Luke Pelosi: Yeah. I think that’s absolutely right, Michael. It’s a first half, second half story. I mean, within H1, as we’re articulating, the outperformance in Q1 may sort of eat into what was the otherwise expansion expected in Q2, but absolutely. I mean, if you look at the sort of cadence that’s being expected in the original guide, I don’t think that has changed and with the strength of Q1 performance, we think maybe that gets a little bit better. And so, we set out this year with a guide that, from our perspective, I think, had industry leading organic growth as the impact of M&A was muted and so it was therefore all organic, and where we’re sitting today, if you’re reading the TVs, I think, we’re teeing up. That’s going to be better than initially anticipated. Exactly how much remains to be seen and we look forward to updating you on that in July. But that cadence, everything is looking as expected, just perhaps a little bit better.
Michael Doumet: Makes sense. And then you talked about the sustainability of the strong start to price in a year. How are unit costs tracking versus your initial expectation?
Luke Pelosi: I’d say they’re right in line. I mean, when we look at labor, I mean, labor is still 5% plus number and you’re putting all together, you’ve got cost inflation in the sort of mid-to-high 5s, but it’s stepping down as you’re comping the tougher quarters and as all of the other disruption, whether it be fleet replacement, et cetera, is getting better. So we’re feeling, that price cost spread that we articulated in the year that could be upwards of 150 basis points. We’re feeling good on that. Look, I don’t think this is going to be a year with the way cost inflation is moderating that we’re going to have to go back to the pricing lever as frequently as we’ve done maybe in the past 24 months and therefore yield a materially different pricing outcome.
I think, the cost unit — cost inflation appears to be moving as anticipated and therefore our pricing guide will be as anticipated. And then you got to remember, I mean, I said in the prepared remarks like 80% plus of this year’s pricing activities already done, right? And that’s just a function of the rollover from prior year and the weighted average of Q1 pricing activity being the lion’s share for the year. So we’re feeling really good on the spread, which is ultimately what we’re trying to manage as we’ve demonstrated before. If the unit cost changes for expectations, we’ll revisit the pricing initiatives. But right now we’re feeling really good on how those trends are playing out.
Michael Doumet: Perfect. Thanks. Okay. And then maybe just to sneak one in just on the working capital management, I think I understand the improvement there. It doesn’t sound so much structural. In the sense that you’re getting less working cap, more that you’re smoothing things out from a seasonal perspective. But as we looked at kind of future years as well, that’s smoothing out. That doesn’t go away. It might actually even get better?
Luke Pelosi: Yeah. I think that’s right. I mean, if you look at the extent of the swings that we’ve historically had, like I think last year, the H1 investment was just under $200 million and then you recover all of that in H2, right? And that’s just with the seasonal profile and ramp of the revenues. This year, the way we’re teeing it up now is that the H1 investment is going to be just over $100 million, right? So I think $120 million is what we sort of alluded to in the guide there. So, material improvement over last year. Again, for the year as a whole, you’re still netting out to roughly the sort of same place, but just tempering the volatility, if you will, of the investments. Part of it is by the changing business mix, more and more business in the southeastern U.S. where they have a different seasonality profile is certainly sort of helpful.
And then part of it is just continuing to sort of optimize our processes and the information coming out of our systems to manage this appropriately. So we continue to see it as an opportunity. I think it will always be an H1 investment, H2 recovery, although the quantum of changes from quarter-to-quarter will temper and be more muted than historically.
Michael Doumet: Perfect. Thanks very much.
Operator: Thank you. With our next question is from Tobey Sommer from Truist. Tobey, your line is now open.
Tobey Sommer: Thanks. How does the 80% of pricing activity for the year already being done compared to last year at this time and the historic experiences kind of want to dimensionalize that comment?
Luke Pelosi: Yeah. So Tobey, it’s Luke speaking. I think the last couple of years have been unique from pricing because they’ve deviated from the historical norm that majority of your pricing activity happened in the first quarter and that was really in response to the cost inflation we saw in 2022 and 2023 that had you pulling on the price lever more frequently throughout the year than you customarily do. So as a result, what happened was 2022s and 2023s price cadence was very off. Now by the second half of 2023, we started to more approach normal and so 2024 is set up in what I’d call a more typical year and was a more typical year. You roughly have anywhere from 25% to 35% of your in-year pricing rolling forward from last year’s pricing activities.
So you think about Q2, Q3, Q4 pricing actions in 2023 roll over into 2024 that accounts for roughly 25% to 35% of this year’s price. Q1 activities is roughly sort of 50%, 55% of your overall sort of pricing activity for the year and then that radially steps down from Q2, Q3, Q4, Q2 is like 10%, Q3 is like 5% and Q4 is de minimis. And so I’d say it’s the last couple of years that have been atypical. This year is returning to a more typical cadence. And I think 2025 should be very typical. But again, it’s one of the very attractive attributes of our business that allows us this early in the year to already have the confidence in the contribution from that aspect of our topline revenue growth.
