Julian Mitchell : And one thing I just wanted to circle back with on the top line. You’ve emphasized in China, the headwinds there broadly and then Personal Mobility, for example, in the Americas. I just wondered in the Fluid Power business, Ivo, what you were thinking about the outlook there for some of those large OEMs who maybe have not sounded super bullish on next year in construction equipment, for example, Volvo, Cat and so forth. And if you see them already, cutting orders to get inventories down when dealing with suppliers such as yourself, it seems a very kind of mixed picture when I look at your numbers, say, versus something like Helios and Hydraulics, or Parker yesterday. So it can be tricky to sort of piece it together. But yes, curious on that specific kind of Fluid Power into those large machine OEMs, any perspectives?
Ivo Jurek: Yes. Thank you for your question, Julian. I mean we have — I think that we have delineated during the call that we have seen weakness in Ag, we have seen Diversified Industrials that were reasonably weak, and we have seen the early signs of the weakness in construction equipment. So I mean, you’re absolutely right. And we believe that, that is embedded not only in our guidance, but certainly for Q4, that purview. But we believe that in early stages of next year, this is going to be pretty persistent in the end markets performance. But that being said, we also have tremendous amount of other opportunities that we have been working through on taking incremental market share, we still — while we are one of the top 5 players globally in hydraulics.
We believe that we have a tremendous opportunity to take market share. And while the markets can compress, these opportunities become more pronounced and more important as you move forward into the future years. So look, we are being sober and realistic about the end markets, but we’re also being reasonably — we are being also reasonably optimistic about the more resilient aftermarket business that we have versus the OE applications, and over 65% of our revenue comes from the aftermarket. And those markets are, generally speaking, much more resilient as well, and opportunities out there as well to take more market share. So while we certainly are being realistic about what the markets look like, we’re also reasonably optimistic that we can take more market share.
We have positioned the business well. We got good capacity. We have built a capacity over the last 2 to 3 years. And frankly, that’s paying really good dividends for us. And I think that the results speak for themselves.
Julian Mitchell : That’s good to hear. And then my second question, maybe following up on the sort of cost discussion just now. One, I guess, was your CapEx guide coming down for this year. I just wanted sort of context on that. Do we just dump that $15 million-plus back into next year? Or is next year also subdued CapEx? And I wanted to understand on the cost base. So are you saying that you can get to that kind of 24%-odd EBITDA margin in 2025, even without a big new restructuring? Or is that target just more of a question because of the top line dynamics?
Brooks Mallard: Yes. So let me unpack that a little bit. So on the capital side, if you go back and look historically, I mean, where we guided is kind of right in the sweet spot of where we’ve been. Were there to be more big projects, more restructuring or something like that, it might creep up to more to that $100 million level. But even that is still kind of at our depreciation expense level. So we’re comfortable with that kind of longer term, 2.5%, 2.5% to 3% CapEx, and that being well within the purview of ongoing capital, cost reduction, the targeted new capacity. And then if there’s some new projects that come online or new things that we need to spend money on, but we think we can handle that as well. So as to your question, I don’t think we pour that back necessarily into 2024. We’ll cross that bridge when we get there. And then the second part of your question on —
Julian Mitchell : The midterm.
Brooks Mallard: The midterm. Yes, first of all, I wouldn’t say, I would say that’s probably more out towards ’26 than ’25, right? When you look at where the cycle is, and you have to get through the cycle first. Look, restructuring is part of how we get there. 80-20 is a part of how we get there. Productivity is part of how we get there. And then volume uptick is part of how we get there, right? And so, all those things really flow together, and I’ll tell you, we go through and we look at where we stand and where it’s going to take — what it’s going to take for us to get us there. We feel really good about where we’ve ended ’23, relative to our EBITDA improvement over ’22. And we feel good about those ’26 targets of 24% EBITDA that we provided. And so hopefully, that answers your question, in terms of all the pieces that get us there.
Operator: We will take our next question from Jerry Revich with Goldman Sachs.
Jerry Revich : Can we just talk about the margin outlook for the fourth quarter? You had an outstanding third quarter margins improved sequentially. Normally, they’re down sequentially. And so just the outlook implies a 2-point deterioration 4Q versus 3Q, I’m just wondering, are there any discrete drivers of that view? Or is that just to allow room to execute given the moving pieces from an end market standpoint?
Brooks Mallard: No. I’m going to go back to what I said earlier, Jerry, it’s normal seasonality. We’ve had ups and downs and puts and takes over the past 3 years, with COVID and inflation and then more pricing and then supply chain issues last year. And so what we’re seeing now is a more normalized supply chain. And even though we’ve talked about some of the weaker demand outlook and we’ve been very transparent in that. What we’re seeing is just normalized seasonality both from a top line perspective and from a gross margin perspective. Having said that, we’re still looking at 250 to 300 basis points of gross margin improvement, offset by 175 to 225 bps of SG&A, some higher variable comp and things like that, as we move through the last part of the year. So still seeing good improvement. But when you look at it sequentially, it’s just normalized seasonality.
