John Guthrie: Yes, I think 4% to 5% is probably a good estimate for the fourth.
Ryan Merkel: Okay, thanks for that. And then just high level, there’s debate about higher interest rates and the impact to your business. Can you just comment on the potential impacts? I’m thinking M&A and maybe some more discretionary purchases. Just where do you think you’d see an impact over the next six to 12 months?
Doug Black: Well, I think the largest impact would be in new residential. But when we look at new residential, because of the housing shortage, I think you’ve got people getting used to interest rates. You have builders that are using incentives and buying down rates. And so, at least the builders seem to be bullish that single family new residential will be up next year. And so, we’re optimistic about that. And the remodel market, certainly it affects things, but we’re not seeing a big negative effect so far in that remodel market. It’s been very resilient. We think it’ll continue to be. There’s still strong forces in remodel, work from home, and outdoor living that are underlying the remodel market forecast from HIRI are that there’ll be growth in remodel next year.
So, we see that being fairly resilient. In commercial, there was theories that it would start to affect the commercial market. We’ll have to see. Commercial has remained strong. We watch the ABI index. Obviously, that went below 50. So, we’re watching that closely. And then the maintenance market, we don’t really think there’s any effect there. So, we’ll have to see, but we believe that our markets, when we take them all together, especially with the maintenance market, are solid, let’s say give us a good foundation for growth.
Ryan Merkel: Okay. Thank you.
Operator: Thank you. Our next questions come from the line of Steve Volkmann with Jefferies. Please proceed with your questions.
Steve Volkmann: Hi. Good morning, guys. Thank you. I guess my question is around share gains, Doug. I think you mentioned that in your prepared remarks. How much do you think the sort of underlying end markets grew and sort of relative to you guys to sort of address that share gain question?
Doug Black: Well, we would say that the end markets, we would guess that they were slightly down, flat to slightly down when you take it all together, and our volumes were positive. So, you can do the math there. It’s hard to put specifically calculate share gain, but we’re in touch with all of our suppliers. We have a good sense of what’s going on in the different markets. We do get to see a few horizons performance, et cetera. And we feel pretty confident that we’re gaining share and it’s consistent across product lines. So, we’re going to continue to drive that going forward.
Steve Volkmann: Okay. And I think you said you are adding new customers, right, in the sort of small and medium sized category?
Doug Black: We are. We’re growing faster in that category than we are with our larger customers, and that’s an intentional effort that we’ve got with our expanded marketing, with our teams. We’ve created inside sales that are specifically calling on small customers. So, we’ve got a lot of exciting initiatives going on there, and we’re seeing the results of that. So, that helps us both from a sales growth standpoint, but also from a gross margin standpoint.
Steve Volkmann: Great. And then just finally on SG&A, do you think you’ll get back to SG&A leverage next year, given sort of the investments that you’ve been making?
Doug Black: I think it’s really too early to give guidance with regards to that, how are the acquisitions going to filter in. But we’re working towards that.
John Guthrie: Yes. And on the long – yes, just in the long-term context, certainly that would be the case. We would expect to get SG&A leverage over the next two to three years.
Steve Volkmann: Understood. Thank you. I’ll pass it on.
Operator: Thank you. Our next questions come from the line of Damian Karas with UBS. Please proceed with your questions.
Damian Karas: Hey, good morning, everyone. So, thanks for the details around price in the third quarter and the cadence that you’re expecting from here. Could you just maybe help us wrap our heads around what gross margins could look like in 2024 based on your price expectations?
Doug Black: Yes, I think, again, it’s a little too early to be calling 2024. We’ll do that after we finish the fourth quarter. But we are experiencing – the reset aside, we’re experiencing an additional headwind with the price deflation. We expect that, as we mentioned, to subside in 2024 and provide a bit of a tailwind for 2024, which is terrific. And then with acquisitions and our initiatives around gross margin, we certainly would expect improvement next year, but putting a number around that or quantifying that would be a little bit too early to do that.
Damian Karas: Understood. What are you expecting for cash flow and what that looks like in the fourth quarter? I mean, if you look at the first three quarters, you’re up pretty considerably this year. So, are there any headwinds lining up for the fourth quarter that we should be aware of?
Doug Black: No, we would expect this would be a normal fourth quarter. What you saw this quarter is, we probably pulled some of the – so it’s really a timing issue. We had such a strong Q2. I think we realized kind of the – we started the inventory pulled out. So, the difference between Q3 and Q – this year over last year is primarily what was recognized in Q2 so far this year. So, on a year-to-date basis, we’re well up and our inventory position is very similar to last year at this point. And so, we would expect kind of normal seasonality for cash flow in the fourth quarter.
Damian Karas: Got it. Thanks very much. I’ll pass it along.
Operator: Thank you. Our next questions come from the line of Mike Dahl with RBC Capital Markets. Please proceed with your questions.
Mike Dahl: Morning. Thanks for taking my questions. Just to follow up, I know you don’t want to get into the 2024 details, but maybe ask a different way on the margin side. Can you quantify more specifically in your 3Q and 4Q gross margins how much of a headwind is the price deflation component?
Doug Black: I would say there’s a lot of things going on – going into gross margin from that same. With regards to Q3, if you kind of said you’re probably talking 50 basis, 50 to 70 basis points kind of number out there, and that would be kind of comparable to kind of what we would normally expect. So, that’s kind of where I would say kind of where we’re at in Q3. And that would be kind of – that’s kind of, if you will – we talk about a lot over what’s gone over the last couple of years is – and as many of you have asked questions about kind of the price realization benefit. So, that was in effect, what we’re seeing here is, that was a benefit. We talked about it with many of you, how that was kind of a one-time gain. Now that prices are going in the opposite direction, what you’re seeing is a little bit of a one-time kind of not a negative headwind, if you will, as a result of that.
And the 50 to 70 basis points is kind of what we would kind of estimate as kind of the potential headwind where we’re at right now relative to what I would call a more normal market.
