Scott Davis: I wanted to dig a little bit more into the cost structure. I mean you guys have done a fair amount of heavy lifting on I would imagine fixed costs are kind of lower than they were just a couple of years ago. But when you think about the ebbs and flow of your cost structure going into 2024, apples-to-apples kind of fixed cost plus you got some labor inflation. Is your cost position similar in 2024 as it was in 2023? Or is it actually lower?
Heath Mitts: Well, it’s a good question, Scott. And there’s a lot of buckets there that I can think about no different than everybody else in the globe. You mentioned labor inflation, which is real and it’s always going to be part of our equation. So, that has a little bit of variability to it. But when I think about kind of our fixed cost base, we’re obviously going in with a little bit lower based on some of the restructuring that we have done, and that’s around rooftop consolidations, particularly in Europe. As we’ve continued to move more of our operating activities out of Western Europe and into places where the supply chain has migrated for our customers, that could be Eastern Europe, that could be Northern Africa and Morocco, certainly some more activity in parts of Asia.
And then within North America, it’s a little bit more focused to Mexico. So, that has that element and gives us more confidence as we jump into it. And then you kind of get into the inflationary pressures for everything else. And I would say not getting worse but not dramatically coming down. There’s buckets of areas like freight spend that have come back in line as certain capacity on certain types of freight have increased and allowed for some pricing competition. So, that’s been healthy. But when I think about the input cost around metals and resins, it really depends on where the world is and what we’re buying. We’re still dealing with a fairly inflated environment there for a lot of the things that we have to buy. And so when I think about it versus 2023, I’d say it’s stable.
But I wouldn’t say that, that’s our biggest driver in 2024 in terms of margin expansion. We’ve got a lot of material productivity activity underway that we have a lot of confidence about. But that’s not pricing coming down. That’s just the efforts of our team to source different ways in different parts of the world. So, there’s a lot of buckets there, Scott, net-net, if I just trying to sum it up, I’d say we’re in a better position in 2024 than we were this time last year, staring at our overall cost structure. But we’ve got work to do, and we still need to offset the inflation around labor and so forth.
Sujal Shah: Thank you, Scott. Can we have the next question, please?
Operator: We’ll go next to Christopher Glynn at Oppenheimer.
Christopher Glynn: Thanks. Good morning. Was curious about the non-auto parts of transportation commercial, what are you seeing in terms of cycle there? What do you expect for next year, maybe first half, second half split? I know you’re very broadly based across platforms, customers and applications and commercial. And then just Sensors, I think you have a little bit of attrition, ski-rationalization — data play on that, please. Thank you.
Terrence Curtin: So, let me break those into two pieces there. So, let’s talk about what we’ve seen this year in Industrial Transportation. And really — and then I’ll talk about probably how we’re thinking into next year. First off, in commercial transportation this year, both in North America and Europe and commercial transportation is — I want to remind everybody, it’s heavy truck, construction equipment, ag equipment, for TE globally. It’s in all those applications, which we have a leading share. And we saw Europe and North America actually have nice production growth this past year and certainly drove our growth but China was very weak. And China was very weak in 2023, especially around construction equipment. So net-net, while we would say, if you took the number of units made on the planet of all those different types of vehicles, it was flat.
China was very weak and really Western World offset that. And let’s face it, when we think about China into next year, we expect construction to be flat again or weak next year, maybe some recovery in the truck and bus side. We do expect in the early half of this year, we do expect Europe and North America to slow, and we’ve seen that. You see that in our organic growth here. So, we do expect at least for the first half, that’s going to be a market that is slower going into next year. And we will have content outperformance, I will buffer some of that. But it’s also nice that China, we probably have the weakness of China is more behind us than in front of us.
Sujal Shah: Okay. Thank you, Chris. Can we have the next question, please?
Terrence Curtin: I am sorry, you also asked about Sensors. I apologize. On Sensors, there is pruning that we’re doing. I know when I made my prepared comments, we talked about growth and automotive and declines in industrial, next year, there will be about a $50 million exit rate of where we’re really getting that focus as we improve the margin there and make sure that the wins that we get in automotive and industrial applications, really where we’re positioning that business longer term as we’ve been talking to you about. So sorry, I didn’t touch the Sensors piece in my first comments.
Sujal Shah: Thank you, Chris. Can we have the next question, please?
Operator: We will go next to Shreyas Patil at Wolfe Research.
Shreyas Patil: Hey thanks a lot for taking the question. So, looking at the Industrial Equipment business, I mean, you talked about the destocking trends but curious what you’re seeing in terms of CapEx deployments. We have heard from some automakers deferring EV investments, and I believe that has been an important driver supporting the business. And then also, if you can talk about the payback on restructuring investments. I believe you had sizable restructuring that should be in 2021 and 2022. So, should we start to see the payback from that into 2024?
Terrence Curtin: So, let me take the Industrial Equipment piece because there is, hey, as supply chains improved, I do think you see throughout the industrial equipment, and that’s a very broad and fragmented space, as we’ve always talked to you about. You see everybody tightening up their buffer stocks. And we’re in the middle of that. You also see areas where you see CapEx continuing to roll. You see EV battery plants. You just sold Toyota, their expansion to their North Carolina campus. So, you see pockets like that. But certainly, you see warehousing certainly around consumer electronics remains weak in Asia. There is a lot of automation that goes in there. So, I do think it’s a very mixed picture depending upon where your focus on in Industrial Equipment, I do think you see strong backlogs by our customers.
And I do think we have to work through the destocking and see what the CapEx levels are running once we get through the destocking. Heath, why don’t you talk about the restructuring?
Heath Mitts: Sure. On the restructuring front, I think a good rule of thumb is about a two-year payback on the restructuring charges that we take in terms of when you see those pay for themselves in the P&L. So, it’s a little bit longer in Europe, a little bit shorter in other parts of the world, but it averages out to about two years on average in terms of the payback and certainly layering that in to the P&L as we move forward into 2024 and 2025 for the charges that we took in 2023 would — is one of the things that gives us some confidence here.
Sujal Shah: Thank you, Shreyas. Can we have the next question, please?
Operator: We’ll take a follow-up from Wamsi Mohan at Bank of America.
Wamsi Mohan: Hi, thanks for taking the follow-up. I think you mentioned in your remarks, you’re expecting $250 million headwind for revenues for fiscal 2024 from FX movements. What should we think about the EPS impact commensurate with that? And Terrence, I think you mentioned a very strong 10% EPS growth in the first quarter. price actions will ramp year-over-year in the second half. So just curious how you’re thinking about stockability growth first half versus second half next year?
