Michael Quenzer: Specifically speak to the pricing. So within the quarter, we only had a partial quarter on the price increase. So we announced on the Lennox brand starting February. So that didn’t even fully get all the way through February, seeing about a month on the Lennox side. So that should continue to increase as we go throughout the year on just the normal flow activity on Lennox. And then we also had price increases on some of our large PE and builder contracts that also was — some of those were also a partial quarter. So you’ll start to see that also expand later in the year. On the mix side, we don’t think that the new construction mix is going to continue, so that should help going forward. But we’re watching it to see if it does. But right now, we’re assuming that, that mix basically slows down on the RNC side.
Steve Tusa: So that mix number that you put in there, the mix for sales is a mix driven by type of business like new construction versus like replace. That’s what that negative 2% mix reflects?
Michael Quenzer: Within the quarter, correct, yes.
Steve Tusa: I didn’t — have you guys always accounted for it that way? I thought that was more about like the SEER level of the product as opposed to the type of customer you’re selling to?
Michael Quenzer: Well, if you think within that customer, it is a SEER level of the product that normally do entry-level type products. So it’s kind of a mix of both.
Alok Maskara: Steve, we wanted to do it the same way. Last year, we called out the SEER-1 because that was the largest driver as we’re going from older SEER standards to the newer one. But for us, mix has always been product types and RMC products are part of that mix change.
Steve Tusa: Right. I guess, but that’s not really going to change, I guess, over the next several quarters, right? Mix should remain relatively new construction focused? Or does that mix change over the next several quarters?
Alok Maskara: Well, as new housing starts had gone down, I think Q1 last year was abnormally low. So I think both start impacting, right? We’re comping ourselves out of the dip that we had last year.
Steve Tusa: Got it. And then just one last one on commercial. What do you think the market did this quarter? I mean, the AHRI data, which is obviously a little more narrow than what some people define as a light commercial market. That looked pretty strong. You guys had volume that was up, I think, mid- to high single digits. What do you think the market did? And did you guys — I guess, how do you perform relative to that in your estimation?
Michael Quenzer: Our AHRI reported rooftop units were up more than that 7%. We had some declines in our refrigeration volume within the quarter that were taking down some of the gains, but we think we grew faster than the AHRI on rooftops within the quarter, winning back some share.
Alok Maskara: Yes. And you can take our entire segment and compare it. Michael is saying only a portion of our segment gets compared to that. So we did equal or better than the AHRI data.
Steve Tusa: Yes Okay, great. Thanks a lot.
Operator: Next question comes from Gautam Khanna with TD Cowen. Please go ahead.
Gautam Khanna: Yes, thanks. Good morning, guys. I had a couple of questions. First, was wondering in April, you talked about destocking in the third-party channel coming to an end. Can you talk about maybe April order trends in that channel and how that might inform your conviction?
Alok Maskara: Yes. Given that we are having the call towards the end of April, conviction is already reflective of what we are seeing in April. So we remain convinced that the destocking is coming to an end.
Gautam Khanna: Do you anticipate that channel will be down in the second quarter still in terms of unit volumes?
Alok Maskara: No. I would expect that channel to be up in unit volume in Q2.
Gautam Khanna: Okay. And that’s irrespective — I mean, assuming weather is not a big variable year-to-year.
Alok Maskara: Yes. I’m going to call out weather, but listen, I don’t want to get nervous just because I have to wear a sweatshirt in Texas in April.
Gautam Khanna: Got you. Okay. I was wondering if you could talk about the demand you think you’ll have as the new Mexican capacity comes online. So maybe if you could talk about customers or business that you may not have been able to accommodate on the commercial side. So because obviously, people get concerned about commercial unitary demand starting to soften after a big run up of COVID. What gives you conviction that you’ll be able to fulfill that capacity over time?
Alok Maskara: Yes. So listen, great question. While there are no certainties. Here’s what we know and we look at, right? I mean, our order rates continue to be higher than what we can manufacture, and we are still turning away businesses that we would rather not. So that’s just internal way we are looking at, and that’s been going out for two to three years now. So could it turn suddenly tomorrow it might, but that’s one. Second, we have made significant investments in preparing our sales team to go out and start adding — in some cases, adding back contractors whom we had lost and working towards emergency replacement. And that’s part of some of the investments that we talked about is leveraging our core contractors or Lennox dealers to be able to push that emergency replacement market.
And finally, it’s the key accounts and the conversations that we’re having with them especially when it comes to 454B products because some of them had delayed replacement and want to do replacement with 454B products because they know that, that refrigerants will be around longer and will be lower global warming potential rated. So they get some carbon credits for that as well. So multiple factors in there goes down to our current rate investments we have made in drumming up extra demand, and lots and lots of conversations with our key accounts to pull that forward. But at the same time, I mean, current factory is running kind of overcapacity. So in case the demand fully doesn’t come through, we’ve got lots of flexibility in where we produce and what we produce.
And that flexibility is also super exciting to us and baked into our numbers going forward.
Gautam Khanna: That’s helpful. And last one for me. On the JCI assets for sale, you guys have expressed an interest in the York resi unitary stuff. If it were — if there were other assets embedded in whatever they’re selling, is that something you guys would entertain? Or is that too much complexity for what you ultimately want and therefore not worth pursuing? I’m just curious how that — because we hear that then we sell more of it, pull it once, then you got to divest it or whatever.
Alok Maskara: Yes, sure. No, that’s fair. Again, I don’t want to comment on other company, but I’ll tell you we are going to be focused on HVAC. I mean we are an HVACR company, and that’s what we do, focused on that. And I don’t think that’s going to change just because opportunistically something else becomes available. And our strategy is working. We have the scale. We see a strong pathway ahead for us just doing execution on our current business end. But we’ll remain very focused.
Gautam Khanna: And that’s North American HVAC, just to be clear, correct?
Alok Maskara: No, I would say we are looking at North American HVAC as being the primary market. We do a lot of exports as well. And the heat pump technology that we use, we do get from overseas. As you know, we already have hundreds of millions of sales in that.
Gautam Khanna: Okay, thank you. Appreciate it, guys. Thanks.
Operator: And thank you for joining us today. With no further questions, this will conclude the Lennox’s 2024 first quarter conference call. You may disconnect your lines at this time.
