Joe Ritchie: Yes. What we’ve seen is the commodity is about favorable. We saw steel year-to-date favorable. And for the rest of the year, we think commodities are going to be pretty flat. We don’t see a lot of benefit in the commodities in the fourth quarter. You’ll see continued headwinds a little bit on some of the material costs in Q4, but it’s not as significant as we previously thought under our last guidance. That’s really where the big change is that little bit less expected inflation on some of the non-commodity material. But for now, the commodities have been relatively flat across steel, copper and aluminum.
Nigel Coe: And then if we then carry that through into ’24, obviously, with the hedges, you got some visibility there. How does that look in maybe the first half of the year?
Joe Reitmeier: Yes, we’ll see a little bit of benefit on the hedges as they drift into next year in the first half for the aluminum. Aluminum, we spent more on that as the copper and the steel that’s more fluctuation on the current pricing. So, we’ll see where steel goes, but we think it will be pretty muted next year on commodities.
Nigel Coe: And then just a quick one, if you bear with me on the refinancing cost. I think, look, you mentioned lower financing cost with refi. I think it was $50 million or 5%, replacing $350 at 3%. So just wondering how the mathematics works there?
Alok Maskara: Sure. I’ll take that. I mean, I think if you look at it as an overall financing cost, I mean, clearly, interest rates are out of our control. But many of our secured credit lines and if we look at the actual financing costs were higher. But from a pure interest rate perspective, you’re right. I mean, the new bonds are at a higher interest rate and the bonds that are expiring. But as you took a whole package together, on what we are paying for secured financing versus the benefits of commercial paper, items under control would now be at a lower cost versus otherwise.
Nigel Coe: Okay. I’ll dig it into that, and Joe, congratulations, Michael, congratulations. So, I’ll leave it there.
Operator: And the next question comes from the line of Noah Kaye with Oppenheimer. Please go ahead.
Noah Kaye: And I’ll add my congratulations to mix as well, wishing both lots of luck. Peers are sounding like they may expect a richer mix the low GWP products next year just based off of the installation requirements under the EPA rules that recently came out. Are you thinking similarly, could there actually be a stronger front-loaded pre-buy of 410A? Just your thoughts on how the rules impact those considerations for next year?
Alok Maskara: I mean the rules are still a bit of in a flux. As you know, EPA came out with some final guidelines recently. We are still waiting for some clarifications from DOE and other pieces. Would there be mix benefits for the new refrigerants? Absolutely. Is it going to be early next year? We don’t know. We think it’s likely going to be more towards second half of next year as the transition starts ticking forward. But what we know for sure is given our preparation, which we think we are at or ahead of orders in terms of preparation, given our direct-to-dealer model, and given that our indoor units are compatible with our outdoor units. As we go through the transition, we think we are favorably positioned as we go into the transition year.
But we will give you more details when we announce Q4 results and there be greater clarity on the different regulations and rules that will impact the transition. We are ready for the change, and we feel we’re going to do better than others, but the mix impact is still to be TBD, likely to be more in the second half versus first half.
Noah Kaye: Okay. And I’m pleasantly surprised to hear that the margins on the AES acquisition are comparable to the commercial or to the Lennox average is given that, that’s would just be largely an installed business. Can you talk a little bit about that? And what accounts for sort of the quality implications in that business? And what was really appealing about the business that made it a target for you?
Alok Maskara: Yes. So, the financial profile, as I said, is similar to rest of Lennox, which is good. What was attractive to us was to be able to provide a comprehensive holistic range of services to our customers because earlier, we did not provide installation services. We did not provide refrigerant reclaim and recycling, and we did not manufacture our own core adapters. So it was really a very, very good fit with the gaps in our portfolio. We like the team. We like the customer base. As you can imagine, we did significant due diligence including using external services for financial due diligence. And we are super excited about taking the business forward, getting a greater share of our customer spend, giving them good assurance all the way from cradle to grave for the product to be able to serve as well.
So while the financials are small, we are just super excited about the strategic fit and where this business is going to go, including the synergies that we can gain out of this business.
Operator: And our next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead.
Joe Ritchie: My congratulations to Michael as well, and then thank you, Joe, for all the time and wish you the best on retirement. So maybe my first question, can we just focus on resi volumes for the quarter? Nice to see the decelerating trend this quarter, curious, can you maybe just kind of parse that out? What do you see specifically in your independent distribution channel versus selling direct?
Michael Quenzer: Yes. So, the independent distribution, we saw volumes down kind of mid-teens. And we saw that improve as the kind of quarter went on, specifically in our coils business. That was one of the first businesses that started destocking. We’re starting to see that improve. So that’s a good sign. The destocking is ending on the coil side. So you’ll start kind of mid-teens on the independent district distribution.
Joe Ritchie: Got it. And Michael, what’s kind of like the expectation then for 4Q on the independent distribution side?
Michael Quenzer: Middle of all, we’re getting to kind of a flat volume for Q4. We think it’ll be down a little bit. There’s still some furnace inventory in the channel that needs to destock. It’s more of a seasonal product in Q4. So you’ll see that for a bit. But then the direct side should be up offsetting that.
Joe Ritchie: Okay. Cool. And then I guess just thinking about 2024, and I appreciate the comments you’ve already made on commercial margins and the plant and potentially productivity efficiencies as you kind of ramp the plant. At the same time, like you haven’t seen a lot of productivity benefits coming through commercially yet, yet the margins are — have been really, really good. So, I’m just curious like — how do you kind of — how do we level set like what the margin profile for the commercial business should be or could be in 2024?
