Josh Pokrzywinski: So, apologies, I missed a little bit in the prepared remarks, the call kept dropping. But I just want to dig a little bit more on the utility side. I think even at the start the year there was some signaling that maybe things could be a little bit better. You saw like the EEI CapEx forecast looks pretty healthy, which is seasonally atypical. But just trying to get maybe my arms around how much of this is customers kind of preparing to do work and maybe building up some inventory. How much of this is maybe stimulus-related something like IRA. Because we’ve been in this environment of grid hardening and grid investment for a while and this is just a big step function change. So trying to pin down how much of this is kind of episodic versus run rate?
Gerben Bakker: Maybe I’ll start Bill and add — I would say, if you look at the underlying demand in the utility, it’s still very strong. And we’ve seen that throughout the last couple of years ramp up. And we believe that that fundamental longer-term demand what Bill talked about mid single-digits is still very much intact. Our improvement has been truthfully more driven by our ability to bring up our production capacities with some of these investments that we’re making we’re not able to ship more. You can see that despite all of those efforts with the chart that Bill showed you that backlog has still not come down, it’s actually flattening a little bit and that’s something we are expecting as we ramp up production in this lead times come back.
And so I would say, we’re still very bullish on the fundamentals here. I think the infrastructure builds are actually very early. We would expect more of that impact to come into next year and the next couple of years. So yeah, I don’t think the increase is unusual by the actions that we’re taking. It’s just coming up a little faster than we anticipated with some of these investments that we’re making.
Bill Sperry: I think Josh if you — we were thinking it should be mid-single. If you take price out this is sort of high single to double-digit volume. So I do think can’t prove this, but I think we have a little share gain involved in this. So partially, I think we’re outperforming the market just because our service levels and our capacity is a little bit better because we’ve supported it with the investments that we needed to. You asked about projects which is an interesting question, because I do think the transmission side is quite healthy. Transmission tends to be more project-driven. It has a more forward look to it. But net-net, do I think utilities are like stockpiling long-term project partial inventories before they install it?
We don’t really see any evidence of that. So I think it’s — I guess I would say — I’m not sure if this is — but I would respond to your question saying I think the demand is a little bit stronger than the mid-single that we think is the long run. I think we’ve got a little bit of share and that’s kind of working out to our advantage and is frankly compelling us to continue to invest the CapEx in the business because the margins are there to generate really good returns for this incremental volume that we can get.
Josh Pokrzywinski: Got it. Super helpful. And then just with kind of all the consternation around commercial construction. I know it’s hard to follow every cable gland all the way to the job site. But any sense for what percentage of the business we should think about as kind of true new non-res construction versus something that may be kind of away from the commercial element or more I’ll call it retrofit and maybe not as dependent on something like they verified.
Bill Sperry: Yeah, I think the answer to that is it’s about two-thirds new and the balance is rental. And I agree, yeah, that’s an estimate on our part.
Josh Pokrzywinski: Got it. Okay. Thanks all. I leave it there. Best of luck guys.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Joe O’Dea from Wells Fargo. Your question please.
Joe O’Dea: Hi, good morning.
Bill Sperry: Good morning Joe.
Joe O’Dea: Hi. I want to start on margins. It looks like the guide is implying that margins for the full year would be lower than where you were in the first quarter. It doesn’t sound like any of the commentary about the second quarter would suggest that we’d see something like that. So one just to clarify that? And then two, what you’re thinking about in terms of the back half of the year and what could contribute to margins maybe coming in a little bit lower than where you were in the first quarter?
Bill Sperry: Yeah, Joe, so let’s start with your first point, which is that we do see momentum into the second quarter that we think is first quarter-like in terms of that, so yes. Secondly, the way this guide works, you’re right it’s not just seasonally taking the first half and using the typical growth in margins off of that. So we’ve injected caution just because we don’t know. One of the things we’re expecting is to invest more in the second half and that will be a combination of growth investing in and productivity investing. But just I think we felt, we have decent visibility to the second quarter. And it feels like it gets more opaque to us. I think if I were to maybe rephrase your question and say if the trends continue as they are in the first half into the second, we would actually do better than this guide.
So the guide is just has a cautious second half. We think out of prudence, we don’t want to get our cost structure out too far ahead at the same time. If there is growth in volume there, we’re going to — we feel very confident we can get our share and more than that. So I think your observations are very accurate.
Gerben Bakker: Yeah. And I think as Bill stated during his prepared remarks, a little bit of the first quarter is a lot of things going in the right direction for us both the pricing that carryover the new pricing that we implemented at the same time that we saw some of the commodities actually going down. Some of that is reversing. So we’re seeing commodities actually going up and that would be certainly a slight headwind for the second quarter. The other one is around pricing. And our view on pricing is that we’ve generally been able to hold on to it longer rather than shorter. I think in this environment that’s particularly going to be true. But the magnitude of some of those price increases has us a little bit cautious too there.
If materials stay down can you hold on to those prices longer term? And then the last part is around what I talked about of as supply chains come back in what happens on a more shorter-term basis with inventory levels and how to manage through that. So just a little more uncertainty going into that second half with some of these variable that has us a little more cautious. But, yes, it could be better.
Joe O’Dea: I appreciate all those details. And then also just wanted to ask about, sort of, maybe more opportunities on the cost side when you talk about commodities getting a little bit better obviously monitoring that, but also just smoother operations. Presumably your suppliers are seeing some of the same types of benefits. And so just wondering how you’re approaching that dynamic if you see opportunities to, sort of, go to your suppliers and sort of look for a little bit better kind of cost profile.
Gerben Bakker: Yes, absolutely. We’re active in that I would say not just with the supply chain, but we’re increasing our focus. And this will be throughout this year this will go into next year on productivity to bring that to a higher level. We’ve really struggled throughout the pandemic with productivity. The factories weren’t running smoothly and our supply chain was disrupted. So we’re focused. And one of those focuses is exactly what you said it’s going back to our suppliers and looking for cost out. The other thing that I will say in this goes in part of the investments and could go — will partially go counter to what I’m just saying is we’re also spending a lot of time to improve the resiliency of our business resiliency of supply chain.
It’s at the end what earns us a slight premium in the market. It’s our delivery and our ability to service our customers. And we’re doing quite a bit of work to strengthen that supply chain in cases reshoring it in other cases finding duplicates sources of supply. And that at times has a cost actually increase to us to do certainly investment with tooling, but it’s one that will serve us well in the longer term and will help us taking some of that premium in the market. So a lot of work and works going on.
