Matt mentioned our Engineered Products group and some of the challenges that we faced; we expect margins to continue to improve. A number of initiatives are in place. We did see nice improvement in our forging plant in Canton, which historically has been a higher margin business. We see a lot of new growth opportunities in our capital equipment business as it relates to forging equipment, which carries a higher margin. So we’re pleased with where we’re at, at 17.1% overall and hoping to be able to continue that as we get through the rest of the year.
Matthew Crawford: Christian, I would only add, there’s two layers of improvement, both inside some of the businesses, particularly Supply Tech and on the consolidated gross margins. One is a structural shift to higher-margin businesses. I mean we’re trying to give the businesses that have the highest margins, their unfair share of capital. And that includes not only investing in the right places. In this particular case, we’re benefiting from seed we plant in aerospace and defense 2, 3, 4, 5 years ago. So it led to pay off. It also includes exiting low-margin businesses where we don’t provide a value set that we can get paid for. So I think there’s a significant amount of sort of structural work here. There’s no question Supply Tech performed at a very strong level.
So I think that our focus, particularly in automotive continuous improvement is continuing to benefit us. So again, we’re going to see market leadership inside our business from different businesses at different times, unquestionably. And right now, certainly the leader was in Supply Tech. But we believe at the end of the day, we’re building a more stable, simpler, sustainable business model and less capital-intensive. So I hope that helps.
Christian Zyla: Great. Yes, very helpful. I guess just sticking with Supply Tech, and I know part of this is the improvements you guys have made over the last few years and part of it was the mix. But just how much of the margin expansion outside of that low 7% range was mix driven? And should we expect that to continue or a step down for the balance of the year? Just trying to think of the model here.
Patrick Fogarty: Yes, Christian, I would say most of the improvement north of, say, 70% was a result of mix. But on the other hand, as we get through the rest of the quarter, we’ve got initiatives to continue to reduce our product cost, which will help offset the change in mix going forward. So, I would like to believe we can continue with that 9.9% operating income margin. But anything that takes us north of 8% will generate a nice comparison year-over-year. But we are going to continue to drive towards a margin that looks closer to 10%.
Matthew Crawford: I mean we are – again, we are trying to grow our best parts of our business from a quality of earnings standpoint, more quickly. Again, aerospace and defense is a good example. Yes, in the quarter, that gave us great mix, maybe optimal mix. But – so it is a tough comp. There is no question if that’s your point, it is. Having said that, we have made changes that, again, we think we have taken the business to a higher level.
Christian Zyla: Great. And then just switching gears to Engineered Products, I know in the past, you have said as engineered goes Park-Ohio goes. But as we look at the business, I mean is there a business line in EP that’s a drag on margins? And as you look at the entire engineered portfolio, is there any way to structurally improve the business, like you guys recently did with assembly components?
Matthew Crawford: We need to break the business apart a little bit to think about that. Number one, we have made a tremendous amount of decisions over the last few years to try and improve our business for the long-term. I think the most well-known example is the consolidation of crop forge into Canton, maybe a lesser-known example is the expansion of Southwest Steel Processing with the second forge line. These decisions were made with the long-term health and interest of the business in mind. And I think they were made at the right time. Again, these are businesses were centers of excellence, access to trained labor. These are the kinds of decisions that build the business long-term. Having said that, these are very difficult operating decisions and consolidation decisions at a time where turnover was much higher than usual retirements and loss of knowledge much higher than usual.
So, I think benefiting from those decisions where we sort of worked that through in the automotive business over a couple of years, these are more challenging opportunities. Having said that, these are some of our most stable customers and products. These are businesses that tend to be very unique assets and capabilities. So, we are not losing business. The backlogs are strong, and we need to perform against them. Separately, when I think about the equipment business, where we added EMA recently, the aftermarket business, as I mentioned, is a bright spot and continues to be a bright spot. And the macro trends around defense and aerospace and infrastructure will benefit that business as well as the forge business in an outsized way. So, we continue, I think to be a premier supplier of these products in a world that’s electrifying.
So, having said all that, the new equipment part of the business, as I mentioned in my comments, is difficult right now. Again, for some of the same reasons at the forge, combined with the fact that the cycle time on some of these orders whether it be a forging press or an induction heater could be from order to ship or your installation could be 18 months, 16 months, 14 months. It takes time to catch up. It takes time to optimize from both a pricing and an execution standpoint. So, we have strong conviction on the macro trends. We have strong convictions on the decisions we have made, and we have strong conviction on the bones of the business from backlogs and installed base. And aftermarket, it’s just – there is a smaller part of the business that I have mentioned in a couple of areas, places where we consolidated or grew rapidly in forging or new equipment, which has been difficult and will continue to be, and we are going to get better every day.
But that’s the nature of a diversified portfolio.
Christian Zyla: Great. Really appreciate the answer. I have got one last one and I will pass it back. Just with the FY ‘24 guide, I know you guys added EMA, but does your M&A pipeline enable upside to your guidance, or should we think about this year as primarily organic-driven top line? And then in the quarter, should we think about a couple of points of price, the difference being volume for the overall sales performance? Thank you for the time.
