Ghansham Panjabi: Got it. Thank you, John. And just obviously there has been more sequences of events, right, over the past couple of months increase in crude oil prices and we have auto strikes and that’s not an insignificant market for your EA segment. How are you sort of think about these dynamics as we, especially on the cost side, cycling into fiscal year ‘24 in context of pricing starting to moderate reported plus 0.6% in the most recent quarter? And can you just give us any more variances to think about for fiscal year ’24 that sort of underlying your confidence on EBITDA being up on a year-over-year basis?
Celeste Mastin: Yes. So a couple of things. First I’ll just pick off the easy one on your point about the UAW. So if you look at our total sales only about 1% of H.B. Fuller’s total sales are made to the big three automakers or suppliers of their — one, two or three suppliers. So now that said, it’s an important market for us. We are actually in the automotive space, much more prevalent in the EV vehicle market, which is growing much faster. So I’m certainly, we are watching that market closely, the big three, and what develops there, but I don’t believe it will have a material impact on us in 2024. Now, I think your question around raw material cost and I’m going to relate price to that also is a really important one. So first, I would point out that our raw materials don’t move with crude.
So we monitor and buy about 4,000 different types of raw material and all of those have their own supply-demand position and what happens is when volumes down and we are a great indicator of global volume. So when our volumes down it tends to mean global volume is down across the industrial world and those 4,000 raw materials are much more influenced by those unique volume movements rather than what happens with crude. So the advantage for us in a market like this is given that we have so much scale in this industry, we have great opportunity to draw — to leverage our volume and continue to optimize our purchasing positions with those suppliers. So, in a low-volume market, we will be pushing on suppliers and we’ll get raw material advantage.
We balance that out on the pricing side. So if you look at price for the next quarter and on into next year our pricing perform — or pricing comparisons will be down. There’s a few reasons for that. One is carryover will have been annualized from previous year when we had big increases in Q2 and Q3. Also, we’ve got some customers tied to indexes. Those indexes — and those customers that have pricing tied to indexes have their price tied directly to the raw materials that we buy and put in their formula. So while it will look like pricing is coming down, it’s really a margin preservation strategy for us. So you’ll see a price, incremental price reduction because of that in the upcoming year and also the third thing being we are reformulating a lot of products right now where we can save money on raw materials where we are formulating our adhesives and we are sharing that savings with our customers.
So, again you’ll see price decrease when you look at a comparison, but margin preserved. So at the beginning of the year, I talked about this $130 million to $160 million bucket of value that we would get out of this balance between price and raw material movement. What you’ll see is that in the first half of the year, a lot of that, what was related to price and in the second half of the year, we will be getting more tailwinds on raw material. So that’s how the balance works and that’s why we like to talk about it that way.
John Corkrean: And maybe Ghansham, I’ll give a little more perspective on considerations for 2024 not getting too granular here because we are still in our planning process, but what Celeste described and kind of the price raw balance, it’s been very consistent this year kind of in this $40 million to $45 million benefit each quarter. Now it’s flipped between being more of a benefit from pricing to more of a benefit from raws, but we will carry that over next year and if raw material costs side allowed where they are, it will not be as big a benefit as it will be this year, but we’ll see some benefit and we think it will be equal to or slightly greater than any price decreases. Obviously, the big — some of the other big drivers are the restructuring impact will be much larger in 2024 than 2023.
As we’ve said, it’s — we project $40 million to $45 million of run rate. We will probably capture about $10 million to $12 million this year. So you can kind of extrapolate the mid-point of that being kind of what we would experience in 2024 and then the contribution from acquisitions that we talked about $60 million by 2025, we’ll probably be about $12 million this year. So again, you can probably, you sort of extrapolate that. The negative we would have is we do have a fairly sizable variable comp benefit this year. That’s in the neighborhood of $30 million lower than last year, that will be rebuilt but given those we are projecting that it will be a continued challenged volume environment that’s kind of what we are building our plans on.
We don’t expect to see nearly the impact from destocking in 2024 that we had in 2023, but those are the components that we are looking at they give us confident — that we confidence we can deliver another profit growth year and what will likely be another challenging environment.
Ghansham Panjabi: Okay. Got it. Thanks so much.
Operator: Your next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead.
Mike Harrison: Hi. Good morning.
Celeste Mastin: Good morning, Mike.
Mike Harrison: I was hoping that you could maybe give a little bit more detail on the increase in the restructuring expectations. I believe you are in the midst of an operational review that has maybe helped to increase that target. Just curious what stage is that operational review in? And do you have any sense of how much more savings could potentially be identified in the future?
Celeste Mastin: So, we are very early on Mike in the operational review that we are doing. Just to take a step back on that recall, we are in the process of identifying capacity utilization by product, by plant, by line, by region. We should have a complete assessment of that outlook, as well as how it relates to our future growth plans by the end of this year and following that we will be announcing steps we are going to be taking to optimize that footprint. So this is very early in and what you see in the updated restructuring is that we have identified there are additional plants that we can take out of the network. But again we are not completely through that analysis.
