Steve Tusa: Congrats to both of you, for sure, Joe. It was a pleasure working with you. Always tremendous straight shooter, so I appreciate the work over the years. So just on the commercial side, I mean, I know you guys are opening up some really good numbers, carrier up 30% again this quarter or something like that. You say orders are solid. Like what is the — but the lead times are like 50 weeks at some point, which is almost even like a fake lead time to an extent. What is the book-to-bill? What was the book-to-bill this quarter for that business as the backlog normalizes?
Alok Maskara: Steve, for us, as we look at our business, we have very little orders that carry over beyond a quarter. And when I mean order like booked order. So our book-to-bill ratio was extremely close to one, which is what it has been most of the time, except during really bad crisis. And the lead times for — at least for us are no longer 50 weeks. Lead times are now trending just around a quarter within a quarter and getting much, much closer to normal.
Steve Tusa: Right. So you’re saying that even when those lead times kind of stretched out there there’s really no backlog build? I mean, is that what you’re saying? I’m just having trouble reconcile on that because everybody else built a lot of backlog, obviously?
Alok Maskara: So, we did. So if you go back to last year, right, about the same time, we had talked about our backlog, and we had said that is unusual for us to carry so much backlog given the nature of the business. At this point, 12 years after that, we are saying that we still have backlog, but it’s more in a normal level. It’s no longer an elevated backlog, but our book-to-bill. So we are essentially shipping as much as we are booking at any given time. So that’s close to right.
Steve Tusa: Okay. Got it. And then just on the pricing side, you guys have talked about that kind of mid-season price adjustment for some of the resi customers. Your pricing was kind of consistent 3Q to 2Q. Can you maybe just talk about how that played through? I know that may be a little bit of a tougher comp versus last year, but maybe just some color on that, how that played through?
Michael Quenzer: Yes. I think what you saw in Q2 is that we still had some benefit of lapping some prices in Q2, and by Q3, we fully lapped all that benefit, but we picked up the incremental strategic pricing in Q3. So that’s where we’ll start to see that normalize for the rest of the year though. But yes, we did see good pricing on the strategic pricing initiative we launched in June.
Steve Tusa: Okay and then one last question on pricing for next year. I know you said the double digit over a two-year period I’m not sure if that meant like mid-singles in ’24 and mid-singles in ’25. Maybe just a little bit more clarity on how you see that breaking out between ’24 and ’25.
Alok Maskara: Steve, that’s still a bit TBD. We’re in October, as we go into price increases, we got a greater clarity in a couple of months because there are lots of moving pieces, including cost of refrigerants, sensors, where the overall situation is in different manufacturing cost as well because we haven’t even made any measurable quantity of the new product. So, we’ll be able to give you a much more refined view of that when we announce Q4 results early next year.
Steve Tusa: Right. And no Investor Day, right, obviously in December?
Alok Maskara: That’s right. No investor Day.
Operator: [Operator Instructions] We’ll take our next question from the line of Julian Mitchell with Barclays. Please go ahead.
Julian Mitchell: Congratulations to Joe and to Michael. Maybe just a first question. commercial margins, so not a particularly original topic. But if we think about what you said, Michael, earlier on this call, I think it’s that the sort of firm-wide operating margin looks like it’s down maybe 200, 300 basis points sequentially in Q4. And commercial is down sort of less than that and resi down a little bit more. So, we have that sort of jumping off point of a commercial margin of sort of 22% or something for the year, a little bit more than that. When we look at next year, the sort of puts and takes of all your color, are we assuming kind of fairly normal commercial operating leverage, you have the sort of the balance of the tailwind from volume and price mix and then the headwind from the new plant ramp-up. Is that maybe just confirm that thought process for Q4 and next year is roughly correct?
Alok Maskara: Julian, I’ll start and then Michael will continue. But I just want to start by reminding that we don’t really get segment margin targets by quarter. I mean, part of it is we just too small for that in terms of — there’s always puts and takes. So I think when we give guide, we look at the Company overall, and having said that, I’ll go to Michael, who can get into the details of margin expectations and pluses and minuses, both for Q4 and for next year.
Michael Quenzer: So maybe I’ll just talk about next year first. So I think that’s mostly our focus at this point is. So what we’ll see next year is that the margins that are in our P&L currently will retain next year. We’ll want to price to maintain those as costs come in, specifically on components and some of the 410A refrigerant will maintain those margins. And then on top of that, we see volume growth. So, we’ll get 30-plus percent incrementals as we get some additional volume out of that second price end markets or so. So you’ll see that help lift up some of the operating margins offsetting that though will be some of that we have in the factory, the new factories, we’ve ramped those up. That’s kind of our early thinking right now. But overall structure of the margins you see in 2023, we think will repeat next year.
Julian Mitchell: That’s very helpful. And just my quick follow-up is I know we’re up on time. The price mix tailwind to EBIT, you’ve quantified it for this year. Just sort of fourth quarter, are we thinking it’s about $50 million or so tailwind? Is that roughly the order of magnitude? And then, do we assume that that’s sort of a good run rate into early next year?
Michael Quenzer: That’s the guide that we have right now. We’ll see where the final results come in. You need to remember that commercial last year, we had a lot of price increases that we started to get in Q4. So pretty big comps and commerce, which is why it drift off a little bit in Q4. But yes, we should retain that. And then you’ll get a carryover price benefit next year for the residential strategic pricing that we did in June. So let to be on top of any price increases we announced effective January 1 that will come out in the next month or so.
Operator: And we’ll take our last question from the line of Gautam Khanna with TD Cowen. Please go ahead.
Gautam Khanna: All right. Well, first, congratulations, Joe and Michael, I appreciate that all your help over the years, Joe, and wish you well.
Joe Reitmeier: Thank you.
Gautam Khanna: A lot of questions have been asked and answered. But I was curious some companies have remarked that there’s been evidence of trading down, if you will, repair over replacement in North American resi HVAC. Have you seen any evidence of that in your sales in the third quarter?
