think oil and gas and mining, that will fill in 2024 over the next two to three quarters. Half of that was driven – half of the outperformance was driven just simply through to the shorter cycle businesses but then you kind of see incrementally a little more weakness in ag and commercial construction. So we’re just trying to balance that out. And again, I’ll restate it we believe that the end market environment is stabilizing, but we are not prepared to declare a victory and say, “Hey, look there’s an inflection.” And we anticipated now that will meaningfully impact our ability to deliver top line growth above what we are envisaging at this point in time.
Again, it’s early. We are off to a very good start and we believe that the backdrop is a little more positive, but we are very pleased with where we sit presently.
David Raso: And while I have one quick one. The interest expense, I know you used your revolver a lot in 2023 so that not repeating should enable right your interest expense to be down. But the first quarter did come in even a little lower than I thought. Can you give us some help with how you’re thinking about the full year interest expense?
Brooks Mallard: Yes. I mean it is going to be down year-over-year. We’re thinking about $150 million interest expense, GAAP interest expense for the year.
David Raso: Okay, helpful. Thank you so much.
Brooks Mallard: Thank you.
Operator: There are no further questions at this time. I will now turn the conference back to Rich Kwas for closing remarks.
Rich Kwas: All right. Thank you, everyone for joining. If you have any further questions, feel free to reach out. And otherwise, have a great rest of the week. Thank you.
Operator: Thank you. That does conclude our conference for today. Thank you all for joining. You may now disconnect.
