Andy Nemeth: Sure, Dan. I think that’s one of the things that we’re most excited about is the position of the organization today, the infrastructure that’s been put in place, the caliber of the team and then the automation and operational efficiencies that we’ve been able to deliver and drive and invest in over the last couple of years, have really positioned us to be able to flex up very quickly and leverage the infrastructure that we’ve got in place without adding a lot of incremental overhead and cost to support that. And so we see incremental opportunity both at the gross and op margin level, especially with the run rates that we’re running at today, which we do not believe our normalized run rates on a longer-term go-forward basis.
So I think that’s one of the things that gets us most excited is the opportunity to leverage this and the earnings power of the organization based on the investments that we made in this business over the last couple of years. And we’re going to continue to invest in automation, as we noted, with our CapEx plans for 2024. We’re going to stay focused on continuing to drive those efficiencies to be able to improve our throughput, our quality and be able to continue to take care of our customers as they flex up. And so again, I think we feel good about incremental margin growth at both the gross and op margin level for the foreseeable future.
Operator: Our next question is from Tristan Thomas-Martin with BMO Capital Markets.
Tristan Thomas-Martin: Two questions. So OEMs took a lot of price on model year ‘24 relative to ‘23. Do you think they need to take more price on ‘25? Or do you think they’re in a decent place there? And then second question, was there any delta in between industry shipments versus industry production, i.e., where there are a lot of opens that were shipped out in 4Q, maybe that were built in earlier quarters?
Jeff Rodino: Yes, Tristan, this is Jeff. Just to answer your first question, I don’t think that there was a lot of opens out there. I mean they really started to manage their inventory way earlier in the year tied to what was being ordered was really what was being shipped or what was being run with what was being shipped. We see that a lot in our transportation business, so we got a good eye on that. So I think that there’s not a lot of extra there. Definitely not a lot of opens being run by the OEMs. We’ve been very disciplined in that manner. As far as pricing, it’s a little interesting out there, because I think you’ve heard a little bit about decontenting or smaller units and different mix out there. Prices definitely have come down from the 23s to the 24s.
I believe there was some decontenting in a few units, but ultimately, I think the consumer is looking for the contented unit. So I think the prices will remain pretty stable or even maybe go up a little bit with some additional contenting in that 2025 where I believe the brands are trying to differentiate themselves in the market with a higher-end product and something that’s more valuable to that retail customer.
Operator: Our next question is from Noah Zatzkin with KeyBanc Capital Markets.
Noah Zatzkin: Just hoping you could maybe provide any color in terms of how you’re thinking about CPU opportunity across the different end markets and any puts and takes we should keep in mind?
Andy Nemeth: Yes. This is Andy. I think we – again, we said we’re positioned today. We feel like we’ve bottomed as it relates to kind of industry production. We think wholesale retail is at one for one. And from a content perspective, we also think we bottomed in Q4 and believe that there’s upside, and we expect upside as we go into 2024 as it relates to our content per unit. We’re still carrying some of the pricing that we gave in the first half of the year on a TTM basis through kind of Q4 when you compare to prior year Q4. And so again, as we look at kind of 2024, we feel like our CPU has upside potential and are expecting upside potential. We’re picking up business. We have not lost any business. The only shifts really in the content have been related to pricing and mix as it relates to production in the field.
And so we feel good about our content perspective. We think that’s bottomed out and look for the upside potential. And we’ve picked up a lot of new business as well to support that. So on the CPU side, we feel good about where we’re at.
Operator: Our next question is from Brandon Rollé with D.A. Davidson.
Brandon Rollé: Just briefly on your outlook for the RV industry. It seems like you have a little more cautious outlook than some of the other industry participants. Could you talk about what happened during RV show season? And did anything come out of the month of January that influenced maybe a more cautious outlook on the RV industry?
