Mike Dahl: Okay. Yes, that makes sense. Understood that there’s a lot of moving pieces there, so appreciate trying to split that out. And then relatedly, when we think about the deflation that you’ve seen, let’s assume that the stabilization holds, I get that just given the comps, it seems clear that your pricing headwinds would subside when you get to the second half of next year. The first half, you’re still comping positive price from 2023 and in particular and in 1Q. So, do you think we’ll still start off the year with these kind of mid-single digit price headwinds? Again, I know you don’t want to give full guidance.
Doug Black: I think it’s too early to say how it flows through on the gross margin line. I think it is fair to say on the revenue side, it’ll still be a headwind from that standpoint in the first half. And so, we’ll have to see that is. On the flip side, as you know, California, which makes up a lot of Q1 sales, got killed this year in Q1. So, that’ll be a positive, and we’ll get more into that as we go. But just realistically in the – until we lap these, the price increases, a lot of them came in in the first half, and will be a little bit of a headwind. Some of that will be offset. We do expect some of the other products, we’ll see price increases at the beginning of the year. So, that dynamic that we saw this year will play out a little bit into next year also.
John Guthrie: Yes, the other factor is stair stepdown. October, November, December, we expect to kind of stair step up. So, as we go into the first quarter, it would be – we would expect it to be less than say the third or fourth in terms of that deflation. Then you have the other prices that will start kicking in in the second quarter. So
Doug Black: Yes, we’re going to – it will be a headwind, but likely, John, not as steep as the headwind in the last two quarter – the third and fourth quarter of this year.
Mike Dahl: Okay, great. Thanks, Doug. Thanks, John.
Operator: Thank you. Our next questions come from the line of Keith Hughes with Truist Securities. Please proceed with your questions.
Keith Hughes: Thank you. Could you give us some sort of a feel in the magnitude of the price declines of the three products that are causing the deflation we talked about so much in this call?
Doug Black: Well, we talked about with regards – in the numbers, we talked about 20% year-over-year in Q4. Pipe was down 20% year-over-year. And fertilizer and grass seed were down in the teens, I think 17% and 15%, something like that. I don’t have it in front of me. But they’re in – those are the type of size that we’re talking about.
Keith Hughes: Okay. And the descent really began what, late summer? Is that timing about right?
Doug Black: The descent with pipe began in Q4 of last year. I would say most of the agronomic ones came in in the first half of this year. And really what stood out is grass seed was really a Q3 item. It’s a – seed season really starts in Q3, as we like to think about it. And those numbers, what I mentioned on the call was 17% of seeds, 16% for fertilizer now.
Keith Hughes: Okay. Thank you very much.
Operator: Our next questions come from the line of Joe Ahlersmeyer with Deutsche Bank. Please proceed with your questions.
Joe Ahlersmeyer: Hey, good morning, everybody. Thanks for the questions. In your end market discussion, you talked about new commercial remaining solid, finishing well this year. Just curious if you feel like maybe this end market is the one where there’s the most volume risk into next year. I know you are later in the construction cycle there, but just anything you’re hearing either on the bidding side or just hearing generally on new commercial construction would be helpful.
Doug Black: Yes, so we don’t – our bidding has been pretty good this year, as well as obviously customer – we look at customer backlogs and the work they have in front of them, but we do lag the market, right? If you look at the ABI index, that went below 50. So, we’ll have to see if that stays below 50. So, it’s really hard to tell at this point. I mean, we wouldn’t be able to call next year. I think because we lag, we think the first half of next year is likely to be pretty solid in commercial. Hard to tell about the second half, unless we see kind of more trends develop over the next two or three months. So, we don’t have any better information probably than you have on that because we lag the commercial starts, if you will.
Joe Ahlersmeyer: Right. No, that’s helpful about the front half. The other question I had also sort of related to the front half or the front half of the front half is, how did the weather impact your last first quarter? Just so we make sure we understand the lapping dynamics around the colder northeast first quarter of this year and the rain in California, just to make sure we’ve got in our models correctly.
Doug Black: It had a pretty big number. If you look at the – especially in California, I think California was down almost 20% in the first quarter. I mean, we put a daily organic of negative 2% roughly in the first quarter. But that was I think on 6% price increases. So, we were down like negative 8% on volume in Q1. And now kind of volumes have kind of labeled out. So, I don’t want to get too optimistic there, and specifically address everything with regards to the weather, but it was certainly the primary of things this year was the primary driver of Q1.
John Guthrie: Yes, you’ve got to be careful because weather can – bad weather can repeat. But certainly, last first quarter was not favorable in terms of weather.
Joe Ahlersmeyer: Right. And just to follow up maybe on that, was there also – because that’s the daily sales number. Was there a margin impact from product mix or anything around the Northeast, just to be aware?
Doug Black: No. I mean, I would say, I wouldn’t call that out as a driver of what’s going on with the business overall.
Joe Ahlersmeyer: Okay. Understood. Thanks a lot.
Operator: Thank you. Our next questions come from the line of Andrew Carter with Stifel. Please proceed with your questions.
Andrew Carter: Hey, thanks. Just some kind of questions on the commodities. Just to make sure, you do price to gross margin rate. How often do you reprice at the branches to adjust for commodities? And for the commodity categories like 20%, how long are your inventory positions exactly, therefore how much of a mismatch could it be? Thanks.
Doug Black: It can be a while. I think there’s a couple of things that you need to consider. One is, it’s not just – the commodities have to flow all the way through. So, you have a commodity price, it’s got to go to a supplier. The supplier is going to make inventory over months. And then we buy it, carry – we do three to four turns of inventory a year. And so, that would be the way it would flow through that. And just as an example, even this year, we saw some of like the PVC pipe prices start coming down this year. But if you actually just were to look at the cost of PVC resin, if you will, I think the lead time on that was quite a bit earlier, and was actually – those decreases were occurring last year. So, commodities are general indicators. There is lags in between there.
