Mike Halloran: Thanks for that. All very reasonable. I appreciate it.
John Stauch: Thank you, Mike.
Operator: Our next question will come from Julian Mitchell with Barclays. You may now go ahead.
Julian Mitchell: Hi, good morning. Maybe just wanted to follow up on the sort of profit bridge a little bit from Slide 12. So the sort of price net of inflation number was close to zero. It seemed inflation picked up a bit as a headwind year-on-year versus the prior quarter. So maybe help us understand kind of the inflation moving part in Q4 into early next year. And should we expect that price net of inflation number to be sort of close to zero like it was in Q3?
John Stauch: No, I think the way — it’s a good observation. I would remind you that the inflation as we showed in our bridge is as year-over-year. So it doesn’t necessarily reflect sequentially this year, it could be that we saw some elevated inflation on some of the buys that we had last year. So we think that we are overall moderating to price versus cost being neutral or slightly more close to neutral and then obviously focusing on the productivity contribution that’s coming from our transformation initiatives, that’s the model going-forward. If you recall, we were benefiting quite substantially earlier in the year and last year on price versus cost. And now that’s shifting to more of a transformation benefit as we go forward. Bob, I don’t know if you want to add anything.
Bob Fishman: Yeah. I would just add to that, that while inflation did — the change in inflation and increase in Q3 versus Q2, the nice thing was that price was able to cover that. We do expect inflation to moderate significantly in the fourth quarter and certainly where price exceeds inflation. At the beginning of the year, we talked about inflation being around 4.5% of sales. And we’re really tracking right towards that. So the team has done a nice job of understanding inflation and factoring in the impact of that. So overall pleased with what we’re seeing and that’ll moderate in the fourth quarter.
Julian Mitchell: That’s helpful. And as you said, hopefully, that productivity piece becomes larger as a driver. It was substantial already in Q3. Maybe just sort of refresh, where we are on the sort of Wave 2 from transformation savings and how substantive that productivity number should be as a segment income driver next year when you kind of roll together sort of incremental savings from transformation next year.
Bob Fishman: Yeah, and that is a very important part of our margin expansion story. As we talk about price equaling inflation, it’s important that productivity then drives that ROS expansion. So we were pleased to see the $29 million read out in the third quarter, up significantly from the single-digit in Q2 and expect to have a significant transformation benefit in the fourth quarter. We’re really within Wave 1 in terms of reading out in 2023. We’ve built some healthy funnels around each of the four pillars of transformation. And so that will start to read out to an even greater extent next year. So overall pleased with the momentum going into 2024.
Julian Mitchell: Got it. And your sort of second half run rate for those savings, we should expect that sort of to be steady through at least the first half of next year, I suppose. And then maybe the sort of the comps get a bit tougher on productivity.
John Stauch: Well, and then that’s when the Wave 2 kicks in, Julian. So you — but you’re right. The material took a long time to realize because of all the engineering work and the resupply efforts that we had to do with the supply community. So we’re starting to benefit from those in Q4. That run rate will go into next year and then Wave 2 starts to take over in the second half of next year from a sourcing standpoint. To give you some color, about a third of our businesses engaged in the pricing exercises in 2023 will be close to two-thirds of the wave through that in 2024. So that’s kind of how the waves that Bob mentioned start to unfold. And we start to benefit from that performance inside the businesses.
Julian Mitchell: That’s great. Thank you.
John Stauch: Thank you.
Operator: Our next question will come from Saree Boroditsky with Jefferies. You may now go ahead.
Saree Boroditsky: Hi. Thanks for taking the question. Just building on the transformation initiative comment, discussing and benefit from Wave 2 in the second half of next year. Can you just quantify how we should think about that as contributing to margin performance?
Bob Fishman: We’re very focused on ROS expansion. So if you think about us finishing around 21% this year, we’ve talked about improving the ROS to 23% by 2025, and we’ve said that’s being done in a linear way versus it being all back-end loaded. So we expect the ROS to improve next year as we head towards that 23%.
Saree Boroditsky: I appreciate the color. Then, just kind of going back to Pool, and a lot of questions today, but — and you talked about some of the early buy programs having modest participation there. Maybe as you think about 4Q delivery versus 1Q, is there any way to think about how you thought about the delivery patterns and what that means for 1Q sales? Thank you.
John Stauch: Yeah. I mean I think what we’d like to see unfold is we believe Q4 can be higher from a shipment perspective for Pentair than Q3 and then we would expect Q1 to be better than Q4. And then we would be in the normalized pattern, end of Q2 next year finally being a normal seasonal pattern, which should be the strongest full quarter of the year. And as a reminder, Q3 is modestly less than that. And then again Q4 starts the pre-load for the 2025 season. So we feel like we worked through this and now we’ve got a clear line-of-sight to more normal seasonality in the business and really keeping our eye on sell-through going-forward so that we don’t get into this inventory situation with our channel again.
Saree Boroditsky: Appreciate the color. Thank you.
Operator: Our next question will come from Jeff Hammond with KeyBanc Capital Markets. You may now go ahead.
Jeff Hammond: Hey, good morning, guys.
John Stauch: Good morning.
Bob Fishman: Hi, Jeff.
Jeff Hammond: Hey. Just on IFT, can you just talk about like the order trends you’re seeing? I don’t know if it was really a comp issue but it seemed like there was a step-down in the growth rate. And I’m just wondering what the orders are telling you about kind of the go-forward there.
John Stauch: Yeah. I mean, just, again, we’re looking at year-over-year comps, Jeff, and our infrastructure businesses had a really solid 2022 and so some of these growth rates reflect against the prior quarter of 2023. I think the orders continue to be strong from a mid-single-digit indicator as we go forward, but the year-over-year comparisons are going to be tougher. And as Bob mentioned, we are really focused on non-project-related wins. We’re focusing on service, we’re focusing on aftermarket, we’re focusing on recurring revenue streams with our key distributors and end-market providers, Jeff.
