Chip Blankenship: Good afternoon, Gautam.
Bill Lacey: Good afternoon.
Gautam Khanna: First, I had a question on the guidance, just to be clear. Is the entirety of the raise related to the CNG stuff?
Chip Blankenship: Yes, a simple answer. Like we said before, if that particular product line outperforms that will flow through and then we just pass that along from a very strong first quarter to the rest of the year not signaling any other real pressure or problems. So, it’s just flowed through.
Gautam Khanna: Got you. And then one of the things that was a bit confounding was truck production in China in calendar Q4 came down quite a bit and the diesel and natural gas spreads compressed. What do you think is actually driving kind of the strength in that business? Why might it not have a longer tail to it since it seems to top the trend?
Chip Blankenship: Yeah. I wish I understood it better and I wish our team — everybody on the team wishes they understood it better. When we talk with our main customers there, the speech that we receive is really about the secular growth and opportunity of natural gas, cleaner burning, availability, cost is good. So, over the long-term, this business should perform, but it’s just — our experience is that it’s lumpy and volatile. And so, it just depends on how long of a term view you take on that growth curve and what can you count on. So, for us, we haven’t been able to count on consistent stable growth. That’s why you hear us kind of say, we think it’s related to the natural gas, diesel cost spread. The availability is kind of a new factor that is positive, but it’s hard to say. Some of it is government policy. I’d just leave it at that.
Gautam Khanna: Okay. I appreciate that. And then, switching to Aero to just follow-up on Rob’s initial questions, obviously, the FAA on the 737 is kind of restricting the rate hikes at Boeing for some period of time. We’ve seen some suppliers destocking of whether it be Hexcel or some others. I’m just curious, are you seeing any evidence among your many customers of schedule changes maybe asking for orders to be delivered later than was the case a couple of months ago. And just any perturbations we’ve seen in your order book on 737 in particular?
Chip Blankenship: I’d say over the last 18 months, we’ve seen orders being pushed out and pulled in kind of, I won’t say, regularly, but periodically. And we haven’t seen an uptick in that as of recently, and I’m giving you as of today information. I don’t know what could happen tomorrow, but we always see replanting, and end of quarter, end of the year, decisions to push things out or pull things in based on our customers’ supply chain activity and their desired inventory positions. But we haven’t seen anything that signals to us see, gee, that’s a big step change in rate across the board across the customers. Nothing consistent like that.
Gautam Khanna: Okay. And last one, in the past, you guys have provided past dues or some sort of framework to think about those. Do you have an updated figure for that? Thanks.
Chip Blankenship: I don’t because I don’t think it was really helpful to anyone, because those past dues weren’t going to flush through the system in any lumpy kind of way just because right now what it is, is our capacity really limits our ability to ship at a certain rate to each customer based on the product line. And we’ve also seen some of those past dues evaporate due to folks over ordering when they don’t have confidence in a supplier and a supply chain. They tend to put more orders in the system to try and get more priority and we’ve seen some of those past dues evaporate. So, we’re not sure that is really is helpful characterization of our ongoing businesses. It maybe once was early in the supply chain crisis.
Gautam Khanna: I appreciate it. Thank you very much.
Chip Blankenship: Yeah. You’re welcome.
Operator: Your next question comes from the line of Michael Ciarmoli from Truist Securities. Please state your question.
Michael Ciarmoli: Hey, good afternoon, guys. Real nice results.
Chip Blankenship: Good afternoon, Mike. Thanks.
Bill Lacey: Thanks, Michael.
Michael Ciarmoli: Just back to these industrial margins. I mean, I guess for the remainder of the year, could you help us out with the cadence? I guess, you get some on-highway strength here in the second quarter, but then that will fall off and presumably you’ll have down margins year-on-year. Just I mean I guess maybe a little bit surprising with all the good stuff you’ve got going on from operational excellence, pricing. Is there any just additional drag in those Industrial margins or is it just really carrying the overhead and kind of as you guys said not assuming any on-highway production in second half?
Chip Blankenship: Well, if you remember, kind of — I just want to take you all the way back to when Industrial margins were single-digits and sort of mid-single digits at times with low on-highway volume. And the fact that we’re signaling margins that are in the low to mid-teens here I think represents quite a bit of goodness from both price and operational excellence in the other parts of the business. So, I don’t feel like it’s out of line, especially when you look at where we’ve been. It’s easy to sort of say, “Oh, we did an 18% and now we do a 20%. How come it is going to go back to 14% or 15%.” It’s because we’ve made a lot of progress from where we’ve been, but it’s not the kind of progress that supports 20% margin on an ongoing basis. Does that makes sense?
Michael Ciarmoli: Yeah. And I guess, I’m just looking at the run rate for the rest of the year being just below 13%. I mean you’ll do — that will take you to the midpoint of your guidance. So, I’m looking at a 13% margin quarter kind of stepping still well above that high single-digit, but obviously a step down.
