David MacGregor: Okay. On the surface, it looks like if you exclude the Lowe’s business, your EPS forecast is down in 2024 versus 2023. I just want to make sure I’m reading that profile.
Julie Kerekes: Yes. We are — I mean we’re still working to get through some of our manufacturing variances and rebalancing that inventory. So I think if you look at our overall EPS, we’ve got this homeowner demand that we’re continuing to work through. And offsetting that, of course, with what we’re seeing in our professional business and the backlog businesses that are doing well and it’s proving out within volume.
David MacGregor: Okay. And then my follow-up question is on free cash flow conversion. And I’m just wondering if you could walk us through the drivers behind the recovery of 100% free cash flow from 50% this year. It looks if you back into the math, it looks like you’re anticipating inventories down approximately $300 million working capital down, maybe $275 million, somewhere in that order of magnitude. I was just wondering if you could help us — is it all just working capital reduction or are there other things going on in there? Any help there would be appreciated.
Julie Kerekes: Sure. Yes, the majority of that opportunity is going to be working at reduction. So as you know, we’ve had a focused effort on working capital really the last year, and we will continue to have a sharp focus on that. We want to convert that to 100%. And typically, we generate the majority of that free cash flow in the second half.
David MacGregor: And that $300 million of that number, I just offered you, that’s at a close approximation of how you’re thinking about it?
Julie Kerekes: I don’t know that we’ve said exactly what that would be, but inventory is the sharp focus. And if you look at our inventory, we did see WIP decline both year-over-year and sequentially from Q3. So we are making some improvements.
Operator: Thank you. One moment, please. Our next question comes from the line of Eric Bosshard of Cleveland Research. Your line is open.
Eric Cleveland: A couple of things, if I could. First of all, you’ve had historically these three-year programs that are generally focused on revenue growth, and I think you still got that one going on. What I’m curious about is the AMP program is notably different. And I think there was a company that the supply chain enables this at this point in time. I guess taking a half step back, I’m just curious like why the need for this, there hasn’t been one like this historically. Is there something different with the business, with the market, with competition? I’m just curious what’s different that created a need for this relative to the history of the business.
Rick Olson: Yes, Eric, I’ll take this one. So if you think relative to our employee initiatives, this is different. This is really laser focused on productivity and cost improvement. And if there is something that’s unique and why now is the right time, we’re coming out of a period out of the pandemic where it’s been difficult to do some of that work, particularly with our supply base. Efficiency within our manufacturing plants, and we are now back at a point where we can go back to our focus on improving productivity within the plants, working with our supply base to improve pricing. The whole go-to-market portion that Angie mentioned in her prepared remarks of taking cost out of that and the scale to be able to leverage some of our costs. So now is the perfect time. It’s something that cuts across everything else we do, and it helps us enable the other things that we’re doing.
Eric Cleveland: Is there anything from a market standpoint that is different in terms of price points, product, end market that is different that relates to this? Or is this — as you characterize it kind of catch up for things that you were able to do during pandemic and supply chain. I’m just curious, if the end market is changing in a way that also amplifies the need for those?
Rick Olson: It’s not driven by any particular external factor, which it’s always nicely a key to being competitive to be able to have options from our pricing standpoint. But it’s not driven or triggered by a particular external factor that helps us be more competitive is one thing we can say. I just would to clarify. We have one year left of our employee initiative drive for five. We’ve left those stretch goals out there for 2024. That’s an internal employee number, and we’ll launch a new employee initiative that we’ll announce in December of next year, so next year at this time.
Eric Cleveland: Then the second thing, there was a comment also made a lot of moving parts within residential, but the comment made on positive retail signs. I just wonder if we could dig into that a little bit. What are the positive retail signs that you’re seeing that provide encouragement in that business?
Rick Olson: I wouldn’t read too much into at this point, we just had the first housing starts, for example, has some correlation to residential business. We see a little bit of retail activity that’s more positive. But this is a very low portion of the year for the bulk of our residential products. We’re just giving — there’s a few tiny signs of improvement there. And the biggest factor for us is not going to be given so much of the retail, but it’s what’s between retail and us in that case. So, I just early signs, which I would not draw too many conclusions from but slightly positive.
