Susan Maklari: Okay, that’s helpful. And then perhaps a higher-level question, and as we think about the potential that rates will come down as we move through the year, and that could drive some pickup in existing home sales, how are you thinking about what that could mean for the business and any thoughts on the timing around that increase in the turnover in housing relative to when it could come through to the actual results?
Brad Southern: Susan, I think interest rate reduction this year would have a – I think it would have a significant impact on housing. I think that kind of the short term would be more emotional perhaps than economic. Just the movement downward, I think, would provide some homebuyers the confidence to move into the market. I do think that over a period of time, it could free up some existing homes to go on the market. For homeowners that have been kind of hesitant in this interest rate environment to make that move, that won’t necessarily translate into new home construction. I mean, wasn’t at all, but it’s certainly housing that would be on the market. So I think for this year, on new construction, the impact would be maybe a little more emotional or feel good than it is really the economics changing.
But I think over – for 2025, it could be a very powerful driver of demand. And then secondly, on the Repair and Remodel, a reSiding project is a high-dollar project that is highly likely to be financed instead of paid out of savings. So I do think that interest rate reduction would have a more immediate impact on Repair and Remodel by just making those projects more affordable for a homeowner. So if we get that reduction, I think it would provide new constructions on tailwind, then, maybe it would be more impactful to ’25. I think for Repair and Remodel that impact could be immediate for us.
Susan Maklari: Okay. Thank you for the color. It’s helpful and good luck with everything.
Brad Southern: Thanks, Susan.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew McKellar from RBC Capital Markets.
Matthew McKellar: Hi, good morning. Thanks for taking my questions. Maybe first, just setting aside the price increases, are you able to talk to how you would expect mix shift from what I assume would be more ExpertFinish and potentially more BuilderSeries product year-over-year to affect average selling price in Siding in 2024?
Brad Southern: Yes, so I think it’s – certainly our focus this year is around growing our BuilderSeries and our ExpertFinish brands. One for ExpertFinish Repair and Remodel, BuilderSeries for new construction. The BuilderSeries depends on the SKU, but typically that is a price point item to a certain extent. So that would be a damper on average price as that volume increases not necessarily on margin but on price. And then for ExpertFinish, that sells for a much higher pricing and so that would be weighting our revenue up if we get more ExpertFinish. So, I’m not – I think there’s probably more opportunity from a net-net for the ExpertFinish to have a bigger impact positively than BuilderSeries would have negatively. But we’ll have to see how that plays out as we go through the year. So maybe mix would be a slight positive upside to the year compared to ’23.
Matthew McKellar: Okay, that’s helpful. Thanks for that. And then next, in new home construction, can you talk about what the tone is like from your customers in that segment? And with that, do you have a view at this point on whether housing starts by regional builders should trend much differently than housing starts across the industry?
Brad Southern: Yes. So I would say, just giving the exposure that we have to conferences and one-on-one conversations, I think the – maybe in the middle of fall last year I felt like there was some – I felt more pessimistic about this year from a builder standpoint. I think the mood there has strengthened through Q4, and certainly the tone right now is pretty solid. Obviously the conversations around rate reduction has a positive impact on sentiment there or on the mood. But the large national builders that we partner with are certainly optimistic about this year. They’ve put infrastructure in place to sell through this year and are anticipating growth. I do – I was surprised to hear in a conference I was in, in Q4, or maybe it was in January, anticipating some strengthening from the regional builders just because there’s such a need for new home construction because the existing homes are on the market.
And there – I mean, at the end of the day, there is only so much the national builders can do in the moment as they continue to grow. And also, post-COVID, there has been some capability for the regional builders to get the permitting, get the infrastructure in place where they’re maybe not as efficient at that as the big builder, but they have been working on it. So overall, I think we could see some recovery or some growth at the regional level. Honestly, that placed our existing sweet spot inside and we’ve always had a really good presence there. You couple that with continued growth at the national builder level, we could really play out for a good year for us in new construction.
Matthew McKellar: Great. Thanks very much. That’s all for me. I’ll turn it back.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Mark Weintraub from Seaport Research Partners.
Mark Weintraub: Thank you. Alan, I appreciate the qualitative drivers behind the Siding margin changes. I was hoping maybe that we could get a little bit more color on how that translates into the quantitative 20%, which I guess is a little bit lower than my back of the envelope would come out. But obviously there’s lots of stuff you guys know I don’t. And so – maybe if you – maybe open-ended, what you can add to the conversation at this point. Otherwise, I have kind of more pointed questions too.
Alan Haughie: I’m not sure which one I prefer. Let me give you a couple of big numbers that are in this, and I’m going to give you ranges. So high level, the selling and marketing investment is $15 million to $20 million year-over-year, and the mill reversal – the mill investment reversal is $15 million to $20 million reversing. We are adding other elements of SG&A around development of new products and the rest of the sort of infrastructure and the Siding business over in the region of, say, $10 million. And we’re anticipating inflation, which can change, of course, except for the labor part of maybe $20 million or so. So there’s some big ticket items that are sort of more discreet. They are, in some instances, manageable, such as the selling and marketing investment. And that – and that’s probably about as much detail as I’m willing to give.
Mark Weintraub: That’s super helpful. Maybe two, is it that one shouldn’t use like the 50% on incremental margins, which is sort of what you pence out on anything new above and beyond on the sensitivities chart you provide for the increase in volumes that you’ve embedded in the guide or is it..
Alan Haughie: Given those big ticket items, I’d call that, if you use the incremental margins, it should all work. The risk of going further and giving you a way forward. Okay? Based on, and something we’re not going to be particularly forthcoming yet on, because there is a relationship between the two on how volume and price breakdown within that revenue guide. It’s simply too early in the year for us to give a reasonable call on that. But if you make volume and price assumptions and use the sensitives accordingly, you should get something in there.
Mark Weintraub: Yes, so I guess that was the last question which I had, and maybe you sort of embedded it in your answer. So the first one was – and then pricing, would that be discrete? And if we’re getting 2% additional pricing that should be incremental to the EBITDA? Or did you just say that’s sort of embedded in the incremental margin analysis?
Alan Haughie: No, that was – it’s not embedded in the incremental margin. That’s – the incremental margin discussion is always purely volume at pre-existing mix. So yes, the pricing is incremental, revenue and EBITDA.
Mark Weintraub: All right, super. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Sean Steuart from TD Securities.
Sean Steuart: Thanks. Good morning. Question on the OSB cycle average you’re giving, which seems to make sense, but you’re talking about an 85% operating rate assumption that underlies that, which isn’t great. And I guess what I’m wondering is if you can speak to the shape of the cost curve in your OSB portfolio and thoughts on potential asset closures above and beyond Siding conversions over the long run, the possibility on that front for the company?
Brad Southern: Well, I’ll do the shape of the cost curve. It’s pretty flat, Sean. Obviously, we have some mills that are our cost and lower cost. But it – and that’s how we rationalize capacity when we do take the downtime. But it’s probably unmeasurable at the $4 billion level. We had a shift back at Maniwaki or something like that from a cost standpoint. So pretty flat cost curve. And then obviously we’ve learned how to move the capacity or the production up and down pretty efficiently so that the cost of downtime isn’t great either. So, yes, flat cost curve for us and relatively flat for the industry, at least when we do the analysis. Earlier in my career, I was in the paper business where the cost curves could be pretty steep, and that’s certainly not the case in OSB.
Sean Steuart: But you would – sorry, go ahead.
Alan Haughie: For utilization, the 85% is the trailing 10-year actual average utilization. So it’s very consistent with historical.
