And it’s really a combination of lower organic volumes. You’ve got to overcome that. We talked about slightly positive pricing for the year, cost moderating, but still seeing labor inflation, still seeing some inflation in other input costs that we’ll have to overcome as well. But net-net, with the volume and the kind of neutral price-cost outlook, we’ll see organic decrementals kind of around that 40% range, kind of plus or minus. And then as far as sort of progression for the year, as we talked about, low to mid 18% margins for the year, which would be sort of 120 or 130, 140 lower than 2023, and I think we probably see, I would say, some similar margin performance as we move through the year. I mean, I would say we wouldn’t expect any of the quarters – certainly, in the first quarter, I think, will be down on an order of magnitude of what we’d expect the full year to be down by, and probably do a little bit better in the fourth quarter, but be pretty close across the board.
David Raso: That’s interesting. You would think as the renewables in the guide flatten out, and the revenues in the back half of the year, that would take a little of pressure off the margin decline. But you’re saying that’s not the case. It’s a common similar year-over-year margin drag throughout the year.
Philip Fracassa: Well, I think it – I think in the fourth quarter, yes, I think it should be a little bit better as we move into the back half and certainly in the fourth quarter. And so as you look at that full year implied guide, probably in line with it kind of Q, maybe a little more in the first half than that and then a little less in the second half, is probably a good way to look at it.
David Raso: Okay, helpful. I appreciate the time. Thank you.
Philip Fracassa: Thanks, David.
Operator: Our next question comes from Steve Barger from KeyBanc Capital Markets. Steve, your line is now open.
Steve Barger: Thanks. Good morning.
Richard Kyle: Good morning. Good morning, Steve.
Steve Barger: Thanks. The EPS guide of down 15% is worse than the pandemic and kind of in line with the industrial recession in 2015. So my question is, how confident are you in modeling the first half 40% decline in wind relative to profitability? And understanding that you don’t have great back half visibility, what’s your confidence level that this guidance covers worst-case scenarios?
Richard Kyle: I think on wind, we were down in the same ballpark in the fourth quarter. It’s in our margin results, and then obviously got the seasonal impact of the rest of the company being somewhat depressed in the fourth quarter, which we would expect to step up there in the first quarter. So I think for where revenue was in the fourth quarter and a slight decline in the first half of this year, which we feel pretty good about, and again, we have – it’s one of the markets where we have more backlog visibility than average, I think we have that modeled pretty accurately. And maybe we have some upside if we can get some more cost out perform better, but not an enormous amount of upside there. I would say the second half – the second half on that would largely depend on where the volume lands out.
And again, since we’ve got it modeled flattish, we don’t really have any improvement or deterioration in margins and EPS contribution from that in the first half to the second half. And sorry, I cut you off on your follow-up.
Steve Barger: I was just going to – what I’m trying to get to, I guess, is, what surprised you as 4Q or early part of this year progressed, how are you handicapping a more broad-based slowdown? Or do you really view this as the concentration in both wind and China as being the primary driver of how you’re guiding?
Richard Kyle: No, I think to the earlier – the first question from Steve, we were down 5% organically in the fourth quarter. That had a pretty negative wind sentiment – wind actual in it. We’ve got that same negative wind actual in the first half, and we’ve got a 6.5% in for the full year organically. So slightly worse all in versus where we’ve been the last quarter and the trend line we’ve been on. Probably even a little more worse than that outlook when you factor in the wind comps get a lot easier in the second half. So that’s what it’s based on, is really the fourth quarter actual.
Steve Barger: Okay. Just a quick one. Part of the mitigation strategy is outgrowth. What specific end markets are you targeting? Or where do you see opportunity to help mitigate this?
Richard Kyle: Yes. Certainly, I think the same ones you’ve heard us talking about, general industrial, a lot of smaller things in there, food and beverage, automation, et cetera, the marine business. We had a good fourth quarter in Aerospace, as you know, historically, we’re heavily weighted to defense, which tends to mute our swings. But we’re – we’ve been moving for some time more into the commercial side and looking to outgrow that passenger rail off-highway markets we do well in. We like off-highway markets, but obviously, cyclical on that side. So – and again, I repeat, we’re still believers long term in renewable energy, and actually renewable energy, including solar, grew in ’23, slightly. And all that growth was in the first half and the second half was down significantly. But you’ll continue to see us be ready for the bottoming and return of that market as well.
Philip Fracassa: Yes. Maybe the other point I’d make, Steve, would be around the segments, too. We’ve been building the Industrial Motion business for some time, and as we look ahead to 2024, as we talked about the organic guide being down 6.5% at the midpoint would expect Industrial Motion to do better than that, Bearings do a little bit worse, Bearings being impacted by wind in China in particular. But the Industrial Motion doing a little bit better, it’s really a reflection of the diversity of that business, the portfolio, the automation business we have in there, linear motion business we have in there, the services business. So I think the evolution of the portfolio, if you will, has – should be beneficial to us as well as we move forward.
Richard Kyle: As you look across our market chart there, I think with the exception of on-highway, which, as you know, we’ve been looking more to hold our position and on-highway markets and outgrow the others organically and inorganically, so shrinking it as a part of the portfolio. There’s elements of the other ones that have been a part of our targeted growth and outgrowth. And two of our – two of the ones that have contributed significantly for the last 10 years, renewable energy in China, both hit a significant pause in the middle of last year. But we’ve got good momentum in quite a few of the other markets, Don’t see any market share issues as you look across our portfolio, and it’s pretty normal for these markets to grow when you look over three, four time frames. But they usually don’t grow linearly, and there’s usually some ups and downs. And right now, we’re in this mid-single digit down all in with China and renewable leading the way on it.
Steve Barger: Appreciate all the detail. Thanks.
Richard Kyle: Thanks Steve.
Operator: Our next question comes from Bryan Blair from Oppenheimer. Brian, your line is now open.
Bryan Blair: Thank you. Good morning, everyone.
Richard Kyle: Hi Brian.
Philip Fracassa: Good morning.
Bryan Blair: I appreciate all the color on end-market dynamics and some of the volatility there. You noted consistently there’s underlying demand pressure and destocking that, I guess, continues to linger. And I’m sorry to belabor the point on destock, but can you remind us how long on average how many quarters you typically have to navigate destocking in your major markets and where we are right now relative to that norm?
Richard Kyle: I think I’d put it in both the demand and the destocking typically six to eight quarters. And if you take price out, we’re, fourth quarter, probably would have been three quarters in. So probably – and again, we’re not seeing anything imminent in the first half, but most likely you’d be forecasting something either in the second half or the start of 2025 to invert and go back to the positive versus the negative on the restocking.
Bryan Blair: Okay. That’s fair. Appreciate that. Obviously, very active 2023 in terms of your M&A strategy. And we’re particularly intrigued by Des-Case and Lagersmit, I apologize if I’m mispronouncing either of those. But maybe touch on the synergies that those new solutions or platforms offer with your portfolio and how they influence organic and inorganic growth potential going forward.
Richard Kyle: Your pronunciation was fine. It’s probably at least as good as mine. So you did well there. On Des-Case, U.S.-centric business, goes through primarily in the U.S. bearing distributors. So the share in the U.S., much of the same customer base. I think there’s certainly some things that we can do there to increase the pull-through from distributors, but not really a channel play so much as it would be – it’s an upsell. And we have people in all of their end-markets, and we have hundreds of them and they had more like 20. And so the ability to cross-sell in the U.S., pull that through our distribution, I think, is significant. And then the bigger play is taking them into our global distribution channels, and I think a lot of early enthusiasm from that from our global distributor partners.
