Richard Kyle: Yes. I would – I think it’s a good question that I would say our customer sentiment is probably in total a little more bullish than what our 6.5% would be, and again, put wind aside as you did, I would say there’s probably a little heavier optimism there. But we were just down 5% in the fourth quarter, a tougher comp in the first quarter. And looking at order flow, we’re not seeing where that is reversed in the next couple of months. So we aren’t baking that optimism in until we start to see it.
Philip Fracassa: And I’d say, historically, in off-highway in particular, I would say it’s, historically, Angel in off-highway in particular, as you know, in the second half, it’s not typically – it’d be a little unusual to see a big acceleration in the second half, that it would normally be kind of early in the year as opposed to in the third or fourth quarter. But – and that would have entered into it as well.
Angel Castillo: That’s very helpful. And then maybe switching to capital allocation. Could you just talk a little bit about your M&A pipeline and maybe how that’s shaping out for 2024 and how you maybe kind of see that impacting your ability to do more repurchases with your higher free cash flow?
Richard Kyle: A few comments there. I’d say, first, our focus is really on executing and delivering on what we’ve done the last couple of years. That being said, we still have the balance sheet and the cash flow and the management bandwidth to continue in ’24. And our bias still remains to M&A over buyback. We’re looking at a better cash flow year this year, as I said, a step up there. The M&A market has been relatively slow the last 1.5 years to two years. We have managed probably even a little longer than that, going back to COVID. We’ve managed to do well through that time. I would say there’s a level of optimism that it’s going to pick up as a market, not Timken. So – but I would still say we have not seen an increase in inbound activity.
It’s been more us on the outbound side. So we’ve done at least one acquisition every year for 14 years. And while we’re here in February, I would say there’s no reason to believe we would not be able to continue that even if the market remains relatively slow, and that we should be able to get something both strategic and financially attractive done this year.
Philip Fracassa: Yes. And on the buyback, we have about 2.7 million shares remaining on our authorization. So we have the ability to continue to buy back shares if the M&A is not there. Obviously, we have a bias for the M&A, just with what it can do for us from a portfolio standpoint, from a diversification standpoint. But the buyback remains an option, and we’ve bought back over 4% of our outstanding each of the last two years. And we’ll see how the year plays out, but it certainly continues to be an option for us.
Angel Castillo: Very helpful. Thank you.
Richard Kyle: Thanks Angel.
Operator: The next question comes from Chris Dankert from Loop Capital. Chris, your line is now open.
Chris Dankert: Hi, morning, guys. Thanks for taking the question. Just a quick clarification, I suppose. The impact of facility consolidations, that is assumed in kind of the base 40% organic decremental, correct?
Richard Kyle: Yes. Correct.
Chris Dankert: Okay. Perfect. And then…
Philip Fracassa: Just real quick, Chris, that would be a combination of the savings that we would achieve from the consolidation. And then with some of the new facilities that we talked about, the expansion, there is some ramp associated with those. It can be a bit of a headwind as well. So you’ll have them going a little bit both ways, through a good part of 2024, and probably full run rate benefit as we get into ’25.
Chris Dankert: Got it. That makes sense. And then I guess just quickly on SG&A. I know there’s efforts to kind of tamp some of that down, but is it fair to kind of assume the starting point for the year in 1Q, is over $200 million? Or maybe just any comments on how to think about SG&A through the year here?
Philip Fracassa: Yes. I mean I would say, generally speaking, for SG&A, probably a good way to look at it, I mean, it’s – we’ve been impacted by the by the acquisition. So you’ve seen SG&A absolute dollars go up just as we brought more businesses into the portfolio. But as we move into ’24, I mean, I think we’ll be jumping off from the ’23 level. Get to the second quarter is typically one of our annual pay increases kick in, so you’ll probably have a little bit of a headwind there. But staying pretty constant off that level.
Chris Dankert: Got it. Super helpful. Well, thanks so much, guys. Really appreciate it.
Richard Kyle: Thanks Chris.
Operator: Our next question comes from Michael Feniger from Bank of America. Michael, your line is now open.
Michael Feniger: Yes, thanks for squeezing in. I appreciate it. I know this was covered a lot with the inventories. I’m just curious on your own inventories, sale was up 2% quarter-over-quarter. Revenue was down a little bit sequentially. I know there’s a lot of folks on the inventories of the channel. Just curious how you’re feeling about your growing inventories in 2024. And I know you have a big cash flow year, maybe that’s tied to it. Just how we should think about that as you kind of work through that through 2024?
Richard Kyle: Yes. First, I would say, a couple of quarters now, a few quarters, our supply chains are pretty close to normal. We have problems here and there, but nothing beyond the normal. So deliveries, response time, et cetera, all good. So we’ve got – and as I said in my comments, we’ve got a really good focus on this and have for a couple of quarters. So we are planning to underproduce to revenue through the course of the year, and that is factored into our decremental outlook that we would have a little lower production levels than the revenue and continue to see some positive cash generation from inventory.
Michael Feniger: Great. And sorry if this was covered. But EMEA, Europe only down 1% organically. It was the second quarter where you guys kind of report on a year-over-year basis just down 1%. Just curious if Europe feels more stable when we look at this organic growth that you’re reporting relative to some of the economic data there, kind of what you’re seeing over there with the end-markets in Europe?
Richard Kyle: Yes, I would say stable is a good word for it. It went down a little faster or softer a little faster than our other markets, but bounced back a little faster as well and has been – it’s been more stable, to your point, probably than the headlines. And certainly, Germany is probably a little softer for us than some other countries, but still pretty good. Now again, a little lower comp than what some of our other geographies, particularly Asia is dealing with some very sizable growth comps in the last couple of years.
Michael Feniger: Thanks everyone.
Richard Kyle: Thanks Mike.
Operator: We currently have no further questions. So I’d like to hand the call back to Mr. Neil Frohnapple for closing remarks. Over to you.
Neil Frohnapple: Thanks, Bruno. Thank you, everyone, for joining us today. If you have any further questions after today’s call, please contact me. Thank you, and this concludes our call.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines. Thank you.
