Lydia Huang: Hi. This is Lydia Huang on for Jeff. How much is allocated to employee severance this year, and also if you could share the number for the first quarter as well? Thank you.
John Corkrean: Sure, Lydia. So, I think of the total expected impact of $15 million to $20 million, I think it’s going to hit the P&L about the same timing as savings. So, I would expect Lydia, that maybe we will see a third of that to maybe a little less than a half in 2023. And the amount that hit the first €“ in the first quarter was just above €“ between $2.5 million and $3 million.
Lydia Huang: Thank you.
Operator: Our next question comes from the line of Mike Harrison from Seaport Research Partners. Your line is open.
Mike Harrison: Hi. Good morning.
John Corkrean: Hi Mike.
Mike Harrison: Wanted to ask about the HHC business, the margin performance there was the best that we have seen in at least a few years. Could you help us understand some of the key drivers of the margin strength there? And do you expect that to be sustainable as we go through the rest of the year?
Celeste Mastin: Hey Mike. Yes. So, the strength in that organic growth number for HHC was pricing. And again, that goes back to my comments about how really we are being rewarded for bringing reliability and innovation to that customer base.
Mike Harrison: I guess in €“ more in terms of the margin is what I was asking about.
Celeste Mastin: The EBITDA margin, Mike?
Mike Harrison: Yes.
Celeste Mastin: Yes. So again, as we €“ we are driving that margin through the top line. And I feel that the business has the momentum it needs to continue to bring that kind of innovation that is getting rewarded. Sustainability is definitely a trend in that space that is enabling us to bring new products, modify products and help our customers achieve more sustainable products. Now, as we continue to look at the overall P&L, we do realize we need to get some more operating leverage down through to EBITDA margin and some of the restructuring works that we are doing is going to enable us to build on that success.
John Corkrean: Yes. Just to add a little color, Mike, it’s really pricing driven. If you look across the P&L, it’s not a function of mix or lower costs, it’s really the pricing actions that we took last year.
Mike Harrison: Alright. Perfect. And then, I guess just in terms of the construction adhesives business, if you can help at all on what that earnings cadence should look like? I think for most of us, Q1 came in a little bit weaker than what we were expecting. But obviously, it’s steeply seasonal business. You have also got some destocking that hopefully runs its course at some point and maybe some improvement in price/cost and then restructuring coming in as we get later in the year. So, maybe just help us out a little bit on how we should be thinking about the earnings cadence in the CA business?
John Corkrean: Sure. I will start, Mike and then I will let Celeste add some commentary. I think that you are going to see kind of similar margins in the second quarter and then start to improve and we get in the third quarter and the fourth quarter. Margins will improve in part based on the seasonality of that business. So, the first quarter is always our lowest volume quarter. It’s exacerbated by destocking. As we get into Q2, you should see that improve with higher volume related to the seasonality of the business. I don’t think €“ it won’t really be until the second half of the year that you will start to see, I think the restructuring actions have a meaningful impact. But I think we would like to see this business getting back to sort of the mid-teens type of margins by the end of the year, by fourth quarter.
And with the actions we are taking, roughly 40% of the savings go into construction adhesives, that would imply that as we return to more normal levels, this is a business it gets up into the high-teens from an EBITDA margin standpoint.
