That’s the sustained current reliability levels. And then there will be direct government funding for investments in renewable generations on top of that. And so — and then you think about what’s required in terms of modernizing the grid and then updating the whole power chain to support EVs and all other forms of renewables. I’ve said before, Utility historically was a GDP business. It’s now secular growth as far as I can see. And we remain very bullish, Nigel, on Utility. Again, look at the track record over the last three years, we expect strong growth in 2024 and beyond.
Nigel Coe: Okay, that’s great color. Thanks John.
Operator: Our next question today will come from David Manthey of Baird. Please go ahead.
David Manthey : Thank you. Good morning, everyone.
John Engel : Good morning, Dave.
David Manthey : John, you just spoke on data center being, I think you called it very, very strong. And clearly with your CSS outlook at up low single digits in the fourth quarter versus plus 4% in the third, you’re really not seeing any signs of softness in that particular segment. We’ve heard a few pockets of slowing in data center. I take it from your commentary, you’re not seeing anything in your CSS backlog or incoming order rates that gives you pause relative to data centers specifically?
John Engel : No, not at all, Dave.
David Manthey : Fair enough. So second on EES EBITDA. So last year, we were sort of 9%, 10%. This year, we’re more in the 8.5% range. So I understand that revenues are down moderately. But when we look at that 100 basis point, call it, margin downdraft, can you just talk about some of the key factors there that are deleveraging EBITDA and I assume gross margin a bit in EES, specifically from 2022 to 2023?
David Schulz : Yes, Dave, one of the big drivers on the margin decline in the EES business, clearly, we’ve not seen the same year-over-year top line growth that we’ve seen in some of our other businesses. We’ve seen a decline in gross margin. That was primarily driven by the lower supplier volume rebates. So we had highlighted supplier volume rebates as a headwind coming into the year. That has played out primarily in our EES business, particularly when you take a look at some of the product categories where we have seen some challenges, including wire and cable. One of the other things I’ll highlight is we had been investing into the business against some of the secular growth trends. We’ve moderated that. When you take a look at how we’ve outlined our sales expectations for 2023, we did take aggressive actions on cost reduction.
So again, sequentially, we’ve actually seen a modest improvement in the margins for EES. And again, we’ve highlighted that we expect those margins to continue to improve into the fourth quarter.
David Manthey : That’s great. Thank you. Thank you, both.
John Engel : Thanks Dave.
Operator: Our next question today will come from Ken Newman of KeyBanc. Please go ahead.
Katie Fleischer : Hi, this is Katie Fleischer on for Ken today.
John Engel : Good morning.
David Schulz : Good morning.
Katie Fleischer : Morning, wondering if you could clarify your updated price guide a little bit. Is that assuming carryover actions from last year primarily from mix within EES or is that more of a pushout from 4Q into 2024?
David Schulz : So one, when you think about how we’ve looked at pricing, we posted another 3% on pricing. So our pricing as a benefit to sales over the last several quarters has declined sequentially. We posted a plus 5% in the first quarter, a strong 3% in the second quarter and then a 3% here in the third quarter, primarily from the carryover benefit of actions that were taken by our suppliers in the previous year. We have seen the number of supplier price increase notifications has moderated substantially, and the rate at which those announcements are coming in terms of the percentage increase to their prices has also moderated substantially. So as we think about the fourth quarter, we’re still expecting there to be a low single-digit opportunity on price, but again, we’ve seen moderation throughout the year.
Katie Fleischer : Okay, that’s helpful. And then I wanted to dig into your comments a little bit on the broadband end market. So I think you said that you expect that to remain pressured through the second half of ’24. Can you just provide any more color on that, what you’re seeing within that market right now and how you kind of expect that to recover going into next year?
John Engel : Yes. It’s clear that there’s still higher-than-normal inventory levels at the end customers so we’re seeing the destocking effect. We’re very bullish on broadband over the mid- to long term. The secular growth drivers are very clear. We think they’re intact as 24/7 connectivity, as automation, IoT, along with government spending. You have the RDOF program, that’s the Rural Digital Opportunity Fund. You have the BEAD program, that’s the Broadband Equity Access and Deployment program. They’re expected to increasingly fund that growth. And I’ll also tell you, our customers are still aggressively recruiting and training line crews to support the upcoming rural broadband build-out. And that even just gives us additional confidence that the near-term softness is temporary.
So with all that said, it’s very clear the market is down. You can see that in our numbers. You can see it in some of our supplier partners’ numbers. You can see that in some other publicly available numbers by other companies, let’s say. We think we’re — even despite that challenge, we think we’re clearly outperforming the market. We have a leading value proposition, an outstanding market position. And that business also benefits from cross-sell. And the cross-sell really is across CSS and UBS. So we think we’re exceptionally well positioned into that end market that has fundamental secular growth. And I do think that this is just temporal.
Katie Fleischer : Okay. And just to clarify, I think that Dave said he expected to see a recovery starting in 3Q ’24. Is that correct?
John Engel : We said broadband second half of next year.
David Schulz : Second half 2024.
John Engel : Our view is second half of next year. That’s our independent view based upon talking to customers, looking at our inventory position, the contracts we won, et cetera, and just customer feedback. I would say that’s probably relatively consistent with what others are saying. That’s the prevailing view. It is our independent view as well.