Jeff Rodino: Yes, Brandon, this is Jeff. I would tell you, so far this year, shows have been mixed. We’re really, really just a month into it. Our OEM touches have varied from weekend to weekend about what’s going on the shows and on that front. I think we’re just trying to give a range kind of similarly to what we’ve seen in the industry and where we’re at. I think we still feel like we’re optimistic that there’s some upside to what’s going on. But certainly, what we see in retail, probably over the next month in the shows is really going to help us hone in a little bit closer to where we think things will be at. As we’re talking to the OEMs, that’s really what they’re communicating to us is that these next month, 1.5 months of shows will show us where the retail ends up, and we believe it’s still going to be one for one. And so that’s kind of where we came up with that range.
Brandon Rollé: Okay. Great. And then just on a — from a competition perspective, obviously, with pricing being a big focus right now for the customer. Can you talk about the competition going on among suppliers for business with those OEM partners as they work to get prices lower?
Jeff Rodino: Yes. This is Jeff again. We have competitors in every one of our markets that we serve. We have – we pride ourselves on our customer service, our ability to scale our size and have to be able to provide the customer not only with the best product in the market, but the most economical product in the market. In all of our product lines, we provide good, better and best across the board. And that gives us a lot of flexibility to work with customers to design our products to make them work for them along with getting it into the price point they need for the price point they’re trying to hit in the market. So we feel very comfortable with where we’re at in the market. Certainly, there’s competition, and there always – really always has been for us with all of our product lines.
So as we move forward, I think the one thing that we’re most proud of is our ability of our teams to be able to flex with the customers for their needs and give them what they want and then really kind of hone in on that price point at the same time.
Operator: Our next question is from Rafe Jadrosich with Bank of America.
Rafe Jadrosich : I just wanted to follow up on the outlook for 30 to 50 basis points of margin expansion in 2024. Can you just give a little bit more color of SG&A versus gross margin? And then some of the expectations in terms of mix, price/cost. And could you just talk a little bit about the sales assumption that’s behind that? I know you talked about by end market. Just what is the rough sort of outlook for production?
Andy Nemeth: Sure, Rafe. I’ll handle that. I think as we — when you look at the cost structure of our business, our RV business is extremely variable and highly scalable. When you look at our marine and powersports businesses, there’s a little — there’s a higher engineered component to that has a higher fixed cost structure and especially when you look at where we’re operating today with the Marine business, we’re certainly losing some absorption, but that’s being offset by the flexibility that we see in the RV business from a diversification perspective. So again, we’re running today at — we’re operating and assuming our model based on run rates that we’re seeing today. And that’s where we get confidence as it relates to our ability to drive incremental margins as we start to see production improve across these markets.
So again, from an SG&A perspective, we would expect a higher SG&A concentration or percent of the mix, but we also expect a higher gross margin component to that with our RV — or I’m sorry, with our marine and our powersports businesses due to the higher engineered nature of those 2 businesses. So that’s as it relates to our OpEx and op margin improvement with the opportunity for incremental margins over and above kind of what we’ve said. I think from an overall mix perspective in the marketplace today, again, we think we’ve kind of bottomed. We think that the opportunity for up-contenting in the RV market exists, especially with the mix that we’re seeing today. As Jeff mentioned in his prepared remarks, it’s usually — that’s usually the start of the next run when we start to see the RV industry start to improve as we start to see some up-contenting trends.
And I think marine content really hasn’t changed a lot. The marine OEMs continue to automate, innovate, add content to units and the consumer wants that up-contented unit is I think the feel that we see out in the marketplace today. So when you look at the mix that we’re running at, we feel like it’s, let’s just call it, abnormally low as it relates to lower end with opportunity for upside with up-contented units on a go-forward basis. So bottomed out as it relates to mix and then upside potential is how we look at it.
Rafe Jadrosich : That’s really helpful. And then my second question, just in terms of the longer-term M&A strategy, you’ve done a really good job of broadening your end market exposure and diversifying away from RVs. How do we think about that mix longer term? Do you expect to go more into powersports, housing, marine? Are there any end markets that you’re like focused on from here?
