Nathan Jones: I’m just going to — I’m going to follow up on Mike’s question — last question there and follow up on this recalibration of orders and things like that. IDEX doesn’t typically have a lot of inventory, a lot of channels. But I’m sure there are some pockets of the business where there are some inventory in new channels. How are you thinking about the potential for your customers to destock some of their inventory and for that to be a pause in demand for you guys? Is that something that you baked into that down 2% to 4% volume in the second half?
Eric Ashleman: Yes. I mean there’s definitely some of that in there. I think, as you know, we’re kind of low on the food chain. We do a lot of component work for people who then turn it into subsystems in terms of the final system. So at any point, along that food chain, there’s the potential for accumulation and then frankly, the normalization of it along the way. I think what we’re thinking about, though, is when you think of how order patterns are generated many of them are actually done in an automated way. There actually isn’t a lot of human intervention. And the two factors that drive it, the most are, of course, lead times and whether or not they’re pulling in, and we’re seeing that. We’re seeing that kind of across the supply base.
We’re experiencing as well. A factor a lot of people don’t consider as much though is volatility or variability. And so even when lead times are pulling in, if you still have an inability to count on it, it will tend to keep driving higher demand requirements throughout the system. So we’re kind of monitoring both of those. And as any one of them comes to something more normal, almost always, you’re going to see an impact on that on the other side for a short cycle business like ourselves. I don’t think it’s a massive number because, as you say, most of the things we make are customized and they don’t stock well anyways. But we’re coming off a pretty robust time here. I do think this calibration matters. It will play out over time through much of IDEX.
Again, I think the focus for us is to understand it make sure that our own inventory positions and resources are calibrated right, but then be very, very focused on end market demand, what’s driving that, what’s the actual consumption rate on the other side because that ultimately is what you want to dial in to.
Nathan Jones: I think maybe the question on supply chain. I think over the last couple of years, generally, all of these lead times have stretched out. But for IDEX’s businesses, the delays have really been up your supply chain because you buy these highly value-added components. So there’s a number of steps for them to go through. And as they compress, that’s compressing the order to ship time. So can you talk about where your supply chain is relative to where it was in 2019 chain? How much better it’s got, how much there is still to go? And what your general assumption is now for getting back to something like normal? Does it happen in ’23? Does it happen in ’24?
Eric Ashleman: Yes. Sure. I mean, I would say, in general, it’s improved a lot and pretty close to where we were in 2019 with a few commodity exceptions. I’d put probably put electronics still at the top of that list. But frankly, we’re not the most electronics intensive business. So it matters, but it’s not widespread across the company. I think I would also remind everybody on the call, we have a lot of local supply. So we’re typically dealing with people we’ve known a long time that are not far away all through the kind of the worst of it. In many cases, we were helping them. We were kind of sending people over to figure things out, help improve their flow. It’s those kind of relationships. So — and given that, that sort of topology, these are the kind of companies that can course correct a little better and generally have.
I would say we’re not yet normalized to 2019 levels all across IDEX. We’re definitely past the halfway line. So depending on how the year plays out, you could see us basically articulating a normal condition, I think, closer to year-end, certainly as we begin the next year, absent any other force that we can’t see.
Operator: Our next question is from Deane Dray with RBC Capital Markets.
Deane Dray: I was hoping we could unpack the margins in HST. I know you gave some of the color in the prepared remarks. You certainly had the top line. And — but you didn’t get the margin read-through. It’s unlike price/cost was positive. You gave some of the other data points. Was mix a factor? Just — and how much of this was temporary versus how you expect it to play out the rest of this year?
William Grogan: Yes. I think there’s 3 things there, Deane. One, we continue to face some of the inefficiencies. We talked about here as we progress through the back half of the year. Some of those businesses have grown 20% and still calibrating on some of the manufacturability of some of this cutting-edge technology that they have. Two was some mix within the portfolio. We talked about some of the short-term OEM pushouts. A lot of that has been kind of our book and ship components that are higher margin. And then the last one, just the addition of Muon, they were only in the portfolio for a month. They were shut down to do a full physical inventory that, that diluted margins a little bit. The Muon on will go away in the first quarter.
I think we’re making progress on the productivity piece, but the mix, I think, is still a component that we’ll experience in the first quarter. Yes, so we’ve got the volume impact and then that mix carrying through at least through the next 3 months.
Deane Dray: Got it. That’s helpful. And just expectations on price cost into ’23. Is there more pricing initiatives you need to put through? Or is this all-carryover benefit?
William Grogan: No. We’ve got carryover and the incremental pricing actions that we took to kick off the year. Obviously, that’s part of our normal process and cadence to continue to capture the value for our products. So I think we’re in a really good position from a price cost. We said in the fourth quarter, we’re back to historic levels, and we think that will continue here as we progress through the year. If something were to change, obviously, we go back to the customers with an incremental increase, but we’re well positioned here as we kick off the year.
Deane Dray: Great. Just last question, I’m not sure how specific you can get, and I really appreciate the prepared remarks and some of the earlier questions about fleshing out the transition period year. Just right from the supply chain normalizing changes, order behavior, we get that. But we just saw the ISM taking another step down, orders another step down. With all your short-cycle businesses, this is a great canary in a coal mine company to like gauge lead time changes, and you’ve given fabulous color here. If we total up the collection of soft pockets of business, is this a demand deterioration you’re seeing broadly? Could it be the early signs of it? Or do you feel like these are more temporary? Just kind of step back and say, okay, from seeing these trends, how does it look to you for the businesses that you touch play out for the course of the next couple of quarters?
Eric Ashleman: Yes. I’d say, Deane, it’s still pretty early. I mean everything we’re kind of talking about here near term that there was some exposure in Q4 and some carry into Q1. That’s very much a temporal condition and otherwise very active and strong markets where you can see, hey, people are taking a pause for all the reasons that you just suggested. Those bellwethers that we have on the industrial side, most of which their order side is coming through the small order flow side, honestly, those are holding up. We’re simply, in some cases, projecting that if you combine a couple of things, we kind of know where those inventory levels are, we know how they think about planning, we know where we are from a lead time perspective.
We’re saying at some point, we expect we’ll have some of that moderation there, but it really isn’t in front of us as we sit here today. And then back half of the year is more of a macro call than anything else as we think about kind of floor and top end of the range for all of IDEX. So I think your question is helpful because it helps us kind of parse that we’ll at least put out there, hey, we’re seeing some of these things from an early indication standpoint, but most of them are in a temporal spot. We can imagine some things that would be bigger pieces of IDEX, more industrial in nature that would kind of follow the same calibration. And then ultimately, like everyone else, we’re kind of thinking about where does the future go back half of the year, it’s more of a macro question.
Deane Dray: Yes. That’s exactly the color I was looking for. Very helpful.
Operator: Our next question is from Rob Wertheimer with Melius Research.
