Patrick Hallinan: Mike, we obviously had to think of a few moving parts as we outlined the back half of the year. And so I think where I’d start is our primary objective this year is to deliver margin improvement, working capital reduction in cash, obviously. And we want to keep competing in the marketplace. And the second quarter had many dynamics going on. I would say, in the second quarter, we saw consistently weak outdoor, especially for high-price-point items. And we saw the DIY consumer be under a bit more pressure and on the margin both in tools and outdoors and in subsegments of our Industrial business, channel conservancy — conservatism on inventory. So all of those things were dynamics that played out. We anticipated them in the second quarter.
And that’s why, when we gave guidance at the end of the first quarter, we softened up our revenue expectations on the second quarter; and they played out about as we expected in the quarter. And we thought it best, given the fact that those dynamics have kind of stabilized and stayed with us, for the most part, to play those out in the back half of the year. And that’s the adjustment you saw, so almost all the adjustment in the back half of the year was to anticipate a similar level of consumer price sensitivity with winter outdoor goods, a continued DIY consumer softness predominantly in North America and then channel destocking in our infrastructure business. And I’d say they’ve all been kind of equal drivers of us taking a couple hundred million dollars out of our back half sales forecast, but I’d say the good news is we feel like right now, absent a new macro change, our demand environment has stabilized.
And that demand environment has stabilized around a strong pro and really strong aero and automotive in our Industrial business. Then I don’t think there’s any kind of new dynamic with the DIY consumer. Our intent is up for when student loan repayments start around October, but absent that bringing a new macro dynamic into the picture, we feel like our demand outlook has stabilized and we’re feeling good about our back half. And then Don referenced there have been some bright spots, things like power tool POS at the very end of the quarter. And we’ll see. Those things may emerge, I think, throughout this year given the fed actions. I’d say the broader demand environment has actually surprised us in the sense that it hasn’t been more challenging.
And so hopefully, those positive trends continue, and if they do, they present upside.
Operator: Thank you. Our next question comes from the line of Chris Snyder with UBS. Your line is now open.
Christopher Snyder: Thank you. I wanted to follow up on the earlier commentary on the bridge into 2024. I understand, if you annualize the back half, you’re at $3 EPS, but the back half is a seasonally low point. It feels like, if we adjust for seasonality, we’re already closer to $4 of annualized EPS. And you guys also said, next year, it sounds like gross margin up maybe in the low 30s versus the high 20s. That’s obviously a very significant EPS tailwind and it feels like that would more than offset the incremental step-up in growth investments, so can you just maybe provide some more color on that? Thank you.
Donald Allan: Well, I think what I articulated and Pat added some detail to it and more robust detail to it is a pretty good summary of where we think we are at this point. And you could build a bullish case that the numbers should be higher for next year, but you do have to factor in the fact that we really want to make sure that we continue to invest in certain key things in our company. We have to get more resources out on the field, closer to our end users. We need to have more engineering resources in key pockets to drive additional innovation opportunities. We’ve talked about electrification. We want to continue to do that in certain categories that are changing very rapidly. We have to continue to invest in that space.
