Tami Zakaria: Got it. Okay. That’s very helpful. And then, I wanted to go back to Europe. Europe has been weak for some quarters now. Sitting here today, how are you thinking about a potential timeline for recovery in that market? And with that market down, are you going to be more opportunistic with some acquisitions maybe if it lends well to some of your growth ambitions? So, any color on Europe and thoughts on Europe?
Simon Meester: Yeah. Well, it certainly seems like you can talk about soft landing, hard landing, no landing. It certainly seems like Europe is a little bit further behind in terms of managing their landings, so to speak, especially Germany and the UK, as I mentioned earlier. Actually, you say couple of quarters, we have seen it mostly hit us for the first time in the fourth quarter, and we see it spill over in the first and the second quarter of this year. What’s going to happen in terms of recovery? I wouldn’t want to speculate. But obviously, I think the European Commission is eager to at least get some sort of soft landing for most of their economies. Yeah, in terms of inorganic action, I wouldn’t be able to be specific, Tami, other than we have an active pipeline of opportunities.
As I mentioned, we look at anything that could make us stronger, widen our moat or help us grow faster, but we will rank everything as we should versus all the other options we have to increase shareholder value. And again, we’re posting very strong return on invested capital on just investing in our own current activity. So, we have a lot of optionality, and of course, we’re also looking at Europe, but we will always force rank it versus all the other options that we have. So nothing specific to call out there.
Tami Zakaria: Got it. Thank you so much.
Simon Meester: Thanks for the question.
Operator: Your next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is open.
Nicole DeBlase: Yeah, thanks. Good morning, guys.
Julie Beck: Good morning.
Nicole DeBlase: Just first question focusing on some of the dynamics around free cash flow. So, can you guys talk a little bit about your expectations for working capital for 2024? And then, as we roll into ’25, where do you think CapEx normalizes post Monterrey investments?
Julie Beck: Thanks, Nicole. We had free cash flow of $366 million, which was a conversion of 71% to net income. And we’re forecasting $350 million or so of free cash flow for next year. This year benefited from a sale of our Oklahoma City facility, which was about $32 million. We expect that — we’ve guided to 1% to 3% of our sales in our Investor Day for capital expenditures. We’ve been on the higher end of that this last year and in 2024 due to the Monterrey facility, and we don’t have any major new Monterrey — $1 million — or 1 million square foot facilities coming in into 2025. So, we would expect that come down in 2025 and to have a stronger free cash flow conversion percentage going forward into 2025. And so, in terms of net working capital, we have a slight improvement in net working capital forecasted in the year.
But essentially just because of all the production moves and still some of the disruption we’re seeing in the supply chain, we’ll continue to carry a bit higher inventory going forward. And, just really to make sure that everyone understands that our management team were all — part of our incentive compensation is net working capital performance and improvement. So, the team is very focused on improving net working capital.
Simon Meester: But I would definitely say we have upside on cash conversion going into 2025 because of the third and last year of the Monterrey investment.
Nicole DeBlase: Got it. Thanks, guys. And then, if I could just ask a nitpicky one? Julie, when you spoke about MP revenues being down in the first quarter, any sense of the magnitude there? Just trying to understand the underlying dynamics behind the 200 basis points of year-on-year margin contraction. Thank you.
Simon Meester: Yeah. In terms of — sorry, the question was on revenue, right?
Julie Beck: Yeah. So…
Simon Meester: Yeah. So I think the first thing I would add is it’s important to remember that the fourth quarter of 2022 was our strongest quarter in 2022 because that was the first quarter when the supply chain really started to improve, and we started to catch up on a lot of our shipments. So that makes the year-over-year comps a little off. But then the fourth quarter of 2023, especially in our MP businesses, as I mentioned earlier, is where we really started to see the slowdown in Europe come in, and that kind of impacted MP a little bit.
Julie Beck: Nicole, we would expect roughly a 7% decline in sales in the first quarter due to that rebalancing in Fuchs and Towers in the first quarter.
Nicole DeBlase: Thank you very much. I’ll pass it on.
Julie Beck: Thank you.
Operator: Your next question comes from the line of Steve Barger with KeyBanc. Your line is open.
Steve Barger: Thanks. Good morning.
Simon Meester: Good morning.
Julie Beck: Hi, Steve.
Steve Barger: I think all the capacity questions are just trying to understand if we’re near peak in terms of revenue dollars. So, I’ll try it another way. After you swap out the high-cost footprint for low cost and everything is up and running, do you expect to have more capacity in units or dollars in 2025 following what will be two flattish revenue years in ’23 and ’24?
