Operator: Our next question is from Scott Stember from ROTH MKM. Scott, your line is now open. Please go ahead.
Scott Stember: Good morning, guys. Thanks for taking my questions.
Jason Lippert: Good morning.
Scott Stember: Brian, from what you’re saying about, I guess, the lag of getting that higher priced inventory through the channel and matching things up, it sounds like the first quarter could be challenged from a profit standpoint, or do you think it will be profitable in the first quarter?
Brian Hall: I think that as we look at Q4 — I’d contrast Q4 with Q1. Q4, you had the one-timers in there like we talked about $0.62 EPS impact. I’d say from a margin perspective, if you take those out, you’re pretty darn close to breakeven for fourth quarter. I expect that given January’s performance and we think that that’s going to be a bit indicative of what the first quarter looks like, we’ll see a little bit of ramp up here in February and a little bit more in March, but pretty consistent with the declines we saw throughout the fourth quarter. So, I think they’re pretty similar from a quarter view perspective, once you take those one-time hits out of there. So, I think it’ll be close to breakeven and possibly at least we would target a little bit better than that.
But then once volumes come back in the second quarter and we really chew through these inventory layers, which as I’ve been saying previously, those — that’s anywhere from 4 percentage points to 5 percentage points of margin headwind that we’ve been experiencing these last couple of quarters as we consume those layers of inventory.
Scott Stember: Okay. And then, back to the aftermarket. You talked about how the automotive side really drove the decline in the quarter. Can you maybe give a little bit more content on that? And the other side of the business, the RV, how did that perform in the quarter?
Jason Lippert: Yes. So, the RV business is exceeding expectations in terms of just volume. So, no problems there. And again, it’s all service and repair parts related. I mean, there’s some upgrade and just normal aftermarket business through all channels, consumer, e-tail, Amazon dealers and all the distributors that we do business with there. And we expect that to continue through this year. On the automotive side, it’s largely driven by new car sales. So, as everybody knows, there’s just a glut of availability for new cars. There just isn’t being — trucks aren’t being produced like they were three years ago. So, when new cars are down, new automobile sales are down and production is down and our hedge business is impacted by that.
But we expect that to start slowly coming back. And we’ve adjusted our business. We chased materials down all last year on steel, because steel is mostly the kind of content we have the current automotive side of our business. So, as all of the indexes adjust positively, we work through inventories, we’ll see that positively impact margins through the whole course of this year.
Brian Hall: And I’d add to that, Scott. If you look full year, we really started, I think, seeing the disconnect in the back half of 2022 between the automotive side and the RV Marine side of the business. But if you look full year, automotive was only — it was off 3%, but the rest of the business was up 19%. So, you can certainly see there were — there was a sharp contrast in the performance. When you look to the fourth quarter, as the automotive side began to slip more and more, it was off about 24%, almost 25% from the fourth quarter. So, you can see that, that’s the side of the business which — it was running about half and what we experienced in the back half of the year, it’s now to less than half of our overall aftermarket business.
Scott Stember: Okay. And then, in the first quarter or at least in January, you talked about that 65% increase. That’s just from, I guess, orders from dealers for parts, service parts, what is the overall aftermarket doing in — the whole aftermarket doing in January?
Brian Hall: Yes, I mean, for January, everything is still suppressed. I would tell you the automotive side did get slightly better. We started to see some orders come in there. So, instead of 24%, 25% off like it was in the fourth quarter, it was only off 17%. The RV Marine side of the business was better than that, but still down slightly in January. I think that it’s — our expectation is on that side of the business, a lot of it, is our sales to wholesale distributors. Their orders are going to be a little bit spotty. So, we’ve seen from month to month some pretty meaningful variances when we’re looking at how their orders are coming in, but at least it’s not down as meaningful as what the automotive side is, and we expect that as we move through the winter months, and people get their units out for the season, that we’ll start to see that continue to improve.
So, when we get to the back half of the year, we’re definitely anticipating all the aftermarket to be up — start probably in the summer months at some single digit growth rates, but then be double digit — back to double digits when we get towards the end of the year.
Jason Lippert: And the two other things I’d add Scott is automotive is about half of the aftermarket business. So, it weights heavy when it weights one way or the other. And then, we’ve got the — on the RV side, it’s just — there’s all sorts of opportunities with service parts, but that’s through largely retail and dealers and the big chunk of our aftermarket business on the RV side is wholesale distributors and they’ve got inventories to work through as well. So…
Scott Stember: Okay. Just last question on the aftermarket. There was a slight operating loss within aftermarket in the quarter. That was strictly related to the auto side? And it sounds like probably having to do with input costs as well?
Brian Hall: Yes, you’re correct. On both fronts, definitely as the — at the volumes that we were experiencing on the automotive side and the seasonality, when you get into the fourth quarter and first quarter for automotive, it typically is extremely low margin. So, I would call that normally in the off season, low single digit type margin. So, to see that flip to a loss is not much of a surprise. And then, couple that with, like you just mentioned, consuming some of the high-cost steel layers in a lot of those hitch products, we’ve certainly seen — very consistent with what we’ve seen across the entire business where it’s quite a bit of a headwind through the back half of 2022 and into this first quarter or so of 2023.
Scott Stember: Okay. Thanks, guys, for taking my questions again.
Brian Hall: Thanks, Scott.
Operator: Our next question is from Fred Wightman from Wolfe Research. Fred, your line is now open. Please go ahead.
Fred Wightman: Hey, guys. Good morning. I was hoping you could just give a comment on the timing of the model year changeover as we see this depressed production level extend farther and farther versus where people might have planned? Do you think that your customers are just going to move to model year ’24 products when they resume production or is it going to be continued production at ’23?
