Nick Gangestad: And Nigel, part of what we were talking about there is the $100 million we’re expecting in the second half of this year. Those actions we expect to have a tail into fiscal year ’25 of an additional $120 million. And I’m saying that in reference to your comment about temporary. Some of it is temporary, but the majority of it is sustainable and makes that tailwind impact benefit into fiscal year ’25.
Operator: Our next question comes from Julian Mitchell from Barclays.
Julian Mitchell: Just maybe circling back on the sort of EPS walk. So you’ve got that very helpful Slide 11, for example. But if I think about sort of 3 big buckets of cost you’ve talked about this morning. You’ve got incentive compensation, you’ve got investment spend and you’ve got these fixed cost reductions relating to headcount cuts. So it looks like for 2024, you’ve got about a $2 EPS tailwind year-on-year from incentive comp and investment spend combined. Is the right way to think about it that a lot of that reverses in 2025? And then on the other hand, you’ve got these savings that maybe are worth about a dollar of EPS from headcount cuts in 2025. Just trying to understand of the incentive comp and investment spend, kind of how does that reverse in a substantial way kind of in the following year naturally?
Nick Gangestad: A couple of points, Julian. First of all, we certainly intend that the incentive compensation does reverse in fiscal year ’25, but the productivity actions that we’re doing with the structural cost savings. We do not expect the majority of that investment spend that I note on that slide to reverse, and that’s why we’re talking about the $120 million of carry forward benefit into fiscal year ’25. So, 2 different answers. The incentive comp absolutely does reverse, but investment spend does not, and again investment spend in total for next year will be dependent on the opportunities we are seeing. We haven’t set what that number is, but the benefits of what we are doing here, we are confident that we’ll create this $120 million tailwind benefit into next year.
Blake Moret: Yes. Just at a high level, the actions that were taken now with their benefit this year and then the incremental benefit next year, when you add that to the more structural actions that we’re beginning, the more comprehensive program that I mentioned, we expect that to more than offset the headwinds from return incentive comp investment and so on as we go into fiscal year ’25.
Julian Mitchell: And then just my follow-up would be trying to circle back to that point on sort of your revenues and your inventories and your customer inventories. So it sounds like you have this Q3 sales dip, I think, sequentially, Nick, you’d mentioned. Maybe help us understand why that’s happening if orders are up sequentially in the second quarter finished and the third quarter that we’re in now? And your own inventories on your balance sheet have been stuck at sort of the same dollar number for a year now. How are you so sure that your customers’ inventories are coming down when your own are very stable?
Nick Gangestad: Yes. So as of the end of second quarter, Julian, our product backlog is essentially back to normal. We’ve had good success working through with our supply chain and we’ve brought our backlog back to normal. So going forward, we expect to be operating what we were like pre-pandemic where orders in a particular quarter are very much like what our sales are in a particular quarter. In our second quarter, we were still benefiting from drawing down some of that backlog. We brought down our backlog in high-single-digits in the second quarter and that’s why our sales in the second quarter were higher than our orders. That phenomenon will end going into the second half of the year and that’s why even though we expect orders to be up sequentially, we expect revenue to be down sequentially.
Operator: Our next question comes from Noah Kaye from Oppenheimer.
Noah Kaye: Maybe talk about some of the choices you’re making around where to reduce investments in the business. You would love any color, you made a lot of acquisitions, not sure if it’s related to that. Maybe you can talk about it, if possible on the segment level or bio protocol?
Blake Moret: I’ll make some comments and Nick may have some additional ones. Most of the reduction in force that we’re looking at is affecting SG&A, and that does include sales and marketing and headquarter functions. I think as we look at guiding principles, we’re directing the spend to the highest value activities that’s both geographically and from a product portfolio standpoint, going through and taking a look at what is generating the best returns in those areas. We’re also integrating recent acquisitions with existing Rockwell Resources and looking for the cost synergies there. So we’re getting good performance out of our acquisitions. And as we look at ways to get the efficiencies and as I said knit together, what we built and bought, the actions we’re taking are consistent with that.
And then there’s opportunities as always for back office efficiencies by leveraging technology. And we see that in SG&A, we see it in our development activities as well. There is some reductions in cost of sales, including some in manufacturing operations as we’re tuning our capacity to match what we’re expecting near-term in terms of output. And that’s product specific, right? Some of our lines are growing very well year-over-year and they’re expected to continue. Others as we’ve gotten back to full safety stock, we can tune that to reduce some of the variances in those operations. So that’s the current list of actions that we’re doing. As we look at the more comprehensive program, we’ll be focusing on areas like sourcing. There’s a big opportunity for us with the spend of direct material and other items.
And then there’s also additional opportunities for manufacturing efficiencies as we look at our portfolio and the wide range of SKUs that we offer. Nick?
Nick Gangestad: Yes. The one piece I’d add to that, many of these costs are in organizations or functions that support multiple of our reporting segments. Given the way we allocate these costs across segments, intelligent devices and software control will see the greatest impact from these actions that we’re doing.
Noah Kaye: And then very helpful on the walk sequentially on orders and your commentary around margins for 3Q. That does seem to imply, again, we’re doing math here on the fly, a pretty big step up sequentially in margin for 4Q, getting to something like 6 points here. Maybe just talk to the margin math around how you see exiting the year and what apart from the cost reductions you’ve announced would help that step up?
