Operator: Our next question comes from Andrew Buscaglia with BNP.
Andrew Buscaglia: Looking into your FMT segment, your margins were so strong really on declining organic sales. I’m wondering, kind of tied to a question asked on HST. How do you invest from here with — your orders are moderating or declining into year-end. How do you tie that to your margins in the context of protecting them? Or if your outlook, it sounds like everything is as expected. So do you continue to invest here? Just kind of seeing where your head is at with where that market is going and what it means for margins?
Eric Ashleman: Yes. Well, a couple of things here. Well, first, I’m glad you noticed. I mean the FMT segment, in particular, I mean, has fantastic performance. Over the last couple of quarters, Q3 was really good. And what you’re seeing there is, look, reasonable cost containment, we run them — we’re in those businesses pretty lean anyways. It’s much easier to run them at a steady state than kind of the last few years have been. So that brings out our best. And frankly, our teams have recognized, they’re doing their part from an IDEX side and really drive an outstanding performance. I would say from an investment profile, I mean these are businesses, some of which are 80, 90, 100 years old. They are really, really well positioned.
They do very well in almost all versions of economic realities that are out there. So making sure that they stay innovative, well positioned with the right channel partners, out in the right places, that’s something we’re always thoughtful of. We — typically, the investments when we talk about growth investments. They’re generally people based. And they are often discrete additive things that we’ll do to go at certain things like battery production to support mobility — e-mobility economy or something like that. So we’ll augment and make those investments, or not, depending on how we view kind of the staying in the outside world. But the base of the business, just the kind of core of the franchise, we are really, really careful of that to make sure that, that domain expertise that supports all that positioning, and differentiation and incredible margins is sound for any reality.
Andrew Buscaglia: And so that mid — kind of mid-30s EBITDA margin well into the low 30s operating margins, is really sustainable in your view, even if those order trends continue to go negative, and organic sales just — yes, it weakens into 2024?
Eric Ashleman: I mean there’s a couple of things to keep in mind there. At any point, and we’ve seen it a couple of times over the last few years, if that business gets kind of close to flat or negative, the deleveraging side of things is really tough because of the strong contribution margins and our commitment to kind of maintain the core. So depending where things go, we always have to be aware of that. We are also at probably the best point of the price cost cycle here now. That’s — the spread that we’re at today is probably not going to continue out into the future. We’ve always been a company that gets price. Of course, it’s been more aggressive here lately with inflation. We’re now at a point where those prices are sticky.
There’s some moderation on the inputs. This is the best part of the cycle, and this is the best part of the company that gets that pricing. So there’s a little bit of a piece on here. I’d be careful of is assuming it’s perpetual state, it’s the good part of this part of the cycle.
Operator: Our next question comes from Brett Linzey with Mizuho.
Brett Linzey: Just one more on HST. So encouraging to see the stabilization and certainly, the recovery path is going to take some time to play out and figure out. But just in terms of the profit recovery on the other side, should we think of the businesses yielding a stronger-than-average incremental margin as they do or when they do recover? Or do you need some cost to come back? Any way to dimension that?
Allison Lausas: As we recover, they’ll lever nicely. And so a longer-term expectation for the HST set of businesses is more in the EBITDA margins of 29%-plus.
Brett Linzey: Okay. Great. And then just shifting over to the comments you made on water. It sounds like the opportunity funnel is increasing. You might be able to size that. And is it related to some of the fiscal stimulus or other independent factors driving that strength?
Eric Ashleman: Yes. Well, I mean, the water side of things has been steady throughout. I would say it’s indirectly related, of course, to a lot of the focused efforts to invest in our infrastructure. Frankly, the state of our infrastructure has now gotten to the point where it’s impossible to look away from as well. We’ve seen that on a major scale in major cities, certainly here in the U.S. I think those two things together are putting in — I’ve always thought of it as a warm blanket, multiyear blanket. It’s just — it takes a long time to spend money in that sector. These projects are just — they take a long time to engineer rollout and go out there. And so no matter how discrete the kind of pop on funding might be, it’s always going to have a little bit of an elongated run out.
So we sort of view that as a comfortable blanket for businesses like ours and others that are in this sector. We’ve seen that. It’s held up again in this quarter as well. I mean to dimensionalize it, you can look at the size of water in IDEX, and it’s — again, it’s a nice piece of the portfolio, and we would see that it would stay at the upper end of the growth profile.
Operator: Our next question comes from Joe Giordano with TD Cowen.
Joe Giordano: I just want to clarify. A lot of the — your customers and stuff in HST and the areas of weakness now have been kind of talking about October got worse. So I know that you were very clear that like the inventory situations and destocks have normalized, but what did your actual orders kind of look like in October relative to the rest of the quarter? Like do you think HST orders, should we be thinking up in dollars versus the third quarter and the fourth quarter? Does that make sense?
Eric Ashleman: Look, I’ll let — go ahead, Allison.
Allison Lausas: Sure. No, I think, on a pure dollar basis, we should expect to see some higher orders in the fourth quarter. But there is some blanket activity also that happens as we wrap the year.
Joe Giordano: Okay. So that maybe not necessarily a sign that things are improving, it’s just kind of a seasonal order uptake?
Allison Lausas: That’s right. We’ll need to be — we’ll need to keep close watch.
