John Olin: Yes. Bascome, and when we look at locos and mods over the long term, we would expect it to provide a headwind on overall mix. And again, we talked about this, there’s good mix and bad mix, and this is a really good mix because it puts an asset out there that we’re going to make money off of for decades to come. But if we look more narrower in, when we look at the – in the first quarter as well as the first half, we are actually getting some mix favorability from locos and mods because of what we’re comparing to in the year ago period. If you remember, in the year ago period, we had talked about an international order that was – that we delivered over four quarters, the back half of ‘22, and the front half of ’23, that was very low margin as we moved into a market.
So, that’s providing some of the mix that you’re seeing, and that all just being the first half. And again, as I mentioned to Justin, will start to reverse in the back half. I think, Bascome, the other thing I’d like to point out, as we look at the overall cadence of the year, we talked about this last quarter, but we do expect the significant majority of our revenue growth and our profit growth to be in the first half of the year. And this is really due to the production of those locos and mods. As we came out of last year and the strike, we had the production or deliveries of our locos and mods being significantly lower in the first half of the year versus the back half of the year. And our aim this year is to more level-load our quarters and net production.
So, with that, we expect locos and mods to be up about 30% in terms of deliveries in the first half of the year, and down slightly in the back half. And what that’s going to do is ship a fair amount of revenue into the first half. And with that, will come that absorption that we talked about. And again, the mix is favorable in the first half, and a little bit unfavorable in the back half. When we look at the back half, we expect it to be favorable on a year-over-year basis, both for revenue growth and for margin growth, but at a much more tempered level than we see in the first half, overall leading to the guidance that we delivered, which is an improvement in revenue growth as well as more profit margin growth.
Bascome Majors: Thank you.
Operator: The next question comes from Angel Castillo with Morgan Stanley. Please go ahead.
Angel Castillo: Hi, thanks for taking my question, and congrats on the solid quarter. Just wanted to talk about your decarbonization slide, very strong performance there and just the second half deliveries in terms of your targets for some of the alternative fuels is very impressive. So, just curious, as you think about or you have conversations with customers, what are you hearing in terms of the benefits of some of these improvements that you’re making in enabling your engines to deliver some of these savings? How is that impacting overall kind of discussions, order patterns and kind of expectations as we think about second half and then flowing into 2025?
Rafael Santana: Yes, so a couple of comments there. Number one, this has been really part of a long-term strategy on making sure that we have the most really fuel-efficient and fuel is a significant part of the expenses for our customers. So, we continue those investments there. I think there’s continued opportunity to take advantage of both the tier fours and the mods, and I do believe we have some of the best products there in the market. We see that playing, not just in North America. We see that playing internationally as well. We really like the opportunity here, and I think customers welcome the ability to transition from a known core product and be able to really take advantage of that to significantly reduce carbon emissions.
And our engines, I’d say are well prepared to take on both renewable and biofuels, and we’re progressing here on really making sure hydrogen is also part of that solution. So, with that, I think we’re very well positioned to support customers through that transition. But we’re also working on what I call zero emissions technologies, which start with some of the elements of the hybrid units that we’re delivering this quarter to New York. And we’re also delivering later this year the first really the heavy haul battery electric locomotive that’s going to Australia, which one we unveiled last year. So, I think we’re, with that, continuing to pace some of our investments here in the light of adoption, but we feel we are very well positioned in that regard, and we really try to make sure we make our engines as agnostic as we can to make sure that we provide that reversibility for customers through transition.
Angel Castillo: Very helpful. Thank you. And then shifting over to capital allocation, just strong performance in the first quarter, strong performance around kind of the cash cost management, but as you think about the strong balance sheet that you have and ability to return cash to shareholders, should we expect that there’s potential for bigger buybacks and or deploying more capital to shareholders? Or how are you kind of seeing – you talked about the raise of the dividend, but kind of the other outlets of cash, how should we kind of think about that for the full year?
John Olin: Yes, Angel, number one is we expect a fair amount of free cash for the year, but we’ve got the balance sheet where we want it. And when I say that, it’s in that zone of 2x to 2.5x net debt leverage ratio, right? We’re toward the low end of that and we feel comfortable with that at this point as well. Having said that, the cash that we generate, we will prioritize, or the free cash, we will prioritize, first M&A, if we can – if we find good accretive strategic M&A. And then if not, we’ll return the excess cash to our shareholders in the form of share repurchases, and feel good about the start to the year in terms of share repurchases, with 175 million purchased. But we’re looking to return all of our excess cash to our shareholders throughout the year.
